Where are the Precious Metals Going?
The Big Picture
My forecasts and newsletter have been bullish on the precious metals since before the start of these big bull markets. When I first gave you my forecasts they seemed unreasonable, unlikely and perhaps improbable. But here we are now in the biggest bull markets in over 2 decades for gold and silver and at record highs in platinum (and copper). My long-term perspective has paid off. But in the commodity markets you are only as good as your last recommendation. While many of you who had the discipline and the long-term perspective to take and HOLD positions in these markets some of you are complaining almost daily about losing open positions in the meats and grains. But this is human nature and it will never change. What I want to address as more important issues are the following:
√ Are the rallies in metals over or are they approaching their end point?
√ If the rallies are over, then what can we expect on the downside, and is it time to liquidate positions and/or go short?
√ If the rallies are not over as yet, then what can we reasonably and realistically expect on the upside?
√ Do these persistent and, at times, explosive rallies suggest trouble ahead in the economy, and if so, what trouble?
√ Is it too late to get on board these markets?
√ Has the public entered the markets yet to the extent that a major sell-off is due before a rally to new highs?
√ Are there short-term opportunities in the markets given the massive volatility and large daily price swings? I will attempt to give you my answers to these questions as best I can. Those seeking more detailed information are advised to order my 120+ pages 5-3-7 Winning Traders Report on the commodity markets, the equities markets, the economy and investing strategies. The report will be out in a week.
Trends and Spike Resistance Levels My method long-term analysis involves the use of cycles, patterns, the Value Area Index, and “spike support and resistance
levels” combined with a healthy dose of economic reality and intermarket relationships. The chart below, and the chart on page 2 (bottom), show spikes, the trend and cycles in gold. Based on this analysis, the odds are that highs have not yet been made in gold. Here are my thoughts about the other questions I raised.
Are the rallies in metals over or are they approach ing their end point? I do not see tops as having been made as yet. There are no definitive indications of tops in any of my technical indicators.
What can we reasonably and realistically expect on the upside? Take a look at the charts in this issue for my evaluation of the current resistance and support levels in the precious metals.
Do these persistent and, at times, explosive rallies suggest trouble ahead in the economy and if so, what trouble? These large up moves in many commodities are indicative of an inflationary economic trend that is still in its infancy. I advised you many months ago that “savvy investors” were loading up on the metals in anticipation of inflation. There will be trouble if government response and/or preparation are insufficient or exaggerated.
Is it too late to get on board these markets? No. But remember that the best opportunities are gone. The best trades to make will be short-term and high risk. Don’t trade gold unless you can risk at least $20 and don’t trade silver if you can’t risk at least 45 cents. And if you trade platinum and/or palladium exercise great caution - the markets are very thinly traded. Your fills can be (and probably will be) very bad! Has the public entered the markets yet to the extent that a major selloff is due before a rally to new highs? I believe that the public is just now waking up to the bull markets in precious metals. This is good news, and it’s bad news.
The good news is that the markets will become even more speculative and the bad news is that when the public enters a market the odds are that the moves are at least 65% over. And YES, I believe that the market CAN rally to new highs. Typically the new highs will come on public buying as professionals exit and the public buys in at high prices.
Are there short-term opportunities in the markets given the massive volatility and large daily price swings? YES, there will be many opportunities in silver and gold for shortterm trading. These markets will continue to be more active as the public continues to pile on board and as the marketers begin sending out their “get rich quick in gold” e-mails and postal mails. You’ll see more ads for gold, gold coins, scrap gold and silver, silver coins and the usual assortment of schemes and scams. The time to be careful and cautious is NOW. The time to have taken investment positions in these markets was several years ago, when I first advised you to do
so. The time to speculate carefully is NOW!
COWS (Corn, Oats, Wheat, Soy Complex)
We are in a period of commodity price inflation during which one market after another can make large moves up. Naturally, traders are not optimistic because optimism only reigns supreme when markets are rallying. The sentiment in the soybean complex is especially negative. Still, however, my work suggests that commodity price inflation is very likely. I believe that those markets which have not yet responded to the upside in view of inflationary pressures will do so soon if these moves have not already started. The most likely candidates for new bull markets are the grain and soybean complex commodities as well as cocoa, coffee, the meats and lumber. These markets could make major gains following strength in the metals.
Soybean Complex
During the last sideways move and during the current sideways to lower move, Commercials have continued to accumulate longs. I believe that if and when the complex begins to move up strongly, the gains could be dramatic, particularly in soybeans. The hotline recommended a long position in soybean oil that now shows an open loss, but I am optimistic that a turn to the upside will come soon in the entire soybean complex. Note that recommendation on the hotline are intermediate-term and therefore they require larger stop losses than short-term trades.
Corn: My indicators gave short-term buy signals. I recommended positions via the hotline. Hold and follow-up as recommended on the hotlines. I do not see any reason to change my view on corn given the continued intermediate term up trend and developing weekly support as well as the bullish configuration of Commercials in this (and the other grain / soybean markets). The large jump in prices based on ethanol news could be the start of the big bull move I’m expecting.
Wheat: Commercials have accumulated large long positions in wheat which, in my view, is a strongly bullish factor. The current recommendation shows an open loss, however, I believe that it will recover strongly. Note that this is a volatile market that requires plenty of room in the form of large stop losses! Follow up per hotline advice. The intermediate-termtrend in wheat remains clearly bullish in spite of recent shortterm weakness.
Oats: I have been bullish on oats and there is no change in my forecast. Volume remains thin. The market has declined to test support levels which should hold. The recent shortterm correction down was considered to be a pause in the long-term up trend. If I recommend a position via the hotline, PLEASE DO NOT USE market orders given the very low trading volume in this market.
Meat and Livestock
My long-term outlook, based on cycles, is very bullish for both markets given the highly reliable 3, 5 and 10-year cycle patterns. An examination of cash and futures data in the cattle market shows that years ending in “6” have often marked the start of major bull markets. This has been one of the most reliable long term cycles I know of in the cattle market. I have not changed my forecasts or recommendations in cattle or hogs. Note that when the hotline recommends short-term positions, the risks are smaller than when longer term or intermediate- term positions are recommended. Patience will pay off extremely well in these markets. Commercials now hold record long positions in cattle and near record large longs in hogs. I consider this to be bullish. See details below.
Hogs: I advised several short-term long trades via the hotline that should have been closed out at a profit. The hotline recommended a long as prices declined to what my support area (indicated). This trade currently shows a loss, however, I expect it to turn higher soon. Daily sentiment is VERY LOW, which often correlates closely with bottoms. April was rolled into June.
Cattle: I expect the current decline to support to be followed by a major rally. Daily sentiment is at its lowest level in many months which often correlates with market lows. Consider bull spreads in cattle and hogs as a lower risk alternative to ong positions. Commercials hold record long positions in this market (as far back as we have reliable data ).
Metals
The long-term cycle in gold suggests that this is the ideal time frame for a top. I have discussed my outlook for the precious metals more fully on pages 1 and 3 of this issue. There are no timing triggers to tell me that there has been a long-term top. I still expect a target of $605+ in gold. I believe that the top is likely to come as a “blow-off” on public buying, and bullish news which would be typical of tops in the precious metals. Exceeding the approximate 605 level in gold could trigger a move to the 725 area. See also my spike resistance charts in this issue.
Gold: A long-term cyclical top in gold has NOT yet been made based on my timing and trend analyses. Caution was advised; a correction down was expected, and it developed. Await an intermediate-term BUY recommendation. I believe that the market will go much higher and eventually trap many late comers just as previous tops have done.
Silver: Long-term investors were advised to hold positions in silver and silver mining stocks. My long range target of $10 or higher was achieved. I see no signs of a major top as yet. The next long-term resistance level is in the $13 area which, I feel, has a realistic chance of being hit as the public panics to get into this market. See also my spike resistance chart.
Platinum/Palladium: The technical behavior of palladium remains extremely bullish with prices now near intermediateterm support. Those who took my long-term advice to buy PAL (North American Palladium) have scored huge gains. Platinum and palladium remain in strongly bullish trends. I do not see any triggers of a top as of this writing.
Copper: I DO NOT recommend long-term short sales as yet because I do not see technical signs of a major top as of this writing. Mid to late March has been the usual seasonal time frame for tops in copper. Hence, the market is living on borrowed time seasonally. Traders may want to consider buying the back months of copper (i.e. December) and selling the nearby months (July) as a bear spread. When copper prices finally begin the decline could be severe.
Currencies
Aussie $: A significant top was expected; one that was expected to lead to a decline into the 7350 area and it did so. I advised you that a low was developing and it has done so. Eurocurrency and Swiss Franc: Both markets rallied to projected long-term resistance areas and topped as expected. A bullish short-term pattern has developed. The trend is now bullish based on momentum divergence but lows could be tested soon as US interest rates are increased again.
Japanese Yen: The Yen is positioned for an approximate 7- year cyclical low which may have been made. A short-term low is in place. I expect a MAJOR rally in the
Yen vs. US dollar over the next few years.
BrPound: The market has made an 8.1-year cycle top almost exactly as predicted. Seasonal weakness is likely to continue, however, a short-term low has been made as predicted. Lows were expected to be tested over the next few days. They were and prices rallied strongly.
US Dollar: I am long-term bullish on the US dollar. A shortterm low was made. Await buy recommendation if and when prices drop to intermediate-term support which is now happening.
Canadian $: I warned you that there was DANGER of a short term top! I believe that the Canadian dollar can still test the 90 level or higher vs. US$. A short-term low is developing.
Tropicals
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Fibers
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CRB Index
The CRB Index is an excellent measure of commodity price trends. The cycle has bottomed very late and I believe that developing bull markets in many commodities will result in a CRB Index surge to very high levels over the next year. The problem with the CRB as trading vehicle is that volume is very thin. Nevertheless, the CRB is a very good measure of cycles and trends in the overall commodity markets. If my cyclical and trend work is correct then both indices should continue higher, perhaps substantially higher over the next 12 months.
TBonds / TNotes
There are some indications that an approximate 40-week cycle low may develop over the next few weeks, if it has not already been made. It’s time to watch for short-term bottoms as well. Although there may be two more Federal Reserve interest rate hikes over the next two months, the intermediate-term cycle suggests that a rally is due in futures. The seasonals point to higher trends in futures over the next few weeks. Don’t be surprised if futures decline initially and then rally on news of another hike in interest rates.
Stocks
I am suspicious and NOT willing to follow strength in the market. Although the Dow and the S&P have made new highs for this move, there is major bearish divergence which I consider to be a serious leading indication of pending weakness. The Nasdaq index gave sell signals a few months ago. I told you that “a bullish seasonal in S&P could keep prices strong for a few more days, but I believe that there is trouble ahead for the stock market.” DO NOT get caught in the bull trap. The market is well overdue for a 4-year cyclical top and a considerable correction down. My Bernstein on Stocks weekly newsletter gives specific stock recommendations. There is lengthy bearish momentum divergence so don’t get fooled by the good news designed to entice you.
Petroleum Complex
Natural Gas: My forecast and price trend projection of the approximate 3-4 year cycle in natural gas futures, prior to the top, suggested that the market was likely to decline. Another 3- 4 year cycle low this year. I told you that we were getting close to a short-term low. That low was made and it is now being tested. TRADER WARNING: don’t trade this market unless you are fully aware of and can assume the HUGE risks and major volatility. This is true whether you are a new trader or n
experienced trader. If you’re wrong this market will literally “take your head off” given the huge swings.
Unless you have a very large account you can easily get wiped out in a few hours (or even minutes) in this high risk market. Market sentiment as measured by my DSI was low enough to ignite a short-term rally. Bullish divergence has likely triggered a short-term low. The odds that important lows are being made are very good.
For those who trade stocks, the opportunities in lower priced (i.e. $10 and under) natural gas stocks are, at this time, very good as well as plentiful. These lower end producers will be prime takeover candidates for larger producers who will be flush with plenty of cash from the last bull market as well as the bull market that is likely to begin very soon.
Crude; Heating Oil; Unleaded Gas: I told you that the markets were likely to rally to test resistance. My Short-Term Energy hotline recommended a long in crude oil that should have been closed out at a profit. Another long was recommended for a short-term trade. I would not be surprised to see crude oil in the$35-$40 range later this year.
On a short-term basis prices were expected to move sharply higher; however, within the bigger perspective, these are still recoveries in a bear market. The seasonal patterns in these markets are now ideally bullish and, as a result, pressures should be to the upside over the next few weeks. On a long-term basis these three markets may have made important tops that are now entitled to be tested. Know that the forces with a vested interest in higher prices will be hard at work to create situations that will rally prices so that they can unload their positions.
There has been entirely too much attention to the demand side of these markets. There is also a supply side. I have warned you repeatedly that the chronic level of high prices has created an environment that will witness major production increases that threaten to flood the markets with supply. The end result should
be obvious. Look only at demand and you’ll miss 50% of the story.
