Following
a recent surge in precious metal and mining equity prices, Gary Savage,
technical gold trader and publisher of the Smart Money Tracker was kind enough to
share a few comments.
Here
is his full interview with Tekoa Da Silva:
TD: Gary, you
published a piece last Friday, February 14th entitled “Another Piece of the Puzzle
Falls into Place,” in which you laid out some pretty big market
expectations for the stock market, commodities, gold and for the dollar as
well. I’m wondering if you can talk to us a little bit about that.
GS: Sure Tekoa.
My overarching theme for 2014, and what is going to drive all other markets, is
that the dollar would have a crisis or at least a semi-crisis probably late in
the fall of this year. Last week another piece of the puzzle as you say fell
into place in that the dollar broke its intermediate trend line. That should
confirm that the dollar has begun the aggressive part of its decline down into
an intermediate bottom which should bottom sometime in March, maybe early
April.
I
think that’s going to drive at least part of the bubble phase in the stock
market. I believe that we are starting a final parabolic bubble phase in the
stock market, and it’s kind of critical that this continue. This is an
important component that’s going to drive what I call the great inflation or
the grand inflation that’s going to happen later this year and it is – this
particular intermediate cycle in the dollar as it drops down is also going to
drive what I think will be a stealth rally in commodity markets as liquidity
begins to leak a little bit out of stocks, as they get more and more
overvalued. But the real move in commodities is going to be in the second half
of the year.
So
that’s why I think this will be a stealth rally in commodities. My guess is
it’s going to last another month and a half, maybe two months until the dollar
puts in this intermediate bottom. So what I’m looking for is possibly a move to
– hopefully gold can break above the important resistance at $1425 and if it
does, then I would like to see gold test the $1500-$1550 resistance zone before
this intermediate cycle tops. I would guess that most of the commodity markets
would top in that same timeframe as the dollar puts in this bottom.
Then
as the dollar rallies out of that and as commodities drop down into an
intermediate degree correction, I think that’s when stocks put in their last
month to two months of their bubble phase where things really start to get
nutty. I’m looking for the NASDAQ to test its all-time highs at 5000 or a
little above 5000, and then shortly thereafter, I think the parabolic structure
in stocks will collapse.
It’s
going to take a collapse in the stock market for Yellen to reverse the taper
and I think she will not only reverse it, but I think she will double down on
QE. Instead of $85 billion a month, we may get $150 billion a month.
The
problem is that when a parabolic structure breaks, you can’t put it back
together. So we will get some kind of reaction bounce out of stocks like we got
out of silver when the silver parabola collapsed or when the tech bubble
collapsed in 2000. But it’s not going to repair that broken parabola and so all
of that extra liquidity that she’s going to force into the market with QE 5
will start to flow into the commodity markets which are extremely undervalued
compared to equities.
That
is when I think the real spike in inflation and commodity inflation is going to
begin later this summer and into the fall, and that’s the point at which the
dollar crisis will intensify. We’ll get a major three-year cycle low in the
dollar sometime later this fall and that will be the top. What I’m looking for
is a move from – I’m going to guess that if gold can go to $1520, maybe it
drops to $1350 during that intermediate correction and then I think we have a
very powerful move into the end of the year that takes gold up to test at least
2000 before everything starts to move down into a deflationary period bottoming
sometime in 2016.
TD: Gary, if I
understand you correctly, what you’re laying out here is an expectation that
the general equities markets will move up into a staggering parabolic top and
collapse. And in response to that, Yellen’s Fed will come out and flood the
markets with liquidity to prevent a 2008 style liquidity crisis and within the
subsequent year to two years, that’s when that major move in commodities,
precious metals and related stocks will occur. Is that correct?
GS: Correct,
although I don’t think it’s going to take two years. The three-year cycle in
the dollar is due to bottom late this year. So I think this will unfold very
quickly once the stock market collapses and Yellen tries to reflate it. I think
we will probably have from maybe mid-June, July, until the end of the year. I
think that’s the point at which commodity markets just start to trade vertical,
kind of a mirror image of what had just happened in the stock market.
Then
once that happens, you’ve already got a big drag on the economy with the stock
market collapsing. If you add on top of that a severe inflationary spike in
commodities, then basically you have the exact same situation as what happened
in 2008 when the real estate bubble collapsed.
The
Fed tried to reflate it by printing a lot of money. The parabolic movement in
real estate prices was already broke. The liquidity didn’t go into the housing
market. It went into the commodity markets and it spiked oil to $147 a barrel.
That’s what collapsed the economy in 2008. It wasn’t that the housing market
was collapsing. It was the housing market weakened the economy but it was that
spike in energy and commodity prices that collapsed the economy and sent us
into the recession.
I
think the Fed is going to make the same mistake when the bubble and stocks pop.
They’re going to follow the same game plan they did in 2008. They’re going to
get the same results. Liquidity is going to flow into the commodity markets.
It’s going to spike commodity prices which is going to make cost of living
expenses for the average person go through the roof and that collapse is
discretionary spending and that will send us down into another recession/depression
that I expect will be worse than 2008 and I expect the stock market will fall
below 666, sometime in early to mid-2016, as well as commodities in general.
Everything is going to take a hit including gold. Gold’s next eight-year cycle
low is coincidentally due in 2016.
So
I think everything happens pretty fast by the end of this year and then we
start that deflationary spiral down into the next recession.
TD: Gary, what
might cause that deflationary spiral? If you’ve got lots of liquidity coming
out of the Fed and central banks worldwide, what could be the catalyst that
could cause that money to begin disappearing?
GS: It will be
the same thing that caused it in 2008. Most analysts have this wrong. They
think deflation first and then inflation but actually that’s backwards. It’s
always inflation first followed by deflation.
Inflation
creates the recession because it collapses discretionary spending. When
everything you have to spend for your life, your food, your energy, when all of
those prices skyrocket, well then you don’t have any discretionary money left
over for anything else and that’s exactly what we saw happening in the summer
of 2008 when gasoline spiked well above $4 a gallon. It has just cost people so
much money to fill their gas tank, they couldn’t buy anything else.
The
same thing will happen again. We’re going to get an inflationary spike. It will
collapse discretionary spending. Profit margins in companies will collapse and
then you start that deflationary spiral as the economy moves into recession.
TD: Gary, do we
not also get political cries to bring down commodity prices right at about that
same time–right before the collapse in discretionary spending or while that
collapse in discretionary spending is occurring?
GS: Correct. I
remember at the time vividly. The politicians were blaming the price of oil on
speculators. It had nothing to do with speculators. It had to do with the Fed
printing too much money, trying to stop the real estate market from imploding
and if you will recall, this is at the exact same time that the government in
their infinite wisdom sent out rebate checks for $300 I think it was and $600
for family.
So
where did that money go? It went right into the gas tank because people could
not afford to fill up their gas tank. So it just intensified the spike in
gasoline prices which collapsed the economy.
TD: Gary, what’s
the best way for people to play this over the next six to twelve months plus?
GS: Well, here’s
how I’m going to play it. I believe that we’ve got a final bubble phase in the
stock market that is going to play out over the first half of the year. Bubble
phases are pretty rare and you can make an obscene amount of money in a short
period of time during a bubble phase, granted they do seem to be coming more quickly
over the last 14 years because the Fed just continues with these horrendous
monetary policy mistakes.
But
I think during the first half of the year, that the easy money is going to be
playing the bubble phase in the stock market and when the NASDAQ approaches
that all-time high at a little above 5000, that’s your signal. It’s close
enough. It’s time to take profits. Don’t worry about trying to catch the exact
top. Get out and then wait for the collapse.
Then
the second half of the year, the easy money is going to be made in the
commodity markets as Yellen like I said reverses the taper, starts QE 5, trying
to reflate the broken stock market parabola and I think all that liquidity goes
into the commodity markets and I think we have a huge spike in commodities
during the second half of the year. So first half, equities; second half,
commodities.
TD: Gary, what
about the person that may be conservative in their approach and they’re looking
to sort of maybe hopefully sidestep a lot of this wild volatility? Are holdings
of physical metals one way to protect yourself?
GS: In my
opinion, that is by far the easiest way to play this over the next year. It
would be to buy physical gold or silver I think it’s going to produce a much
better return. But the downside is the spreads are pretty large. It’s hard to
sell it when you need to. You can’t get in and out as quickly or as easily as
you can in the paper markets. I also think the mining shares have a lot more
potential percentage gain than either – definitely more than gold but even more
so probably than silver. So to make the biggest percentage gains, I think I
would probably be in the miners.
TD: Gary,
technical trader and publisher of the Smart Money Tracker, daily gold
commentaries. Thanks much for sharing your comments.
GS: My pleasure
Tekoa.
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