Issue #155
Dear Member,
Regardless of what the near term may bring, the long-term outlook for gold has not changed. It’s still subject to powerfully bullish forces that will ultimately drive it to $5,000 and beyond — a massive flight to quality from investors around the world, the madness of bankrupt governments, and more.
But for the near term, the line in the sand has been crossed and we are witnessing a temporary extension of the bear market in precious metals. That’s news none of us want to hear, but it’s undeniable. As a result …
IMPORTANT: I will be holding a member’s only emergency webinar next Thursday, September 18, at 12 noon EST. You will receive email invitations early next week with the details on how to attend. I urge all of you to join that webinar.
At that webinar, I will discuss why we’re seeing this temporary extension of the bear market … what its implications are for other markets … for the economy … for inflation and deflation … how low gold and silver could go … how long the bear market may last … what it means for mining companies …
And naturally, the strategies we will use to make hay of it … including what will happen when gold and silver finally do turn the corner back to a new bull market.
Always keep in mind that the extension of the bear market in the precious metals also opens up profit opportunities:
Opportunity #1: To profit as the precious metals and mining shares decline.
Opportunity #2: As they decline, die-hard bulls will get washed out of the markets. That will be a great time for you to pick up bargains. And it will provide the necessary fuel for an even greater bull market to follow.
Opportunity #3. You are already seeing nice gains in your dollar positions. Expect more to come.
Now, let me turn to what is happening, and why.
First, neither gold nor silver have elected any buy signals during the past few months, casting a shadow over them the entire time, which is precisely why I never had you get too aggressive on the long side.
Second, the deflation specter that is haunting Europe is worsening. Deflation is taking a firm hold on the euro region, and the European Central Bank (ECB) is now taking aggressive steps to devalue the euro.
Those steps, though, will not be enough to stem the tide of deflation in Europe. Further euro devaluations lie on the horizon. ECB head Mario Draghi has only implemented an asset backed purchase program of upwards of $1 trillion.
While that sounds like a lot of euro money printing, I estimate – and now forecast – that:
1) At least $4 trillion worth of euros will need to be printed, and …
2) Draghi will have to resort to buying up the sovereign bonds of each and every euro member country in an attempt to federalize the bond markets in Europe – or deflation will continue to get worse. Ironically …
Third, deflation will now become an ever growing threat in the U.S. as the euro tumbles in value and the dollar continues to soar.
As I stressed at the outset, long term, I still expect precious metals to rise right along with the U.S. dollar, as they did in the 1930s. However, on a shorter-term basis, there is no question that the initial reaction to the dollar rocketing higher is weighing on gold prices. Ditto for silver and mining shares.
Fourth, I am seeing further deflation already whack the grain markets, which continue to drop sharply. This I expected. But the speed of the recent declines in markets such as wheat, soybeans, corn and even coffee and sugar tells me deflation is already a growing threat in the U.S.
Fifth, and perhaps the number one question on most of your minds, is the war cycles and their positive impact – or lack of impact – on precious metals.
My studies continue to tell me that on a long-term basis, rising social and geo-political discontent will be the number one driving force behind a resurgent precious metals bull market.
But for now, when combined with the very serious deflation that is hitting Europe, it seems that the war cycles are having the opposite effect, prompting savvy money to simply abandon the euro and go largely to cash and U.S. equities, which by default, is bearish for gold and silver …
And (mistakenly) into U.S. Treasuries, which is why interest rates are now nearing record lows again.
I will discuss all of the above in much greater detail at the upcoming emergency webinar and with plenty of visual aids to help you grasp what is unfolding. There will also be a Q&A session.
However, let me address what are probably your top two questions right now: How low gold and silver can go and how long will their renewed bear markets last?
My answers:
1. From a technical perspective, it would not be unusual for gold and silver to drop back to near the origins of their previous major breakout points.
Based on the continuous nearest futures, that would put the ultimate lows in target ranges of roughly $920 to $970 in gold, and, worst case, $12.50 for silver.
2. Timing-wise, my cyclic work is now showing two targets for the final lows.
The first comes in January/February 2015 and the second in June. Odds favor the January period.
Naturally, I’ll provide more details on the above at the upcoming webinar.
NOW, two very important notes,
PLUS what to do with existing positions.
FIRST, and foremost, do not expect the precious metals to immediately collapse. They are deeply oversold and important short-term support levels are near at hand. Put another way, we are likely to first see a sharp bounce, before the downtrend resumes.
That bounce could bring gold back up to the $1,280 level, even the $1,300 level. Silver could bounce to the $20 area.
However, what the resumption of the bear market does mean is that our overall strategy will now be one of selling rallies in the precious metals, rather than buying dips, using rallies to take on bearish positions to capitalize on the next wave down, which could be severe.
In mining shares, I will be looking for you to also get short, via an inverse ETF such as Direxion Daily Gold Miners Bear 3X ETF (DUST).
That said …
SECOND, I want you to use an upcoming bounce to exit your two remaining gold positions, which consist of the second half of the VelocityShares 3X Long Gold ETN (UGLD) and your shares in Kinross Gold Corp (KGC).
I will advise appropriately, but for now, hold your shares in KGC, and maintain your protective sell stop, good till cancelled, at $3.58.
For your remaining shares in VelocityShares 3X Long Gold ETN, symbol UGLD: ENTER A PROTECTIVE SELL STOP, good till cancelled, at $12.27.
Lastly, for the following open positions:
* Hold PowerShares DB US Dollar Index Bullish Fund (UUP), with a protective sell stop, good till cancelled, at $18.80.
* Hold ProShares UltraShort Euro (EUO) with a protective sell stop, good till cancelled, at $15.47.
The above two positions are showing open gains of just over 3% and nearly 14%, respectively. I will be looking for you to grab profits early next week after I see the trading action today in the dollar and the euro.
* Hold your shares in United States Natural Gas Fund LP (UNG) with a protective sell stop, good till cancelled at $17.50.
* Hold your shares in ENSERVCO Corp (ENSV), where I am monitoring a stop for you.
If not on board ENSV: For every $25,000 of capital you are trading, buy 300 shares of ENSERVCO Corporation, symbol ENSV, at the market. Note: I will be monitoring a risk-reduction stop for you on ENSV.
Natural gas pulled back yesterday, but remains poised to move substantially higher. It is one commodity market that has already bottomed.
Lastly, please be sure to attend next week’s urgent webinar, where all of the above will be covered in greater details, including the strategies I will be using to make hay as the precious metals plunge into their final lows early next year.
Best wishes,
Larry
