Friday, June 29, 2012
Yesterday, master trader Jeff Clark showed you why he's short-term bearish on gold.
He's targeting $1,350 an ounce, about $200 below today's levels.
I think he's right that gold is due for a fall. But it's important that you take a look at the chart below. It's one of the biggest reasons to get excited about opportunities to buy gold when it goes "on sale"...
This chart plots the value of the pan-European currency, the euro, over the past 18 months. As you can see, it's been locked in a downtrend since spring 2011.
This downtrend is no surprise to regular Stansberry & Associates readers.
Back in August 2011, I highlighted the euro's "compressed" state. This is a situation where an asset's day-to-day volatility gradually dries up and the highs and lows move closer together. These low-volatility periods are often the calm before a storm. We expected the euro's compression to be resolved to the downside in a big move.
The warning was well-timed. The euro plummeted soon after that note... which kicked off a big bear market in the currency. In classic bear-market fashion, the euro plunges for a while and then tries to rally. These rallies serve to frustrate as many people as possible... because that's what the market always does.
But you'll note that each rally is weak and short-lived. The euro is unable to break out of its bearish trend of "lower highs and lower lows."
And pay attention to the lower right-hand portion of the chart. The euro is close to breaking below its recent lows... to reach a multi-year low in value.
This bear market is a major reason to stay bullish on gold over the long term.
You see, the U.S. dollar is the target of many bearish predictions, and it sure has its problems. But it's the euro that is in the worst shape right now. It's in a slow-motion train wreck that will take years to play out. It will continue to prove that the paper currencies of "spend and borrow and pretend we don't have problems" regions are vulnerable.
This will make more and more people seek some "real money" crisis insurance in the form of gold.
Currencies just don't go out of style in a few months... so expect this trend to take more than five years – probably more than 10 years – to play out. And expect gold prices to stay robust for a long time.
That's why, if you see any substantial short-term drop in gold this summer, it's a good idea to buy more.
"The long-term case for owning gold remains as strong as ever," Jeff writes. But he's not so confident about the short term. See what chart pattern tipped Jeff off to predict lower gold prices in the next few weeks here: Gold Is Going On Sale.
Big euro downtrend continues... after sinking 15% since last summer, the currency sits near a fresh two-year low.
Discount retail uptrend is going strong... Costco touches a new all-time high.
Lower oil prices mean lower costs for refiners... Western Refining, HollyFrontier, and Marathon Petroleum touch three-month highs.
Chinese Internet companies are breaking down again... "China's Google" Baidu breaks out to a nine-month low.