Gold and Silver Precious Metals Forecast 2014

Yes folks, it’s that time of year again; but unlike old Khayyam who reflected bucolically on the continuing availability of wine, we must turn our thoughts to the dangers and opportunities of the coming year. They are considerable and multi-faceted, but instead of being drawn into the futility of making forecasts I will only offer readers the barest of basics and focus on the corruption of currencies. My conclusion is the overwhelming danger is of currency destruction and that gold is central to their downfall.

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1. The Western super-crisis entered a lull period in 2013, and surging economic growth in America has become the main focus of most mainstream analysts.
2. The stock market tends to lead the economy by about six months, so it’s likely that much of US economic growth in 2014 is already priced into the Dow.
3. For the long term, I would focus more on Asian stock markets than Western markets, partly because population demographics show that the West has an ageing population, while most Asians are relatively young.
4. Please click here now . While the US stock market is being carried higher by fewer and fewer stocks, the Chinese stock market (using the FXI-nyse proxy) appears to be verging on an upside breakout from an enormous symmetrical triangle pattern.
5. While I’m totally out of the American Dow, I do own the Chinese market. I’m a buyer of more FXI on every 50 cent decline, using my “PGEN” (systematic risk capital allocator).
6. Please click here now . After QE was unveiled in 2008, Western investors began to buy gold and related items with aggression. They believed that the Fed’s QE program would dramatically increase the money supply. As you can see from this chart, they were correct.
7. Unfortunately, these investors didn’t understand that if a huge money supply has declining velocity, there is no meaningful inflation created, at least in the short term.
8. By 2013, mainstream reports showed that inflation had still failed to materialize. Demoralized QE-focused investors began to liquidate their gold and related holdings, and booked substantial losses.
9. Did they give up just as money velocity is about to reverse the downtrend? I think so. Please click here now . This M2 velocity chart shows the long term money velocity story; as the public surged into the stock market in the late 1990s, corporate executives began hoarding cash, and they have continued to do so.
10. “For at least a decade and a half, cash has progressively increased its share of the American corporate balance sheet, to the point where U.S. quoted companies have turned into the Scrooges of the global economy…. Such is the scale of this cash pile that the U.S. corporate sector must have been partly responsible for the surge in demand for safe assets and the decline in interest rates that fueled the U.S. housing bubble.” – John Pender, Financial Times, December 31, 2013.
11. Powerful investors like Carl Icahn are suddenly putting a lot of pressure on companies, to put their hoarded cash to work. I believe that corporate profit gains from cost cutting are peaking, and further gains will only come by increasing revenues.
12. The probability of a turn up in money velocity in 2014 is growing, because corporate spending is likely to grow. Please click here now . This M1 velocity chart shows the collapse in velocity that has occurred since the QE program began.
13. QE tapering will force investors to move away from mortgage securities and T-bonds. They will likely invest those funds in the stock market and private equity funds. Their substantial liquidity flows will boost M1 velocity.
14. I predict that M1 velocity will not simply rise, but begin to surge, as QE is tapered all the way to zero in 2014.
15. If the stock market is correctly anticipating that economic growth will increase nicely over the next six months, demand for base metals should soon overwhelm supply, creating higher prices.
16. Please click here now . This is an interesting long term (quarterly bars) chart for copper. From a technical perspective, the 2008 collapse took the price precisely to a key trend line in the $1.50 area, but most of the trading since 2006 has taken place in what I call, the “Asian growth zone”.
17. If a rise in M2 velocity occurs as the Chinese stock market breaks out upside, that could raise the price of copper above five dollars a pound, into what I call the “inflation zone”. Institutional alarm bells would begin to ring, and they would begin to buy commodity markets with a fair bit of size.
18. Please click here now . That’s the daily copper chart, and there’s a key bullish breakout in play.
19. The price of gold may have numerous rallies in 2014, but a reversal in M2 combined with five dollar copper could set off much bigger buying of all inflationary hedges.
20. Please click here now . That’s the daily uranium chart, using the U-TSX proxy. Note the rare triple bottom in play. Gold bullion is my largest holding, and it always will be, but moving a small amount of capital from gold bullion to uranium, copper, and palladium, is probably a prudent action to take now.
21. Those three markets will likely be the first commodities to react to a reversal in M2 and M1 velocity, and the simple fact is that the early bird gets the biggest worm!
22. Please click here now . Double-click to enlarge. This weekly GDX:GLD ratio chart covers about five years of the price action of gold stocks against gold. Almost every technical indicator on that chart is flashing a bullish non-confirmation signal.
23. Also, please note the stunning volume that has occurred over the past few months in gold stocks compared to gold. There has been some dilution of shareholders, but the bulk of this volume is likely related to a “changing of the guard” event. There is also “wedgification” beginning to appear on that chart, where one large bullish wedge morphs into smaller bullish wedges. That’s also very bullish.
24. Strong hands understand that accelerating money velocity creates inflation. Accelerating the velocity of a money supply that was dramatically expanded in size by QE, could unleash an inflationary monster, and create a dramatic 2014 outperformance of gold stocks against gold!

Dec 31, 2013
Stewart Thomson
Graceland Updates
website: www.gracelandupdates.com
email for questions: stewart@gracelandupdates.com 
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Gold held steady in thin year-end trade on Tuesday, on course for its biggest annual decline in 32 years as prospects for global economic recovery prompted investors to switch to riskier assets.

After a 12-year bull run gold has shed around 28 percent in 2013, with the U.S. Federal Reserve’s plan to step away from ultra-loose monetary policy undermining the investor case for holding bullion.

Years of accommodative monetary policies had propelled the price of gold to all-time highs of $1,920.30 an ounce in September 2011, as low interest rates encouraged investors to put money into non-interest-bearing assets.

“As soon as short-term interest rates start rising then you can’t afford to invest in something that doesn’t pay yield like gold – it’s going to be equities and … money market funds will also seem more attractive,” Standard Bank analyst Walter de Wet said.

“In that sort of environment (of higher rates) the key is the yield and also the credit risk, which is substantially lower right now, and not really working in favor of gold demand.”

Spot gold was up 0.1 percent at $1,197.66 an ounce at 1307 GMT, while U.S. gold futures for February delivery fell 0.6 percent to $1,197.40 an ounce.

In wider markets, world stocks were ending 2013 close to six-year peaks and benchmark bond yields were poised for their first annual rise since 2009 as investors celebrated a pick-up in global growth with expectations of more to come. <MKTS/GLOB>

The dollar .DXY was on track to end 2013 modestly higher against a basket of maincurrencies.

Gold was also set to post hefty annual losses in other currencies, with prices in euros down 31 percent on the year, the first fall since 2004. Prices fell 30 percent in Swiss francs and 29 percent in British pounds.

FUND LIQUIDATION

A drop in exchange-traded fund holdings showed investors had lost faith in bullion as a hedge against inflation and an alternative investment after the U.S. Federal Reserve announced plans to trim its monthly bond purchases.

Holdings in the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.37 percent to 798.22 tons on Monday, their lowest since January 2009. <GOL/ETF>

In Singapore, premiums for gold bars were unchanged at $1.50 an ounce to spot London prices, while in Hong Kong, offers stood at between $1.50 and a high of $2.00 as some suppliers were running out of stocks.

In other precious metals, silver fell 1 percent to $19.37 an ounce. Silver is down 36 percent this year in its worst annual performance since at least 1982, making it the worst-performing precious metal in 2013.

Spot platinum was up 0.1 percent at $1,355.99 an ounce and on course to post a 12 percent annual loss. Best-performing palladium rose 0.3 percent to $708.25 an ounce and is set to end the year up nearly 1 percent.

(Additional reporting by Lewa Pardomuan in Singapore; Editing by Jason Neely and Dale Hudson)

Gold makes people do wild things. Ancient Egyptians melted it to decorate their dead. Sir Walter Raleigh searched for alost golden city. Shiny flakes of it set off a 19th–century rush to California and ship captains never stop looking for it at thebottom of the sea. Today’s investors are wildly selling it, with 2013 marking the first yearly gold-price drop since 2000. After jumping sevenfold during a 12-year bull market — a run matched by only a handful of assets, including U.S. Treasuries and stamps — it’s wallowing near a three-year low, down about a third from its peak. Only silver and corn performed worse among commodities in 2013.

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