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BookmarkThe quant who produces Trader Tracks newsletter tells The Gold Report that the technical charts project a brightening future for precious metals. Technical market analyst Roger Wiegand tracks annual trading cycles while keeping an expert eye on potentially disruptive world events. He is a stickler for fundamentals, though, when it comes to picking out the best juniors for safe bets in a cash-poor industry.
The Gold Report: In early 2012, Roger, you predicted that the price of gold would rise to over $2,000/ounce ($2,000/oz) during the year. But as the overall stock market increased in value, the yellow metal went in the opposite direction. What happened?
Roger Wiegand: Two things happened. First, the last gold peak almost made it. It went to $1,923/oz, and that was a technical and fundamental top. Then it sold down. The other thing that happened is that the U.S. Treasury intentionally sold gold to protect the stock and bond markets. Treasury feared that if gold ran up too high too quickly, people would dump securities en masse.
We are in the seasonal cycle when many markets go sideways. We have seen the selloff at the end of last week. A triple bottom is extremely bullish. The snap back in the price going long could be impressive.
TGR: What factors are keeping gold down in the near term?
RW: Gold is taking a pounding since the big bullion banks have full control and they have to cover their radical short positions taken at the behest of the FOMC and U.S. Treasury to preserve the fiat markets. Briefly, they kept the gold market under control to prevent a runaway for the FOMC and are now using TARP bank capital and derivative dollars to drive gold to the basement. Next, they are accumulating all the gold bullion they can to preserve their wealth in the forthcoming legendary crash. In addition, they get to buy it on the cheap as the dumb money is in full exit in fear.
Also, China, South Korea and Japan have problems and each central bank is dealing American bonds. Recently, China sold American paper through its own markets in order to offload Treasury bonds for currency. All kinds of problems are looming in China; some experts claim that China’s export trade numbers are only half of what was actually reported. South Korea is clearly weakening, and Japan is experiencing an emergency, causing it to stimulate at twice Mr. Bernanke’s rate. That is simply unsustainable. Japan is the Achilles heel of the whole financial system. If the yen runs away, it’s a disaster.
What does that mean for gold? Starting in August, the price will likely rise until the end of September. Then harsh political and economic factors will create serious problems in the global markets: I’m calling for a 50% correction in the U.S. stock markets in Q4/13.
TGR: In your June 6 newsletter, you said that we are on the verge of a brand new world.
RW: The brand new world is imminent because the lessons of 2008 were not learned. The banks are doing the same bad things they were doing before the crash, only worse. The derivative markets are larger now than they were back then. A huge number of student loans might well be written off. And the real estate market is doing a rerun. Incredible! People with foreclosures who may not be qualified for a new mortgage are receiving Federal Housing Authority-insured loans in a desperate effort to try to prop up the home loan industry, which is a major sector of the U.S. economy.
We are in a depression, not a recession. The real numbers for unemployment in the U.S. are 25%. They were 25% in the 1930s. In Spain, 54% of the workers under age 25 are unemployed. The down-the-hill slide is global and in slow motion. People still believe a lot of media nonsense, but this market simply has not corrected. The ultimate jobs program will be a new war.
TGR: Where do you think a war will break out, Roger?
RW: Iraq is cranking up for another round. War is on the agenda in Turkey. Libya has bad problems, not to mention the horror that is Syria. China is beating a war drum, but that’s just talk. North Korea is not capable of going to war. But more wars over energy resources will continue to break out in the Middle East.
War creates jobs. World War II ended the Depression of the 1930s. I don’t think there will be a nuclear war, but three or four conventional wars can go on simultaneously, hire a lot of people, square away the economy and get things righted in the bond market.
TGR: Given such a dismal scenario, how will that affect the price of bullion and shares in gold mining firms?
RW: In the short term, gold and silver shares will follow the futures and cash markets. We are still in a corrective phase, which can last for another six weeks. But once gold and silver start to climb, the shares will follow. It’s a big mistake right now for people to unload shares in good junior companies just because the stock has been beaten down. The companies with good fundamentals and enough cash to sustain operations for the next two to three years are going to do better. Look for good management with a project next door to a senior that is going to buy out reserves. Cash-starved greenfield juniors out in the middle of nowhere with no senior around to buy them out will not make it. It is like the salmon going upstream—some fish fall by the streamside, some make it home to nest.
TGR: What technical tools do you use to analyze the future of gold?
RW: I look at the Market Vectors Junior Gold Miners ETF (GDXJ), which is the Index for the juniors group. Right now, the graph of that technical tool looks like an upside down head and shoulders, and that’s very bullish. It is going to take a few more weeks for the junior stocks to pick up steam.
TGR: Roger, can you tell us what kind of technical information you look at to come up with your recommendations?
RW: I am mainly a chartist and a technician, but one cannot neglect the fundamentals, particularly considering the state of political economy in the world. First off, does a firm have good management? Is it located in an area that’s politically reliable? Does it have expertise in engineering and geology? Then, we look at valuations.
Remember, if you want to find gold or silver, go where the old mines have been prolific. Just because a lot of ore has been pulled out successfully does not mean that there is not more there to be mined.
After assessing the fundamentals, we examine the technical side with a long-range chart of 5 or 10 years. Then we narrow it down to a one-year chart. We next narrow it down to the cycles. Historically, gold and silver do very well between Nov. 1 through April. From May through mid-August, everything slows down. The annual fall rallies start the second or third week of August and run until the middle of October. Traders and investors in gold and silver know that the two big contracts in Q4 for gold and silver are the December futures, and they expire in November.
TGR: The futures explain the cycles?
RW: Yes. August gold is not that big a deal. December is the really big one for gold. In silver, March is the big one. July is less important. September is big because it’s in the middle of the peak season going higher. The other big cycle for silver is December. So keep these cycles in mind when trading and investing. Those are the times of year a trader or investor with average experience can profit from quantification. Chart the time of year when prices consistently bottom out and then start to rise.
TGR: Any parting advice, Roger?
RW: Please have patience, gold investors. Some analysts are predicting crazy numbers, like $900/oz. Not me.
