Precious Metals Give Traders Another Opportunity

Chris Vermeulen

We know many of you follow our research posts and have been waiting for the Gold/Silver setup we predicted would happen near April 21~24, 2019 back in January 2019. Well, it looks like our predictions were accurate and the current downward price rotation in Gold/Silver are the opportunities of a lifetime for precious metals traders.

Our original research regarding the predicted Gold price rotation and breakout initially posted in October 2018 and was updated in January 2019. You can read our updated post here.

This research suggested, back in October 2018, that gold would rally above $1300, then stall and setup a momentum base near April 21~24, 2019. Currently, we are actively seeking entry positions in Gold, Silver and many other stock market sectors related to the metals and miners.

We’ll start by highlighting the Gold to Silver price ratio. When this ration moves well above 80, it is generally considered a long term buy trigger. The reason for this is that this ratio attempt to reflect the price of Silver to the price of Gold. When this level reaches above 80, it traditionally reflects an extremely cheap price ratio for both Gold and Silver and usually prompts a big price advance in the near future.

Taking a look at historical price moves for both Gold and Silver, we fall back to the big upward price advance that began after the 2009 market crash. One thing that all traders and investors must understand is that, currently, Silver presents an incredible opportunity for bigger returns than Gold. Yes, Gold will likely rally higher and provide an incredible opportunity for upside gains. Yet, historically, Silver begins to move a bit later than Gold does and the upside potential of Silver tends to be 40~70% greater than the upside potential for Gold.

Take a look at this comparison chart, below, of the 2009 to 2011 price move. Gold shot up nearly 100% – as shown on the chart. Silver shot up over 150% when the breakout move happened a bit after the Gold move started. We expect the same type of price advance pattern in the near future. We expect Gold to begin the move higher and Silver to lag behind this upside move a bit – possibly for a few months. Eventually, Silver will break to new multi-year highs and could rally 130% to 220% above current levels – possibly higher.

Over the next few months, we believe increased volatility in the US stock market may drive prices a bit lower as price rotates near all-time highs. We believe this rotation, coupled with foreign market concerns (think Brexit, Europe, China, South America) as well as the US Election cycle may cause the markets to enter a period of stagnation and sideways trading. These impulses may become a catalyst for precious metals to break recent highs and begin an upward price advance as a general increase in FEAR settles into the global markets.

We do believe Gold and Silver will likely move a bit higher over the next 30+ days as the US stock markets continue to push higher towards new all-time highs. Yet, if the volatility increases, as we expect, and a bigger price rotation takes place (see the chart below), we believe Gold and Silver may experience another price drop to near or below current levels before a massive upside breakout move begins. Historically, the price of Gold contracts throughout the initial price correction phase of the S&P500 and begins to accelerate upward near the end of a correction phase. This is because investors and traders are typically shocked to see the correction take place and move into a protective mode as true fear sets in. When fear subsides, traders move out of precious metals and back into stocks.

Our current expectations are that Gold will continue to push lower, below $1275, in an attempt to establish our April 21~24 momentum base. This base should be at or near ultimate lows for the price of Gold and we would expect a pennant or sideways price channel to complete this bottoming formation. Ideally, any price move below $1250 is a gift for skilled traders. We’ll just have to wait to see where this bottom sets up before we know just how low Gold will fall before the next leg higher.

We believe the next upside price leg in Gold will push prices above $1400 initially, likely in May or June 2019. After that peak is reached, we believe a period of rotation and a potential for a price decline is very real. We believe this next leg higher will really to levels above $1400, then price will stall and retrace – possibly retracing back to levels below $1300 again. It would be at that point that skilled traders should consider this the last opportunity for long entries before the bigger move to the upside.

Our research into this move, which initiated back in October 2018, has called these rotations almost perfectly. If our newest research is correct, you will have at least two opportunities to enter fantastic long trades in Gold and Silver, one setup hitting between April 21 and April 28 and another setup after the initial upside price rally retraces (likely in June or July 2019). After that last retracement, we believe the bigger upside rally will begin and both Gold and Silver will initiate a rally that could be an opportunity of a lifetime for skilled traders.


The wisdom of José Carlos Mariátegui

The Latin American left should rediscover the Peruvian thinker’s pluralism and creativity

HE DIED AGED just 35, disabled for his last six years by the amputation of a leg. But in his short life José Carlos Mariátegui managed to become Latin America’s most influential Marxist thinker, at least until Che Guevara came along.

Barely known today outside Peru, he also played a significant role in Latin American culture in the late 1920s, a period when artists and writers were trying to establish national identities based on the recognition of mestizaje (racial mixing) and of workers and peasants. An exhibition, currently at the Reina Sofia museum in Madrid and then bound for Lima, Mexico City and Austin, Texas, introduces Mariátegui to a broader audience while establishing him as a cosmopolitan figure at the hinge of revolutionary politics and artistic vanguards. It offers lessons for the region today.

The child of a mestiza mother and an absent aristocratic father, Mariátegui was an autodidact who became a journalist and writer. Exiled by Peru’s authoritarian regime, he lived in Europe from 1919 to 1923, mainly in Italy and Berlin. He attended the first congress of the Italian Communist Party and was influenced by its founder, Antonio Gramsci, whose thought was a bridge between liberalism and Marxism and who stressed the importance of culture. Mariátegui was introduced to a profusion of European artistic movements, including Italian futurism, Dada and surrealism.
He returned to Peru “with the idea of founding a magazine”, he wrote. That idea came to fruition in 1926 with Amauta (“wise one” in Quechua), a political and cultural journal. Mariátegui was never dogmatic or narrow in his interests, and he wanted Amauta to analyse the problems of Peru “in the world panorama”. The first issue contained articles by Sigmund Freud and George Grosz, a German artist, as well as reports on political developments in Spain and Mexico. It included illustrations by Emilio Pettoruti, an Argentine cubist, and José Sabogal, a Peruvian artist who created Amauta’s modernist design.

In his writings, Mariátegui developed a distinctive revolutionary vision, which he briefly tried to put into practice when he founded the Peruvian Socialist (ie, communist) Party in 1928. Peruvian (and Latin American) socialism should not blindly copy European models, he thought. Rather, it should put the “problem of the Indian”, and thus land reform, at its heart. He believed that the Amerindian peasant communities of the Andes contained the germ of socialism.

This romantic view set him on a collision course with the apparatchiks from Moscow, who took over Latin American communist parties shortly after his death. But Mariátegui was right in stressing indigenous peoples, popular religiosity and culture in Latin America’s political identity. He was unusual, too, in counting many women among his collaborators.

The exhibition highlights the loose continental network, with ties to Mexico and Argentina, to which Amauta belonged. It includes art by Diego Rivera and other Mexican muralists. But the visual highlight is the work of Peruvian “indigenist” artists, such as Sabogal and Julia Codesido, who painted portraits of Amerindian elders and scenes of Andean community life. Indigenism was seen as archaic compared with the revolutionary commitment of Rivera. But it endowed its subjects with dignity, and Mariátegui defended it. “The emergence of indigenism represented a radical upheaval that is hard to imagine today,” writes Natalia Majluf, the exhibition’s co-curator and the outgoing director of Lima’s Museum of Art.

Mariátegui was wrong about big things. It is capitalism, not communism, that has freed billions from poverty. But in the aftermath of the first world war and of the Russian and Mexican revolutions, and having seen the failure of liberalism to prevent Italian fascism, he was not to know that. What he saw was that in Peru a century of political independence and creole capitalism had not freed the Indian from near-serfdom.

Mariátegui was a committed socialist who also managed to be a free thinker. That makes him valuable today. Much of the Latin American left is blindly obedient to the failed models of Cuba and Venezuela, or still beguiled by populist caudillos (for whom Mariátegui had no time). It desperately needs some of the original thinking of the 1920s. For the right, “Gramscian cultural Marxism” is a new bugbear. They should recognise that Latin America suffers unacceptable inequalities based on sex and race, and needs more tolerance.

Look for Gray Rhinos, Not Black Swans, in China’s Financial Zoo

The main risk to the country’s financial system is the threats everyone knows about

By Mike Bird

Widely known flaws such as excessive leverage and mispriced risk are thundering toward policy makers.
Widely known flaws such as excessive leverage and mispriced risk are thundering toward policy makers. Photo: biju boro/Agence France-Presse/Getty Images 

Rhinoceroses are getting rarer everywhere in the wild—everywhere, that is, except in the wilds of China’s financial system.

Wang Jingwu, the Chinese central bank’s financial stability chief, listed this week a number of “gray rhinos” threatening the country, including the large pile of local government debt, more bond market defaults and banks’ high level of exposure to the shaky real estate sector.

Unlike Nassim Nicholas Taleb’s black swans, gray rhinos aren’t unpredictable events with catastrophic consequences. The term, popularized by American author Michele Wucker in a 2016 book, refers to highly visible and potentially devastating challenges that policy makers often elect to ignore, rather than dodge.

Mr. Wang is using the right framework to communicate what ails China’s state-led financial system, where highly unpredictable events aren’t the real threat. Rather, it is widely known flaws such as excessive leverage and mispriced risk that are thundering toward policy makers.

Not that black-swan events don’t happen. The 2015 blowup in the equity market and the collapse of several Chinese peer-to-peer lending platforms in 2018 are good examples of surprise shocks to the system.

But China’s core problems, as adumbrated by Mr. Wang, are well understood by analysts.

With far more control over the financial system than most Western countries exert, Beijing has shown that it can keep periodic eruptions under control, for instance by clamping down on capital flows out of the country.

But keeping that control comes at a price: the gray rhinos get larger and larger. Facing little external pressure, policy makers find it hard to resist the temptation to keep the economy afloat simply by increasing the country’s debt—even if each round of stimulus sparks less growth than the last.

So if Chinese policy makers are well aware of the underlying problems that cause such events, why don’t they act?

Easier said than done. This week, the Chinese Academy of Social Sciences noted that debt in the real economy fell from 244% of GDP in 2017 to 243.7% in 2018. For all the discussion of the deleveraging campaign and the economic pain it brought, the needle barely budged.

Neither aggressive stimulus, nor paring down debt levels are attractive options for Chinese policy makers. As long as that remains the case, expect those gray rhinos to keep piling on the pounds.

Can Amazon Reinvent the Traditional Supermarket?

Wharton's Barbara Kahn and Columbia's Mark Cohen analyze Amazon's plans to open supermarkets in major U.S. cities.

Amazon’s plans to launch physical grocery stores this year is just the latest affirmation that, ironically, bricks-and-mortar stores are crucial to the e-commerce giant’s future growth. Amazon may launch as many as 2,000 supermarkets in major U.S. cities, according to a recent report in The Wall Street Journal. It will be Amazon’s sixth physical retail format after Whole Foods, Amazon Books, Amazon Go, Amazon 4-Star and Amazon Pop-Up.

Amazon’s plans are likely to rattle major grocery purveyors such as Kroger’s and Walmart, whose shares fell on the news. But the expectation is that Amazon will introduce a different business model — one that merges bricks-and-mortar and online experiences, then powering it with data analytics, according to experts at Wharton and Columbia University who spoke about Amazon’s grocery-store strategy on the Knowledge@Wharton radio show on SiriusXM. (Listen to the podcast at the top of this page.)

“It was a natural next step,” said Wharton marketing professor Barbara Kahn. Opening supermarkets makes sense for Amazon because its business model is to offer low prices and convenience, which is what shoppers look for when getting groceries. “If you look at their bookstores or Amazon Go (fully automated convenience stores), they’re fine stores, but they’re not beautiful stores. They’re the kind of stores where you can get what you want at a cheap price, fast and convenient,” she said.

Amazon’s expansion of its grocery business — it already has Prime Pantry, AmazonFresh and Whole Foods — also lets it collect consumer data more frequently since people shop for food regularly and prefer to do it in person. “Their game is data and they need to have frequency. What’s really attractive about grocery is not really the margin; it’s the traffic,” Kahn said. “When you go into an Amazon store, you have to log in with your app and everything you do in that store is then connected with everything online.”

The Journal said Amazon’s supermarkets will take up about 35,000 square feet compared to 60,000 square feet for a typical grocery. Talks reportedly are underway to open stores in Seattle, Philadelphia, San Francisco, Chicago and Washington, D.C.

It’s About Data

Whatever retail store format Amazon uses, it “would be built upon this tremendous capacity they have to gather, analyze, understand and use what customers are saying to them every day,” said Mark Cohen, director of retail studies at Columbia University who had been CEO of Sears Canada. “Amazon is proof-positive of the value of big data and the way in which you collect it and the way in which you examine it and use it.”

Cohen cited the smart use of data by 7-Eleven, the convenience store chain. “7-Eleven has enterprise-wide systems that enable it to manipulate, modify or not modify its assortments to be extremely relevant and also extremely efficient so that not only is the right brand on the right shelf at the right depth, but it’s in a place in the store where customers expect to find it.”
Amazon’s opening of physical grocery stores also could solve some hurdles to growth. “Amazon has a fundamental barrier to its organic growth, and that is that there are may be millions of customers who can’t participate in e-commerce either outright or who find it inconvenient,” said Cohen. “That’s largely because they don’t have a place a package can be delivered because no one’s home and they’re not comfortable or in any way or willing to have something left on a doorstep.”

Physical locations are helpful also for folks who cannot buy online because they don’t have or cannot get credit cards — or don’t want to use them. “Having a network of locally convenient places with which to interact with those customers like an Amazon grocery convenience store that will accept cash would give them access to an enormous number of customers who very well might want to do business with Amazon but who can’t at the moment.”

Testing Bricks-and-Mortar

Amazon’s supermarket plans follow other forays into physical stores, the biggest of which thus far was its June 2017 purchase of Whole Foods for $13.7 billion. It gave Amazon nearly 470 stores, including about 20 in Canada and in the U.K. Six months ago, the company launched Amazon 4-star stores that carry the most popular products from its online store, including consumer electronics, devices, toys, books and home items.

In January 2018, it opened Amazon Go convenience stores where consumers take what items they want and leave without seeing a cashier or checkout counter. Sensors track their purchases, which are automatically charged to their Amazon accounts. There are now 10 Amazon Go stores with more to open soon. In addition, the company has opened 17 Amazon Books locations. Amazon also has Pop-Up stores in malls, Whole Foods and Kohl’s, but it is closing all 87 of them because the format didn’t work out.

As for its coming supermarkets, Amazon could redesign the traditional grocery format. Typically, staples like milk purposely are placed in the back so shoppers will spend more time in the store. Kahn said Amazon CEO Jeff Bezos could have a different design in mind. He could say, “Let us design the store so you can find what you want as fast as you need to find it and get in and out of there,” she said. “I bet once they start working on it and use their data, they will change things that make sense from the customer perspective. So that’s going to be pretty cool to see.”

The Journal said Amazon’s supermarket concept strongly resembles ideas from a 2013 report by former Deloitte consultant Brittain Ladd, who now works for AmazonFresh. That report sees Amazon’s supermarkets combining its discounting strategy with online capabilities, adding drive-through grocery pick-up and placing Amazon Lockers inside. The goal is to create “an ecosystem of channels centered on food and groceries capable of meeting the needs of all customers through all available channels,” he wrote.

As for concerns that Amazon is entering a low-margin business, Cohen said it doesn’t have to be problematic. “They view that as an opportunity in many cases,” he said. “At the end of the day, I think this is [about] creating more and more of an efficient connection to customers, especially those who they’re not doing business with, who would like to do business with them.”

Dynamic Pricing

Kahn said one of Amazon’s dilemmas in selling groceries is how to manage the costly effort of delivering to each home and business, the so-called ‘last mile.’ Amazon has to deliver because until it purchased Whole Foods, it didn’t have a lot of stores where people can shop, unlike traditional supermarkets. Walmart got into the grocery business and handled the industry’s thin margins by focusing on “operational excellence” to lower its costs. “They are a low-cost supply chain master,” she said.
Amazon’s priority is customer convenience. But deliveries can be quite costly because they’re inefficient, Kahn said. Therefore, opening more physical grocery stores could work so there will be more places for customers to pick up their orders. “They need it because their model is so different from a typical operationally-excellent grocery business,” Kahn added.

Moreover, Amazon will find it tough to convince competing bricks-and-mortar retailers to let it open one of its Lockers in their stores. Amazon has been “aggressive in trying to place those lockers throughout the realm. Many stores just don’t have room for them and some don’t really want Amazon delivering through a locker [the same products] they’re trying to sell,” Cohen said. “Amazon is not likely to convince Target to install Amazon Lockers, unless some incredible combination occurs.”

By opening its own stores, Amazon also gets control over pricing and margins. Kahn pointed out that it already uses “dynamic” pricing. At Amazon 4-star stores, prices are in digital form and match the ones on its website. However, the prices “can change as things happen,” she said.

Similarly, at Amazon Books, no prices are displayed. Instead, customers have to open up the Amazon app to find how much the books cost. This way, Amazon could play with the pricing too, perhaps setting different prices for Prime and non-Prime members. “In both of those ways — with ‘price’ and ‘place’ — Amazon is redefining the model,” Kahn said

Toward a New Global Charter

Whereas the failure to forge a lasting world order at Versailles resulted in the catastrophe of World War II, the establishment of shared principles under the 1941 Atlantic Charter led to eight decades of prosperity and relative stability. With the world undergoing another geopolitical sea change, a new global charter is needed.

Carl Bildt

gavel map

STOCKHOLM – In August 1941, even before the United States had entered World War II, British Prime Minister Winston Churchill and US President Franklin D. Roosevelt met secretly off the coast of Newfoundland to discuss how the world could be organized after the war. A similar feat had been attempted at Versailles just over two decades earlier, but it had clearly failed.

Churchill and FDR’s assignation resulted in the Atlantic Charter, which established a set of shared principles and institutions that still define the international order eight decades later. In 1944, the Bretton Woods conference laid the groundwork for the International Monetary Fund, the World Bank, and other global financial institutions; the establishment of the United Nations soon followed. The defeated Axis powers were transformed into dynamic democracies with market economies, and were integrated into the new global system, while stability was maintained through cooperative security structures spanning the transatlantic and Pacific theaters.

Then came China’s economic reforms, starting in the late 1970s, and the collapse of the Soviet Union in 1991, whereupon the dream of truly global multilateral governance as envisioned in the Atlantic Charter could start to be realized. In 1995, the Bretton Woods-era General Agreement on Tariffs and Trade was replaced with the World Trade Organization, and in under two decades, trade as a share of global GDP has grown from around 40% to over 70% (owing in no small part to China’s accession to the WTO in December 2001).

During this golden age of multilateralism, globalization, and social and economic development, more than one billion people were lifted out of extreme poverty, and democracy became the global norm. But it is clear that the second decade of the twenty-first century has marked the advent of a different era. Memories of the international order’s formative years, and of the tragedies that made it necessary, have faded with the passing of generations. New powers have emerged to challenge Western dominance within an increasingly multipolar context. And the recent proliferation of authoritarian regimes has raised questions about the future of democracy.

Though the basic structures of the post-war order remain in place, they are being hollowed out in the face of Russian revisionism, Chinese assertiveness, US disruption, and European uncertainty. With the goal of revising the principles of the Atlantic Charter for this dangerous new world, two prominent think tanks, the Atlantic Council in the US and the Centre for International Governance Innovation in Canada, recently convened policymakers and thinkers, including me, from 19 different countries.

When attempting to draft a new set of shared principles, the biggest challenge is in deciding whether to make them applicable just to the world’s democracies, or also to the likes of Russia, China, and Saudi Arabia. Obviously, democracy is by far the best way to ensure that individual rights are respected; but the debate also should be open to those advocating different values and interests. In our case, we wanted to produce a document that would resonate both in the “classical West” as well as in Brazil, Algeria, Iran, India, Indonesia, and Vietnam.

Our deliberations resulted in a Declaration of Principles that we issued at the Munich Security Conference last month. “Inspired by the inalienable rights derived from our ethics, traditions, and faiths,” the declaration reads, “we commit ourselves to seek a better future for our citizens and our nations. We will defend our values, overcome past failures with new ideas, answer lies with truth, confront aggression with strength, and go forward with the confidence that our principles will prevail.”

The full declaration comprises seven statements under the headings of “freedom and justice,” “democracy and self-determination,” “peace and security,” “free markets and equal opportunity,” “an open and healthy planet,” “the right of assistance,” and “collective action.” In each area, our goal was to set down principles that might serve as the tenets of a new consensus after an inclusive global debate.

The declaration is not merely a restatement of previously held beliefs. Environmental issues clearly have become more prominent than they were before, and questions of sovereignty must be reframed for an increasingly interconnected and interdependent world. Concerns about how prosperity is shared both within and between countries have gained significant currency.

But basic values such as respect for individual rights remain fundamentally important, as does the belief that “governments that answer to their citizens and respect the rule of law can best address inequity, correct injustice, and serve the good of all.” Indeed, governments ignore this proviso at their peril.

As the fruit of a year’s worth of discussions and revisions, the declaration has received broad support from different corners of the world. But our goal is to start a larger debate, not to have the final word. We are under no illusions that it will rival the Atlantic Charter in terms of its historical impact. But nor do we have any doubts as to the urgency and necessity of a new discussion about the basic principles of global governance. Without such a debate, the old order will continue to decay, to be replaced by a Hobbesian jungle ruled by sheer power and narrow self-interest. We all know how that turned out last time.

Carl Bildt was Sweden’s foreign minister from 2006 to October 2014 and Prime Minister from 1991 to 1994, when he negotiated Sweden’s EU accession. A renowned international diplomat, he served as EU Special Envoy to the Former Yugoslavia, High Representative for Bosnia and Herzegovina, UN Special Envoy to the Balkans, and Co-Chairman of the Dayton Peace Conference. He is Chair of the Global Commission on Internet Governance and a member of the World Economic Forum’s Global Agenda Council on Europe.