Gold and silver prices were down last week and as expected, no major movements have been seen till now this week. Stories about dynamic price rises as well as price meltdowns in gold and silver continue to circulate this week, hitting even the mainstream media. I am bullish on both, especially silver. At the end of the day the irredeemable paper currencies will fail and I expect gold and silver to do exceptionally well, just not so fast. Let me explain.
The debate over interest-rate increases is set to intensify at this week’s meeting of Federal Reserve policy makers. Now, with the combination of a strong rebound in the employment data and stocks at record highs despite U.K. voters’ decision to leave the EU, the voices of those in favor of higher rates are likely to come back to the fore. I believe that in the policy statement of the July 26-27 FOMC meeting, the Fed may some how alert us to the high probability of a 25 basis point increase in the federal funds rate occurring at the September 20-21 FOMC meeting., though there is no post-meeting press conference with Fed Chair Janet Yellen to drop further clues. One way the committee could signal an intent to move would be by providing an assessment of the balance of risks to the economy. The reason for my Fed policy expectation is that the pace of U.S. economic activity has picked up in recent months, said Paul Kasriel. Is it likely that the pace of U.S. economic activity will slump significantly between now and September 21? Not if the behavior of “thin-air” credit has anything to do with it.
Note that, in the late 1970s, when gold prices climbed with interest rates, the climb coincided with an ongoing gold bull market. Gold prices rose 118 percent in the two years after the Fed started that series of rate hikes. Something similar happened after the Fed began lifting rates in 2004. One year later, gold prices were up 11 percent.Two years later, they were up 57 percent.
When gold prices climbed in the late 1970s, the U.S. dollar was struggling compared to other major currencies. Then, as the dollar climbed 88 percent higher from June 1980 to February 1985, gold prices fell 56 percent. When the U.S. dollar started falling in 2002, gold began a massive bull run. It climbed 55 percent over the next 35 months. And, as the U.S. dollar climbed 37 percent from April 2011 to November 2015, gold prices were weak, falling 32 percent. Put simply, if you want to know what gold will do next, forget about the Fed and look at the U.S. dollar.
BoJ Easing or Government Intervention?
Japanese Prime Minister Shinzo Abe announced plans (ahead of the BoJ’s policy meeting that ends Friday) for more than 28 trillion yen ($265 billion) in economic stimulus in an effort to prop up the economy. Most economists expect the Bank of Japan to expand its asset purchases and cut rates further below zero at a two-day meeting that ends on Friday. Japan’s Topix stock index has risen more than 9 percent since Abe’s ruling coalition won a big victory in the upper-house election on July 10 and the yen has weakened almost 5 percent amid anticipation over the plan. Some economists have criticized the idea of a new spending package, saying the heavily indebted nation needs structural economic reforms and deregulation more than updated infrastructure.
But the yen’s recent weakening and a government spending package take some pressure off the bank to step up its massive stimulus program. The BOJ has already implemented negative interest rates and is printing 80 trillion yen ($750 billion) a year to stimulate inflation after decades of deflation and stagnant growth, yet inflationary expectations appear to be weakening. The BOJ might announce smaller stimulus measures than expected, but Japan’s fate is sealed, and the helicopters will remain ready on the tarmac. A Citi survey of its clients and financial institutions showed 80 percent expected the dollar to fall more than 3 percent against the yen if the BOJ stands pat and does not signal action in September. More than 30 percent think the drop will be more than 4 percent.
Flows into exchange-traded funds backed by gold have dried up, with record gains in the first half dwindling to a trickle. Holdings fell 0.6 percent in the past two weeks, as prices slid 2.6 percent. Physical gold demand hit a seven-year low in the second quarter, GFMS said, falling by more than a fifth for a second quarter in a row, as economic pressures, the sharp rise in prices and uncertainty over their direction hurt Asian offtake. A surge in Western gold investment helped offset sliding Asian demand in the second quarter, GFMS analysts at Thomson Reuters said on Tuesday, as they hiked their gold price forecast for the year in response to jitters over the economic outlook. Indian jewellery demand fell 56 percent year on year to 69 tonnes in the second quarter, while net investment was 40 percent lower. In China, jewellery demand plunged 31 percent, while retail investment was down 12 percent.
I expect further choppy to downward price action in gold late this week. It’s still possible that gold could trade as low as $1285 and back near its 50-day moving average before bottoming. This area has proven as support all year. A renewed gold price rally could be seen in early August back to near, but likely not exceeding the highs of late June and early July by much (if any). Something between $1372 and $1396. There could then be a “double top” formation in gold charts followed by expectations of a sharp correction from there again. This decline in gold prices could then go forward till the most important time-frame that I see – The September 20-21 FOMC meeting. The resultant outcome of this meeting will also coincide with a plethora of geo-political and economic developments that I will elaborate upon in my forth-coming articles. I believe that the bull run in gold and silver, that paused in its tracks in July, will continue swinging both ways with a high degree of volatility till Sept end, but will be back in a more vigorous and ferocious form soon after. I strongly believe that this bull-run-on-steroids phase in gold and silver will take off around 26th September 2016.
It’s also worth mentioning that the summer months have historically been among the weakest. By contrast, some of the highest gold returns of the year have occurred in September, when the Love Trade heats up in India in anticipation of Diwali and the wedding season.
Silver has been enjoying a stint of relatively high prices amid the somewhat elevated uncertainty surrounding markets. However, the metal has begun to experience a decline over the past few weeks which could spell a breakout in the near future. In fact, if the daily support level at $19.18 is broken this week, we could see a significant tumble in store for Silver prices. This is not because I foresee this nascent silver bull being strangled at birth, but rather because of the nature of the silver bull. Whilst there does remain some scope for bullishness over the next few sessions, pivot point and Fibonacci level analysis is suggesting that the 19.72 to $19.81 resistance should hold. This is largely a result of the PP level coinciding with the 38.2% Fibonacci retracement which should prove to be a difficult zone of resistance to breach. The Parabolic SAR indicates that Silver could be about to transition into a bearish phase. The descending trend-line and horizontal support could soon converge, creating a wedge situation. This would be ideal given the explosive moves these patterns can produce. However, if the 19.81 to $19.90 level is tested it could see the H4 reading reverse to bullish. If this occurs, it will likely mean that a breakout will eventuate somewhat later in the proceedings. Historically, silver has seen some volatile action followed by periods of inactivity. These periods can be so volatile that some silver investors may wish to reduce their positions at such a time. Silver has risen more than gold this year till now. Similarly when the silver price corrects, there is more pain for investors as there is a greater “payback” for the bigger percentage moves than gold. The downside associated with silver is generally so volatile, that it makes many speculators and investors sit up and wonder if the silver bull was real. There is surely the possibility that a silver price spike is coming in early August soon to be followed by a disconcerting drop till around Sept 26th of 2016. Also remember the fact that, the silver price has tended to move along with the overall EMERGING MARKETS for a long time now. The gold and silver December contracts will witness the great upside breakout in prices.
Engineered Stock Market Rally
Are you wondering why stocks are rallying? Companies in the S&P 500 bought back $161.39 billion of shares during the first three months of the year, the second-biggest quarter for repurchases ever. A share buyback is when a company buys its own stock from shareholders. Buybacks reduce the number of shares that trade on the market. This boosts a company’s earnings per share, which can lead to a higher stock price. But buybacks do not actually help companies grow profits. They only make profits look bigger “on paper.” According to The Wall Street Journal, the total number of shares of stock on the market is shrinking for the first time in five years. Shares outstanding in the S&P 500 have fallen this year from year-earlier levels, on track for the first yearly decline since 2011, according to S&P Dow Jones Indices. But, with earnings in decline, stocks will only get more expensive the higher they climb. Expensive stocks crash faster and harder than cheap stocks. In short, you’re risking a lot of money for the chance to make a little if you own the S&P 500 right now.
As explained in an earlier post: This entire stock market rally has an engineered feel. All the technical buy signals are precisely what you’d expect in a rigged rally. The Dow staying put at current peak levels, appears to be what is needed to get most people believing that the 7-year rally will continue (a classical set-up for a massive collapse). The fact that the Dow’s recent rally is represented by a retest of a breakdown of this ratio, instead of a retest of a breakout, supports the likelihood that the Dow’s recent rally is fake. If there’s nothing supporting this rally but euphoric sentiment arising from orchestrated buying, any eruption of reality will reveal the rally as a head-fake:having exterminated short-sellers, there won’t be many who will benefit should the rally be transformed into a rout by reality. The current P/E expansion cycle is now one of the largest in history. Last week’s commentary highlighted several reasons why we believe the current 75% P/E multiple expansion cycle is unlikely to continue.
Great opportunities to buy relatively low are only seized by prudent investors and speculators who are aware they’re coming and stay informed. This alert regarding the next expected upside rally in gold and silver from around 26th September was already given to our premium membership clients in the first week of June. We always strive to provide a solid and reliable timeframe for major events to our discerning clients and help to keep them abreast of the markets. To subscribe to our premium services now – click here for Indian markets / click here for International (Comex) markets.
Gold and silver are real money. More debt cannot heal anything – it just buys some more time. On the other hand, for gold and silver – it would be the time to shine if helicopter money would be implemented. The ever-increasing global debt, already at extremely high levels along with engineered stock markets make markets vulnerable to massive meltdowns. Investors buy gold and silver when they’re nervous about the economy or financial system. Gold and silver – held physically, are the only reliable forms of wealth insurance. I think we are only at the beginning of this gold and silver party. Secure your tomorrow ….today.
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