Mike Burnick: Hello, everyone, and welcome to this specially scheduled online strategy briefing for the Gold and Silver Trader (GST). I am Mike Burnick and with me as always is Larry Edelson, editor of the service.
Larry, it is good to speak to you again.
Larry Edelson: Thank you, Mike. Thanks, everybody, for joining. Let’s get started because we do have a lot of ground to cover today.
Mike: All right. I know markets, the metals markets, have been extremely volatile lately and that is why you called this special briefing so let’s get right into it.
Larry: Yes. Basically I am calling this special webinar for GST members for three reasons. First, I think it is obvious I am unhappy with the service’s performance and I want to tell you what I am doing to improve it.
The second reason is that of course I also want to give you an update of what I am seeing in the precious metals, and third, I want to answer your most pressing questions.
It is no surprise that the results in the service literally stink so far and I am just as unhappy about it as you are. So let’s explore why I believe the performance has been lousy and there are really a number of reasons.
First, gold and silver have been very, very choppy of late. For the last 60 trading days, for example, gold’s range has been about $40 or about 3.5% while silver’s range has been just $1.50, a little bit more than gold but still only a 7% trading range. That is simply not conducive to making profits, especially with ETFs. ETFs get rebalanced practically every day and that tends to act like a premium erosion does with options. It is simply not helping the situation.
The second reason is the volume of trading that is occurring in gold and silver and in mining shares is contracting considerably. In fact, it has fallen as much as 50% in some cases and this is causing liquidity to dry up. That, in turn, is causing us to get stopped out of positions as other traders seek to find out where I have placed some of our protective stops.
Now, I expect all that to change once gold and silver finally bottom and morph back into bull markets but we need to address these problems now, no matter what. So here are the steps I will be taking effective immediately.
First, I am going to widen the protective stops that I give you. We will simply have to take on more risk to minimize getting stopped out prematurely when there is so much random noise and volatility in the markets.
Yes, that means incurring a little bit more risk but it also means more profit potential because, as I said, it will help us avoid random noise and it will make it more difficult, in my opinion, for other traders to move the market enough to target our stops. Now, there is an alternative and that is not placing stops and me managing them as mental stops but that, in my opinion, is not a viable strategy for us.
The next step that I am going to take is I am also going to switch my models from daily action to weekly action. Now, what that basically means is that we will be trading more of the intermediate-term trends and not the short-term trends. That, too, will help to alleviate getting stopped out prematurely and it will also position the service to capture larger profit potential from trending moves, again, avoiding the noise in the markets from the short-term gyrations.
Now, the next step I am going to take is very important. I am going to broaden the markets that the service will trade in. I am going to start including indexed ETFs, both on domestic stock indices and foreign stock indices, especially those that are natural resource-based like Australia and Canada and other natural resource-based commodities such as oil and energy. Very simply put, we need greater diversification. We need more opportunities and we need it now because the volume and interest in gold and silver have contracted so much, and will probably contract even more as I will show you in a few minutes, and we need to have the ability to capitalize on additional trading opportunities.
Do not worry. The service will still have a major emphasis on gold and silver and on mining shares, natural resources, no matter what. But we need additional opportunities and diversification, period.
The final step I am going to be taking into account is a new trading model I am working on that is showing considerable profit potential. I have done extensive testing and the preliminary results have generated a compound annual growth rate of 25.38% over the past three years and with very little risk. As an example, it has earned an average of $15.51 for every $1 placed at risk on a portfolio of 28 different natural resource-based and indexed ETFs. That is a phenomenal reward-to-risk profile.
Now, these are back tested results and more work needs to be done before I implement the new trading system. But as soon as I am done with the testing and I am ready to implement them, of course, you will be the first to know.
Now, that said, I am fully confident in my ability to turn the track record around. I personally have never had a losing year. And I believe that we can turn this around quite dramatically.
Now, a couple of key points. Always keep in mind that losses are a part of investing and furthermore that losing streaks like we have had are also part and parcel of the game. They come with the territory and anyone who tells you otherwise is simply lying to you or cherry picking their track record. Also keep in mind the following, losing streaks are almost always followed by winning streaks. And in my experience those winning streaks, when they come, are where you make up all your losses and go way ahead into the black.
Now, let’s go to the action in gold and silver. In a nutshell, gold and silver have not bottomed nor have mining shares.
The chief reason is simply that deflation still has the upper hand. Europe is in a shambles. The IMF released a report just yesterday warning Europe of severe deflationary depression and global deflation in the West including the U.S.. And here in the U.S., the IMF is right. There are no signs of inflation yet and the Fed will likely continue to taper its bond purchases more in the months ahead. So deflation still has the upper hand.
In addition, we are seeing a literal tsunami of capital coming out of the sovereign bond markets in Europe and the U.S. and that money is still largely going into the equity markets. There are a number of valid reasons for that but we all need to know that deflation still has the upper hand in virtually the entire commodity sector.
Now, let’s take a look at this chart on gold. Since really the middle of November roughly, you saw the decline there. It was choppy but it was a pretty decent decline. The latest rally, we have really nothing but a corrective bounce occurring, labeled A, B, C on the chart and you can tell from the way that rally unfolded, it is like overlapping waves. It is merely corrective and gold has not been able to take out the previous high at $1,262.50, $1,267.50 — which is a very, very bearish sign. The next big move down should be to the downside and we are getting very close to another sell signal in gold and silver right now, today, with gold down another $2.
Here is the silver chart. You can pretty much see the same thing, really an A, B, C corrective bounce. It is just a bounce off of the December 31 spike low down to 18.80. Silver was not even able to make a close above that horizontal line there at $20.50. Silver is acting extremely weak. Its next big move should be to the downside. So we are still on track for a possible crash low in January which has been my target since last June.
Now, the action is terrible in gold and silver and again, it is nothing more than what is called an A, B, C correction and one that has not even taken out resistance in gold or silver, as I just showed you in the charts. All of my models continue to point to lower prices in gold and silver and now, I do not have the cycle charts for you but I am going to explain to you the two scenarios.
The two cycles at work now are the January and the May cycles. We are still in the time frame for a January low. So the first scenario is, even though it is already January 22, there is a possibility that gold and silver crash in the next few days and maybe on the late side of the cycle into early February where the window could extend a little bit. That is still a possibility and if it happens, we will be able to catch it.
The second timing scenario is that if gold and silver continue to trade a bit sideways in a choppy range into the end of January, maybe even with another short-term rally, then the cycles will stretch out and point to the final lows coming at the next major timing target which is May. Now we all do not want to see that but we have to accept that as a possibility.
The bottom line is these are the last two targets in gold and silver’s three-year bear market. There is no new bull market yet in gold and silver nor in mining shares but they will bottom this year no later than May. The thing is , we have to be patient and we have to let the markets decide what they are going to do and we have got to fine tune our strategies.
Now I realize I am moving along pretty quickly and we will get a transcript out to you of this webinar but let’s go right to your questions and my answers for today’s session.
Mike: Yes. We have got quite a few questions in the queue already for you today, Larry, as we would expect from the volatile markets.
Larry, the first one comes from Eric. Eric notes that Harry Dent of Dent Research sent out an alert yesterday stating that he expected a stock market crash and gold would drop to about $700 an ounce, and this is based apparently on the cycles he follows. He said it could even get down to as low as $200. What is your take on that? Can you comment?
Larry: I do not agree with Harry. I do agree with him that deflation has the upper hand right now but Harry, like many other analysts, still is stuck in an old economic model which believes that money is still tied to gold. It is not. So you have, even though deflation has the upper hand on a short-term basis, over the longer term inflation is baked into the cake without a gold standard. Yes, we are going to get a correction in the Dow. Yes, the bottom is not in in gold and silver. But for gold to get down to $200 is simply, it is not going to happen. It just is not going to happen. That would only happen if the world went back to a gold standard because a gold standard is highly deflationary. Next question.
Mike: Yes.
Here is another good question from Wolfgang. He has a question here that he has brought up before. “If you are so convinced, Larry, about the system being correct and that we are for sure seeing a bottom in gold and silver very soon,” he asks, “why not enter inverse positions now when the entry price is relatively favorable instead of waiting for the trend to follow further, eating into potential gains?” He is pointing out that DUST would be the way to go in this, perhaps, which you have emphasized before.
Larry: Yes, and we will do that as soon as I get the next sell signals and we will have to widen our stops. But to just willy-nilly go into the market right now, when there is still the potential for one last rally in gold and silver, up to about $1,267 in gold and $21, $21.30 in silver, would incur too much risk. So you cannot just willy-nilly go into the market.
Mike: That makes sense, especially with an inverse fund. There would be a lot of pain in that if gold hit your upside target.
Here is another question. Angelo asks, “Which is the best timing for buying mining shares?” And he says he prefers some of the streaming companies, Royal Gold or Silver Wheaton. Your take?
Larry: Well, for the past year they have been syncing up pretty nicely, the mining shares and gold. So the answer to that is when gold bottoms and silver bottoms, that will be the time to buy mining shares.
Mike: Okay.
Here is a question from Christine. “What do you expect the Dow to do over the year of 2014? Many others are talking about a decline and how do you see gold miners doing over the year if the rest of the stock market is going down?”
Larry: Well, the stock market is way, way, way overdue for a correction and I believe, based on all my indicators and models, that it is very close to starting. I have been wrong on that a few times this year; however, there is simply no way the Dow is going to continue to explode higher without a correction. It needs the fuel provided by a correction in order to continue its long-term uptrend. That said, I am bearish on the stock market unless it closes above 16,650 on a Friday, that is the Dow Jones Industrials. I do not see that happening. As to mining shares, if the stock market corrects as I expect it to, that will add more downside selling to the mining shares and gold and silver. Basically it is all one market right now. Things are going to go down together and then they are going to rise together. So we have to keep that in mind.
Mike: Okay.
Here is a question from Lane. “How will the re-indexing of the U.S. dollar play out with the price of gold?”
Larry: Well, it is already happening. The dollar is down 35% since the year 2000 and gold has gone from $255 to as high as $1,950 and has now pulled back to the $1,240 range. It is already re-indexing to the lower value of the dollar and it is going to continue to do that in the years ahead because the bear market in the dollar is not over.
Mike: Okay.
Here is a question from Simian. “What direction is the price of oil going in your view?”
Larry: Well, short term it has been acting very strong, largely due to the cold snap and polar freeze in the U.S. and also the war cycle is kicking in and the geopolitical turbulence we are seeing overseas. However, I do believe that oil, like gold and silver, has one more leg coming to the downside before it finally, finally bottoms.
Mike: Okay.
A question from Bob shifting back to the miners. He notes that, “A vast majority of gold and silver mining stocks have recently gone up 10, 20, even 30% over the last few weeks. Do you think this could be a sign that the mining stocks are already starting to recover ahead of gold and silver?”
Larry: Well, I do not see any that have gone up 10, 20, 30% so I am not sure where that is coming from. But that said, the rallies in the mining shares that you have seen, just like gold and silver, are nothing more than corrective rallies. The bottom is not in yet.
Mike: That kind of answers this next question from Ron. He asks, “What do you make of the recent move up with the miners? Is this a true breakout or a dead cat bounce?”
Larry: A dead cat bounce.
Mike: Okay.
Here is a question from Steve. “If we do get a correction in stocks, how will gold and silver mining shares be affected in your view?”
Larry: Well, popular opinion is that they would rally as a flight to safe haven, but not really. If you go back to, let’s say, 2008, 2009 financial crisis, everything went down the toilet together and that is pretty much what I expect this time.
Mike: Okay.
Here is another question on palladium this time. “Larry, what is your view on palladium and platinum? Their lows and when?”
Larry: They are following gold. Their lows are not yet in. Both offer tremendous profit potential on a long-term basis and I will be looking to get us in there when those markets bottom out. They are just too illiquid right now and we will have to buy them when the lows come into play and buy them with very wide stops for longer-term holds.
Mike: So you are expecting gold will probably bottom first in the sequence before platinum and palladium?
Larry: Yes, yes, or they will bottom together. It is hard to say at the moment. But the bottom is not in yet in platinum or palladium, no.
Mike: Okay.
Here is another question from Milton about gold. “Assuming we get our bottom, whether it is here in January or in May, where do you see gold going by the end of this year?”
Larry: I will not know until we get the final bottom. When we get the final bottom, I can run what are called trajection channels and then I can give an estimate on where they could rally back up to by the end of the year.
Mike: Okay.
A question from Adam. “If gold and silver have yet to bottom, does that mean that the stocks will head down again despite some analysts claiming that they have already bottomed?”
Larry: In my opinion they have not bottomed so my answer is yes, they will head back down.
Mike: All right.
From Norman, he comments, “Larry, I am hanging in there with you. I know things are going to turn around.” He has two questions. The first: “I understand that capital gains taxes on silver and gold bullion is punitively high. Are the ETFs, GLD and SLV, taxed the same way and if not, should we put more emphasis on those?”
Larry: Well, they are securities so they are taxed at either short term or long term, depending on the holding period, capital gains, yes. Should it alter our strategies? No.
Mike: Okay.
The second part of Norman’s question, ”When precious metals do peak, perhaps in 2016, do you have a scenario in mind as to what we will roll our profits into at that point?”
Larry: That is an excellent question. The peak I am expecting in gold and silver in 2016 is a temporary peak. If we get gold up to $5,000 and silver to $125 by late 2016, then there will be quite a substantial pullback, I believe down to around 2,300 in gold. We would probably see a loss of about 50%, 55%. But it will not be the final high in gold and silver. Those could come as late as 2020 at substantially higher prices. It is just too soon to say.
Mike: Interesting. Okay, let’s take some other questions.
Shifting gears to actually international stocks, Larry, we have a number of questions about your views on Germany and European stocks and Japanese stocks.
Larry: I was on the Weiss cruise in December and I told everyone to get the heck out of Europe. If you owned any European stocks to get the heck out by the end of January. It is January 22. My work on the DAX, CAC 40, FTSE, like the Dow, all show them about to peak and enter a very sharp, sudden, temporary correction. So I would be out of European markets right now.
Mike: Out of them. How about Japan?
Larry: Japan is looking very, very good for another leg up to about 18,000 on the NIKKEI. I would basically be selling equity markets in the West and buying equity markets in the East. All of Asia looks like it is bottoming despite protests like we have here in Bangkok that I have been experiencing. I think Asia is bottoming and about to take losses.
Mike: Okay.
Here is a question from Larry that is kind of a comment and a question. “It is common knowledge,” Larry says, “that the big banks with tacit approval of the government have been suppressing the price of gold and silver illegally for quite some time. Does this impair the credibility of your system or how do you take that into account?”
Larry: Well, with all due respect, it is nonsense. It is another conspiracy theory put out by analysts who cannot accept the fact that gold has fallen from $1,920 down to $1,200. They have to find an excuse or reason so they come up with these freaking conspiracy theories. The banks are not suppressing the price of gold. If that were true and they had the power to do so, then gold never would have gone from $255 to $1,900. It is as simple as that. It is garbage.
Mike: Good point.
Here is another question, speaking of conspiracies, from Charles. He says, “Larry, concerning the nationalization of IRAs and 401(k)s being discussed behind closed doors, my question is do you have any further details? Would they likely leave the self-directed IRAs alone or do you think they would only restrict new accounts being opened after a certain date?”
Larry: No. They are not going to… my sources, one of which is directly in Washington, tell me that they will leave no stones unturned. It would involve all retirement programs. What they are likely to do is mandate a certain percentage of your funds be invested in none other than U.S. debt as a way of financing the government which is basically a nationalization of your retirement program and in essence a confiscation. That is what is on the table. As I find out more I will, of course, be publishing it.
Mike: All right. You will have to keep us updated on that.
Here is a question from Harold. He asks, “What metal do you think will show the greatest percentage price appreciation over the next several years?”
Larry: Well, probably silver. As much as I hate silver, it will probably be silver. The reason I do not like silver is it is an extremely volatile market and that is one market that is routinely manipulated by traders. I prefer gold over silver.
Mike: Prefer gold but silver may do better on a total return basis.
Larry: Yes.
Mike: Okay.
Here is question from Tom. “There is a rumor of a major currency reset within 90 days,” Tom notes. “If this were to happen, would not gold and silver take off versus the dollar?”
Larry: Well, I do not know where the rumor is coming from but it is like the manipulation of gold by the banks. It is a conspiracy theory put out by people who want to scare you and it is not going to happen. There is no scheme behind the curtain or in front of the curtain to reset the world’s currency markets in the next 90 days. However, it is going to happen probably around 2016. We are going to have to face a new monetary system and a new world reserve currency. But there is no conspiracy to reset the currency markets in the next 90 days.
Mike: Okay.
Here is a question from Gordon and I know this is similar to one you have already tackled, but probably worth repeating. “In the past I have felt that upturns in mining shares sometimes precede an upturn in gold and silver prices. Please comment on your observations.”
Larry: Yes. Sometimes that happens and sometimes they lag. Right now they are syncing up very nicely with the action in gold and silver. As a matter of fact, looking at the GDX and GDXJ, the two mining ETFs, the GDXJ, the junior mining ETF, they are down 2.3% and almost 4% respectively. That is a pretty big hit in the mining shares today and they are down with gold and with silver. So they are tracking each other very nicely now. I suspect they will bottom at the same time.
Mike: Okay.
Here is a question from Mark, kind of a strategy-related question. Mark notes, “Based on your years of experience, why do you feel the need to change your trading methodology at this point?” He thinks that you may have always been adjusting your trading recommendations based on the market’s action and your experience.
Larry: Well, the basic inputs into the model do not change. It is still based on cycles. It is still based on my reversal system. I am going to fine-tune the protective stops and we are going to switch to a little bit longer-term focus so we do not get stopped out by all the noise that is in the market right now and it really is adapting to the lower volume and open interest in the precious metals right now and adapting to the volatility. The basic inputs remain the same.
Mike: Okay.
Here are some other questions from Simian and Mariano about foreign markets. Mariano asks about Russia, whether you would consider that in the expanding GST service and also a question about China. What is China going to do with all the gold it is buying?
Larry: Yes. In the diversified portfolio that I am going to introduce, Russia and the emerging markets and the BRICs are included but with an emphasis, I should say, on natural resources. So that is why Russia is in there. Australia is in there. Canada is in there. As to China buying gold, yes, China has been buying gold all along. Is it going to have a major impact on the metals market? No. It is not. Anyone who tells you otherwise simply does not know what they are doing. Again, they are trying to scare you into buying gold right now, probably because they earn a commission off it or something like that. If China was such a big buyer of gold, gold would not have fallen $700.
Mike: Makes sense.
Here is a question from Lars. “What do you think, Larry, about uranium?” He has heard that uranium is one precious metal that may be going up very much this year. Your take?
Larry: Well, yes. Uranium is looking bullish on a long-term basis but it is such a thinly traded market and the ETF in it is even more thinly traded than the actual metal. So, yes, I like uranium and we will be taking a look at uranium stocks. I doubt we will be trading the uranium ETF until a bull market really gets cooking there and some volume comes back into it. Right now it is just there is no volume in it.
Mike: I see.
Okay, here is a question about your timing on gold and silver. We have got a couple of questions on it so I will kind of combine them. “If deflation continues, then why, Larry, do you think gold and silver may still bottom in May if deflation has the upper hand?” And Pat asks, “What is the percent probability that the bottom will be this month rather than in May?”
Larry: Well, to address the first question, deflation still has the upper hand in commodities. We are seeing… and let me back up for a minute. Deflation and inflation are two sides of the same coin. They coexist. You are seeing deflation in the commodities sector and you are seeing inflation in the equity market. You are seeing deflation in government. Government has to contract. Washington has to contract. Europe has to contract. And you are seeing inflation in Asia as a result in the governments of Asia and in the economies of Asia. So they coexist.
That said, deflation in the commodities sector is going to come to an end this year no later than May. But do not count on hyperinflation in the years ahead. Even though the dollar after a rally is set to resume its bear market, you are not going to see hyperinflation in the United States. You are not. You never see hyperinflation in the world’s core economy. What will drive gold and silver higher in the years ahead is something entirely different than what we saw in the first part of its bull market from 2000 to 2011. We are going to see gold move up for its true reasons historically which is it is a hedge against the collapse of government. With the war cycles kicking in and geopolitical conflict and domestic unrest already ramping up substantially higher and set to really explode for the next several years, you are going to see gold explode higher because of those reasons because government is going down the tubes. So you need to understand there is a big shift that is going on here and it is critical that you understand that because if you are looking for inflation and Fed money printing and all that stuff to carry gold and silver higher, those are the wrong reasons.
Mike: And that shift could pretty much happen on a dime, can’t it, Larry?
Larry: Yes, it can and I know it is surprising to a lot of people but you have got to get the hyperinflation out of your mind. Washington and Europe are like caged animals right now. They are hunting down their citizens’ wealth. They are turning against their citizens. That is causing people to leave the United States, people to leave Europe, capital to leave, and it is going into, first of all, the equity markets because those are the most liquid that can handle the huge amounts of money and look at the alternative asset market. The prices of art, diamonds, jewelry, rare watches, what is called basically portable wealth is going through the roof. That is where the savvy, smart money is putting a lot of their money. They are moving it off the grid. That is going to trickle down to us average investors and gold and silver are going to take off again for the same reasons. Basically try to get it off the grid as much as possible and as a hedge against government collapse. So you need to understand the dynamics that are at work here. They are very different than what most are reading about or hearing about in the media.
Mike: Okay.
Speaking of governments going down the tubes and confiscation, Carl has a question. “Larry, I have followed your advice and opened a Hard Assets Alliance account and made my first silver purchase, storing it in Singapore. How will this prevent the U.S. government from confiscating my purchase in the future, should it come down to that?”
Larry: Well, technically it would not prevent it. As I have said before and I know I differ from a lot of people on this. I do not believe that Washington or Europe is going to confiscate anyone’s gold or silver. They could confiscate all the gold and silver that has ever been mined and it will not make a dent in their debts. They are after other things that are more important to them. The actual money you have invested in banks and in retirement programs, that is the big money. That is what they are after and they are interested in squashing other types of currencies like Bitcoin so that they can go after your money and they can give birth to an electronic currency to track everything that you do and tax everything that you do. Believe me, they are not interested in gold and silver. They could care less. The amount of gold and silver in the world, even at today’s prices, is a pimple compared to the amount, the trillions and trillions and hundreds of trillions of capital that is out there.
Mike: Okay.
Here is a question from Bob on gold. “When the gold and silver markets do eventually bottom, do you see an immediate upturn or more of a long, horizontal period, like a trading range, before a lasting upturn?”
Larry: I see a pretty sharp V-shaped upturn that should be pretty swift. There will be some backing and filling. But good solid bottoms are not made by creeping along the bottom. They are made by spiking down and then reversing very quickly.
Mike: Okay.
Here is a question from Fred. “What is the status of your LEAPS recommendations? Do we still hold them?” That is, of course, referring to the January 2015 SPDR Gold LEAPS, GLD.
Larry: We exited them quite a while ago. LEAPS are a great play. I just do not want to get into them right now because the trend is still down and we have not bottomed yet. We had a shot at bottoming in June but it was no cigar.
Mike: Okay.
A question from Danny, here is an interesting one on your war cycles. “Larry, you mentioned that your studies of war cycles go back as far as 5,000 years. What are some of the resources you use to gather that data? Is the Bible one of them?”
Larry: There is really only one resource and that is the work done by Raymond Wheeler, a climatologist who was the main scientist who really discovered and did the work on the war cycles, documenting everything going back 5000 years and Edward R. Dewey, who was President Hoover’s chief economic adviser at one point during the Great Depression. The data is extensive. It is available through, I think it is still available through the Foundation for the Study of Cycles. I have the data and I have run my cyclic models on it. There are not too many that have looked at the war cycles. There is myself. Martin Armstrong has done considerable work in it and although we have different cycles that we have discovered, the end result is the same and we both agree, that is Martin Armstrong and myself, that the war cycles are quickly ramping higher.
Mike: Okay.
We have a couple of questions on COMEX gold stocks from Chris and David noting that, “COMEX registered gold stocks have dropped. They have been declining recently to only about 425,000 ounces. What would happen if the COMEX runs out and cannot fulfill orders?”
Larry: Well, that is another one of those conspiracy theories, a lot of analysts out there and gold dealers telling you to buy gold now because COMEX inventories have been declining. Well, guess what? They have been declining while the price of gold has been declining for the past three years. So the fact that they have been declining has done nothing to turn the price of gold around. Now, the reason for that is… you have to ask why are they declining. They are declining for a number of reasons. There are some people who are taking delivery of gold and stashing it away, getting it off the grid. There are other people who are simply taking gold out of the COMEX and putting it into their private vaults, pretty much the same thing. It does not mean that that gold is not available. It just means that it is not being reported.
You have to realize something which really gets me crazy. You hear all these analysts talking about demand for gold is soaring. Yes, sure, it is soaring. It can be soaring when the price is falling. It can be soaring when the price is rising. But that is not the point. The point is demand and supply are always in balance. They do not tell you the other side of the equation. For every ounce of gold bought, there has to be an ounce of gold sold. Ditto for silver. They are always in balance. So the question is not what demand or supply is doing, the question is who is more aggressive? Those who are demanding gold, are they more aggressive than those who want to sell?
So do not rely too much on all these demand statistics and supply statistics. They really do not tell you anything. What tells you everything is the price. If demand were so high for gold and silver, why has the price fallen $700?
Mike: That is a good point.
Larry: You have got to ask yourself these kinds of questions and think it through. It has fallen $700 because the sellers are more aggressive than the buyers.
Mike: Exactly. That is what downtrends are made of, right?
Larry: Right.
Mike: Here are a couple of questions actually here, we will kind of combine them, on mining stocks again. Harry and Bob ask or Bob asks, “What mining stocks are some of your favorites when gold and silver prices finally bottom and rise again?” And Harry asks, “Do you have a list of recommended junior mining companies that we could purchase prior to the upturn?”
Larry: I have put out a list in the past and it going to be refined because we will have to take another look at them and their fundamentals once we get a final bottom in gold and silver. That said, there are not that many good ones left. There will not be that many good ones left at the bottom. So we are going to have to be careful and I really do not want to release that information prematurely. I would rather wait until I am confident the bottom is in and then ferret through the last standing gold and silver miners that will make it into the next phase.
Mike: Okay.
A question from Ken, “Can we purchase gold and silver in other currencies like yen or euro terms to avoid downside risk of the dollar?”
Larry: Well, you can. I do not advise it because really the dollar is all-controlling here when it comes to the metals. So unless you are overseas, if you are Japanese you basically have to buy your gold in yen unless you convert your money to dollars first and you are just incurring additional transaction costs at that point. What we need to see again is the bottom come into play and when it comes into play — and when I say a bottom, another important point, gold and silver have to bottom in terms of all currencies.
And that is something I look at on a daily basis. I look at what gold is doing, not just in dollars but in Swiss francs, in euros, in yen, in Aussie dollars, Canadian dollars, because that is how you really determine what is happening. So when gold bottoms in terms of all currencies, it will turn around and start rising in terms of all currencies and that is when you know you have got a real turnaround at hand.
Mike: Okay. Good answer.
We have a few questions about China and emerging markets. “How do you see emerging markets performing in the short run?” And another question specifically about emerging markets including Thailand, which you know a little bit about, and China. What are your views there?
Larry: Well, as I said earlier, I believe China and southeast Asia have already bottomed. They have been wrung out over the past year. I am seeing signs of bottoming action in the equity markets in Asia and I am seeing signs of topping action in Europe and the United States. So there is a really interesting interplay going on here. Now, most people would say I am crazy to think that if the U.S. and Europe turn lower that Asia could survive a sharp selloff in western stock markets, but they can. You cannot have any assumptions right now. Markets are changing. We are at major, major inflection points in many markets. Everybody thinks everything is fine but it is not so fine. I mean the back wall of the financial hurricane is very close to hitting right now and you are going to see some very, very strange things happen in the markets.
All I can tell you is cyclically and technically Asian markets are bottoming, even here in Thailand. I was on Channel 3 in Bangkok last Friday. They interviewed me about the protests here and what I thought about the Thai SET. I said my signals gave a buy on January 7 and the Thai SET market is up 5% since then. Despite the protests, I think the bottom is in. Everybody thinks I am crazy, yet the Thai SET continues to go higher with a state of emergency now in place in Bangkok. You have to understand, kind of like Warren Buffet says, “You have to buy when people are fearful and sell when they are greedy.”
Mike: How true, how true.
Okay, we have a couple of questions here about some options. Let’s talk about that. Stewart asks, “After you identify a lasting bottom in the metals, will you be recommending call options on some of the mining shares?”
Larry: Absolutely. Longer term in nature.
Mike: Okay.
Your view on natural gas?
Larry: Natural gas is in a new bull market. As a matter of fact, in the Power Portfolio we are long natural gas futures and we are doing quite well there. Natural gas is up 5.2% today. Now, a lot of it is weather related, particularly with the weather in the U.S. right now, the cold spell and the prior polar freeze. But my work shows that natural gas has bottomed. Its first stop on its first leg up should be around 5 to 5.20 and I am looking at an ETF play there for GST. I need a little bit of a pullback because it has gone vertical in the last few days. I want to see it pull back first and that is something I will be looking for for GST subscribers.
Mike: Okay.
Bret asks, “What if China decides to back its currency with gold and becomes a dominant currency?” Your view?
Larry: Never going to happen. It is never going to happen. Let me explain to you, China invented paper currency in the 1500s, over 500 years ago. They were the first to launch a paper currency. They have never had a backed, a metallic backed currency in the entire history of China. That is not going to change. What they are doing is simply building their reserves because that is the right thing to do and to give the impression that it will be, like the old Swiss franc used to be, backed by gold. But it will not be backed by gold. They just want to give the appearance and perception that it is. They could not possibly back it by gold.
Mike: Okay.
Here is a question from Bob, more of a technical question on your system. “Larry, you mention that you will be fine tuning stops used for stocks and ETF trades. What is your basis for using stops or stop limits and can you comment on what exactly is involved in this fine tuning process of your model?”
Larry: Well, the fine tuning process involves measures of volatility and volume and basically open interest outstanding shareholdings in the ETFs. It is a complex formula. It also includes the average true range over the last 39 days which is a measure of volatility. But, that said, I am going to be widening the stops because we simply have to. We simply have to get away from getting stopped out because of the noise that is in the market. The recent positions that were stopped out, had I had the stops wider, we would still be in there and they have come back considerably. That is a perfect example. So on the one hand, we can call it fine tuning. On the other hand, you could call it de-tuning the stops. I want to de-tune it from all the noise that is occurring in the markets and the noise is just random movements that are meaningless.
Mike: Okay.
We have had several questions here like this one from Robert about Bitcoin. What is your take?
Larry: Go short.
Mike: I wish you could. I do not think there is a way to do that yet but we are working on it.
Larry: Bitcoin will not survive. None of the cryptocurrencies will survive. The governments of the world simply do not want them to exist. It is competition for what they want to do which is introduce electronic currencies because with electronic currencies they can track everything that you do. They are not going to survive. Very simple. They are not going to survive.
Mike: Okay.
We have had a couple of different questions like this one from Thomas, again, on your model. “You are saying that the gold has not bottomed based on your models, but given that the models have been, at times, inaccurate in the past, is it possible that gold may have already put in a double bottom in June and again in December of 2013?”
Larry: It is possible. I rate it as about a 10% probability. The models on the forecasting have been 99% accurate. The trading has not been accurate. So let’s make that distinction there. The models have been amazingly accurate. The trading is far more difficult because of all the noise that is occurring on the short-term basis.
Mike: Because of the volatility.
Larry: Yes, and the lack of volume.
Mike: Here is kind of a related question from Larry. He says, “This may be a bit premature since May is still a long way off but what is your best guess or probability that if we fail to break $1,178 over the next few weeks here in January, will we see gold potentially rally much higher before it turns back down?”
Larry: It is possible. It is too soon to say. If we break $1,178 with good volume, increasing volume, then the cycles could extend and we could get the final low in the middle of March. That is a possibility. If we go down to $1,178 and hold sort of a triple bottom with the December 31 low, that would be a very bearish sign by the way — but we could get a bounce back up to $1m260, $1,270. I do not see a big rally. It is just not in the cards yet.
Mike: And another question, kind of a follow-up on that. “What if we get to the end of May and gold still has not broken below the $1,178 level?”
Larry: That is probably the best question as far as timing goes. Anything is possible in the markets. I really do not expect that to happen. I would rate it as less than a 10% probability, but if it were to happen, it would mean one and only one thing. It would mean that gold’s bear market and silver’s bear market are going to stretch out even further into a full five-year bear market into 2016. Now, I hate to say that but that is what it would mean and I rate the odds of that occurring extremely low, probably less than 10%, less than 5%.
Mike: Okay.
Here is a question from Brian. “Mr. Gordon Chang and others are warning about a mega default in China scheduled for January 31. What is your take on this coming event?” $23 trillion are involved in their shadow banking system, he notes.
Larry: Do not listen to that stuff. Tthink it through for yourself. Who is China going to default with? It is a communist country. It is going to default with itself? It has no foreign debt. Is it going to default to the United States? It is a communist country. One pocket owns the other pocket on the same pair of pants.
Mike: That is a good way to put it.
Here is a question from Gene. “Do you think the demand for physical gold is different from the demand for paper gold, that is futures or ETFs?”
Larry: That is another conspiracy theory. I see it all the time. Futures, paper, so much paper gold out there that it is going to backfire and cause the price of gold to go through the roof. The futures market is what makes the gold market liquid. If you did not have a futures market, you would have no market at all for gold, okay? Plain and simple. Futures markets have been around forever. Since the time of Socrates there were futures markets on the grains and soft commodities. Are there huge short positions in gold? Yes. Do those short positions need to be covered at some point? Yes. And that will give the metals the fuel to probably turn around at some point. But those short positions are not conspiracies from the banks or anyone else. They are savvy money that knows that gold and silver are in a bear market and they are short.
Mike: Okay. Good explanation.
Well that is about all the time we have for today but any parting thoughts at all from you, Larry?
Larry: I am really glad we held this conference today. I am committed to turning the track record around, very, very committed. It is my top priority and I am thrilled that we had such a great attendance today. I can see that almost all of the members of GST were online today and that is fantastic. So thank you very much for your loyalty and thank you for joining today and thank you, Mike, for helping out.
Mike: Absolutely. Any time, Larry. And remember, everyone on the call, you can always submit any questions that you may have at any time to the Gold and Silver Trader editor’s mailbag which is right on our website and Larry will either answer your questions directly, perhaps in a future issue or we can certainly tackle those questions in our next scheduled online strategy briefing. So thank you once again for joining us today for this special presentation and, Larry, as always thanks for joining us from half a world away.
Larry: Thanks, everybody. Thank you very much, Mike.
Mike: You bet.
