Forget Bitcoin – it’s time to look at Gold/Silver

I have been tracking the precious metals as they have been sliding down their Slippery Slope of Hope in recent weeks. And the usual suspects – the Gold Bugs – that normally see every reason to advise loading up on gold are nowhere to be seen. They have vanished into the woodwork. And gold is totally absent from the financial headlines. What an opportunity!

So with all eyes off the PMs, will they spring a surprise rally phase which will eventually hit the headlines (after a substantial rally. of course)? I believe they already have started that with new lows on Thursday with gold hitting $1681 and silver hitting $18.24.

I can see it now with headlines such as “Gold rockets out of nowhere”, “Gold surprises with gains despite poor GDP/Jobs/Inflation” and so on.

Here is the long term gold chart I posted on Thursday morning

There is a clear five wave impulsive form to the decline off the March Double Top high as it has tracked between my excellent tramlines. So with the fifth wave in its late stages, I was looking for a reversal that could occur at any time given the budding mom div (not marked).

Lo and behold, in the afternoon Thursday, it made the new $1681 low and then staged a vigorous recovery to set a daily key reversal. Bingo! That was just what the doctor ordered – and odds are now high the rally phase is kicking off. This is my roadmap

And silver will follow. In fact, silver has also reached a low that is well into major support – here is the long term chart:

It has declined in a three down to the major support line that coincides with the Fib 62% retrace. This is solid support.

Interestingly, the COT data shows that participation by speculators and the trade alike is at a very low level. Also, the DSI bulls reading is currently at 10 – near a low extreme.

So forget the notion – widely held – that gold is a ‘safe haven’ in times of financial turmoil (sometimes it is and sometimes it is not). Like all markets, it is directed by changes in sentiment. And when sentiment becomes extreme, the trend tends to change. And that traps the majority who have ridden the former trend – and ‘surprise’ moves ensue.

Gold prices are today highly correlated with the dollar

This is not always the case, but compare the dollar chart with gold’s (above)

The rally is in a five-wave pattern and travelling along decent tramlines just as in gold. They match very well but in opposite directions. And the overshoot to the July 13 high at 109 very likely marks that as the top and I expect the dollar to begin a decline that will last weeks/months.

I like overshoots – they tell me they are very likely signalling the final buying/selling climax as many of the bears who had been fighting against the uptrend finally throw in the towel

And that would fit in nicely with my forecast for a bull run in the PMs. The sentiment picture fits in with an over-loved 20-year high dollar and a neglected PM sector that strongly suggests major turns are at hand.

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HUGE PROFIT OPPORTUNITIES LIE DIRECTLY AHEAD – WILL YOU TAKE THEM?

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The ECB hikes a massive 50 bps – to zero!

Yes folks, much excitement was evident among the financial hacks who reported the ECB issued a ‘shock’ 50 bps rise in its interest rate. That took it to the lofty heights of zero! It had been negative 0.5% for some time but just couldn’t keep it there as they wished in the face of a cost of living jump in the EZ.

There has been much talk of an inevitable recession in the EZ for some time and this first interest rate rise has seemingly strengthened the case for the gloomsters. But will a zero interest rate really cripple economic activity? A few years ago, a zero interest rate would have prime borrowers crashing down the ECB doors to gat at the cash.

Of course, we are in a slightly different time now with inflation a concern. But with commodity prices in major corrections (Crude is off over 20% from the June high and Wheat is off 40% from its May high) I expect the (lagged) inflation numbers to print lower from now (I had a blogpost a few weeks ago asking the question: “Has inflation peaked?” at a time when inflation started hogging the headlines).

A prediction: When we see headlines such as “Inflation is down to 5%”, or “Inflation has been tamed”, then that will be the time to load back up on commodities. Incidentally, you can be sure that when the latter headline (or variation) appears, the politicians will be all over it claiming they did it.

So with consumer price inflation falling, pressure by the Fed to keep raising their interest rates will diminish and that should help support PMs – and lead to further rallies in T-Bonds as they respond to lower inflation expectations. Thus, bond yields should decline.

Here is the Junk Bond Index (trades like shares)

The three up rally off the June low is matching that in the stock indexes and has just hit the major downtrend line resistance. If we see a strong push up from here, a major rally in shares would be indicated. But odds favour a reversal lower.

Grains are flowing into markets again – the lows are near

Late last week, Russia and Ukraine reached a deal to get last year’s grains in store unleashed and into world markets again. So does this mark a low for prices that had been in steep declines? After all, this piece of news must be the most ‘bearish’ development possible – and it occurs right after a major bear trend with Wheat having fallen by a massive 43% off the March high at $13.45/bu.

What could have induced Russia – not previously known for deep humanitarian instincts – to agree to allay the looming hunger across the world’s poorest peoples? Could it be that if they refused they would face much more severe actions by the West? And that by agreeing, they have been promised goodies by the West?

With sentiment so negative and my wave patterns clear, I expect the market to be setting the lows very soon – VIP Traders Club members will be alerted to the start of my campaigns.