I hope you’ve been watching gold and silver. They’ve been moving nicely higher, after having made a low right on target in December with my cycle forecast for a potential major low.
Just in case you missed it, I have an updated cycle forecast gold chart. As I pen this column, gold is actually trading higher at near the $1,183 level. Silver a hair over $15.00.
That said, I thought I’d take this opportunity to answer your most pressing questions on precious metals (as well as other markets).
After all, the precious metals are the markets where there is the most amount of misinformation.
And the markets that most pundits seem to completely misunderstand. So let’s get right to those questions.
Q: Larry, you’ve been right as rain about deflation. So why are gold and silver now rallying when deflation still seems to be dominant?
A: There are numerous reasons. But the most important is the following:
Precious metals can do extremely well in deflation.
In fact, historically, gold gains the most purchasing power during periods of deflation, not inflation. The reason for that is also simple: During extreme deflation, the debt and credit structure of the world’s monetary system — especially sovereign debt — come under increasing stress.
As such, savvy, big money starts to seek out hedges against collapsing sovereign debt. Hence, new bull markets in precious metals can be born, even during deflation.
That is exactly what happened during the Great Depression. And it is exactly what is happening now.
|Gold and silver prices – a true bottom or a fake-out rally?|
Q: Have gold and silver truly bottomed, or is this a fake-out rally?
A: I believe they have bottomed. But that’s based on experience and not my unemotional models.
Based on my models, the first confirmation of a bottom in gold will come on a close above $1,187.80 on a Friday. Final confirmation will come with a close above $1,368.20 on a month-end basis. Silver will generally follow gold.
Failing those two signals and gold and silver can indeed slide back down, possibly even to new lows.
Q: The stock market can’t seem to breakout to the upside. But it can’t seem to pullback much either. What gives?
A: Three things:
First, I believe the market’s resilience is a testament to its long-term strength. As I have said all along, the Dow is headed to 31,000+.
Second, looking simply at the Dow Industrials, or even the S&P 500, is deceiving. The majority of publicly traded U.S. stocks are down for the year, more than 20%. The Dow Jones Transports, the Dow Utilities, the Russell 2000 — are all down and weaker than the main indices.
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So in a very real sense, U.S. equities are already in a stealth pullback. Odds are that the Dow Industrials and S&P 500 will soon succumb too. Indeed, the wild swings you have seen since the start of the new year are merely the preparatory stages for a steep decline.
Worst case in the Dow Industrials should be roughly 13,900.
Nevertheless, keep in mind that any pullback you see will merely serve to get the majority of investors bloodied and bearish. The long-term trend is higher.
Q: I can’t believe how accurate you have been when in late 2012 you forecast a rise in global stress and geopolitics. How much worse can it get?
A: Unfortunately, a lot worse. We are still early in the cycle, which calls for rising social and international stress and discontent all the way in to late 2020.
Europe is the hotbed, and will be the entire time. The refugee crisis has allowed terrorists to infiltrate Europe, and Europe is also buckling under the financial stress of providing for as many as 2 million refugees.
But don’t kid yourself. You will soon see all of this migrate to Japan, then to the United States as well. Not to mention rising troubles in the Middle East.
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Not just terrorism, but civil discontent too. Protests against government. Secession movements. And more. It will get very ugly.
Q: Do you believe gold and silver will eventually be confiscated?
A: No, I do not. Why would governments move to confiscate gold and silver when what they want to do is make them obsolete? Confiscating gold or silver would send the opposite message; that they are too important to be in the hands of investors.
This is also why I believe investors, when buying gold or silver, should opt for ingots and bars. Why pay premiums of 4 to 7% on bullion coins when you don’t have to?
Governments of the world are not interested in gold or silver. They are more interested in, and will expend more effort on, moving toward electronic money and eliminating cash, so they can track and tax you more.
Q: Will inflation ever come back?
A: Yes. But not until the current monetary system crashes and burns, via deflation and sovereign debt defaults.
Q: Bitcoin crashed, just as you predicted. But now it’s rallying again. What are your thoughts on Bitcoin?
A: I still wouldn’t touch it. It’s too thin a market, and subject to government interference.
That said, there may come a time when it does indeed go mainstream. The monetary system is breaking down even more quickly that I had expected. And there may be a future role for Bitcoin in investors’ portfolios. But right now, no.
Q: Oil is rallying just as you forecast. Is the bottom in?
A: Quite possibly. We need to see a close above $40.78 on a daily basis to confirm a bottom, or $29.25 on a weekly basis. The $25 low looks good, but more upside work is needed in oil to confirm a real bottom.
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