Gloom permeates the gold community these days. The bull is bucking its members off like they were toddlers trying to ride a brahma. This is why, I suppose, so few ever make any money in the great secular bull markets of history. Too many "experts" succumb to the overwhelming negativity that comes with the nasty corrections. And their skittish readers stampede after them.
What follows is a short essay on the big picture of gold and silver shares. It has evolved out of readings from a wide array of prescient analysts such as Richard Russell, Jim Sinclair, Steven Saville, Robert Prechter, etc. (though Prechter has come to an opposite conclusion). When mixed with GATA's analysis of the price suppression by the Fed, I believe this view gives one a pretty good grasp of what lies ahead.
As bleak as things look right now, it seems that technically we are in a standard correction of a 5-wave move up from November 2000 (HUI 35) to December 2003 (HUI 258). This correction appears to be forming into an A-B-C movement with the C leg now forming. If traditional Elliott Wave analysis is worth anything (and that's a big if in a rigged market), then the A-B-C correction is nearing its end. If the C leg ends up equal length to the A leg, then the end will come around 155 on the HUI chart. But of course it could be over right now, or anywhere in between 175 and 155. There is massive support in the 165-172 range. Moreover, nothing mandates that the A leg and the C leg must be equal in length. And this is even truer in a rigged market.
Naturally this correction could be extended (see the chart below) with prices continuing to move in a sideways chop with a D leg up to around the 230 area and then an E leg descending down to the 185 area over the next several months to complete a massive pennant. Out of this pennant formation, a 3rd major impulse wave up would then be launched sometime around September.
The important point to keep in mind is that what has been taking place over the past 16 months is a standard wave 2 correction of the 1st major wave up comprised of 5 minor waves. Once this correction ends, then the 3rd major wave up should begin, and it could conceivably go to around 600. It will probably last 4-5 years seeing that the 1st major wave up lasted 3 years. Then will come a 4th major correction wave, followed by a 5th major impulse wave up, which should be a grand blow off top that takes us to "who knows where" -- perhaps as high as 1,000 on the HUI. That would be a nice reward for all the pain we are now enduring I do believe.
What do they say -- "It's always darkest right before the dawn?" Well, that's what third waves are, the dawn. Second waves are depressing and dark for those who did not get in at the beginning of the first wave (and many in the gold community did not). But the upcoming years should bring immense profits as the gold/silver/dollar fundamentals blow the PPT cartel into oblivion and confirm what the above chart is showing to be possible.
How can one be so sure? He can't, of course. But I look at it like this. We have looming on the horizon something the world has never before faced. It is so ominous that it is impossible for humans to fathom its catastrophic potential. What confronts us (that is so perilous) is a three-part confluence of relentlessly escalating stratospheric-level debt, social security and medicare bankruptcy, and peak oil. These three crises are going to start smashing into our lives over the next 10 years like mack trucks plowing through flower gardens. Because of this historic confluence, there are going to be numerous protracted wars fought over oil, with the price climbing past $150 per barrel. Our government will be swept up in the continual creation of massive "liquidity" in order to pay for the explosion in social security and medicare (Congress won't dare to tax for such sums). Factor in also the money that the Fed will have to create to try and prolong the real estate bubble, shore up the Dow and fight the wars, and one begins to see what Franklin Sanders meant when he used the term, "hyperinflationary depression." That's what's coming. How possibly can gold remain at $400 with all this on the horizon? Gold is going to go to where it has to in order to balance the economic books. I would say $2,000 oz is quite realistic in the next ten years.
Pitfalls of Technical Analysis Today
One thing we have to be concerned with, however, is that this is very much a RIGGED MARKET. Proper technical analysis depends upon freely traded markets and estimating the interaction of the two factors of Supply/Demand Ratio and Investor Sentiment. Regrettably, for the past decade at least, there has been a third factor injected into the mix, and its impact is next to impossible to estimate, though Michael Bolser makes some persuasive claims to the contrary. This third factor is the PPT cartel and its manipulation of both gold and equity prices. Since it arbitrarily intervenes into the PM and equity markets whenever it wants, it has the ability to substantially alter the effectiveness of technical analysis.
Today's more conventional pundits who possess a blind faith in the Wall Street establishment's integrity (analysts like John Mauldin, Dennis Gartman, and the CNBC stable of talking heads) remain perfunctorily scornful of any talk about market manipulation. They treat all discussions about PPT rigging of the PM and equity markets as "sour grapes" and "losers' laments." In their eyes, anyone who claims the important markets are manipulated by clandestine Washington-Wall Street operations are delusional. [See my previous articles, Cornered Rats and Is the PPT an Urban Myth? ]
Is it possible, however, that these analysts' interpretations of the issue might just be biased by the fact that they make their living from the establishment? Could their pursuit of the establishment's huge segment of subscribers perhaps impede their ability to see this crucial issue properly? Could this be what drives them to denigrate any claims of market manipulation as mouthings of malcontents?
I would say that the above is a very strong possibility. Whenever humans have a vested interest in the perpetuation of a specific paradigm that is beginning to look invalid or corrupt, those humans invariably will blank out on all reasonable arguments that point out how suspect their espoused paradigm is. This is the history of man and his wanderings in pursuit of truth. Think of Galileo's attempts to convince his contemporaries that the earth was not the center of the universe. Think of Pasteur's attempts to convince his medical brethren that bloodletting was worthless as a means to combat infectious disease. Think of the valiant efforts of Ludwig von Mises and Friedrich Hayek to point out the idiocies of the Keynesian paradigm over the past 50 years. The establishments of these eras all united against the contrarian viewpoints of Galileo, Pasteur, Mises, and Hayek. This is the sad nature of the establishment mind. It is irreparably dogmatic, and it hates those intellectual rebels who show it up to be foolish or corrupt.
There is also a fourth factor in the mix that we need to be aware of. And it too is practically impossible to predict. This is the derivatives time bomb ticking away dangerously toward a domino-like explosion. Thus all technical analyses of the potential direction of gold and silver prices are loaded with caveats. The regimenters in Washington have given us a market that is becoming more and more "whim based" as opposed to supply/demand and sentiment based. The whims driving it are the megalomaniacal poisons of power lust that consume men like Greenspan, Bush, Cheney, Wolfowitz, and their mega-bank cronies in the WGFM - PPT groups.
This is why the most important factors in judging where the price of gold is headed will always be the basic fundamentals of the situation. And the foremost "fundamental" to concern us today is the ever-diminishing supply of physical gold that the Fed's WGFM - PPT cartel can put their hands on to continue their price capping operations. As GATA and LeMetropoleCafe repeatedly show us, this supply is rapidly shrinking. Once it diminishes to the point where the Fed cartel can no longer cap the price sufficiently, then a true perception of inflation will begin to sink in to the market mavens and their minions throughout the world. This will dramatically change the dynamics of the game presently being played. We will then see the talking heads of CNBC radiate fear and horrible confusion during their squawk box sessions every morning. That fear and confusion will be picked up by millions of their viewers and translated into millions of buyers for the only insurance there is against the chaos that is coming -- gold and silver. So time is on our side. The fundamentals are on our side. And even the technical charts are just about to shift to our side.
As bleak as things look in the short run, they look splendid for the long haul. And it is the long haul that most gold/silver investors have been concentrating on since the very beginning. Very few of us are smart enough to be "traders" like the renowned Harry Schultz and bounce in and out to profitably time the vagaries of such a market as this. The bull is presently trying its damndest to buck us off. Those with grit will not let it do so. And if by chance, one is smart enough to occasionally scamper onto the sidelines ahead of some of the waterfall drops along this rather hectic journey, then hopefully he is also smart enough to scamper right back in when prices have lowered considerably.
Either way, this market is resoundingly a BULL MARKET. It is meandering through a major correction right now. In their hubristic blindness, the cartel conspirators of Washington and Wall Street think that they can continue to control the price of gold and silver. But that is because they are products of the Keynesian modern age and do not understand Natural Law. They do not understand basic economics. They do not understand human nature. They are ignorant and corrupt and greedy. Nature has a way of dealing with such creatures. It's called extinction. It will be a fine day indeed up ahead when these contemptible creatures get their comeuppance.
