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Gold & Silver Prices Will Surge On Fundamentals Not Technical Analysis
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Gold & Silver Prices Will Surge On Fundamentals Not Technical Analysis
Posted with permission and written by Steve St. Angelo, SRSrocco Report (CLICK FOR ORIGINAL)
Don’t be confused. Gold and silver prices will skyrocket in the future based on the fundamentals, not technical analysis. Not only will fundamentals be the important factor in the future, they have also been the leading indicators over the past 50 years.
I realize I will get a great deal of flak for stating this, but the facts presented below paint a pretty clear picture. Now, while it’s true that the many of the gold and silver analysts (including this independent analyst) under estimated the level at which the Fed and Central Banks could prop up the Greatest Ponzi Scheme in history… it’s better to have ones precious metal insurance a bit early than late.
I wrote this article in response to one of the guests on Al Korelin’s radio show. It was Avi Gilburt of ElliotWaveTrader.net. Avi told Al Korelin that the bottom of the precious market was around the corner. He said the four-year correction was nearly over and the next precious metal bull market was close at hand.
That sounded real nice until you read his recent article, Stop The Insanity As Misinformation About Gold Continues To Reign. Here is how Avi views most of the gold and silver (bug) analysts:
Why is it that most who are followed in the metals market and viewed by many as “experts” are so horribly wrong week after week, yet continue to present the same analysis week after week? Are the majority of the participants in this complex really that foolish to continually follow such clearly erroneous perspectives with the “hope” that it will eventually be right?
Avi’s comment here actually sounds logical to many precious metals investors who bought metal at higher prices hoping a recovery was soon at hand. Unfortunately, as gold and silver prices continued to decline, investor frustrations increased. While gold and silver analysts can be guilty of being wrong on the timing, they won’t be wrong on the FINANCIAL EVENT OF A LIFETIME.
I want to take certain parts of Avi’s article and show evidence why the fundamentals are the driving force in the value of gold and silver, not technical analysis.
FUNDAMENTAL #1 The Key Driver For The Precious Metals Prices
In his article, Avi made this remark about the precious metal bull market:
I want to start by saying that, yes, this 4+ year correction will conclude soon. So, this market will begin another bull market in the not too distant future. You see, markets, over the very long-term, will continue to rise, as society continues to progress throughout history.
Avi believes the precious metal bull market will begin shortly and will continue to rise as society continues to progress throughout history. I don’t know if we will experience a long-term bull market, but rather a rapid rise in the value of gold and silver seems more likely. Furthermore, the notion that society and markets will continue to rise in the future indefinitely doesn’t seem likely either. I will discuss this at the latter part of the article.
I put this chart together (below) to show why the price of gold behaved a certain way since 1940. You will notice two lines in the chart. One shows the price movement of gold and the other of oil. If you look at the price of gold and oil from 1940 to 1970, they are basically flat-lined…. dead. Nothing going on there:
However, two amazing things took place in the beginning of the 1970 decade. Everyone knows Nixon dropped the Gold-Dollar peg (1971), but what was the other? U.S. domestic oil production peaked in 1970 and begin its inevitable decline. This caused serious consequences that were felt a few years later during the Arab Oil Embargo:
During Arab Oil Embargo, the price of oil shot up from $3.29 in 1973 to $11.58 in 1974. Then during the Ayatollah Khomeini-led revolution, Iranian oil production declined 72% from 1978 to 1980. This had a profound impact on the price of oil as it skyrocketed from $14 in 1978 to over $36 in 1980. Please look at the next two charts and see how this impacted the price of gold and silver:
While analysts continue to regurgitate that the rapid rise in the price of silver during the 1970’s was due to Hunt Brother buying, who in the living hell was buying gold and oil to drive up their prices?? Never get a good response for that question.
Regardless, the price of oil increased 16 times its 1971 level, silver shot up 16 times and gold jumped 15 times. Interesting that the precious metals moved up about the same percentage as oil. Wonder how technical analysis could forecast the peak of U.S. oil production, the Arab Oil Embargo and the Iranian Revolution.
The same thing happened to the price of gold and silver from 2000 to 2012. As the price of oil shot up from $24 in 2001 to $111 in 2011, the price of gold and silver surged to a record high of $49 and $1,900 respectively.
Let me show you the same Gold vs Oil chart from above:
After the huge rise in the gold and oil price in the 1970’s, they both declined and traded in a range-bound fashion for the next two decades. It wasn’t until the rapid rise in the price of oil from 2004 until 2011, did the price of gold hit new highs.
Again, the huge increase in both the price of silver and gold were not due to technical analysis or another overdue “Bull Market”, but rather from the fundamental change in the energy market. Investors need to realize ENERGY DRIVES the markets, not FINANCE.
FUNDAMENTAL #2: Peak Oil Will Destroy The Market & Most Financial Assets
The one fundamental that Technical Analysts can’t chart on their graphs is the impact of peak oil on the value of most assets (or supposed assets) going forward. What we are heading into is much worse than anything Technical Analysis can forecast.
Unfortunately, most people still don’t realize the implications of peak oil. The valuations of most financial assets are based upon a financial principle called “Net Present Value.” Basically, it’s like a time machine. A current stock price is based on future earnings. Future earnings are based on economic growth. And economic growth is based on burning energy.. and not only energy, but a growing energy supply.
Jean Laherrere was kind enough to send me his updated Bakken Oil Chart. But before I show that chart, let me show the North Dakota oil production chart he sent me several months ago:
As we can see, the Bakken is the major portion of North Dakota’s oil production. The chart of Bakken shale oil production (green) has gone up almost exponentially. And, what goes up exponentially, comes down exponentially. According to Jean’s calculations (based on ultimate reserves), is that Bakken oil production will fall below 100,000 barrels per day by 2025.
Here is his updated chart of North Dakota and Bakken oil production:
Again, the (dark) green is Bakken oil production and the red is number of wells producing. You will notice something interesting happened at the top of the graph…. production (green) started to decline, while wells producing (red) continue higher. Thus, overall oil production is now falling while the number of wells grow. This is not a good sign.
We can see the peak more clearly in Jean’s final chart:
Now, while this is only showing the peak and decline of North Dakota (mostly Bakken) oil production, the other major shale oil fields in the United States will follow suit. When 2016 rolls around, we are going to see serious fireworks in the U.S. Shale Oil industry.
Last week I spoke with a gentlemen who is the president of his own independent oil company in Texas. He’s an oil geologist looking for conventional oil projects and knows just about everyone doing the same type of work in Texas, Oklahoma and Louisiana. He told me that the current situation in the U.S. oil industry is worse than what took place in 1985.
He went on to say there was serious trouble ahead next year for the medium and small oil-gas companies. Furthermore, he said that he couldn’t start working on new conventional oil projects unless the price of oil reached $60-$65. It’s now trading at $39, and looks to go much lower.
In addition, the only reason the world was able to afford high oil prices was due to the massive increase in debt. I recently came to the realization, from the work of Gail Tverberg at Our Finite World , that the higher the price of oil goes, the higher the amount of debt that is needed. Which means, low or zero interest rates had to follow as this massive amount of debt is not serviceable at mid-high interest rates.
I will write more about DEBT-OIL-GDP in future articles. But, please understand that the massive amount of debt is not sustainable and a collapse is certain. Moreover, once this debt implodes or is written off, then U.S. and global oil production will collapse as the market can’t afford mid-high oil prices without adding even more debt.
This is the reason the value of most financial assets will implode. Unfortunately, I do not have a crystal ball as to know when it will occur, but we are witnessing current market volatility and geopolitical insanity due to peak oil… whether we realize it or not.
FUNDAMENTAL #3: Peak Oil Makes Technical Analysis Completely Worthless
Avi Gilburt stating this toward the end of his article:
Folks, belief in fundamentals, physical demand, production, war, etc. have not and will not provide you insight into the turning point for gold. Gold will not bottom until the sentiment for it has gotten so bad that it will have only one way left to go. That is simply how markets work. Period. End of story. No exogenous event or fundamentals will change that, and if you have not learned that the hard way over the last 4 years, then there is truly no hope for you, or anyone you chose to follow. Yes, I know some of you will view me as harsh, but someone has to sound the wake-up call for the zombies that populate this market.
Avi says that no “exogenous event or fundamentals” will change the gold market. Well, I just showed during two-time periods when exogenous events (1971-1980 & 2001-2011) did impact the prices of gold and silver. Anyone with a heartbeat and decent eyesight can tell from the Gold vs Oil Chart 1940-2015, that the price of oil had a direct impact on the price of gold.
As I have stated several times, the coming surge in the value of gold and silver will occur during the collapse of the Greatest Financial Ponzi Scheme in history. This collapse will occur as we experience a precipitous decline of U.S. and global oil production. So, the price of oil will no longer be a factor in determining the price of gold and silver going forward… it will be the fall and collapse of U.S. and global oil production.
People need to realize that the Fed and Central Banks can’t raise interest rates because we don’t have a CHEAP GROWING ENERGY SUPPLY. Where do you all think the “Interest” comes from?? Do you really think interest on a loan or bank account comes out of THIN AIR?? It comes from a growing energy supply.
IMPORTANT: The Fed and Central Banks had to increase debt to continue growth. To get growth, you need a growing energy supply. To get a growing energy supply, we needed higher oil prices. To get higher oil prices, the Fed and Central Banks had to add a larger amount of debt. By adding more debt on top of more debt, INTEREST RATES had to fall because the service on the debt was unsustainable.
Can you imagine if the Federal Reserve and U.S. Treasury normalized interest rates? The annual U.S. interest payments on the debt would be over $1 trillion.. or more. How will this interest be serviced as U.S. oil production heads into the crapper??
You see, this sort of fundamental approach to forecasting in a peak oil environment can’t be charted using Technical Analysis. While I don’t know the date when the value of gold and silver will reset to substantially higher prices, it’s a matter of years, not a decade. Once U.S. oil production starts to fall precipitously over the next several years, this will put severe stress on the highly leveraged U.S. Financial Industry.
Lastly, the notion that we are going to see society continue to progress in the future is a lousy one indeed. I would imagine any ancient Roman wise enough to make this same prediction back before the Empire collapsed as the great city fell from a population of one million down to 12,000, would have sounded like a real KOOK.
I truly believe the world will be a much different place by 2025. This will not be due to technical analysis, but the fundamental peak and decline of U.S. and global oil production. Investors waiting for bottoms and corrections in paper assets via technical analysis will wish they spent more time focused on owning physical precious metals.
Please email with any questions about this article or precious metals HERE
Gold & Silver Prices Will Surge On Fundamentals Not Technical Analysis
Posted with permission and written by Steve St. Angelo, SRSrocco Report (CLICK FOR ORIGINAL)
Independent researcher Steve St. Angelo (SRSrocco) started to invest in precious metals in 2002. Later on in 2008, he began researching areas of the gold and silver market that, curiously, the majority of the precious metal analyst community have left unexplored. These areas include how energy and the falling EROI – Energy Returned On Invested – stand to impact the mining industry, precious metals, paper assets, and the overall economy.
You can find many of Steve’s articles on many noteworthy sites. Visit Steve at https://srsroccoreport.com.
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Thinking the idea further
"Do you really think interest on a loan or bank account comes out of THIN AIR??"
Yes I think you can earn valuable energy out of air - even thin air as long as it is fast enough.
"It comes from a growing energy supply."
A growing supply of renewable energy is coming.
Oil is just liquid, concentrated energy, its kilowatt-hours
Now convert the gross 1600 kilowatt-hours work of a barrel oil to an amount of earth moved to find gold, an then substitute for electrical work of digging machines.
You got this right: "Investors need to realize ENERGY DRIVES the markets, not FINANCE"
Again, Energy is not only oil, oil is at current levels just a still too expensive form of energy / work.
Figuring against nominal dollars is meaningless, when what you're mostly tracking is the inflating and deflating of a manipulated fiat currency rather than gold's or oil's equilibrium price. When gold was $35 an ounce and gasoline was 11 cents a gallon, in 1940, the average income was $1725 a year the average house price was $4000.
Rather than adjusting the dollars for inflation, however, I think it'd be more enlightening to look at barrels of oil against in ounces of gold.
Barrels of oil is not a good constant to compare Gold to...
If there is cheap money some of it will end up chasing oil and end up driving the ratio gold/oil down....
At some point when most of the sheeple are without work and they actually start to learn more of the greatest ponzi scheme ever invented ie FIAT, they will chase gold and the price in fiat to purchase gold will greatly increase.
Gold is Gold that will never ever change. but Fiat of all tpyes from all countries will always change and one day will always become worth what it is, paper and ink.
Remember all that gives Fiat purchasing power is the .gov gives it value by decree so the sheeple believe it is worth something. When the sheeple no longer believe the great ponzi is over.
Gold and silver do have value, but who the hell knows what that is these days? It doesn't matter if the silver I bought at $30 is worth $15 today. The fundamentals are the same today as they were back when the price was $30. Why? Because fundamentals, even a simple one like supply and demand, don't matter in a rigged market. Tell me when the artificial prices have gone away, and I'll tell you when fundmamentals start to matter.
I could give two shits about SRS Rocco, Sprott, Maloney, Polny, or any other fucking soothsayer. The bottom line is where do I put my money to try and preserve it generationally? Lets see...
Porter Stansberry told me to convert USD to AUD cuz they were goingto do fucking great! Fuck you PORTER!!!
Oh, Porter also recommended the CAD. DOUBLE FUCK you Porter!
Polny picks Shemitah dates like Harold Camping picked the end of the world...TWICE.
Stocks? Fuck no, HFT's ruined that.
Bonds? Fuck no, the Fed has ruined that.
Real Estate? Yea, so I can rent to America's deadbeats? No thanks.
FRN's? Yes but not all in.
Fuck Martin Armstrong and his gold bashing to push his computer "timing". His sheeple arent going to be able to find any when 'ol Marty says its time to buy. Marty says bullion will pop when the faith in government collapses...and we aint on that doorstep??
I choose gold and silver baby. Now. With continued dollar cost averaging. Never a doubt.
The only safe investment strategy at this time, metals, land, useful commodities.
Best Practices ?
BUY THE FUCKING DIPS, BITCHEZ.
'nuff said.
Fundamental to fundamental analysis is the calculation of which way the cash is flowing. In (buying) or out (selling).The poor writer and his true believers will certainly be right - eventually - but so far they are being clocked by missing this one most basic part of the equation. They have sat by watching their asset lose value week by week, month by month and year by year, while they could have had a much more financially rewarding time by paying attention to momentum which precedes and strengthens trends. Sitting with dead money and claiming you will win in the end is fine as long as you live to see it happen. Fundamental buyers who ignore the most basic of fundamentals are the cannon fodder for those follow the money.
The first chart says that gold is going to $600 (gold and oil track each other).
Dear Uncle, you may want to consideer that Avi and Steve are looking at fundamentally different timelines. Those who chase 'technical analysis' are trying to develop a sense of history by watching the second hand on their watch. Steve is looking at true fundamentals - the large cycles and trends which drive the advance of civilization. There are waves inside of waves in the 'market,' so Avi's use of technical analysis can shed some light on local and short-tem pump and dump movements driven by the algos, but it does not see the larger trends, so any significant move in the gold or energy market will come as a complete surprise to Avi. Both authors have something to say; your own investing horizon will determine which has value for you.
Sure, your timeframe determines your focus. But I am a believer that it's all in the charts - that's just my personal experience. There is a reason that "fundamentalist" is today a pejorative term (ha). Interesting that today there is output from Deutsche "macro strategists" (i.e. fundamentalists) stating the dollar bull will run another 2 years, now that we have the Fed lifting rates. And yet, if you look at the charts, the Euro, gold and silver are all rising from clear bullish setups - a weekly chart is not exactly short-term, we could talk monthly if you like. I trust my own eyes above all else.
Hmmm. The logic and thought progression in the following statement seem unassailable. But is this the issue concerning what technically drives the price of gold?
IMPORTANT: The Fed and Central Banks had to increase debt to continue growth. To get growth, you need a growing energy supply. To get a growing energy supply, we needed higher oil prices. To get higher oil prices, the Fed and Central Banks had to add a larger amount of debt. By adding more debt on top of more debt, INTEREST RATES had to fall because the service on the debt was unsustainable.
If the economy collapses (initially deflationary) because of lack of energy or the money velocity slows (deflationary) OR the moneysuddenly becomes worthless (hyperinflation), either way it seems gold will meander back to its time honored value of a man's suit, or 10 oz buying a modest car or the oil to run it. Nothing more, nothing less.
The other question I have is doesn't the number of people, now 7 billion on the planet, and not the amount of fiat circulating, change the RELATIVE scarcity of the metal- based on oz/ per person, (even assuming current production/reserves etc) and that this scarity will determinbe its actual value? The more people there are, the rarer it gets.
If the debt is all based on funny money, then it is or will be worthless in the end as all fiat currencies wind up being, and therefore what really matters I would think is the number of people who need a store of value/medium of exchange...assuming they are living above a standard which allows them to save or have anything beyond the bare necessities for day to day survival in the first place.
Based on this argument wouldn't population will be the purest techical driver for the price of gold?
Fundamentals, schmundamentals. While you are busy rubbishing the technicals, you are failing to notice that gold just put in a higher low last week while silver put in a lower low - retest setup, with positive divergence versus a correlated market - and has today taken out last week's high and so entered long.
Irony right there.
"Gold and silver prices will skyrocket in the future"
DOWNWARD, just like my neighbor's fireworks that hurtled earthward instead of up and caused a fire and a lot of damage.
The central banks' market manipulations and money creation
and the PM priest's & peddlers' gloom, doom, an apocalypse hype
are BOTH surreal cults with no basis in reality.
Let me guess, you're one of the trolls posting over at SilverDoctors?
I can understand why Mr. St. Angelo decided to give Avi Gilbert a bit of a dressing down. This article is an analysis of Mr. Gilbert as much as it is a great assessment of the markets. Steve St. Angelo definitely thinks outside the box most of the time, which is why his analysis is so enlightening and refreshing.
I have never yet seen an article written by Avi Gilbert that did not contain the words "I", "me", "my" at least 20 times. Normally you can find those words more like 35 times. And just for good measure, he throws in the condescending "you see..." a couple of times. It's sickening how egotistical that guy's writing style is. He seems to have the delusion that the entire world revolves around what he thinks or what he had for breakfast. The words "you see" are normally reserved for a great philosopher who is explaining why you fit into the cosmos the way you do... something we most likely have never realized before. "You see" should not be used by a writer who seems to think his audience is a bunch of 4th grade half wits who don't know what color gold is. It's just too darned condescending. So is the sentence "and if you have not learned that the hard way over the last 4 years, then there is truly no hope for you, or anyone you chose to follow." C'mon man... for your own good, step down off that pedestal. It's not a good idea to insult your readership, let alone all other authors of technical articles. Geez.
I'm sure Mr. Gilbert is a nice guy. I just strongly recommend that he go attend a few writing classes where one of the first things they'll teach him is "write about your subject, not about yourself".
End of rant.
eventually oil will go up again, if usd still exists, sooner or later 600$, they will need lots of plastic for building Google Cars.
What a joke this analysis tying oil to gold is........gold will act like any other commodity until you have a crisis in confidence, until then it will continue to see deflation just like any other.
Gold may have some commodity traits but it is MONEY this is what seperates it from all the other commodities.
How much does you 2015$ buy compared to your 2008$.
Nice shiny Christmas Presents.. and if you end up marrying her, it stays in the family.
and if she doesn't think it's a nice present don't marry her..
1980 gold = $612.56
1980 oil = $36.83
Oil has come back down to about that ... So gold needs to drop another $400?
Oil is down to $36 based on sheer manipulation. Over supply fed to an under demand. The Saudis are over supplying to kill us fracking. Gold is manipulated as well, and can be kept low as long as the paper trade is believed in.
The Saudis are over-supplying? Did you look at that chart showing u.s. crude production? It is up 1200% since 2009!
Given the glut in oil production versus fallen demand ( it's the economy .... ) versus the high demand for physical gold and the decreasing availability plus rising mining costs, I never believe the gold price to drop further. The COMEX is leverage next to 250/1 - each "owner" of "paper" gold actually owns nothing since there are 249 other "owners" for the same gold bar/coin. The paper gold market is a gigantic Ponzi scheme kept going by the bankers who depress the paper gold price - which is completely decoupled from a normal market price and this is done in order to avoid the shepple to understand that all their fiat holdings is just fried air.
Gosh that would be awesome. Then I could really load up. Interestingly silver is at 2:1 approximately as it was historically. Load up on silver and work the GSR.
Yeah... what their first chart, and gold/oil tracking statement, says to me as well.