GOLD - SAFE HAVEN?
Dear Members,
Fasten your seat belt because what I am going to write today will make you many excited, while many will get nervous. Yes, one of the most important points I noted in my financial prediction career is that my long-term buy calls all proved to be quite accurate, while short-term sell calls were not.
Let’s talk about metals (gold and silver) because they are right now in the hot seat. However, I think twice before I call gold as a safe haven at this stage. It doesn’t mean that gold has lost its status but surely whenever you are doing shopping you will always try to see if the things you’re interested represent good values. At this stage this applies to gold, although many times valuation becomes irrelevant when a market is in the full force of its bull phase or it is in a final bubble.
Surely gold is not yet in its bubble phase. There is still lot of time pending before gold and silver enter bubble-and-burst phase. Our price targets during the bubble phase are $1,800 to $2,300 for gold and $38 to $48 for silver. And then prices will crash mainly due to government regulations.
I have received many emails regarding gold and silver and many are asking that it is possible for gold and silver to rally continue from here towards the bubble phase without taking a break? Is this a final run and from here sharp fall will ensue? And some are saying that if we adjust the inflation rate of last thirty years then gold should be sitting at $2,500 so currently it’s still very cheap? Also, isn’t there simply too much cheap money flowing to commodities and it does not seem that this phenomenon will stop anytime soon?
I felt that we are having the same questions during the oil bubble phase of 2008. In each and every market buyers think that current prices are cheap so they should buy and sellers see that current prices are too high and they should book profits and stay sideline, while short sellers think that prices are unrealistically high and they will crash. And we do need all these mindsets to have a healthy, active market.
Last week in our newsletter we mentioned one thing very clearly and that is the weak trend in metals from Monday 20 September. This weak trend should continue for at least one week to give confirmations that metals have entered its short term bear trend. If however this week metals overrule their weak trends, that means that gold and silver will enter their final bull phase right from here. This CAN CONTINUE FOR THE NEXT FIVE MONTHS, and then a sharp fall can occur but before mini crash occur gold can rise up to 35% and silver can move up more than 50%. Yes at this stage we are at the most important juncture in metals because this week’s trend will decide metals’ next four months journey from here. If they fall during this week then weak trend in metals can continue moving down for the next five weeks.
Best strategy: You can play with puts and calls. If metals remain positive from Monday to Wednesday then start accumulating calls for December. If metals remain weak during this week then accumulate puts for November.
Last week almost all commodities were on fire, except oil. Gold, Cotton and coffee traded at multi year highs, while Japanese Yen came down sharply from multiyear highs. Treasury bond traded weak as mentioned and stock markets extended the recent rally.
Let’s see this week’s trend of all major markets from 20 to 24 September
GOLD/SILVER
Last week Astro combinations were positive for metals until Thursday morning so they remained positive. This week from Monday weak trend in metals will start and they will fall sharply once USA markets open.
Last five Tuesday’s metals remained positive, but this week Tuesday metals may not able to repeat upbeat trend so we predict fall in metals. Any rise should be taken as a selling opportunity in gold and silver. Fed is meeting on Tuesday for rate decisions, and markets experts are not expecting any rate change. Metals, stocks and currencies will gain first and after a few minutes they will start moving down and Dollar will gain against all currencies.
Wednesday again we see weaker trend in metals, so hold you short positions in gold and silver.
Mid Thursday we are expecting some buying coming in metals so prices will regain from lower level and Friday gold and silver will remain sideways.
I don’t wanted to predict this week range as markets are in a volatile trend.
Important note: If gold and silver doesn’t move down on Monday and Tuesday then I highly recommend buying calls in gold and silver. Or if you have any short then cover all shorts and go long. I will write update on Monday and Tuesday as both metals are trading at crucial levels.
COPPER/PLATINUM/PALLADIUM
This week base metals will remain sideways or weak. Copper and palladium will trade weaker than platinum and zinc.
Copper will trade weaker on Tuesday, Wednesday and Friday. Monday and Thursday copper will trade sideways. Copper trading range will be $354 to$332.
Platinum prices will fall on Monday, Wednesday and Thursday. Palladium prices will keep moving down for the whole week so take trades accordingly. Platinum range will be $1,607 to $1,555.
HUI index will suffer a major setback. So get out from precious and base metals stocks.
COFFEE/COTTON
This week coffee prices will remain in sideways or a bit weaker. At this stage we won’t recommend buying but longer term players should hold positions in coffee or buy calls in coffee. As this week we see weak trend in commodities so this may impact even coffee prices. This week range will be from $195 to $182.10.
Cotton prices are trading high in production worries. Avoid trading cotton or you can take put option positions in cotton. Trading range will be from $102 to $92.10.
SUGAR/LUMBER/ORANGE JUICE/COCOA
Soft commodities look like a safe bet compared with other commodities at this stage. Lumber, orange juice and cocoa should move up against all commodities. I highly recommend buying all these three soft commodities at this stage or on Tuesday and keep adding position on weakness.
Sugar prices have moved up sharply as Venus has been in favor of sugar. Last three weeks our outlook in sugar was negative and we still hold our prediction of sugar falling to $16.80. We don’t see sugar prices moving above $25 in the near future.
STOCK MARKET
Just one small correction is pending in markets which I am expecting any time from 2 October to 23 October. Chances are very strong (chance indicated by Astro combination is 10 out of 10). Once this correction completes then go long all the way until Dow reaches 36,000 to 42,000. We are not recommending any short in the markets but you should book profit in stocks during coming weak trend in October and get back in by the end of October.
We see Dow reaching 12,000 by end of year and next year Dow will be on fire. Keep adding alternative energy stocks. Most of alternative energy stocks have moved up more than 50% in the last two months.
I have been watching large cap, mid cap and penny stocks in alternative energy area, and lately I found that penny stock are starting moving up. Many of these stocks were trading at a few dollar few years back and now they are traded in a few cents. This is an early indication of money flows into the whole alternative energy space. We are also seeing the same movement in rare earths and uranium markets. I have been writing on alternative energy in the past few years but first time I am utterly excited to recommend investing in this area. Yes, I am more excited at this time for alternative energy than my gold and oil recommendations in 2001 or technology stocks in 1996/7.
I don’t want to say more here but my guess is that in a few years, you won’t regret even if you sell your metal holding and invest in alternative energy area (solar, hybrid, plug-in, wind, battery and uranium).
Last week Asian markets (especially Indian market) performed well compared to all other indexes. European markets struggled but USA remained solid. This week some weakness or concern will come back to the markets. Any weak trend should be taken as a buying opportunity.
Three months back I mentioned one stock LBSR that moved more than 100 times (from $0.0015 to $0.18 in just two months). I like a few penny stocks in alternative energy area and these stocks are LTHU ($0.026), WWEI ($0.012), and CXZ ($0.18).
LTHU is a lithium battery company. I met the management and felt that they are competent and conservative with a low-key style. The stock is currently trading at $0.026 (I don’t own but may buy).
WWEI is a wind energy company focusing in China. I like its recent developments. Currently the stock is trading at $0.012 (I own the stock).
CXZ is a uranium mining company and may have great prospect if uranium prices move up in future (I just bought some).
In stocks of a particularly industry we should always buy the leaders where the industry is just starting to move up. Once it starts entering the bubble phase, then I suggest invest some portions in speculative stocks (such as 25 percent in mid cap, and 10 percent in small companies and 5 percent in penny stocks) because if they move up then returns will be much greater than their much larger peers. I mentioned a few weeks back that one of my friends in Canada made a serious fortune by just buying penny stocks in the last twenty years. He started with a few thousand dollars and now must be worth over two hundred million dollars.
We all are taking risk in markets so there is no harm in investing even penny stocks after research and due diligence work. And this would be the case for the alternative energy sector in the coming years.
TREASURY BOND
Thirty years bond prices came down sharply as per our predictions. This week bond prices may move up bit for the first few days but from Thursday they will start moving down again so trade accordingly.
GRAINS
Last week grains prices were remain on fire. Though we were very bullish on corn and wheat but since last three week we have been recommending to stay away. There is no harm in staying away once our targets get fulfilled. We don’t have to make the last penny in market moves. Again we are not recommending any buying in grains at this stage. I highly recommend getting out from any long positions you might have as coming time is not that great.
We won’t recommend going short in grains as well as they are still very far away from our longer term price targets. But yes shorter term they are on the riskier side.
Corn and wheat may remain still positive but soy will lead the coming fall in grains. This week we see weaker trend in commodities so grains will also move down with all other commodities.
Best time to accumulate grains will be early mid part of October.
OIL
Last week oil remained weak. This week oil, heating oil and RB gas will remain weak as well. We see weaker trend to continue from late Monday so any rise on Monday morning shall be taken as a selling opportunity. Trading range in oil will be $75.90 to $71.90.
Natural gas moved up as predicted. This week we still see upward trend continue. Monday and Wednesday will be the weaker days of the week and the rest of the week natural gas will rise so any weakness should be taken as a buying opportunity.
Trading range in gas will be $3.92 to $4.18.
CURRENCIES
Last eighteen months we kept recommending buying Yen and yes our predictions have been accurate as Yen kept hitting multi year highs against all major world currencies. First time last week gave weak indications and Yen moved down 380 points.
This week we see Yen moving up from Monday and the rising trend will continue for the two days before it start moving down again. So if you are holding shorts in Yen then you should cover on Monday morning and wait to sell again on Tuesday or Wednesday. Trading range will be 1.1550 to 1.1820.
This week commodity currencies will move down sharply from late Monday so one can build up short positions in Canadian and Australian. Canadian trading range will be 0.9720 to 0.9510 and Australian will trade between 0.9300 to 0.9089. Tuesday, Thursday and Friday will be weak for both of these currencies.
South African Rand will surprise everyone by moving down hugely. I am expecting some kind of new from the central bank. Trading range will be 7.1810 to 7.4830.
Swiss Franc has been trading independently. Yes now is the time for Franc to also turn negative for a month or so. I’m expect it to lose value against almost all currencies. This week weak trend in Franc will come from Tuesday and weaker trend will continue till Friday. Range will be from 0.9950 to 0.9670.
British Pound will also start moving down from Monday and this will be first currency to give weaker indication against USD. This week USD will gain huge against Pound so trading Pound will provide great returns. Trading range will be 1.5659 to $1.5280. Yes this is a huge downside move.
Euro will try to remain stable but will start losing value after Fed decision. It looks like all most all currencies will lose value after Fed decision. Tuesday, Wednesday and Thursday will be weaker day for Euro so any rise should be taken as a selling opportunity. Trading range will be from $1.3110 to 1.2870.
Above range in all currencies mean sharp rises in USD, and so this week is great opportunity to buy USD. In the stock’s bull cycle Dollar WILL RISE WITH EQUITIES (this might surprise everyone again). Trading range will of USD will be $81.38 to $83.18.
Best trades of this week:
Buy USD and sell CRB Index
Buy Gas, Cocoa, Lumber and Orange Juice
Longer term call:
Keep adding stocks as Dow toward 38000
Keep adding grain and coffee
This year so far grains, yen and coffee call came very accurate but metals and currency predictions were mix.
Thanks & God Bless
Mahendra Sharma, 19 Sep, 2010