September 18, 2013 | By Tekoa Da Silva
Following a few weeks of a returning decline in precious metals and mining share prices, Gary Savage, technical gold trader and publisher of the Smart Money Tracker, was kind enough to share an updated commentary. Gary’s trading calls have outperformed most of the world’s hedge funds during 2011 and 2012.
Here are his interview comments:
Tekoa Da Silva: Gary, a few days after the close on Aug. 27th, you made an outstanding call. On the 27th we had a day where the miners just collapsed, but gold I believe held firm or moved up that day; and you said, “Guys, I’m getting a funny feeling about this,” and recommended selling positions. Sure enough, gold and the miners got beat up again right after you made that call. How would you characterize the last few weeks Gary and what might they suggest going forward?
Gary Savage: Well, that day you’re talking about, that was a key reversal in the miners, and on that day, gold poked above that previous high at about $1425. So it made a higher high and then it sold off a little bit but it still ended the day positive. But the miners sold off on very heavy volume all day long and were down like three or four percent.
That just smelled fishy to me. It looked like the big money players had manufactured a breakout in order to unload their shares on retail traders that were buying these breakouts.
Boy did they unload and at that point, I just got a feeling that we were going to see the manipulation begin again and that these guys were going to try and take down gold again. My guess is that they’re going to try and take it back down to the prior C-wave top at $1030 before they allow the natural forces to resume and the cyclical trend to get back in force.
TD: Gary, when we talk about manipulation here, I know that parts of our community believe manipulation is used to discredit gold as money and provide a better perception or visual appearance for the paper currencies. But when you talk about manipulation here and now, and throughout 2013, what is the purpose of this type of manipulation as you see it?
GS: Well Tekoa, I don’t buy the currency manipulation theory, the Fed is free to print as much paper money as they want. It doesn’t matter one bit to them what the price of gold is.
Gold has gone from $250 to $1900 and they’ve been printing willy-nilly the whole time. So gold is irrelevant to the central banks. But it is in a bull market, a secular bull market because of that printing.
But in terms of the manipulation–as far as I can tell, all the corrections up until about 2013 looked normal to me for a regular bull market with periodic profit-taking events. It all looks normal. Sure, you get some short term manipulation around options expiration but nothing really looked out of the ordinary to me until we got to the QE 4 announcement in December, when basically everything in the world started going up as it should when the world has been flooded with liquidity except for gold.
Gold was driven back down below $1700 and it was held there while the dollar dropped down into an intermediate cycle low, very unusual behavior; and then an obvious manipulation to run those stops right below $1520.
I think it was a 400-ton dump in the middle of the night to run those stops which of course gives you a waterfall decline when that kind of a major level gets broken and then even more blatant manipulation when gold should have bottomed. But there were several days – like a whole week period when gold would break above $1400 strongly, and the following day, they would push it back down again. Then we got another waterfall decline into June, and with that June bottom, I think at that point, they had already stretched the intermediate cycle to 33 weeks and keep in mind this is a cycle that normally runs 20 weeks.
So at that point I think the shorts covered and they positioned long and then the miners were revalued by 40%. But I think now they’re at it again. I think they’re going to try and drive this down to that prior C-wave top before they covered their shorts and allow the secular trend to resume. They may not make it down that far if they further damage the supply-side fundamentals–but I think they’re going to try.
TD: Gary, in June a lot of people pointed out the $1179 level as being a potential bottom of the market. So are you saying now that maybe for a short period of time, that level could be broken?
GS: Yes, and I was one of those people who said that was a bottom and it was an intermediate bottom. But I’m extremely nervous now. Gold broke its intermediate trend line last week and I’m extremely nervous that the intermediate cycle topped after nine weeks which means it’s a left translated intermediate cycle that should give it plenty of time to go down and test that $1179.
If it gets anywhere close to that, we’re going to see another hit in the overnight market or premarket just like we did last Wednesday and they’re going to break that $1179 level and when they do, gold is going to waterfall decline right down to that $1000 level and I think that’s the level where they will cover their shorts and the long term buyers will buy and hold and that will be the final bottom before we start either another C-wave or in my opinion probably the bubble phase.
TD: Gary, if we were to test that $1000 area, how quick could that happen and how quick could it recover in your opinion?
GS: Well, I’m of the opinion that it’s going to happen. I mean – the manipulation has begun again. We saw it last week. It’s pretty obvious it started. So I’m assuming that we are going to test that $1179 low during this intermediate cycle which should have about another nine or ten or eleven weeks to run yet.
Like I said, if they get it anywhere close to there, you can bet your bottom dollar we’re going to have another overnight hit that’s going to break that and people are going to wake up in the morning with their stops triggered.
So I think we’re going to get that bottom sometime this fall, maybe within the next eight to ten or eleven weeks. We will get that bottom at the $1000 level – they’re shooting for it. I think there’s a pretty good chance they’re going to make it, so that’s where I would go in and back up the truck because I think that’s where the shorts will cover.
So far they haven’t stopped the secular bull market but I think they are still trying to manufacture a much lower entry for what will probably be the bubble phase. It would have occurred naturally, and had it done so, I think the natural bottom would have come in last summer at $1550.
The profit potential starting at $1000 as opposed to $1500 is multiples bigger. If you’re going to go to $5000 and start at $1000, well, you’re looking at a 400% to 500% gain as opposed to starting at $1500, where you’re looking at a 300% gain.
TD: So numerically speaking, how would you see the rest of the bull market playing out? We’ve talked in the past about this setting up the bubble phase. Would that potentially be around $3000 to $5000 oz. gold or more from a technical basis?
GS: Well, my original feeling was that the bubble phase would probably go to somewhere between $5000 and $7000 an oz. but they’ve damaged the supply side fundamentals. They damaged them severely with this manipulation and what typically happens is the more severe the manipulation is and the more artificial the move is, the more violent the move will be in the other direction when the artificial market is broken.
So this has been a severe event over the last year and they have really damaged the supply side in gold. So now, I’m thinking we could see $10,000.
TD: So when you say they’ve damaged the fundamentals, my first thought is that means the bull market is impaired in some way. But what you’re saying is that it’s just going to exacerbate the upside move because of what has been happening, all the gold being shipped to Asia and so forth. Is that right?
GS: Exactly. We’ve shipped off a lot of physical gold we don’t have anymore. We’ve got a lot of mines that are probably going to go out of business, sort of shut down projects. So the supply side is going to be severely damaged because of this.
This is all going to have an impact when the manipulation stops or when the fundamentals finally overwhelm it and like I said, I’m not completely positive they’re going to get it down to $1000 but I’m pretty sure they’re going to try.
TD: Gary, in looking out over the next few weeks, are there any key signals, key movements, or price targets that you’re going to be watching for that people should keep in mind?
GS: Well, it took quite an effort for gold to break through the $1350 resistance zone and they pushed it back below it in the premarket late last week, so they made sure the stops were run before people got up in the morning.
My guess is that gold is probably going to continue down into the FOMC meeting and maybe even into the options expiration on Friday, and then we’re going to get some kind of bounce out of the daily cycle low. But I kind of expect it’s not going to have enough strength to get back above that $1350.
When we broke that intermediate trend line on Thursday, it took out all the technical buyers. None of those guys are going to buy now. So they took out a lot of buying potential with that break. So I suspect we may go up and test $1350, but I think it’s probably going to roll over and head back down and I think we’re headed to $1000 over the next eight to nine weeks. It would be my best guess.
TD: So what might be a reasonable game plan for the next few weeks for people reading?
GS: Like I said, the intermediate cycle should bottom somewhere in the next eight to ten weeks. So I would just wait until we get to that intermediate bottom and buy as close to that intermediate bottom as you can and if they can get it down to $1000—load up the truck.
TD: Gary Savage, technical trader and publisher of the Smart Money Tracker daily gold commentaries, thanks for sharing your comments.
GS: Anytime Tekoa, thank you.
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Tekoa Da Silva
Bull Market Thinking