GM Jenkins' 2014 Predictions

Happy New Year, friends! 

First, a retrospective. Screwtape was forged out of the fullest heat and fire of the gold and silver mania of 2010-2011. I call it a mania now, though I didn't at the time. And that, to me, was the most important lesson of 2013. See, back in the day, it seemed more reasonable (to me, anyway) to interpret the then-ballooning prices of all hard assets as fundamentals-based.  2013 disproved that interpretation. Don't get me wrong: in all likelihood, the unrelenting, world-historical forces of Sociopathy and Folly that drove the world economy to the brink in 2008 simply took a breather in 2013, licking their chops and gathering strength for another foray at the global hippopotamus this year (or this decade, or next decade). Still, the fact that such a pause and major reversal could occur tells us that the price action of 2010-2011 was primarily speculative mania.

With that important lesson in mind, I believe price charts have become more important than any fundamentals-based arguments (e.g. of the "1001 reasons the dollar is doomed" variety you see on Zero Hedge once a week). My goal being to make money in 2014, my resolution is to avoid letting the bone-crushing stupidity of the American population, the knee-weakening asininity of the mind-bogglingly corrupt politicians, and the eye-watering chutzpah the Wall Street scumbags influence my investment decisions (especially short- and intermediate- term decisions).

A final point about 2013. For those wondering if or when the gold market will resume its long term bull trajectory, I say that the action of Q4 has been as ominous as the bloodbath that began Q1. I say this, because regarding the April crash, a violent washout and capitulation was certainly due after 12 years of price increases, and probably even healthy. So we saw the historical drop in April, and then the other shoe fell in June, giving the charts at least the potential to form a text book reversal (I've been arguing against that interpretation, but it was certainly a possibility). See the inset in the chart below to get an idea of what that might've looked like: I simply reversed the price action of the past 3 months. However, the actual grind downwards has no appearance of forming a bottom. None of the long "hammer" candlesticks, for example, that signify a capitulation. Not even a lot of volatility. And of course, a new daily (and weekly, and monthly) closing low.

And so in short, 

though gold may have a relief rally, I believe it will break below its hugely important, never-been-broken, weekly-closing-price trend lines on the linear and log weekly charts [green and blue, respectively, on charts below], and that's a bad sign.

Linear, weekly closing prices

Log, weekly prices

Given that even the most optimistic interpreters of the past few years' price action must concede that gold is undergoing a major correction, it makes much more sense to me that the 50% Fib line of the entire post-2000 bull market will be hit before a capitulation occurs. Looking at the log weekly chart above, and the monthly chart below (as well as the daily chart, not shown), that level appears to be the $1050 level, so I expect a bottom in the monthly, weekly, and daily closing prices somewhere between $1000 and $1075, for another 10-20% drop.

As regular readers know, I like using ratios of various commodities with equities and the long bond to identify trends and buttress predictions made on charts of single assets alone. The flexibility of ratio charts (i.e. the fact that a target can be hit whatever the numerator or denominator does) makes them useful clues in the prediction puzzle.

But let's start with the 10-year yield itself. Clearly, an important trend line has been broken in the past week (see grey and green for two variations), making the red line a natural target, though probably not this year. Looking at the RSI below, we also see a pattern that suggests a 10% rise from here, probably to 3.25 in the next few months, before a correction. 

Regular readers will also recognize the "10 year yields measured in silver" chart from my post with the very Turdish title "Figured it out"(which was probably my post of the year). The chart suggests that a ~10% price drop in silver is coming fairly soon, at which point the green "flanging" wedge will be hit, and gold (blue, in background) will reach its low point. (Of course, the wedge can be overshot, too.) Note that this relationship between the ratio and gold is highly regular (see some of the vertical dotted lines I drew in; I didn't include all of them to avoid clutter, but note that almost every "landmark" day in gold occurred when the yield-silver ratio bounced off the wedge). Also note: it doesn't have to be this way. Sure, highs/lows in silver often coincide with those of gold, but the ratio has another variable--the 10-year yield--which must cooperate. In that vein, if you look beyond the start of the current gold bull market, there had been no such discernible relationship previously. Also cool is that the starting point of the wedge converges right at the very start of the gold bull market (green dotted line).

Here's my target on another chart; pay attention to the RSI:

Looking at the actual silver chart, then, I see the green line being hit, though perhaps not on a weekly close.

Let's look at the 10 year yield measured in gold. The horizontal lines are targets I set many months ago, after the break out of the parabolic channel (on the log chart, which otherwise would've meant a "singularity" was approaching).

As a general rule, I see a lot of these yield-commodity ratios not hitting major resistance until they approach some 2009 critical points (which I depict only as minimal targets, where serious resistance should be encountered). So for example, the "10-year yields measured in real shit" ratio will probably break the important resistance where now it sits (using as evidence that lots of individual commodities have broken through that analogous resistance line), sending the $CCI to it's next Fib target of ~$470 for a ~10% decline from current levels (see small chart below). 

This guess is supported by my target for the $GOLD:$CCI ratio (i.e. the "how much real shit can you exchange an ounce of gold for" chart), assuming gold tests $1000. The ratio looks to be headed for the 50% Fib line, or ~2.2. Note that the post-2008 correction on this chart hit the 50% ratio before resuming (red lines).

 The "10-year yields measured in oil" chart is also worth looking at, as it appears to have broken important resistance. I see oil prices falling sharply this year, which will help equities but also somewhat belie their continued rise (but we know fundamentals don't matter anymore).

What about the gold ratio with equities? My old target is looking quite prescient, and I see no reason to change it:

So there are my 2014 predictions, folks. I see lows in the commodities coming within the next 6 months. If there will be a major turnaround in these markets, I don't see it happening until the fall. Perhaps then the shit will really hit the fan, and I'll have to communicate next year's New Years post to you via ham radio.

Best wishes for a healthy and prosperous 2014!

-GM