Catch-up With Gold In 2005
The Neutral Zone by Trader Tracks (Roger Wiegand)
Several months ago, I predicted $502 gold by December 1, 2004. The trend was correct but the timing was a little off. Good lesson for me; try not to be so perfect in my predictions. Hindsight is a great teacher and while reviewing technicals, timing, and cycles, I found I had not allowed enough space in the cycle for election time. The experience here shows the powers that be will do anything to support an election event, especially when it might affect their future employment. We saw in this recent example that the stock markets will not be permitted to fail nor will gold be permitted to rise when major elections are on the line.
The XAU is a good indicator to show our precious metals stocks status. This weekly chart shows support at 90, and a resistance top at 110. Expect an up-wave price point under 110 or less, followed by a shallow down wave to about 95. This should complete this wave series in preparation for the next gold rally to commence next
month.
Now we are in the neutral zone, where energy and mineral stocks have sold off, corrected, and are waiting to form new basing positions for their next moves, either up or down. The traders had pushed energy to a lofty perch, and it had to correct. Notice, however, that the new support positions are now much higher in price as they settle for the next round of oil rallies. Precious metals, and especially gold, tried to finish the run to $502, but the election and Mr. Market said "not yet." There were some long faces this week along with plenty of "I told you so," from our loyal opposition. As for me, I didn't view 15 points down in gold to be that big a deal. I expected we would visit $429 to support for the next gold rally. Who knows, we may see this yet. We were impressed, however, with how gold sold to $435 and came back to $438 + or -. My charts tell me gold has two more waves to complete before the next serious move up. Neutral zones are no fun, as you have to sit on your hands and watch. Gold stock investors and traders like to be in the markets; they have no interest in being spectators. I read somewhere once that if out were the perfect market timer, and no one is, you would be invested 20% of the time and out all the rest. We can't do this, as seekers of tops and bottoms will lose. A
broker friend, when asked for new trade ideas, said, "Do nothing and keep your powder dry for the next serious event." Wise advice since those "serious events" are where we make all the money. A good investor will get most of the 20%, but must take a big chunk of the "other parts" to get the 20% into the bank.
Demand & Geopolitical Factors
Because of the U.S. influence, domination and manipulation of global financial markets, combined with some of the following reasons, may make shorting the dollar and betting on substantially higher inflation, even in the
near term, a bad trade:
- Everyone knows the dollar is doomed and everyone knows interest rates are heading higher.
- Bob Hoye, who writes "Pivotal Events," points out the fact that post-bubble senior currencies are the strongest currencies. While the equity bubble has partly cracked, the housing bubble and bond bubbles clearly have not yet been pierced. Even so, the dollar could get weaker and then strengthen vis-à-vis other paper currencies.
- It is true that the world is long inflation and short dollars. Moreover, you must consider who the world is short dollars to. The answer? They are short dollars to "the empire," which is the banking system that has been established for the benefit of the ruling elite that established "the empire." Since the empire makes all the rules, it can do and is obviously doing everything within its power to keep the status quo alive and well. That's why, as Richard Russell argues, the Fed will fight deflation tooth and nail because
if/when deflation gets the upper hand, the empire will suffer a serious if not fatal decline, given our enormous indebtedness.
- Meanwhile, that debt needs to be serviced, and cash flow, at least from American industry, is drying up. If Americans can't service debt, Ian Gordon's Kondratieff scenario begins to unfold. But have no fear. The "Economic Hit Man" (EHM, as discussed below) is at the service of the establishment. And he is doing his part to enable the empire tentacles to penetrate every nook and cranny of the global economy so as to keep rulers of other nations cooperating with the U.S. Our ruling elite have done all they can to
try to lock other countries into the status quo so they continue to play by the rules dictated to them post- World War II. A good example of this would be the Japanese printing yen and buying dollars in exchange to keep the U.S. dollar appearing to be worth far more than it is.
What I am trying to say is that in spite of my conviction that the U.S. equity markets, the U.S. bond markets, and the U.S. dollar are all heading lower, I do not think it is a foregone conclusion that they will all suffer devastating declines in 2005. Least of all do I think the dollar will be condemned to death in 2005, because the empire has too much at stake if it is. Before they will allow that to happen they will allow the bond and equity
markets to suffer rapid declines first. The establishment loves to print money because that is how it robs and pillages all of us and foreign countries, too. It did that in the 1970s, and then when things got out of hand in 1980, Paul Volcker slammed on the brakes in money supply growth, and suddenly interest rates hit double digits, and the dollar was saved. And so I assign a higher likelihood that interest rates will continue rising and stocks will decline markedly in 2005 than I do that the dollar index will fall below that magic $0.82 market that Roger pointed out as key last week. Just as Volcker allowed interest rates to rise dramatically in 1980 to keep the paper currency scam alive, I think it is entirely possible that we could see a continued rate rise in 2005, as most people believe.
Geopolitical Implications for 2005
I have taken the time to quote Perkins because I hope you will read the book. But more directly related to the financial markets, we need to understand that as a global empire, the U.S. may be able to continue defying the laws of economics longer than we have thought, because the U.S. has such enormous financial influence around the world. How much longer can it do this? Only Creator God knows for sure. Some geopolitical cracks in the U.S. armor seem to be appearing that could lead to some massive changes in markets during 2005. For example, 7 countries are reducing dollars and increasing euros as a percentage of their reserve bank holdings. And there is no doubt that on a small scale (compared to huge paper markets), gold is being accumulated as a monetary asset
directly by non-Western central banks and/or by citizens encouraged to accumulate the yellow metal. To the extent that demand for dollars continues to decline for economic or political/economic reasons, interest rates may continue to rise and consumer demand decline, which should trigger the next leg of the bear market in 2005, which I believe will take on increasingly deflationary overtones. But at all costs, painful as it may be, the
dollar must survive, else the empire will not. And so, even if it means pushing the U.S. economy into recession in 2005, if that is necessary, the establishment will do it.
But wouldn't that be bearish for gold? I don't think so for at least two reasons: (1) As foreign nations look at the U.S. they see an increasingly rotting internal economy with few good investment opportunities, even as the dollar weakens. That is true even with an artificially low interest rate environment, and it will be even truer as we head into a recession/depression. (2) For geopolitical as well as economic reasons, there is increasing rancor between the U.S. and the rest of the world that may lead to a continuation and even an acceleration of the trend toward diversification of currency reserves into gold. The loss of confidence in the dollar may force the Fed to push up interest rates far higher than it would like, just to ensure the dollar remains as a reserve currency along
with the euro and, to a lesser extent, the yen. And even if only a very small amount of gold is added to the foreign currency reserves, it should increase demand for gold and its price very markedly. To lessen the role of the U.S. dollar as reserve currency is one way-perhaps the most effective way-for our adversaries to dethrone the U.S. Indeed, even in the West, it is no secret that the Germans and the French are increasingly
hostile to the U.S. military escapades, and so while their stronger currency is hurting the Eurozone's ability to export, it is no doubt applauded in some corners of Europe as a means of curtailing our rising military aggressiveness. After all, the French and Germans, just like the Chinese, need and want oil and gas supplies. And in the case of the Chinese, their demands are growing very, very rapidly.
For reasons outlined by John Perkins and others, the U.S. has succeeded in making the world exceedingly angry at us, and as China grows and Russia regains strength (thanks to rising oil prices), and considering the cultural differences between Muslim countries and the West, I think it is a given that economic weapons will increasingly be used in an attempt to bring the U.S. down. We can try to use military might to offset our financial problems caused by our over consumption and lack of savings, but how much longer that can be effective when we have to rely on the savings of an increasingly anti-United States mindset is open to question. We can count on this growing group of adversaries to make life tough for us in 2005. Translated into market action, in my view this is likely to result in higher interest rates, a slowing economy, and a sharp decline in stocks. Will we see a sharp decline in the dollar in 2005? Because of the importance of the empire's defending
itself, I'm not sure we will. But the defense of the dollar will be very painful for the reasons noted above. And for those reasons, I believe gold will rise dramatically in 2005, and with a decline in U.S. equities, I think U.S. gold stocks will play catch-up with gold in 2005.
December 13, 2003
Jay Taylor, Editor of J Taylor's Gold & Technology Stocks
www.miningstocks.com
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