Gold to Trade Under $1,000/oz in 2014
This article (edited) was originally published to Premium Subscribers Monday September 23, 2013.
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Sell Your Gold
Yes you heard it here at Beat the Market. Sell your gold. Gold will trade under $1,000 next year. Sell physical gold, sell gold short on the spot contract, write calls, buy puts, do whatever you want to do... but sell your gold ASAP. This is nothing new to Premium Subscribers at Beat the Market warned Premium Subscribers on February 6, 2013 about the impending gold crash in an article titled Gold... Nearing a Major Inflection Point.
Get it? Sell it all and go as short as you can. Gold is on track to trade under $1,000 in 2014. I am sorry to say but the gold trade is over for now (at least for the next 12 to 18 months). Markets look forward and there is nothing driving gold to the upside in the short or medium terms except a threat of WW3 and possible extension of 'no tapering policies'. So far the Americans have backed down from the Russians ultimatum regarding Syria and international peace regarding the issue has been established. War mongers in Qatar, Saudi Arabia and the US will have to figure out another way to destabilize Syria and get their NG pipeline into Europe.
The markets dodged the 'tapering bullet' in September, neither was I convinced they were going to in September, since Jobs data was nowhere near the 6.5% to 7.0% range the FED wants to start tapering. So what happened when 'No Tapering' hit the headlines? Well... Gold spiked immediately but failed to break maintain critical levels above $1370 and has now established a downtrend. POG has now failed another key level at $1340 and is now driving well under this critical price band between $1330 to $1340. It has also flashed a head and shoulders pattern over the last two months indicating that an imminent price drop could happen at any moment. If the neckline breaks much below $1300 (a key psychological level)... you could start seeing momentum to the downside we haven't seen since February to April time period.
The gold bug's arguments haven't played out in the last decade and the won't in the next unless a worst case scenario of an apocalyptic nature happens. Don't be fooled by these guys, FEAR sells, but often our mildest fears never happen let alone worst case scenario's. The US DOLLAR isn't dead. We don't have a USD that is falling through the floor. Thinking that the USD is going to become the next Peso are compeltely unfounded. The USA is not the next Wiemer Republic. Simply put... conditions jsut aren't right for things of this apocayptic nature to happen. Could conditions become ripe for such a thing? Possibly. But alot of things have to come together all at the same time for that to happen and irhgt now there is no indication these fundamental conditions are in place. One BIG REASON that the USD march to ZERO halted is because printing money is the norm in the modern world of economics. It's not just the USA doing it. In a world where everything is relative, when eveyone is doing the same thing and at proportionately greater levels... how can you acutally devalu the USD? The Japanese do it. The British do it. The Brazilians do it. Everyone does it. Even the Chinese do it. Kind hard to deflate your currency when everyone does the same thing.
So you would think that Gold would track to the moon with these conditions, right?
WRONG!!! Simply put, Gold is not an alternative currency. Gold is not money. At best; gold is a financial asset and tracks global 'real inflation' over monetary debasment. The gold market is riddled with flaws and is a poor choice to protect your money in real terms.
Here are some problems with gold...
- You can't spend gold.
- It isn't subdividable.
- It is finite and costly to mine, let along find.
- It is a very small market when thinking about global assets.
- Its not driven by theoretical values of money
"Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given socio-economic context or country. The main functions of money are distinguished as: a medium of exchange (no); a unit of account (yes); a store of value (yes); and, occasionally in the past, a standard of deferred payment. Any kind of object or secure verifiable record that fulfills these functions can be considered money."
So why is isn't gold exploding tracking the debasement of leading global currencies?
Because there is no inflation. This is not the Wiemar republic that printed money to pay a population.
For all good intentions of modern day QE, the reality is that none of this money ever really enters the system on a grand scale. It is meant to prop up the financial system. Prop up the banks. Prop up the fraudsters in Congress and on Wall Street. You are not seeing major work programs like FDR implemented in the 1930's and 1940's. You are not seeing govt create new demand with QE. Nope. It is meant to save the financial system, because the real dollars haev been scraped out of the system by the 1%. You are not seeing mass subsidies to get people into homes. You are not seeing huge increases in lending to small business. US growth topping out at 2.5%??? For all intensive purposes the US is already in a period of stagflation if you account for 'real inflation' increases in food and energy prices.
For all intesnsive purposes... I believe the USA and Canada and most other developed and Westernized econmies are in a period of stagflation.
When did we have stagflation? In the 1970's. What did gold do in the 1970's? It was quite volatile. It made a huge run up in the initial period when inflation initially took off and gold soared to $800 (infaltion adjusted) but then it crashed back down to $400 losing 50% of its value. If gold repeats this pattern during this period of stagflation, then you could expect $1800 to bottom at $900 in a 24 to 36 month consolidation. I am not saying POG is not going to head even higher due to factors like the FED may never stop QE and may put the foot on the gas again in a few years to fight another recession... but ultimately I believe we are in a period of extreme volatility similar to the 1970's for which gold in my opinion is still firmly entrenched in a bear market.
So why would you buy gold when you short term indicators indicating further downside AND uncertainty about continuation about the overall bull in gold?
Seems pretty silly to me unless you have fallen in love with a the Yellow Metal. What would you wife think when you laid down to bed at night adding, Goodnight gold, I love to your regular bedtime chatter with your spouse?
Clearly, she would think you have lost and would have you selling all your gold the next day.
Will we see that ultimate parabolic spike like we did in the early 80's? The gold bugs are still certainly convinced. But those guys have had the same arguments for the last 35 to 40 years. Even a broken clock is right twice a day. I don't want to say soemthing is going to happenig when clearly it is not happening ad the conditions that make such a rally are no where to be seen.
Clearly... POG is a BIG FAT SELL. If you want to buy your gold back,... buy it back at the cost the gold miners produce it at. Most of the CEO's at these huge miners are still in LALALALA land about the prospects about POG. The group beleives their own dribble to the point they judgement is clouded and like I always say... the proof is in the pudding.
None of these guys have imlemented hedging programs... Watchout. When gold breaks below $1200.. there is going to be a scramble by producers to hedge the next 12 to 18 months productiom. The smart ones have started doing it... but finding a smart gold mining CEO these days is not that easy since al the smart ones have retired with small fortunes and moved on to bigger and better things.
We may see that ultimate spike in the later half of the decade, but the fundamentals on the macro level are not in place for this to happen. Not yet. Continued global debasement will eventually leak into the system and will eventually devalue currencies worldwide. But will this drive gold higher? Only if it is seen as an alternative currency and gold at the present moment is losing its appeal in that category in favor of crypto currencies like Bitcoin which actually serve that purpose while gold is struggles just to maintain its relevance as a financial asset. Clearly it does not track global fiat currency debasement.
Maybe I am just young and don't see the appeal of gold... but why would I buy gold as an alternative currency when I can buy Bitcoin? I can easily spend Bitcoin. It is not debasable. The only way to make it cheaper is to subdivide it... which they will eventually do as Bitcoin tracks well over a $1,000 in the coming years. That my friends is a true alternative currency.
Gold will eventually float too... but only as other, more favorable products enter their 'deemed' market valuation. gold will be consdiered the poor cousin to Bitcoin simply because gold does not perform as a true medium of exhcange. On the other hand... as global debasement continues or abates.... Bitcoin is clearly 'undervalued'.
One key element that is missing and is still debateable that will happen for POG to make its ultimate parabolic spike.... interest rates need to make a sharp turn and the US needs to lose thier ability to set their own interest rates. You want conditions that mimic 30 to 40 years ago? Interest rate need to go to 15% to 20% first. Or at least be well on track for that.
If global debasement continues... it is possible that this may happen to the US???
YESBut at this point in time... that is not likely and the US has no appetite to raise rates 1% or 2% let alone see GOVT T-Bills paying out close to 10%.
A review of the ST fundamentals....
- US tapering fears
- Similarities with stagflation in 1970's when gold oringially spiked and then dropped 50% in value
- European Crisis abating
- NO FEAR anywhere
- Low growth environment
- Abating inflation for things like food and energy
- zero wage inflation
- uncertainty about timeline of global QE programs.
So what do we have left in the short term bull gold camp?
Are you going to buy gold because you think WW3 breaks out? Maybe on the confirmation of a global war I might consider a trade depending on the variables involved, but to be invested in gold under the guise that global conflict might escalate is shear stupidity. Are the Chinese o ntnhe verge of dumping US treasuries on the open makret as an act of aggression? NO. We had a nice little rally this summer, and as predicted POG topped out in the last week of August and is now in a downtrend.
My gut says that this October you do not want to be long gold. This is an unwinding of the US monetization trade and as Ben leaves the FED, so does this trade OFFICIALLY END. Please take heed of this advice. The Gold Bull is definitively over, or at least on HOLD; and as more and more people realize this liek the dumb dinosaur Gold Mining CEO's... you are going to see major momentum to the downside. When does this happen? I don't know.... but I do know that the bear market is continuing and technically for the last few weeks, the alarm bells kept ringing that this is a trade that you want nothing to do with.
The rally after Ben announcing no taper was a relief 'get me the hell out' rally at best. The selling after the initial burst is your first clue that you do not want to own gold. Here is the second clue. Gold just flashed a major technical sell signal.
Which one you ask?
Only a head and shoulder pattern developing. The neckline is $1270 to $1300 and once those two critical areas of support break there is only resistance at $1200 before POG enters FREEFALL MODE.
The breakdown this February to June will seem like child's play as this next breakdown is almost certain to lead gold well under $1000 per ounce next year. Gold could lose up to 50% of its value over the next 12 to 18 months and this is just not something most of you will want to eat in your 'net wrorth' calculation. The commodities super bull is over or at least on an extended break, and there are no signs anywhere this will abate any time soon! The US is reigning in spending and reigning in monetization and it will be a huge mistake to step in front of this trade. When you cut the deficit in half... do you realy need all that QE?
I am also of the suspicion the the US market has topped out, but this needs further analysis before I can confirm this.
But after watching POG carefully in September, you do not want to be anywhere near this trade on the long side. I am sorry to be the bearer of bad news but this is almost certain. I would be reestablishing short positions if not already done in anticipation of a major breakdown in price this fall and continuing into 2014.
I don't like to be the bearer of bad news... SORRY.
On the other hand
Kandi has finally woken up! The Chinese govt announced electric vehicle subsidies to the tune of $10,000 per electric vehicle and up to $80,000 for each electric bus sold. The problem with KNDI stock is that it tends to move in days and then consolidate for months so this movement to the upside may only be temporary. KNDI has not established a trend. The stock does not close above $8 I think you it will trend down towards a trendline that the stock is trying to establish. It from today's trading and the candles it looks like you have upside to $8 or $8.50 intraday but without a daily close above $8. It is hard to confirm any type of momentum past $8. It is trying to establish a trend so the stock is looking better and better as a momentum play.
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