I believe that there’s a relatively high probability of another big move in the precious metals sector is coming. The charts of gold and silver are starting to look bullish again after the sharp sell-off in the sector that started on January 5th. This technical back-drop is supported by the incoming Presidential administration’s professed willingness to accelerate the level of Federal deficit spending, something which can only be facilitated by a large increase in the Fed’s money printing agenda which currently stands at $120 billion per month.
In the table above (goldsilver.com), I would toss out the 1985-1987 and 1992-1996 numbers because the precious metals were still mired in a secular bear market. I would also consolidate the last two line items into 2001-2011. In doing that, the average ROR for silver for a secular bull cycle is 720%. Silver ended 2015 just below $14. Late December 2015 is when the current secular bull cycle began. Applying an average bull cycle move of 720% to silver, it would imply the potential for silver to run as high as $100/oz. Using a gold/silver ratio objective of 30, it would imply a $3,000 price target for gold.
In terms of the potential duration for this current secular bull cycle, recall that Paul Volcker ended the 1970’s cycle, which really went from 1971-1980, because he had the luxury of jacking the Fed funds rate up to 20%. The current Fed does not have that option to curtail the coming high rate of inflation by shutting off its printing press and hiking the Fed funds rate without completely decimating the economy and crashing the financial markets. In short, the current bull move is just getting started relative to the 1970’s and 2001-2011 cycles.
To be sure, the calculus above is just one of many methods to project a price objective for silver and gold. Without question, both metals could, and probably will, move much higher before some type of reset occurs that reincorporates gold and silver in the global monetary system.
It’s also worth noting in support of a bullish view for gold and silver that, in addition to India’s relentless import demand for physical gold, China – based on price premiums reported on the Shanghai Gold Exchange – has resumed steady gold importation after an 11-month unexplainable hiatus. Note: I get my data on India and China from John Brimelow’s Gold Jottings report. It’s quite expensive but worth it for anyone who manages precious metals money or writes newsletters.
Make no mistake, the sharp sell-offs that have hit gold and silver recently, are purely a product of the manipulation that occurs in the gold/silver paper derivatives market. This is why gold and silver tend to move higher during eastern hemisphere trading hours and are sold back down during London/NYC trading hours.
That said, I am confident that transition of U.S. monetary policy into “Modern Monetary Theory,” which is based on limitless Government spending and Central Bank money creation, combined with voracious demand for physical gold and silver primarily in the eastern hemisphere, will forcefully push gold, silver and the mining stocks considerably higher over the next couple of years.
Earlier this week the Hulbert Gold Newsletter Sentiment Index went negative, dropping 12.51 points to -3.13%. The HGNSI is a reliable contrarian indicator, though it does not impart information on the timing of a contrarian move. When it goes negative, it means that more newsletters that include precious metals sector forecasts are recommending shorting the sector. As an example, on Tuesday the HGNSI went negative and the next day GDX jumped over 3%. In addition, the charts for gold, silver and mining stocks are starting to look bullish after the sharp sell-off that started earlier this month.
The above commentary is from the latest issue of the Mining Stock Journal. The next big move in financial assets will come from the mining stocks. Mining stocks offer potential wealth enhancement through exposure to the “optionality” upside of pric gold and silver prices. If you would like some ideas for investing in mining stocks, take a look at my Mining Stock Journal.