With the gold market closing at an 8 1/2 month low on Friday and its third week in a row, I examined closely the following facts:
Bearish sentiment for Gold and Silver is at an all time high. This coincides with the cyclical expectations that a major cyclical low is developing. The fact that the market came down and made new lows increases the probability that this bottom is the underlying long term support necessary for this completion. Based on historic perspectives, this is usually when the markets make a turn. A convergence of short term, intermediate and long term cycles are taking place during this time and price range. An extremely bullish indication that this could be developing the foundation necessary to resume the long term secular bull market that is intact for the gold market.
The US dollar expectations for a continuous bull run has lost its mojo when Yellen announced last Wednesday that interest rates will remain low for a prolonged and undetermined period of time thus taking out all fundamental support for the world’s reserve currency based on rising interest rates and potentially making a top for the US dollar around the 85 levels. The only fundamental support the US dollar currently has is the fact that the rest of the major world currencies are imploding faster on the weight of their unsustainable record debt levels.
When Michael Pento was asked about the recent rally in the US dollar, which is up about 5% on the DXY, Pento said, “Big deal….The only reason the US dollar is gaining ground is if you measure it against the ECB.” The ECB just started their own asset-backed security program, which Pento called “QE light.” He said, “They haven’t started to monetize sovereign debt, but I’m sure that will come.” The dollar, he said, “is only up against other fraud fiat currencies.” Pento predicts the dollar’s “massive” rally is coming to an end and a 20% correction in the US dollar. For many months, investors have been selling the Yen and buying US dollars and stocks. But the Fed won’t raise interest rates, so the carry trade will unwind, as investors sell US stocks, bonds and dollars to convert back into yen. The total US debt alone has exceeded $100 billion dollars currently. An unsustainable level to maintain without any economic recovery and specially rising interest rates.
Fundamentals show a deficit in supply. Last year, total mine production of silver was 819 million ounces, but demand for silver was 1.1 billion ounces. Therefore, there was a 262 million ounce shortfall in silver. Thus far, the shortage has been mostly met by using recycled silver and from government stockpiles. Even so, the shortage is there.
Recently published data points argued that recycled silver cannot continue to meet the gap between supply and demand. The supply of recycled silver dropped 24% last year, which is the largest decrease on record. Supply is also falling. Seven of the ten leading silver mines produced less silver in 2013 than in 2012. Production in the Silver State, Nevada, is down 70.4% over the past 16 years. The US Geological Survey reports that ore grades have collapsed 90%, which means that far more ore has to be mined in order to produce the same amount of silver. Exploration has also come to almost a complete halt due to higher financing costs, so there is little chance of new finds of sources of silver.
On the demand side, physical demand has increased 13%. Last year the U.S. Mint actually sold out of silver products, reports said. China’s use of silver for solar panels was less than 1 million ounces in 2005, but in 2013 China used 35 million ounces just for solar panels. In 1999, the amount of silver used in solar panels in the United States was not even reported. By 2015, 100 million ounces of silver are projected for solar energy use.
The technical side for gold points to the weekly support in the 1206 to 1196 levels. The algo is recommending to go long at those levels with a 1196 as a weekly stop. A confirmation of this bottom will be a weekly close above 1225 on a weekly basis with upside short term targets in the 1240 to 1250 levels.
The technical picture for silver points to the weekly support in the 17.42 to 17.06 levels. The algo is recommending to go long at those levels with a 17.06 weekly stop. A confirmation of a bottom would be weekly a close above 18.16
Conclusion: Based on the data points and the long term potential from current levels, the logical thing is to hold on to the long term bullish picture that inevitable will develop. If you get out a real loss would be incurred leaving you guessing when to enter it again as it unfolds the expected upturn anytime. The downside is limited from here.