<> 8 Reasons to Own Gold | |
| On the Verge of a Surge? Is gold headed higher or have we seen the top? There are at least eight valid reasons to consider buying gold and/or gold mining shares by mid to late August. Perhaps the single most cogent reason to be bullish on gold during the August to September time frame is its seasonal tendency. If we examine the gold futures market, we find that since the introduction of gold futures trading in the United States, there has been a strong tendency for prices to rally during the late August through late September time frame. In fact, some of the largest rallies over the shortest period of time have taken place during this time frame. The table below illustrates the history of this pattern. Will it Repeat this Year? Consider the fundamentals Naturally, there are no guarantees. The odds, however, favor a rally during this time frame. But what fundamentals could possibly trigger the rally? Consider the following: The deteriorating international situation looms large as a major concern. If, indeed, gold is a haven of safety during turbulent times, then we don’t need to look too far to find numerous reasons to support yet another rally in precious metals prices. Whether we consider the ongoing problems in Iraq; the continuing problems in Afghanistan and/or the crisis with North Korea, investors have plenty of problems to drive them to the precious metals markets. And the latest conflict between Israel and the Hezbollah adds yet another dimension of uncertainty to the equation. An escalation or spreading of the conflict could easily catapult gold prices higher. The growing hedge fund appetite for precious metals will continue to provide underlying support and demand for the metals. Their success in the copper market could be a harbinger of what may yet come to pass in gold. Given the huge amount of available investment capital controlled by hedge funds, as well as their tendency toward "herd mentality," I’d not be surprised to see them piling into the gold and silver markets en masse in the very near future. Inflationary concerns will continue to mount if commodity prices and producer prices remain in their upward trend. The inflation sensitive Commodity Research Bureau (CRB) Index has risen from a low of 183 in 1999 to a recent high of 403. There are no technical indications of a slow down in the upward spiral. In fact, the trend remains steadily and persistently higher. Clearly, investors who have hedged the rising price of commodities by investing in gold or the other precious metals have fared well, since these markets have kept pace with the rising commodity price trend. | Crude oil remains in a strong bull market. Whether the bull market has been inspired by growing demand, reduced supply or the so-called "terror premium," the fact remains that crude oil and gold prices have moved higher in tandem. The crude oil rally from its inception in 1998 rallied from a low of about $10.75 to a recent high of $79.50 in futures, or a 739% increase. From its low in 1999, gold prices have rallied from about $253 to a recent high of $728, or 278%. Although the two markets are not directly related fundamentally, I believe that the rally in gold has higher to go given the large percentage gain in crude oil. Continued demand from India and Asia is likely to be a strong source of support for the precious metals markets, and in particular for gold and silver. Declining Interest Rates: With the declining trend in stocks and the apparent slowdown in economic growth, the odds of a halt in interest rate increases could also provide an incentive to buy gold, as investors may be concerned that the Federal Reserve has halted their pressure on interest rates too soon, thereby leading to further inflationary pressures. This will inspire additional buying. Growing demand from ETF’s. The gold Exchange Traded Fund adds yet another measure of demand for gold, which will be yet another bullish factor, providing underlying demand and support. Those who jumped on the gold ETF bandwagon too early have paid the price for their impatience. By mid August we should see a valid buying opportunity. Timing is everything. My shopping list of 8 reasons to own gold is worth considering. But timing the move is critical. Based on the seasonal described above, it might not be wise to enter at this time but, rather, to wait for mid to late August before taking positions. |
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COWS (Corn, Oats, Wheat, Soy Complex) | |
| The grain and soybean complex markets have declined to test technical support levels on a daily and intermediate-term basis. Naturally, this decline has brought the bearish sentiment out in full force. And yet, my technical work continues to suggest that these markets are undervalued, likely to rally, and still some of the best areas in which to "invest" for the intermediate to longer term. In fact, the commodity bull fever and the domino effect to which I have referred in many of my reports is still likely to develop here, infecting all markets higher, sooner rather than later. The hotline has given specific recommendations consistent with my expectations. Soybean Complex My bullish projections for soybean meal and soybeans remain in effect. Beans rallied to resistance and turned lower again, continuing a pattern that has been in effect for many weeks. The hotline will recommend longs in the bean complex if and when prices decline to short-term technical support and then give buy triggers. Should any of the soybean complex markets CLOSE ABOVE their May, June or July highs on a WEEKLY basis, then I will be even more confident in my forecasts of a major bull market. I continue bullish on all three commodities in the soybean complex. Soybean oil remains the strongest of the group. | Corn: My indicators gave short-term buy signals. The hotline recommended a long position Dec. futures. This trade should have been closed out at a small profit and then entered again and closed out at a profit. My indications and projections remain bullish. The current decline has taken prices to intermediate-term support which should hold. Another long in corn should have been closed out at about break even. Wheat: Commercials have accumulated large long positions in wheat which I told you would have bullish consequences. Another buy recommendation was given via the hotline. This trade shows an open loss but I am confident that it will turn positive. The May high in Dec. wheat futures is a very important resistance level which, if penetrated on a weekly closing basis should portend a much larger rally. Oats: I have been bullish and I remain bullish on oats. Volume remains too thin for recommendations. The oats market is still a reasonable risk vehicle for new traders. Furthermore, the technical behavior is reliable. If I recommend a position via the hotline, then they will be at limit orders only. DO NOT USE market orders due to the very low trading volume in this market and, as a result, price fills could be exceptionally bad given the thin trading volume. |
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Meat and Livestock | |
| Reserved for Subscribers | |
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Metals | |
| The recent declines in all metals were considered normal and reasonable. Based on the ideal seasonal patterns (see pages 1 and 3) I believe that the ideal time to buy gold for the seasonal will be in August. By the time late August has arrived we should see new buying opportunities, especially in gold. In spite of the supposedly bullish news backdrop, precious metals could decline based on this seasonal but they should end the year on a very strong note. The seasonal time frame to which I refer is the strongest of the year. Copper: My advice has been consistently but VERY CAUTIOUSLY bullish on copper. I DO NOT and have not recommended long-term short sales because I still do not see technical signs of a major top as of this writing in spite of large corrective declines. I believe that copper prices could test or exceed all time highs before making a long-term top. When the long-term top is made in copper and the other metals, the severity of the subsequent decline in prices will probably make market history. Gold: My long-term advice has been clear and unhedged. I told you as follows: "Based on my analyses, I do not believe that a long-term cyclical top in gold has yet been made. A correction down was expected. I told you to wait an intermediateterm BUY recommendation in the event of such a large decline to support." The hotline recommended a high risk long position as the market fell to support. And the long was closed out at a profit when resistance was hit. A major buying opportunity could come by late August (see above and pages 1 and 3) with a HUGE seasonal rally to follow into late September. This will, I feel, be the time for the next large move in gold - a move that could very well give us a test of the recent highs or, in fact, new highs for the move. Get ready! But don’t jump the gun. | PLEASE NOTE: UNLESS YOU CAN AFFORD TO RISK AT LEAST $50 ON A POSITION IN GOLD DO NOT TRADE THE FUTURES. TRADE STOCKS INSTEAD if the risk in futures is too high for you! Silver: Long-term investors were advised to hold positions in silver and silver mining stocks with trailing stops to lock in profits. My long range target of $10 or higher was achieved. I told you to "be prepared for even larger intraday price swings." The coming seasonal rally in gold should boost silver as well. We have only seen the tip of the iceberg in volatility. NEW TRADERS or those with small accounts: STAY out of this market or trade stocks, or ETF’s instead of futures if you can’t handle the risk. Await buying opportunity at long-term support that could be tested by mid to late August. See gold commentary. Platinum/Palladium: My forecast has not changed. The corrections down were expected and correctly predicted. Platinum and palladium are still in major bull trends. The corrections were overdue given the dominance of large traders and hedge funds in metals. I do not see any triggers that point to a long-term top as of this writing. Don’t trade these markets unless you know the risks and can handle them financially and emotionally! IMPORTANT NOTE: Traders who are not suffciently capitalized to trade these highly volatile futures markets are advised to trade stocks as an alternative. There are many stocks and ETF’s. The same technical tools I use for futures can be applied to stocks. STAY AWAY FROM HIGHLY SPECULATIVE "PENNY" MINING STOCKS. Generally these are a losing proposition. |
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Currencies | |
| Aussie $: The market bottomed and rallied strongly in sympathy with the metals only to turn lower again in the last few days. The odds are that a short-term top has been made. Eurocurrency and Swiss Franc: Both markets rallied to projected long-term resistance areas and topped as expected. A bearish short-term pattern has now developed. The trend is bearish as the dollar has rallied to resistance. A very broad test of resistance is developing consistent with my bullish forecast on the dollar. Japanese Yen: The Yen is positioned for an approximate 7- year cyclical low which may have been made. I expected a MAJOR rally in the Yen vs. US dollar over the next few years. This move appears to have started. The increase in Japanese | interest rates from zero is yet another indication that the Yen has likely bottomed. BrPound: The market has made an 8.1-year cycle top almost exactly as predicted. Long-term trend is down. A short-term low was made as predicted. I expected a short-term top and it has been made. Seasonals are ideally bullish which is why the market is now rallying. US Dollar: I am long-term bullish on the US dollar. A shortterm low has been made. A buy recommendation was given via the hotline . Canadian $: I believe that the Canadian dollar can test the 93 level or higher. I advised you to expect a short-term top. That top has been made and the seasonal is ideally bearish. |
Tropicals | |
| Cocoa: The long-term trend remains bullish. The short-term trend has turned very bullish, after which prices COLLAPSED in the most severe reaction down that I have seen in many years in this, or any market. This, however, does not change my bullish view of the long-term trend. Traders who followed the rules of my trailing stop methodology should have been stopped out at profits BEFORE the collapse. When I told you to be prepared for major volatility in ALL MARKETS, this is just another example of what I meant. And there’s more where that came from! Sugar: My next target is in the 23-25 area. I advised you to be careful of a downside correction. That correction developed and may have made its low in the last week. The hotline recommended a long position which, in spite of early weakness, has come back up very strongly. Large price swings and the expectation of large moves require the use of large stops. DO NOT trade this market unless you can risk $2500 minimum. The hotline will give updates on the current long recommendation. Although the current hotline long position shows an open loss, there is no change in my forecast or expectations. The sugar market remains in a long-term up trend that is only now giving signs of support being tested. | Orange Juice: I have been telling you that "I DO NOT see any significant technical indications of a top as yet". This is a primary bull market that could easily go to record highs by the end of this year. My long-term bullish forecast remains in effect. Readers of this newsletter know that I turned bullish on OJ long before the start of this bull market. I rarely recommend longs in OJ via the hotline given the thin trading volume and I rarely consider fundamentals in my work. There is a good chance that OJ could climb to all time highs before this year is over. We are now entering prime time for weather markets based on hurricanes and tropical storms and the market has substantiated my expectations. Coffee: My long-term cycles tell me that coffee is overdue for a significant rally that could take prices much higher in 2006 or beyond. The current decline is setting up significant bullish price / momentum divergence which is, in my view, a valid precursor to a bottom. Although I expect big rallies in coffee I caution you that the price swings will be large. Coffee is a high risk, high volatility market - NOT FOR BEGINNERS or those with a small amount of risk capital. The large price swings and the bad price fills can destroy you in this market. |
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Fibers | |
| Cotton: The intermediate-term trend remains bullish. Prices dropped to test important technical support. A buy recommendation was given via the hotline when my short term trading indicators turned bullish. I believe that cotton could become one of the stronger markets over the next few years. The position recommended via hotline now shows an open profit. PLEASE NOTE THAT YOU CANNOT TRADE THIS MARKET WITHOUT A LARGE STOP GIVEN THE VOLATILITY. My bullish forecast has not changed - cotton needs more time to begin its major rally. | Lumber: A major cycle low COULD BE developing. The bearish sentiment and declines are typical of what transpires at cyclical lows. My long-term cycles tell me that lows COULD BE FORMING NOW! Trading volume remains very low; much too low for hotline recommendations at this time. Although the market is not recommended as a good trading vehicle due to its low volume, the fact remains that seasonals are extremely reliable in this market. As of this writing there are no indications of a major low, although a short-term low has been made. |
T Bonds / TNotes | Stocks |
| I have been telling you that interest rates were likely to stabilize or decline BEFORE they move to higher levels. This appears to be happening given the current short-term rally. The recent bottoming process in futures suggests that this could be the start of a more extensive rally in an otherwise bearish market. Seasonals in futures are ideally bullish at this time of the year, which continues to point to a possible short-term rally before a continued decline. The hotline recommended a shortterm long position in TNotes which should have been rolled into the Sep contract as recommended and then closed out at resistance. In the long run I believe that eventually the Federal Reserve will be forced to raise rates again, however, the current stabilization in futures could last for a while longer. An intermediate-term cyclical low is due at any time now and daily sentiment was very low prior to the recent bottom. This has, in the past, been a precursor to lows. | Prior to the continued decline in stocks I WARNED you clearly that stock markets all over the world were in trouble and that bearish divergence would eventually take its toll. Some of the Middle East markets have crashed even before the current conflict, and they remain in bear trends. My trend projections and timing indicators strongly suggest that stocks could trend lower until late October to be followed by a strong year end rally and possible 4-year cyclical low. I expected rallies to resistance and failures when resistance levels have been hit. The hotline recommended a very shortterm trade in Dow Jones futures on the long side but the intermediate-term is bearish. See the hotline for updates. A major low in stocks is expected later this year, most likely in line with the seasonal lows that tend to come in late October. |
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Petroleum Complex | |
| Natural Gas: The approximate 3-4 year cycle in natural gas futures is due to bottom this year. This low COULD be developing now with the recent strength. Here are some factors to consider: 1) In order for a major bull market to develop I need to see the weekly indicators turn bullish. This has not happened as yet although the short-term trend HAS turned bullish. 2) The daily chart indicators have given short-term buy signals. In order for this to develop new lows for the move were needed. This HAS happened and the market is now in even better position to bottom for the intermediate-term. As an alternative to natural gas futures, which are very risky and volatile, you might consider long positions at the right time in some of the many natural gas stocks | Crude; Heating Oil; Unleaded Gas: The bullish fundamentals continue to convince traders and analysts that the long side is the best side and that $100 crude is inevitable and, perhaps, even unavoidable. I advised you to BE PREPARED for a decline. I told you that "it’s possible that we will see $50 before we see $100." This is still my forecast. I find it most interesting that in spite of the new Middle East violence, crude oil prices have declined. I believe that this is due to professionals unloading supply as they take advantage of the news backdrop. |
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Jake Bernstein’s Weekly Commodity Trading Letter 8/3/6
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, Aug 03 2006 10:07 AM
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Posted 03 August 2006 - 10:07 AM
