Will Europe solve its problems?

Video Transcript

Good morning. This is Larry Edelson with my Uncommon Wisdom video for Monday, June 11.

Well we’ve certainly seen quite a bit of action as far as the news goes. Europe’s crisis continues to unfold, the latest developments being Spain basically failing and being shut out of the credit markets.

I don’t believe Europe’s leaders will come together again. It may look like that on the surface. They’re holding emergency meetings, but they have yet to come up with any kinds of policy or procedures to stem this crisis.

And in the long run, even if they can kick the can down the road for a few more months, they’re not going to be able to stem a complete sovereign-debt crisis and the breakup of the euro. So that’s what we’re dealing with now.

This will eventually migrate to the United States and we will see a sovereign-debt crisis here in our country as well. All the ingredients are in place for that to happen. Right now, however, the U.S. is looking relatively good compared to Europe. However, the markets are still in a disinflationary mode, which I’ve been forecasting for you. So let’s go right to the charts …

Gold: Here’s a new weekly chart of gold. As you can see, gold has broken its major uptrend from the low in 2008 and it’s so far been unable to penetrate back above this uptrend line. We could see a brief rally up to about the $1,700 level, but even that would not turn around gold’s immediate downtrend. It’s far more likely that we’ll continue to see lower lows in gold until there is a coordinated central bank intervention in the sovereign debt crisis. And I don’t see that occurring immediately. Therefore, the bias remains to the downside in gold.

Silver: Here’s my latest updated weekly chart of silver. Here you can see that silver is making lower highs and lower lows. Basically it’s tested the $26 level no less than five times counting the last couple of weeks. That’s usually a sign that it’s breaking down that support floor here and the next test will likely penetrate right through that floorboard and see silver drop substantially lower to at least $23 where I have some system support and probably even lower to $20, perhaps even just below $20, depending on how long it takes for silver’s next leg down to unfold.

U.S. Dollar: The dollar has been acting very well here. Here’s the uptrend over the last few months.

As you can see, the U.S. Dollar Index has broken above this wedged triangle here — that’s a show of strength for the dollar. The dollar is really only rising substantially against the euro for obvious reasons. There’s a flight to cash going on, a liquidation of assets in Europe, and that’s boosting the dollar, which, of course, is adding to the disinflationary aspects of the commodity markets right now.

Dow Industrials: Here’s a monthly chart of the Dow.

The Dow has rolled over a bit. We’ll likely see a test of the low 11,000 reached in the Dow. But as you can see just glancing at this chart, the Dow is holding up better than other asset markets, better than commodities right now. Why? Because the stock markets can, and I’ve mentioned this to you many times, take on the aspects of a safe haven when there’s a debt crisis going on in the bond markets.

You have to ask yourself, if money is going to be pouring out of European bond markets, where’s it all going to go? Some of it’s going to go into pure cash (the dollar), some of it’s going to go into commodities, some of it’s going to go into real estate, and some of it into stocks. It has to go somewhere.

Right now, I would venture to say that more of it is going into U.S. stocks than commodities for example, which is helping the Dow outperform commodities in the short term. In the long term, I believe both stocks and commodities will be going substantially higher.

That’s it for this update. Stay tuned to my publications and my writings. Have a good week!

Larry Edelson has over 34 years of investing experience with a focus in the precious metals and natural resources markets. His Real Wealth Report (a monthly publication) and Power Portfolio provide a continuing education on natural resource investments, with recommendations aiming for both profit and risk management.

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