Eighty per cent of the precious metals bull market lies ahead...

DEVOTED TO INTENSIVE RESEARCH in precious metals, currencies, energy and financial markets for 17 years, Roger Wiegand produces the popular Trader Tracks newsletter online, and is a regular contributor to popular websites and radio shows addressing the commodities markets in the US and Canada.

Warning that the broader stock market's still on tap for a ferocious fall after Labor Day, "TraderRog" here speaks with the Gold Report about the makings of some "pretty exciting" action in precious metals...

The Gold Report: When we chatted in May, you predicted a major selling event this fall. Is the move that started in mid-August the beginning of that?

Roger Wiegand: No, we're not quite there yet but we see the first glimmerings of an attempted top during this last week of August. I think we have a little more time for the final shares' thrust to the top. There may be room for one more wave up. And, then after Labor Day and moving on into September, we'll hit the spot where we're predicting the big sell. The date we think when markets are going to drop is September 15.

TGR: You also projected that the Dow could rally up to nearly 10,400. Do you still see that happening before September 15?

Roger Wiegand: There's a chance, but I now think 9,800 is more probable. Months ago we said 10,400-10,800, but I give it a 1-in-3 chance for it to rise to 10,400 now.

TGR: When it drops, how low will it go?

Roger Wiegand: In a longer drop, technically on Elliott Wave theory, instead of doing an ABC sideways channel-type correction or going into a continuation triangle; prices can begin selling down in steps and stairs in a full five waves, first on the dailies and then into the weekly. It depends on how severe certain things get – we can't measure that – but technically we could go back to 6,600-7,250 on the Dow this fall.

TGR: What would that mean for worldwide markets?

Roger Wiegand: Well, it's going to be pretty bad. The last time we went through this, the big stock market went down and gold and silver and some of the other markets still had some remaining power and, still earned quite a bit of money. The thing that really irritates me is the fact that people who owned both precious metals and related stocks had to get out of the precious metals. They had to raise cash to cover their other problems. Many have learned from the lesson and this time I don't think they are so far out or so long in a lot of the shares.

The major difference – and this is very important – is the juniors. A handful of juniors are so good that we're almost ready to say, "Just hang on, despite knowing you're going to get hit on the head probably in September-October. You're not going to be able to put your money exactly where you want to, so it may be better to hang on or sell half and keep half and then buy in again after the end of October."

TGR: So you'd be inclined to hold on?

Roger Wiegand: I see three options. You can hold and grit your teeth knowing you might get cut in half. That's pretty typical and I think it could happen. Or you can sell half and keep half, knowing that the half you keep might get cut in half. Or you could sell it all, deal with your tax event if you've had some good gains, and then be careful about when you get back in.

TGR: Either way, you're still expecting a pretty frightful fall?

Roger Wiegand: Yes, traditionally, the stock market has its worst month in September. That's just by the numbers over the years. Now it's a little worse because of what happened last year and fundamental market conditions right now, but those calendar days and cycles still work to some extent. So I think we have a good chance for precious metals shares to take-off and get going again after October 31.

Keep in mind another key date in the fall. The December gold and silver futures for traders usually expire between November 15 and November 25. People sitting with big gains as we approach those dates are probably going to take them, which will knock down both cash prices and December future prices.

TGR: That's pretty dicey timing.

Roger Wiegand: It is a little convoluted going through that period. Probably the safer way to play it is if you're in the shares trading seniors, get out of the way. Especially if you have a lot of premium senior stock; you can exit before the market goes down and park your money in an ETF or cash such as the Canadian Dollar – which I like as a longer trade. Then when the stock market comes back, investors and traders can re-enter with the seniors and juniors again. But this September thing looks pretty scary.

TGR: What exactly is making September so scary? And why now after having an incredible rally during summer, which is typically slow?

Roger Wiegand: You know the phrase, "Sell in May, Go Away." Now this year the "Sell in May" thing was tardy. It happened four to six weeks later, which pushed calendar cycles forward.

TGR: How will you know when it's relatively safe to get back into the stock market?

Roger Wiegand: As far as shares are concerned, I would be very guarded about going into anything after Labor Day. The first thing I would work on is an exit strategy. Let's say somebody owned a really top-notch senior stock, made a lot of money and wanted to preserve those gains, but stay in the market – they didn't want to sell. They could either sell half and keep half or keep it all and jam a stop under it really tight, because if a senior stock with big volume starts to go down and hits your stop, at least you'll preserve most of what you've earned. Exit liquidity is strong on the seniors.

The problem lies with the good junior stocks. Their tradability in the middle of a downer is not good. Let's say you pay $1 for a stock and it's now $3. You've made a lot of money. Suppose you put in a stop at $2.80. Come this fall you're liable to get a fill way down lower than what you wanted simply because no one is available to buy those shares. Nobody wants to get in front of a falling knife.

It's difficult, it really is, because we like the juniors for the upside and potential for big gains, so you've got the three choices I mentioned. Quite frankly, if somebody owns a lot of shares in a junior company and has made a lot of money, if I were in those shoes, I'd take the money and be looking immediately to find the re-entry spot for a comeback. Some very, very interesting things are on the table this fall – in the fundamentals, in foreign relations, in government, in credit, in the Dollar, in bonds and in international markets. It could get pretty exciting, it really could.

TGR: Many very smart analysts are looking to the BRIC economies to pull the rest of the world out of recession, that these countries' economies will turn first and grow first. Do you share that belief?

Roger Wiegand: I did before, but not now. Things are deteriorating all over the world. The engines of growth are melting like snow in July. Argentina and Brazil have been pretty hot for a time, but they're starting to have problems. Russia is in much worse condition than a lot of people think. Eastern Europe has been very bad during the last four to six months. Many loans they received from Western European banks denominated in Swiss francs are expiring to be recycled and they don't have the credit to recycle them. Most important of all are those massive bubbles we see in Chinese debts, real estate, their shares markets, and severely falling exports to the West.

So if you look around at all these places, where is the engine of growth? Nobody can explain where there's some big power to hold things together. On the other hand, there is some power that can make things move-trade – in the hedge funds and the billions being printed-originated in bonds and Dollars in the US Foreigners are getting more skittish but some foreign countries are still investing and trading in New York markets and perhaps the Asian markets. So there's a major divergence between the economy and the stock markets. The stock markets can levitate beyond where the economies are and the economies are sinking.

There are always the exceptions, and the exceptions confuse people. In Brazil, for instance, Ford has a state-of-the-art auto plant that's almost fully automated and running 24/7. It's their finest, most up-to-date factory, but that's an exception as to what's going on in most places. Another exception is that General Motors, despite all their problems and troubles, is selling 150,000 to 180,000 Buicks in China. Since the 1920s, Chinese auto buyers have preferred the American Buick. It's really kind of an anomaly. GM wisely got over there with a factory and built some good Buicks in the '20s. Everybody in China lusted after a Buick. They like the Buicks even better than the Cadillacs. That little paradigm continues today and they're selling Buicks like crazy. I think that's another reason why GM kept the Buick brand. They didn't want to kill that line because they're doing so well with it in China.

TGR: So all of these economies are going to spiral down?

Roger Wiegand: I think they will. It's just degrees and how far they fall. One thing China has in its favor is some organic growth because the economy has grown so quickly. Their standard of living has come up. However, compared to where it was before or compared to the United States, China isn't strong enough to offset all the exported US sales they have lost. The Chinese economy is 25% the size of the US economy. Consider the population of the US at 330 million and China at about 1.4 billion, and that tells you there are still a lot of poor people and unemployed people. Just to stay even, the Chinese have to produce 24 million new jobs a year. It's just impossible. It's just not there.

Bubbles are bubbles; they have a stock market bubble and a real estate bubble, a lot of commercial real estate that's vacant and a lot of overly leveraged projects that aren't going to produce the kind of income stream they expected perhaps three to five years ago.

TGR: On a bit brighter note, let's go back to the precious metals camp. When will gold go above $1,000? And when it does, will it stay?

Roger Wiegand: I think it's important we all watch key numbers for gold. There's pressure at $1,007; that's a hard resistance number. We have to get through there. The next technical number that's very important is $1,032.50. If we can rally past it, it appears we'll start a run-away to the upside. If I see some closes in gold past $1,050, I'm going to be a happy camper. I think at that price we're going to be off and running toward my $1,250–$1,260 forecast for December.

My high call for gold on the December futures has been $1,250–$1,260 for months. I want to stick with that, although some have said it could go into the $1,300s. The pressure is definitely on the upside. You could see it in silver in the last few weeks. Is it selling? Is it correcting? Sure. But we're getting higher lows; we're seeing more pressure toward the buy side in a bias, despite what the calendar is telling us.

TGR: How low would you expect gold to go when we have this market pullback?

Roger Wiegand: Still this month we may see it go as low as $915 to $907. After Labor Day, brokers will come back from the beach and will want to get busy and start buying shares, so things should move up a bit. But I think after a couple of weeks back in the trading saddle, prices are going to hit the wall. When they do, that's the question mark. If the bullion banks don't really crush gold and sell 10,000 or 20,000 short futures contracts when it's at its weak point in the first two weeks of September, chances are it could go into a runaway.

TGR: What do you suppose the bullion banks will do?

Roger Wiegand: If they see gold going to the point where they're going to lose control and they can't stop it, they're going to enter buy positions in front of the rally train because they want to make money. That's when you'd see a quick take-off beyond $1,050. Then somewhere up at around $1,300, $1,400, people are going to say, "We've made enough money." Then price will probably come back to a profit-taking higher low, something like $1,150 or maybe $1,200.

TGR: For those who have cash, how would you play the physical metal versus equities?

Roger Wiegand: You want to hold physical, of course. Never mind the prices; just sit and hang on. As for the mining stocks, if someone came to me with a lot of cash, I would recommend sitting tight for a little while and wait until after September and maybe a few weeks more, then look to buy in and get onto the best part of the forthcoming rally. But historically, the last time this happened, 25 or 30 years ago, if somebody threw darts and picked 20 juniors, as the story goes, they made a 395% gain. Some were complete losers, some made a little bit, and a handful made a bunch – anywhere from 1,000% to 2,000%.

Some people keep screaming diversification and recommend buying several companies. I think it's better to have a small nest and watch the nest. Most of us know who the top two, three or four seniors are. With the juniors, of course, everybody has an opinion, but I've gone through a sifting period for the last five years and think I've got my selection pretty much weeded out.

TGR: Any parting words, Roger?

Roger Wiegand: One more point I might make. I think 80% of this whole rally in precious metals is ahead of us. It could come this winter, it could be a year from this winter, but we're getting closer and it's going to be very interesting. Everything we have done since 2001 is just opening the door. We haven't seen anything yet.

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