iGold

We have significant concern that the US dollar is now forming a long-term top. Moreover, we may see a devaluation of up to 50% in value of the dollar over the coming decade. The fundamental backdrop is already in place with the unprecedented money creation by the Federal Reserve since 2008. Confirming technical indicators of a fall in the value of the dollar will be shown through an examination of past dollar-devaluation cycles.

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On Wednesday September 21, the Federal Reserve released its latest decision on interest rate policy in the United States. The committee left its target rate unchanged at 0.25% – 0.50%, a range which has been in effect since December 2015.

The most notable section of the statement issued at the Fed press conference was, however, not related to the lack of change in interest rates, but rather to the Fed’s expectations for the future. To quote the statement: “The case for an increase in the federal funds rate has strengthened.”

This language is in stark contrast to the words the Fed has used at previous policy meetings this year, which have generally not mentioned such hints for rate hikes pending. The Fed is clearly bracing the markets for a second rate hike, most likely at the December meeting, which would set a range for short-term interest rates between 0.50% – 0.75%.

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Our technical model for gold shows that the $1,045 per ounce low in late 2015 was of similar magnitude to the $700 low of late 2008. Consequently, a multi-year advance in price is now in the beginning stages of emerging. The situation in the world’s historic monetary element is extremely tight at present – and because the ramifications for the pending advance are so significant, it is critical for investors to prepare themselves prudently at this juncture.

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Gold finds itself directly in the crosshairs of a battle between precious metals bulls and bears. The bears are attempting to hold the metal down at this level, because a breach of a long-term trend line would be a major technical event in the eyes of many investors. It would be a signal to the mutual funds and institutions waiting on the sidelines that the 2011-2015 bear market is decisively over.

Having been mostly on the sidelines from 2011-2015, we are in the bullish camp at this juncture. Consequently, have a reasonable expectation that this long-term down trend will be broken in the near future, possibly as early as September.

Why September For A Gold Breakout?

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Silver miners are now factoring in sales prices for silver of between $21.50 and $36.00, depending on which miner we are analyzing. When we perform this analysis on a wide basket of producing companies, we find a high confluence of targets in the $24.00 – $25.00 spot price level.

The major point is that the primary surge higher off the December 2015 bottom has further to go for silver.

Nearly all major silver miners are pricing in higher spot silver prices for their revenue streams. Although we are now directly within the weakest season for the precious metals (summer), the silver miners are predicting another advance in prices either late this summer or into the fall.

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The 2011-2016 decline was a pause in a generational bull market for precious metals.

Current prices will be seen as one of the last great buying opportunities when we look back a decade from now. The bull flag pattern is nearing completion. Moreover, a strong advance above $1,400 will be the trigger that manifests growing recognition for gold as a worthy component of investors’ portfolios. The long-term targets ahead of us are significantly higher than current prices. The ramifications of such targets for silver, the currency markets, and the mining sector will be discussed in future articles.

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The grinding nature of gold’s price action, since the surge in February, has left many investors concerned. Why hasn’t the metal continued to build upon the gains of earlier this year?

Nothing in nature moves in a straight line. Gold, a fundamental element of nature, and the markets, being the sum of human nature, are no different.

Consolidations are very healthy for markets. They represent a shifting of ownership from weak hands to strong.

We view any price action above the bottom end of our green highlighted zone at $1,176 to be an ideal setup for a strong continuation move later this year.

The reason? If gold can consolidate during this — the seasonally weakest period of the year — it will mean new demand is showing up in the market even during the months that we typically expect to see buyers largely absent.

Below we show the gold seasonality chart for the past 20 years. Note that demand typically picks up starting mid/late August and remains rather strong through February. Meanwhile, the March – July timeframe usually represents the weakest season for gold.

This is why we believe that if gold can buck the seasonal trend, and merely consolidate through the mid-summer, the precious metals will actually be showing underlying strength — and will be setting up for a significant rally this fall.

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Gold has now fallen for four weeks in a row and has come back into an important technical support zone. This is the lower range of the anticipated trajectory we have been outlining for some months. We expect prices to now begin to carve out a bottom, though this process may take some weeks to play out. Consequently, the final low may not be in place yet.

Last Friday, gold closed down $37 or some 3% from a week prior to finish at $1,215 per troy ounce.

The technical action warrants a thorough discussion, and for that we refer to the following 18-month chart of spot gold:

First, note that gold has now fallen $105 from it’s recent $1,306 high. This is an 8% decline. It is fascinating to watch the shift in investor psychology with such a modest correction, as we observe a lot of fear in the precious metals sector at this time.

Of course, as investors in not only the physical metals but also the precious metals mining sector, we can see how such relatively small moves in the metals can translate into tremendous swings in the valuations of these companies. In gold’s 22% move higher in gold from December through April, we saw 100-200% gains across many gold mining companies; and now, with the 8% drop lower in gold prices, we have seen 20-40% corrections across these same equities.

What type of gains will the mining sector see at $1,400…$1,500…$1,900 gold?

But, let’s get back to the current price of spot gold. The price has broken through our short-term upward sloping trend lines, which are now shown above in turquoise for reference. This short-term technical breakdown means that gold will need to consolidate for some time before it is ready to advance through the $1,305 region that now serves as resistance.

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