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Summary

  • The Fed is creating a world speculative bubble.
  • U.S. response to Crimea is stupid and dangerous.
  • World instability creating demand for gold.

In a recent interview, David Stockman, former director of the Office of Management and Budget, painted a grim picture of an unstable global economic system drowning in speculation due to the free-money policies of central banks around the world.

Stockman said, "The greatest danger [to the world today] is the central banks." He argued that all of the central banks are out of control. They have all expanded their balance sheets to a point that someday will be called "lunatic." He criticized Federal Reserve Chairman Janet Yellen for pursuing a policy of "Yellen-nomics," which continues the "folly of free money."

Instability extends to the political sphere in international relations. Stockman said, "I think there's a lot of insanity loose in the world, and particularly on the Ukraine." He soundly criticized the US and Western European governments for their response to the Russian seizure of the Crimea, calling their response "stupid and dangerous." He stressed that the Crimea is not strategically important to the West and that the Crimea has long been a part of Russia, which annexed Crimea in 1783, before California even became a part of the United States. He believes the crisis is the result of the decisions taken in the 1990s to expand NATO eastward at a time when the Cold War was over and the alliance's reason for being had disappeared. NATO should have been dissolved and the United States should have demobilized, Stockman argues.

When the world environment is so unstable, there is demand for gold, which in part explains its recent rise.

Another indication of the speculative nature of the unstable international monetary system is the recent crash in copper. The copper crash may be due to reduced demand and a slowing world economy or, Stockman argued, it may be because the bubble in China is so "immense." Stockman argued that the bubble in China "is so out of control that they are using anything they can get their hands on to get loans and using the proceeds to speculate….The copper stockpiles are no longer simply a feed into an industrial production process, but they have become gambling chips in the global casino." He characterized "China is one huge speculative bubble," like a volcano, and it is only a matter of time before it blows.

With the high of 1392.60 made on March 17, the market has fulfilled and completed the first leg of the 2014 bull market for the yellow metal. As profit taking developed at these levels it brought the market down to a low of 1328.10 in 3 days under fast market conditions.

As I said in my last report, "If long, use the 1360 level as a Stop Close Only and Good Till Cancelled order. Look to take some profits on longs, as we reach the 1391 and 1400 levels during the week."

This cyclical low was anticipated and published in Seeking Alpha on December 22, 2013. According to the cyclical pattern confirmed at the end of last year, the market is in the process of building the secondary bottom for the next move up that should take it into the end of May to the July 15 time frame.

Where do we go from here?

To answer that question technically let's take a look at a few instruments that we can use to trade or invest in the derivative markets like ETF's, and futures contracts in the precious metals markets.

GOLD

The April gold futures contract closed at 1335. The market closing above the 9 MA (1312) is confirmation that the trend momentum is bullish. A close below the 9 MA would negate the weekly bullish short-term trend to neutral.

With the market closing below the The VC Weekly Price Momentum Indicator of 1350, it confirms that the price momentum is bearish. A close above the VC Weekly, it would negate the bearish signal to neutral.

Cover short on corrections at the 1306 and 1277 levels and go long on a weekly reversal stop. If long, use the 1277 level as a Stop Close Only and Good Till Cancelled order. Look to take some profits on longs, as we reach the 1378 to 1422 levels during the week.

SILVER

The May Silver futures contract closed at 20.29. The market closing below the 9 day MA (20.72) is confirmation that the trend momentum is bearish. A close above the 9 MA would negate the weekly bearish short-term trend to neutral.

With the market closing below The VC Weekly Price Momentum Indicator of 20.69, it confirms that the price momentum is bearish. A close above the VC Weekly, it would negate the bearish signal to neutral.

Cover short on corrections at the 19.73 to 19.18 levels and go long on a weekly reversal stop. If long, use the 19.18 level as a Stop Close Only and Good Till Cancelled order. Look to take some profits on longs, as we reach the 21.25 and 22.02 levels during the week.

GLD

The contract closed at 128.47. The market closing above the 9 day MA (126.40) is confirmation that the trend momentum is bullish. A close below the 9 MA would negate the weekly bullish short-term trend to neutral.

With the market closing below the VC Weekly Price Momentum Indicator of 129.75, it confirms that the price momentum is bearish. A close above the VC Weekly, would negate the bearish signal to neutral.

Cover short on corrections at the 126.29 to 124.12 and reverse to go long on a weekly reversal stop. If long, use the 124.12 as a Stop Close Only and Good Till Cancelled order. Look to take some profits on longs, as we reach the 131.93 and 135.39 levels during the week.

GDX

The contract closed at 25.52. The market closing above the 9 day MA (25.47) is confirmation that the trend momentum is bullish. A close below the 9 MA would negate the weekly bullish short-term trend to neutral.

With the market closing below the VC Weekly Price Momentum Indicator of 26.10, it confirms that the price momentum is bearish. A close above the VC Weekly, would negate the bearish signal to neutral.

Cover short on corrections at the 24.58 to 23.64 and reverse to go long on a weekly reversal stop. If long, use the 23.64 level as a Stop Close Only and Good Till Cancelled order. Look to take some profits on longs, as we reach the 27.4 and 28.56 levels during the week.

SLV

The contract closed at 19.52. The market closing below the 9 day MA (19.90) is confirmation that the trend momentum is bearish. A close above the 9 MA would negate the weekly bearish short-term trend to neutral.

With the market closing below the VC Weekly Price Momentum Indicator of 19.87, it confirms that the price momentum is bearish. A close above the VC Weekly, would negate the bearish signal to neutral.

Cover short on corrections at the 19.13 and 18.74 and reverse to go long on a weekly reversal stop. If long, use the 18.74 level as a Stop Close Only and Good Till Cancelled order. Look to take some profits on longs, as we reach the 20.26 and 21 levels during the week.

AGQ

The contract closed at 67.52. The market closing below the 9 day MA (70.56) is confirmation that the trend momentum is bearish. A close above the 9 MA would negate the weekly bearish short-term trend to neutral.

With the market closing below the VC Weekly Price Momentum Indicator of 70.07, it confirms that the price momentum is bearish. A close above the VC Weekly Indicator, it would negate the bearish trend to neutral.

Cover short on corrections at the 64.72 and 61.93 and reverse to go long on a weekly reversal stop. If long, use the 61.93 level as a Stop Close Only and Good Till Cancelled order. Look to take some profits on longs, as we reach the 72.86 and 78.21 levels during the week.

The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of any futures or options contracts.

Trading derivatives financial instruments and precious metals involves significant risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of future results.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AGOL, AGQ, DBS, DGL, DGLD, DGP, DGZ, DSLV, DZZ, GLD, GLDI, GLL, IAU, PHYS, SGOL, SIVR, SLV, SLVO, TBAR, UBG, UGL, UGLD, USLV, USV, ZSL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: A Speculative World About To Blow