October 15, 2017
Gold closed the week at 1304.60, poking just above its Near-term Resistance range of 1280-1300. Gold’s rally since July stalled at 1364, exactly 1.00 below our targeted Resistance at 1365.
In the bigger picture, since the high in July 2011, gold has been in a 6-year downtrend channel. The upper level of that channel has been tested numerous times over the years, but gold had been unable to break through that level. In this recent rally gold was able to push through and hold above that 6 year downtrend channel, but was not able to maintain that momentum. Our models are signaling that this was likely the high for gold.
While geopolitical tensions could certainly push gold up to, and even beyond the 1365 level, caution is advised here. Speculators (green line on lower chart) have poured into gold, and are now at near-record levels of long positions. We have drawn red arrows to show that when we see this level of speculation, corrections tend to occur.
In the bullish scenario, the near-term key for gold is to break through 1307, then 1365 which should provide strong resistance. A push through 1365 would open the door for a re-test of previous high at 1380. A break here above 1380 is very unlikely, but certainly possible in the event of a severe geopolitical event.
In the bearish scenario, look for gold to break below Near-term Support at 1242, and then test the psychological barrier at 1200. If the 1180 support level does not hold, our models call for a significant correction to re-test the December’15 low at 1040. Understand that our models have identified a scenario where we see gold break below 1,000, with 875-925 being the ultimate low.
For weeks we had been highlighting the first 10 days of September as the target for a probable high for gold. On September 8th, gold peaked at within 1.00 of our targeted technical resistance level of 1365.
At this time, unless we get further escalation of tensions between the US and North Korea, or another major geopolitical event, we are looking at the 1364 high as being the high on this rally, and for gold to flush out the bulls, and re-test the December ’15 lows with a potential low of sub 1,000. If we can get that scenario, then much like a beach ball being pushed under water, gold would shoot much higher.
Two years ago we forecast a Global Sovereign Debt Crisis and that crisis is ramping up, likely to begin in earnest starting in 2018. This will be the biggest financial crisis in history and will affect everyone. If you understand the global flow of capital, you will become a successful investor…if you don’t, you won’t…it’s as simple as that.
Note: There are a lot of opinions on gold, both bullish & bearish. The markets don’t care about opinion, so we just follow the numbers, because that’s all that matters.
Read below to understand how this is all going to play out.
Subscribers receive the complete up to date picture, including BUY & SELL signals in each week’s issue of The Trend Letter.
The key to being a successful investor is to understand that ALL markets are interconnected. What happens to currencies, affects what happens to bonds, precious metals, & equities. We live in a global market now, & what happens in one region affects the economy of other regions. Global capital moves away from perceived risk, & moves into areas of perceived safety.
As Martin noted almost 2 years ago, “There is a global economic crisis coming that will begin in 2017 that will affect every investor, but unfortunately, most investors have no idea of what is coming.”
We have warned that starting the 4th qtr 2015, we would see the beginning of a sea change in the global economy. We also stated that we would see global geopolitical tensions rise dramatically in late 2015, & that these tensions would have the potential to kick off World War lll.
Today we have North Korea’s Kim Jong Un continuing to issue threats against the US and other regions. We also have rising tensions between the Sunni Saudi monarchy & the Shia dominated Iranian leadership. This is a theological divide that drives the wedge between the two countries, with each unable to accept the legitimacy of the other nation’s dominant faith.
The real issue is Global Debt
The real underlying economic problem is that after decades of running massive deficit budgets in virtually every major country, the world is drowning in more than $200 trillion of debt that can never be repaid. What that means is that we will soon see the first of many Sovereign Debt Defaults.
What happens when a country defaults on its debt?…the answer is not pretty. In 2001 Argentina defaulted on its debt & we saw,,,,
- the currency (Peso) immediately lost 68% of its value
- inflation skyrocketed to almost 40%
- unemployment soared to 25%
- capital controls were implemented restricting access to one’s own money
But we are not talking about one country defaulting here, we are talking about a global Sovereign Debt Crisis, one that will dwarf any other financial crisis in history, including the Great Depression.
How does this affect gold?
Gold has a history of being one of the ultimate safe havens. One of the key messages that we try to convey to subscribers is that if you seriously want to become a better, more successful investor, you need to follow the global flow of capital. In times of crisis, capital always flees the perceived areas of risk or tension, & flows into areas of perceived safety.
When the markets are perceived to be the problem, capital typically flows into government bonds of countries that are perceived to be safe. But what happens when it is government that is the problem? What happens when there is a high risk that government will not be able to meet its debt obligations?
This is precisely what happened at the end of the Great Depression. After the US stock market crashed in 1929, capital dumped US stocks & invested into the perceived safety of European government bonds. But in 1932, starting with Austria, every major European country defaulted on its debt.
The problem was no longer the equity markets, the problem was government’s inability to meet its debt obligations.
Today, every major country in the world has amassed far more debt than can ever be paid off!
We are about to see the first Sovereign Debt Default, perhaps in Greece, perhaps in Poland, Hungary or?? It doesn’t matter where it starts, as once that first domino falls, the rest will follow. It will start slowly, but as the second, then the third country fails, investors will look around & ask “who’s next?”
And then the global flow of capital will dump government bonds & seek safety in other, perceived safer assets, such as gold.
Is the gold price being manipulated?
Many investors have become emotionally attached to gold, with some it is almost like a religious attachment. This is a big mistake, as investing based on emotion is a recipe for disaster.
You can read many gold bug sites proclaiming how gold has been manipulated & that it should be at $10,000, not its current $1300 range. Is gold being manipulated by central banks & governments? Probably, but why would we care, as Central banks continually try to manipulate everything: bonds, interest rates, stocks, & the economy. The reality is that these manipulations are always temporary – They CANNOT influence a long-term trend.
We marvel at how many of these gold bugs harp on & on about the price of gold being manipulated, yet they keep recommending that people buy it. Why would anyone invest, or recommend that you invest in something that they claim is being so heavily manipulated?
The key to being a successful investor
There is a reason that we cover a wide range of sectors: Equities, Bonds, Currencies, Commodities, & Precious Metals. It is because they are all interconnected, & the key to being a successful investor is to understand this interconnection of all markets. We live in a global economy now, it is no longer prudent to invest with a myopic view of only one market. The reason gold rises or falls is related to cycles, & what is happening in other markets.
For over 14 years The Trend Letter has been able to nail every major trend change in all those sectors. We use a number of tools to drive our models, but if we were to identify one key element, it would be to monitor the global flow of capital.
In 2002, when gold was trading at $290, in the very first publication of The Trend Letter, we recommended that subscribers buy gold & silver stocks. The driver for that recommendation was not that we were in love with gold, it was driven by what was happening in the currency market. After the 2002 DOT COM stock market crash, Alan Greenspan, the US Federal Reserve chairman at the time, indicated that the economy was hitting a “soft spot.” This told us that he would soon start to try & “inflate” the economy by devaluing the US Dollar. Given that the $US is the world reserve currency, all things priced in $US would rise with a declining dollar.
At that time we could have shorted the $US, but we preferred to buy gold & silver stocks. Over the next few years we also added a number of other assets such as uranium stocks & made phenomenal gains over the next 6-9 years. Finally, in 2011, our models triggered that the 9 year bull market run for gold was over for a few years, & we issued a SELL Signal.
From our BUY signal in 2002, to our SELL signal in 2011, gold bullion gained over 500%, while most of the stocks performed even better.
Nailing the bottom of gold’s bull run was good, but equally important was how our models called the top of gold’s run in August 2011. Remember, with any stock, you have not made a profit until you actually sell. While most gold bug publications continued to recommend a BUY on every ‘dip’ all the way down, our subscribers sold their gold & silver shares at the top for huge profits, & had plenty of cash to buy in at our model’s BUY signal.
What will cause gold to rise?
You will read & hear a lot of noise about how the US dollar is doomed & that will cause gold to rise. Yes, eventually, due to the massive US debt situation, the US dollar will come under great pressure. But that time is not now.
The real problems now are the debt situations in Europe & Japan. This is where we will see the first Sovereign Debt Defaults. Once we see the first default, we will see contagion occur where more dominoes will fall,
We are about to see a huge shift in confidence. History always repeats. Just like after the Great Depression, when every major European country defaulted on their debt, we are about to see a Sovereign Debt Default on an even grander scale.
And when that happens, global capital will flee government bond markets, & seek out perceived safer havens, such as the US equity market & gold. Currently, we have a global debt problem that is so massive & unsustainable that soon governments will admit that they simply cannot afford to meet their debt obligations.
When people no longer trust the government, the monetary system is toast. That is when contagion will ramp up, & that is when investors will stampede out of the government bond markets. Gold will rise not because of inflation, but as a hedge against government.
Get all the information
Every morning we issue our free Headlines newsletter, & once or twice a week we issue a Market Musings newsletter to help investors stay ahead of the herd. The Trend Letter is a contrarian investment newsletter, so most of our articles are based on topics that you are unlikely to see in the mainstream media.
If you would like to receive our free Headlines, & Market Musings newsletter each morning, fill in the form below.