Also Pointing Lower into October …

As long-term bullish as I am on precious metals, I’m just as
long-term bullish on the major U.S. stock averages.

In fact, the Dow has now exceeded the 18,500 level — after flirting with it all year long basically — a level of resistance I identified more than a year ago.

But, we have yet to see a monthly close above that level. That is necessary to validate my forecast of Dow 31,000 by 2020.

Now, let’s say the Dow Industrials do close above 18,500 this month, on the last day of trading. Is it then going on a moon shot to 31,000?

No, it’s not. In fact, even if we get that major buy signal at the end of this month, it does not preclude a pretty sharp correction occurring first.

Which is precisely what I expect, buy signal or no buy signal, this month. Why?

Reason #1: The major averages are extremely overbought, indicating they need to pull back.

Reason #2: Most U.S. publicly traded stocks are already in bear market territory, down more than 20 percent for the year and there is no way the major indices can advance without the troops, a condition that typically precedes a major selloff.

Reason #3: My AI models for the Dow Industrials, shown here:



Click image for larger view

As you can clearly see, it’s pointing toward a steep drop into early October …

Before resuming its long-term bull market.

I know what you’re thinking: How can the Dow plunge into October, along with the precious metals, which I wrote about last week?

They can move together simultaneously up or down and have done so many times throughout history.

The most recent example is the 2008/09 real estate bust and stock market crash. Back then, gold crashed from roughly $1,035 to $682 — a 34 percent plunge — while the Dow Industrials crashed from roughly 14,240 to a low of 6,465, an incredible 55 percent decline.

So yes, precious metals and stocks can go down together, and, they can go up together.

Precious metals and stocks can go
down together, and, they can go up together.

And that’s precisely what’s going to happen. They will pull back together into October, then liftoff to the upside again …

Giving you the opportunity to load up on stocks and precious metals!

Speaking of gold and silver, the Commitment of Traders (COT) reports from the Commodity Futures Trading Commission (CFTC) still show an overwhelming bullish sentiment in the precious metals, at or near record highs. All it takes is one seller to get spooked, and a selling avalanche will unfold.

In fact, despite another attempt this past week, gold failed again to take out important overhead resistance at the $1,360 to $1,365 levels on a closing basis.

But once $1,320 gives way on the downside, gold should continue lower into October, to the $1,250 level, and possibly even lower.

If it were me, as I noted in last week’s column …

I would hedge any gold and silver holdings you may have with inverse ETFs. For gold I would consider ProShares UltraShort Gold, symbol GLL. 

For silver, I would consider ProShares UltraShort Silver ETF, symbol ZSL. Careful though, this is a double leveraged ETF, seeking to deliver twice (2x or 200%) the inverse (or opposite) return of the daily performance of silver bullion in U.S. dollars.

For the Dow Industrials and the S&P 500, I would consider the ProShares Short Dow30 ETF (DOG) and the Direxion Daily S&P 500 Bear 1x ETF (SPDN), both unleveraged.

Lastly, everything I study, all major markets and all my major indicators, tell me we’re rapidly approaching an inflexion point in the markets. Fundamentally, I would explain it this way: Investors are getting more and more nervous about who the next U.S. president will be.

So they are moving to cash, to the sidelines. Soon that move will turn into an all-out run for the hills, causing sharp declines.

But once a new president is elected — no matter who it will be — long-term bull markets will reassert themselves. And the U.S. — whether with Hillary or Donald — will still be the recipient of huge capital inflows.

Stay tuned and stay safe!

Best wishes,

Larry

Larry Edelson, one of the world’s foremost experts on gold and precious metals, is the editor of Real Wealth Report and Supercycle Trader. Larry has called the ups and downs in the gold market time and again. As a result, he is often called upon by the media for his investing views. Larry has been featured on Bloomberg, Reuters and CNBC as well as The New York Times and New York Sun.

Comments 33

Dd August 17, 2016

Soros just unloaded most of his gold positions...

Phil August 17, 2016

Sounds like good advice.Thanks,Larry.

ragnar1 August 17, 2016

what will be the trigger for the"run for the hills? everyone will decide one morning to do so? market is quiet now!

Ralph August 20, 2016

the calm before the storm....

Chuck Burton August 17, 2016

Before the markets can shoot higher, they are badly in need of a correction of roughly 50% of the climb since 2009. That would take the S&P500 down to around 12000/12500. There does appear to be support around 13000/13500, which might limit the drop a bit. As Larry says, this drop should come before the election, since neither candidate inspires confidence. Hilary would continue the status quo, to the benefit of the .01%. What Donald would do is really a mystery. It depends largely on the advisors he comes up with. Watch those names.

Chuck Burton August 17, 2016

By the way, Donald's only real hope is to pounce all over Hilary's alliance to the richest part of society. His own wealth is hurting him there. watch for some developments along that line.

Sonny August 17, 2016

Only real hope ? Bullcrap - He will hit her hard with the Benghazi debacle , her total disregard to National Security , her strong alliance with the Saudis and her full support of all the various trade agreements - which where put in play by her criminal Husband Billy Over 60,000 thousand manufacturing plants have closed thru-out America - good paying jobs replaced by Illegals & Welfare. Hilary's health is way worse then what has been reported , she is weak , no stamina whatsoever

Ivanka August 26, 2016

You are a history revisionist. Twenty American embassies were attacked during the Bush Presidency and 66 people were killed. Did anyone raise their voices? NO! One attack on an Embassy is terrible but not unusual. Why does she get so much blame for 4 lives when Bush got none. People are ignorant...like YOU! Free your mind and turn off FOX.

Gary Parker August 30, 2016

Better FOX than Clinton News Network.

Eli Gabay August 17, 2016

The green line on your chart is what you call an AI model? How does that work? Thanks.

Tom K. August 17, 2016

Larry: Thank you for your insight on these unpredictable markets.

Walter Samples August 17, 2016

Thank you, Larry! It's great to know these ETFs.

annie August 17, 2016

Didn't you say a while back that gold would decline to a level of 1180? Now it's 1250. How can we/you be sure?

Joe August 17, 2016

How low in October? DOW 13,900?

Bob Schubring August 17, 2016

An interesting point on allocated gold in warehouse storage: It's difficult to weigh hot molten metal accurately, because the heat sets up an air current that lifts the mold during pouring. About 1980, a Colorado company called Scientech, with whom I collaborated on a project, built an inertial scale that uses sound waves, to get accurate weights of such difficult objects. The majority of 400-ounce London Good Delivery gold bars were poured before 1980 and do not weigh exactly 400 ounces. They are marked with serial numbers and they are re-weighed each time they change custody. The one-kilogram bars favored by the Hong Kong gold market, were all made since 1980 and were precision-poured with weight control, using Scientech's weighing technology. At present, there's an ongoing movement of 400-ounce bullion bars to Swiss refiners, who check the metal's purity, melt It down, and pour the one-kilogram bars in which China takes delivery. Physical allocated gold owners, own a specific gold bar...either a particular 400-ounce bar that weighs not exactly 400 ounces but weighs whatever it weighs, in gold...or else a particular one-kilogram bar that weighs a kilogram plus or minus a milligram or so. Owners of un-allocated gold, such as the SPDR GLD pool in London, own shares in a pool of 400-ounce bars, 1-kilogram bars, and gold sitting at a Swiss refinery in the process of being converted to 1-kilogram bars, along with contracts for future delivery, etc. Assuming all the accounting of this un-allocated gold is accurate, if there's a major price shock in the gold market, it should be possible to reconcile how much gold is in the pool, with how many GLD shares are outstanding, but there's a delay in doing that, because an accurate survey requires the old 400-ounce bars to be check-weighed. James Rickards, who publishes a gold newsletter, shot a video inside a Swiss vault, posing with some 400-ounce gold bars...he got right the fact, that Swiss refiners are churning out 1-kilogram bars for Hong Kong, described the check-weighing process for 400-ounce bars, but entirely missed the fact that the check-weighing forces a time delay. Each bar has to be handled and weighed and checked against a logbook, because each bar is different in weight. China's 1-kilogram bars are easier to check-weigh, because they were made to greater precision. In a panic, where much gold is sold to meet margin calls, for example, the time-delay for weighing will slow down the fulfillment process and could trigger a Force Majeure clause in contracts, delaying delivery until the gold is weighed and packaged. Rickards confuses his readers on this subject, asserting that derivatives contracts trading in gold, may outnumber physical gold by 100-to-1, and cites the existence of Force Majeure clauses as "proof" that there's fake "paper gold" being traded. This pool of misinformed Rickards readers creates an arbitrage of sorts. Mini gold futures on the Chicago Board of Trade, offer a 33.2-ounce contract, that consists of a single 1-kilogram bar, on delivery. The price spread between the mini contract and the 100-ounce contract, should reflect any difference in anticipated delivery speed. It's something I plan to study in detail, during the upcoming price correction.

Will August 20, 2016

Bob, I am a reader and follower of Jim Rickards who does not feel confused by Rickards as you have expressed. I have read Rickard's books and subscribe to his Strategic Intelligence. Force Majeure clauses do not address the coverage rate of actual gold, but could be placed in effect should there be a run to claims in the future. You need to re-read Rickard's comments with an open mind if you don't want to get caught out on paper gold. What you are also missing in your comments regarding Jim Rickards are several important points that Rickards makes regarding that the storage vaults in Switzerland have already been drained to the point that old gold bars in the back of the vaults are all that is left with more recent deliveries at the front of the vaults being depleted. The flow of 400-ounce bars from London to Switzerland is now a dribble as far as old gold bars are concerned and and this flow has recently been offset by flow returning to London. I should not wish to confuse readers of Jim Rickards or any one else based on your evaluation of his comments. If the fulfillment process is not fully assured then it certainly is a risk factor; and the proof then lies on the other foot to negate the risk.

Tom August 17, 2016

If the markets plunge because of poor earnings and sales, how can we know when a turnaround, if any, will occur? You are basing your timing on charts but I don't understand how points on a chart can predict a turnaround in the stock market if sales and earnings are falling.

pietro August 17, 2016

Larry I still think 1250 on gold is not a crash from the point we are now ,and you always stated that we had not had the double bottom of 950 to 1050 , can you clarify this point, to me it makes no difference I am in for 5000 dollars

Pete August 17, 2016

Larry Armstrong is predicting 21K for starters what are your thoughts on this?

pietro August 17, 2016

I think come October its time to go all in on gold , it will be time for the mother of all mothers . mining stocks and oil stocks ,I am going to fully expose my self and get serious , my pension and future depends on this move .

Dirt Farmer August 17, 2016

Larry wrote, "Most U.S. publicly traded stocks are already in bear market territory, down more than 20 percent for the year ...." Pull up a chart of the Wilshire 5000 (composed of most publicly traded stocks) for 2016 and you'll find that it's UP around six percent.

Jean White August 17, 2016

Larry I would like to ask you a question. Jim Rickards is saying that the dollar day's are numbered. That D-Day is September 30 2016. I have not bought any physical gold yet an am waiting until you say to, but this presents a problem. Do you agree with him about the day? Would you speak of this in the bulletin? Also, would gold mining shares go up with physical gold when this happens? I want to go with your opinion on this. Jean White

Cris V August 17, 2016

Larry, A few questions: 1) Why does this chart look so different than the chart on your August 10 article ("Gold Crash Coming?". 2) Is your AI system using the Kitchin or Hurst cycles? if so, which ones? (if not, perhaps employing them might have helped match the chart patterns in this case - in this article). Thanks for you insight. -CV

Rosemary Malone August 17, 2016

Always an intelligent AND interesting write-up. That's one article I don't want to miss!!! Thank you

Jamie-Dimon August 18, 2016

Hi Larry, thanks for the update. I think your forecasts for precious metals and particularly for US stocks got a llttle too much bias to the downside for the weeks ahead. Look, the corrupt western establishment, including bankers and wall street, demands Hillary for president. Therefore, they will not allow the stock market to correct prior to the general elections. The HF computer algos will keep the US stock markets elevated, whatever it takes. Most analysts have been underestimating the power of borrowing unlimited amounts of curreny at zero interest rate as well as the power of the printing press. So, I would rather expect a very mild consolidation, followed by a huge rally. Regarding the latter, your timing (beginning of October) makes a lot of sense to me.

Andrew August 19, 2016

Correct analysis . Timing bit late. Starting mid september.

H. Craig Bradley August 18, 2016

THE STANDARD PRESIDENTIAL ELECTION-YEAR CYCLE REPEATS Yes, short term, "politics" is a factor with some large investors who move the markets. Its pretty obvious that the market fear is of a possible Trump victory. Hillary is a known quantity and represents the status quo, always preferred by most markets. However, the small retail investors keep socking away their money in their retirement plans no matter what every month. So, politics is really not a consideration with most of them. Its an overblown explanation. It takes at least a -5% snap correction to do investors much good. The odds of long term profits favor buyers at that level of market discount. However, as most stocks don't advance equally, most do not decline equally either, so stock price is always company specific ( relative strength ). There are few simple, hard and fast rules. Its possible Larry is completely wrong on his forecast and timing. Trump might win and the market goes down more and later in Nov. Anything is possible. The real test comes in one year after the reality of higher Federal taxes hits the consumers and investors. Taxes are not going down in the next Presidency. Such talk is the standard election year Happy Talk we always here. Next, we have a "honeymoon" period of up to one year, then things revert back to reality and more volatility, of course. Ride the roller -coaster.

ji kim August 18, 2016

Thank you for posting valuable article. According to the chart, the gold should be dropping next week.

Ray Simpson August 19, 2016

Hello Larry: Why is gold going up and down day in day out. I am a rookie at this trying to learn the gold market. Any comment will help. Thanks Ray

Bryan Perry August 20, 2016

What does the second line (green) represent on the chart within this article. The black line is obviously the Dow, but the line underneath. Where are the indicators noted?

Sonny August 20, 2016

Gold will dip to 1150 maybe lower

Mohab Hashem August 21, 2016

Dear Sir, I respect so much your insight, and appreciate your articles. Keep well always, Mohab Hashem

James C August 25, 2016

If the Gold Standard breaks down this could cause a period of uncertainty in international trade similar to the Great Depression in the 1930s.