Here is what top Citi analyst Fitzpatrick had to say, along with some powerful charts:  “We still have the overall view that this up-move we saw on the Dow, which was just short of 13,700, is very similar to the up-move we saw after the fall in 1973/74. 

Also, we have two very important support levels on the VIX, which when we’ve looked back over the past five years, has been a good indication that we will see a strong up-move in the VIX, and by definition a strong down-move in the equity markets.  We may have seen the start of that today (see chart below).


We are also watching the gold price as well as the US dollar.  We are noting the way fixed income in the US has come lower, and even in Europe, the yield has come down on the short-end in Germany.  This is a move down in Ten-Year yields being led by Germany, and this indicates we are entering a period when the stock market is getting quite nervous (see chart below).

So we are still very much on the page where we are going to see a material down-move in the equity markets, and we still think there is a danger that down-move in the Dow will be in excess of 20% (as noted in the first chart).

This is not about the seasonality, but more to do with what is going on in the backdrop.  There is the approaching fiscal cliff issue in the United States, but concerns are also growing about the condition of Europe.  We see that putting pressure on the euro/dollar relationship. 

The dollar is nearing the 81 level, and if it breaks out could move very quickly to the 84 area (see chart below).  Again, this has to do with mounting concerns about what is happening in Europe, but the net effect would be to put additional pressure on both the Dow and the S&P.

Because of this, we believe that in the very short-term gold could remain quite volatile and experience some pressure.  Having said that, we feel that the $1,660 to $1,670 level, which we’ve already gone down and tested, could well be where we would form a base on the gold price.

It’s not to say we could not go back and test that area again, but our sense is that as the equity markets go lower, initially this may put pressure on gold.  But ultimately, in expectation of greater stimulus being pushed back into the system, that will end up being a positive feedback loop at the end of the day for the gold price.”

When asked about John Hathaway’s belief that gold will move quickly and violently to new highs after some backing and filling, Fitzpatrick responded, “That is entirely possible.  We are of the view that we are setting up a platform which is going to take us to levels around $2,050 - $2,060 on gold, and then on towards $2,400.

We’ve been looking at the idea that this could potentially happen in the first and second quarters of next year.  So even if you look back to an extreme example like 2008, and that really was an extreme example because we were at the highs in the equity markets and then we got a total meltdown, after gold took a hit, the core-trend reestablished itself very quickly. 

So we remain cautious in terms of the timing, but not in terms of the view.  We still believe gold will have a move to the topside, and when that move takes place we would be on Hathaway’s page in terms of the move being quite explosive to the upside.”

© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

The interviews with John Hathaway, John Embry, Stephen Leeb, Don Coxe (BMO $538 billion), Rick Rule, James Turk and Egon von Greyerz are available now.  Also, be sure to listen to other recent KWN interviews which included MEP Nigel Farage, Jean-Marie Eveillard, and Art Cashin (UBS $612 billion) by CLICKING HERE.

Eric King

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