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Let’s step back for a moment and take a look at the big
picture. Although the primary focus of traders should be on the
short-term technical outlook for gold, silver and mining stocks, it’s
good to have a good idea of where the precious metals are likely headed in
the 3-4 year out look.
Our primary analytical tools for discerning the longer-term
trends that are likely to emerge are the yearly Kress Cycles.
Fundamentals can be useful but the long-term cycles are even more important
since they ultimately determine the overall direction that asset prices will
take.
In the context of these long-term cycles we are in early stages
of what might be called the “runaway deflationary” leg of the
120-year mega cycle. This cycle, which is scheduled to bottom in 2014,
has been responsible for the long-term undercurrent of deflation within the
economy for at least the last 10 years or longer. Deflation may not be
visible to the naked eye if all you look at is retail prices (indeed,
inflation seems to be the norm here). But since deflation is at its
essence a contraction of debt, we can see that the deflationary cycle has
been underway for quite some time. It has been responsible for the
contraction in consumer credit in recent years, the decline in housing prices
and the decrease in the demand for debt among consumers.
Deflation also causes the demand for gold to increase over
time. Although most economists teach the exact opposite, namely that
gold is mainly a hedge against inflation, gold comes into its own during
hyper deflation. Since runaway deflation tends to erode paper asset
values and decrease the demand for debt, consumers and investors are
naturally drawn to gold as a way of preserving their savings since gold is
less vulnerable to the vagaries of weak economies. Gold has proven
itself as a long-term store of value and is universally regarded as a safe
haven during periods of economic or social turbulence.
Gold has some things other going for it that other asset
categories don’t. For instance, the demand for equities since
March 2009 is being driven primarily by the Fed’s quantitative easing
(QE2) program. In other words, it’s a liquidity driven bull
market for stocks and as long as the Fed is priming the pump investors
basically have little to fear. When QE2 ends, however, there is some
question as to whether the demand for stocks will continue.
Demand for equities among retail investors has diminished
considerably in the years since the credit crisis. Risk appetites among
non-professionals have fallen dramatically and most large scale equity market
participation done on the institutional side. That’s another
strike against equities, longer-term, and one that gold doesn’t have to
contend with.
Another problem that financial assets must contend with is what
might be called the “domino effect.” Since most financial
assets these days are debt-based to some degree or another, they are highly
vulnerable to downturns in the financial market. This is a common theme
in every financial or economic crisis.
For example, in their book “13 Bankers, the Wall Street
Takeover and the Next Financial Meltdown,” authors Simon Johnson and
James Kwak made the following pertinent observation: “The bankruptcy of
Lehman Brothers in September 2008 accelerated the collapse of American
International Group, forcing it into the arms of the Federal Reserve;
Lehman’s failure also forced the Reserve Primary Fund to ‘break
the buck,’ causing a sudden loss of confidence in all money market
funds; in turn the flood of money out of money market funds caused the commercial
paper market to freeze, endangering the ability of many corporations to
operate on a day-to-day basis.”
Not only was the domino effect in full force during the 2008
crisis, but as Johnson and Kwak pointed out a loss of confidence was perhaps
the single biggest factor influencing asset prices during the crisis.
When the panic subsided, however, notice which major asset was the first to
bottom and the first to experience a major turnaround. Indeed,
investors’ loss of confidence in paper assets translated into an increase
in confidence for the yellow metal, a confidence in gold’s ability to
hold value that hasn’t yet subsided.
When financial catastrophes such the one in 2008 occur, it
invariably causes a loss of confidence in most types of paper assets,
especially assets that are heavily laden with debt. And while gold
isn’t always immune to panic during a major financial crisis (as with
the 2008 crash), it always is the first to recover once investors return to
their senses. Indeed, the gold price has dramatically outperformed the
stock market since the bear market low in 2009 as you can see in the
following chart.
Investors’ confidence in the stability of the financial
system has been restored in some measure since 2008. The seeds of the
next crisis are being sown, however. To take one recent example, the
Wall Street Journal has reported that the Wall Street pros are now betting on
debt that doesn’t exist. It seems that banks and hedge funds are
trading credit-default swaps – the same instruments that caused the
last crisis -- tied to General Motors Co. debt. As Johnson and Kwak
observed, financial innovation, especially as it pertains to debt, tends to
lead to crisis at some point.
While banks remain busy concocting complex, potentially toxic
financial products, federal regulators remain busy doing little of nothing to
stave off the next catastrophe. In an interview with Charlie Rose of
Businessweek, Congressman Barney Frank claimed that Congress has nullified
through its legislative efforts the notion that banks are “too big to
fail” and that taxpayers won’t have to bail them out at the next
crisis. Somehow this doesn’t seem reassuring given the recent
activities of the big banks.
Looking past the sensational upside price targets for gold that
many analysts are offering, my offering for gold’s long-term outlook
based on a simple reading of gold’s historical tendencies during
periods of extreme deflation. Within the context of the long-term
cycles – gold’s upward trend should remain firmly intact between
now and the cycle’s bottom in late 2014.
Gold & Gold Stock Trading Simplified
With the long-term bull market in gold and mining stocks in full
swing, there exist several fantastic opportunities for capturing profits and
maximizing gains in the precious metals arena. Yet a common complaint
is that small-to-medium sized traders have a hard time knowing when to buy
and when to take profits. It doesn’t matter when so many pundits
dispense conflicting advice in the financial media. This amounts to
“analysis into paralysis” and results in the typical investor
being unable to “pull the trigger” on a trade when the right time
comes to buy.
Not surprisingly, many traders and investors are looking for a
reliable and easy-to-follow system for participating in the precious metals
bull market. They want a system that allows them to enter without
guesswork and one that gets them out at the appropriate time and without any
undue risks. They also want a system that automatically takes profits
at precise points along the way while adjusting the stop loss continuously so
as to lock in gains and minimize potential losses from whipsaws.
In my latest book, “Gold & Gold Stock Trading
Simplified,” I remove the mystique behind gold and gold stock trading
and reveal a completely simple and reliable system that allows the
small-to-mid-size trader to profit from both up and down moves in the mining
stock market. It’s the same system that I use each day in the
Gold & Silver Stock Report – the same system which has consistently
generated profits for my subscribers and has kept them on the correct side of
the gold and mining stock market for years. You won’t find a more
straight forward and easy-to-follow system that actually works than the one
explained in “Gold & Gold Stock Trading Simplified.”
The technical trading system revealed in “Gold & Gold
Stock Trading Simplified” by itself is worth its weight in gold.
Additionally, the book reveals several useful indicators that will increase
your chances of scoring big profits in the mining stock sector.
You’ll learn when to use reliable leading indicators for predicting
when the mining stocks are about o break out. After all, nothing beats
being on the right side of a market move before the move gets underway.
The methods revealed in “Gold & Gold Stock Trading
Simplified” are the product of several year’s worth of writing,
research and real time market trading/testing. It also contains the
benefit of my 14 years worth of experience as a professional in the precious
metals and PM mining share sector. The trading techniques discussed in
the book have been carefully calibrated to match today’s fast moving
and volatile market environment. You won’t find a more timely and
useful book than this for capturing profits in today’s gold and gold
stock market.
Clif Droke
Editor, The Daily
Durban Deep/XAU Report
Clifdroke.com
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