We are often quoting Jim Sinclair with a good reason. He is one of the true experts, someone who lived through the gold bull market of the 70′s. He was among the most successful gold traders and he has worked in various roles in the financial markets. That is a unique combination that justifies trust in his words, which are full of wisdom.
In the past days he has reacted more than usual to his subscribers. It probably indicates that gold holders and investors get too nervous about the long consolidation period. The general mood becomes bearish, driven by the price of the metals, the awful performance of the gold shares and negative outlook reports (one of them has been analyzed by us). That’s reflected in the Hulbert Gold Sentiment index (courtesy SentimenTrader.com).
Contrarians should interpret these signals as bullish indicators. That is Jim Sinclair his interpretation as well. He explains in detail why he believes the correction in precious metals is over and confirms his short and long term outlook.
Catalyst for higher gold
Given the consolidation in gold and silver prices of more than 1.5 year now, one rightfully should ask what the next catalyst will be. This is how Jim Sinclair looks at this question:
Gold has always been a war between sound finance and debt ridden currencies. You are armed with the knowledge of how to frustrate this manipulation for theft. Fear not because $3500 is the next stop once we frustrate these beasts of paper. The next phase of the Gold Market will be driven monetarily. This phase will take gold to the point whereby marking the gold reserves of the deficit nations to the market move towards balance and balance will be struck.
The link between QE, bonds and equities
In his latest update, Jim Sinclair an important market relationship which is directly correlated with each other.
Interest rates and the government bond market are one and the same. You cannot predict higher interest rates if you also predict QE to infinity. QE is the non economic purchase of government and other debt securities. Therefore as long as QE expands to meet the size of bond offering, the bond market will stay bullish and interest rates will not rise significantly.
If you adhere to the prediction of higher interest rates then you are saying QE will cease or contract significantly. As long as QE is increased, as it just has been, bond bears will continue to get crushed. You cannot separate predictions on interest rates from predictions on the conditions of the US Treasury market. Interest rates and the government bond market are one and the same.
From that point of view, knowing that the government will do everything they can to continue to prop up the bond market, ongoing QE cannot break the bond market. That is positive for the equities markets.
Now here it gets interesting. Jim Sinclair links this relationship to gold, with the following insight:
Every problem we have from national to private is a balance sheet problem. As QE is the only tool to feign solvency, Gold is the only tool to accomplish solvency. Convertibility of fiat paper to gold will not re-occur, but currencies will cease their death rattle as national balance sheets are in fact balanced.
Gold price expectations: short and long term
The outlook for gold is positive, in Mr. Sinclair his view. He wrote that by March 27th (his birthday) the decline in gold will be history, underlining the fact that the ongoing decline and consolidation is only meant to shake off gold holders and comparing it with the previous bull market.
The gold price decline is similar to the series of declines just before gold took off in the 70s from $400 to $887.50. Those declines then were for the purpose of the last great shake of the gold apple tree prior to the move that gained the most distance over the least amount of time.
This may be the last time before gold trades in excess of $3500 that you need bite the bullet of emotional restraint.
A higher gold price would turn the shares higher as well, as they are trading at historic discounts to bullion.
David Morgan confirms the positive outlook
In his latest update to premium subscribers, David Morgan mentioned Jim Sinclair’s outlook and confirmed it. “I agree with Jim. Of all the analysts & newsletter writers who tried to lead the way through the previous bull market, Jim Sinclair was THE one that got the gold market at the top. He has been very good with his timings. Take it from a guy who lead the last bull market and has a lot to do with the current one. I think he is right. I don’t think we have much longer before we go higher.”
Gold Silver Worlds | February 8, 2013