Here is what top Citi analyst Fitzpatrick had to say, along with some powerful charts: “We remain bullish on the gold price.  Most importantly, this is a bullish gold view, not a gold/dollar view.  So while the gold/dollar chart now looks strong, and momentum is picking up, we believe gold will outperform all paper currencies in the developed world.  This is because there is so much money printing taking place, particularly in the West.

But we believe over the next 12 to 18 months that we are going to see the the euro significantly lower vs the dollar.  Ultimately we see the euro below parity with the dollar, and maybe as low as 90 cents.  So over that 12 to 18 month period, we not only see gold performing well vs the dollar, but we see gold significantly outperforming the euro. 

In fact, gold may perform 20% to 25% better against the euro vs the dollar.  It is also worth noting that gold is only 3% off the all-time highs in euro terms.  Silver has also held nicely above the $27 level, and very recently we have seen silver begin to outperform gold.  The silver chart looks very bullish.  We believe that silver will continue to outperform gold in this breakout move.”

Fitzpatrick also added: “The entire backdrop from 1973 to 1975 is very interesting.  At that time we saw the downturn in the equity market, the economy, and housing, along with the surge in the oil price and corresponding move higher in soft commodities.  We saw a settling down until 1978/1979, then we got that second surge, which ultimately yielded the stagflationary dynamic in the US.

We replicated a lot of that in the 2007 and 2008 time period.  Now we are seeing a surge in soft commodities once again, and that’s exactly what happened back in 1978/1979 time period.  So we’re convinced there is more upside to come.  We expect new all-time highs in Brent Crude.  We believe we will see a surge to the $160 level on Brent, and if we replicate the move in 2007/2008, that would target $190 for Brent. 

So we expect to see significantly higher prices in crude oil.  A continued move higher in food and energy, exacerbated by money printing, can only be construed as extremely negative for the global economy going forward.”

From Tom Fitzpatrick’s latest report:

“Gold has taken out the top of the range at $1,641 on a close basis and is now testing the trend line that comes down from the highs at $1,661.  A weekly close above this trend line would confirm what is looking like a bullish break and open the way for a test of the double (or triple) bottom neckline at $1,790-$1,802 (see chart below). 

From a longer term perspective the $1,790-$1,802 levels are key.  A weekly close above that would argue for new trend highs and a move to $2,040.

Silver - The trend line down and 200 day moving average are under threat at $30.37-48 (see chart below).  A weekly close above (200 day moving average) would open the way for the double bottom neckline at $37.47 (23% away).  As gold goes higher, do not be surprised if Silver becomes the “poor man’s gold trade” and plays some catch up.

Brent Crude - A weekly close to new trend highs would then open the way for the all time high again at $147.50.  As we have often highlighted, a number of market dynamics seen over the past several years have been similar to those seen throughout the 1970s.  Some of these include the major housing downturn of 1973-1975 (70% down in Housing starts compared with 77% down between 2005-2009), an equity market collapse, major policy reaction from the Fed and a number of economic factors including the rise in unemployment. 

One other important similarity was the Oil price.  The 1970’s saw two oil price shocks, the first was the Oil embargo in late 1973 – early 1974 from where the oil price tripled.  The second came 5 years later after late 1978 resulting from a combination of regime change and conflict in the Middle East.


The chart (below) shows the price of Brent in relation to the 200 week moving average.  In 2003 Brent chopped around the 200 week moving average which was then around $26 before trending up to hit a high of $78.64 in Aug 2006.  From there we saw a 35% drop to just above the 200 week moving average.

There we posted a monthly hammer followed by two strong up months (insert) before seeing a break of the then trend high ($78.64) and ultimately a rally to $147.50.  This rally was just short of $100 above the Jan 2007 low ($50.75 - just above the 200 week moving average) and almost a tripling of that Jan 2007 low.

This time we saw the Oil price chop around the 200 week moving average at just below $80 in the second half of 2010 then rally to a high of $128.40 in March this year.  From there we fell 31% to just above the 200 week moving average where we then posted a monthly hammer pattern and have now seen two strong up months.

So the price action has been similar to late 2006/early 2007.  The danger here is that over the medium term we see a breach of $128.40 which would, as a minimum, open the way for the all time high at $147.50.  A move of $100 from the low this year (which would be similar to the 2007-2008 rally) would take us close to $190.”

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Eric King

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