Gold could be in a long-term trend right now that spells dramatically higher prices in the years ahead.
To understand why, let’s first look at the long decline in gold prices from 2011 to 2015.The best explanation I’ve heard came from legendary commodities investor Jim Rogers. He personally believes that gold will end up in the $10,000 per ounce range, which I have also predicted.But Rogers makes the point that no commodity ever goes from a secular bottom to top without a 50% retracement along the way.
Gold bottomed at $255 per ounce in August 1999. From there, it turned decisively higher and rose 650% until it peaked near $1,900 in September 2011.So gold rose $1,643 per ounce from August 1999 to September 2011.A 50% retracement of that rally would take $821 per ounce off the price, putting gold at $1,077 when the retracement finished. That’s almost exactly where gold ended up on Nov. 27, 2015 ($1,058 per ounce).This means the 50% retracement is behind us and gold is set for new all-time highs in the years ahead.Why should investors believe gold won’t just get slammed again?The answer is that there’s an important distinction between the 2011–15 price action and what’s going on now.
The four-year decline exhibited a pattern called “lower highs and lower lows.” While gold rallied and fell back, each peak was lower than the one before and each valley was lower than the one before also.Since December 2016, it appears that this bear market pattern has reversed. We now see “higher highs and higher lows” as part of an overall uptrend.The Feb. 24, 2017, high of $1,256 per ounce was higher than the prior Jan. 23, 2017, high of $1,217 per ounce.The May 10 low of $1,218 per ounce was higher than the prior March 14 low of $1,198 per ounce.The Sept. 7 high of $1,353 was higher than the June 6 high of $1,296. And the Oct. 5 low of $1,271 was higher than the July 7 low of $1,212.
Of course, this new trend is less than a year old and is not deterministic. Still, it is an encouraging sign when considered alongside other bullish factors for gold.Where does the gold market go from here?We’re seeing a persistent excess of demand over new supply. China and Russia alone are buying more than 100% of annual output each year.Private holders are keeping their gold as well.
On a recent visit to Switzerland, I was informed that secure logistics operators could not build new vaults fast enough and were taking over nuclear-bomb-proof mountain bunkers from the Swiss Army to handle the demand for private storage.With gold sellers disappearing and large demand continuing, the price will have to go up to clear markets.Geopolitics is another powerful factor.
The crisis in North Korea is not getting any better; it’s actually getting worse. Syria, Iran and the South China Sea are additional flashpoints. The headlines may fade in any given week, but geopolitical shocks will return when least expected and send gold soaring in a flight to safety.Finally, the Fed will not raise rates in December, contrary to market expectations.Eventually, the markets will figure this out.
Right now, markets are giving about an 86% chance of a rate hike in December based on CME Fed funds futures. That rate will drop significantly by Dec.13 when the FOMC meets again with a press conference.As market probabilities catch up with reality, the dollar will sink and gold will rally.In short, all signs point to higher gold prices in the months ahead. I look for a powerful surge toward $1,400 by the end of this year based on Fed ease, geopolitical tensions and a weaker dollar.The gold rally that began on Dec. 15, 2016, looks like one that will finally break the bear pattern of lower highs and lower lows and turn it into the bullish pattern of higher highs and higher lows.Regards,
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Everyday citizens assume powerful global financial elites operate behind closed doors in secret conclaves, like the scene of a Spectre board meeting in the recent James Bond film.Actually, the opposite is true. Most of what the power elite does is hidden in plain sight in speeches, seminars, webcasts and technical papers.
These are readily available from institutional websites and media channels.It’s true that private meetings occur on the sidelines of Davos, the IMF annual meeting, and G-20 summits of the kind just concluded. But the results of even those secret meetings are typically announced or leaked, or can be reasonably inferred based on subsequent policy coordination.
What the elites rely on is not secrecy but lack of proficiency by the media.The elites communicate in an intentionally boring style with lots of technical jargon, and publish in channels non-experts have never heard of and are unlikely to find. In effect, the elites are communicating with each other in their own language and hoping that no one else notices.Still, there are some exceptions. Mohamed A. El-Erian is a bona fide member of the global power elite (a former deputy director of the IMF and president of the Harvard Management Co.).
Yet he writes in a fairly accessible style on the popular Bloomberg website. When El-Erian talks, we should all listen.In a recent article, he raises serious doubts about the sustainability of the bull market in stocks because of reduced liquidity resulting from simultaneous policy tightening by the Fed, European Central Bank (ECB) and the Bank of England.He says stocks rose on a sea of liquidity and they may crash when that liquidity is removed.
This is a warning to other elites, but it’s also a warning to you.But it’s not just El-Erian who’s sounding the alarm…You’ve heard the expression ‘the big money’. This is a reference to the largest and most plugged-in investors on Earth. Some are mega-rich individuals, and some are large banks and institutional investors with a dense network of contacts and inside information.
When it comes to big money, sovereign wealth funds are at the top of the food chain. These are funds sponsored by mostly wealthy nations to invest a country’s reserves from trade or natural resources in stocks, bonds, private equity and hedge funds.As a result, sovereign wealth fund managers have the best information networks of any investors.
The chief investment officer of a sovereign wealth fund can pick up the phone and speak to the CEO of any major corporation, private equity fund or hedge fund in the world.Among sovereign wealth funds, the Government of Singapore Investment Corp. (GIC) is one of the largest, with over $354 billion in assets.So what does the head of GIC say about markets today?GIC CEO Lim Chow Kiat warns that ‘valuations are stretched, policy uncertainty is high’, and investors are being too complacent.GIC allocates 40% of its assets to cash or highly liquid bonds, and only 27% of its assets to developed economy equities.Meanwhile, the typical American small retail investor probably has 60% or more of his or her 401(k) in developed economy equities, mostly US.
But it may be time for everyday investors to listen to the big money. They are the ones who see financial crashes coming first.The bottom line is that a financial crisis is certainly coming. In my latest book, The Road to Ruin, I use 2018 as a target date primarily because the two prior systemic crises, 1998 and 2008, were 10 years apart. I extended the timeline 10 years into the future from the 2008 crisis to maintain the 10-year tempo, and this is how I arrived at 2018.Yet I make the point in the book that the exact date is unimportant.
What is most important is that the crisis is coming and the time to prepare is now. It could happen in 2018, 2019, or it could happen tomorrow. The conditions for collapse are all in place.It’s simply a matter of the right catalyst and array of factors in the critical state. Likely triggers could include a major bank failure, a failure to deliver physical gold, a war, a natural disaster, a cyber–financial attack, and many other events.
The trigger itself does not really matter. The exact timing does not matter. What matters is that the crisis is inevitable and coming sooner rather than later, in my view.
That’s why investors need to prepare ahead of time.The new crisis will be of unprecedented scale. This is because the system itself is of unprecedented scale and interconnectedness. Capital markets and economies are complex systems. Collapse in complex systems is an exponential function of systemic scale.
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