So I’m starting to see lots of chatter about traders preparing to back up the truck when gold reaches $1000. First off, if you believe like I do, that this was a mostly manufactured bear market by the bullion banks in order to stretch price as low as possible before the next phase of the bull market begins, then there’s no way it’s going to be that easy.
To begin with, if there’s anything I have learned over the years, it’s that almost no one is able to pull the trigger in real time during a bloodbath phase (the final 5-7 days of an intermediate degree decline). So it’s all fine and dandy to make plans to buy hand over fist when gold reaches $1000, but in real time as the losses are mounting day after day panic can lay waste to the best laid plans, and I have found that very few traders are able to think clearly enough to follow their plan during the last few days of an intermediate decline. The panic phase is just too intense.
While you may have a set price in mind where you think the bottom is going to occur, as that real time panic sets in traders always have doubts. So while it’s easy to envision a bottom at $1000 right now in a fairly serene low volatility market, what happens in real time is that volatility surges, and as price approaches your target your emotions start to conjure up scenarios where gold goes to $900, or $800, or $700. So in real time traders almost always end up like a deer in headlights unable to pull the trigger for fear that the bottom will not occur where they think it will.
Now let’s backtrack to that idea that the bullion banks are trying to artificially stretch the price of gold as low as possible before allowing the secular bull market to resume. If you believe like I do that this was a big contributing factor in this bear market then I think we have to assume that there is very little chance gold is going to bottom at $1000 and make it that easy for everyone to get on board the next leg of the bull market. I’m going to suggest that the odds are very high that this bear market will bottom not with a nice tidy moved to $1000, or even a bit early at $1050 or $1100, but almost certainly as an overshoot to the downside.
If we assume that the bullion banks want to stretch price as low as possible before they release it to the upside, then the strategy most suitable for triggering a massive high-volume washout would be to sucker longs into the market with a fake bottom at $1000 and then to run those stops and force everyone who bought to puke up their shares during a volatile stop run below that level.
So while one can probably start buying at $1000 you should keep some dry powder available because I seriously doubt this 8 year cycle low is going to make things as tidy and neat and easy as buying at $1000 and then sitting back to get rich.
In my previous article yesterday I tried to stress the importance of getting to the sidelines before gold begins the final decline into its eight-year cycle low. Today I’m going to show you what I think is in store and why.
First off let me dispel any notion that this was a natural bear market in gold. On the contrary, this has been a manufactured bear market brought about by intense paper market manipulation by the bullion banks ever since Germany asked for their gold back. It’s been my theory for almost 2 years now that the bullion banks are trying to force the gold market as far down as possible in order to maximize the potential upside once the secular bull market resumes. It’s also been my feeling that the manipulation would continue until gold at least retraces back to the $1000-$1050 level, and we may, and probably will, get a panic overshoot for a few days below that level.
Let me explain. Let’s assume that on the conservative side the bubble phase of gold reaches at least $5000. Well if the final phase of the bull market starts at $1500 and goes to $5000 that is a 230% gain. On the other hand if the bullion banks can artificially depress the price of gold to $1000 or even $900 then the potential gain increases to 400% or more. And if you think that’s some juicy profits wait till I get into what I think is going to unfold in the mining sector.
The next thing I need to show you is a long-term chart of the HUI mining index. Notice how the bottom last November got far enough to test the 08 lows. Also notice that the bounce off of that bottom has been extremely weak, signaling that this was unlikely the final bear market low.
I think I can say with a great deal of confidence the bullion banks have every intention of breaking through that support zone in the next couple of months.
A major eight-year cycle low is usually characterized by complete blind panic. That’s not what we saw back in November, and a pretty good indication that the 8 year cycle low did not form last year like many are hoping. Blind panic is what we had in 2008, and it’s going to be even worse this time because the bear market has lasted much longer and damaged investor sentiment to a much greater degree. The panic at this 8 year cycle low is going to be more intense than it was in 2008. During the final two weeks into the 8 year cycle low traders will be selling at completely irrational valuation levels simply because the emotion of fear is in total control and all logic will have gone out the window. This is the “blood in the streets” phase. I think this phase is coming sometime in the next 8 to 12 weeks.
I can tell you that when the support at 150 breaks we are going to see panic selling like we haven’t seen since 2008. The bullion banks are counting on this. Why? Because they want to buy at the lowest price possible.
Now if you think the percentage gain from $900 gold, or $1000 gold to $5000 is big, imagine the profit potential to buy the HUI mining index at 100, 75, or 50 for a ride up to 1000 or 1500.
The bullion banks are trying to manufacture an opportunity like we have never seen before, and they are well on their way to doing it. All they need to do now is break that support level at 150 and trigger the final waterfall decline.
Now you see why I stress the importance of being on the sidelines. Almost no trader in the world will be able to survive when that support level at 150 breaks and the panic begins. The bullion banks are counting on it. They want you to puke up your shares at the lowest price possible. We are talking in the neighborhood of a 30% – 50% decline or greater in a matter of weeks. A drawdown like that is emotionally impossible to weather. You have to be on the sidelines when it occurs. More importantly you have to understand what is happening, why it is happening, and be ready to take advantage of this once-in-a-lifetime opportunity.
I have my subscribers on the sidelines waiting, and I think with the use of cycles analysis and some intuition I should be able to call that bottom when it arrives within a day or two of the exact low. Those traders that are on the sidelines protecting their emotional capital are going to make the trade of a lifetime this summer.
The most important thing right now is to protect your portfolio and your sanity by getting out of the way of this final move down. If you get caught in the final bloodbath phase you are almost certain to lose both.
Gold should bounce a bit this week before continuing lower. I would suggest using that bounce to exit positions and get to the bleachers if you haven’t already.
Gold bugs your redemption is almost at hand. I’m getting close to calling the bottom of this 4 year bear market. We just need to complete the final move down into the 8 year cycle low.
As most of you probably know by now, it’s been my belief for about a year that gold’s bear market would not end until at least testing the previous C-wave top at $1050. Every D-wave correction in the secular bull has at least retraced to the previous C-wave top except one.
So until gold tests the $1000-$1050 level I think it’s premature to call the bottom. As a matter of fact I think over the next several months gold is going to drop down into its final 8 year cycle low, and that move down could be extremely painful. That is the problem with trying to pick a bottom in a bear market. If you are too early the drawdown into that final low can be extremely damaging both financially and emotionally. Let me explain.
Let’s say you are long gold and miners right now and I am correct and gold still has a move to $1000 or lower before the bear market is over. It would mean you are going to suffer a 20% or larger decline in your metals positions over the next several months. If you are heavily into mining stocks this could be a 30 to 40% drawdown. Needless to say almost no one can survive that kind of loss on their portfolio. It’s easy to imagine yourself holding through one of these multiyear cycle lows before it happens, but I can guarantee you almost no one can actually do it in real time. What happens emotionally is that when gold gets to $1000 the magnitude of the decline will make it look like gold is going to 800, 700 or 600. You may think that you can hold on but in real time it’s going to look like the losses are never going to end .In real-time $1000 gold won’t look like a bottom so you won’t be able to hang on.
But here’s what really happens to every trader trying to hold through a drawdown of that magnitude. At some point your emotions just cannot take the day after day of losses and you panic and sell. At that point you are so emotionally drained by the magnitude of your losses and shellshocked by the force of the decline that it becomes impossible to reenter the market. So when we do get the bottom, whether it comes at $1000, or $950, or $900, you are just too emotionally damaged to pull the trigger again. Unfortunately that’s exactly what you need to do. You need to buy at the bottom of the bear market. Buying at the bottom of a bear market is when millionaires and billionaires are made. Sometime in the next several months we are going to get that once-in-a-lifetime opportunity. In order to seize it you need to avoid the drawdown and emotional damage from the final move down into the bear market bottom.
I suspect there are many of you out there who have been holding onto positions listening to the multitude of gold gurus telling you that any day now gold is going to turn and rocket to the moon. Yes gold will eventually turn and head much much higher. Personally I think it’s going to at least $5000. However, if you don’t avoid the last leg down in the bear market there’s no way you will be able to hold on for the ride back up. So as painful as it would be to take your loss now, I think it’s better to do so and get on the sidelines so you can avoid that final massacre into the bear market bottom. The all-out panic as gold moves into a major eight-year cycle low can be extremely damaging. The only way to buy at a bear market bottom is if you are in cash waiting for it. If you try to ride it out and get knocked off halfway down, you will simply be too shellshocked to pull the trigger at the bottom.
I expect this would also correspond with the stock market moving down into its seven-year cycle low, which could unfold as a 1987 type crash event.
With the move below $1168 on Friday, gold has completed both of the requirements indicating that the intermediate cycle has topped. It has broken its intermediate trend line, and signaled a failed daily cycle (started a pattern of lower lows and lower highs).
As intermediate cycles don’t typically bottom until week 20-25 (and a few have even stretched to 30 weeks or longer) there is still a lot of time left before gold is due to form that final intermediate, and I suspect eight-year cycle low. A lot of damage can be done in 10 to 15 weeks, and I suspect a lot of damage will be done, culminating in a complete panic phase down into the eight-year cycle low before the intermediate cycle bottoms.
In order to avoid getting caught in that debacle I strongly suggest gold bugs get on the sidelines now and stay there for the next several months until we reach that phase where gold just drops day after day and the losses become so great that it’s virtually unimaginable that this could be happening. When you see that kind of absolute panic start to unfold that’s the point where you need to put your finger on the trigger and be ready to buy in preparation for what should be the start of the final phase of the greatest bull market in history.
Look for part II of surviving the last few months of the bear market on Tuesday.
History has been pretty clear. When the Fed prints too much money, and holds interest rates too low for too long, it eventually creates a bubble, followed by a market crash. It happened in 2000 with tech stocks. Then again in 2006 with real estate. Followed not long after by a collapse in the banking system. Then a bubble in oil and commodities. And now I would argue we have the beginnings of a bubble in biotech. So the question is will we experience another crash like we did after each one of those previous bubbles? I think the odds are high we will. Especially if the Fed doesn’t immediately end its stock market interventions.
Let me show you what I’m seeing unfold.
Ever since QE3 ended, it’s been my opinion that the Fed has had to intervene much more often in US stock market to prevent it from collapsing like it did in 2010 and 2011 when QE1 and QE2 came to an end. These interventions are going to come with a price. By not allowing the market to correct naturally the Fed is causing more and more complacency to build in the market, and complacency is what triggers a market crash.
The current intermediate cycle is already extremely stretched at 33 weeks. It has 4 daily cycles embedded within it, and already contains one extremely stretched daily cycle, thanks to Fed intervention.
A normal intermediate cycle shouldn’t have more than three daily cycles embedded within it, and the intermediate degree decline should occur at the bottom of the third daily cycle. The Fed has artificially stretched the current intermediate cycle to include a fourth daily cycle. The market desperately needs to undergo a sharp profit-taking event this month to cleanse the sentiment extremes that are building up.
The current daily cycle needs to be allowed to move down into an intermediate degree correction over the next 3-4 weeks. At a bare minimum the market needs to drop back and at least test the 62% Fibonacci level at 1940.
Now here is where the risk of a market crash appears. If the Fed continues to intervene and prevents this fourth daily cycle from producing a strong corrective move over the next several weeks, if they stretch the intermediate cycle to include an unprecedented fifth daily cycle, then there will be no escaping some kind of crash event this fall. You just can’t hold back the natural forces of the market forever without unleashing serious consequences.
So here’s what needs to happen. The correction that started on May 22 needs to accelerate next week, and at least make it to the major support zone at 2040 before bouncing.
If the Fed intervenes again on Monday, and turns the market back up, then there is risk that the daily cycle is going to run out of time to produce an intermediate degree correction. If that happens then it would require a fifth daily cycle before the intermediate degree correction could occur. Intermediate cycles don’t naturally stretch to 4 daily cycles much less 5. If the Fed continues to intervene in the markets and forces and unheard of 5th daily cycle, there is no doubt in my mind that the consequences will be a violent crash event this fall as the pent-up corrective forces finally overwhelm the manipulation keeping the market artificially propped up.
And don’t forget that the seven-year cycle low has to at least break the cycle trendline to qualify and meet the parameters of a multiyear cycle low. That means the crash would be deep enough to test the 2000 & 2007 tops at 1550.
So unless the Fed wants to deal with another 1987 style crash this fall, they need to immediately end the manipulation preventing the market from undergoing its natural corrective patterns.