Lior Gantz - Mon, Apr 24, 2017

Gold Is 1% Shy of Ripping Higher

Lior GantzPrecious metals are on the verge of a legendary move, says Lior Gantz, editor of Wealth Research Group, and details the indicators he watches for.

Gold 10-Year Chart

With the first round of the French elections over and a potential beginning of the end for the Eurozone might be within sight, this is only one of the macro-political events that are causing gold prices to be within 1% of shuttering its 10-year resistance level.

In the first quarter of the year, insiders have been unloading massive shares of their own companies. Insider selling is at the highest levels since 2013, but it is the conclusion of my 16 years of market participation and of the due diligence conducted by Wealth Research Group, that tells me this bull market is not over—the mania phase is still 12-18 months away.

Like Warren Buffett, Ray Dalio, and Paul Tudor Jones, the legendary trader, Wealth Research Group sees a correction—even a severe one, to the tune of 10-30% for the major indices—before the markets make their final ascent toward a blow-off top.

The indicator that Buffett tracks closely is a market cap of S&P 500 vs. U.S. GDP, and this is extremely wise.

Think about it: This ratio is a clear sign of how expensive America's stock market is—if the valuations of the companies that are responsible most for the GDP are excessive, it's not a buying opportunity.

Market Cap of S&P 500 vs U.S. GDP

Buffett's rule of thumb is that 0.6% is bargain territory, and he is a buyer up to 0.9%, but over that, he becomes particularly picky, often not making any large decisions.

The U.S. economy is now over 1.1% with its selling territory, and either stocks will correct or GDP must miraculously adjust higher—be very selective with new opportunities in the mid-cap and large-cap indices.

Volatililty Index

This year started off with complacency levels at their lowest, but investors are now coming back to the real world and reality is beginning to sink in. The U.S. government is about to face the debt ceiling debate, the British people are about to exercise Brexit, escalation of conflict in the Middle East seems plausible, and it's not surprising to see the establishment making Trump's life miserable as they roadblock his plans at every junction.

That's why the volatility index is now heading higher.

Volatililty Index

VIX is a contrarian indicator. The time to buy stocks and use stock option strategies, like covered calls and selling puts, is when it's above 25, and the best time for traders to sell is when VIX is below 16.

VIX is going higher because Trump's promises are looking like they're not materializing at the expected speed originally forecasted.

Since there was such a euphoric state of mind from the election up until the Obamacare issue, the dollar is selling off at a rapid rate right now.

US Dollar Weakening

Two financial factors are positive for precious metal prices more than anything else:

  1. U.S. dollar decline.
  2. Negative interest rates.

That's why the 1970s were the ultimate bull market and the early 2000s followed the same pattern.

Today's economic landscape is the most fertile ground for precious metals to gain in price.

Silver has already broken out and trades above its 200-day moving average and long-term resistance levels, and gold is about 1% away from cracking its own price wall of $1,300.

If that happens, junior mining companies will, with a high degree of likelihood, repeat the move made in the first half of 2016 when gold last tested these levels.

Gold 200-dma

We have both of the strongest indicators of rising precious metal prices intact.

The U.S. dollar index is down 2.57% for the year, compared with gold, which has risen 12% so far in 2017.

The second factor, which is even more rare and is why this could be the early stages of a run up to $1,425.32, as Wealth Research Group forecasted two weeks ago, is because 10-year Treasury yields are declining while inflation is still rising.

US Real Rates

In the summer of 2016, when gold rose 14.5% above its 200-day moving average, it ran out of steam—its price was $1,367 at the time.

If gold makes a similar move today, it will even surpass Wealth Research Group's conservative short-term target of $1,425.32, reaching $1,452.86.

Gold vs. 200-DMA

Here's how you should consider adjusting for this moment:

  1. Wait: The risk of this trade totally subsides if gold pushes 1.2% higher from here and surges through the $1,300 technical line.
  2. Physical Bullion: Gold and silver bullion and coins are safe havens: forms of insurance outside of the system and away from governments' hands. Like all forms of insurance, you only need sufficient coverage. Nobody ever became rich from owning too many policies, and the same goes here. The best time to purchase insurance is when it's cheap, so with gold and silver rising, don't chase prices higher.
  3. Junior Mining Stocks: Wealth Research Group had published stock suggestions since early 2016 and, like many investors, the gains were absolutely captivating: 348%, 267%, 117%, 68%, 405% and 81% gains were made in the first half of 2016.

Gold and silver stocks are trading vehicles, leveraged tools to use when the price of bullion is rising sharply and valuations are depressed.

Well, valuations are depressed and we could now be heading for a time of sharp price gains. The entire sector could light up fast, so you need to prepare properly and thoroughly.

The coming weeks (or even months) could be exactly what you've been preparing for.

When junior gold and silver stocks rise, the trickle effect reaches industrial metals, such as cobalt, zinc and copper, and might even impact uranium companies.

Lior Gantz, an editor of Wealth Research Group, has built and runs numerous successful businesses and has traveled to over 30 countries in the past decade in pursuit of thrills and opportunities, gaining valuable knowledge and experience. He is an advocate of meticulous risk management, balanced asset allocation and proper position sizing. As a deep-value investor, Gantz loves researching businesses that are off the radar and completely unknown to most financial publications.

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