More upside envisaged ahead for gold and silver – but bigger swings too...
TRADER TRACKS editor Roger Wiegand expects cyclical action to take gold and Silver Prices higher in the first half of 2012. He expects Gold Prices to hit $2,050/oz and Silver Prices to see $44/oz or even $50/oz. In this interview with The Gold Report, he says he also sees a lot of volatility given the political and economic situation in the US and the EU.
The Gold Report: Roger, you attributed the recent uptick in the Gold Price in part to large funds bidding up the price. But these funds have also shown their willingness to sell their gold positions to cover their short positions. Can gold investors look forward to more volatility this year?
Roger Wiegand: Gold is coming back very strongly right now. People in India, China, Japan and Canada are buying lots of physical gold. In addition, some central banks that were selling gold are now buyers.
We anticipate two more rallies between now and the end of April. On the six-week rallies, we should go up to $1,807/ounce (oz), then pull back, then go up to $1,923/oz, then pull back, and go on up to $2,050/oz by June.
TGR: Is the upward price pressure driven by funds coming back into gold, or is there something else?
Roger Wiegand: That's a large part of it. If a big fund comes in and buys the CRB Commodities Fund Index, it has to place quite a bit of cash.
There are eight or nine commodities in the CRB. For example, if a fund buys a basket of commodities for $100 million (M), half of it would be crude oil, along with gold, silver, grain and a variety of other things. When a fund buys a basket like that, it cannot move too quickly because of the amount of cash invested. Normally, it would be looking at a minimal 90-day trading operation. If the prices turn against it, the fund can leave with the click of a mouse. But normally it rides the intermediate trend working to stay in the trade for several weeks.
In August, someone paid $25M for 10,000 gold spreads, priced between $1,900/oz and $2,300/oz. Another order came in last week for 5,000 more contracts, which went as high as $2,600/oz. Somebody with a lot of money, probably a big bank or a fund, is buying long spread positions in gold all the way from $1,900/oz to $2,600/oz.
TGR: Are you piggybacking on that?
Roger Wiegand: We are not out that far yet. My highest position for the first half of 2012 is close to $1,900–2,000. Other analysts are coming up with similar numbers.
TGR: Throughout Q411, the Gold Price remained weak, largely on concern over the situation in Europe. What is your best guess as to what happens next in Europe?
Roger Wiegand: Greece will default, but I think it will be an orderly default. I think Portugal will default. Italy and Spain are on the edge, but they are so big that a way might be found to manage them.
If things get disorderly in Greece, it could cause a contagion that would spread across Europe very quickly. First, stock markets would crash. Second, and more importantly, it would mess up the bond markets, which are 70 times larger than the stock markets.
The US banks have big investments in Europe. If things go upside-down in Europe, New York will be in a world of hurt. Japan and China also have investments and export markets in Europe. Everybody is tied together in this problem.
When the stock markets are at their weakest and most vulnerable, they are prone to a big selloff, a selloff that some people would call a crash. I consider it a crash when the selloff is 50% or worse. A 20% selloff, which some people call a crash, I call an adjustment.
Consider gold as an investment during an adjustment. If gold goes to $2,450/oz by the end of 2012 or early 2013, there will be normal, profit-taking correction. When that happens, the Gold Price could drop back to $1,920/oz. People will say that is the end of the gold market. Not true. It would be just another correction that happens to be wider than previous corrections. We have repeatedly reported the precious metals would trade with more volatility and wider daily trading ranges, and when a correction arrives, it would be large.
TGR: As your followers know, you're a technician. What do your charts tell you about macro trends for Gold Prices in the short, intermediate and long term?
Roger Wiegand: Short term, which for us would be two to four weeks. We are now doing the typical ABC correction after a five-wave up on Elliot Wave. At the juncture when the ABC is done, normally the price is will go higher on a new rally, starting all over in five waves up, or the ABC will turn into a five-wave trade down. That could happen as many as three more times by spring.
For example, looking at my April futures chart , I see gold at a low of $1,524/oz and a high of $1,758/oz. The support in the middle of the chart is about $1,607/oz, maybe $1,615/oz. If we had a harder sell before the middle of March, it could go down to roughly $1,632/oz.
In the intermediate, which would be three months, we are looking at a couple more cycles for both gold and silver. By the end, we expect gold will be at $1,923/oz. If we are fortunate, we will go all the way to $2,050/oz. And a newsworthy event could drive the investment posture higher.
The long view, which covers all of 2012, is tougher to figure. This is largely due to the inability to pinpoint what will happen in politics, government and markets for Q412. Our posture right now is to stay out of it and watch what happens over the next three or four months.
TGR: In 2009, you made a 95% return by trading spreads on gold, silver and soybeans. What sort of offbeat trades are you making now to mitigate risk?
Roger Wiegand: The open trades now in our newsletter would be silver for March, multiple gold spreads for April, May spreads for crude oil and silver, gold for June, and a July spread for corn.
We are pretty loaded-up on gold and silver, with the bias toward gold. The silver market got a good whack on the head when it went from $49/oz to $26/oz. When a market gets hit that hard, it usually takes six to eight months to come back. This morning, silver was $34.45/oz, with a lot of congestion between $30.48/oz and $34.48/oz. When silver can get past $34.48/oz, it should be a quick move to $36/oz, then $38/oz. My low-side minimum forecast for silver in the first half of 2012 is $38.85/oz. We have a pretty good chance of getting up to $41.44/oz.
If things really begin to get quite volatile this year, I think you could break $50/oz. Our next higher number for silver is $59.85/oz. Some of our smart analyst friends who are a little bolder, have numbers in the $60s and one is even above $70/oz.
TGR: Roger, thank you very much for talking with us today.
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