First lets look at silver and see what the charts are telling us especially after last weeks price action. Lets start with a daily look that shows the downtrend channel that began back in October of last year. You can see all the different chart patterns we’ve been following during this delcine. You can see what happens when a strong support rail gives way. The bulls were exhausted and the bears took charged and moved the price down to the 22 area where we are getting our first counter trend rally after the breakout.

…..15 more Charts & Commentary HERE

For a couple of years now I’ve maintained my view that the Dow Industrials and broad U.S. equity markets were entering a new bull market. One of the tools I used to come to that conclusion back in 2008 was the ratio of the Dow Industrials to the price of gold.

I wrote extensively about it in my July 2008 issue of Real Wealth Report. I also reported on it several times in other pieces I wrote. Today, I want to update the analysis for you.

First some background. At the peak of the ratio in the year 2000, the Dow Industrials would have purchased just over 51 ounces of gold. That’s because the Dow was at a high in real, inflation-adjusted terms, while gold was at its bottom at the $255 to $275 level.

During the financial crisis of 2007 – 2009, as equities plunged and gold rallied (since its bottom in 2000) the ratio collapsed all the way down to the 6 to 7 level.

In other words, in terms of gold — what I like to call “honest money” — the Dow Industrials had lost more than 87 percent of the entire equity bull market from 1980 to 1999.

In my Real Wealth Report issue of July 2008, I called for the bottom in the ratio to come in around the 5 to 6 level.

It bottomed slightly above that level, then retested it with a slightly lower low in September 2011.

Since then, stocks have vastly outperformed gold.

As a result, the ratio of the Dow Industrials to gold has widened back out, and has broken out of a resistance level as you can see on the chart.

Now trading at about the 10-to-1 level, the Dow/Gold ratio is set to widen much further.

So what does this all mean? And what does it hold for the future for the Dow? For gold?

I’ll answer those questions now. But I urge you to put your thinking cap on, because the analysis of the Dow/Gold ratio is not easy to grasp, yet it’s critically important to understanding the future.

FIRST, the collapse in the Dow to Gold ratio was not caused simply by a crash in equity prices. It was also due to a crash in the value of the dollar, as reflected in the soaring value of gold from the year 2000 on.

SECOND, the breakout in the ratio means that the Dow is now beginning to inflation-adjust, to reflect the lower value of the dollar (as reflected in the higher price of gold).

This inflation-adjusting of equities is perfectly normal and one of the main reasons I am very bullish equities over the next several years.

All asset classes eventually recalibrate their price levels to the new reality of the purchasing power of the underlying currency, which in this case, is the dollar, which in turn, is nowhere near what it was worth back in the year 2000.

A simple exercise here will show you how the Dow will adjust. For the Dow/Gold ratio to climb back to the 18 to 20 resistance level you see on my chart, the Dow would have to explode higher to the 28,000 level, assuming gold’s current price of roughly $1,400.

Naturally, the price of gold is not going to remain at $1,400. It will probably fall back to the $1,030 level, which is my target for gold’s bottom. Let’s say it does that. Then a 20-to-1 ratio for Dow/Gold, with gold at $1,030, would still imply a Dow eventually hitting the 20,600 level.

And what would happen if gold were to move to $2,000 … $3,000 … or higher? Then to reach a 20-to-1 ratio, the Dow would have to explode even higher.

At $2,000 gold, a 20:1 ratio would see the Dow eventually hit 40,000.

Take the other extreme: Gold falls to say, $600. A 20:1 ratio puts the Dow at 12,000.

Do this exercise for any price level of gold you wish, and you will see that the downside risk in the Dow is minimal and the upside potential is enormous.

That’s not to say there won’t be pullbacks in the Dow. There will be. This kind of analysis simply shows you that …

THIRD, the monetary system has changed dramatically. More specifically, the dollar has lost another huge chunk of purchasing power ? value that it will most likely never get back, even if the dollar stages a rally in the Forex markets, as it has been doing and will do some more.

Naturally, the ratio between the Dow and gold will vary considerably over the next few years.

But given the breakout from the bottom of the ratio … and the normal tendency from all markets, no matter what they are, to retrace good portions of what they have lost …

I believe it’s a very safe assumption to make that the Dow/Gold ratio will continue to climb. And that means much higher prices to come for the Dow, and U.S. equity markets in general.

You can do this sort of exercise with any asset class you want. You can look at real estate values in terms of honest money, gold … even with collectibles such as art.

And each time you do that comparison, with the price of gold, you will find that the value of the dollar has changed dramatically over the last 12 years, so much so that almost all asset prices will eventually be forced to inflate much higher.

As for gold and silver right now, the bounce you’ve seen is nothing more than a dead cat bounce. The precious metals, and commodities in general, have NOT bottomed.

So please don’t buy yet, and don’t fall prey to the pitches from all the snake-oil salesmen out there who are trying so desperately to sell you metal and mining shares now so they can earn an extra commission.

I repeat my warnings:

Gold will not bottom until it hits major long-term support at $1,030.

Silver will not bottom until it tests major long-term support at the $17 level.

If you’ve acted on any of my suggestions to purchase inverse ETFs such as the ProShares UltraShort Gold (GLL) and the Direxion Daily Gold Miners Bear 3x Shares (DUST)  … or even the ProShares UltraShort Silver (ZSL) for a play on silver’s downside …

Continue to hold those positions!

Best wishes,

Larry

POSTED BY LARRY EDELSON

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com/.

View all posts by Larry Edelson → Blog

Listen HERE to the Legendary Jim Rogers was Michael’s Money Talks Guest for April 27th . Amazing? Yes, for after attending Yale and Oxford University, Jim Rogers co-founded the Quantum Fund, a global-investment partnership. During the next 10 years, the portfolio gained 4200%, while the S&P 500 rose less than 50%. One of the most significant investors, right up there with Warren Buffet, Rogers has to be one of the most difficult interviews to obtain. It was only because Michael is such a respected man that Jimmy Rogers agreed to be Money Talks guest on Saturday April 27th . Listen to Rogers perspective and advice on all the markets, with a special focus on one of the markest he likes – Gold – in the “Latest Radio Show & Michael’s Market Minute section you can access in full HERE 

The rise in gold coin demand at the Australian Perth Mint and the US Mint as well as in Canada demonstrates the underlying long-term bull market should remain intact. It is coin rather than bullion you should stick to when you are talking about physical purchases.

Nevertheless, from a market perspective, the gold bounce is still not impressive. The first layer of technical resistance begins at 1475 up to 1545. However, we need to see a daily closing above 1592 just to relieve the broader selling pressure.

http://www.mining.com/web/gold-bears-suddenly-appear-more-emboldened-than-ever/?utm_source=digest-en-mining-130422&utm_medium=email&utm_campaign=digest

Ideally, the high in 2011 should be followed by a low in 2013 with a rally thereafter into 2017 that will not become a phase transition until AFTER the ECM turns in 2015.75.  Keep in mind that as the pendulum swings back and forth, each time the momentum is building producing greater volatility. The weather is doing the same thing as we move into the peak of this NATURAL global warming cycle. This means when the ECM turns down again, this will produce even higher volatility than what we saw in 2007-2009 period. Also, that decline was focused in the real estate and banking. This turn will be governments. That is the entire purpose of gold – the hedge against government – not inflation.

The Market & Cycles – Why We Must Crash & Burn

One Response regarding this problem that we must crash and burn states that this “is somewhat of a paradox though, see some people, not so conflicted by their personal conscience (against obedience to authority / control ), but influenced by their uncertainty and/or lack of confidence. obviously, not all people are the same. Guess for the higher circumscribed step, to a world Government, should always pass through crash and burn stages, as history dictates, can never take the step smoothly:) ?

ANSWER: This is what makes cycles function. (1) there is the overall cycle of the economy such as the ECM, (2) then there are the cycles of individual markets that each has its own unique frequency like DNA, and finally (3) each of us has a personal cycle of life through which we pass, mature, and hopefully learn from our mistakes.

…..continue reading HERE

Gold is the biggest loser in this snapshot of the financial markets since the beginning of the year (and the beginning of the month) via Deutsche Bank‘s “Equity House View” report.

Thanks to Japanese Prime Minister Shinzo “Abenomics” Abe, the Nikkei is the top performer and the yen is a major loser.

Click HERE or on the Chart for a Larger View

ALBERT EDWARDS: Stocks Will Crash, Hyperinflation Will Come, And Gold Will Go Above $10,000

This is always reassuring. SocGen strategist Albert Edwards remains an ultra-bear, and predicts everything will go to hell.

In his new note he writes:

We still forecast 450 S&P, sub-1% US 10y yields, and gold above $10,000

My working experience of the last 30 years has convinced me that policymakers’ efforts to manage the economic cycle have actually made things far more volatile. Their repeated interventions have, much to their surprise, blown up in their faces a few years later. The current round of QE will be no different. We have written previously, quotingMarc Faber, that “The Fed Will Destroy the World” through their money printing. Rapid inflation surely beckons. But that will not occur without firstly a Japanese-style loss of confidence in policymakers as we dive back into recession and produce dislocative market moves.

So yeah, it goes on from there. Lots of doom. This is why everyone loves Albert Edwards.

Marc Andreessen Is Blown Away By Google Glass: ‘Oh My God, I Have The Entire Internet In My Vision”

….read about them HERE