Short term predictions are treacherous. There are so many factors that could impact the timing and the size of a market move, that it is easy to be wrong on direction of a move, the extent of the change, as well as the timing.
Despite that, a number of points lead me to predict that the prices of gold and silver are due for major price spikes by the end of next month.
- This past week saw gold reach another all-time high price (ignoring inflation, of course), when it reached $1,254 during intraday trading in the US.
- Friday’s Comex close of $1,228.90 set an all-time high for the end of the week close, which is an important signal to technical traders that it is time to add to their gold positions.
- The New York Times has consistently skewed its news coverage to either ignore positive developments for precious metals and only occasionally ever mentioned gold and silver at all, invariably with a negative slant. The June 13 edition of the online Times carries one of the most positive stories for gold that has appeared in the mainstream media in a long time. The story is titled “Uncertainty Restores Glitter to an Old Refuge, Gold” and can be read at http://www.nytimes.com/2010/06/13/business/13gold.html. The article quotes what used to be considered crackpot ideas like 1) the possibility of merchants refusing to accept paper money and only accept payment in gold; 2) the debts of the United States, Japan, and Britain could be unsustainable and could hurt confidence in all paper money; and 3) the global credit system could be now entering “the end game.” This story represents a major breakthrough for covering the positive aspects of precious metals and the heightened risks of owning paper assets like currencies, stocks, and bonds.
- The Economic Cycle Research Institute (ECRI) Weekly Leading Index (WLI) has been one of the most accurate predictors of the short-term economic outlook. Around the end of 2008, the WLI started to rise. Late in 2009, the WLI chart showed a decreasing improvement. For the report issued for the week ended June 4, the WLI turned negative, possibly pointing to another recession coming soon. The shape of the recovery spike of the WLI is eerily similar to that from 1971-1973, which foretold the stock market crash of 1973-1974, where it took many stocks until the 1980s to finally recover lost ground. The June 4 WLI is sending a signal to sell stocks, and professional money managers are paying attention. One weekly report does not confirm a pattern, but you can be sure that the professionals are getting more nervous.
- The Dow Jones Industrial Average (DJIA) fell below 10,000 this past week for about 48 hours. The DJIA did end the week slightly over 10,000, but the pattern of trading blatantly shows that the recovery was due to market manipulation by the US government and its trading partners rather than the collective investment decisions made by investors. I am not a stock expert, but I consider the DJIA to be at high risk of seeking lower levels in the coming weeks.
- On June 9, at the Financial Times Silver Conference in London, John Levin, who is the Managing Director of HSBC Bank’s Global Metals and Trading operations said he has had conversations with a number of top asset managers in the US who have asked if HSBC has the capacity to store significant gold purchases in HSBC’s vaults outside of the US. Levin claimed that the reason given is that the asset managers have a fear of possible “gold confiscation” similar to that inflicted on Americans in 1933 by then President Franklin D. Roosevelt. Market analyst Adrian Douglas, publisher of the Market Force and whose research I have previously cited, issued a statement on June 10 that he suspects that Levin’s remarks are “propaganda.” As support, he cited the London Bullion Market Association (LBMA) report released on June 10 showing that May 2010 gold and silver trading volume had increased by double digit percentages, both for the month compared to May 2009 and for May 2010 year to date compared to comparable prior year data. In Douglas’s opinion, the surge in volume is putting a tremendous strain on the ability of the LBMA to meet delivery requirements. He suspects that Levin’s comments were really meant to scare investors away from storing gold in the US, with the LBMA being the beneficiary as the primary alternative. This would lessen the LBMA’s delivery problems.
- During the past week, Federal Reserve Chair Ben Bernanke went out of his way to proclaim that the economy was on the mend. This was contradicted by a letter that US President Barack Obama sent to Congress on June 12 asking for a special appropriation of $50 billion to help save the government jobs of teachers, police officers, and fire fighters, all categories of employees that include a disproportionate percentage of supporters of the president’s party (surprise, surprise). This letter contained repeated references to a bleak economic outlook such as “We are at a critical juncture on our nation’s path to economic recovery.” He referred to “the urgency of the continued economic challenges we face” and “the devastating economic impact of budget cuts at the state and local levels.” If top officials of the current administration are simultaneously issuing contradictory statements about the state of the US economy, the only safe conclusion is that the truth is no better than the bleakest of comments and could well be even worse.
There is a track record that purchasing gold and silver during the months of June and July has proven later on to be better than average times to be buying, but the correlation is not strong enough for me to consider it as support for my prediction.
As for my prediction of much higher gold and silver prices, everyone probably wants to know what I anticipate. To be conservative, I think that gold will easily surpass $1,300 with $1,500 a realistic possibility. For silver, I forecast that it will easily top $20, with the potential to reach $25. In the long run, I foresee much higher prices, but these levels would be a good start.
Sprott Asset Management LP has just released a 2-page essay by John Embry, its Chief Investment Strategist, titled “Reasons To Own Gold.” As usual Embry manages to present a concise list of 17 reasons why he anticipates much higher gold prices. I love the essay for its brevity and clarity. You can read it at http://www.sprott.com/docs/Reports/reasons_to_own_gold.pdf.
Patrick A. Heller owns Liberty Coin Service in Lansing, Michigan and writes “Liberty’s Outlook,” a monthly newsletter covering rare coins and precious metals. Past issues can be found online at http://www.libertycoinservice.com/ Pat Heller is also the gold market commentator for Numismatic News. Past columns online at http://numismaster.com/ under “News & Articles”. His periodic radio interviews can be heard on WILS 1320 AM in Lansing, www.talkLansing.net, and on www.yourcontrarian.com.