|
Written by Administrator
|
|
Friday, 16 December 2011 16:43 |
After many confirmations of the exponential trend, this is the first major challenge since I started publishing these charts over a year ago. Let's look at the concerning development:
To repeat what I wrote last time: not every 10-20% retreat is "the end of the bubble". They call this the "wall of worry" in a bull market. I must admit I'm kinda worried this time because the exponential trend line being confirmed multiple times was giving me some serious confidence in the trajectory, and this move now challenges to invalidate that trajectory. The fact that it crossed under the 200 day moving average also adds to that concern.
That said, the depth (in percentage terms) of the pull-back at this point is only slightly more than the average correction during this bull market and has a long way to go to match 2008. It also has quite a ways to go before becoming true bear market territory. Technically speaking, we're still in a flag formation, which is a bullish continuation pattern. Unless we have another steep sell-off from here down to $1500 or lower, we're still in a strong up-trend.
So, we've got some mixed technical signals here. Looking at the charts alone, it could be another 2008-style bottom which catapults higher back into the exponential trend, or it could be setting up for a redrawing of the trend.
Good thing technical indicators are just a tool to gauge transient market sentiments and not our only method of gauging where the market is headed. We also have fundamental analysis. All the fundamentals driving gold and silver higher remain intact and have only grown stronger. The U.S. government agreed to add another $2.4 trillion to the national debt in August and just yesterday approved another $1 trillion in spending for a short-term continuing resolution in lieu of a real budget. The national debt is now over $15.100 trillion (more than 100% of GDP) and will probably hit the ceiling of $15.194 trillion within a month. And as we go into ferocious politicking around this issue in January again as we did in August (Obama can sell up to $1.2 trillion more in bonds, but he will have to veto a Congressional vote against it with each bond issue, and possibly face further credit rating downgrades), it will be accompanied by a far worse and quickly deteriorating situation in Europe which will almost certainly result in the break-up of the monetary union and several major economic powers declaring bankruptcy.
The Federal Reserve has pledged to keep interest rates at zero percent until halfway into 2013. Meanwhile all of that Treasury debt that's piling up is eminently unattractive to foreigners at zero percent interest; as a consequence, they have drastically reduced participation in Treasury auctions of late. The Federal Reserve has been and will increasingly continue to act as the lender of last resort, quietly engaging in "quantitative easing" to buy those Treasury bonds without announcing it to anyone as such. Moreover, we've just recently learned that the Fed is participating in bailing out European banks and governments, providing trillions in liquidity. As such, the monetary base is expanding rapidly and inherently fueling inflation.
China is dealing with high inflation and a crashing economy, but yet are also now easing their monetary policy. The Swiss Franc is now pegged to the dying Euro. Central banks are now net buyers of gold. And the Fed is probably going to declare a new major program of easing as the economy suffers another leg down following a very weak holiday shopping season. The Yahoo Finance headline today reads, "Ho, Ho, No! Santa Claus Rally Won’t Hit Wall Street This Year." We've already seen ample evidence that the Fed won't sit back and do nothing, particularly since their manipulated inflation indicators are still within their "targets". This is not an environment in which gold could suddenly become a bear market!
So where to from here? Gold and silver have been correcting for nearly four months and have now breached the 200-day average and the exponential trend line, but fundamentally are in a bull market and severely oversold. I don't think they'll long stay at these levels, but I said that last time too. Already they have stayed down far longer than I've expected. How much longer until the next break-out to the upside? Unfortunately, short-term movements are incredibly difficult to predict. We could hang out here or even lower for another month or even two. Or we could get an inflationary catalyst to set it off tomorrow! I would expect increasing volatility, with possibly $100/day moves either up or down.
We did spend all of November above $1700 for gold, as predicted, and we even had a confirmation of the trend by bouncing off the lower limit that month. This recent crash to $1600 was highly unexpected, especially since this is historically the strong season, but we could very easily see a year-end rally to the minimum for gold near or above $1800 to continue this same exponential trend. A $200 move is not at all out of the question. Silver also handled November as expected, but is below the trend now like gold. Silver should end the year above $35, which is a $5 gain from here. I don't know how likely this is -- the rally may not come til January or even February as an outside possibility. I do not see us getting into spring without a significant rally though. History has shown that precious metals achieve most of their annual gains between Sept and May, with Dec through Feb being the strongest months. All else being equal, the time of year alone should bring our rally. Any number of black swans could catalyze an even more significant move.
The main take-away is that while it certainly can't hurt to be cautious and hedge your bets, we're very likely currently at an incredible buying opportunity, just like in November/December 2008 when I picked up some gold and silver miners which ended up being 10-bagger gains for me!
And especially if you don't have any physical metals yet, I highly recommend signing up for a BullionVault account right now and loading up on as much as you can afford in their Swiss vault. You will probably never ever see gold this cheap again and will kick yourself for not taking advantage of this opportunity. As this global financial collapse progresses and fiat currencies go down the proverbial drain, physical gold and silver in your possession or in a responsible vault in a foreign jurisdiction will be your only insurance and protection.
|
|
Last Updated ( Friday, 16 December 2011 18:25 )
|
