Despite Pullback, Gold & Silver To See Spectacular Surges

September 11, 2013

Eric King: “Tom, we will move on to gold in just a minute, but first I wanted to ask you about silver specifically. We had the up-move which took silver above $24, and now we are seeing this pullback. It looks very healthy within the context of the charts that you’ve been publishing on KWN.”

Fitzpatrick: “Yes. Overall, Eric, we are still very much of the view that we have put in a base here in silver and we are going to move higher. In the short-term, silver came up off the lows a bit quicker than people had expected, and while some attributed this to what was taking place in the Middle East, that really wasn’t part of our overview of what is happening.

So, now that we are getting some backing and filling in terms of the silver price, there should be some very solid support around the $22 to $22.30 area on silver (see chart below). The price of silver has relaxed as we head into the Fed making its decision with regards to tapering, but we still believe that silver will make its way above $26.

Whereas from a trading perspective you never like for things to go the wrong way, from a big picture perspective, when you see sharp corrections in an overall trend it tends to be very supportive of the trend itself. So, for us, whether it be the recent move or the big picture move, getting corrections and consolidations along the way is a healthy process in terms of maintaining the trend. At this point in time we think that’s exactly what we are seeing in here (see chart below).

As we all know, silver has been a bit more volatile than gold. As an example, the correction we got on silver coming off the $50 level was extremely aggressive. But in the overall scheme of things, we now believe that silver has bottomed, there is solid support near the $22 level, and silver is ready to reassert itself the upside once again in terms of the secular trend.”

Eric King: “I know you watch the charts quite closely, Tom, but is there anything that you want to add here in terms of the fundamentals?’

Fitzpatrick: “Fundamentally, if we take a step back, our belief in the gold price in terms of the big picture overview of where we see things such as the global economy and US economy, the debt dynamics, the fiscal and monetary dynamics, everything we look at makes us feel that we are going to start to see evidence that this very aggressive rise in yields has actually had a negative feedback loop....

“I would also add to that equation that the recent upward move in the oil price is also taking a toll on the underlying economy. All of this signals to us that we will see a relatively dovish undertone coming from the Fed in the week ahead. That dovish undertone is likely to be very supportive for gold prices.

There will be a realization that you can’t keep having a situation where you rely on monetary policy as being the underlying stimulus to the economy, particularly non-traditional monetary policy. But if the economy is sluggish, then we are going to have to find our stimulus somewhere else.

All of this brings us back to the fiscal situation, the debt limit, and, as you know, those long-term charts which show the overlay of the gold price in terms of the debt situation. It’s been the core of our view that we could continue to see this tragedy expand. Therefore, we are printing more money without creating more value in terms of the government debt, and this truly is a ‘Stairway to Hell’ (see chart below).

Given this ‘Stairway to Hell,’ gold then becomes the hard currency of choice and a hedge against the ascending ‘stairway.’ We are still very much on that page, and this also applies to silver almost as a leveraged play. So we expect to see dramatically higher prices in both metals over time.”