2016-06-16
The gold trend to the upside continues intact as I have been indicating it was likely to do. As before I believe the current cycle will achieve a peak of $1,900 gold before encountering a significant drawdown in the form of an intermediate cycle Bear phase. Ultimately, I believe new cycle highs will be reached at possibly, as a guess, $5,000 or higher.
The world is encountering a Japanese-style deflationary meltdown. As the usual remedy of the war-mongering nations is so far not on the table, it is left to central banks to try something never before seen on a world-wide scale, such as zero/negative yields on benchmark 10-year bonds.
So far, the world’s best credits — US, UK, Japan, Germany, and Switzerland — are all there. Who knows what’s to happen next as the global deflation sinkhole is truly in unchartered waters.
This article dated February 2015 from PIMCO remains a clear discussion of events that have worsened over the following 15-16 months.
Thinking out of the box, I believe the one hope that central banks have is to cause money in these bonds and on deposit in banks around the world to move into equity markets. The fears of a possible BREXIT result have taken equity prices down around 2 or 3% from their all-time record highs just above 18,000 on the Dow Industrials Average market benchmark index to around 17,650 as I write this. Once the BREXIT vote is in, if the British people want to stay, there will likely be a fifth attempt in 22 months to move into record setting levels. I believe that’s going to happen within a few months in any event because central banks and governments need it to happen in order to kill global deflation worries.
Goldminer prices on the rise may be a by-product of the process but the oil market, in my view, is most likely to be the broad market’s driver. I anticipate the unfolding of stories of oil shortages to be rolled out in the near future. Consequently, the price of oil will soon revert to $100/barrel or maybe higher. That money presently stuck in bonds and on deposit in banks at zero and negative rates will then flow into oil company stocks. Then the energy sector will lead the Dow to record new levels of maybe 24,000.
Once again the public will get snookered, and the banks and their friends rolling in wealth. Isn’t that how capital markets work?
Yes, my skepticism has turned to cynicism, but the results of my assessment of what’s going on in the world today will not take long to be proven or disproven. In the meantime, there are winnable investment and trading strategies that need to be put into action. Six months or a year from now will be too late.
I will be writing frequently about these important matters, particularly in the new Week In Review after I manage to get it rolled out here soon.
As an aside for now, but based on the financial challenges surfacing presently, I would personally be avoiding investing in China, and be looking more at Russia. The RSX VanEck Russia ETF has found support between $12 and $13 early this year and today, as I write this, is $16.84. Within a year, I foresee a +50% higher move from these levels. Meanwhile the GXC SPDR S&P China ETF, which was around $97 a year or so ago is today $67.09 and soon, I believe, to drop lower.
There are clearly proactive steps we can all take to protect and build assets. But simply following the path taken by most people is not going to get us there.
Enjoy your upcoming Father’s Day –
/Bill
