Commodities cycle could last another decade...
ROGER WIEGAND produces Trader Tracks, whose aim is to provide investors with short-term buy and sell recommendations and insights into the political and economic factors that drive markets. After 25 years in real estate, Roger has devoted intensive research time to precious metals, currencies, energy and financial markets for over 18 years.
In this interview with The Gold Report, Roger Wiegand discusses tips to help investors avoid the hazards he sees ahead and profit from opportunities in precious metals, commodities, currencies and resource stocks.
The Gold Report: Since you last spoke with The Gold Report in August 2010, there's been quite a bit of political and economic upheaval in the world. What, in your view, are the most significant factors influencing your investment decisions at this point?
Roger Wiegand: I think that the number one pitfall we've got to be aware of and deal with as traders and investors is the fourth quarter of this year. Historically, from late August through the end of the year, and moving into the next, we would be in the normal rallies of gold, silver, other precious metals (PMs) and related base metals.
However, this year a lot of things are coming to a head in credit and in the bond markets. Rating agencies like Fitch and Moody's have noted they will put the US sovereign credit on "Credit Watch" if the US national budget is not agreed upon by the end of July. The government's last schedule was August 2, 2011. We think it lifts the debt ceiling and continues on the same path to more inflation and potentially hyperinflation — printing more currency and selling more paper, and then buying it back itself.
In Europe, the smaller nations are in big trouble. The European Central Bank (ECB) is trying to contain the problem and Greece is on the top of the pile. The IMF says it will be dealing with this problem later in June and won't push Greece into any kind of a default structure.
That news caused the Euro to rise quite a bit. We beg to differ on that. We have some relief for the time being, but the problems are not resolved. The Greek public is very angry about providing a national treasure for collateral (hard assets) in exchange for ECB and IMF fiat paper-money loans. This could go ugly very quickly.
Getting back to the fourth-quarter issue — that's the primary point we've got to deal with this year as stock and futures traders. Number two is controlling risk. In our view, you've got to control risk more than ever in the fourth quarter. You're going to see a lot of volatility, and it's going to scare some people; but, as long as you control risk, we think you're going to be fine.
Number three is going to be European debt. Greece, Spain, Italy, Portugal and Ireland can't control their debt, at this point; they're just piling more loans on top of existing loans. This is a combined effort among central bankers in numerous Western nations to try to save the Euro. They do not want the Greek citizens to pull out of the ECB and the Eurozone because there could be five more countries right behind them—and the whole thing will cave in like a house of cards. We think it's going to happen eventually, anyway. But they can kick the can down the road a lot longer than we can invest trying to go short.
TGR: What about China?
Roger Wiegand: Nearly everyone is saying that China is the place to be fully invested. That's understandable; however, China has serious problems, too.
The first was its version of the TARP (the US' Troubled Asset Relief Program) in the first quarter of 2010. The government pumped in roughly $550 billion within 90 days, immediately causing inflationary fallout after that first quarter. We're seeing the worst of that kind of inflation right now. Hong Kong has had unbelievable real estate inflation, with a 90% increase in prices over the last 12 months. Obviously, that's a bubble that's going to burst sometime.
China also has problems with general inflation, contributed to by the fact that China has to create 25 million new jobs every year, which is unbelievably difficult. It's doing its best, but simply can't do it. I think China's central banks are doing a better job than those in the US and in some places in Europe.
But I think it is in an inflationary bubble. It's got huge grain and power shortages and rolling blackouts. The next thing it has to deal with this year is drought, and China is not alone. The US and other countries will have drought, as well. China just announced a new "Cash for Clunkers" automobile stimulus plan similar to the US' plan. This is a bad omen.
Being futures and commodities traders, as well as recommending shares for our clients, readers and investors, we are heavily loaded up on grain this year. And we're planning the same positions for 2012. So, those are the issues that we think are serious and require a lot of attention at this particular time.
TGR: The US' and other governments have been trying to straighten out their finances for the last few years. Do you think any progress has been made, or is it just kicking the can down the road, as you say?
Roger Wiegand: Well, I think it's just can kicking. We're in a slow spiral, and I don't think there will be an imminent cave-in overnight. There's been progress in slowing down an eventual disaster. I think this thing is going to come to a head anywhere from one to three years out.
And we're on record as saying the end game, historically, is always a world war, which we're expecting in the year 2014. We wish we were wrong, but that's our forecast.
TGR: So, where does the US Dollar stand in this whole situation?
Roger Wiegand: A lot of folks think the Dollar is going to disappear tomorrow. We disagree with that; it represents 85% of the world's reserve currency. We're also on record as saying the Dollar can, in fact, go up in value to 82.5 on the USDX Index on a shorter-term technical projection, when this European problem comes to a head.
At that level, it would put pressure on commodities and, specifically, on gold and silver, but not enough to interrupt the longer-term rally trend of gold, silver and related shares. If the Dollar breaks under 69.5, we could see it tumble down to 55, 52, 50, 46 and bottom at 40. That's basically a 50% haircut from the norm.
For years, the Dollar has preferred to go to 80 on the Index. Today, we're in the 73.5–74.5 range. Although that's weak, it's not too far from 80. So, to get down into the 40s, some bad things have to happen, and it could be some years out yet.
TGR: Many people now say that the way things are going, we may end up with some sort of a gold-backed monetary system. What do you think?
Roger Wiegand: There's an excellent chance of that. If we had stayed on a gold standard, we wouldn't have many of the problems we have today. But there are other units of measure that could be used, as well. They could take a basket of global currencies, pick maybe five or six and have them combined under the umbrella of one new currency.
That's one option. Another might be to use units of energy as a trading currency, such as natural gas and crude oil. Those are huge markets and they do affect pretty much everybody throughout the world.
We think that if and after the war in three or four years, or whenever it happens, there will be a final solution between Russia and the United States as to who will control energy and the world. Nobody can tell the outcome of that. We recently saw some indications that, when things get ugly enough, there will be a coordinated, global currency shift in which all countries will get together and make a decision. Then, they'd have to implement it all at once. That could be very interesting.
TGR: In order for that to happen, we'd probably need a more-controlled environment wherein people can't play the markets to influence them. Otherwise, it'll just be a bigger gambling pool for people with big money to make more money.
Roger Wiegand: I would agree with that; however, traders have a way of finding new ways to trade. We've seen that with derivatives and some of the new futures ideas. New trading platforms in China have opened up; there's one for silver and one coming for gold.
If, in fact, some of the markets go upside down, it's my opinion that the options markets in Chicago or New York probably would get hit first because of volatility. But we have no real way of knowing what's going to happen. Traders are traders, and they will find a way. That's why the black markets work when currency doesn't.
TGR: So, in light of that, what are you telling people they should do with gold, silver, commodities and currencies these days?
Roger Wiegand: I, along with my friends in the commodities business, believe that, historically, the commodities cycle is 13–17 years. It could go as long as 24 years. We started roughly in 2000 or 2001. Gold and silver have had a long decade-rally run so far. As fantastic as this has been, we think it's only the beginning.
Historically, the majority of the gains in gold and silver are earned during the last six to eight months of a many-years-long rally. What we've seen thus far in gold and silver is only a drop in the bucket. So, where are we today with our recommendations? We're looking at all long and tradable ideas with very few short ideas. The ones that I have are going to take 6–12 months.
So, the first question we ask is: What happens if it goes the wrong way? What is our risk control? How do we use stops? What kind of percentages do we allocate to different kinds of trades? Then, of course, the overriding unknown is politics. Risk can generally be controlled as long as traders and investors don't get greedy and try to make too much money too fast. Historically, the people who do control risk are the winners.
TGR: So, narrowing that down to gold and silver, what do you think there? Was the silver market that we had sort of a concocted blowoff?
Roger Wiegand: Prior to the silver-selling event, when silver touched near $50/oz., I reported that there would be a major selloff because that was the old high back in 1980. Technically, when price touched between $48.50/oz. and $51/oz., I knew we were going to sell back. I said it would go down between $5 and $15, and it did exactly that.
So, on the next run, we're looking at $41.85/oz. To really break out hard and get silver beyond that old high of $49–$50, we'd need three hard closes over $51/oz; then we're looking at $55/oz. resistance, and then at $59.85/oz. My 2011 projection, if in fact things happen the way we expect, is for silver to be at $59.85/oz. as a minimum high.
Where is gold going to go? It stalled at $1,585/oz. during its most recent high and came back. Now it's gradually crawling back up the hill, but we're liable to go into choppy markets all the way through the second and third week of August. But we're looking for a possible mini rally in the middle of July. Nothing exciting, but it will be a noticeable mini rally. So, we like gold, silver and all the grains.
In terms of currencies, we like the Swiss franc long. We like the Euro short, but not right now. Also on the long side, we have been trading crude oil. The next things coming are heating oil, natural gas, and then crude oil again. All long positions. Inflation is a major factor. You can see just the beginning of it in food and energy.
There's no way Bernanke can stop doing what he's doing because, even if he got a one-point rise in interest rates, that would kill all the paper profit the Federal Reserve is reporting on its balance sheet currently. Depending upon how things go, we could easily see a stealth quantitative easing 3 (QE3) and QE4 following quietly in the steps of QE2. It simply cannot continue indefinitely.
TGR: How are metals prices going to affect resource stocks? What do you see on that horizon in the coming months?
Roger Wiegand: Most markets are generally flat over the 60–90 days of summer, until Labor Day. We think the shares of our junior miners are going to be fine. Trader Tracks looks for opportunities that have the potential to gain 20%–25% within three months. Obviously, we're not perfect and neither is anybody else. But we've been pretty fortunate in finding some really good ones. For all of 2011, we expect some of our picks to be up over 100%.
Although we are traders, I try to recommend trading the shares as little as possible. However, we're almost forced to trade at least a couple of times a year. There are stocks in our newsletter on their fourth or fifth trade, and some of them have gained from 20%–200%.
We can't really post our record as a group, because the trading math makes it confusing. But what I try to do is let traders pick and choose what they want. We name a stock, an entry price, a price goal, a timeframe and an exit price. Whether or not we exit at that predetermined price depends on what happens in the markets as we go along. But some of the returns on these juniors have been absolutely fabulous.
I know you have some analysts who have done write-ups in The Gold Report. In Trader Tracks, we periodically feature what we call the "Miner of the Week." We do a four-page write-up on a company showing the charts, our technical forecast, where the company's been, where it is today and where it's going in our view.
We would encourage traders to do their due diligence and get educated. We're not registered advisors, and I don't manage funds. I write a newsletter and give my opinions; I give the facts as I see them. One of the things we do that not many others do is call prices and forecasts with hard predictions. If we're wrong, we're wrong. But generally our trend has been good. Calling tops and bottoms is a fool's game. If you can get on the trend and you have a good solid organization, you should come out pretty well.
TGR: So, in light of that, do you have any final thoughts you'd like to leave with our readers?
Roger Wiegand: Volatility scares a lot of people. Anytime there's a bit of a correction or a downturn, they get upset. I think it's best to keep things as simple as possible. Start out with long-term charts, and look at the history of a company and/or a market.
Figure out what's liable to happen at a certain time of the year, based upon history, and then look at the technicals on the charts. Put those facts together, and I think you can do pretty well. Those who have the nerve to stay in and be invested at the right times are going to do exceedingly well.
TGR: You've given us some very good insights here. There are some potentially scary things on the horizon, but at least people will be able to prepare for, and hopefully profit from, them.
Roger Wiegand: I think they will.
TGR: We appreciate your time, Roger. Hopefully, we'll talk again soon.
Roger Wiegand: I appreciate the opportunity to visit with you today.