As many of you who have read my work
in the past know, I expect the eventual endgame to this whole Keynesian
monetary experiment that has been going on ever since World War II, to
finally terminate in a global currency crisis. I'm starting to wonder if
we aren't seeing the first domino start to topple. I'm talking about the Japanese Yen of course. I think everyone just naturally
assumes that the Yen is dropping in response to Prime Minister Abe's
intent to imitate US policy and print its way out of its
troubles. The problem with this strategy is of course, eventually Japan will break its currency. Japan is in a particularly tenuous situation
in that their debt to GDP dwarfs most of the rest of the world. The only
hope they have of servicing this debt is for interest rates to stay
basically at zero. Any move by interest rates above
this artificially low level and Japan's debt becomes unserviceable,
without resorting to a greater and greater debasement of the currency.
Unfortunately that will also result in an acceleration of the collapse
of the currency, which would just cause Japanese bonds to be sold even
more aggressively -a nasty catch-22 situation. At this point there is no way out for
Japan. The only question is when will the endgame arrive. Japanese bond
bears have been asking themselves that question for almost 2 decades. The recent move in the Yen has started me wondering if that end game hasn't now begun. In the chart below I have marked the
successive yearly cycle lows with blue arrows. As you can see this major
cycle bottom tends to arrive between March and May most years. If the
2013 yearly cycle low arrives in the normal timing band, then there may
be a big problem developing with the Japanese currency. The reason I say
that is because the Japanese Yen is basically already in free fall and we may still have another one-three months to go before a final bottom.
Another warning sign is the fact that
this decline cut through not only the 2012 yearly cycle low, but also
the 2011 yearly cycle low and never even blinked. In
an orderly decline both of these levels should have generated at least a
decent bear market rally. In my opinion, it's very worrisome that the
Yen didn't even slow down as it moved through these major support
levels.
The next major support level is at the
2010 yearly cycle pivot. If the Yen slices through this support level
also, then I think we have a major currency crisis on our hands.
Needless to say if the world sees a
major currency collapse, which up to this point I think most people
would consider to be an absurd idea, it's going to spark a panic for
protection. Despite stocks entering the euphoria stage of this bull market, stocks are not going to protect one from a currency crisis. Only hard assets will do that, and the two hard assets that are best at protecting one's wealth are gold and silver.
Wouldn't it be fitting that at a time
when gold and silver are about to be most cherished, they are now
completely loathed by the market?
The big news for Thursday is that gold
formed a weekly swing. Considering that the QE4 manipulation stretched
the intermediate cycle way beyond its normal timing band, this weekly
swing should confirm that the yearly cycle low is complete. We did see profit-taking come into the market as soon as
gold tagged its 50 day moving average. I don’t see anything unusual in
that, as gold has delivered a 75 point rally in only nine trading days.
The 50 day moving average is a logical place for short term traders to
lock in some profits. On another note, this was the third
attempt in two weeks by the shorts to drive gold down. It worked for a
couple of weeks after QE4 and even for two days at the beginning of
January, but I think the complete failure today to hold gold down
against its natural trend is probably the signal that the market has
broken the short-term manipulation. I think any further attempt at
short-term manipulation and the shorts are just asking to get their head
handed to them. Shenanigans are not out of the ordinary on
options expiration. So we could very well see another attempt to drive
gold down on Friday. If this one fails also, and it probably will if the
dollar is falling, then I don’t think it will be long before the gold
chart starts to look like the platinum chart. Next I want to discuss the mining stocks. It seems everyone has an excuse for why the miners have underperformed lately. Needless to say I don't really
buy any of that nonsense. However I am as confused as everyone else to
come up with a reasonable explanation for why miners continue to sell
for these ridiculously cheap valuations. Whenever
I am confused, usually the first thing I do is pull
up a very long-term chart so I can get a feel for what is really going
on, and eliminate the distraction of the day to day wiggles. I think we
are all wondering when the miners are going to join the party as it
certainly appears that gold and silver both have formed major yearly
cycle bottoms. What I saw was quite a surprise. The
character of the mining sector has changed completely. For the first
time in this bull market miners are forming a rounded base instead of
the typical V-shaped bottom. A rounded bottom is a much more powerful
basing structure than a V-shaped recovery. If you believe like I do that gold is
going to $3500 - $4000 over the next two years, then I would
have to say there is no way it is going that high without taking the
miners with it. As a matter of fact, I don’t think there’s any way gold
goes to even $1900 without taking the miners with it. The
complete loathing & disgust that we are seeing for the mining sector, coupled
with the character change in the bottoming process is the setup in my
opinion, for a huge move in this asset class over the next two years. I can’t tell you exactly when the move
will begin, but like I said, I don’t believe for a second that gold is
going to $4000 without taking the miners along for the ride. For what it’s worth, I saw the exact
same sentiment in silver back in August of 2007. When silver broke
through its last support level everyone threw in the towel. As you can
see from the chart that was the exact moment one should have been
buying, or if you already had positions, it was a huge mistake to get
knocked off the bull. This is just another example of
technicals not working in the volatile precious metals sector. I’m
pretty sure every technical trader in the world sold when silver broke
through that $12 support level. It caused them to miss an almost 100%
rally over the next six months. If
you believe in the bull market, and I think most everybody here does,
as I tend to focus on gold, and I suspect that is the reason most people
bought a subscription in the first place, then all one needs is the
patience to let the bull run its course. If you get sidetracked like the silver traders in the summer of 2007, you aren’t
going to do yourself any favors. If you are here to ride the bull
market, then ride it and don’t worry about whether or not you made money
today or yesterday. The only thing that makes any difference is how
much money you make by the time the next C-wave tops, and that has
nothing to do with what happened this week, last week, or last month. It
has to do with what is going to happen over the next two years.
If I’m
right about where gold is going then it is definitely going to be worth
the hassle of letting the miners complete this rounded base, because the
upside once it’s finished is huge. If you don’t believe in the bull market
then you probably have the wrong newsletter. My goal isn’t to make a
couple of percent trying to jump in and out of momentum stocks. My goal
is to double or triple your portfolio by 2014. However, I can’t do that
unless you have the patience to hold on through all of the bulls tricks
and curve balls. I can keep subscribers focused on the big picture, but patience
is something everyone has to learn on their own. I can say that the traders that had it during the last C-wave were well rewarded.
I realize that this extended (and
somewhat manipulated) move into a yearly cycle low has frustrated most
investors to the point where they have no more patience left, and have
lost sight of the big picture. So I am going to go over it again,
because I think it is a huge mistake to lose sight of the reason why we
are investing in this sector to begin with. To start, I’m going to assume that gold
will drop down into another eight year cycle low pretty much on
schedule sometime in late 2015 to mid 2016. As long as that assumption
is correct then I think we also have to assume that there is another
C-wave advance between now and then. The reason I say this is because all
markets are governed by the forces of action and reaction. Hence in order for
gold to drop down into a correction severe enough to be considered an
eight year cycle low, it first has to generate a rally big enough to
trigger a profit-taking event of that magnitude. So let’s begin by looking at the last three C-wave advances and the corrective action that followed each one... That is a small sample of the latest Weekend report. In all fairness I have been warning traders that this was coming. This is a chart I posted to the blog on November 24 2011.
Frustrated
gold bugs may want to read the entire weekend report before you throw
in the towel on the sector. The 16 month correction is completely normal
and should soon generate another huge leg up in this massive bull
market.
I will reopen the $1.00 two day trial subscription for
anyone interested in reading the report. If you decide you want to
continue accessing the nightly reports do nothing and the trial will
automatically convert to a monthly subscription after the second day. If
you are only interested in reading the weekend report just cancel the
subscription by following the directions in red print on the home page
before the second day expires.
