Precious Metals Correcting Normally
Watch for larger, stronger rallies later this year and into 2010.
The first leg of our fall gold and silver rallies appears to be over. Next, we should be selling and correcting on standard profit-taking. Our first signals are the current, choppy ABC wave top followed by (1) A continuation sideways triangle or, (2) A new trend either up or down for prices. (3) Then a new rally.
We have noticed in technical signals on faster charts the past few days that gold has not wanted to sell despite it’s time to do so on the cycle calendar. This shows itself in mild and shallow selling price bars or, in neutral price levitation. Gold simply does not want to sell with any conviction. Further, after a December futures drop from near $1,070 and back to $1,042.50, support for the B corrective wave this morning is back up at $1,055.40. This does not show me a market with serious selling on its mind. Can it come soon? Sure it can but so far so good.
Reasons Gold And Silver Going Separate Ways.
We have surmised several times before that at some unknown cycle date, gold would be influenced by physical purchases from others outside the cartel’s reach. Until recently, the Comex gold trading platform, big New York bankers, and those setting prices in London each day were primary trend controllers. As we expected, they are finally losing their grip. Asians, Middle Easterners, Russians and others could care less about the gold cartel and would just as soon see them get run-over losing millions on their short trades.
The icy grip of these price setters is relaxing as the former brick wall of manipulative control has been melting and cracking for several reasons.
These dudes are losing control.
China is mining gold and silver with a fever pitch and they are not selling any. Further, Chinese authorities are openly encouraging their citizens to purchase gold and silver knowing full well the forthcoming world economic outcome.
Chinese consumers are big savers and if they save some assets in precious metals the government knows it will help promote social peace in tougher times ahead. Chinese markets have four major asset bubbles building and smart observers understand they eventually pop. The aftermath mayhem could be corralled if the China populace owns precious metals.
The same ideas dominate in Japan where you can buy gold everywhere in retail stores. Having been through their economic mess since 1989, the Japanese and other Far Easterners know where to find true value. They do not trust their governments or, their fiat currencies.
Wealthy oil producers in the Middle East wisely bought gold when cash was no object. Now they are sitting on a pile of gold and are looking for more, using crappy US Dollars (to off-load) for real long-lasting value in gold.
On the other hand, in the USA, unprepared Sheeple dangle in the wind and will most assuredly pay the price. No one can measure for certain but we would surmise over 90% of Americans remain oblivious to gold and silver investing and trading. They do not see the value and are still desperately clinging and believing their old paradigms will return. We say, fat chance.
Harrod’s department store in London, one of the world’s premier up-scale retail outlets is now selling gold in their facility to the wealthy. Not only does this earn new sales for the store but provides an added draw, a boutique-ee cache so to speak, for the rich. We see another signal here that gold is going mainstream-finally.
Within the analyst and newsletter community we observe an increased emphasis on the ownership of physical metals versus those several opportunities in precious metals paper markets. Own the metal first!
There has been a great deal of concern regarding validity of those paper, precious metals ETF’s. Some analysts say all is well but we disagree and worry right along with the preponderance of most analysts that this mountain of paper is not truly backed 100% by the metals it purports to trade using shares. Be careful as some of their legal stuff is loaded with weasel words.
We are not afraid to recommend trading in those ETF’s, but can envision a time when it becomes scary and we say no more. If you trade them, use stops. Watch the markets for early signs of skittishness or, a breakdown. Since we’ve learned to control risk first and can be counted among those as being the ultimate risk chickens, we’ll also be among the first to yell “cut and run” when it appears its time.
Watch Crude Oil To See Where Gold Goes Next.
Traders should be aware of the interdependence and relationships of all major trading commodities in this market group. By watching trading behavior of base metals (copper, aluminum and iron) along with non-metal commodities, we learn more about general trends and what might be next.
We think the rising price of crude oil despite recent, serious price-negative fundamentals is very important. Crude oil reserves are high, demand is down in this depression, and price has been stuck in a muddy channel for weeks appearing dull and listless. Now, things are moving up.
The intermediate and longer view for energy is higher for these reasons. Asia is technically weakening but they are still buying and using prodigious amounts of oil and gas. China has been selling cars and trucks like crazy and they need the fuel. Those vehicles once sold need a continuing feeder stream of unleaded gasoline and oil.
On the production side, big oil companies have not been risking capital on dry holes. They would prefer to operate a stronger company with tighter cost controls, hold hefty amounts of rainy day cash for a bleaker future and let the explorers take risks finding resources. It’s just cheaper to buy out the minnows than to risk precious in-house capital on drilling.
Further, we have noticed a reason for lack of new refinery construction. Not only does a new one cost $6 Billion, but the tree huggers are formidable opponents. However, we think the real reason is to keep gasoline prices higher for profits helped by lack of refining capacity. Insidious? It’s just business as usual.
Additionally, Mexico and Brazil along with a few others have major new reserve discoveries in hand but no capital or expertise to get the oil and gas out of the ground. Mexico would prefer to go it alone but eventually they will have to partner and get some help on a proposed, very expensive, tricky to extract, brand new field.
Big natural gas drillers have discovered two new giant fields in Louisiana near major pipeline connections. These huge fields have helped to suppress prices but not for long. Natural gas was in the cellar but is perking-up once again. With the onset of winter, we see new support for this gas in the $5-$7 price range until the next spring of 2010.
Heating oil is generally forgotten by most, but New Englanders must have it. That region is rocky and cost prohibitive to install underground natural gas pipelines. And, in other related news, Japan is woefully short of kerosene, a staple fuel used in that nation for cooking and heating. These sideline distillates need the fuel for winter.
Mr. Putin in Russia just got what he wanted from the kid running our nation. Putin, in a trade-off on the missle deal, now has geographic control of most natural gas supplies going to Europe and 850 million people living in Euroland. He’s choked and cut them off twice and will do it again for energy blackmail. Think Europe’s natural gas prices are going lower in a depression? No way. Mr. KGB knows how to squeeze and hurt people and has no compunction about doing it for his own greed and massive profits.
Watch for energy shortage surprises to spring-up created by falling reserves, distribution problems, wars, and larger supplies that get small in a hurry. The other event still hidden is INFLATION. We see USA inflation at 6% right now with our officials saying it’s absent. We are not stupid and buy groceries and fuel just like any one else. And, we can count. Inflation is here now and in 2010 we think it could rocket rally on a really sick US Dollar.
The American government told us there will be no Social Security inflation increases for the seniors as there is no inflation. Presto! They just saved $13 Billion. Now the kid in the White House seeing a forthcoming backlash in his health care agenda and the Social Security inflation adjustment payment outcry, decided to throw the oldsters a bone offering a one time 2010, $250 payment. This is really about 2% of Social Security payments but it prevents the authorities from admitting their inflation numbers are nonsense. Politics as usual.
Chopper Ben and Timmy the G tell us often they want a strong dollar. They could care less about the weaker dollar remaining most worried about losing power in a 1930’s deflation spiral ala 1937-1938. That not so fun period smashed the stock markets the third time since 1929 with wicked market after-shocks during the dirty 30’s. These clueless dumbos will eventually be politically run-over and run out of office; hopefully tarred and feathered.
A US senior energy company has discovered a very deep oil reserve in the Gulf of Mexico. Katrina actually did these guys a favor ruining marginal operating wells causing them to stay closed with lousy returns on investment precluding repairs and re-opening those former non-performers. The newer, large discoveries will take years to begin production but today’s spending is for the long view. Meanwhile, they are hoarding cash with both hands.
In Canada, the oil sands business has been temporarily marginalized with lower oil prices. While this hurts those operators today, very soon they will be on the fiscal mend.
In the US Dakotas, we see exploration action in the Bakken Basin supposedly holding billions of barrels in shale rocks. This one is supposed to be a monster field however its ten years away at minimum. Also, that kind of sophisticated extraction is very expensive. We think the proposed North Slope gas line will feed that Bakken field’s needs.
There are two new natural gas pipelines planned from the North Slope region. One is backed by The State of Alaska (they’ll get a good cut) delivering fuel to an ocean port where it’s sent to China.
The second one will be built by senior North Slope operators taking gas toward the middle USA. They are going it alone to avoid paying a large slice to the State of Alaska. This is the proposed Bakken feeder line we just mentioned. Their problem will be obtaining permits from the state, which promises to be a nasty fight. Keep in mind the State of Alaska has been enjoying some super nice tax-sharing revenue from North Slope oil for years. This is the major reason Alaska is solvent and most other states are not.
Grain And Other Soft Commodities Are Headed for Rallies.
These other commodity sectors that signal gold and silver will be supported as huge long-only funds are piling back-in after the fall, 2008 Lehman selling event. These fund managers can see shortages, inflation and a continuation of the years’ long bull run.
It’s important to understand, these funds are so large they do not for the most part buy individual commodity market sectors but rather invest in a BASKET OF COMMODITIES, which includes of course, gold and silver. When these funds are buyers you do not want to be a seller. They will run you over and crush your positions with their long gazillions.
Our premier commodities broker who always has the latest and hottest news first told us this past week that these funds are cranking-up to buy. He told us this has created such a buying odor that you can almost smell the forth-coming action. Don’t forget, these formerly wounded big funds are desperate for a market that can produce. This portends big things for precious metals. Especially since gold has broken through major resistance at $1,032.50 and $1,050.
Be smart and view the bigger picture. When gold had a run and made some fast and hot money recently, investors took the profits. This is normal and produces normal profit-taking selling. This is not something more dire and should be considered just a pause.
Technically, we’ve broken through a substantial resistant ceiling. After profits are booked, buying will resume and off we go again in the next bigger rally. Our many months ago forecast of gold at $1,250-$1,260 is not so far away now is it? Prices sneak-up sometimes very quietly. Other times they rally with a flourish. That’s what makes doing this stuff so much fun.
I would forecast we are only 15-20% into the gold and silver rallies to date. Do not forget 80% of the entire many years’ event is YET TO COME. And, it usually does come at the trends’ very end in a superb rocket rally. You have not seen anything yet!
We think Greater Depression II lasts from 2009 until the next world war. Some tell us it ends in 2017. War is sadly the ultimate economic weapon to find depression exit relief. This, we would not wish on any one. Read American and world history from 1776 to the present. This is what we get; all over again.
Financials crashed in fall, 2008 with Lehman. Recovery began with TARP in May, 2009: During October, 2009 we’re ending a dead cat bounce with a selling event this month. Precious metals and their shares are toppy-selling on this October 16, 2009, for the shorter term. Beginning October 31 most all trends can reverse and moves to rallies.
Keep in mind, if you own paid for stuff it will most likely remain in your hands; not in somebody else’s. That includes gold and silver. Do not get tangled-up in daily noise. Keep studying the larger view and buy precious metals after each profit-taking correction. Headwinds are building into an economic hurricane. Take care of business right now. My dire fall prediction might surprise us and arrive later. Selling is now. But next summer could be the larger crash. In the coming middle, look for more buying. Time is short.
Personally, I can see unbelievable opportunities to trade that we would never see again for many years. Turn these problems into opportunities. Those on the right side of the trade might get rich. Those on the other side are just victims. Stay Alert. –Traderrog
Editor Trader Tracks Newsletter
The Jay & Rog Blog at webeatthestreet.com
Roger Wiegand is Editor of Trader Tracks Newsletter for gold, silver and energy traders. Roger provides recommendations for short and longer term traditional stock shares, futures and commodities trading with specifics for individual trades. See webeatthestreet.com for more information.
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