“We see no reason why this gold trend cannot perform as well as the last bull market in gold between 1970 and 1980.”  A replication of that move, “will take gold to $6,300.” 

“The longer gold consolidates, the more we believe it sets up the platform, like 2006/2007, for the move higher.  Certainly if we start to get a move up through $1,640 to $1,650, it looks to us like the upside move is finally starting, particularly if we can push through that $1,790 level. When the move kicks in, we think it will be a very quick move to the topside. When we look at the move in 2006/2007, if we follow that trajectory it should take gold up towards $2,400″. 

More from Tom Fitzpatrick’s latest report:

“Gold still remains above the supports in the $1,520 area which the market has tested three times over the past year.  The parallel of the trend across the highs also comes in here (currently at $1,532).  The first resistance level to watch is $1,665 which is the trend line down from the highs and a rally through there would amount to at least a short term bullish break (see chart below).

Important resistance above there is at $1,790-$1,802 which marks the double (or triple) bottom neckline and a breach of that opens the way for new trend highs (see chart below).  The price action here reminds us of what was seen in 2006 after Gold corrected down from $730 to $542 (a more aggressive correction then in percentage terms than the one seen since last year’s high).  The market spent a long time consolidating but ultimately rallied to new trend highs in the second half of 2007 (as the credit and banking crisis worsened).

New highs (for gold) in 2013 (if we follow the pattern below)?

Brent (see chart below) has continued to push higher this week and is above the resistance area around $113 where we saw the previous rising trend line (which became resistance) and the 61.8% Fibonacci retracement of the fall from the Feb high.

A weekly close above here would suggest higher levels towards $119 (76.4% Fibonacci retracement) and possibly the trend highs again at $127-$128.  The real concern here is that a breach of $127-$128 would be a major break opening the way for the 2008 high at $147.50 which is $31 (26%) above current levels.  

Having seen the ‘shaky’ US (fundamentals) and keeping in mind that Europe is still in severe economic turmoil in addition to a slowdown elsewhere (especially China), it is difficult to see a rally in Crude of this magnitude coming from a demand side dynamic.  We therefore have to entertain the idea that either Brent will not rally back to $147 or that a supply shock may take it there.

Grains

The minimum target on this double bottom (linear) would be a move towards 85 with a percentage change target suggesting as high as 108- Close to the major peaks posted in 1996-1996 (see chart below).

Overall:  

We see the danger of further gains in Oil (particularly Brent) possibly by as much as $30+.  Food prices have risen aggressively and there are few, if any, indications of a turn in trend.  Economic commodities such as metals continue to look weak with breaks already having taken place on the LME Index and Aluminum and key support levels on sight for copper. 

Bottom line: 

1. What we have to pay for is rising in price.  

2. What we choose to pay for is falling in price reflecting stresses on the consumer and businesses alike.  This is not a positive dynamic in a very uncertain environment. 

3. Over time the outperformer will be a “currency” rather than a commodity (Gold) as major central banks react to the first two and the economic stresses associated with the dynamics there. 

The most concerning charts here are those on Oil which we fear will break higher and ultimately create a negative feedback loop that could at some stage become a negative backdrop for equities.  Europe will suffer most given their economic fragility and currency weakness.”

Fitzpatrick also told King World News, “If we were to repeat the 1970 to 1980 move, in percentage terms, that would put a target as high as $6,300, which I mentioned earlier.  However, that incorporated a surge late in the trend in ‘79’-’80, which included a Russian invasion of Afghanistan.  Absent that move, the trend seen at that time would still give us a move on gold to $3,400.”

Two clips from Mark Leibovit’s 19 Page VR Gold Letter

Bill Haynes, operator of CMI Gold & Silver, “Right now we are seeing very large physical orders for both gold and silver. It is very interesting because these are entities with large existing holdings of both physical gold and silver, but for some reason, right here, right now they are adding sizable quantities to their existing positions. These are wealthy individuals that are very strong hands and they are taking the metal right out of the market, and believe me, these individuals are never sellers. They see gold and silver as a hard asset that has been money for thousands of years, and they are pulling it out of the market and putting it away.” Haynes adds, “It is also very interesting that we are seeing an equal amount of money going into both gold and silver.” Haynes concludes with “This is a financial crisis supreme, and the universal solution continues to be the printing of money. This will eventually lead to massive destruction of both the economies and the currencies that participate in this madness. It will also lead to massive inflation. I know some financial managers have told their clients to have 10% or 15% in gold, but for the financial climate that we are living through right now, I firmly believe people should have 50% to 60% of their assets in the physical metals.”

John Hathaway of the Tocqueville Fund reminds traders in an interview that the purpose of holding a portion of your portfolio in gold is safety, and that physical gold rather than paper gold is the only safe way to own gold.Hathaway told TheGoldReport:“Moreandmorepeople are thinking strategically about gold. Owning physical gold should not be viewed as a way to make money. Rather, it is way of saving capital that creates optionality for future spending power and investment resources. The impetus to get into gold is not because someone like me says the next step is $2,000/oz. The real reason is safety of capital.” He also commented, “By physical, I do not mean an exchange-traded fund (ETF) or commodity contracts, which are really paper gold, but actual physical gold that you can touch-gold that is outside of the banking system, that you know where it is stored and what your bar numbers are.” 

IF YOU HAVE NOT SIGNED UP FOR THE LEIBOVIT VR GOLD LETTER, HERE IS YOUR CHANCE. THE AUGUST 16TH EDITION IS HOT OFF THE PRESS. HERE IS THE LINK: WWW.VRGOLDLETTER.COM. YOU GET A 50% DISCOUNT FOR THE FIRST MONTH.

It is an endless debate for investors interested in gold. Should they buy a direct play on the gold price, either gold bullion itself or even so-called paper gold with an ETF such as the SPDR Gold Shares(NYSEArca: GLD)? Or should they invest into gold equities, particularly the larger, higher quality gold mining companies?

Recent history suggests the answer is gold itself. According to Citigroup, physical gold has outperformed global gold equities 120% percent of the time over the past 5 years. Stocks of the bigger gold mining firms seem to react adversely to bad news (which is normal), but the problem is they react with no more than a yawn to good news. These type of stocks are contained in the Market Vectors Gold Miners ETF (NYSEArca: GDX).\

Evidence of this trend can been see in the latest news to hit the industry…the slowdown in expansion as recently signaled by the world’s largest gold producer, Barrick Gold (NYSE: ABX). The company’s stock has fallen by more than 30 percent over the last year due to cost overruns at major projects. The latest blowup in costs of up to $3 billion occurred in its estimate for development of its flagship Pascua-Lama project on the border of Chile and Argentina. The project may now cost up to $8 billion.

In addition, Barrick decided to shelve the $6 billion Cerro Casale in Chile and the $6.7 billion Donlin Gold project in Alaska. Barrick is not alone in its thinking among the major gold producers. The CEO of Agnico-Eagle Mines (NYSE: AEM), Sean Boyd, recently said “The era of gold mega-projects may be fading. The industry is moving into an era of cash flow generation, yields and capital discipline.”

Fair enough. But are gold mining companies’ management walking the walk about yields or just talking the talk? Last year, many of the larger miners made major announcements that they would be focusing on boosting their dividends to shareholders in attempt to attract new stockholders away from exchange traded vehicles such as GLD, which have siphoned demand away from gold equities. Barrick, for example, did boost its dividend payout by a quarter from the previous level. Newmont Mining (NYSE: NEM), which has also cut back on expansion plans, has pledged to link its dividend payout to the price of gold bullion.

So in effect, the managements at the bigger gold mining companies (which are having difficulties growing) are trying to move away from attracting growth-only investors to enticing investors that may be interested in high dividend yields. This is a logical move.

But rising costs at mining projects may put a crimp into the plans of gold mining companies’ as they may not have the cash to raise dividends much. And they have done a poor job of raising dividends for their shareholders to date. In 2011 the dividend yields for gold producers globally was less than half the average for the mining sector as a whole at a mere 1.3 percent. Their yields are below that of the base metal mining sector and the energy sector.

It seems like management for these precious metal companies have the similar emotional response shareholders have when they are in a winning position. When the investor’s brain has experienced a winning streak and is happy it automatically goes into preservation/protection mode. What does this mean? It means management is going to tight up their spending to stay cash rich as they do not want to give back the gains during a time of increased uncertainty. Smaller bets/investments are what the investor’s brain is hard wired to do which is not always the right thing to do…

Looks like there is still a lot work to be done by gold mining companies’ to improve returns to their shareholders. But with all that set aside it is important to realize that when physical gold truly starts another major rally. These gold stocks will outperform the price of gold bullion drastically for first few months.

Gold Miner Trading Conclusion:

In short, last weeks special report on gold about how gold has been forming a major launch pad for higher prices over the past year. Gold bullion has held up well while gold miner stocks have given up over 30% of their gains. If/when gold starts another rally I do feel gold miner stocks will be the main play for quick big gains during the first month or two of a breakout. The increased price in gold could and value of the mining companies reserves could be enough to get management to start paying their investors a decent dividend which in turn would fuel gold miner shares higher.

Both gold and silver bullion prices remain in a down trend on the daily chart but are trying to form a base to rally from which may start any day now. Keep your eye on precious metals going into year end.

If you would like to get my weekly analysis on precious metals and the board market be sure to join my free newsletter at www.TheGoldAndOilGuy.com

Chris Vermeulen