The current waterfall declines in gold, silver and XAU are indeed depressing and understandably so.
This is primarily due to a decline in the euro with a resulting price increase in the dollar for so-called "safe haven" reasons. It is not unexpected since the weekly USD index is still in strong uptrend and could ultimately reach anywhere from 81 to 87. See the USD chart here. As long as this trend continues, it will limit any improvement in gold prices and defeat any S&P500 advance.
In addition, there is end of year selling pressures, margin calls and a lack of confidence and credibility issues as a direct result of the MF Global bankruptcy.
Euro Durability
The durability of the Euro is in doubt. The caboose people were scrambling on the recent news of a reduction in swap rates, as if that was the answer. This is a cost and liquidity item for banks, not a solution for insolvency. They will need a lot more then reduced currency swap rates to bail them out.
Regrettably, the Euro in its current format will not last. Other possible options on the table to delay the inevitable might include:
- IMF SDR use
- Further reductions in interest rates
- Extended payment terms on loans
- Intricate and hidden rearrangements of the financial deck chairs
- A new QE program for banks with exposure to the Euro debt
- Currency devaluation
- And of course, start a war
There are simply no other options left to postpone debt defaults or implied devaluation. After any of these events occur, it will be on to other currencies and their debt issues including the USD.
There is also a case of suspicious trading activity in paper gold/silver. You can easily research this activity yourself. These events are in the context and setting of our own liquidity and insolvency issues which are far larger but will be addressed in due course. Feel free to fill in the blanks. The Ides of March approach.
Do not be fooled. As indicated in my recent article, this total financial picture is not one of survival, success or solutions but a clear act of desperate drowning in the frigid waters of financial reality.
Possible Projections
Given the Euro issues, gold could "theoretically" go down to 1420 and silver to 21 before the bottom is in. As a result, gold could have its first losing year in the last 11, or at the very least, a borderline 2011 record which would fuel the bear case.
Some time ago, I indicated a potential technical projection for the XAU pointing to 146. I should have paid more attention since my early September stock purchases are borderline at best and were clearly premature.
At this point in time, I do not believe or have hard evidence that either of these projections will occur outside of the current USD weekly uptrend and Euro issues but it is a potential possibility to keep in mind.
A selling climax of historic proportions and volume or a significant sideways grind over several days on good volume would define that a major bottom is in place.
Glimmers of Hope
The current XAU daily and weekly charts are also in a negative posture. The daily chart below includes the green Pendulum SRA Cycle indicator (0-100 parameters) which is at zero, a first start in the bottoming process.
XAU Daily
Secondly and incredibly, the XAU Weekly Market Health Indicator is still enjoying a strong base pattern development. This important metric measures price range, price change and trend and shows the underlying character of the trend.
XAU Weekly Market Health Indicator
Thirdly, the Market Pendulum SRA monthly cycle indicator here just barely came off the bottom on the very last day of November after being undecided all month. This important monthly chart reveals a 5 year record. Since the bull market began in 2000, it has not missed a trick from these low levels near zero and is extraordinarily accurate in the longer time frames. Unfortunately, one must wait a month for concrete confirmation in this time frame. If valid, it suggests a multi-month advance.
Finally, as indicated on several prior occasions, it is still my opinion we are in the area of Part 2 of the downturn that first occurred in 2008. If that assessment is valid, this second potential major bottom should end at a higher level than in 2008 and provide a very significant secondary base. As this critical window completes, the XAU/Gold ratio’s performance should considerably improve over the next year and result in truly outstanding results for all participants.
Nuggets of Values
Sprott put out an appeal for silver companies to hold a portion of their production as a reserve. Of course, if Sprott gets his way, some of these companies are going to have valuable and stronger assets on their balance sheets over time. This clearly is much better diversification than straight cash reserves or other external investments.
Coeur d’Alene Mines is considering such a measure. See the article here. Another example is Wesdome Gold which already holds a significant gold reserve in a vault, according to their literature.
In addition, a number of companies have increased their dividends this year or have initiated new dividend policies. A recent example of the latter is Hecla Mining.
Additional important analysis and views for gold/silver, S&P500 and other financial sectors can be reviewed here.
Seen by Many - Recognized by Few
Once again, this “on sale” pricing window provides an opportunity for those with cash reserves. In particular, the gold and silver price declines have nothing to do with their intrinsic or fundamental values we are all familiar with. That is why we are all digging for those nuggets. Gold is the bedrock value of our collective financial security. Locating that bedrock price is admittedly difficult, but not impossible.
This month’s waterfall decline and its ultimate end will be seen by many and recognized by few for the nuggets of opportunity and value it represents. In this current environment, what kind of asset would you rather have for preservation, protection and profit?
