|Dow||+100.83 to 17,131.76|
|S&P 500||+14.85 to 1,998.98|
|Nasdaq||+33.86 to 4,552.76|
|10-YR Yield||+-0.01 to 2.589%|
|Gold||+$0.40 to 1,238.80|
|Crude Oil||+$1.94 to $94.86|
Regardless of what the near term may bring, the long-term outlook for gold has not changed. It’s still subject to powerfully bullish forces that will ultimately drive it to $5,000 an ounce and beyond — a massive flight to quality from investors around the world, the madness of bankrupt governments, rising geo-political conflict, and more.
But for the near term, the line in the sand has been crossed and we are witnessing a temporary extension of the precious metals bear market. That’s news none of us want to hear, but it’s undeniable.
Always keep in mind that the extension of the bear market in the precious metals also opens up profit opportunities:
Opportunity #1: To profit as the precious metals and mining shares decline.
Opportunity #2: As they decline, die-hard bulls will get washed out of the markets. That will be a great time for you to pick up bargains. And it will provide the necessary fuel for an even greater bull market to follow.
Now, let me turn to what is happening, and why.
First, neither gold nor silver has elicited any buy signals during the past few months, casting a shadow over them the entire time, which is precisely why I recommended refraining from becoming too aggressive on the long side over the past few months.
Second, the deflation specter that is haunting Europe is worsening. Deflation is taking a firm hold on the euro region, and the European Central Bank (ECB) is now taking aggressive steps to devalue the euro.
Those steps, though, will not be enough to stem the tide of deflation in Europe. Further euro devaluations lie on the horizon.
|The deflation specter haunting Europe is worsening, forcing the ECB to take aggressive steps to devalue the euro.|
Third, deflation will now become an ever growing threat in the U.S. as the euro tumbles in value and the dollar continues to soar.
Fourth, I am seeing further deflation already whack the grain markets, which continue to drop sharply. This I expected. But the speed of the recent declines in markets such as wheat, soybeans, corn and even coffee and sugar tells me deflation is already a growing threat in the U.S.
Fifth, and perhaps the No. 1 question on most of your minds, is the war cycles and their positive impact — or lack of impact — on precious metals.
My studies continue to tell me that on a long-term basis, rising social and geo-political discontent will be the No. 1 driving force behind a resurgent precious metals bull market.
|“How low can gold and silver go and how long will their renewed bear markets last?”|
But for now, when combined with the very serious deflation that is hitting Europe, it seems that the war cycles are having the opposite effect, prompting savvy money to simply abandon the euro and go largely to cash, and U.S. equities, which by default, is bearish for gold and silver …
And (mistakenly) into U.S. Treasuries, which is why interest rates are now nearing record lows again.
Let me address what are probably your top two questions right now: How low can gold and silver go and how long will their renewed bear markets last?
1. From a technical perspective, it would not be unusual for gold and silver to drop back to near the origins of their previous major breakout points.
Based on the continuous nearest futures, that would put the ultimate lows in target ranges of roughly $920 to $970 in gold, and, worst case, $12.50 for silver.
2. Timing-wise, my cyclic work is now showing two targets for the final lows.
The first comes in January/February 2015 and the second in June. Odds favor the January period.
Now, what to do …
FIRST, and foremost, do not expect the precious metals to immediately collapse.
They are deeply oversold and important short-term support levels are near at hand. Put another way, we are likely to first see a sharp bounce, before the downtrend resumes.
That bounce could bring gold back up to the $1,280 level, even the $1,300 level. Silver could bounce to the $20 area.
Regardless of any bounce …
A. Now is not the time to buy any additional precious metals, in any form.
B. Now is also not the time to add any more miners.
THIRD, for any existing precious metals holdings you have, sit tight. But use any upcoming bounce to hedge those holdings, via an inverse ETF such as the PowerShares DB Gold Short ETN (DGZ).
(Real Wealth Report subscribers will be getting specific hedge recommendations this Friday in the September issue. To learn more about the specific strategies I recommend to hedge your holdings, and to become a Real Wealth Report member, simply click here now.)
Above all, stay tuned and alert. As I stated at the outset of this column …
- There will be many opportunities to profit as the precious metals and mining shares decline.
- There will also be several enormous opportunities to pick up bargains down the road.
In bullion, in mining shares, and in other natural resources.
To add your view on these or any other matters, go to the comment section below. And watch your inbox tomorrow morning for my regular column.
P.S. Did you miss Martin’s briefing yesterday? Don’t worry — there is still time to view it! Martin revealed the investment strategy that he personally built from the ground up. You don’t want to miss this video … click here to watch now!
|Our Readers Respond|
This morning’s column by Mark Najarian on the upcoming independence vote in Scotland received a batch of quick and passionate replies. Voters in Scotland will go to the polls Thursday for one simple question: “Should Scotland be an independent country?” A yes vote would break the 307-year union with the United Kingdom and set the proud, talented Scottish people on their own. But it would potentially also create financial confusion, with many banks and insurers now based in Scotland saying they would move back to England, and it would cause questions as to what currency the new country would use and if it would be allowed to join the European Union. Independence has the clear edge among the Money and Markets readers who responded.
Reader Charles F said he wasn’t worried that an independent Scotland might not be allowed to join the EU. “Personally I think a yes vote would go a long way to putting a stop to a one world government. I really don’t give a fig for the EU. What has it done for them? It has bolstered the controlling elite. Always a disaster for everyone else.”
Reader Raymond also backed independence. “I would support Scotland independence — even though challenges of new country formation are taxing during its gestation stage. London is a bankrupt city flooded with black money and the UK economy would likely stagnate. Too many politics and it is timely to detach!”
Reader David C, however, went against the grain. “I fear they (the Scottish people) may get what they want and become quite disappointed with the final results. I don’t see the Scottish people as “slaves” … .they have not been treated as such. In fact, there are many ways in which they have some advantages. Ultimately, the choice is theirs to live with. I believe a yes vote will not bode well for either country or the EU.”
There’s still time to comment on Thursday’s vote. How do you see it turning out? The latest polls are quite mixed — which basically means it’s too close to call. Here’s a link to this morning’s column on the vote, where you can also add in your comments.
|Other Developments of the Day|
- Backed by stronger-than-expected demand, Alibaba Group raised its fund-raising target from a stock market sale to $21.8 billion. The Chinese on-line retailer raised the initial price range for the stock offering to $66-$68 a share from $60-$66 a share. The midpoint of the new range would give the company a market value of $165 billion. The long-awaited offering was heavily oversubscribed, allowing the company to raise the price of the shares while keeping the number of shares the same. It will offer 320.1 million American depositary shares. According to the New York Times and other sources, the company resisted the temptation to raise the price to $70 or above in order to ensure the success of the initial listing and keep it “investor-friendly.”
- Calpers, the California Public Employees Retirement System, said it will divest of the $4 billion that it has invested with hedge funds, citing the high costs and complicated nature of the funds. The chief investment officer said the move wasn’t related to performance of the six hedge fund-of-funds in the portfolio. “We concluded that we would eliminate the hedge fund program in order to reduce the complexity, reduce the costs in the program, particularly in relation to our view that given the scale of Calpers, we would not be able to scale a hedge fund program to a size that would really move the needle,” CIO Ted Eliopoulos told Bloomberg. He added that Calpers, which is the largest U.S. public pension, hasn’t decided where to invest the funds after they are divested from the hedge funds, a process that should take about a year.
- Need a coffee to get you going in the morning? Want it for free? That’s what McDonald’s Corp. (MCD, Weiss Ratings B) is offering during breakfast hours for the next two weeks, Sept. 16-29. It’s all in celebration of International Coffee Day on Sept. 29. There’s still no free lunch, though.