The precious metals (gold, silver, platinum, & palladium) have all started the year with a bang. But investors going all in here need to be careful. Yes, this has been a great rally, & yes it MAY be the start of the next bull market, but our models that have accurately forecasted every major trend change are warning that new lows are still very much in play here.
As we highlighted to our subscribers in Sunday’s issue of The Trend Letter, our models don’t like the direction that the gold/silver ratio is heading.
We have said for almost two years now that gold will ultimately rally when the confidence in government peaks, & then collapses. We are fast approaching that time-frame, but before we get there, we are very concerned that many investors may get caught in a market fake-out.
Everyone is extremely bullish on gold right now; we are again hearing forecasts of $10,000, $15,000, even $30,000, & $50,000 for gold. But there are a number of signals that have our models flashing a warning that we will see one more low, & potentially a new, lower low.
The price of gold peaked in August 2011, & at that time our models triggered a warning, then a SELL signal soon after. The following chart shows the gold/silver ratio, & the price of gold.The gold/silver ratio is the upper chart (black chart), with gold below it (gold chart).
As we can see, at the peak in the gold price in 2011, the gold/silver ratio was at an all-time low at 32:01, and in fact, every high in gold has occurred with a corresponding low in the gold/silver ratio.
Today, we are seeing the price of gold rally, but at the same time we are seeing the gold/silver ratio rally, not a good sign for gold. If we continue to see the gold/silver ratio rally, be very careful if you are heavily invested in gold.
One of two things will need to happen: either the price of silver explodes higher & dramatically outpaces gold; or the price of gold declines at a much faster pace than silver, to new lows.
We should get our initial answer in the next few weeks. Watch the 1280-1290 level for gold. If it can break through & hold above that level, then we have 1300, 1311, & then 1340-1350 become Key Resistance levels for gold.
Alternatively, a break below 1220 in the next 10 days would suggest that the upward momentum was gone, & a directional change was heading lower.
The numbers ot watch over the next 10 days are:
Support at 1220, & Resistance at 1311
Goldman analyst Currie (see video link below), says that in the aftermath of over-production booms where easy credit has spurred wild-eyed speculation, durable price bottoms are not reached until ‘believers’ capitulate, throw in the towel on rebound bets, and finally move whatever capital they have left to the sidelines or other sectors. So far we have not seen this yet in the energy secotr, as every rally to date has brought another burst of hope–and production.
“The risk of $20 is driven by what we call a breach in storage capacity, meaning that you have supply above demand, you fill every storage tank on planet earth and then you have nowhere to put it,” Jeff Currie, head of commodity research at Goldman told CNBC from the annual Oil & Money conference in London.”(Then) supply has to come down in line with demand. The only way you get that correction is prices crash down to cash costs, which for a U.S. producer, is somewhere around $20 a barrel.” Jeff Currie, global head of commodities research at Goldman Sachs, says the risk of crude oil reaching $20 a barrel is driven by “breaching storage capacity.”
Click Here to see interview