Gold trader: Gold signaling potential waterfall crash over next 30-40 trading days

Here is his full interview commentary with Bull Market Thinking’s Tekoa Da Silva:

Tekoa Da Silva: Gary you laid out a chart scenario this week for your subscribers in which you’re expecting a short-term possibility of gold re-testing the June low of $1179, to be followed by a waterfall collapse down to the $1000 level. You’ve been talking about this as a possibility for a while now, and I’m wondering if you can give readers a narration of what you see playing out.

Gary Savage: Sure. When I first came up with this idea, it started to form because gold began to deviate when the dollar made its final move down into its intermediate bottom, and by that I mean that gold started to follow the dollar down, which is pretty unusual. It shouldn’t do that. Gold should have continued to rally as the dollar made that final four month push down into that intermediate bottom two or three weeks ago.

Over the last month and a half, gold deviated and started to follow the dollar down, which I was afraid was a warning sign that gold would be in trouble once the dollar started to rally out of that intermediate bottom, and that’s exactly what has played out. The dollar rallied over the last three weeks, gold turned back around, and it turned around almost to the exact day that the dollar started this rally. We’ve got a couple of important support zones, that if they get violated, I think my scenario of testing the c-wave top at $1030 is going to come to pass.

The first important support zone is that pivot from last month at $1251, and I’m pretty sure that gold is going to breach that over the next week to week and a half. My best guess is that the Fed minutes next Wednesday will probably be the trigger to put in a bottom to this decline and at least a short-term bounce.

So what I think is going to happen is maybe not tomorrow, but probably either Thursday or Friday, gold is going to move through that $1251 level, and when it does, it’s going to trigger a lot of stops. I expect we’re probably going to get a very fast and violent move down to that June low, I believe it was $1179. If that occurs, either on the Fed minutes next Wednesday, or the day in front of or behind that event, it’s probably going to be when we get our daily cycle low. That should trigger at least a short-term bounce. I don’t think the dollar is going to be done rallying though. I think this dollar rally will have to go at least one and a half daily cycles, so what I think is likely to happen, is we’ll get a fairly weak bounce off that June low, which will roll over pretty quickly, and if gold penetrates $1179—a lot more stops are going to get run.

I expect it will be a typical pre-market, middle of the night hit, where you see 200 tons of gold dumped on the market with no buyers to support it. They’ll penetrate that support zone, trigger all those stops, so that when traders get up in the morning, their positions are already deeply underwater and in [margin] trouble. That will exacerbate the selling, and I think we’ll probably see a very quick waterfall decline, maybe even as quick as three or four days, that will take us down into that 2007 c-wave top zone, $1030-$1050. That’s the point at which I think we have a chance to stop this bear market and begin the bubble phase of this secular bull.

TD: Gary, what you’re describing here, to use an overused analogy—is like a hot knife cutting through butter, in terms of the ease of the downside move. Is that in part because of the extremely shattered mental capital of the market (which is something you talk about quite often) in terms of traders adding tighter and larger numbers of stops because of the fear that’s out there right now? 

GS: I think that’s exactly what’s happening. You’ve got a lot of traders that are trying to hold on to their positions, and there’s not many buyers that can hold, because each one of these rallies just gets turned back, and it’s not long before you’re making a lower low. That triggers stops and takes a lot of people out. We have one minor stop that’s going to be triggered if we go below $1251, and then we’ve got a major stop that will be triggered if we go below $1179.

If that $1179 gets run, and I think it will get run in the middle of the night, we will go very quickly down to $1030. So my advice is to continue to stay in cash, stay on the sidelines and protect your mental capital, so that if we do get to that level, you are able to buy.

TD: Gary, you mentioned there the “middle of the night” sell-offs, is that meant to push everybody out of those stops, and then basically soak up the positions, so that by the time those people wake up in the morning, the price of gold has already recovered? Is that how fast thingS can turn around in your opinion?

GS: Well, I don’t think this is going to recover immediately, but my guess is that there’s probably at least two big banks, I would say Goldman Sachs, JP Morgan, maybe a big hedge fund, and they’re trying to push gold down to that support zone at around $1000. So I think they’re already short, and right now they’re letting the dollar do the work for them. As long as the dollar continues to rally, then gold is probably going to continue to be under pressure. All they have to do is be prepared once we get close to that support zone at $1179, to hit it really hard in the middle of the night, and drive it through that support, so that when traders wake up in the morning their stops are triggered, and the selling just cascades. You would very quickly move down to $1000, because nobody’s going to buy at that point until you get to a major support zone. And it doesn’t come until you get down to between $1000 and $1050.

TD: You also noted here Gary in your commentary, the clamoring you expect to hear and see in terms of the downside calls, if this does occur, a move down to the $1000 level—everybody would be calling for $800, $700, $600, or $500 gold. Is that what we should all prepare for?

GS: Yeah, that’ll be exactly what happens. There will be two things that are going to happen. When gold gets to $1000, nobody is going to be able to buy, especially if they’ve been holding long positions, their mental capital will be shot, they won’t be able to buy. But I’m telling you that’s such a major support zone, that it’s going to hold. It’s also going to occur with gold in the timing band for an intermediate bottom. So you have to buy at that point. You may not catch the bottom perfectly, it may go down another $50, you may have to hold on for another day or two, but that level is going to hold. We are not going to go to $800.

I think we’re probably going to start the bubble phase from that point. Even if we don’t, we are going to have one massive bear market rally off of that level. I expect miners will probably rally a minimum of 100% in the first two months off of that bottom. So you have to be able to pull the trigger at that point.

And the other thing I expect to hear at that point is everybody starting to talk about tapering again. I’m already starting to hear it on CNBC, the dollar has rallied for three weeks, and they’re already starting to talk this nonsense tapering stuff. It’s never going to happen, they’re not going to taper. This is just a bear-market rally, the dollar has already begun it’s move down into the three year cycle low, and there’s not going to be any tapering. This is just a bear market rally.

TD: And you mentioned for traders that can move quickly, to stay in cash and wait for the possibility of this playing out, but for people reading that have been committed for years now, maybe at higher prices, holding the physical metals and the mining shares—is there much else you could say here outside of keeping faith in the long-term fundamentals?

GS: Exactly. The long-term fundamentals have not changed, and gold is going to have a bubble phase. All big secular bull markets have one, so almost certainly, this is the final correction before that bubble phase starts. So if you’re dead set on holding through this, just understand that all you have to do is make it down to the $1000 level, gold is not going below that. Not significantly below there, and not for any significant amount of time, before this bear market ends, and the next leg up or the bubble phase of gold begins. But that’s still a 20%-25% drop from here, so it’s going to be painful, but there is going to be a bubble phase on the other side of this.

So if you are committed and you are holding, then it’s probably best just to turn your computer off, and not watch the market here for the next five or six weeks. Let this play out, and the next leg up will begin.

TD: Gary, I know that you’re a student of markets and history. Are there any other markets that maybe you sit back and think of sometimes, that you could compare this to? Some people talk about the mid-70s gold market. Is there anything that comes to mind there?

GS: I believe that this bottom in gold when it comes, is going to be a little different than most bear markets, it’s certainly not going to look like the bear market that we had in the nasdaq over the last 13 years, it’s not going to go down, chop around, and then form a base. For one, this is just a cyclical bear market within a secular bull market, and it’s also a manufactured bear market.

So when this bear market bottoms, I expect it will explode higher. The chart I put up in tonight’s report (shown at top), carries my expectation that we will get a move down to that June low, over the next five or six days, probably like I said, into the Fed minutes next Wednesday. I think probably some kind of a little dead cat bounce, which rolls over very quickly, into a short cycle that breaks that $1179, like I said, maybe three, four days, and then crashes down to that $1030 level. And that too will make it almost impossible for traders to pull the trigger, because the move will be so violent that they just won’t be able to do it. They just won’t be able to buy.

But I think that when this bottoms, it will bottom in a v-shape—it’ll come roaring back out of that major support zone, because I think those three funds that have been trying to drive this down, I think they will flip and go long. I think any smart hedge fund manager is looking for this $1000 level, and they’re just like me—they’re sitting in cash and waiting and licking their lips. If it comes, they’re going to put the money to work.

So I think the buying pressure when we get to that support zone is going to be huge. I think the bottom will be an event, very short, and we will very quickly rally back up to test that break-down last April at $1520, and maybe an intermediate decline off of that, and then I think by summer we’re already testing $1800-$1900 next year.

TD: Okay wow, so that’s pretty short term. That’s something I wanted to confirm with you also for our readers—this potential washout to the $1000 level, this is all over the next 30-40 days, correct? Just during November and December that you’re expecting this?  

GS: Correct. The intermediate cycle should bottom probably in the first or second week of December, a prime trigger would be the employment report. I believe it’s on the sixth of December. That would be a prime trigger for a final bottom.

TD: Okay well Gary, as a final question for people reading that want to participate in your work and your daily gold commentaries, how can they do that?

GS: Sure. I have a $10 one-week trial going right now, so a one-week trial will pretty much get you through to the bottom of this daily cycle I think, and if they like the newsletter than they can subscribe. That can be found at smartmoneytrackerpremium.com.

TD: Gary Savage, technical gold trader and publisher of the Smart Money Tracker daily commentary, thanks for sharing your comments.

GS: Anytime Tekoa.

Photo source.