Is The Call By Some For Gold To Fall To $700 Realistic?

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Includes: DGL, DGLD, DGP, DGZ, DZZ, GEUR, GHE, GHS, GLD, GLDI, GLDW, GLL, GTU, GYEN, IAU, OUNZ, PHYS, QGLDX, SGOL, UBG, UGL, UGLD
by: Doug Eberhardt

Summary

Harry Dent used to say gold will fall to $250, then $400, now he says $700. What are we to believe?

Timing of price targets for gold; Below $1,000 or over $1,400 or both?

Profit from the ups and downs by trading leveraged ETFs. Hold gold coins as insurance. Clarifying the future price of gold; physical buyer versus trader of ETFs.

Gold coin sales at the lowest level since 2008. All hail the stock market! Fear is dead! Do North Korea missiles matter any longer?

Why gold has room to move higher through year-end (medium view).

Harry Dent is out again with his predictions of gold moving lower, this time to $700 in 2018. In his most recent presentation, however, he verbally said that gold will fall to $400 and his slide show showed a graphic depicting a price of $250. His graphic throughout the entire presentation, shown below, shows him calling for $700, but most new viewers of his latest predictions should know he has been negative on gold for quite some time.

I wrote an article in December of 2015 as a rebuttal to Harry Dent's prediction then for gold.

Why Harry Dent's Call For Gold To Go To $250 Is Wrong

In that article, I point out that Harry Dent came out with a book called "The Great Gold Bust Ahead." The link is still live with his commentary calling for gold to go to $250. He also in that link calls for The Great Depression to hit in 2016. I see Harry Dent as the opposite of Peter Schiff in that Schiff has forever called for a dollar crash and higher gold prices, ignoring the run up in the dollar to over 100 and simultaneous fall in the price of gold, and Dent has been calling for a lower price in gold to $250 for quite a while.

Gold in December of 2015 was falling and I too was calling for gold to fall below $1,000 when it was around $1,200. Gold did get down to $1,050 and I do recall many mocking the call as gold rose higher. However, I still stand by that call to occur in an overall deflationary crash from the built up credit contraction that I see coming that will take most assets lower (see below for reasoning). Goldman Sachs also sees a fall coming in the price of gold, but sees a year-end price of $1,250 and eventually only sees a decline to the 2016 lows of $1,105.

I turned bullish on gold as you can see from the progression of my articles on Seeking Alpha, and am still bullish till gold gets over $1,400. In the meantime, I started a trading service that trades the ups and downs of metals and miners, as well as other leveraged ETFs. Dent however has continued with the same mantra of gold falling the entire move up from $1,050 to $1,300 today. But we have seen him raise his predictions from a bottom at $250 to $700.

The reason he has to change his tune higher to me is simple, and what most who critique those who buy gold on the dips don't understand. The U.S., believe it or not, is not the only country that buys gold. The gold world doesn't revolve around what the U.S. price of gold does.

While Dennis Gartman closes his short gold in Euro and Yen funds down, at close to the most worst time possible, at some point the dollar is going to rise sharply (see below comments on deflation) and the Euro and Yen fall. We are already seeing buyers come in out of Russia as the Ruble has fallen. But for now, the Yen and Euro are due for a leg up. You'll have to be patient if in Europe or Japan for your gold price to move up for now.

Timing Of Price Targets For Gold

I get from time to time some comments on my articles asking when will gold hit certain targets. I don't typically give time-frames as to when gold will hit certain levels, but the few articles I write on gold typically come when I see a turn coming in the opposite direction, or my comments head north of 1000. I personally don't see a need to even write this article because my main mantra, that gold will break $1,400 hasn't changed. But can gold fall back to the $1,250 level first before hitting $1,400 and higher? I'll answer that question below, but first, I want to explain a bit more why traders shouldn't get caught up in price targets higher or lower.

Why Traders Of Gold Don't Need To Worry About Price Targets For Gold - Clarifying The Future Price Of Gold; Physical Buyer Versus Trader Of ETFs

Physical Buyers Of Gold And Silver

Anyone who can do math or understands how governments and monetary systems work know that gold is insurance more than it is an investment. They also know to buy on the dip, sit back and let that portion of their portfolio sit there for the rainy day potential of use. They know that "over time," that portion of their portfolio will maintain purchasing power, and it gives them some peace of mind.

They also will buy on the dip as they view any fall in price, especially were we to fall hard, is a gift to them. Expect to see articles if we fall below $1,000 to include the words; "Back up the truck!" And if we do fall below $1,000, you'll see me begin to start writing the most bullish articles on gold and silver (physical) on Seeking Alpha.

Doug, what is your all-in price for physical gold?

My "all-in" price is $900. My reasoning has more to do with supply than anything else, and the fact that premiums will start to rise the more the price of gold falls. Remember the old saying, "he who has the gold, makes the rules." If you have no gold, then at that point, cash is the next best thing, but its purchasing power won't help if it continues to decline. Some may say bitcoin or some other crypto-currency is a viable alternative to gold. That may be, but is not the focus of this article. See my article You Can't Hack Gold! for my thoughts on bitcoin and the like.

For me personally though, I really don't care if gold falls to those levels or skyrockets. I do however make my predictions based on my own economic research and put the pieces of the puzzle together in my book Illusions of Wealth to make the case for a deflationary contraction, while most like the Fed try to get to 2% inflation targets. In that book, I do a thorough analysis on Exter's Pyramid, which does concur with Harry Dent's prediction of a deflationary bust although he gives no credit to Exter for his belief.

Please note that for this graphic below that gold sets outside the pyramid. Why? As John Exter's son-in-law Barry Downs, who inherited all of John Exter's work told me, "Because it is no one else's liability." The same can be said for silver. This is why you hold gold and silver coins and bars as insurance.

Exter

Please note that during this deflationary contraction, when money flows down the pyramid, will be at first treasury and dollar bullish. We saw a glimpse of how all this unfolds with the 2009 contraction. Dollar and treasuries rose while gold initially fell hard with the stock market. But gold rebounded to new highs well before the stock market recovered.

Distinguishing this article's projections for the price of gold we are separating physical buyers from traders. One can profit even by selling physical at the top of this current cycle, assuming I am correct with a top out and fall via the deflationary credit contraction, but most physical holders of the metal won't sell.

Their mindset is different than most other investors. I say that from experience in talking to my clients who have bought from us the last 7 years. Insurance is insurance. You don't cancel your homeowners insurance in the wintertime when there is less risk of fire. You keep your insurance through thick and thin, just in case some black swan event occurs.

I'm not talking Armageddon here. Physical holders of gold will have long sold their holdings for guns, bullets, land and what not to live off of should we head that direction. Or melted their silver into bullets. I really love the comments from naysayers of long-term holders of gold who say, "you can't eat gold and should be more worried about guns, bullets and food." It's as if gold investors can't think for themselves and plan for the futures should things go awry in the economy.

There is plenty of time to sell your metals for nice profit and buy stuff to prepare; guns, bullets, food, land with forests and streams, water reclamation, what have you. And if you want to get Biblical on gold, look up how many times it's mentioned in the Bible. A lot more than Armageddon. The Bible says; "By your wisdom and your understanding you have made wealth for yourself, and have gathered gold and silver into your treasuries." Ezekiel 28:4.

Then the Bible says; "He said to them, “Go back to your tents with much wealth and with very much livestock, with silver, gold, bronze, and iron, and with much clothing. Divide the spoil of your enemies with your brothers.”" Joshua 22:8 You shall not make gods of silver to be with me, nor shall you make for yourselves gods of gold. Exodus 20:23 "How the gold has grown dim, how the pure gold is changed! The holy stones lie scattered at the head of every street."

Lamentations 4:1 "They cast their silver into the streets, and their gold is like an unclean thing. Their silver and gold are not able to deliver them in the day of the wrath of the Lord. They cannot satisfy their hunger or fill their stomachs with it. For it was the stumbling block of their iniquity." Ezekiel 7:19

The way I interpret these verses is to spread your wealth to others if you are blessed enough to obtain it with gold and silver (if governments fail our monetary system) and make a difference in this world or in your community (I am writing books on this). Know that in the end, you can't take it with you. And the same goes with your guns and bullets.

Traders Of Gold

We have had a nice run up in gold off the bottom since a few months ago, but this pullback hit us more than I thought it would. Part of the reason for gold's hesitancy is that coin sales are down to levels not seen since 2007. Investors back then didn't see the rise in the price of gold coming. They won't see the next buying opportunity coming in the future either.

All the euphoria is with stocks now as the VIX is set to give us the lowest volatility month on record here in October. Why is gold up at all with no fear at present? Don't ask the retail stock buyer. They are ignoring metals. They will miss the run to $1,400 too. And they'll buy over $1,400 when stocks are getting hit, just as gold is ready to fall with the deflationary crash.

We have had a micro bounce higher and hit resistance levels for metals and miners; GDX at 24 and GDXJ at 35. What could pop us above those resistance levels and on to higher highs over $1,400 is North Korea preparing for a ballistic missile launch ahead of US and South Korea 10 days of Naval drills, or a show of force before the Chinese Communist Party's 10/18/2017 twice a decade congress.

We also can get the USD/JPY to fall below 111 which would have me all in for the micro move or more. Outside of that, there is a chance we can retreat once more to the $1,250 level in gold and $15.90/$16.10 level in silver. But that move is limited to the downside in my opinion, especially if the USD/JPY cracks. It is 112.19 as of this typing.

This is not me playing both sides of what gold can do. Gold to me is heading over $1,400. If not leveraged, hold onto your gold, silver, miner ETFs and begin to look at selling over $1,400. If leveraged, then we'll play the ups and downs as always and try and profit. I'll try to time my articles accordingly.

Right now, we are long JNUG, NUGT, USLV and UGLD. We will add to these positions if we get the run higher, which I expect, and sell with a small loss and jump on JDST for a scalp or two if we fall. We have swing trades going on right now from October 3rd in JNUG, UGAZ and UWT as I expect all 3 to move higher medium term. Separating the day trader from the swing traders is something I am trying to do more with my calls.

For quite some time now with subscribers, I have called for gold to +1400, Nat Gas to 3.40 and oil to 53-55. I still am. But for example, we have for the last month taking 5%-10% at least 3 times from UGAZ trades, selling the runs higher and buying again lower. If you compared this strategy to holding Nat Gas through thick and thin, not much profit. Compare that to holding GLD or SLV through thick and thin the last couple of months. Not lots of profit right?

At some point in the future, I will be writing an article about gold topping and we'll ride the wave down with JDST, DUST, DGLD and DSLV. Until then, JNUG, NUGT, USLV and UGLD are ready to move higher, one more dip or not, and holders of physical don't really care. They have peace of mind. But after that dip, we'll have reached those "undreamed of heights" that Richard Russell used to write about in the 3rd stage of a bull market. For now, we might see a little pullback in the markets and a bump up in gold whether we get a similar trigger like in the table below or not. It is still October.

Disclosure: I am/we are long JNUG, NUGT, USLV, UGLD, UWT.

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.

Additional disclosure: If you click on the Follow Me button, you'll get my timing on when the price of metals will turn next. But if you follow along in the comment section by bookmarking each article, you'll more than likely profit more with leveraged ETFs from all the good comments I get for each article. Thanks to a great group we have here.