Gold Warns of Coming Stock Crash

March 13, 2000

The gold market is sending off a warning signal ahead of the coming Fall 2000 (Sept.-Oct. timeframe) stock market collapse. Specifically, there are numerous technical signs that gold and select gold stocks are being accumulated ahead of the financial panic that will blight the global economy beginning later this year (see our previous article "A Crash, But Not Yet" for details on this coming crash).

When we look at the daily bar chart for gold, we see evidence of an upward (accumulation) cycle in the form of a bowl formation, the sides of which are currently providing support for gold's price. The fact that gold and the XAU-a leading gold market indicator-have held their own throughout the year in spite of general commodities weakness is one positive. Bowl-shaped formations in the charts of several gold stocks (particularly Canadian golds) is yet another sign that accumulation is underway by insiders.

What is even more promising is the open interest line for gold futures on the COMEX. Gold open interest, more so than perhaps any other tradable commodity, tends to move in almost perfect cyclical fashion, and the open interest cycle is clearly up. This indicates growing trader interest in the metal and provides further support for the bullish case. Other technical indicators, particularly volume-based indicators, also suggest a general accumulation phase presently underway in the gold market.

The big story in the precious metals market right now, of course, is the recent show of strength by platinum and palladium. Palladium futures soared to new contract highs two weeks ago on supply fears, and its price was temporarily capped in a crass attempt at forcing the longs to liquidate. What the chart shows, however, is a massive upward parabolic cycle still in place, forecasting an even higher rise in the weeks to come. It never pays to mess with the free market, and any attempts at capping palladium's price will surely backfire. Market technician Stan Weinstein used to talk about a concept he called "the big move after the big move," and this appears to be the case with platinum. Get ready for the second big move.

Silver is a trickier market to call. It was recently suggested by one prominent analyst that silver had been relegated to industrial metal status and was therefore disconnected to gold's price movements. We disagree with this assessment. As we pointed out in our recently-published book, Elliott Wave Simplified, silver is due for a big runup towards the $7/oz. level or higher in the months ahead. This no doubt will be connected with gold's big move in relation to the coming stock market crash.

One area of disagreement we have with gold analysts concerns the outlook for the U.S. Dollar. Contrary to what most believe, a stock market crash does not necessarily translate into a dollar crash. In fact, given the deflationary nature such a crash is likely to take (and indeed, deflationary signs abound) the dollar can actually be expected to strengthen, not weaken. The chart bears this out, as several major supporting trendlines are guiding the price line higher, slowly but steadily. Keep plenty of cash on hand along with your gold and silver in crash-proofing your portfolios.

We would like to address a couple of responses to our crash scenario that readers have recently submitted to us. Foremost is the belief that an equities market crash will not occur this year because the Year 2000 is an election year in the well-known "Presidential Cycle." This cyclical theory asserts that an election year almost never witnesses a significant decline in the equities market since the president seeking re-election does not want to leave a bad taste in voters' mouths with regard to the economy; hence he will do everything in his power to bolster the stock market. However, it is rare that a president is elected to two terms, as Clinton has been, thus the theory becomes a bit more tenuous on the ground that the departing president has nothing more to gain from voters. And besides, presidents, politicians, bureaucrats and central bankers ultimately have no control over the over-arching forces of the grand cycle (K-Wave). Their efforts at bolstering the markets can only succeed insofar as the trend is on their side. For the better part of 20 years it has been, but that is about to change this Fall.

We would venture (an admittedly wild) speculation that the presidential elections will be suspended once the crash hits, and Clinton's reign extended under emergency powers in order to "lead the nation through the time of crisis." And we're convinced he would get away with it since Bush and Gore don't exactly conjure up images of strength, vision and leadership qualities in the voters' collective minds. Clinton is tied inextricably to this economy, and we believe the people will demand his "leadership" when it crumbles…only Humpty Dumpty won't be able to put the pieces together again.

Note to readers: Our Web site can be viewed at www.tapetellsall.com

Clif Droke is the editor of the three times weekly Momentum Strategies Report newsletter, published since 1997, which covers U.S. equity markets and various stock sectors, natural resources, money supply and bank credit trends, the dollar and the U.S. economy.  The forecasts are made using a unique proprietary blend of analytical methods involving cycles, internal momentum and moving average systems, as well as investor sentiment.  He is also the author of numerous books, including “2014: America’s Date With Destiny.” You can view all of Clif's books here. For more information visit www.clifdroke.com.

Seventy-five percent of all gold in circulation has been extracted since 1910

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