Mike Burnick: Hello, everyone, and welcome to this special urgent strategy briefing for the Gold and Silver Trader. I am Mike Burnick, and let me introduce Mr. Larry Edelson, editor of Gold and Silver Trader. Larry, it is good to speak with you again.
Larry Edelson: Yes, hi, Mike. Thank you again for hosting today and thank you, members, for joining today. This is a very important briefing. It looks like we have a full house today so I am really pleased that so many of you are joining, and it is an emergency briefing in the sense that there has been a dramatic change in the precious metals. I do want to go over all that with you, and I do want to answer as many of your questions as possible.
So we are going to go through some very critical slides here. I am going to discuss the big picture in the precious metals and what I believe is happening, and what has happened and what will happen, and then we are going to right to your questions.
Gold is back in a bear market. Now, that may sound like negative news, but it is really… Every dark cloud has a silver lining, and the good news here is that the lower gold and silver go, the higher they will ultimately soar thereafter. And I know this is a little bit difficult to explain, and I am not trying to rationalize here for you, but markets have a way of swinging from one extreme to another extreme, and that is how they build energy. And specifically the best energy for the best bull moves are usually developed by an extreme move to the downside first, and all you have to do… There are thousands of examples of this but I ask you to just consider the Dow Industrials since its March 2009 low. We all know what happened back then. We had a crash in the stock market. It bottomed about 6,500, and then it took off and it has never looked back. It has more than doubled, almost tripled since then and it has, over the long term, much higher to go.
This is what we are going to see in gold. Gold failed to… If we can move to the next screen.
Gold basically failed to elect buy signals on the up side, and now it is telling me that we are going to see an extreme thrust to shake out all the bulls down to important support levels. That is going to give us enormous opportunities to profit as they slide into their final lows into early next year, and then we will be able to scoop up bullion, mining shares, all kinds of precious metal-related investments at bargains when blood is running in the streets.
And those are your best buying opportunities. We never got to that point over the last several months. I had thought wrongly that the markets were bottoming, that gold was bottoming, silver was bottoming and, indeed, they did hold the lows from last December 2013. We did hold. We had some rallies, but we ended up getting stuck in a very tight trading range.
At the same time, I did not get too aggressive for you, and I am glad I did not because gold, neither gold nor silver and even platinum failed to elect any major buy signals during that period on any of the rallies that we saw, and those rallies, as you well know, fizzled out quite quickly. So that was a precursor for me to not get too aggressive, and it was also a sign that something was not quite right.
Now, in the last few weeks alone we have seen what the major force is. It is really number two on the screen, Europe’s deflation and the fractured continent, and by that I mean all the geopolitical chaos in Europe, even now with a very critical vote occurring with Scotland. True, not part of the euro, but it is a sign of the overall times. And we are seeing a lot of civil unrest in Europe as well, and we are seeing deflation get the upper hand in Europe quite dramatically to the point where Mario Draghi, head of the ECB, has had to come out with his first round of major money printing, and it will not be enough.
Now, what that is doing, it is sending a tremendous amount of capital into cash, which by default is bullish for the U.S. dollar, and into U.S. equities, where there are at least some dividends and some type of return on investment, and where the market is going up. Some of that money is inevitably going into gold, but not quite enough yet, okay, and that is where I underestimated the severity of the deflation coming out of Europe.
Global turmoil that I have been talking about quite extensively is largely doing the same during these initial phases. People in the Middle East, people in Eastern Europe, they are very frightened over what is happening around the globe. We even had Pope Francis last week in a speech in Italy say that the world had entered a “piecemeal World War III” and I think he is right on there. And apparently during the initial phases here, it is doing much the same as Europe’s deflation, it’s driving capital into cash and into U.S. equities rather than gold.
That is, I think, pretty much what is happening. It is a temporary phenomenon but it is enough to send gold through support levels and bring back the bear market temporarily. Everything remains intact for gold to move $5,000+, and I think actually now quite higher once we get down to the major lows that we are going to make in a sort of mini crash like the Dow experienced back in 2009.
But we can see that in the last, just this week and in the last several weeks, that gold was drifting lower. It tried to rally a couple of times, but we cracked that $1,240 support level pretty sharply. We are now sitting on a support level and I do expect, even though we were down — we were down $17 today. We have come back. We are only down $8 today — I suspect we are soon going to see that bounce that I referred to in my issue that I put out last week, and that we will have a chance. I do not really want to play the long side on that bounce. I want to position for the next leg down, which will crack the $1,180 level and take gold down sub-$1,100 before we get another rally. Then there will be another zigzag decline to sub-$1,000. But right now the line in the sand has been crossed quite sharply. The bear market is back on a temporary basis.
Same thing has happened largely in silver. Over the past couple of weeks, first it took out $20 and then it took out an important sell signal on my systems at $18.73 and you can see that blue line at the bottom there, it is coming into some short-term support levels from which I expect to bounce. But silver is also back in a bear market.
Now, in the next couple of slides I am going to show you a few things, and then we are going to move on importantly to your questions.
Short term, as I just indicated, both gold and silver are deeply oversold, and a bounce is likely to occur before the next moves lower, okay? Unless something changes on the short term, I am not likely to play the long side of those bounces. There is lot more money to be made on the mini crash that is coming next in gold and silver, so I would rather let the markets bounce and then take on some bearish positions in gold and silver via inverse ETFs. That will be my strategy.
As far as the long-term support levels that I am zeroing in now based on my charts, based on my cyclical work, based on my system work, we are looking at a final low for gold somewhere between $920 and $970. At this point in time, I do not expect it to get any lower than $920. I will be able to fine-tune this forecast once we break the $1,180 level. I will be able to do some measurements, some projections and price and time and get a better handle on it. But right now the target zone is $920 to $970.
Silver will likely fall more, percentage-wise. It has the potential to fall all the way down to $12.50. However, I believe silver will probably find support in the $15 level, where I have some very important system sell signals on a long-term basis that should hold. Either way, I think the decline in silver percentage-wise is going to be a bit more violent, and there is going to be a lot of opportunity with inverse silver ETFs to make money there. As you all know, silver has a tendency to move very fast.
Okay, as far as timing goes, that has been the most difficult part of pinning down the bottom in the precious metals. This is unlike the bottom that we saw in 1999, 2000, which was a clear-cut end to a 20-year bear market. This is an ending to a temporary bear market, and for a lot of reasons a little bit too complicated to go into on this call, it has been very, very difficult to pin down the timing as accurately as I would like to. I think it has to do with the fact that there is so much Federal Reserve and European Central Bank distortion of nearly all markets these days. It is also having an impact on timing.
But right now the target appears to be the end of January. If we do not get that low down to, let’s say, $970 and $15 by the end of January, there is a chance that it could stretch out to June, okay? But everything right now favors a mini crash heading into January. So I am pretty sure we should get down to these levels in January, and that would be the end of it.
Now, as many of you who have been with me a long time know, I have said that a three-year bear market is a normal interruption of a long-term bull market. If gold peaked in 2011, it should have bottomed in 2014. That would be a normal three-year bear market. The fact that it is carrying over to 2015 does not mean that we are entering a long-term bear market. I want to make that perfectly clear.
And the reason is that the closing high of gold was in 2012. So on a closing-high basis, a three-year interim bear market would bring the three-year time fractal into early 2015, which would be right on cue. So we are not in any danger of a long-term bear market — I want to make that perfectly clear — either price-wise or timing-wise.
Now, the mining sector. The mining sector is going to hold up much better than gold or silver. But it is going to move down. This is a chart of the ARCA HUI Gold BUGS Index. This is where we are now. You can see there is a confluence of support levels at the 206.50 level down to about 200. That is only about 4 percent below current levels. We might dip just below that to create a spike low in the mining sector. But the mining sector should hold up much better. That does not mean that I am going to be going all in and start accumulating mining shares on a buy-down basis. I do not want to do that. I want to see the low come into play, and then we will get back into mining shares.
In the meantime we may also play the short side of the mining sector with some inverse ETFs, and we will also be looking at other opportunities such as natural gas, which we have on now, which is forming a very, very powerful bull market. It is really the only commodity on the board right now that is forming a new bull market that is starting to take off. We are going to be looking at that.
We have that fixed position on the stock market. The stock market is hanging in there but the volatility is due to increase quite dramatically going into the October period, which is traditionally a very dangerous period for the stock market. As volatility picks up, that position should be good, and we are looking at many other opportunities so that we have plenty of profit opportunities on the table, both on the downside in gold and silver and mining shares, but also by diversifying the portfolio a bit more.
As I said earlier (excuse me), the two most likely timing windows for a bottom are January and June of next year. So far, odds favor quite dramatically, I would say about 80/20, late January, early next year.
Okay, I think right now the best thing to do, I am sure you all have several questions, so let’s go right to them, rapid fire. I would like to address as many as possible.
Mike Burnick: Indeed we do have a number of questions already in the queue, Larry, and I would like to encourage anybody on the call that if you do have some specific comments or questions for Larry, feel free to send them our way, and we will certainly address as many as we have time for.
Here is a good one from Albert. He says, “Hello, Larry. On the third of June in a presentation together with Dr. Martin Weiss you announced that the prices for gold and silver in your opinion had bottomed. Now only three months later, we are in a bear market. Can we conclude that it is very difficult, if not impossible, to predict correctly the short-term price for gold and silver?”
Larry: Yes, it is very, very, very, very difficult. The long term is always much easier. The short term is more difficult. However, over the last 36 years I am batting 900. This is really the only time in the gold market in the last 30-odd years that I have had this much difficulty and I have been off, I have been wrong. Let’s not mince any words here. However, I knew well enough from my signals that we need not get too aggressive and thankfully we did not do that. So that is something we all need to be proud of.
Mike: Absolutely.
Quite a few questions here from members who are concerned obviously with the markets having taken a downturn here. I will paraphrase a couple of them so we can get through them a little more quickly. Here is one from Peter that is kind of representative. Peter says, “The market changes very quickly and as a paid up member of your VIP service, I am disappointed so far in Gold and Silver Trader. However, I appreciate you have a very difficult job, Larry, in forecasting future trends. But it seems to me that the daily charts show a continuing downtrend which indicates the bear market in gold could go on. Your comments?”
Larry: Well, yes. It is going on. Okay? It is an extending bear market. We are back in a bear market. Now, having said that, yes, it has been extremely difficult to trade. I am not proud of the track record. I have been in a losing slump. No ifs, ands, or buts about that. The only thing I can say about that is that I have been in losing slumps before. Every trader has. The best of them have, and losing slumps are always followed by winning slumps. So I am doing everything in my power to turn the track record around and get a handle on some of these short-term trades that we can do and I assure you that we will turn it around.
Mike: Okay, let’s get on to a few other questions where we are trying to find some opportunities out there. Here is one from Chuck. He says, “Larry, when we get the eventual bounce in gold and silver, should we be getting out of related positions now and then getting into some of the inverse ETFs to play it on the short side?”
Larry: That is exactly what the strategy is going to be. We really do not have any long exposure right now to gold and silver. We were stopped out of the recent round of positions. But if you are holding any outside of my recommendations and you are concerned about, if they are not long-term holdings and you are concerned about a further decline, I would use rallies to exit those positions.
Mike: Yes, a few questions here asking about the rally you expect. Here is one from John, “Are you still thinking about a small rebound before a further steeper decline in gold?” Again, maybe for the benefit of all our members, can you kind of give us a just a general overview of what levels you are looking for as a potential rally attempt?
Larry: Yes, uh-huh. I think we have a good shot that the temporary bottom was made today down at $1,216. It looks like we have a reversal going on, but it is a little bit too early to say. We have fallen as low as $1,216 in the nearest futures contract and $18.27 in silver. The overhead resistance levels have come down. The first area we will probably retest is the point from which we broke down, which would be a rally up to about $1,240 in gold, not that far up. We should, however, see gold stage a rally up to about the $1,265 level, and silver back to about the $19.20 level. At that point would be where I would be looking to initiate bearish positions.
Mike: Okay, let’s shift gears to some other markets now. Here is a question from Herman. He says, “In your latest trade alert you stated the very real threat that we may already have seen the high in the U.S. stock market. Could you qualify this statement? A high for the rest of the quarter, for the rest of this year, for forever?” Herman would like to know.
Larry: Well, that is a very good question there. I have certainly been off on that one, too. Although long term I have, since 2009, I have proclaimed that the market was in a new bull market and was headed to 31,000. It is still very intact.
In the short term or intermediate term there are so many overbought indicators in this stock market. We have investor bullishness at all-time highs by many measures, which is a bearish sign. We have margin debt at record highs, higher than even 1999 and 2000. We have a slew of indicators that suggest the stock market is peaking and is going to correct quite sharply and quite suddenly.
Now, I cannot tell you exactly when it is going to happen. I thought it was going to happen four or five times already, and it has not happened yet. But I personally am not investing in the stock market now with the occasion of a few stocks like we are doing in Gold and Silver Trader, very, very short-term type things. But the stock market is going to take a nose dive.
However, it will just be a correction. The stock market is incredibly strong. It is strong not because the U.S. economy is improving. Yes, the U.S. economy is improving. Yes, it is better than Europe, but because of all the geopolitical capital that is frightened and worried about the world’s situation and the situation in Europe, and it is flocking to the United States. The U.S. is really the last man standing right now.
Mike: Okay, here is a question from Les regarding your recent recommendation of UNG, the natural gas ETF. “You mentioned a major buy signal for natural gas on a weekly close of $4.17. Is that still the case?”
Larry: Yes, that is the case. We are inching our way up there. We got up to slightly over $4. We pulled back today, a normal correction, but we are stair-stepping higher in natural gas. It is looking very, very positive.
Mike: Okay, another question on trading from Eugene. He asks, “Larry, I would like to know if and when you will be recommending GLD, the gold trust ETF. I find playing options, both puts and calls, on your recommendations as a good way to go. Is that the right way to look at this, options?” What is your opinion, Larry?
Larry: Well, that is an excellent question. First of all, GLD, when we see the bottom coming into focus, we will be buying GLD both for short term and intermediate term and long term. Options, one of the strategies I will be employing when we get that rally that I am referring to, will be first some put options to take advantage of some leverage with limited risk on the downside and gold and silver move lower. Put options will be able to, of course, increase in value as gold and silver move lower and when we get down to the bottom, I will be looking at long-term options, call options that is, on gold, silver, and several mining shares. I am talking about options that go out 18 to 36 months because the bargains will be incredible. We will be able, with the right options, long-term options, get extreme leverage, limited risk, and control assets for literally pennies on the dollar.
So that is one of the things that is really, really exciting to me both on the downside, but looking forward to the turnaround in gold and silver. The bargains that will be available in long-term call options on gold, silver, and mining shares are going to be incredible when the blood is running in the streets, and that is really what we want to see happen. We never saw that happen in this three-year bear market in gold and silver which held me back, amongst other things, from getting too aggressive. So, although none of us want to hear that the bear is temporarily back, I have to tell you I am really super excited that we are going to finally see some blood running in the streets, with die-hard bull investors in gold and silver, because that will be the cathartic end to the temporary bear market, and it will allow us to buy bargains, literally pennies on the dollar.
Mike: Okay, here is another question about gold mining shares again. Michael asks, “I am heavily into select gold mining shares. Can you give some guidance? I do not have any stop losses in place right now.”
Larry: Well, I cannot give any personal advice. I would just say that my position is not to own any mining shares right now. We were stopped out of our latest recommendations. They were very, very modest positions. Nobody likes to get stopped out. But I did not get us too aggressive for precisely the reasons I just mentioned, and I will not be recommending any mining shares right now. I will be taking a bearish bet out on them in the near future.
Mike: Okay, staying on the theme of individual mining stocks, Bob wants to know, “What is your current thinking now on IAMGOLD, symbol IAG?” Also Steven notes that Martin had IAG on the sell list recently and wants to get your take on that.
Larry: Well, I love IAG, IAMGOLD, IAG for the long term. I suspect we are going to be able to scoop it up for less than $3, maybe even less than $2.50. So I am not ready to go back in there yet. Weiss Ratings does have a negative rating on IAG and probably many other mining shares, and that is due to the fact that they have lost 60 percent to 75 percent of their value over the last three years.
They will probably have negative ratings on mining shares when we go in to buy them; however, you need to know that mining shares are not your typical company and, although everybody rates mining shares, what they miss is that mining shares are like a commodity. You are buying the underlying assets. You are not necessarily buying the balance sheet or the earnings. You are buying the metal in the ground. So I do not really look at ratings when it comes to mining shares, because very often they are just, it is not like rating Dow Chemical. It is a different ball of wax.
Mike: Yes, that is a good point.
Let’s see, we have another question from Douglas on South African miners. “Can you speak about platinum and the recent South African miners strike? Any opportunities there?”
Larry: Well, yes, platinum is long-term very, very bullish, as is palladium, but they are going to suffer right along with gold and silver as we head into January, regardless of the geopolitical situation, regardless of strikes in South Africa. Those are long-term bullish forces that will have an impact going forward, but in the short term the severe deflation in Europe is really grabbing the upper hand here. It is causing trillions of dollars to flow into cash, and by default, that is bullish for the U.S. dollar, and it is bullish for U.S. equities at this point.
Mike: Okay, here is a technical question from Ann. She says, “Hi, Larry. When you give a price on gold or silver, does that refer to the New York COMEX prices or does it include other after-hours prices?”
Larry: I always use the nearest COMEX futures market. The reason for that is it is the most liquid contract. It does differ very slightly by as little as $0.60, as much as $2 from the spot price, but it is quoted 24/7, and it is liquid.
Mike: Okay, here is a question from Rafael, kind of currency related to gold. He notes that, “Confidence in the U.S. dollar versus the euro seems to be trumping other factors such as the war cycles and economic outlook. As such, we are seeing a strong dollar and gold falling. Now do you see this strong relationship continuing for long?”
Larry: In the short term I see the strong dollar, yes, having a negative impact. The dollar is really, really taking off to the upside and that is having a negative impact on gold because everyone wants cash right now, especially those in Europe or the Middle East. It is not surprising to me at all that the dollar is strong. I have been forecasting that for quite some time and that forecast has been right on the money, okay?
In the short term it has been bearish for gold, and if you talk to or if you listen to most analysts, they will say that a stronger dollar is always bearish for gold. That is not true. In times of extreme geopolitical stress such as we are entering now, the dollar, gold, and U.S. equities all go up together. That will be the longer-term trend. The dollar is back into a bull market, but eventually gold will turn around and gold will be in a bull market right along with the dollar and U.S. equities. This is exactly what happened in the 1930s and it is almost an instant replay. It is going to happen again because the war cycles are converging in the same way, and we have the same fundamentals at play. In the 1930s Europe went bankrupt. Europe is going bankrupt now. It is almost an exact replay.
Mike: Okay, here is a question from Rex, kind of staying on the currency theme. Rex would like to know, “How low will the Aussie/U.S. dollar pair go down before moving back up?” Your thoughts on the Aussie?
Larry: Aussie is looking very good right here. I think it staged a pretty decent correction. I am very, very bullish on the Aussie dollar long term.
Mike: Okay, let’s see, there is a number of questions about gold and China, very similar to this one from David. “How does the new gold market in China, physical gold trading, affect the price of gold?”
Larry: It does not. It has no bearing at all. If anything, it just helps add liquidity.
Mike: Okay, there is a number of questions we have here too, Larry, about kind of more short-term timing in gold miners and perhaps ETFs. Don asks point blank, “Should we start shorting?” And another question from Manny that is representative of most, Manny says, “Hi, Larry. I realize this is a “trading service” but if you are also holding substantial amounts of longer-term gold mining stocks and ETFs, would you be getting out now on a decent bounce in order to try to replace them cheaper when we see a downturn in gold? Many thanks and best wishes, Manny.”
Larry: Well, again, I cannot give personalized advice but if you own mining shares from, say, much lower levels and you want to hold them for the long term, there is certainly nothing wrong with that. I can tell you that my children, I have some mining shares that I purchased for them back in 2000. At their peak, they had gone up 10, 12 times over. I took profits on some of them, others I held. The ones that I held have given back anywhere from 50 percent to 60 percent. I am not letting go of those. My kids are all of age now, so I do not manage the account for them but when they ask me, I advise them to hold it for the long term. Now, if you accumulated mining shares over the last few years and you got clobbered on them, I would use a rally to get out or to hedge.
Mike: Sure, makes sense.
Here is another good question from Sheree. She asks, “How will the various degrees of U.S. involvement in military actions affect gold and silver?”
Larry: Ultimately it is going to be very bullish long term. The geopolitical situation, the rising war cycles, is still going to be in my opinion the number-one driving force behind the next bull market in gold, which is right around the corner. It is going to be driven by a worsening geopolitical situation. It is not unusual in situations like this — and I had my antenna up for it all along, which is another reason why I did not get too aggressive — in the initial stages of rising geopolitical stress, for everyone to want to opt for cash, which is liquid and easy to move around, rather than hard assets, per se.
But the underlying long-term theme is going to be a worsening of geopolitics, a real major, major crisis in Europe and probably even war in Eastern Europe, and these things are going to come together, and what was once bearish as they are today are all of a sudden going to flip and become bullish.
Mike: Okay, Christopher would like to know, “How would you characterize the performance of palladium over the past several months?”
Larry: Palladium has done pretty well but then it pulled back over the last couple of weeks with platinum, gold, and silver for largely the same reasons. All of the commodities with the exception of natural gas are basically in their last stages of deflating, if you will. I believe members will recall that I have said many times that the grain markets were heading substantially lower. They have been clobbered over the last couple of weeks, clobbered. The entire commodity complex, again, with the exception of natural gas, is suffering because pretty much everyone is opting for cash and/or U.S. equities at this point.
Mike: Let’s see, Kent would like to know, he notes that, “There has been a lot of talk out of Switzerland changing its laws on gold and repatriating their gold from the U.S. What effect do you think this will have on the gold market?”
Larry: None. I am aware of the rumors. I have sources in Switzerland. I have many contacts in Switzerland. So far they are just rumors.
A lot of these things are propagated by die-hard gold bugs who are always trying to get something cooking in the gold market, and they come up with all kinds of theories. Whether they are true or not does not matter to them. But they come up with all these theories that get the retail investor such as many of my members all up in a dandy over things that really have no bearing on the market such as… Many will recall, and it is still around, not as much as it was a few years ago, but there was a rumor going around there is no gold in Fort Knox. Then when the Germans started to repatriate their gold, and they have a lot of gold with the U.S. Federal Reserve and the deliveries have been strung out over I think five years. Some of these gold promoters said, came out and said, “Oh, we do not have any gold. That is why we cannot deliver it to Germany.”
Well that is hogwash, okay? The fact that the gold is moving, it is there and it is going to be moved from Washington or New York’s Federal Reserve to Germany, has no bearing on the price of gold and it has nothing to do with the U.S. dollar as many have proclaimed. It has more to do with what is going on in Europe and I am, as sure as I know my name, I am telling you that at some point over the next several years you are going to see central banks in Europe start to dump their gold, because almost all of Europe is entirely bankrupt and they need the money.
But do not think for a minute that dumping gold on the market is going to be a bearish sign because the alarm bells will go off and when everybody recognizes that Europe is bankrupt and that is why they have to sell their gold, everybody is going to be buying that gold up like crazy, just like from 1978 to 1980. Everybody thought the United States was going bankrupt. Interest rates were going through the roof. Budget deficit was exploding. Of course it was a fraction of what it is today and the national debt was a fraction of what it is today. But everybody thought the United States was going bankrupt because the U.S. Treasury was selling gold, and gold exploded through the roof even as the U.S. Treasury was dumping gold on the market.
So I urge you, please do not get caught up in all the junk that is out there. There is so much junk out there that is so far from the truth that it is just ridiculous.
Mike: Speaking of which, with all the rumors and conspiracy theories, Doug has this question. “What about Harry Dent’s thesis that gold and silver are in a bubble and are bound to get down to below $800 an ounce on gold and silver will also go much lower?”
Larry: Well, I have said this before. I do not agree with Mr. Dent’s rationale. I do not agree that gold is in a bubble. I do not believe that it is collapsing and going into a long-term bear market, and I do not believe his rationale. Gold is definitely in a long-term bull market. Gold will bottom, and it will head back up quite substantially to substantial record new highs. So I just do not agree with his analysis.
Mike: Okay, Donald has a comment and a question. Donald says, “Larry, I respect your forecast of increased war cycles but doesn’t the sheer unpredictability of chaotic events make any prediction of timing in lows impossible?”
Larry: Well it certainly adds to the uncertainty on a short- and intermediate-term basis, absolutely. On a long-term basis, it is crystal clear. It is extremely bullish. But you need to think of these things in terms of an unfolding situation. The world does not change and no market changes overnight. Bull markets take time to develop. The bottoms of temporary bear markets take time to develop. They build upon themselves. They make two steps forward and one step back and sometimes they do two steps backwards and then one step forward. It is an ongoing process that does not stop.
I think the best news right now to me is that we are going to get a final crash in gold and silver. As odd as that sounds, it is really music to my ears because we never saw it. We saw some wicked declines, but we did not see that spike panic low where everybody throws in the towel and says, “That is it. Gold is in a bear market.” When you see that, are you are going to see it now come January, that will be a signal it is coming to an end and that the bull market is returning. You need to wash out all those people in order to give it energy to go back up. That is how markets work.
Mike: Okay, here is a question regarding a gold mining stock. “We are still long Kinross Gold, KGC, with a stop at 358. Should we just exit the position now or if you are expecting a bounce, would you continue to hold?”
Larry: No, that one I am continuing to hold, looking for a bounce.
Mike: Okay, Joe would like to know, “Is now the time to exit our energy stock positions if you expect the market correction?” He mentions specifically…
Larry: Not now, no. Natural gas and ENSV are beating their own path. They are in bull markets.
Mike: Okay, Stephen would like to know, “Larry, living in Asia, do you see the slowdown in China as many are now saying?”
Larry: That is a great question. I love that question. I get it so often. No, I do not. I do not see it at all and when I read all these articles and I listen to all these pundits and these PhD geniuses that talk about an implosion in China, I am just amazed. I think most of them have never stepped foot in Asia.
Even here in Thailand, where we have a political crisis and a military coup and we are still under military control, the economy is cooking. Stock market, the Thai stock market is up roughly 24 percent year to date. It is the best-performing stock market in the world.
China, is it doing as fantastic as it was several years ago? No. But it is cooking along at 7.5 percent growth. All this talk about an implosion is just off the wall. Property prices, yes, are coming down, but they are not crashing. I can go into a hundred reasons why China is okay and I do write about it in my Real Wealth Report. But the bottom line is I do not believe China is anywhere near a threat to the world as Europe is or Russia for that matter.
Mike: Okay, here is another question geopolitically-wise. “Do you think if Scotland votes yes to secede, would that do something for the gold market?”
Larry: Well it might coincide with the bounce for sure, and we should be getting results in soon. It looks extremely close from all I can tell and from some of my sources that I have in Europe and in England. It looks like an extremely close vote.
But whether it is yes or no, the important thing to understand is that is a developing trend. We are seeing it in Europe. Catalonia is probably going to vote next to separate from Spain. Belgium has three separatist, independent, not referendums yet, but parties moving on to split the country in half. Canada is starting to come to the surface again, and in the United States it is even starting to gather more momentum in Vermont, New Hampshire, especially Texas and especially California which now has an official referendum for September 15, 2016, just over two years away, to break the state up into as many six different states.
This is all part of the unfolding cycles of war that ramp all the way higher into 2020. So there is going to be kind of like a soap opera, in the sense that there is going to be one event after another after another, and they all build momentum upon each other.
Mike: Okay, they have plenty of other questions about related markets. Here is one from Brian. “Are the grains commodities going to bottom any time soon or perhaps at the same time as gold?”
Larry: They are looking to bottom possibly in the next four to six weeks if we get continued acceleration on the downside, which it looks like we are getting. Wheat is down $0.075 today, another $0.075. Beans are down at $9.75, crushed that $10 level and plunged right through it. Sugar is falling quite sharply. Coffee is starting to fall quite sharply. We are starting to see nice acceleration to the downside, which is what you want to see. So I like the action there. I think we are not too far away from a bottom there.
Mike: Okay and here is another one. “Larry, what do you see for oil in the near term and longer term?” Daniel asks.
Larry: Oil is, as I have said before, it is forming a new bull market and we are trading at $92. We are stuck in a range between $92 and $98 for months now. We got up to $105, fell right back down. It is a new bull market that is unfolding slowly. I would not be surprised to see oil pull back to $89 or $88 before it really, truly gets enough energy to lift its head. But it is definitely forming a new long-term bull market.
Mike: Okay, Gerald would like to know “What will be the catalyst that will cause investors to stop placing dollars in Treasuries and equities and start investing in gold again to a greater degree?” Good question.
Larry: Well, yes it is a good question. It is a very, very good question. It is hard to pinpoint one specific catalyst or tipping point. I suspect it is going to have to do something with Europe when Mr. Draghi announces the second round of quantitative easing. So far he has just tapped the floor pedals. What he has done is really not anywhere near what he needs to do as far as money printing goes.
I suspect that we will probably see a tipping point with gold when Mr. Putin makes his next move in Eastern Europe. He is not done. No matter what you might think, he is on a conquest mission, and I fully expect military conflict in Eastern Europe possibly as soon as November of some sort. So I think as we start to see things worsen, we will start to see trends start to change.
Mike: David would like to know your views or your thoughts on copper prices.
Larry: Copper I am very, very bullish long term. However, the entire commodity complex, again with the exception of natural gas, is really getting hit. So copper is down. It got up to $3.21 the other day. It is down to $3.09 today. We could get under $3 again before it bottoms. But the long term is very, very bullish for copper. I expect over the next couple of years to see $5, $5.50 copper.
Mike: Chad would like to know, “Is there a chance that we are wrong about gold and silver reaching an extreme low down around $900 and that it could bottom before that price?”
Larry: Well, yes, it is possible. There is major support down at $1,127, $1,080, and $1,027. I believe, pretty sure, we are going to get below $1,100. I am darn sure we are going to get below $1,100. It is possible it could bottom at the $1,027 level but it is too soon to say.
Mike: Here is an interesting question from Kenneth. “Since the bear market lows in gold have been extended according to your analysis, is the high, eventual high in gold and silver, do you expect that also to be extended beyond 2016?”
Larry: It is too soon to say. I will be able to run what I call projection measurements once we get that final low. And a projection measurement is kind of a sophisticated model I use that takes into account timing cycles and the slope or amplitude of the markets, and I will be able to get a better handle on that. My suspicions are that it is going to extend — I will say that — because of the war cycles. It is entirely possible we may see a bull market that goes all the way out to 2020 before taking a break.
Mike: Okay, here is a question from David. “Larry, I am in urgent need to hear your take on interest rates. You have said that you have no doubts interest rates will rise eventually over the next several years. More recently you have said you do not think the Fed will raise rates soon. Are there consequences for the Fed by restraining interest rates longer? Also what is your best guess as to the timeframe in which interest rates may go higher?”
Larry: Well there is no question interest rates are going higher over the intermediate to longer term. There is no question about it. In the short term I do not think they are going anywhere because of the flight capital that is coming out of Europe and the Middle East. Some of it is going into U.S. Treasuries.
As far as the Federal Reserve goes, I do not think Janet Yellen is going to raise rates any time soon for the primary reason that she is acutely aware of what happened in the 1930s when the Federal Reserve raised rates prematurely. The economy was not strong enough to handle it, but more importantly, one of the big mistakes that the Fed made in the 1930s was Europe was going bankrupt. So not only was the U.S. economy not strong enough to handle the rate rise, but the rate rise acted like a magnet attracting more capital out of Europe that was already fleeing Europe because Europe was going bankrupt. All 17 countries in Europe between 1931 and 1934 went bankrupt, and when I say bankrupt, they completely reneged on their sovereign debt. This is the other side of the Great Depression story that nobody ever tells you about, okay?
But it is a fact, and when that capital, as Europe went bankrupt, the capital fled Europe, went to the U.S. The Fed raised interest rates, which acted like a magnet and attracted that much more capital that it sent the dollar soaring through the roof, right along with gold, to such an extent that it was going to pound the U.S. economy back into a deflationary spiral, which prompted President Roosevelt to devalue the dollar, because it was tied to gold at the time, and confiscate everyone’s gold.
Now we do not have that monetary system any more but that does not mean the same thing cannot happen in the sense that the dollar starts soaring as European capital comes in, and if the Federal Reserve raises rates now, that would just totally implode Europe. So they know what happened before, and I really believe they are not going to make that same mistake again.
Mike: Okay, let’s see. We have another question here unrelated to gold, but John would like your take. He says, “Larry, this is not a question about gold or silver but I really respect your opinion. So might you have an opinion about the present very low price for rare earth mining companies and when or whether they might change to the upside in the near future along with the price of other resource stocks?”
Larry: I will have to catch up on my research there. I was looking at rare earths quite a lot up until the last few months. I am sure though it is going to be a turnaround there. But the game there has changed quite a bit because you do have many new refiners entering into the business, particularly in Malaysia and Indonesia, who are going to be receiving rare earth supplies from China and refining it and putting it out on the market. So there has been a game changer there.
A few years ago we saw China hoarding the rare earths and not releasing it to the public and there was a fear that the world would run out of rare earths or that China would corner the market and that nobody would be able to purchase them. But that is pretty much passed at this point, so it may come into play geopolitically down the road if there is something developing between United States and China on a trade basis, or if China makes a move against Japan, which is very, very possible. That is another possible war on the horizon. Then it could become caught up in another, a weapon of war so to speak, where China withholds rare earths from the marketplace. But right now I need to take a closer look at them.
Mike: Okay, we have a number of questions here, Larry, about physical gold, bullion. Along this line, Steven asks, “Larry, will you be advising when it is a good time to buy physical gold and silver?” And we have a few other questions from viewers and members who maybe have bought some bullion in the recent past, over the last few months, and they are asking, “Should we continue to hold our bullion now or sell and wait for a lower low?”
Larry: We took some nibbles at bullion, both in Real Wealth Report and Gold and Silver Trader, I believe largely through the Hard Assets Alliance. I, myself, did. I am holding that gold. It is a small amount of gold. It should be a small amount because I instructed you to just get your toes wet. If you went overboard and you are too heavily exposed at this point in time, I will try in the next issue to put out some suggestions on how you might either exit or hedge those holdings. I cannot be specific again because I cannot give personalized advice but I can give some suggestions.
Right now I can tell you what I am doing for myself. Like you, when I recommended getting your toes wet, I started buying some bullion through the Hard Assets Alliance. I plan on holding it because it is not a significant amount. I just got my big toe wet so to speak.
Mike: And you will tell us when it is time to jump in with both feet. Won’t you, Larry?
Larry: Absolutely. You can count on that.
Mike: Okay, here is an interesting question from Curt based on your commentary a few moments ago here in this broadcast. “You indicate that because we are back in a temporary bear market for gold and silver, the bottom will be lower and that will be good for the eventual upside in prices. But what sort of gold and silver prices might we ultimately expect on the high side over the next three to four years?”
Larry: Well, I have no doubts, my minimum forecast is $5,000 for gold and $125 for silver. There is a very, very good chance we will go substantially higher than that, probably around $7,500 to $7,800 in gold and around $175 in silver.
Mike: Okay, Brian notes that, “If we do get a spike down in price, a rapid drop in prices that reach your target, will that fulfill the time requirement prior to a January or June low?”
Larry: Yes. If it happens tomorrow, I would be thrilled. It is a funny thing. It is really hard to explain, but when you get into important tops or important bottoms, price action takes preference over timing to a degree. It is when you have slow markets, where they have to kind of coincide together. But if we got a panic tomorrow that brought gold down to just below, right around $1,027 or just below $1,000 an ounce, yes, I would say the bottom is in. But I do not think that is going to happen. I think it is going to take a few months.
Mike: Okay and Chad would like to know, I know you talked about your targets for gold and silver just a second ago, but Chad wants to know specifically, “Are you still expecting $5,000 an ounce gold by December 2016?”
Larry: Yes, it is very, very possible. If you take a look at the Dow Industrials, okay, we are now into five years from the 2009 low but from March 16, 2009, to a year later we had already gone up like by 75 percent, okay, and then a year after that we were up 150 percent. When you get a spike low it creates enough energy in the market and velocity in the market to really, really move in the opposite direction quite quickly.
A real-world example, besides the Dow Industrials, would be think of it as a trampoline. The higher you jump on a trampoline, the deeper you go into the… stretch the rubber on the downside where it will almost touch the ground, but then the higher you will go on the subsequent bounce.
There is a lot of physics involved in markets. There is a lot of social psychology as well, but there is also a lot of physics involved. There are measurements that we can do of the energy that occurs in market moves. Newton’s Third Law of action and reaction is applicable to the markets. For every action there is an equal and opposite reaction. That is on the short-term basis. However, because it is financial markets and there is inflation baked into the cake — by that I mean there is a certain amount of money supply and a certain amount of population and demographic growth — markets are inherently biased towards the upside over the long term. When you have a severe action on the downside, the reaction on the upside is that much greater.
Mike: Makes perfect sense, and that is about all the time we have for today, but if we were not able to get to any of your questions, and we have got some great ones here, or if you have any additional questions or comments for Larry, please remember that you can always submit them to the Gold and Silver Trader’s editors mailbag, which you will find right on our website, and Larry will either answer your questions directly or perhaps in a future issue of Gold and Silver Trade, or maybe right here on the next scheduled webinar.
So with that said, thank you, one and all, for all those terrific questions and for attending today and thank you, Larry, for your time as well.
Larry: Thank you, Mike, for hosting and, members, thank you very much for joining today.
