Just a quick note from me regarding the action in currency markets and its likely impact on equities, gold, and silver. This commentary really should come as no surprise to anyone who can read a chart, but it looks as though both the dollar and the conventional stock markets are about to go parabolic. It is price action that reminds me of the late 1990s, and, to a lesser extent, of the mid 1980s, two of the more notable occasions when both the dollar and the S&P began to go vertical. This move could last anywhere from a year and half to two years, if history is a guide.
So far, those who have been calling for deflation appear to have it wrong, at least if the world’s stock markets are to be believed. Instead, the narrative is that we are experiencing disinflation– which is not necessarily a bad thing for consumers– but it is likely a lethal thing for precious metals and their miners.
Many of us who had hoped that this year would provide some support to the metals, and that a bottoming process would begin are likely going to have to eat our words, given the moves in the currency markets described above. The two rallies I described above in the dollar were quite powerful– one of roughly 80% bottom to top, and the other around 50%. We are currently not much more than 22% off the bottom in the dollar chart seen in both 2008 and 2011, so it is not hard to imagine the greenback trading between 100 and 110 in the next 12 to 18 months.
About the only positive thing I can say for the precious metals is that people like me– committed dyed in the wool goldbugs– are going to the sidelines in droves it would seem. As a contrarian indicator this should be wildly bullish. The problem is that bottoms are very much a process that evolve over months and sometimes a few years. So yes, we are nearer a bottom than a top, but that is and will be of little consolation to many who have invested in this space if the dollar and stock markets make the slingshot I think they want to make.
Since markets tend to like symmetry (or so I’m told) what is particularly scary about the gold and silver charts is that they have just completed a similar consolidation pattern as the one from late 2011 to the fateful spring of 2013. When that pattern resolved, it resolved to the downside in a violent fashion– gold off something like 25% and silver off even more. If this pattern unfolds this time around (now that both metals and nearly all mining stocks are at new lows) it really does look like 2008 pricing is coming back to these markets. Silver may be desperately clinging to double digits when all is said and done.
In the end none of this negates the basic reason to own gold and silver– and yes, to even own some mining shares, since they do represent ownership of metal in the ground.
But even goldbugs can read a chart.