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Over the past weekend, China announced
that they would purchase Iranian oil through sale of gold beyond June 28 2012
in order to get around US sanctions that states no nation can sell oil in US
Dollars This has profound implications going forward, as this will be the
first time in nearly 70 years that the US Dollar as a reserve currency has
been challenged. The article I penned back in 2003 titled “Whose Gonna Say Uncle” mentioned that block currencies
will likely form due to localization of economies due to energy constrictions
etc. The BRICS nations have primarily been the target of sabre rattling
through the US government, so actions taken by China is likely to be
conducted on a massive scale going forward as other nations seek better
control over their own destiny.
The BRICS nations are a force to be
reckoned with, from a financial and military perspective. Sabre rattling
coming out of Washington is merely that...there is not much that they can do
to save the US Dollar, as other nation blocks slowly attempt to create
localized currencies. All major wars being fought at present are economically
related as each country tries to stay afloat in an environment where an ever
increasing amount of debt is created daily to prevent deflation (Note: This
can only be put off for so long as the CFS cycle reaches its next downward
turning point).
As bickering and economic warfare
continue up front along with the Bread and Circuses put on national TV to
dumb down the masses, the page 16 story (As Donald Coxe
refers to stories out of the eyes of the majority) unfolding is that gold is
slowly being set up to be a major currency of exchange. Banks around the
globe are quietly accumulating metal in order to preserve wealth for what
lies ahead beyond 2020. Between now and 2020, gold is likely going to see a
spike high between $7000-10,000/ounce (maybe higher) and then drop by 50% and
baseline.
Subsequently, a broad stock market rally
beyond 2020 will be likely after ending a near 20 year bear market. During
this time, governments will still have to inflate, but this will be the start
of an inflationary cycle, which should see the DOW reach 200,000ish at some
point this century, as per Glenn Neely's long-term forecast. As assets rise
in price, it will still be important to have gold-backed currencies, as
people 8 years out will not want a repeat of 2000-2020.
The CFS date for gold I believe is September
13th, 2013, which could occur as early as May 2013. Given the expected
decline in the US Dollar Index starting anytime between mid
May to early June, this suggests that a 10-12 month rally in precious
metal stocks and commodities is likely. At present, there is no shortage of
liquidity and we are nearing the stage where funds are rotating into
under-performing sectors.
Within the CFS, declines are noted by
sharp periods of deflation, such as that witnessed in 2008. The next round of
deflation is starting to appear as is if it will occur between May 2013 and
August 2013 and last until late 2014. As we reach the point of singularity in
2020, market volatility is going to be at levels never seen before.
The one sector witnessing a large
counter trend relative to the broad stock market indices is the precious
metal arena AKA the AMEX Gold BUGS Index. This has been the one sticking
point with the CFS which is seeing gold stocks marching to the beat of its
own drummer at present. As mentioned current lows in the HUI will represent a
generational low relative to the price of gold. On Friday, the HUI/Gold ratio
gapped down to 0.26 and has two daily hammer doji's
in place. It is important to note that the 2008 lows saw a spike low value of
0.20, which was a spike low. Values quickly bounced up to 0.25 and trended to
near 0.45 before declining. At present, we have gold above $1600/ounce, while
gold stocks are priced as if gold was $700/ounce.
With gold set to move higher with
continued money printing campaigns, it only makes sense that gold stocks rise
accordingly. By Christmas time, everyone in PM's should have something to
smile about, with the top expected sometime between April and June 2013 in
the HUI. The above information is how things are thought should logically
progress before we hit the next wave of deflation (It will be far more severe
than 2008). As mentioned before, avoid adding further positions to PM stocks
until we have a clear indication that a bottom has been put in place.
Accompanying this text are related
charts of 3 currencies, the US Dollar Index and one chart of Gold
illustrating that a breakout to the upside is looming.
US Dollar Index
The daily chart of the US Dollar Index
is shown below, with upper and lower Bollinger bands continuing to envelope
the sideways price action. Full stochastics 1, 2
and 3 are shown below in order of descent, with the %K above the %D in 1 and
3 and beneath the %D in 2. There is no clear indication on the daily chart as
to whether or not a breakout to the upside or downside will occur...just
sideways price action.
The weekly chart of the US Dollar Index
is shown below, with lower 21 and 34 MA Bollinger bands rising towards the
current price, while the lower 55 MA Bollinger band continues to go sideways.
Full stochastics 1, 2 and 3 are shown below in
order of descent, with the %K beneath the %D in 1 and 2 and above the %D in
3. Full stochastics having the %K in 1and 2 fall
beneath the %D, while remaining lofty in stochastic 3 indicates that a top is
looming. Although there is no indication of a top on the weekly chart,
weakness is indicated.
The monthly chart of the US Dollar Index
is shown below, with two monthly shooting star doji's
put in place. Lower 21 and 34 MA Bollinger bands are in close proximity to
each other, while upper Bollinger bands are starting to decline towards the
current price. Full stochastics 1, 2 and 3 are
shown below in order of descent, with the %K above the %D in 1 and beneath the
%D in 2 and 3. As mentioned earlier, we are either at the cusp of a 1996
equivalent breakout or a late 2006 decline...all of the technical information
examined collectively suggests that a decline in the US Dollar Index is
likely before it rises during deflation expected to occur between mid 2013 and late 2014.
The mid-term Elliott Wave count of the
US Dollar Index is shown below, with the thought pattern forming denoted in
green...the pattern took 4 months longer to complete last summer than anticipated,
so mentally shift the image to the right and it fits rather well. The entire
pattern below represents a large triangular pattern forming since 2008, with
wave [E] nearing completion. Once wave [E] is complete, then 73.7 must be
taken out in an equivalent or shorter period of time than wave [E] took to
form (9 months). Also, the price must decline below 71.0 within 4 years or
less...chances are that we take out 73.7 before October and 71.0 before year
end. The measured move down from the large triangle is the longest wave price
action subtracted from the terminal price of the pattern...79-14.5 equals
64.5, which falls within our downside target of 64-66. In the event of a
spike low, the US Dollar Index could see 56-58 reached. When the lows are
established in 2013 (Likely between April and August 2013), a very sharp move
to the upside is due. The safest and best way to profit from this move is to
exit stocks and go long the US Dollar. At least a 15-20 point move is
expected, which represents a very good return during a period of deflation.
Exiting the US Dollar Index near the end of 2014 will be very important, as
commodity prices are likely to soar much higher.
Gold
The short-term Elliott Wave count for
gold is shown below, with the thought Elliott Wave count forming denoted in
green. Wave 1 or A was thought to have completed in late February, wave 2 or
B forming at present. Since the 61.8% retracement level has held so far, it
is reasonable to assume that the wave structure presented is accurate. If so,
then the next leg up should reach anywhere from $1870 - $1985/ounce within a
2-3 month time frame. If the wave count of the US Dollar is correct, then a
10-12 month window of upside in precious metals and related shares lies just
ahead. This is something that we will be tracking very closely.
David Petch
Treasure
Chests.com
Treasure Chests is
a market timing service specializing in value-based position trading in the
precious metals and equity markets with an orientation geared to identifying
intermediate-term swing trading opportunities. Specific opportunities are
identified utilizing a combination of fundamental, technical, and
inter-market analysis. This style of investing has proven very successful for
wealthy and sophisticated investors, as it reduces risk and enhances returns
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