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FINANCIAL COMMENTATOR and analyst Peter Grandich sees no end in sight to the "mother of all gold bull markets," says the Gold Report.
Grandich expects the price of the yellow metal to climb past $2000 an ounce before the ride eventually comes to an end. But while Gold Prices have been riding high, its glitter isn't blinding Peter or his Grandich Report readers to the opportunities others may be overlooking, as he explains in this Gold Report interview...
The Gold Report: Peter, you accurately forecast the market crash of 1987, the peaks of 2000 and 2007 and the bottom in 2009. Where is this volatile market headed now?
Peter Grandich: I've been looking for over a year for a countertrend bear market rally to end in the June-July period around 11,000. I think we are getting very close to that. There's still an argument to make that the market could rally a bit longer into late summer, early fall. But after that, the next part of my forecast was that the US stock market would enter a long period – several years if not a decade or longer – similar to Japanese market trading after it peaked in 1989; and for 20 years, literally, went nowhere but had major bear market rallies and declines. That's what I'm looking for in the US stock market.
TGR: How long do you think that could last?
Peter Grandich: Years. It could be many years. I clearly believe that the US equity market will underperform most other Western world markets. In other words, both could go down – but the US market will go down more. After this summer and early fall, one of the last places people would want to invest will be the US market. As much as it used to be the world's leading market, I think it's quickly becoming the market you least want to be involved with.
TGR: Is another market poised as an attractive alternative?
Peter Grandich: I don't know if we'll have real bull markets in major markets in the coming years because, while acute in the US, the debt problem, obviously, exists in many other parts of the world, including Europe. We're living through that now. In the end, look at who the creditors are. Which economies are still able to lend to all these indebted areas of the world? They are likely the economies that also will do well.
TGR: Such as China?
Peter Grandich: Yes, places like China, and to a lesser extent, Brazil. But I also want to point out that, while the US and Canada are still somewhat joined at the hip as the world's two largest trading partners, Canada is fiscally light years ahead in terms of its balance sheet. Canada remains a very favorable place of mine and has a strong currency. It's the one currency outside of gold that I would have no problems holding.
TGR: And the Russians just bought some Canadian Loonies...
Peter Grandich: That's correct. Russia has diversified. I think we're going to see more of that. It's interesting about Canada; Canada was really a basket case in the early '80s. It was looked upon poorly in the Western world at that time. Now, of all the Western world economies, none is in as remotely good shape as Canada from a federal level. They'll suffer a little bit because they'll still be big trading partners with the US, but Canada will stand out. Its natural resources will continue to do well and there's no denying the fact that Canada has been far more fiscally responsible than the US I certainly would be invested in Canada markets before I'd be invested in the US market.
TGR: So you're pretty bearish on the US...?
Peter Grandich: Actually, since January, many people have emailed and sometimes called to say I've made an error by not turning outright bearish again as I did at the top of 2007. I parted ways with the bearish camp on what turned out to be, literally, one day before the bottom in March of 2009. Unlike many bears who stood in the way of this tremendous countertrend bear rally, I did not suggest putting my bear suit back on yet.
I have noted certain support levels. If they were broken I would put my bear suit back on but we haven't reached that. As we speak, a formation is starting to take place technically on the Dow, a head-and-shoulders pattern. If you can envision a picture of someone's head and their two shoulders, we've had the left shoulder drawn. We've had the head. Now, we would form the right shoulder if we rally back to that 10,800–11,000. I would be much more comfortable turning bearish not only because fundamentally I'm bearish, but also get because of what I believe would be a very bearish technical signal. That's what this reverse head and shoulders would be in my mind. So I wanted to alert my readers to watch for this potential formation.
People always think you have to bet either on a major decline or a big rally. Since the bottom in March of 2009, my argument has been that the market would enjoy the eye of the storm, during which we would have a tremendous countertrend bear market rally. Those who are bullish are bullish because they think the 2009 bottom signaled a new bull market. My argument has never changed. This is what's known technically as a "countertrend rally" in an overall cyclical bear market – a bear market that actually began back in 2007.
So all I've been looking for is a countertrend rally tied into a fundamental argument that we will go back into a double dip recession, etc., being lead fundamentally by two factors. 1) What's going to happen politically come November? And 2) What's taking place and developing in the Middle East?
TGR: So you did not turn from a bear to a bull?
Peter Grandich: I would never say that I've been a bull. I just removed my bear suit. I wasn't one of those people who made gains in the decline only to see them given back by staying short during the rally. I don't consider myself a bear until I actually say: "It's time to sell the market again." I haven't done that yet.
TGR: When do you think you will?
Peter Grandich: I don't believe it will go past late summer or early fall. This time last year, I was in a very small camp to argue – and now and it's becoming more popular – that as we approach mid-term elections, there would be a revolt against incumbents in general – and Democrats, in particular. That will create a political nightmare in Washington, with what many will perceive after the election a lame duck one-term president who was swept into power and within two years turned out to be one of the least popular presidents. I think whatever political processes that might have been in place to take care of America's numerous problems will grind to a complete halt after the election. That will just add a log to the fire of how the world perceives the US as a country totally in a mess. So that's been my argument and I still see that developing.
TGR: With that in mind, do you believe that now is a good time to get into the market?
Peter Grandich: First of all, I don't believe in trading. I don't believe there's any reason to try to trade a few percentage point gains in the Dow or the S&P. I also have to say that Wall Street developed "speculating" as a replacement word so it wouldn't have to use the word "gambling." Those who trade might as well go to a casino because so much is up against you these days.
What's more important, and what we spoke about earlier, is the longer-term bigger picture for a bunch of reasons. You probably don't have time enough to write them all down; the US is deep in serious fundamental problems – economic, social, even spiritual. It's going to be one of the least attractive places, globally, that people would want to be seriously invested in.
TGR: Having said that, the 200-day moving average seems to be one of the tools you put a lot of stock in to determine where the market is going. What appeals to you about it?
Peter Grandich: First, let me clarify that I think of technical analysis as a good accessory. I don't believe in using it strictly as the only thing on which to base a decision. I have a lot of respect for some great technicians out there. But in my opinion, at the end of the day, fundamental analysis overrides technical analysis. I like technical analysis when I'm uncertain or not absolutely clear on a fundamental direction. If I'm leaning one way or another and my technical analysis supports that argument, the combination of the two determines my decision. Within technical analysis, moving averages are important.
Very short-term moving averages have no real significance to me because, as I said earlier, I don't believe in trading. But the 200-day moving average – the granddaddy of all moving averages – is something I look at. I also know it's important to look at, because the world at large looks at it. A lot of things that happen in the markets are borne out as self-fulfilling prophecies. If enough people report and comment on something and it starts to develop, it begins to feed on itself. So it's a very important technical tool and one of the few that I rely on a lot.
TGR: Is that primarily what you used to determine the crash in '87 and the peak in '07?
Peter Grandich: No, it was always fundamental argument, but the technicals always supported it. Technical analysis has come a long way since the '87 crash. Back then, there weren't many people using it. I really didn't use it much either, but it helped in 2000 and, of course, getting out. Also when we took off our so-called bear suit on March 8, 2009, the main reason was because we'd become so oversold. All of the technical indicators I was using suggested that at the bare minimum, it was going to be a major relief rally. So I think technical analysis is a good aid, but I don't believe in using it as my sole compass.
TGR: You talked about gold hitting $1300 an ounce in what you've called the "mother of all gold bull markets."
Peter Grandich: The foundation of my bullishness on gold has been a few key points I've hammered home. Two of the main ones used to be big negatives for gold. It wasn't that many years ago that central banks were net sellers of gold. After the Washington Agreement, they started to measure their sales, and they've actually become net buyers in recent years. So one key bullish factor was the fact that a group that had been a major seller no longer was.
TGR: What else shifted from a negative to a positive?
Peter Grandich: I used to argue that the mining industry was cutting off its nose to spite its face by hedging so much of future production. But the same hedging that had been so widespread has become like a four-letter word for mining executives. Even the mere thought of speaking about it brings the ire of institutional and retail investors. That's the second key point, and the second bearish factor that's become bullish.
The third thing that's accelerated the Gold Price beyond $1000 is the realization that gold is simply the best alternative to paper currencies. About 6 or 12 months ago, I said the US Dollar was going to rally and that gold would rally in the face of that. Even gold bugs questioned that; they'd been weaned on the theory that a rising Dollar was bearish for gold. My argument simply was that, for a while, the Dow would rally just because the world would concentrate on other bad currencies until coming back to the USD. I said the fact is that no one currency anywhere in the world – euro, USD, what have you – would do anywhere near as well as gold itself; therefore, look for gold to rise in most major currencies. That's exactly what's happening now.
None of those three bullish factors are even remotely close to changing direction. We don't see any sign of a central bank pickup in net sales. We certainly don't see the industry hedging. We definitely see the money flows into gold, and we see more and more counties and people of influence noting that gold is the only true money. That's why I still call this the mother of all bull markets.
TGR: Are you willing to put a timeframe on a price higher than $1,300?
Peter Grandich: Our target for 2010 was $1,300 as a low end, and it could go as high as $1,500 if certain events unfold in the Middle East – which, realistically, are closer today than ever before. So even though we haven't printed it yet, $1,300 is a "gimme," and there's still the potential to run as high as $1,500.
Gold will never shine or look positive to many investors because to support it and to believe in it would be detrimental to the financial assets the world revolves around. The mistake people make is in waiting for world confirmation that everybody's on board on gold. It's never going to happen. And in my opinion, and that's a good thing.
TGR: A good thing?
Peter Grandich: Yes. The day that it even remotely looks as though everyone's on board, we'll know we're very, very close to whatever the run is on the gold market. But my personal opinion is that the gold run won't end until at least it has a "two handle".
TGR: A two handle?
Peter Grandich: That means gold will get to $2000-plus before this great bull market ends. That time is not yet in sight.
I'm looking in some areas that have been cast aside. One in particular is the uranium market. As exciting as it was a few years ago when many so-called experts were hammering home triple-digit uranium prices, a lot of those forecasters seem to have selective amnesia and forgot about that. I fell on my face and thought that uranium prices would have gone much higher and stayed there, too. They didn't, and the market continues to beat down anything related to uranium.
TGR: What else has been cast aside?
Peter Grandich: One segment in the rare metals that doesn't get much attention because not many are involved in it is cobalt, which is also demonstrating a real need for strategic investing. Cobalt is among the minerals that the European Commission recently identified as having high supply risks, with potential shortages resulting from limited production and high demand. Cobalt is a component of our renewable and sustainable energies, from batteries to solar elements to powering turbines for wind generation. The US consumes about 60% of the world's cobalt, yet produces none of it.
TGR: You like Canada's currency and fiscal responsibility, as you said earlier, but also a lot of the projects you see there. Quite a number of the companies you've mentioned have a strong presence in Canada.
Peter Grandich: It's funny. When I started in this business, you could count on one hand the countries that people in exploration and mining avoided because they could present problems. Now 20, 30 years later – people count on their hands the places to go without having a problem and Canada is one of them. The one area people could take exception to that statement would have been British Columbia; but, in recent years, the somewhat anti-mining stance there has changed. So there's a lot of focus now on Canada's natural resources, as well as the fact that Canada isn't facing some of political and social issues that are in other areas of the world now.
TGR: Such as those we're facing south of the Canadian border?
Peter Grandich: People have been searching for the solution to the United States' problem. It may sound too simplistic, but it really is simple. Americans have too much stuff. You can't drive many roads in America without running into a public-storage facility. Our parents and grandparents never needed public storage. Until America realizes it has too much stuff and has to lower its living standard – and that it can't borrow against what it can't afford – all these other arguments and bailouts and so on will never get to the root of the problem.
It's like putting on too much weight; you can't take it off in six months. You can't take decades of overspending and being unproductive and fix it in six months, either. Unfortunately, I still see a very dark period ahead in the US because there really isn't any movement yet to take those steps. Until America changes its attitude, nothing can be fixed.
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