Sentiment Speaks: Gold Is Heading To $25,000

by: Avi Gilburt

- Price Action Over Prior Week.

- Anecdotal and Other Sentiment Indications.

- Price Pattern Sentiment Indications and Upcoming Expectations.
Price Action Over Prior Week
This past week, we have seen the metals continue their consolidation. There is nothing I have seen in the price structure over the prior month that is suggestive of a bearish pattern in the metals complex, so I will maintain my larger degree bullish perspective as long as the supports noted in my prior article are respected in all products cited, with silver seeing the potential for a drop to as low as 18.28.
Anecdotal and Other Sentiment Indications
Some of the most accurate market calls I have made were initially taken by market participants as completely "impossible" or "ridiculous." Back in 2011, I wrote my first market prognostication article on Seeking Alpha, in which I called for a major top in the gold market:
Can Gold Go Higher? - An Elliott Wave Perspective
The simple answer is, yes, it is possible that it can go higher. However, there are clear levels that must be watched so that investors do not get caught in a downdraft when a top is hit. . . since we are most probably in the final stages of this parabolic fifth wave "blow-off-top," I would seriously consider anything approaching the $1,915 level to be a potential target for a top at this time.

As we now know, gold topped at $1,921, which was within $6 of my long term target, and began an initial waterfall decline. This target was calculated using a 200 year Elliott Wave and Fibonacci mathematical analysis to track market sentiment over the long term.
At the time of my writing this article, gold was approximately $43 from its actual top and was in a parabolic rise to this point. Almost everyone you spoke with at the time was certain that gold was going to eclipse the $2,000 mark. And, as I have noted so many times before, when everyone in the market maintains the same perspective, this is often the time when contrarians look for a turn in the market. This is simply how market sentiment works, and it has been the most consistently accurate predictor of trend changes in the metals complex that I have seen.
Now, even before we topped, I was noting two primary targets I had for the correction I was expecting. My first target region was between 140-150GLD, whereas my secondary expectation was in the 100-112 region. Again, remember that I was providing these downside targets while the market was still within a parabolic phase, with almost all market participants looking for over $2,000 gold, and without anyone even considering a top.
Well, the euphoric market sentiment at the time was clearly evident in some of the comments I received within the month:
Technical analyses is all well and good, but you cannot apply it to the PM sector which has been artificially manipulated and suppressed for years. 
There is no way you can understand what is going on in gold by doing technical analysis. Gold is driven by fundamentals and technical analysis comes only as a distant second in the analysis. If the Fed announces QE3 (I think they will do it but not tomorrow), gold will go up like crazy and no technical analysis can predict this. 
With all due respect Avi, you plainly do NOT understand the gold market. . . Because of these fundamentals, gold does not work very well for technical analysis, for charting. Algorithms which are indicators for other financial instruments are rather useless for gold. 
TA is useless for a sector that is so heavily rigged and manipulated by the bullion Banks Your TA is useless. You don't understand the fundamentals because you only look to the past. Gold bulls are forward thinking. The times they are a changing...
Again, this is purely typical of how sentiment works in the market, and this period of time in the gold market was no different. And, if we fast forward to the end of 2015, as I began to look for a low in the market, many became as certain that gold would break $1,000 as they were in 2011 that we would eclipse $2,000:
But, as of late, we have developed a new class within the metals market. This new group is generally bullish on this complex for the long term, but they are certain that one should not even consider buying until we see a strong capitulation with a spike down below the $1,000 level. I call them the "below-1k-dip-buyers." 
Now, I have to be honest and admit that I proudly considered myself within this class of investors not too long ago. In fact, even before the market topped within $6 of my target back in 2011, I suggested that the correction can take us down as low as the $700-$1,000 region, despite the mass disbelief at the time. But, as this "below-1k-dip-buyers" class has grown quite large, I am now questioning the wisdom of such affiliation. 
Ideally, this new class of investor makes the most sense of all. The perspective is that a final spike down below the psychological $1,000 level would make almost all the bulls throw in the towel, which would then see the final sellers move out of the market, thereby creating a lasting bottom to this 4+ year correction. Yes, this is how markets normally work . . . except when this is what a large segment of the market expects. 
And, the "below-1k-dip-buyers" class has grown quite large. In fact, if you discount the gold bulls and the gold haters, all you have left are the "below-1k-dip-buyers." Right now, I think the rarest breed of all are those willing to buy between $1,000-$1,100. And, they may actually turn out to be right.
After I wrote that in an article, I received a significant amount of email stating again that I had no clue about the gold market and that I was foolish for buying over $1,000. Some even cited my top call in 2011, noting that I was lucky and that I would not be as lucky in being to buy into the actual bottom, especially if I was buying over $1,000. They pointed to so many different analysts calling for gold to break that $1,000 region, and noted that I was wasting my money. You see, nothing really changes in the market if you know how to use market sentiment in your favor.
In fact, when I wrote a long term bullish article several months before this article I just cited, the most important perspective I gleaned from the comments was the uniformity of disbelief.
Out of over 700 comments to the article, I think I counted two, yes, only two, that actually viewed any bullish perspective as possible. Now, I probably could have discounted those two, as they could simply have been long term gold bugs who appreciate any article which calls for a parabolic rise in the price of gold. But, it was resoundingly clear that investors were uniformly in the "disbelief" camp.
While this was only anecdotal evidence of market sentiment, the article did reach several hundred thousand readers. So, I have to assume that most viewed this type of appreciation in the price of gold as "impossible" or "ridiculous," as many of the commenters noted.
Now, allow me to take you back in time and present you with the following prediction made by Ralph Nelson Elliott in August of 1941:
"[1941] should mark the final correction of the 13 year pattern of defeatism. This termination will also mark the beginning of a new Supercylce wave (V), comparable in many respects with the long [advance] from 1857 to 1929. Supercycle is not expected to culminate until about 2012."
For those of you who do not understand this quote, Elliott was predicting the start of a 70-year bull market in the face of World War II raging around him. Quite an amazing prediction, no?
But, at the time, market sentiment was so negative that Elliott clearly saw it as having the potential to trigger the largest bull market in equities in history, whereas market participants at the time likely viewed it as "impossible" or "ridiculous."
Price Pattern Sentiment Indications and Upcoming Expectations
Back in June of 2015, I wrote the following price prediction, which I still maintain today, despite the disbelief which I noted above by all the commenters to this prediction:
I stand before you today, almost feeling like Elliott did back in 1941. Yes, in 2015, I am seeing this correction finally completing (but at much lower levels) and starting a major bull market phase that can last the next 50 years. 
So, while many that have read my analysis over the last three years have viewed me as being the staunchest of bears in the metals world, I will be switching sides and moving strongly into the bull camp, especially after we see the next and final decline which will likely take place over the next half a year. 
In fact, if you look at the Gold Bugs Index HUI, chart linked at the bottom of this column, you will see that our projections are calling for an almost tenfold increase in this index over the next decade or so, which will likely increase to a fifty-fold increase in the index over the next 20 or so years, and well beyond that in 50 years. Ultimately, we see the HUI over 15,000. 
Yes, I know that this is quite a bold prediction. However, please remember that, for me, it is all a matter of mathematics and nothing more. 
Now, let's put this market prediction within the context of Elliott's back in 1941. At that time, the Dow Jones Industrial Average was around 100. Yes, you heard me right. 100.  
Seventy years later, we are at a multiple of more than 180 times that baseline. Our base line in the Gold Bugs Index will likely be in the 100-125 region when it finally bottoms. So, based upon this relative perspective, does it seem so unreasonable to foresee this index as high as 15,000 within 50 years?
And, as it relates to gold, this same mathematically based price projection (which is based upon the same methodology that identified the top in 2011 and the recent bottom) suggests that gold can conservatively reach the $25,000 mark. So, I await the comments of this being "impossible" and "ridiculous" to provide more certainty for this prediction (smile).

Housing Market Eases Low-Rate Pain for Banks

Strong mortgage lending will be a boost for banks struggling with low rates

By Aaron Back

    A home for sale in Florida. Data showed home sales remained strong in July. Photo: Lynne   Sladky/Associated Press

America’s housing market is in good shape, giving the nation’s banks a fresh engine for loan growth.

Bankers aren’t fond of ultralow interest rates, as they make the business of lending less profitable.

But major lenders in the U.S. have been able to grow interest income anyway by pushing more loans out the door.

For the past couple of years, commercial and industrial loans were the prime driver of growth.

Recently this has slowed, due in part to less appetite for funding in the oil and gas sectors. But lending to consumers, particularly through credit cards, has accelerated. Now, strong mortgage growth is adding another driver.

The housing market in the U.S. is robust, thanks to mortgage rates that have fallen to nearly record lows and a strong jobs market. On Tuesday, government data showed new-home sales in July soaring to their best level since 2007.

On Wednesday, data from the National Association of Realtors showed a 3.2% annualized decline in July for the more important category of existing-home sales. But this came after several months of strong gains, and represents only a slight fall from nine-year highs. This year is still on track to be the best for existing-home sales since 2006, estimate economists at IHS.

Furthermore, prices are up, with the median existing-home price rising 5.4% from a year earlier in July. This means mortgage sizes are growing, even without more unit sales.

Banks are also choosing to hold more mortgages on their books, rather than sell them off.

According to Federal Reserve data, total mortgage loans held by U.S. banks rose an annualized 10.5% in July, the fastest pace since 2011. The total proportion of all mortgage debt held by banks is still low compared with before the financial crisis, but it has been steadily rising.

Record-low interest rates should also drive refinancing activity. This is a double-edged sword for banks. It is another source of lending growth, but it also means existing loans are being swapped out for new ones at lower rates. Particularly for banks with big holdings of mortgage-backed securities, this can be a problem.

There was a spike in refinancing activity after rates plunged in the wake of the Brexit referendum in late June, but this has since tapered off. If rates take another leg down, expect another growth spurt in both new mortgages and refinancing.

The third quarter began right after the Brexit vote. For most banks, the subsequent volatility and mortgage-refinancing uptick should be a boost in the quarter. Coupled with improved mortgage lending, they could help banks offset at least some of the drag of super-low interest rates.

Will Your Bank Survive the Coming Financial Crisis?

Banks are “reaching for yield.”

You’ve probably heard us use this phrase. We normally say it when we’re talking about investors who buy risky assets in hopes of getting a decent return.

You see, it’s become very hard to earn a decent return in bonds over the last few years.

The U.S. 10-year Treasury is a perfect example. From 1962 to 2007, 10-years paid 7.0% per year on average. Today, they yield just 1.6%.

Government bonds from England to Japan are also paying record-low interest rates. Many corporate bonds and municipal bonds yield next to nothing too.

Dispatch readers know rates didn’t get this low on their own. Central banks put them there.

Since September 2008, central banks have cut rates more than 650 times. Global rates are now at their lowest level in 5,000 years.

You almost have to own risky assets to have any shot at a decent return these days. That’s why investors have loaded up on stocks, which are generally riskier than bonds. It’s why folks have piled into high-yielding “junk bonds,” which are issued by companies with poor credit.

Banks have the same problem. To make money, many have to make risky loans.

Today, we’ll show you how banks are reaching for yield. As you’ll see, this reckless practice could steer the world toward a full-blown banking crisis.

• Low interest rates have made it hard for banks to make money…

Banks make money by charging interest on loans. They’ve been doing this for centuries. But, with rates near record lows, many banks are struggling to get by.

According to Financial Times, the net interest margin for major U.S. banks is at the lowest level in decades. Net interest margin is a measure of bank profitability.

European banks are hurting too. Second-quarter profits at HSBC, Europe’s biggest lender, fell 45% from a year ago. Spanish banking giant Banco Santander’s second-quarter profits fell 50%. At Deutsche Bank, profits plunged 98%.

• Banks are making risky loans to offset low interest rates…

Financial Times reported last month:

US banks have ramped up lending to consumers through credit cards and overdrafts at the fastest pace since 2007, triggering concerns that they are taking on too much risk in a slowing economy.

According to Financial Times, U.S. banks increased credit card lending by 7.6% last quarter.

At Wells Fargo (WFC), credit card loans jumped 10% from a year ago. Citigroup’s (C) credit card business grew 12%. And SunTrust (STI), a regional bank in Atlanta, grew its credit card loans by 26%.

• Banks make huge fees from credit cards…

The average annual interest rate for U.S. credit cards is between 12% and 14%. Some charge more than 20%. For comparison, the average home mortgage in the U.S. has an annual interest rate of about 3.5%.

Right now, banks are using credit cards to lift their sagging profits. According to Financial Times, they’re making “lavish offers” to get folks to take out credit cards:

The industry has piled on about $18bn of card loans and other types of revolving credit within just three months, as consumers borrow more and banks battle for customers with air miles, cashback deals and other offers.

Even worse, banks are recklessly lending to people with shaky finances and low credit scores. CNBC reported last week:

Ten million new consumers entered the credit-card marketplace in the last year alone…

Just over half of the originations came from millennials in their 20s opening their first card. Including those accounts, 60 percent of new customers were subprime borrowers, meaning those with a credit score of 660 or below.

• If this sounds familiar, it’s because lenders did the same thing during the last housing boom…

During the early 2000s, the U.S. housing market was on fire. Many lenders thought home prices would “never fall.” So they issued millions of mortgages to people with bad credit.

When housing prices crashed, subprime borrowers defaulted on their loans. The collapse of the housing market triggered the 2008 financial crisis.

Banks are now making the same mistake with credit cards. This hasn’t been a problem so far. According to The Wall Street Journal, delinquency rates for credit cards are at the lowest level since 2003. But that could soon change…

• U.S. banks are bracing for huge losses…

Financial Times reported last month:

Synchrony Financial, the largest supplier of store-branded cards in the US, sent a shudder through the sector in June when it increased its forecast for credit losses.

Capital One added $375m to its loan loss reserve for its domestic card business, according to Barclays, while JPMorgan Chase added a $250m loss allowance for its credit-card portfolio.

In other words, major U.S. banks have set “rainy day” funds in case credit card defaults surge. But most banks have no idea what’s about to hit them…

• Casey Research founder Doug Casey thinks a major financial crisis is about to hit us…

Eight years ago, a “giant financial hurricane” slammed into the global economy.

It put millions of Americans out of work. It caused the S&P 500 to plunge 57%. And it triggered the worst economic downturn since the Great Depression.

According to Doug, this storm never left us. It’s been hovering overhead, gaining strength.

We’re now exiting the eye of the storm. When the tail end makes landfall, it’s going to trigger something “much more severe, different, and longer lasting than what we saw in 2008 and 2009.”

For the past eight years, central banks have been desperately trying to fix the economy. They’ve cut interest rates hundreds of times. And they’ve “printed” more than $12 trillion.

The government said these radical policies would fix the economy. But they’ve only made it weaker. The evidence is overwhelming:

- The U.S., Europe, and Japan are all growing at the slowest pace in decades.

- U.S. government debt has jumped 130% over the past decade. It’s now at an all-time high.

- U.S. companies are borrowing faster than they did during the dot-com bubble or housing boom.

- Corporate leverage, which measures net debt against earnings, is twice as high as it was in 2007.

• This will not end well…

Doug warned earlier this year:

These reckless policies have produced not just billions, but trillions in malinvestment that will inevitably be liquidated. This will lead us to an economic disaster that will in many ways dwarf the Great Depression of 1929–1946. Paper currencies will fall apart, as they have many times throughout history.

We encourage you to take shelter in gold. As we often say, gold is real money. It’s preserved wealth for centuries because it’s a unique asset. It’s durable, easily divisible, and easy to transport.

Most importantly, governments can’t destroy gold’s value with reckless policies. Their destructive actions only lead people to buy more gold.

This year, gold is up 27%. But we think it’s headed much higher. To learn why, watch this short video.

Chart of the Day

European banks are in big trouble.

Earlier, we said profits at Deutsche Bank, Germany’s biggest bank, plummeted 98% last quarter. It was the fourth straight quarter the company’s profits nosedived.

Regular readers know what’s killing Deutsche Bank…negative interest rates.

Negative rates are the latest radical government policy. They basically flip your bank account on its head. Instead of earning interest, you pay the bank to look after your money.

The European Central Bank (ECB) introduced them in June 2014 to “stimulate” Europe’s economy. Politicians think they will get folks to save less and spend more.

It hasn’t worked. According to The Wall Street Journal, the savings rate in Germany is at its highest level since 2010. Folks in Denmark, Switzerland, and Sweden are saving money at the highest levels in two decades.

About the only thing negative rates have done is hurt Europe’s banks. As you can see below, Deutsche Bank's stock has plunged 64% since the ECB introduced this idiotic policy two years ago.

In June, Deutsche Bank’s CEO said its business will suffer as long as negative rates are in place. He’s not the only one who thinks this. According to Bank of America (BAC), negative rates could cost European banks as much as €20 billion a year by 2018.

Last week, credit agency Standard & Poor’s said negative rates could pressure European banks to make risky loans. Financial Times reported:

This pressure could push banks to increase higher-risk activities to boost income. “Negative interest rates may or can lead to other steps as banks try to cope with reduced margins,” the report said.
“We remain concerned about a potential mispricing of risk that might go along with a new aggressiveness to chase higher yields,” it added.

In other words, European banks could soon make the same mistakes U.S. banks are making right now. This is one of many reasons to avoid European bank stocks right now.


Why is This Hated Stock Market So Resilient?

By: Sol Palha

"Do not let yourself be tainted with a barren skepticism." ~ Louis Pasteur

The market has resisted all attempts to correct. We know why it is not crashing; this has to do with mass psychology, but what's preventing it from letting out a significant dose of steam. The table below might hold the answer. We looked at all 30 components of the Dow monthly timelines utilising our indicators, and the results were quite surprising, to say the least. On the monthly charts, each bar represents one month's worth of data so these are long-term charts, and they usually provide a much clearer picture of what the futures holds as opposed to the shorter term charts.

SymbolMonthly Chart Pattern
AAPLExtremely oversold
CSCOExtremely oversold
MCDExtremely overbought
JPMSlightly oversold
PGSlightly oversold
VZSlightly oversold
WMTSlightly oversold

28 components of the Dow are trading in the oversold ranges varying from mild to extremely oversold; conventional logic would have you believe that all the elements of the Dow would be trading in the overbought ranges, but that is not the case.


The strength the Dow 30 stocks are showing on the monthly charts clearly indicates that the most hated stock market bull still has plenty of room to run before it drops dead from exhaustion.

However, at the moment the stock market is rather overbought, and we covered this very recently in an article titled "mass media turns bullish; stock market correction likely," so it would not surprise us if it let us some steam. In fact, we would view it as a bullish and healthy development if the market were topullback before trending higher. Oil and the Dow tend to trend together; oil pulled back, bottomed out in the 39-40 ranges as expected and is now trending upwards.

The Dow could take a similar path; experience a mild to moderate correction and then move up to new highs.

"We have more ability than will power, and it is often an excuse to ourselves that we imagine that things are impossible."  ~ Francois De La Rochefoucauld