This cycles specialist can't say why, but he does believe a cyclical low in gold is near...
DAVID GURWITZ is managing director of Charles Nenner Research. Providing global macro research to a broad class of clients across the world, and increasingly to family offices, over the last decade, Gurwitz specialized in cycles analysis, looking for patterns in where prices turn.
Here Gurwitz speaks to Hard Assets Investor about his analysis of financial cycles, plus the outlook for gold in particular.
Hard Assets Investor: You guys made a terrific call in gold a couple of years ago when your research, and the algorithms that you used, called the top at $1900. So I'm very curious to hear what you have to say about gold now, as well as some of these other markets.
David Gurwitz: First let me tell you how it works. Gold happens to be a specific category that fits in with everything else.
Cycles come from the Greek word "circle". And what we do is we take any data series and find basically repeating top-to-tops. I'll give you an example. In baseball, to hit for the cycle, you have to have a single, double, triple and homer. People think of the nine-year cycle.
If you find a top in gold every five weeks – forget the price – a top every nine weeks, top every 14, top every 37, you have, in effect, a lot of sine curves. When they're all topping, we don't know why. We don't know why things happen. When they're all topping, we just assume that's a top. And they were all topping at $1900.
HAI: You probably know there's a book, Fooled by Randomness. Sometimes we can look at things, and they kind of look like there are discernible patterns there, when in fact what it really is, is randomness. But we perceive it as some sort of regularity. Can you be fooled by this phenomenon? Because if we knew precisely that cycles occur at a specific moment, somebody who knew that would own the world in a month. It would be so easy to make money.
David Gurwitz: Right. There's another book, called Chaos, which basically says there's not randomness, that in fact it is predictable. There's patterns within chaos; it's the other side. Let me tell you what Einstein says about relativity: "When a man sits at a radiator for a minute, it feels like an hour. When a man sits with a woman for an hour, it feels like a minute." That's relativity.
HAI: Well, we're getting too deep for this show...
David Gurwitz: So anyway, we don't believe it's random. We don't agree with that premise, so therefore we believe that you can find patterns. And we call the top an apple. Natural gas – what came first, the cycle top or what I'm about to tell you?
The banks in Canada lent money to the nat gas producers when that gas was $6 not long ago. We had said that nat gas was going to a $1.70 after $5, $4.50, $4. All of a sudden those loans – like a lot of people's houses, with the mortgages under water – bank loans are under water too to companies. They started pressuring the nat gas companies to sell to pay back the loans. They started selling, price goes to $3, $2.10. It got to $1.90.
What came first, the cycle top or the actions to the banks? We think the new shows all say banks forcing producers to sell. We think it was the cycle top that said it. There's a cycle bottom coming in gold very shortly. We've had seven up years with gold.
HAI: But it doesn't necessarily tell you the price or the proximity of the price. It just tells you, here's a time window where we're going to hit a bottom.
David Gurwitz: We also do price too. Take football. You know the quarterback goes 1-2-3-4 and he throws. Same with us. Cycles just give you direction. Target algorithm, which is based on rocket science, believe it or not, and quantum physics...it does get very deep, gives you level. And so we look for timing, level and direction. And when they don't all line up, we will stay out, which is something most people have a hard time doing. So they're in pain staying in the gold trade. Now as you probably know, a lot of people are sitting now crying...and they're probably going to sell.
HAI: Not if they're short.
David Gurwitz: Not if they're short, which is also mostly not so easy to do. When the gold price gets to the bottom – which we think is coming relatively soon – they're going to sell out and we think there's going to be a great opportunity.
HAI: And what price would that be?
David Gurwitz: High $1300s is what we're looking at.
HAI: So the recent sell-off that brought us into the mid-to-low $1300s, it was like a capitulation.
David Gurwitz: Almost. We'll retest that level probably, because we want everything to line up. The cycle, the target and the other things we look at. Also there's a triple top forming in the Euro right now. Again, I won't go through the details. This is the stuff we do. We're a little technical, but we think the technicals are in fact fundamental.
HAI: We've had this rally in gold now for basically 10, 11 years since 2001. I guess you're saying it's coming near the end of this correction. It would suggest from what you're saying we're in the next leg of this long-term bull market?
David Gurwitz: Yes. But you can't extrapolate from that our macro view of commodities in general. Everything's different. Gold is going to go up, based on our cycles, based on our forecasts. Silver same, but copper is down. We got out of copper six, eight months ago. We have a lot of sovereign wealth fund clients. They don't want to trade next week, next month. They want to know four years from now. So copper's down, which indicates something about not such a great economy.
Nat gas, which went from $6 to close to $1.70, is now in the low $4 range, and very shortly we think we're going to short it again back to its low. But grains we think are bottoming in several months. And there's going to be a rally.
People say stocks and bonds always go in opposite directions. If you bought stocks and bonds in 1981, it was both a great trade. They both went up. If you bought them both in 2000, bonds have done well, but stocks are flat from 2000. If you bought them from 2007, bonds have done well, but stocks haven't. So you can't just say A implies B.
HAI: Let's talk about equities – the Dow making a new historic high, the S&P at a new historic high. But a lot of people are saying this doesn't add up. Because the economy is not that strong. We still have high unemployment.
David Gurwitz: Long term, we see stocks going down for the next seven years over 60%.
HAI: Based on what?
David Gurwitz: Cycles. That's all we know.
HAI: Well, how did it work in 2007/2008...?
David Gurwitz: We took everyone out in the summer of 2008.
HAI: That was right before the Lehman crisis.
David Gurwitz: Right before. We don't know what's going to be the cause. The reason shows up afterwards, after the cycle is set.
HAI: So you really didn't get the top in that one.
David Gurwitz: We got out. Prior, when the Dow went from 1008 to 1405, we called that on CNBC; it's on our site. We went back in and got out in the summer of 2008. It was not a front end of 2008, as you can remember. We went long the beginning of 2009, more or less until now.
HAI: Again, based on the cycle?
David Gurwitz: Only based on the cycle; we admit we don't know anything else. How often do people come on and say we don't know? We're brutally honest. So stocks are topping. They're going to go straight down.
HAI: Is there a signal, a sell point?
David Gurwitz: Yes. People should go right to our site and get the research, because the answer is, we're monitoring it and we're very close to a top now. It's also been a top in 2000/2007/2013. Now it's much weaker than it was in 2000.
HAI: Now, many people for so long have been saying it's a bubble, yet bonds have been very, very strong.
David Gurwitz: There was a high 30 years ago in rates. Sixty years ago it was low. The US government was actually selling, as opposed to buying, savings bonds 2.5 percent in 1950. In 1920 rates were high, 1918/19 rates were low, 1860 the Civil War rates were high. So the next 30 years, you're going to see increasing rates.
Starting this summer, there's going to be one more rally. Same thing: cycles. So bonds are going to be a great short for the next two decades starting this summer.
HAI: I don't know about that one. But very interesting stuff. David Gurwitz, thank you very much.