With us today is Frank C. Smeenk President & Chief Executive Officer of KWG Resources Inc. Mr. Smeenk discusses recent conversation with Noront Resources after proposed acquisition of Cliffs Chromite was announced.
It's Martin Luther King Day, and most markets are closed for trading. Nevertheless, I want to give you an update. An important one, in my opinion.
Never mind that the markets have gone against me and my recent short-term forecasts. But the fact that gold, silver and the broader stock markets continue their New Year's rallies changes NOTHING!
Gold remains below key resistance at $1,670 — all the way up to $1,700. While it may rally up to the top level of that range — all of my indicators continue to point lower for gold. I still expect to see at least $1,415 gold — and probably lower — before gold resumes its next major bull leg higher.
For one thing, short-term trading cycles will soon roll over to the downside. Momentum indicators are also overbought, indicating a top is imminent. Several other indicators I follow are rolling over as well.
For another, the dollar is rallying on the back of a falling euro. Some will say that because gold and the dollar have been going up together recently, when the dollar turns down, gold will skyrocket even more.
Maybe or maybe not. Relationships between markets are never cut-and-dried. They change. Perhaps right now, as the euro's been falling, more Europeans are buying gold than investors from other countries. As a result, that's putting upward pressure on gold even as the dollar rallies.
Ergo, if the euro starts to stabilize a bit and rally, then the shine will come off gold for those European investors. Subsequently, even as the dollar falls, they will liquidate their gold, or their purchasing will slow, and then gold will fall with the dollar.
My point is this: Fundamental forces and explanations for the short-term behavior of any market are pretty much useless. One can always make an argument that makes sense, spinning it any way they wish.
The only thing that matters is technical action when it comes to the short term. And the technical indicators behind gold's recent rally are NOT, I repeat, NOT healthy.
Bottom line: If you acted on my previous suggestion to purchase inverse ETFs such as the ProShares UltraShort Gold (GLL), I recommend holding that position.
The same goes for my previously suggested positions in silver, namely the ProShares UltraShort Silver (ZSL). Like gold, silver's rally is not healthy. For one, silver remains below important resistance at the $32 level.
For another, almost all of my technical indicators remain bearish, strongly suggesting silver will collapse again, down to at least the $25 level, and very possibly much lower, to $22 to $23 an ounce.
As for the Dow Industrials and broader stock markets, it's the same story. They are overbought. And the Dow is below a MASSIVE roof of resistance that stretches from 12,500 to 12,800 ... it closed 2011 below an important level of annual resistance, and more.
So as strong as the broader markets may look, I strongly suggest not only caution, but short positions as well via my previously suggested purchases of the ProShares Trust Short S&P 500 (SH) or the more leveraged ProShares UltraPro Short S&P 500 (SPXU). Continue to hold these recommendations!
If you haven't acted on any of the above suggestions, for whatever reason, there's still time. You might want to consider purchasing them now.
Lastly, the euro's been tanking, as expected. Since the first of the year it's slid 2.6% against the dollar, a big move for just seven trading days. A bounce may be coming, but overall, the euro is headed much, much lower. If you acted on my suggestion to buy an inverse ETF such as the ProShares UltraShort Euro ETF (EUO), hold!
Stay tuned in to your inbox and enjoy today's holiday.