Gold Will Shine When Gloom Returns

08/26/2009 10:05 am EST

Focus: STOCKS

Curtis Hesler

Editor, Professional Timing Service

Curtis Hesler, editor of Professional Timing Service, predicts trouble for stocks and an upside breakout for precious metals.

We have been working through what I termed earlier in the year as the “Obama rally,” but the end is drawing near. Our expectation for this rally was that the market would stage a surprisingly strong move that would extend into August. August is here, and the end is near. Back in March when we were striking a bullish pose, the sentiment was about as bearish as one might ever expect. Now that the rally has brought the averages up some 50%, investors are as bullish as they were pessimistic last spring.

Our objective timing models are both still on buy signals. They will have the last word in all of this, and I do expect to see a bit more strength until they finally turn negative. [But I would] you against getting all bullish with the public and buying into strength. We are nearing a serious turn in the market. It is too late to be a buyer.

One reason that the Relative Strength Index is falling is that the pros are liquidating. The professional traders and investors (the guys that bought in March) will typically sit back and let the novices push prices higher in response to the bullish stuff they are reading in the papers as well as the twisted economic statistics they are seeing on the evening news. The pros will then sell into strength. Once prices begin to weaken, they will back off and let the Street take prices back up again. Then they will step in and sell. The process repeats itself, and the result will be a flat to gently rising market that does not produce enough fear at any one time to stampede prices on the down side. Professional distribution takes time, and these guys are patient.

Once the averages turn down, I think the commodity-related stocks will initially follow on the down side. I do not recommend that you sell out and try to get back in again—especially with your precious metals issues.
 
The gold market looks potentially explosive. If there is a place for an unexpected event to occur over the next few months, it is in gold. There are worldwide economic problems, and the US is hell bent on ruining the dollar. China intends to compete with us militarily and threaten our global hegemony, which they can afford to do. The banking crisis has not been solved by the current “pretend and extend” solutions. The banks are, in reality, still broke.

These are fundamental viewpoints. From a technical perspective, gold looks even more bullish. The dollar will likely be the key factor in the next gold surge. One of these days, we are going to wake up to a sudden collapse in the dollar, and gold will be through $1,000—never to return to current levels again. Don’t sell what you have. Buy more as the overall market declines this fall, and I would still stick with the majors. Gold is the best play I see currently; but if you want to speculate a bit, add some silver to your shopping list as well.

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