Gold & Miners To Rally s US Equities Fall On FEA

June 25, 2018 The US Equities markets rotated over 1.35% lower on Monday, June 25, after a very eventful weekend full of news and global political concerns.  Much of this fear results from unknowns resulting from Europe, Asia, China, Mexico and the US.  Currently, there are so many “contagion factors” at play, we don’t know how all of it will eventually play out in the long run. Europe is in the midst of a moderate political revolt regarding refugee/immigration issues/costs and political turmoil originating from the European Union leadership.  How they resolve these issues will likely be counter to the populist demands from the people of Europe. Asia is in the midst of a political and economic cycle rotation.  Malaysia has recently elected Prime Minister Dr. Mahathir Mohamad, the 92-year-old previous prime minister (1981~2003) as a populist revolt against the Najib Razak administration.  In the process, Mahathir has opened new … Continue reading

Bubble Charts: War Between Tech Investors vs. Gold and Silver

The cyclical nature of commodities and equities goes back at least until the 1970’s. When commodities are doing well, equities are performing poorly. Then the cycle flips and investors pile into equities, eventually making them expensive and commodities like gold and silver become cheap. But what do you get when you take the extremes of both equities and commodities? The extreme side of equities, technology stocks (NASDAQ Composite) being driven by lines of code you can’t touch. On the opposite end of commodities, you get tangible precious metals, silver and in particular gold. Tech investors versus gold and silver couldn’t be more different. Their history of being at a tug-of-war has rarely been discussed until now.

When we look at the NASDAQ Composite (NASDAQ) in relation to gold and silver in US dollars, going back to 1971, when the Nixon shock occurred. You get a striking relationship that confirms the cyclical nature between the commodities and equities. This was four years before Paul Allen and Bill Gates read the famous popular mechanics issue highlighting the world’s first microcomputer kit. That magazine propelled the creation of Microsoft. The 1970’s were a period of rising commodity prices, high inflation, a stagnant economy, and multiple recessions.

 

The Pendulum of Gold and Silver vs. NASDAQ Composite

1) 1971 – 1980: Commodities went on an epic bull run, increasing by more than twenty-five times, clearly outperforming the NASDAQ. By 1980, the NASDAQ was incredibly cheap relative to gold and silver.

2) 1980 – 2000: From 1980 onward capital flowed out of gold and silver and the overall commodities complex. as interest rates lowered, and confidence in the public sector was renewed. Equities were the cheap asset class in relation to commodities. This then set up the bull run in technology with the NASDAQ peaking in 2000. Gold and silver by this time were incredibly cheap to the NASDAQ.

3) 2000 – 2011: The cycle rotated back to gold and silver until they peaked in 2011.  This is in contrast to the S&P/GS Commodity Index (GSCI), that peaked in 2008. For gold and silver investors that followed the GSCI, they would have sold out early, as gold almost doubled almost three years later in 2011.

4) 2011- Today: Investors could have rotated into the NASDAQ in 2011, when gold and silver peaked in 2011, as NASDAQ has since almost tripled. Today, both gold and silver are incredibly cheap to the NASDAQ. Today, silver may bounce around, but it will be small moves in relation to the coming years ahead, that just like the past four cycles the beginning moves were small until the end of the cycle. This fifth cycle will swing back to silver and gold and we expect them to outperform the NASDAQ on a multi-year basis during for the fifth rotation.

This back and forth pendulum swinging between the two, confirms the cyclical nature between equities and commodities, but at their extremes.

Gold and Silver Warn Tech Melt-Up

With the manufacturing starting to experience headwinds from the tariffs. Investors are rotating out of manufacturing stocks, and further into technology because for now, tech stocks are less impacted. This rotation may be the final push higher, which investors like Paul Tudor Jones are referring to a second half of 2018 peak in the markets. Remember, based on past cycles we have seen between gold and silver to the NASDAQ Composite, there was a big thrust UP at the peak. Will this time be any different?

As the NASDAQ pushes ahead while the S&P 500 languishes we are experiencing an accelerated melt-up. Is the blow-off-top going to be driven by technology because of the famous FOMO? It doesn’t have the same sensations of Bitcoin in 2017 or the Dotcom bubble yet. But as investors rotate out of Dow components because of trade concerns and into the asset light, businesses you end up at technology stocks. Gold and silver say, yes.

“Rates go up, and stocks go up in tandem at the end of the year. I can see things getting crazy, particularly at year end, after mid-term elections. I can see things crazy to the upside.” Paul Tudor Jones

Was Paul Tudor Jones referring to tech stocks?

US Economy Is Holding Up The World

The US economy continues to be strong, with the underlying ISM Manufacturing PMI at 58.7%, and the US ISM NON-Manufacturing PMI 58.6% for May. No, a recession isn’t in the cards yet. But we sure are getting close as the QE experiment is in tightening mode, and central banks are raising rates around the world.

The Melting Up of Tech Warns – Expect Lower Returns Next 5 Years

For the remainder of the year, it is still quite possible the NASDAQ could go higher, as the NASDAQ is still hasn’t experienced its phrase transition relative to gold and silver. Based on past cycles, there was always a melt-up and outlier for gold, silver, and the NASDAQ. Will the NASDAQ repeat history? With global central bank liquidity decreasing, increasing rates, and the ever-increasing tariffs, maybe it won’t break through the highs in 2002. Investors should reduce expectations to generate the same returns on a multi-year basis going forward as the past five years. For gold and silver investors, this is a massive long-term opportunity.


BULL MARKET SETTING UP FOR GOLD AND SILVER NEXT 5 YEARS

Once the NASDAQ peaks, capital will flow to commodities, setting in the new trend for the commodities boom. From an investors perspective, on a multi-year basis, the reward is clearly to gold and silver, the downside risk clearly to the NASDAQ. Tech investors will swear they will never own commodities. But do you want to continue the streak after the tech boom?

An investor does not need to be precisely right, but just approximately right over multiple years to take advantage of this gold and silver opportunity.

“You only need one bull market to build life-changing wealth. And a new bull market may be knocking at the door…” – Rick Rule

Taking a multi-year view and not shorter-term view, silver and gold are incredibly cheap right now and they stand to benefit from the capital outflows from technology based on the cyclical rotation that has historically occurred. We are only in the first inning or two for gold and silver, particularly when you look at the where the NASDAQ is today.

Takeaways from Tech vs Precious Metals Cycle

  • In all three booms that occurred between the NASDAQ Composite, gold, and silver, there was a melt-up higher for each of them. But the bottom may have already been set in 2016.
  • What is in favor today (Technology) will soon be out of favor in the future, and what is out of favor today (Silver & Gold) will become in favor tomorrow.
  • High-quality businesses with exposure to gold and/silver will give investors an edge to massively outperform the commodities complex and in particular the NASDAQ Composite on a multi-year basis.
  • Don’t marry the trade.
  • Following the Bloomberg Commodity Index is not bulletproof particularly for tech and precious metals investors.
  • Precious Metals will outperform the technology sector over the next 5 years because tech is peaking.

Buy Cheap and Sell to the Crowd

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We will be hosting a Live Webcast on Tuesday, July 3, at 4:20 PM ET. Mr. Paul Farrugia (President & CEO) will be discussing an unconventional approach for gold and silver investors in the coming commodity cycle.

There will be no replay. We have limited seats.  

Reserve Your Seat Today

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I Like the Penny Stocks Right Here and Right Now

May 16, 2018 By Dudley Pierce Baker http://JuniorMiningNews.com http://CommonStockWarrants.com Hello Investors, Crazy as it may sound, I love this game of investing in the penny stocks and possibly some of the stock warrants trading on resource companies. While some of you may believe this is a crap shoot there is actually some logical reasoning that could make you a substantial amount of money in the up coming bull market in the resource sector. Higher gold, silver and copper prices are coming believe it or not. Yes, gold has just plunged below $1300 for the first time in many months but as I write, it is holding around the .618 retracement of $1290 or so. True, I do not want to see much more of a decline from here and we really need to get back above $1300 ASAP. So, my cautionary warning for you, is that you should be prepared … Continue reading

Congestion Basing Can Present Incredible Opportunities

  May 12, 2018 Chris Vermeulen     Our research team wanted to alert our followers to the incredible opportunities that continue to present themselves in the current market.  While many people have been overly concerned about a market top and price rotation in the US majors, the Energy sector and many others have seen incredible price moves. Take a look at this XLE chart as an example.  Yes, we know that Oil has rallied from about $60 to closer to $70 recently, yet we want you to focus on the price pattern that setup this move in XLE.  Specifically, we want you to focus on the Multi-Month Base pattern in price between early February and early April of 2018 as well as the upside breakout that followed. In true technical analysis theory, price tells us everything and indicators assist us in relating current price movement/action to historical price movement/action.  … Continue reading

US Indexes Setup Bottom Confirmation Pattern

May 6, 2018       On Wednesday, May 2, we issued a research post supporting our position that the markets were nearing an apex breakout and that critical support and resistance levels had established within the market.  We indicated that volatility is usually quite high throughout these apex breakout moves with the potential for a “wash-out” price rotation in the works.  In other words, as these apex breakouts happen, price can sometimes, falsely, break to one side or the other and rotate very quickly to the other side – creating what we call a “wash-out” price reversal. Closing out this week, prices broke lower on Thursday, May 3, and reversed sharply before the end of the trading session to create a “wash-out” low formation which is indicative of a price bottom.  We felt strongly that our ADL price modeling system’s analysis as well as this bottom formation are strong evidence that the US … Continue reading

Bloomberg Commodity Index Is Near An Upside Breakout

John Murphy | April 21, 2018 at 05:20 PM Editor’s Note: This article was originally published in John Murphy’s Market Message on Thursday, April 19th at 12:11pm ET BLOOMBERG COMMODITY INDEX IS NEAR AN UPSIDE BREAKOUT… This week’s surge in commodity prices is starting to attract a lot of attention. That’s because rising commodity prices are a leading indicator of inflation. Rising commodity prices have a lot of intermarket implications. For one thing, rising commodity prices usually cause Treasury bond prices to fall and yields to rise (as they’re doing today). That usually helps stocks tied to commodities and those that benefit from rising rates (like banks and financials). But it would hurt rate-sensitive bond proxies like staples, utilities, and REITS. Rising bond yields could, however, cause the yield curve to steepen and relieve recent concerns about it falling to the lowest level in a decade. Let’s look at some … Continue reading

Gold Should Be at $16,450 & Silver $761


April 19, 2018

The super powers in the West are doing what they can to provoke Russia and indirectly China and Iran into a world war. Most people alive today were not adults when WWII started and therefore did not follow the lead up to the war. But today the whole world can watch how the West has chosen to attack a country which has no major significance geopolitically and does not threaten any other country. Still the West clearly knows that bombing of Syria can start a global conflict with potentially horrendous consequences.

There is no intelligent reporting of these events in the Western media. Whatever propaganda the media is fed, they just publish it without any analysis or investigation. And the US with its allies do not wait for any independent verification of alleged use of chemical weapons. That a world war could start on such fickle reasoning is absolutely frightening.

UK & US STARTS A WAR TO DIVERT ATTENTION FROM DOMESTIC WOES

Syria is of course only an excuse. As a country it would be of no consequence for the safety of the rest of the world if it was left alone. Most wars are started by nations which are under economic pressure domestically. The US and UK fit that picture perfectly.

With debts growing exponentially and massive budget and trade deficits, both these countries are on the way to bankruptcy. Added to that, their leaders are under major pressure at home. Trump has “Deep State” and impeachment pressures and Theresa May suffers from weak leadership in a minority government with an unresolved Brexit. This is the perfect background for pretending that there is a major global conflict and diverting the attention to the international scene.

It is only Russia’s restraint which has so far stopped this conflict from turning into something very serious for the world. We must remember that Russia only has two military bases outside of their country whilst the US has around 1,000. Also, according to independent experts, Russia’s military might is far superior to that of the US. But in the case of a nuclear war, both countries have more than enough power to destroy the world. So we must hope and pray that it won’t come to that.

PROTECT AGAINST FINANCIAL RISKS

Virtually nobody can protect against a global nuclear conflict. But we can protect against local conflicts and we can protect against a financial crisis. In 2001 we decided as a company that protection against a potential financial crisis was an absolute necessity. Thus we took the decision to invest in physical gold for our clients and ourselves. At the time, I regarded the continuous deficit spending, credit growth and the derivative time bomb as major risks.

The best time to make a strategic and long-term investment decision is when the asset you intend to buy is unloved and undervalued. That was certainly the case with gold at the time. Gold had been going down for 19 years from $850 in 1980 to a low of $250 in 1999. Central banks around the world had been selling a major part of their gold. The UK and Switzerland comes to mind as two countries selling the majority of their gold around the lows – a very good buying signal.

As we were forecasting a potential financial crisis at some point in the future, we recommended, in early 2002 to our investors to buy gold for up to 50% of their financial assets. Gold was then $300. At the time this was quite a radical proposition, especially since gold was then a barbarous relic that was totally out of fashion. The advantage with buying an undervalued asset that is not on the front pages, is that the risk is so much smaller than when the trade becomes crowded.

GOLD READY FOR THE NEXT STRONG MOVE UP

The timing was quite fortunate. As the chart below shows, gold rose every year from $300 in 2002 to $1,920 in 2011. In 2013 a bigger correction started which ended in 2015. Since then gold has only moved up slowly just like it did in 1999-2001.

In my opinion, gold is now in the process of breaking out from the 5 year consolidation. We need to get proper confirmation with a move to $1,400 but the position of the quarterly chart confirmed by the rising MACD indicator is a strong sign that the next move in gold to new highs is imminent.

The chart below also shows that gold is in a strong uptrend and that the correction in the last 5 years is minor and finishing.

PHYSICAL GOLD IS HELD FOR WEALTH PRESERVATION NOT FOR SPECULATION

We must remember that gold is not bought or held as a conventional investment for capital appreciation purposes. No, gold has a much more important function than that. Our company invested in gold in 2002 because we identified the risks in the financial system as very high. But today the risks are substantially higher and the reason for buying physical gold even more compelling.

WE BUY PHYSICAL GOLD BECAUSE:

  • It has been money for 5,000 years
  • It is the only money which has survived throughout history.
  • It guarantees stable purchasing power over time.
  • It is scarce – It cannot be printed. (Unlimited paper gold creation will soon collapse.)
  • It is durable – All the gold ever produced still exists.
  • It is nobody else’s liability – Thus no counterparty risk.
  • It is held and traded outside a fragile financial system – Thus gives independence.
  • It is the ultimate wealth preservation asset and insurance against a rotten world economy.

GOLD BUG?

It might appear that I am a gold bug but that is far from the case. We bought gold in 2002 to protect against the colossal risks we saw in the world economy and financial system. We are not in love with gold but believe that it is the best protection you can buy and own today. At some point gold will be overloved and overvalued. Then we will recommend to our investors to sell some of their gold or swap it against other assets which are unloved and undervalued. But I expect that time to be quite a few years away.

INFLATION ADJUSTED GOLD SHOULD BE $16,450 AND SILVER $761

Today at $1,350, gold is as unloved and undervalued as it was when we bought in 2002 at $300. On an real inflation adjusted basis gold at $1,350 today is at the same level as in 2002. (see chart below) and also at a 300 year low. The 1980 gold peak at $850, adjusted for inflation, would be $16,450 in today’s money – 12x higher than currently. That price is more in line with our own targets.

Silver is even more undervalued. On the same inflation adjusted basis, silver is also at a 300 year low. At $17.20 today, inflation adjusted silver is the same as in 2000 at around $4. And the 1980 silver high of $50 would today be $761 – a 44x increase from here.

Gold at $16,450 and silver at $761, makes the gold-silver ratio 22, which is in line with historical levels. But since the ratio is just below 79 today, it means that silver will move almost 4x as fast as gold.

GOLD AND SILVER ARE AT HISTORICAL LOWS – INFLATION ADJUSTED

Bearing in mind that credit creation has been exponential in this century with global debt having doubled to $250 trillion since 2006, gold has in no way reflected this money printing and total destruction of paper money. So this is still to come. Once the intervention in the paper market fails, which could happen at any time, the moves in gold and silver will be explosive.

The time to own physical gold and silver is today and not when they move to new highs. Both metals are at inflation adjusted historical lows and the downside risk is minimal. Also, they probably are the most undervalued of all assets currently.

With geopolitical, economic and financial risks at an extreme high, please don’t ignore these risks and don’t ignore history. And with the precious metals at extreme lows, it would be very unwise not to own substantial protection in the form of physical gold and silver.

Egon von Greyerz
Founder and Managing Partner
Matterhorn Asset Management AG

Silver on the verge of a break out

Silver on the verge of a break out Stefan Wieler April 18, 2018 Silver prices are trading almost 25% below the values predicted by our price model. This is the largest downside deviation we have seen in over 25 years. We believe this is the result of massive short selling in the futures market. In order to maintain this downward pressure on silver, speculators would have to continue to sell over 500 million ounces of paper silver per year. A reversal of this positioning could lead a >30% rally in silver prices in our view. View the Entire Research Piece as a PDF here. About a year ago we introduced our Silver Price Framework (see Silver price framework: Both money and a commodity, March 9, 2017). In that report, we highlighted that silver prices are driven by monetary demand as well as supply and demand for industrial purposes, the latter of which … Continue reading

I Don’t Own Any Shares Selling Over 50 Cents

April 17, 2018 IT’S TRUE Dudley Pierce Baker, here, founder and editor of Junior Mining News and Common Stock Warrants for well over 10 years. I just reviewed my portfolio and I currently do not hold any positions, be they, shares or stock warrants, which are selling for over 50 cents. And since most of my positions are in Canadian shares and Canadian dollars, that is only about 40 cents in U.S. dollars. You can call me crazy but, crazy like a fox, as I am out to hit many home runs in the resource sector as gold and silver breakout, which is coming soon. My portfolio has a balance of oil and gas shares, gold and silver companies, several of which are small producers. I also own several of the uranium companies. While I may be known to investors as ‘the warrant guy’, only 25% of my portfolio is … Continue reading

Silver Trails Gold by the Biggest Margin in 25 Years

Silver Trails Gold by the Biggest Margin in 25 Years
PHOTO: GETTY IMAGES

Bloomberg Commodity Index

Silver didn’t get the push it needed to outpace the rise in gold last year, as some analysts had expected, but good things come to those who wait.

“Many of silver’s key drivers that painted a bullish picture last year are still in play for 2018, particularly rising inflationary pressures and a weaker U.S. dollar,” says Maxwell Gold, director of investment strategy at ETF Securities.

Even so, silver futures have lost roughly 5% so far this year as of Friday, trailing gold’s 0.3% decline. In 2017, gold gained nearly 14%—roughly double the rise for silver. Silver closed on Friday at $16.54 an ounce.

Brien Lundin, editor of Gold Newsletter, says he expected silver to top gold last year and this year, but that hasn’t happened because the rally in gold hasn’t had “the kind of consistency…necessary to lead investors to look to silver for additional leverage.”

Silver Trails Gold by the Biggest Margin in 25 Years

That will come, he says, given his expectation for further declines in the U.S. dollar on the back of “recent signs of rising inflation and the fact that we’re in the back half of the [Federal Reserve’s] tightening cycle.” Other central banks look poised to begin tightening monetary policy, he says. A weaker dollar will translate into “upward pressure on gold and, eventually, as this trend becomes apparent, greater gains for silver,” says Lundin.

Demand will also play a big part in silver’s climb.

“Silver demand from industrial applications is expected to grow mainly from [electric vehicle] and photovoltaic applications, as silver has excellent electrical conductivity properties,” says Will Rhind, chief executive officer of exchange-traded fund company GraniteShares. Photovoltaic panels collect solar energy. “With continued global economic growth, continued EV demand and a weakening dollar, silver has the potential to perform well in 2018 and potentially outperform gold,” he says.

A report from the Silver Institute released in January shows that demand for the white metal from industrial applications is the largest component for silver offtake, representing 60% last year, and it’s expected to continue to grow this year. Worldwide silver demand for photovoltaic applications, particularly in solar panels, reached an estimated 92 million ounces in 2017.

“We expect the growth to continue this year and set another record for silver demand, driven by large-scale solar capacity additions and continued strong demand uptake from individual households, particularly in China,” the report says.

Analysts also point out that the gold-to-silver price ratio, which measures the amount of silver ounces that can be exchanged for one ounce of gold, is historically high, suggesting a bargain in silver.

SILVER “REMAINS RELATIVELY CHEAP compared with gold,” with the gold-to-silver ratio at about 80, versus a historical average of 60, says ETF Securities’ Gold. “Silver may play catch-up, spurred by bargain buying among retail and ETF investors.” The silver bullion-backed iShares Silver Trust ETF (ticker: SLV) has lost nearly 3% year to date.

Adrian Ash, director of research at BullionVault, says that silver’s “failure to rise with gold so far in 2018 means that silver is touching extreme levels, in terms of the yellow precious metal.” The gold-to-silver ratio makes “gold very nearly as expensive as it has been any time in the past 25 years,” he says.

He also points out that over the past 50 years, silver and gold prices have gone in the same direction on 71% of all trading days and the two metals have moved in the same direction in 74% of the months since 1968. Given that, “if you’re bullish on gold, history says you should expect silver to rise, too,” says Ash.

And even after last year’s disappointing performance for silver, Lundin believes that prices will climb above $18 an ounce this year and “perhaps significantly higher.”

That said, he also warns of a possible dip to the mid-$15 range, particularly if the 10-year Treasury yield hits 3%. “Breaking that benchmark would likely lead to short-term havoc in risk assets, leading investors to sell the metals to meet margin calls,” Lundin says.

MYRA P. SAEFONG covers commodities for MarketWatch.

Email: editors@barrons.com