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June 20, 2010 / Jeb

Fear of Deflation, A Weak Economy and Bad Global Debts

Copper is an extremely useful indicator which shows the strength of the global economy and whether the economy is growing or decreasing. At the moment Copper is flashing a “red alert!” A very bearish crossover pattern means that copper could go lower for many months.

This pattern is taking place with a broken trend, weakening rsi and momentum. All these signals together makes the chance of a fakeout, bear trap or whipsaw less probable. Next target is $250 which is the 50% retracement.

The bearish copper pattern is taking place at the same time as an extremely bullish cup and handle breakout on gold. Many investors are finding gold and silver a better place to be right now rather than equities or commodities that are more susceptible to a weak economy.

I especially like silver here and have recommended UXG U.S. Gold which has made a huge discovery in Mexico. UXG is one of the leading stocks in the market right now up a 108% in the last 6 months. Although it is extended and I do believe there will be a pullback I am still extremely bullish on this company. In the next couple of weeks more news will be coming out summarizing the massive amount of work UXG is doing in Mexico.

Silver is going to follow gold and breakout into new highs and when that breakout is done a huge move could follow according to my point and figure charting. As you can tell by this chart that as the global economy is in danger people are buying silver. This is a sign of deflation, when the general public hoard silver and gold rather than being exposed to debt.

Silver is making a long term ascending triangle which is a bullish pattern and hasn’t violated any trend lines or moving averages. I predict silver on this next breakout could catch up with gold.

In a real economic crisis silver is a much more practical item as an alternative currency as it is much cheaper. A middle class person could easily cash in some dollars to by a roll of silver dollars verse buying gold coins.

The market is also predicting that interest rates are going to stay low as central banks fight deflation and hoarding of precious metals. This is illustrated by the move in utilities to reverse the bearish crossover signal. This signal is usually bearish unless there is a significant reversal close to the crossover.

Utilities is a sector which is extremely sensitive to higher interest rates. When this sector rallies it usually predicts low interest rates. The fear of bad debt globally and deflation is causing a rush to gold and silver and an easing from central banks.

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2 Comments

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  1. Trond / Jun 20 2010 10:23 pm

    However- copper and other base metals always seasionally drops in June due to the lower demand for input material to factories because of the coming summer vacation. This is what re-occured also the past june of 2009..
    Thus making it difficult as an indicator just during the summer.

  2. Clint / Jun 21 2010 1:47 am

    Your former target for GMO were $6. Are your views on that void now because of the changes you see? At approximately $3.5, i am tempted to add more GMO shares.

    Thanx.

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