The Falling Dollar And Debt Drives Gold And Silver
Rolf Nef
Tell Gold & Silver Fund
6 January 2011
Tell Gold & Silver Fund
6 January 2011
Since August 1971 the US dollar drops in a cycle that created every 8th year a bottom. The first three bottoms - 1979, 1987 and 1995 - are very clear visible, a bit less so the one in 2003. If the dollar follows this cycle, 2011 should be another year with a dollar bottom.
The drop from 1971 to 1979 was much faster than the following downtrend, but which could accelerate again, once the lower trendlines will be broken. The next line (see next graph) is just below the current price followed by another one at 07.8. The lowest one is at around 0.55 to the Swiss Franc, roughly 40% lower.
The chart of the Swiss Franc to the dollar does show a long history what helps to analyse, but economically it is not significant. A better indicator for that is the dollar-index, weighted with participation at the US foreign trade of each currency. But also this chart indicates, that the US currency will break to the down side. One the one hand side got the lower trendline already three times touched and on the other hand side exist a triangle since 2005, which upper and lower trendline got both already three times touched. A decision will fall soon and most likely to the downside, as the last downleg as shown on the daily short term chart from June to November was impulsive, followed by only one month correction.
The formation from 1992 can also be looked at as a head-shoulder with the head in 2001. The distance from the head to the neckline, which is at 80, is 40 and points - deducted from the neckline to the downside - to 40!! Such a move in this year would be a dollar panic. Also one has to put into consideration, that the break through the neckline and the retracement has already happened. Technically the market is very ready for such a move. Is something like that possible and what would be the economic background?
Since the US balance of payment became negative (e.g. negative trade balance, negative current account and negative balance on capital income), 9'000 bio $ have piled up in foreign hands, mainly in Asia. That's a long position and still growing as long as buyers can be found. But these holder could reduce their dollar position and sell partly. Most likely that would lead to a panic, a fast drop. Therefore it is not surprising we see such a heavy propaganda against the Euro. It seems the last weapon for the unavoidable.
That this scenario has a high probability is also due to the fact, that the US economy will not start being very active again. The main reason is the too high debt burden on the private sector. This sector will not start building new debt and becoming economically active. To the contrary, it tries to reduce the debt load.
Gold and Silver
For the dollar we have only a yearly cycle that points for 2011 as a bottom year. For gold we get more precise cycles also for 2011, but pointing for specific months.
Since the gold bull started in 1835, all bull and bear phases until 1968 happened in exact yearly Fibonacci numbers. From 1968 on the market got faster and switched to monthly figures:
- March 1968 to January 1990: 142 months (closed to 144).
- January 1990 to August 1999: 235 months (closed to 233).
- August 1999 plus 144 months would be August 2011.
- October 2006 (end wave 4) plus 55 months would be May 2011.
- June 2003 (start silver bull) plus 8 years point to June 2011.
Where could the prices be? Look at the lower graph with the three simple trendlines. On the one hand side form the two parallel ones (1934 - 1980 and 1968 - 1999) the channel since 1934. It would be only normal to reach the upper trendline, but which is around $7,000! Even that is very hard to imagine this year -- and I am not willing to do a forecast, the line is still up there. But one has to know that and take into consideration and not rule out as impossible.
On the other hand side forms the trendline from the top in 1869 connected with the top in 1980 the upper line of a rising wedge. Rising wedges are normally negative and drop to the downside, but in commodities very often they go the other way round and are very powerful. I think this is the case here.
More clearer than gold shows the silver chart, that it is in the second upleg of its bull move that started in 1932. Before the third upleg can start, a correction must lie in between, but this will start much higher up, as the high of 1980 is even not yet surpassed, as it is the case with must commodities. And even despite the fact that there is less silver around than in 1980 and much less than in 1900. Today the amount of silver stock is only about 1 bio oz but was 12 bio oz in 1900!! That's why the silver market is only about 1% of the gold market or 30 bio $ relative to 3000 bio $. But it used to be about 30 - 40%.
Even here the technicals point to an explosive future of the silver market. During the fast move from September 2010, the market produced not one gap. This phase is still ahead of us. Despite the scarcity of silver, its relative price to gold is still 1:46 and therefore cheap. Will it fall clearly below 46, it will trade at a level no more reached since 27 years (1983). And something more you get out of this chart: when the gold bull started in March 1968, gold moved faster than gold as silver had its move before, the ratio was around 1:16. But also at the top in January 1980, the ratio was still at 1:16. But now, in front of the parabolic phase, the ratio is still 1:46.
That's why silver is so promising in that phase:
- Extreme scarcity with only 1% of the gold market and only 30 bio $ capitalization
- Short positions in the market
- No large government holdings
- Still cheap relative to gold
- Not yet any gap in the chart
The Princeton Cycle of Martin Armstrong
Because the dollar cycle points to 2011 as a bottom and the Fibonacci cycles for gold point to summer 2011 as a top, I would like to point your attention on the 8,6 year cycle of Martin Armstrong, which points for June 13th as a potential turn. How is that cycle calculated? Armstrong discovered this cycle - 8,6 years are exactly 1000 Phi days. Added to 1928,75, the exact date of the crash, or fractions of it as �, � and 1/8 you get dates which represent very significant market actions:
1987,8: the stock market crash in the US and most other countries.
1989,55: Nikkei top.
1998,55: top stockmarkets followed by the Asia crisis.
2002,85: end of US stockmarket bear from 2000.
2008,225: top commodities and dollar bottom.
2011,45 ?? (also nothing is possible).
All three cycles - each independent from the other - deliver no guarantee - but raise the probability that gold and silver will interrupt the bull move to complete the middle leg. After a pause they will go on even more extreme. Such a final leg is always steep and explosive. The fundamentals will confirm the rising market: bankruptcies and a falling dollar.
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The Strategy of the Tell Gold & Silver Fund
It has been the strategy of the "Tell Gold & Silver Fund" from the beginning on to target the parabolic phase of the silver market. Because it is so cheap and scarce, this phase must become above average what has happened until now in history. As this phase is still ahead of us and probably closed, the fund keeps a large position of silver call options and the rest in physical. The leverage with options avoids a margin call during hefty corrections or interventions. But the fund can also reverse its position to short or to 100% cash.
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