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The last update was wrong. Gold was expected to drop with the stockmarket,
but instead it rose. Being wrong in this business is not a crime, but it is
vital to recognize the error as soon as possible and make a course
correction, and if possible discern the reason or reasons for the error.
Failure to do this through pride, obstinacy or stupidity can lead to modest
losses becoming ruinous. So what happened?
Whilst recognizing that there are big differences between
now and 2008 it still looked likely that gold would get dragged down with the
stockmarket when it dropped hard due to a flight into cash driving the dollar
up but so far at least, this has not happened. Also it was thought that a
Head-and-Shoulders bottom was forming in the dollar, but on further consideration,
the pattern looks too tilted to be valid, and it now looks instead like it is
starting to break down from a bearish Rising Wedge whose point of origin was
back in March - April of this year (see dollar index chart lower down the
page). The biggest difference between now and 2008 is that back then money
flooded into the dollar in order to buy Treasuries, but this time round that
does not appear to be happening, and it is not hard to see why. The last 10
years since that financial crisis can fairly be likened to a wild party
aboard the Titanic, with the global economy stumbling forward in a zombiefied
state, powered by QE and ZIRP, which incidentally provided the opportunity
for the elites to drain the wealth of the lower and middle classes into their
coffers. The result of all this is that US debt has now expanded further to
frightening and ruinous levels and the combination of this and the blatant
attempt by the US to control the entire world via its dollar reserve currency
system through a combination of sanctions, crude military threats and now
tariffs is causing attitudes to harden so that other countries are less and
less prepared to pony up and support the US by swapping goods and services
for piles of intrinsically worthless paper in the form of dollars
electronically created and then recycled into Treasuries. Those who have been
paying attention will know that other major powers like China and Russia have
been preparing to dump the dollar for a long time now, by buying gold as fast
as the West will sell it to them, devising their own payments systems to
replace the SWIFT system and making bi-lateral trade agreements etc. They
also know that unless they have the military power to defend themselves, they
would at some point be subject to military aggression by the US if they try
to cease using the dollar, hence their major effort to beef up their
defensive capabilities. Thus, what we are seeing is an intensifying buyers
strike with respect to Treasuries that will continue to hike interest rates
until the economy implodes, a process which has already started. When this
happens, and it doesn't look far off, they will reach for their drug of
choice, QE, which will then collapse the dollar leading quickly to
hyperinflation. The extent to which the US economy has been looted and
plundered by the ruling elites for decades now is not fully understood by the
American masses – if they did understand they would be marching on
Washington. They have siphoned off countless trillions into the
military-industrial complex, waged costly and destructive wars and invasions
across the world, poured money into Israel, sickened and weakened the general
population with food adulterated with countless additives and genetically
modified food, and then made even more money out of them by peddling them
overpriced drugs and medical care, destroyed the public transport system and
created sprawling suburbs to increase the profits of oil companies as you
have to drive 2 or 3 times as far to get anywhere as in Europe, killing town
center communities and replacing them with shopping malls, bled families
white to pay for useless production line college degrees etc – it’s no wonder
there are so
many crazies around – and that’s before the economy caves in. All
of this has racked up towering debts of astronomic proportions which they
expect foreign jackasses to support by adhering to the dollar reserve currency
system and accumulating intrinsically worthless IOU’s in the form of
Treasuries. The trouble is that foreigners have been starting to wake up to
the fact that they have had a sign hanging round their necks for decades
saying “Idiot” and one on their backs saying “Kick me”, and have been
actively planning to extricate themselves from this situation for some years
now, by taking the steps set out in the paragraph above, which include
building up gold reserves. So they are steadily withdrawing from supporting
the Treasury market, which is going to leave the US with a massive problem as
the economy contracts, interest rates rise, the debt towers even higher, and
the foreigners who have always been relied upon to support the whole mess
fail to step up to the plate. So it’s not hard to see why the dollar is set
to plummet before too much longer, even if it gets some temporary relief from
the stockmarket crashing and the chaotic Eurozone imploding. Thus, the fact
that the dollar failed to rally either on the severe drop in the stockmarket
of recent weeks or on the latest rate hike is viewed as an ominous
development, both for the dollar itself and for the economy. This is what
gold is picking up on and is the reason why it is has started to move ahead
over the past couple of weeks. Now we will quickly review the charts,
starting with the 6-month chart for gold, on which we see that gold's advance
over the past couple of weeks, although modest and measured, is certainly
impressive given how the stockmarket has plunged during this period.
 
Just how impressive this move by gold has been is made
plain by the chart for gold for the same time period plotted against the US
S&P500 index. This shows an undeniably impressive performance by gold and
reveals its newly acquired intrinsic strength. Notice how this ratio goes up
when the stockmarket drops, and when the stockmarket rebounded the other day,
it dropped. This is exactly what investors in the PM sector want to see and
is the exact opposite of what happened in 2008.
Note that the latest COTs are not included in this update
because they have been delayed by the Christmas holidays, and will become
available early this coming week. The key factor in all this is the dollar.
Gold dropped in 2008 mainly because the dollar rallied sharply, but as we
have witnessed in recent weeks this doesn't seem to be happening this time,
for reasons that we have just considered. In the last update we looked at a
bullish scenario for the dollar, which now seems to be off the table, and we
later looked at a bearish scenario for the dollar on the site, which we will
now review on the year-to-date chart for the dollar index below. This chart
shows that the dollar is struggling here and on the point of breaking down
from a bearish Rising Wedge. If this happens it is going to drop hard, in
which case gold and silver are going advance strongly. Gold's rally of the
past couple of weeks seems to be anticipating this and last week silver threw
its hat into the ring, breaking out from a Double Bottom base and confirming
gold's recent strength.
While we were wrong in the last update, the good news is
that we haven't actually missed all that much, for as we can see on gold's
latest 10-year chart, this party hasn't even started yet, and it won't,
officially speaking, until gold breaks above the clear line of heavy
resistance at $1400 that marks the upper boundary of its giant potential
multiple Head-and-Shoulders bottom. While that level is still some way above
the current price, it could get there PDQ (pretty damn quick) if the dollar
breaks down from its Rising Wedge and drops hard soon, as is looking
increasingly likely, and follow through with a breakout into a vigorous
bullmarket that will dwarf the one of the 2000's into 2011.
Likewise, the rally so far in the Precious Metals sector
has been miniscule compared to what's coming if gold breaks out above $1400,
as we can on the 10-year chart for the GDX, where we can see a sort of
rough-hewn Head-and-Shoulders bottom. If this is what it turns out to be then
we still have great prices for most stocks in the sector, as it is still very
close to what should turn out to be the Right Shoulder low of a giant
Head-and-Shoulders bottom.
The 6-month chart for GDX is interesting as it shows that
a pitched battle between bulls and bears is occurring in the vicinity of its
still falling 200-day moving average and at the upper boundary of the channel
shown. While the larger dark candles and higher volume suggest that the bears
will temporarily win the day and force a reaction, this would accord with
gold backing off a bit as the stockmarket advances a little further before
reversing, and any such reaction should present a good buying opportunity.
Another significant upleg will soon result in a bullish cross of the moving
averages.
The impressive outperformance by Precious Metals stocks
relative to general stocks during the past few weeks is amply illustrated by
the 6-month ratio chart for the GDX relative to the S&P500 index. This
ratio eased back in recent days due to the stockmarket’s snapback rally.
We are going to wind up by looking at two charts that
ought to turn even the dourest of skeptics into Precious Metals sector bulls,
unless that is, he (or she) is stupid, in which case they are beyond help.
First, the chart for the gold to silver ratio, which shows that it is at
levels that have only been reached on 3 occasions in the past 20-years. The
1st occasion was in 2002, when the great 2000’s sector bullmarket was in its
early stages. The 2nd was at the depths of the 2008 crash, which also dragged
down the PM sector due to the dollar spiking, which doesn’t look it is going
to happen this time round, or if it does it is likely to be much more muted.
The 3rd occasion was at the trough of the sector depression late in 2015 and
early in 2016, when PM stocks were crazy cheap. The ratio exceeded all this
levels in the recent past, which is a reliable sign that a major new bullmarket
is not far away.
Next and last we will take a look at the 20-year chart for
the ratio of the HUI goldbugs index to the S&P500 index. This ratio chart
provides a technical explanation for why the sector was so weak over the past
2 and a half years – it wanted to make a nice neat Double Bottom with its
lows of late 2015, and now that it has done so and is starting to rise up
again, it would appear that it is satisfied. This is a chart that bodes very
well indeed for the sector, especially as the rise off the 2nd low of the Double
Bottom occurred as the broad stockmarket was falling heavily.
This update started out by me admitting I was wrong by
being too bearish on gold and silver in the last update, but in fairness to
myself, I was right about a lot of things. Like the stockmarket caving in, in
particular the FAANG stocks. Thus, we made a lot of money out of Apple Puts, and by buying a range of broad
market inverse ETFs, which we sold for a nice profit before and after Christmas.
Let’s end on a positive note by saying that if you thought 2018 was bad, wait
until you see what a terrible year 2019 will turn out to be. By “positive
note” we mean that although most investors will end up losing a lot of money
in 2019, it won’t include us and doesn’t have to include you. On a general
level, if you buy the Precious Metals sector here or soon, and dump most
everything else, you should come out on top by the end of the next year, and
handsomely so in many cases. Of course, on the site we try to be rather more
specific than that and will detail the various large cap, mid cap and small
cap mining stocks and also ETFs that can be used to this end.
So Happy New Year to you all, and as for 2019 – bring it on!!
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