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Financial
Market Update
Thoughts of
a gold & silver bull in the dog days of summer
written Aug
11, 2004
Edward Gofsky
[Editor's
note: FYI Eddy Gofsky is only 26 years old. And if Schultz and
Russell can be referred to as Gold Geezers we thought it appropriate
to call Eddy a Gold Teether.]
Since my last essay in May I have been watching all markets,
DJIA, gold, silver, USD, oil, interest rates, housing, and the
bond market. I have been looking to see if any of these markets
break hard either to the upside or the downside and to see where
my technical analysis on these markets stands since May.
As I said before it looks like the February top in the DJIA will
stay at 10,753 making that a wave 2 top in Elliott wave analysis.
With the 4 year cycle and Bob Prechter's 3.3 year cycle and the
40-80 week cycle not to mention the presidential cycle all pointing
down hard into year end and beyond until fall of 2006.
The current diagnosis for the general market is very bearish.
One of my favorite
financial authors Jim Willie of GoldenJackass.com is famous for calling
economists "political apologists for their brokerage
houses and government agencies" and I 100% agree with him!
Fridays Horrific jobs number is a perfect example of the uselessness
of most economists on Wall Street and the government.
On Friday (6th) in the United States, economists were calling
for a gain of 240,000 jobs for July, which would mark an improvement
from Junes disappointing additions of just 112,000 jobs. Economists
everywhere were calling and some secretly praying that the number
would be a big one. Here is a quote from Avery Shenfeld, a senior
economist with CIBC world markets "We share the general
sentiment the June's aberrant weakness (in employment growth)
will be followed up by better numbers for July." I would
like to know how Mr. Shenfeld felt after the jobs report stated
an increase of only 32,000 jobs in July.
On CNBC you could hear the oxygen getting sucked out of the studio
as the talking heads and their guests gasped as they were blindsided
by the jobs numbers and were left sitting in front of live cameras
looking like children and someone had stolen there lollypops!
After the jobs number was released the major markets fell hard
and the U.S dollar fell even harder. Gold was up strong on Fri.
getting over $400, I think people are starting to finally see
where me and a lot of the other contrarian investors have been
coming from when we talk about the secular bear market and the
rally from the Oct. lows as only a bear market rally and not
a new secular bull.
Don't be fooled by the Wall Street charlatans and witch doctors
who preach about the coming bull market in tech and biotech,
the end of the gold rally, and new bull market highs in the DJIA
very soon. I am sorry to tell all of you but that is simply not
going to happen! A bearish view could be highly profitable for
short sellers and put buyers going into the fall of 2006 the
next date of the 4 year cycle bottom.
Gold and silver have struggled over the last few months but have
held up well, gold exploded on Fri. (6th) up $7 closing just
under $400. Silver bottomed in early April at $5.50 which from
the chart below is a near perfect wave (2) bottom and the start
of a massive trend channel. The next big move in silver over
the next year should be a massive wave 3 rally over $10 an ounce.
As you can see from this chart on silver the move from August
2003 to March of 2004 was a perfect 5 wave pattern (As
I say in every single essay that I pen all readers must buy a
copy of Robert Prechter's book (Elliott Wave Principle) so you
to can learn the wonders of Elliott wave analysis.
Here is a great example of a stock that has a near perfect Elliott
Wave count. Notice the fractal nature (patterns within
patterns) of the stocks movements. Can you see the waves within
waves? It's so easy. This is a chart of (UEX) a small uranium
company.
I am very bullish on uranium and I consider it "THE ENERGY
PLAY OF THIS DECADE" and I will be talking a lot about it
in my next essay. For those of you that want to get some great
info on uranium, you can go to www.cameco.com
This first
big move in silver was only the start of a massive bull market
move that most people, even in the silver community can not yet
believe. One of the best parts of Elliott Wave is to find big
channel formations early in the stocks movements, so you can
try to predict what kind of move might occur in the future and
try to profit by that pattern in the stock's price.
So as you can see in the silver chart the first big up move was
only wave (1) and the April $5.50 low was wave (2). Silver now
stands in the mid $6 range and has formed a nice channel that
gives me a clear view of a coming wave (3) up move over the next
year. A break below the wave (2) bottom at $5.50 would mean a
revaluation of the wave count. Final wave (3) conformation will
be made when the wave (1) top is surpassed some where close to
the $8.50- $9 level.
Gold after
hitting a high of around $430 has struggled hitting a low of
$375 on May 10, but has since moved to the $390 range, closing
just under $400 on Friday. The movements in gold are for now
tied to the U.S dollar and since the dollar has had a little
bounce gold has taken a breather (until Friday's jobs numbers
were released). Some of you out there have heard a lot of talk
about gold and the dollar and some commentators have actually
said that the bull in gold has ended and the dollar will rally
hard. Really?, Is that so?, I say to myself laughing out
loud as I read the work of either really under educated people
or people paid to be bearish on metals analysts.
People can talk all they want about the short term movements
of gold and the dollar but for me I am a raging bull on gold
and silver, not because I am a gold and silver bug and I pray
to my silver bars and coins at night, but because the U.S.A
is in a massive problem fiscally and monetarily, and the main
reason is that there has only been 3 times in the last 100
years where if you would have bought gold and gold stocks and
silver too, you would have made a killing in the markets possibly
bigger than anyone can imagine today even after the dot com
boom that saw stocks go from pennies to hundreds of dollars per
share.
Below is a 20-year point and figure chart of gold. This chart
is extremely bullish as it shows that gold has formed a huge
12-year head and shoulders bottom pattern. The red line in the
chart is the line from the 1980 $850 top in gold. So as I look
at this very bullish 12-year head and shoulders bottom breaking
through the long term downtrend line I can only be very excited
about the future price of gold in this decade.
The 3 best
times, only times, in the last 100 years to buy gold and gold
stocks were 1929, 1966, and 2000. All of these dates were major
tops in the DJIA and major bottoms for gold (generational bottoms).
As you can see from the chart below (from a great web site CyclePro.com
by Steven J Williams) after hitting those 2 highs in 29 and 66
the DJIA/gold ratio (which to me is nothing more than the very
best gold buying indicator ever, hands down) fell hard and bottomed
only when you could buy the DJIA for 1 or 2 ounces of gold. (In
1980 for a very short time the DJIA was 800 and gold was $800
for a perfect 1 to 1 ratio) Today the DJIA/Gold ratio is at 25
so we have a long way to go in this bull market for gold and
silver (Silver will be dragged along even if kicking and screaming
to new all time highs with gold) this chart alone could be all
you need in this bull market for gold and you can just buy gold
coins and bars and gold funds and stocks and just watch the bearish
gold analysts panic as the DJIA/Gold ratio shrinks down under
10 in the years to come.
So here are
some charts of gold and gold stocks to see if this bull markets
in gold is over or in my opinion is just getting started. This
first chart, from one of my favorite web sites (contrarianthinker.com) is one of the best
gold charts I've seen; it's a perfect Elliott wave pattern for
gold from the 1971/1972 bottom to the wave 3 top in 1980 and
the very long wave 4 correction until 1999/2000 (which also happens
to coincide with the DJIA/Gold ratio top and major gold buy signal).
This chart is showing me that gold has formed a near perfect
channel and that the 20-year generational bear market (I am 26
so gold and silver have basically gone down my entire life, until
just recently, lucky me hey!) is over as wave 4 has finished
and we are now in the very early stages of a massive wave 5 rally
to new highs in the coming years 2006-2012 as the chart indicates.
Also you can
see that at the wave 4 bottom the price of gold briefly dipped
below the price channel just as it did back in 72. So you could
interpret this as the best buying opportunity for gold and silver
since that last major generation bull market in the metals in
the 1970's (I know I do!).
The following are a bunch of gold and silver stock charts going
back as far as I could get them for the only picture that really
matters (THE BIG PICTURE). As you can see these stocks have barely
moved and there is someone buying a whole lot of these shares,
like they know something that most, if not 90%, of the population
does not know. And what is that you might ask me? The answer
is obvious to me, someone knows that gold and silver and the
companies that mine them and own huge reserves of the
metals are the buy of this generation. Take a look for yourself
at these awesome charts below.
As for interest
rates and the bond market, I really don't think Greenspan
wants to raise rates so close to the election (especially after
Friday's jobs numbers). But after the election is a totally different
story! As I have said in most of my essays, the U.S.
is bankrupt and is only allowed to keep its head above water
by selling bonds to Japan and China and by printing billions
of dollars to fund the twin defects. I could talk all day about
why the dollar is going to hell in a hand basket and why the
U.S. government is totally financially bankrupt but I
will spare your time and just tell you that you have to read
the book (The
Dollar Crisis)
by Richard Duncan. In the book the author meticulously paints
a very bearish picture for the dollar using nothing but cold
hard facts and the only thing that really matters, the truth.
The integrity of the dollar is and will come into more question
as 2004 rolls on and into 2005.
The only way that the Fed thinks it can get out of this mess,
and really the only politically expectable way, is through massive
printing of dollars to pay off foreign debts and stop a total
run on the dollar. Having deflation (a contraction in the supply
of money and credit) at this time in American history would be
a major disaster and totally unacceptable in Washington and the
White House. So the only choice is to fool the population and
secretly tax them though the gross means of hyperinflation.
People ask me all the time why I am so bearish on the dollar
and the major stock markets and why I am so bullish on gold and
silver. Well let me tell you just one of the many reasons that
I am bullish on the metals and bearish on the dollar and DJIA,
I believe a lot about demographics and that the baby boomer generation
is a major force, a massive wave if you will that drove the boom
and accumulation a debt from 1980 to 2004 and that is what really
drove the bull market, and the rush to get rich by buying paper
(stocks and bonds). As you read the essay below from Laurence
Kotlikoff (professor at Boston University) you too will see a
historical case of something that is very ironic, the baby boom
generation will in the end be called the baby bust generation.
All the books that came out in the late 90's to help explain
why the DJIA was going to 25,000 then to 100,000 because the
largest ever generation, the baby boomers would have to buy stocks
forever to fund their retirements and to help each and
everyone of them get rich was a total con! Anyone remember that
little book "The Roaring 2000's?"
You heard it here first but I believe that the big baby boom
will be remembered in history books as the great baby bust, and
that whole generation will be despised by their own children
following their massive retirements starting in the later
part of this decade as the stock markets and the dollar are crushed
into an abyss of disbelief as the children of the boomers realize
that they where fooled and blinded by a fog of deception, and
are forced to pay the debts of their parents'their
extravagant party from 1982 to 2000. For anyone wanting a great
understanding of what is to come in the later part of this decade,
please read the book (Rich
Dad's Prophecy)
By Robert T. Kiyosaki.
Like I said from the title of my essay, I have been thinking
a lot lately about the dollar and especially gold and silver.
I love writing about the markets as it helps me learn and I love
to share my passion for the markets with like-minded
people. I tell people all the time that I don't day trade and
I look at the bigger picture and I just sit and wait for the
patterns that I see develop in the stock charts to complete themselves
and then I SELL! That is what I believe is the best way to invest
and not to give money away through commissions, slippage and
taxes.
Just remember that in 1975 in the last bull market in gold and
silver as the DJIA/Gold ratio was working its way to
a 1 to 1 ratio you could have bought gold and silver stocks at
pennies or a few dollars and sit tight for 5 years and not do
a thing until 1980 when you got the big sell signal of the under
5-1 ratio of gold to the DJIA and sold all of your gold and silver
stocks for hundreds of dollars per share, some as high as $500
per share from $1 or $2 dollars only five years earlier as gold
fever ripped through the financial markets worldwide.
So as I finish this essay I want to share with you something
that I have been thinking about all summer, one of the best articles
that I have ever read, explaining what is wrong with the U.S
government and what is going to happen to the dollar, gold, silver,
the DJIA, and interest rates going into the future as this decade
rolls on. Here is what Mr. Kotlikoff has to say.
"Countries
that can't cover their spending with taxes or via further borrowing
are forced to do so by either printing cash or creating money
electronically. And more money chasing the same goods ultimately
means higher prices. Like other governments, ours engages in
a sleight of hand when it makes money by making money. In creating
money to cover expenditures, Uncle Sam has the treasury sell
bonds for the needed amount to the public, and then the Fed buys
the bonds right back with either fresh cash or an electronic
bank credit.
The result is the same as if the Fed simply gave the treasury
the money directly. If a country's fiscal gap the difference
between its planned future spending (including debt service)
and its projected future taxes is massive, the government
will eventually have to really crank up the manual and electronic
printing presses to cover the difference. At that point, something
extremely scary can happen: HYPERINFLATION.
But can't the Fed always raise interest rates a lot to keep inflation
in check? Nope. When the Fed is faced with a choice of (A) defaulting
on Federal government debt and failing to pay critical bills
like Medicare and Social Security or (B) printing money, it has
to go with (B). And by so doing, it creates a nightmare scenario:
Interest rates, out of the Fed's control, now reflect the prevailing
inflation rate, which in turn is determined by the rate on new-money
creation, which itself is on autopilot.
The reason interest rates reflect inflation is that lenders need
to be compensated for implicit default (ie, paying creditors
in watered-down dollars). Hyperinflation is a real and present
danger for the simple reason that the U.S government is effectively
bankrupt. Its fiscal gap is $51 trillion, when measured as a
present value. That's 11.6 times official debt, 4.5 times GDP,
and 1.2 times private net wealth.
Coming up with $51 trillion without a printing press would require,
immediately and permanently, either hiking federal income taxes
78%, cutting Social Security and Medicare benefits 51%, or eliminating
more than 100% of federal discretionary spending.
That is America's menu of pain.
When investors around the world wake up to U.S insolvency, it
will be extremely expensive for our government to borrow. The
only option then will be printing huge sums of money generating
exactly the hyperinflation the bond market has decided to expect.
Sharply higher interest rates would be bad for stocks. When rates
rise significantly, growth stocks are worth less because the
market puts a lower value on the discounted stream of their future
earnings. Why would you want to own a stock with earnings growth
of 10% a year, with all that risk that stocks entail, when you
can put your money in short-term treasuries yielding almost as
much? Consumers are indebted to an almost unnerving degree. In
1993, household debt amounted to 80% of after tax income;
today that figure stands at 110%.
In the early 1950's owners1 equity as a percentage of household
real estate was around 80%. Today it's 55%. What happens if rates
climb suddenly and depress real estate prices? And of course,
rising rates could also crimp the housing market by making homes
less affordable. Moderately higher interest rates will probably
be returning for the foreseeable future.
Laurence
Kotlikoff (Economics professor at Boston university and co-author
of "The
Coming Generational Storm"), FORTUNE MAGAZINE, May 17, 2004"
That is a great
piece of work and it really hits home why everybody needs to
have gold and silver in their portfolios as this decade and the
early parts of the 21st century move forward.
Mr. Kotlikoff will be on Jim Puplava's great radio program (Financial
Sense Online)
on August 14 and I highly advise everyone reading this essay
to tell everyone they know to listen to the radio show every
week as I do and especially on Aug. 14 where Mr. Kotlikoff will
go through all the reasons for a great dollar bear and why the
government and the Fed are in behind the 8 ball.
Let's take a good look at two bankrupt entities, Enron and the
stock of the United States, the U.S. dollar, and see if the price
patterns in those stocks technically show massive bankruptcy.
As you can see from the charts, the price patterns are very similar,
the numbers on both charts are not Elliott wave counts, but are
there to help people see how close the movements are in charts
with a similar psychology.
So as you can
see in both pictures, there is a 4 wave movement followed by
a very bearish head and shoulders top (the exact opposite of
the ultra bullish head and shoulders bottom pattern). This then
leads both charts into a massive decline that still continues
today.
These are just some of the thoughts of a gold and silver bull
in the dog days of summer, I look forward to sharing with you
more thoughts and essays as this gold and silver bull
continue throughout this decade.
The pieces are in place for a massive move in both gold and silver
and it will only be realized by the investors with enough foresight
to see the pieces of the puzzle that are already in place, all
you need is a strong willpower not to listen to CNBC
and the undereducated market analysts who still believe that
gold and silver do not matter in your portfolio and a new bull
market in the DJIA and the NASDAQ is right around the corner.
With the dividend yield on the DJIA at 2% and the P.E ratio at
21 don't believe it.
I can not finish my essay without a comment on oil. I am fascinated
with oil and all the drama surrounding the history of oil and
how it is so interwoven into everything in our economy to everyone
in Washington, the white house, and the Middle East. Oil simply
is the most important commodity on our planet.
In my last essay in May when the price of oil was under $40 dollars
a barrel I had a nice point and figure chart showing a price
projection of $57. Well, since May the price of oil has moved
up to over $44 dollars recently, shocking a lot of people from
Washington to Wall Street. Most people hear all day long that
the price of oil is hitting record highs but this is not true
if you adjust the current price of oil for inflation. Looking
at the chart below, you can see that at current prices oil has
a lot more upside if you use inflation adjusted prices.
After reading
and listening to a lot of oil experts talk about the future of
oil and the future price of oil I am convinced that we are at
the threshold of a new paradigm in the oil markets that will
lead to much higher prices throughout this decade. As Richard
Hienberg said [look] in his now-famous
book "The
Party's Over."
The world is about to change dramatically and forever as the
result of oil depletion. Within a few years, the global production
of oil will peak. Thereafter, even with a switch to alternative
energy sources, industrial societies will have less energy available
to do all the things essential to their survival. We are entering
a new era as different from the industrial era as the latter
was from the medieval times2.
And David Goodstein in his awesome book "Out
Of Gas"
said. "Over the past century, we have developed a civilization
firmly rooted in the promise of an endless supply of cheap oil.
That promise is about to be broken, much sooner than most people
realize, possibly within this decade. Anyone who remembers the
temporary, artificial oil shortage of 1973 can guess what will
happen when the oil really starts to run out."
Anyone of you reading this essay that is interested in Oil needs
to read these 2 books first to get a full understanding
on why Oil is moving much higher as this decade rolls on. Below
is my point and figure chart of Oil (stockcharts.com) and under
that is my longer term chart showing a massive head and shoulders
bottom pattern that is extremely bullish.
As the summer
rolls on into the presidential election I will be keeping a very
close eye on all markets and will be reporting on anything that
I feel needs to be talked about. Of course I will be
writing my essays every few months to keep my readers up to date
on where I stand in the markets, how the chart patterns are progressing,
and to watch with me as this decade continues, the coming historical
rise in gold and silver as the dollar is turned upside down into
a vast fog of uncertainty and questionability.
I love talking with fellow investors from around the world, so
if you have any questions or comments you can contact me at eddy_gofsky@yahoo.com.
August 11,
2004
Edward Gofsky
Email: eddy_gofsky@yahoo.com
Edward Gofsky
lives in Vancouver B.C, Canada where he studies Elliott Wave
Theory and Classical Technical Analysis.
Copyright ©2004
Edward Gofsky. All Rights Reserved.
Books mentioned
in this essay
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321gold Inc
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