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I’m seeing unusual strength in the gold market. Strength that has reversed the very short-term negative trends in gold to positive, and even given me a new cycle projection on my software.
In fact, I believe gold’s recent action is so significant, it’s bearing important messages about the future. I’ll get to those in a minute, and how you should prepare your finances. First, more on the recent action in gold …
Consider gold’s daily cycle chart. As you can see, the daily cycle projection for gold (red line) is now showing a few more days of sideways trading action … then the potential for a very slight dip in mid-September, but then a powerful rally going into October 20.
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How does one interpret this cycle chart for gold? What could be the underlying fundamentals emerging that are giving gold unusual late summer strength right now?
First, from a technical perspective, I believe the long-term bull market in gold is overpowering the short-term action, and instead of the usual weakness we should see in late summer, we are now seeing an early kick-off to the Autumn rally I spoke of in prior issues.
That’s not unusual when longer-term cycles are so powerfully bullish. They can often alter the shorter-term cycles, turning what should be a period of weakness, into unusual short-term strength.
Second, also from a technical point of view, gold has risen above important chart resistance at the $1,225 level, and it has consolidated that price support over the last several trading sessions. Put another way, the $1,225 level that was previously resistance, is now starting to act as support.
Third, from a fundamental point of view, we already know the demand/supply picture supports a long-term bull market in gold.
So, like the long-term cycles, the long-term fundamentals at this time seem to also be overpowering the short-term seasonal weakness we otherwise should be seeing now in the yellow metal.
Fourth, also from a fundamental point of view, I believe we need to interpret gold’s recent unusual strength as giving us a few important warning signs of what is to come. That’s often true of gold, as it, more than any market I know, has the uncanny ability to anticipate future developments in the economy and in the markets.
Here’s where I think it gets very interesting, and why we need to heed gold’s recent warnings. Right now, I believe gold’s recent strength could be foreshadowing the following …
A. That the Federal Reserve could very soon start printing money again. We already know the Fed is prepared to do this, from its last FOMC meeting, where they openly admitted the economy stinks and that the Fed stands ready to do whatever it deems necessary.
So perhaps Big Ben is going to start printing even sooner than most anticipate, given all the weakness we’ve seen in recent economic stats.
And contrary to what most analysts will tell you, the Fed is not out of bullets. The Fed can print up as much money as it wants, whenever it wants.
It can buy up more mortgages. It can buy up Treasury bonds, bills, notes and even corporate IOUs. It has far more power than anyone wants to believe.
That doesn’t make it right, nor does it guarantee any of these actions will fix the economy. You all know my view on the Fed’s actions: They’re largely designed to kick the can down the road … devalue the dollar … buy time … and eventually inflate away the economy’s problems by easing the burden of debts by raising overall price — and yes, asset — levels.
And as I’ve said many times before, it remains to be seen if it works.
But the fact of the matter is that gold’s recent action is likely warning you that the Fed is already getting ready to bring out some pretty big guns.
B. There could also be, right around the corner, another round of sovereign debt problems in Europe. That would not surprise me one bit. The sovereign European debt and euro currency crises are far from over; they could erupt again at any minute.
That may be another reason why we are seeing the U.S. Treasury bond markets showing recent death-defying strength, with yields plummeting to new lows, as investors begin to worry about Europe’s financial safety again.
Also coming into play …
C. China’s economy is far stronger than most expect. The media in the West, as I have pointed out in recent columns, is way too pessimistic on China’s economy, talking of a massive slow-down there, even an implosion.
Don’t buy into it. China’s economy, at worst, has already managed a soft-landing, so to speak. And given what I’m seeing here in Asia — growth throughout Asia is more likely to start accelerating again, exactly the opposite of what most in the West currently believe.
What’s more is that China is now actively liberalizing the gold market. The People’s Bank of China (PBOC), China’s central bank, recently announced that it would start encouraging private investment in gold — including developing new retail gold products for its citizens such as gold savings accounts and gold Exchange Traded Funds for domestic Chinese citizens.
This is a huge positive for the gold market, obviously, and China is likely to move very aggressively on this.
Also important: Beijing has recently started selling U.S. Treasury securities, and investing the proceeds in Japanese and South Korean government bonds.
This suggests China is moving out of the U.S. dollar. So in addition to selling U.S. Treasury notes and bonds and buying other Asian sovereign debt, it’s very likely that China is now actively building its gold reserves again.
Bottom line: Gold’s unusual short-term strength, which has turned the short-term cycles from negative to positive, is a very bullish sign for the gold market.
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The strong Autumn rally in gold that I’ve been telling you about? It may already have started.
One final note before I give you my suggestions on how to position yourself. As I’ve been warning you, the broad market U.S. stock indices are starting to roll over to the downside. I still fully expect to see Dow 9,000 soon, and more likely, 8,700.
If the Dow closes below 8,745.90 on any trading day, there is even the potential for the Dow to fall as low 7,870.
So if you’re not already out of the stock markets, then now’s the time to get out. Do not delay.
Exceptions: Natural resource stocks, my core Asian positions, and especially my core gold positions and mining shares.
Examples: iShares FTSE/Xinhua China 25 Index (FXI) … SPDR Gold Trust (GLD) … U.S. Global Investors China Region Fund (USCOX) … Agnico-Eagle Mines (AEM) … and Goldcorp (GG). Those positions are showing gains of as much as 50.7% since first featured in this column. I suggest you consider holding or adding.
Best wishes, as always,
Larry
P.S. My August issue of Real Wealth Report is out! It’s a dynamite issue you should not miss. Click here now to become a member and to immediately download the issue.
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{ 7 comments… read them below or add one }
Still waiting for the U.S. Fiat Dollar to start declining.It still is getting all this “flight to safety” investing.The U.S. Dollar is not backed by money,gold,and is nothing more than the common stock of a bankrupt govt.Would you invest in a company’s stock that had a balance sheet as bad as the U.S. govt and if that company was run by idiots(American voters)?.I wonder if China is considering moving to a gold backed currency in the future.When the U.S. was the world’s strongest economy,like China is today,we had an honest currency,backed by money.I don’t think any country can prosper,long term,using a dishonest fiat,politicized currency.
How can you be so sure of a sell off when it appears that the stock market and commodities are being manipulated by the big banks. and possibly the Fed & Treasury? It’s no wonder volume is so low. The little guy is being swindled by the big guys.
Eventually the whole enchilada will collapse like the Soviet Union.
Larry,
“GLD” is paper gold. Why would you have that??? Even the owner of GLD does not have shares in his own
company?
Larry, I am a 71 year old investor who manages my wife’s and my IRA retirement accounts. Please know you have been a giant influence upon my study and decision making concerning the composition of those accounts. My reason for writing is to encourage you to be even more conscious that many people have a high degree of trust in you, as I do, and make decisions because of your reasoning and valuable information you provide that we need to make informed decisions.
Sincerely, and with much appreciation,
Gil De Armas Jr,.
Larry, you say we should get out of stocks now! But Steve Sjuggerud of Daily Wealth Premium says there is a 98% chance of higher stocks in the next 3 months. Whenever there is pessimism about the markets, it is followed by an increase in stock prices, as history has shown. As someone famous said, “buy when there is blood running in the streets”. What do you say in reply to Steve Sjuggerud’s opinion?
Larry,
You have recommended USCOX fund for some time now and it has gone basically no-where. I wonder why you keep recommending it??
I bought it at around $10.00 and it has never got back to that level in several years. The management is rated below average and the lack of progress while the rest of China is booming made me decide to use it as my IRA required distribution. Do you have some connection to it that you keep recommending it?
Lael
This weekend while camping I noticed a solar shower bag suddenly collapse and fall over. It had been warming steadily in the sun for about two hours, and then in about 2 seconds, could no longer support the weight of the structure and fell over. Our currency supports the weight of the expectations of all those who use it to reduce uncertainty about the future. As our leaders are idiots, except Ron Paul, and everybody believes in the tooth fairy, compassion, a free lunch, and more government benefits, the structure erodes that supports our faith in the dollar. Will it be at 90% debt/GDP that the positive feeback loop from interest payments and higher debt issuance at lower prices puts the gun to the head of G. Washington on the US1$, or sooner, or later? Its a scatter diagram also influenced by current account deficit (one of the worst in the world), the domestic savings rate (miserable vs. China) and the thing we have going for us most, disbelief that it could happen.