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Over the past weekend, China
announced that they would purchase Iranian oil through sale of gold beyond
June 28 2012 in order to get around US sanctions that states no nation can
sell oil in US Dollars This has profound implications going forward, as this will
be the first time in nearly 70 years that the US Dollar as a reserve currency
has been challenged. The article I penned back in 2003 titled "Whose Gonna Say Uncle" mentioned that block currencies
will likely form due to localization of economies due to energy constrictions
etc. The BRICS nations have primarily been the target of sabre rattling
through the US government, so actions taken by China is likely to be
conducted on a massive scale going forward as other nations seek better
control over their own destiny.
The BRICS nations are a force to be
reckoned, with, from a financial and military perspective. Sabre rattling
coming out of Washington is merely that...there is not much that they can do
to save the US Dollar, as other nation blocks slowly attempt to create
localized currencies. All major wars being fought at present are economically
related as each country tries to stay afloat in an environment where an ever
increasing amount of debt is created daily to prevent deflation (Note: This
can only be put off for so long as the CFS cycle reaches its next downward
turning point).
As bickering and economic warfare
continue up front along with the Bread and Circuses put on national TV to
dumb down the masses, the page 16 story (As Donald Coxe
refers to stories out of the eyes of the majority) unfolding is that gold is
slowly being set up to be a major currency of exchange. Banks around the
globe are quietly accumulating metal in order to preserve wealth for what
lies ahead beyond 2020. Between now and 2020, gold is likely going to see a
spike high between $7000-10,000/ounce (maybe higher) and then drop by 50% and
baseline.
Subsequently, a broad stock market
rally beyond 2020 will be likely likely after
ending a near 20 year bear market. During this time, governments will still
have to inflate, but this will be the start of an inflationary cycle, which
should see the DOW reach 200,000ish at some point this century, as per Glenn
Neely's long-term forecast. As assets rise in price, it will still be
important to have gold-backed currencies, as people 8 years out will not want
a repeat of 2000-2020.
Back here in good ol'
2012, we still have 8 years of tough sledding before we get through this mess
and the only thing I have seen to somewhat guide with reasonable accuracy for
turning points is the Contracting Fibonacci Spiral first observed last July.
The target date for the broad markets putting in a high is between September
12, 2012 and March 6th, 2013, with December 6th 2012 as the ideal mid point. During other cycles, the S&P has remained
buoyant after putting in a high while other sectors of the economy rally.
The CFS date for gold I believe is
September 13th, 2013, which could occur as early as May 2013. Given the
expected decline in the US Dollar Index starting anytime between mid May to early June, this suggests that a 10-12 month
rally in precious metal stocks and commodities is likely. At present, there
is no shortage of liquidity and we are nearing the stage where funds are
rotating into under performing sectors.
Within the CFS, declines are noted by
sharp periods of deflation, such as that witnessed in 2008. The next round of
deflation is starting to appear as is if it will occur between May 2013 and
August 2013 and last until late 2014. As we reach the point of singularity in
2020, market volatility is going to be at levels never seen before.
The one sector witnessing a large
counter trend relative to the broad stock market indices is the precious
metal arena AKA the AMEX Gold BUGS Index. This has been the one sticking
point with the CFS which is seeing gold stocks marching to the beat of its
own drummer at present. As mentioned current lows in the HUI will represent a
generational low relative to the price of gold. On Friday, the HUI/Gold ratio
gapped down to 0.26 and has two daily hammer doji's
in place. It is important to note that the 2008 lows saw a spike low value of
0.20, which was a spike low. Values quickly bounced up to 0.25 and trended to
near 0.45 before declining. At present, we have gold above $1600/ounce, while
gold stocks are priced as if gold was $700/ounce.
With gold set to move higher with
continued money printing campaigns, it only makes sense that gold stocks rise
accordingly. By Christmas time, everyone in PM's should have something to smile
about, with the top expected sometime between April and June 2013 in the HUI.
The above information is how things are thought should logically progress
before we hit the next wave of deflation (It will be far more severe than
2008). As mentioned before, avoid adding further positions to PM stocks until
we have a clear indication that a bottom has been put in place.
Accompanying this text are related
charts of 3 currencies, the US Dollar Index and one chart of Gold
illustrating that a breakout to the upside is looming.
Currencies
The daily chart of the Canadian
Dollar Index is shown below, with a closing value of $101.31, just at the
upper point of resistance. All three lower Bollinger bands are in close
proximity to each other, and if they begin to curl down, it will indicate the
Loonie is set to climb higher. An inverse head and
shoulders pattern appears to have been put in place, which has a measured
move of 12 cents, or $1.13 relative to the US Dollar Index. Our target for
the Loonie in 2012/early 2013 remains $1.13-1.15,
while a spike high to $1.18-1.20 remains within the realms of probability.
Full stochastics 1, 2 and 3 are shown below in
order of descent, with the %K above the %D in 1 and 2 and beneath the %D in
3. Positioning of the %K in stochastic 2 clearly indicates that an upward
bias exists. As mentioned last week, the Canadian and Australian dollars are both resource or "Colonial Currencies" as higher
commodity prices drive their pricing power. Colonial currencies set to break
out strongly suggest a run up in commodity prices, which in turn would see an
associated decline in the US Dollar Index.
Figure 1
The daily chart of the Australian
Dollar Index is shown below, with lower 21 and 34 MA Bollinger bands in close
proximity to each other beneath the index. Full stochastics
1, 2 and 3 are shown below in order of descent, with the %K above the %D in 1
and beneath the %D in 2 and 3. The Loonie had a
sideways consolidation, while the Currency from Down Under had an approximate
45o decline. An inverse head and shoulders pattern is also visible for the
Australian Dollar, with a measured move to
approximately $1.16...the target remains $1.16-1.18, with the potential to
see $1.22-1.24 in an extreme overshoot. So, the way to trade this if
everything goes to plan is to sell precious metal stocks near the highs
around this time next year (maybe earlier) and rotate funds into US Dollars
as deflation will see this rise in value. Timing will be very important, so
the Captain and I will be working on trying to come up with a tighter CFS
model for when to bail from the PM's. We are nearing a PM bottom, so there is
no cause for concern about exiting for some time. Again, continue to avoid
adding further PM positions (unless one has disposable income and does not
require the money for at least 10-12 months) until a top in the US Dollar
Index has definitively been put in place.
Figure 2
The daily chart of the Euro Index is
shown below, with upper and lower Bollinger bands continuing to envelope the
sideways price action. Full stochastics 1, 2 and 3
are shown below in order of descent, with the %K beneath the %D in all three
instances. There is no sign of a bottom in the Euro at present, but is
expected to be put in place sometime between mid to late May 2012. The Euro
is expected to at least retest the 148 level relative to the US Dollar...in
the past, other currencies were weaker than the USD at the former Euro high,
but stronger currencies against the US Dollar Index will drive its value down
to the 64-66 level (56-58 for a spike low).
Figure 3
US Dollar Index
The daily chart of the US Dollar
Index is shown below, with upper and lower Bollinger bands continuing to
envelope the sideways price action. Full stochastics
1, 2 and 3 are shown below in order of descent, with the %K above the %D in 1
and 3 and beneath the %D in 2. There is no clear indication on the daily
chart as to whether or not a breakout to the upside or downside will
occur...just sideways price action.
Figure 4
The weekly chart of the US Dollar
Index is shown below, with lower 21 and 34 MA Bollinger bands rising towards
the current price, while the lower 55 MA Bollinger band continues to go
sideways. Full stochastics 1, 2 and 3 are shown
below in order of descent, with the %K beneath the %D in 1 and 2 and above
the %D in 3. Full stochastics having the %K in 1and
2 fall beneath the %D, while remaining lofty in stochastic 3 indicates that a
top is looming. Although there is no indication of a top on the weekly chart,
weakness is indicated.
Figure 5
The monthly chart of the US Dollar
Index is shown below, with two monthly shooting star doji's
put in place. Lower 21 and 34 MA Bollinger bands are in close proximity to
each other, while upper Bollinger bands are starting to decline towards the current
price. Full stochastics 1, 2 and 3 are shown below
in order of descent, with the %K above the %D in 1 and beneath the %D in 2
and 3. As mentioned earlier, we are either at the cusp of a 1996 equivalent
breakout or a late 2006 decline...all of the technical information examined
collectively suggests that a decline in the US Dollar Index is likely before
it rises during deflation expected to occur between mid
2013 and late 2014.
Figure 6
The short-term Elliott Wave count of
the US Dollar Index is shown below, with the thought pattern forming denoted
in green. There is a strong probability that wave D is underway, with wave E
remaining before the entire corrective pattern since early September 2011
started. Subsequently, a sharp downward move is expected.
Figure 7
The mid-term Elliott Wave count of
the US Dollar Index is shown below, with the thought pattern forming denoted
in green...the pattern took 4 months longer to complete last summer than
anticipated, so mentally shift the image to the right and it fits rather
well. The entire pattern below represents a large triangular pattern forming
since 2008, with wave [E] nearing completion. Once wave [E] is complete, then
73.7 must be taken out in an equivalent or shorter period of time than wave
[E] took to form (9 months). Also, the price must decline below 71.0 within 4
years or less...chances are that we take out 73.7 before October and 71.0
before year end. The measured move down from the large triangle is the
longest wave price action subtracted from the terminal price of the
pattern...79-14.5 equals 64.5, which falls within our downside target of
64-66. In the event of a spike low, the US Dollar Index could see 56-58
reached. When the lows are established in 2013 (Likely between April and
August 2013), a very sharp move to the upside is due. The safest and best way
to profit from this move is to exit stocks and go long the US Dollar. At
least a 15-20 point move is expected, which represents a very good return
during a period of deflation. Exiting the US Dollar Index near the end of
2014 will be very important, as commodity prices are likely to soar much
higher.
Figure 8
Gold
The short-term Elliott Wave count for
gold is shown below, with the thought Elliott Wave count forming denoted in
green. Wave 1 or A was thought ot have completed in
late February, wave wave 2 or B forming at present.
Since the 61.8% retracement level has held so far, it is reasonable to assume
that the wave structure presented is accurate. If so, then the next leg up
should reach anywhere from $1870 - $1985/ounce within a 2-3 month time frame.
If the wave count of the US Dollar is correct, then a 10-12 month window of
upside in precious metals and related shares lies just ahead. This is
something that we will be tracking very closely.
Figure 9
David Petch
Treasure
Chests.com
Treasure Chests
is a market timing service specializing in value-based position trading in
the precious metals and equity markets with an orientation geared to identifying
intermediate-term swing trading opportunities. Specific opportunities are
identified utilizing a combination of fundamental, technical, and
inter-market analysis. This style of investing has proven very successful for
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