Preface
The analysis this weekend takes on a different format in viewing the long term trends and how this might impact the next period. This involves currencies, share and bond market values, and the precious metals complex, because the next period could be somewhat more impactful than most of us think. The analyses are longer term and are not necessarily time related.
Currencies
Euro/Dollar
The French election result has been supportive of the status quo for the EU to continue to exist for longer than some might have feared, and for populism to take a breather from the momentum of Brexit, Trump, and Italy’s constitutional referendum defeat. It seems markets have passed the point of maximum pessimism regarding the demise of the EU, and proper evaluations of it’s constituent parts as well as the EU as a whole can now begin.
Consequently, it is now probable that the Euro has hit a major bottom against competing currencies, and being the largest component of the US dollar index, it may now also be that the dollar has hit a major multi-year high. The last high of this magnitude in the dollar occurred in 2001, which coincided with the $255 low for gold.
First the short term chart of the Euro/Dollar.

The Euro/Dollar has short term support at about 1.05 and resistance at about 1.16. Also, there is a breakout up through the down-sloping resistance trendline reaching a new high at 1.10. All this promises a catapult rise to the 1st phase target of 1.15 (green) at the bottom of the resistance zone.
In the longer term, we refer to the full history of the Euro since inception (18 year chart) to establish the more important 2nd phase target. This illustrates that recent Euro movements in the breakout described above actually occurs in accord with long term support in an up-sloping trendline from previous major lows in 2001.

Major resistance is in the zone of 1.45 – 1.60, enabling a catapult rise to the 2nd phase target of 1.45 (green) at the bottom of the longer term resistance zone.
The previous Euro lows occurred in 2001 with the euro bottoming at 0.83, whilst the recent low at 1.035 represents a higher low by about 25%. This is a Euro reversal of major potential and of note is the fact that the Euro decline starting in 2008 totaled 34% whilst the US$ rise from that time was much less.
If this was the best the dollar could sustain for the eight-year advance which began in 2008 – the US currency is in trouble. We cannot know why at this juncture, but the reversal in the euro / dollar is signalling something negative brewing for the US currency in the future.
The last euro low in 2001 marked the beginning of a 10-year advance in gold from $255 per ounce to over $1,900 in 2011.
Dow Jones
The Dow Jones is replicating a near exact copy of 1983 when it made a significant breakout after a 17 year consolidation. This was at a time when celebrated investors referred to the perfect conditions for long term equity investment.

In 1966, the Dow made an all-time high while the Dow/Gold ratio peaked. It took about 17 years from that peak (1966 to 1983), for price to break sufficiently higher than the 1966 level. About three years before the breakout, the gold price made a significant all-time high (in 1980).
In the completely equity-friendly environment of 1983 the Dow continued up by a factor of 10.
This sequence has been repeated recently, nearly exactly. In 2000, the Dow made an all-time high at 10200 while the Dow / Gold ratio peaked. It took 17 years from that peak (2000 to 2017) for price to breakout through resistance, and about 6 years before the breakout, the gold price made a significant all-time high (in 2011).
Now, just like in 1983, the consensus is that the Dow will continue to rise much higher than current levels. Due to this similarity, many are calling this a new bull market to take the Dow to much higher levels, like 40 000 and beyond. This now becomes a balance between great expectation and great despair. Because, unlike 1983, the conditions are not perfect for long term equity investment, with just too many obstacles for a new bull market in the stock- and bond- markets with probably the 2 most important being:
- Debt levels are massive and uncontrollable;
- The interest rate cycle has bottomed and is turning up;
However, it is critically important to also consider the precious metals market.
Gold and Silver
There are also glaring similarities with 1983 in the gold and silver charts.

Observe the 2 similar patterns from the 1980 high and the 2011 high. The comparison is very plausible, especially given the fact that the Dow is currently in a similar position, as explained above. If the comparison with the 1980 pattern is justified, and the current pattern continues in a similar fashion, then gold will continue in a sideways move for the next 20 years.
However, there are just too many fundamental obstacles to such a scenario, since gold appears to be ready for the next phase of the bull market which started around 2000. From a technical perspective, price is currently at a critical point, which will indicate whether the next phase is up in the expected bull market, or whether the next phase is sideways in the very unlikely dormant market. A breakout at the top blue line (point 5) would almost certainly confirm the bull market scenario and cause prices to rise significantly once the breakout occurs.
A breakdown at the bottom blue line, could mean that prices continue to follow the 1980s pattern, and move down below $1000.

The silver long term chart is very similar to the gold chart, except the highs are higher and the lows are lower. Once again, if the high at 5 is exceeded then the bull market scenario will be confirmed, and if the low at 4 is penetrated then it could mean that prices continue to follow the 1980s pattern, and move down below $10.
There are just too many key obstacles to prevent the next leg up in the precious metals bull market, probably the 3 most important being:
- Debt levels are massive and uncontrollable;
- The interest rate cycle has bottomed and is turning up;
- The threat to the International Monetary System survival;
Gold and Silver impacted by interest rates
To illustrate the impact of interest rates on the gold price we have used the same $gold price chart, as earlier, but divided the data by the 10 year US Treasury Bond yield to obtain the chart below. The timing of the same 1980 gold peak is indicated by the red vertical, but because interest rates at the time were high the gold price is reflected as virtually flat.

This is a perfect illustration of how high interest rates were in 1981 and that the cycle was turning down, and also how low interest rates are at present and that the cycle is now turning up. This created positive conditions for general stocks in 1981, and adverse conditions for silver and gold.
Currently, interest rates are close to all-time lows, and appear to have bottomed, with higher interest rates coming. This will create adverse conditions for general stocks, and very positive conditions for silver and gold.
This is of course all true for silver as well.

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