Hypothesis for 2015

Before I go into the five reasons to buy gold in 2015, let me go through four hypotheses for the future price of gold and silver.

The first hypothesis is that the present bear market is not finished and it will have another one or two legs down, all the way to where it started at $300. On a technical basis, it can be defended if you believe $1,900 was the end of a bubble that started in 2000. I don’t believe so. Many other technical, but also fundamental factors cause me to assign a very low probability to this scenario.

 

cinq-raisons-acheter-or-argent-2015

 

 

1-spot-gold-300Hypothesis one: gold prices decline all the way back to the level at the beginning of the bull market – click to enlarge.

 

The second hypothesis is that we will retrace down to the area of $1000 to $700. This scenario is more probable but, in my view, if it was going to happen, it should have happened by now. Sentiment indicators show so much bearishness that I don’t see a move to $700, which would be a total retracement of the bull leg that started in 2009. A short spike to $1000 is more likely, which would represent approximately a 50% retracement from the top, but I think it should also have happened by now.

 

2-spot-gold700Hypothesis two: a retracement back into the $700 – $1,000 region – click to enlarge.

 

The third hypothesis would be a continuation of the sideways pattern with prices oscillating between $1100 and $1400 before a move in either direction happens in 2016. This is a good possibility if central banks manage to avoid a collapse of the international monetary system. Recent events make me believe some “black swan” event or a combination of such events will end this sideways movement sooner.

 

3-spot-gold1300Hypothesis three: continued sideways movement near $1,300 – click to enlarge.

 

The fourth hypothesis, and the one I prefer, is the beginning of the mania phase described by the bubble model below. I still believe the most probable path is that the next bubble phase of this major secular bull market in gold and silver will begin in 2015 to 2017 and will end at the latest by 2022. Those dates are approximations with a big margin of error.

I don’t expect a slowly progressing move, but a quantum leap with at least $500/day moves, as we have seen in the ‘70s when gold moved from $100 to $850. In my opinion, we have been in a bear trap, similar to the one shown in the graph below. The main cause of this mania phase will be the collapse of the present dollar-based international monetary system, which will end also the present currency wars with a reset.

 

4-gold-silver-futur-potential-bubbleHypothesis four: the bubble phase still lies ahead – click to enlarge.

 

The year 2015 has started with several conflicts, which all are bullish for gold, and all have the potential to degenerate into a major crisis, pushing gold well above $2,000.

I do believe we are very close to the end of this Fed-created bull market in U.S. stocks and I don’t believe the US dollar is on its way to a major bull run like in the 1980s. I also believe the U.S. Treasuries are in a historic bubble and that the currency wars will eventually end it.

The petrodollar system is on its way out and all the dollars circulating outside the U.S. will come home, creating a run on the dollar and hyperinflation in the U.S. Tensions are growing between the U.S. and its adversaries, Russia and China. U.S. relations with the European Union are tense as well.

 

5-us-dollar-indexUS dollar index – possible paths – click to enlarge.

 

Five Reasons to Buy Gold in 2015

  1. The most important reason to buy gold in 2015 or any time, for that matter, is diversification and as an insurance against uncertainty. I was always told to have 5% to 10% in gold and pray that I will never need it. In these dangerous times we live in, with the risk of a major event like a war, revolution or financial collapse, it is wise and prudent to hold some gold and silver outside of the banking system.
  1. Gold is now at a very low level and oversold. I don’t expect gold to go below $1,000. In the case of a sideways market, gold will move between $1,100 and $1,500. If gold doesn’t explode in 2015 it will likely still move slightly up.
  1. Central banks will continue to buy gold and I even expect them to accelerate their buying, competing for a limited amount of gold and pushing the price up. Silver will follow gold in its role as the poor man’s gold. Central banks have been engaged in currency wars since 2008 and they will end badly. Both Russia and China are using gold in their currency wars. A reset of the current monetary system could push gold easily to $5,000. A possible announcement by China of changes to its gold reserves could get gold to test $1,900, and even $2,000, in 2015.
  1. I often hear that there is no risk of hyperinflation but of deflation, which is considered a negative for gold. What people ignore is that a deflationary environment is catastrophic to the banking system and excellent for gold. In a banking system collapse, gold and silver will begin to circulate since they are the most marketable real assets.
  1. In the case of hyperinflation, which is also a high probability and can come after a short period of deflation, gold will outperform or, at least, maintain its value in real terms. In this case, even a price of $10,000 in nominal US dollars would not be absurd.

 

All these reasons are in some way connected to the collapse of the present monetary system due to exorbitant global debt, especially in the United States and the European Union. Will it start this year or next? It is difficult to predict, but recent events make me doubt central bankers know what they are doing.

We have seen in mid-January that central banks don’t necessarily coordinate their actions. The Swiss National Bank discontinued the peg of the Swiss franc to the euro after strongly defending it not too long ago in a fight against the supporters of the Swiss gold initiative. The Swiss didn’t consult nor take into consideration other countries any more than the Fed did in its QE operations. The unpegging of the franc was a cataclysmic event that caught everyone by surprise.

It was, in my opinion, the first of a series of black swan events likely to occur in 2015. Statements such as “we are in uncharted territory” and “we learn by doing” are telling me to take precautionary action by buying real assets, more specifically the most liquid ones: gold and silver.

There is no other way of liquidating the exorbitant global debt outstanding, except by default or hyperinflation. What do you think governments will prefer? In both cases, gold and silver will at the very least maintain their value in real terms.

 

6-us-debt-debt-limit-goldThe US federal debt ceiling, actual public debt level and the gold price – click to enlarge.

 

“In effect, there is nothing inherently wrong with fiat money, provided we get perfect authority and god-like intelligence for kings.” Aristotle (≈2,400 years ago)

“Remember what we’re looking at. Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it.” Alan Greenspan (2014)

 

Charts by: Ssharelynx

 

This article was originally published at Goldbroker.com and is republished with permission (link to original).
 

 

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2 Responses to “Five Reasons to Buy Gold and Silver in 2015”

  • jimmyjames:

    The drool runs onto the keyboard more while imagining the gold price at $300 than it does $10,000 ..

  • John Galt III:

    Martin Armstrong has been pretty good lately on gold. Not sure what his $500 report says, but he thinks the low is still ahead ($1,000 or slightly below?) and then we go to $5,000 in the next 5 to 10 years. I think that is what he is saying pretty much. Have you bought his report?

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