Gold: Prepare For A Flock Of Black Swans
- The government stimulus response in March was only a fraction of what the market and the economy appeared to need.
- The Fed appeared to provide some artificial confidence, but furloughs, evictions, bankruptcies and defaults continue and will increase as the time for all of the government subsidies expire soon.
- We are entering a highly volatile period. We are facing a flock of black swans, with the latest being President Trump’s positive coronavirus test.
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Wall Street opened sharply lower on Trump uncertainty, when he tested positive for COVID-19. The news upended the looming US presidential election campaign. The Bureau of Labor Statistics reported that the US only added 661,000 jobs monthly through mid-September compared to the consensus forecast of 850,000. Government stimulus is running out and the virus is again spreading more easily as the summer ends and people are more likely to stay inside with others.
Courtesy: Ticker Tocker
The government stimulus response in March was only a fraction of what the market and the economy appeared to need. In March, the Fed and the Treasury joined their balance sheets and planned to allocate up to 10% of GDP to the crisis. That is about $20 trillion, which is triple the stimulus that was provided in March. Then we saw a dead-cat bounce in the economy. The Fed appeared to provide some confidence, but furloughs, evictions, bankruptcies and defaults continue and will increase as the time for all of the government subsidies to expire is coming soon. We are entering a highly volatile period. We are facing a flock of black swans, with the latest Trump’s positive coronavirus test.
We are in a complicated time, to say the least in terms of politics, economics, health and almost every facet of society. Like a tsunami that sucks water off the beach at first and all appears calm before the actual tsunami hits, the pandemic is providing us with periods of apparent calm before hitting us again and again with massive changes. There are massive amounts of unemployment, high rates of businesses going bankrupt, 6,000 retail outlets closed so far this year, and on and on. Every sector is hurting. Each industry, such as hotels and airlines, all have issued corporate debt, which are now at risk of default.
All of these factors are building a major bullish case for gold and silver. We recommend focusing on the gold market, as a trading vehicle and as an alternative way to convert dollars, which are at risk right now of inflation and devaluation, into a long-term valuable asset. If we have to open the printing presses up to $20 trillion in stimulus, it will put gold at $5,000 an ounce. Be careful what you wish for, because if gold is at $5,000, then the US dollar and other fiat currencies will be next to worthless.
Until March, gold was manipulated in relation to the economy, demand, and its actual price by naked short sellers, which we have discussed before. Until 1971, gold was the other side of the US dollar. After 1971, crude oil became the other side and the dollar has fallen 98% since then in value. Interest rates are at almost zero. Real inflation is at 8% or 10% if you add energy, metals and food sectors, which are the basic elements of the economy. It is coming to a point where the manipulation of gold and silver no longer works because the market forces are swamping any trader, government or institution that tries to keep the dollar high and gold low. They succeeded in slowing the fall of the dollar since 1971, but it appears we are at the end of that tactic being effective. 1971 marked the beginning of the end of the US empire. The ability to print as much money as the government wanted financed the Vietnam War, but over the long term, it greatly devalued the US dollar and other fiat currencies, which also went off the gold standard. Politically, whoever wins in November, will not change the economics of the country. We are facing massive debt, almost zero interest rates and a severely damaged economy.
The gold market is offering an incredible opportunity to hedge your portfolio. There are many ways to take advantage of this situation. The futures contract is just one of them. You can use the Variable Changing Price Momentum Indicator (VC PMI) to trade a range of gold-related products, such as options, DUST and NUGT.
This morning the market rallied from the Buy 1 daily level of $1,895 to $1,923 in the course of about an hour on news of Trump’s coronavirus-positive test. We have been recommending hedging as the market traded around $1,917. It then reverted back down, activating a bearish price momentum. Then it came down below the daily average, as supply came into the market. The daily Sell 1 level is $1,923, Sell 2 is at $1,934. The daily mean is at $1,907. The daily Buy 1 level is at $1,895 and Buy 2 is at $1,879.
This morning, gold activated the Buy 1 level of $1,895 and the weekly average was right below that at $1,893. At that point, we put out an alert at 7:57 AM PT to our subscribers to cover short positions. Gold consolidated and then exploded at about 10 AM PT right into the target of $1,923. The low was $1,895 and the Buy 1 level was with 10% of that level, so it triggered a buy signal. This marks a 90% probability factor that the market will pivot from that level back up to the mean, which is the first target. Gold made a short trigger from $1,923, with the target of $1,907, which was just completed.
When the daily, weekly and monthly trends align, as they do now, the trades the VC PMI recommends are the highest probability trades. As long as gold is above $1,907, it is a daily bullish price momentum. Gold trading above the average weekly price of $1,893 activated the Sell 1 weekly level of $1,935. We have daily and weekly bullish price momentum with the target of $1,923 and $1,934, which is closely related to the weekly Sell 1 level of $1,935. As the market reaches those higher levels, sellers come in and the price begins to fall.
As we come into October, the monthly average price is $1,914.40. The yearly cycle, beginning September 28, 2020, when gold closed at $1,886. The market closing above the 9-month moving average of $1,771 is confirmation of a bullish trend momentum. It also tells you that a close below $1,771 will negate the bullish yearly trend momentum to neutral. You can use that information to manage your position.
The average price for next year is $1,810. The market closing above that average price is also bullish. A close below $1,810 would negate the annual bullish signal to neutral. $1,810 is the average price for the next year from September 28. Gold closed above both filters, the $1,771 and $1,810, which triggers the targets of $2,164 and $2,442. If you are long, which the VC PMI indicates you should be, the first target is $2,164 during this annual cycle, with $2,442 as the second target. Those are the levels at which to take profits. If the market comes down below $1,810, it negates this bullishness and would activate the Buy 1 and Buy 2 levels at $1,532 and $1,178, which would be good levels to add long positions. It is looking at about a $250 move from current levels. We recommend buying corrections. Levels today are still fair value for what the VC PMI expects gold to rise to in the next 360 days. Using wave counts, $2,160 looks to be reached in the first quarter of 2021. As time passes, we will be able to fine tune the projection. If we see the price reach $2,164 in that time frame, it is the most optimal time mathematically to lock in profits and wait for a reversion. Then you can buy the reversion. If it closes below after testing it, it will activate $1,810, which is the mean objective. There may be a lot of demand at $2,164 and we may see $2,442. So, we are looking at a major move to the upside.
We are now developing the 9-year cycle, which we will share soon. It is a compelling picture between all the cycles that we are at the beginning of the next leg of this bull market. Trading above $1,900, based on Gann analysis, has activated a higher price fractal with possible prices all the way up to $3,800. A lot of things will unfold before then, but gold looks extremely bullish fundamentally and technically, based on the daily, weekly, monthly, annual and 9-year data and VC PMI analysis. The sooner we can get a handle on this pandemic and the economic crisis, the better we will be in the long run. The government is failing, but you can act. Do your research, learn the VC PMI and buy gold for the long term. We are going to see inflation and potentially deflationary forces, especially if we go into another lockdown. Volatility will be high, giving traders an opportunity to buy gold on pullbacks and build a large position for the long term.
To learn more about how the VC PMI works and receive weekly reports on the E-mini, gold and silver, check out our Marketplace service, Mean Reversion Trading.
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Analyst’s Disclosure: I am/we are long GDX. 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.
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