I think the manipulation after QE4 has
accelerated the bull market. We now have the necessary conditions for
the bubble phase in gold to begin. I was expecting the second phase
correction (the correction that separates the second phase of the bull
market from the bubble phase) to occur at the next 8 year cycle low due
in 2016. However I think the manipulation of the precious metals markets
over the last 8 months has probably shortened the bull market.
Contrary to what many believe
manipulation doesn't delay a market. Manipulation accelerates and
intensifies the secular trend as it creates supply and demand
imbalances. Once the market breaks free of the manipulation the trend
reverses and ultimately goes much further and much more violently in the
secular direction than would have occurred normally.
If the metals had been allowed to
trade freely then I think we would have gotten another C-wave advance
into 2014, followed by a devastating correction into the 8 year cycle
low in 2016. That move into the 8 year cycle low would have marked the
transition from the second phase to the bubble phase.
However the metals weren't allowed to
trade freely after QE4. They were continually hit with artificial &
manipulative selling in the over night and premarket for months. I think
this has converted what should have been just a normal correction into
the second phase correction, and when gold breaks free it's going to
deliver the bubble phase over the next two years instead of in 2017/18
that would have occurred in a natural market.
Whether you think I'm right or not,
pretty much every bubble has to have one of these extreme
corrections to completely cleanse bullish sentiment before starting. In
2007 oil dipped 37% convincing everyone that the peak oil crowd were
idiots. Oil then rallied 200% in the next year and a half vindicating
the bulls and making the critics look foolish.
In 1998 the NASDAQ corrected 40%.
Everyone was convinced the secular bull had ended. It had not ended, but
the correction did clean the slate and prepare the market for tech
stocks to rally 300% in the next year and a half.
Gold has just corrected 37%, miners
almost 70%. No one even believes that gold will ever see $1900 again,
much less many multiples higher than that. Yet gold has now put in place
the necessary conditions for a bubble to begin. And all big secular
bull markets end in bubbles.Human nature never changes.
The fundamentals driving gold have not
changed. In fact I would suggest the supply side has been severely
damaged as many tons of physical gold has moved from west to east during
the manipulation event. That gold is never coming back. It's going to
remain locked up inside eastern central banks, and in the hands of
Asians for years to come.
It's always when it looks least likely that major trend changes occur.
Watch gold next week. If the bubble
phase is beginning then we should see gold rebound violently as it
breaks free of the manipulation. Miners in particular should rally
10-15%.
If gold waffles around coming out of
this bottom then the correction isn't done yet. But either way, whether
it ended on Friday or the bottom is still ahead of us, I think this
correction is creating the conditions necessary for the bubble phase to
begin.
I discuss this topic with Korelin economics in the weekend report weekend report.
