Here is what Fitzpatrick had to say, along with his incredible charts: 

Looks to be breaking out of the uptrend in a similar fashion to the summer of 2007 (see chart below).

King World News note:  If you look at the break in the center of the chart, you will notice that US Job Openings collapsed after breaking through the trendline.  The frightening implications of the break of the uptrend line on the right hand side of the chart is that if it follows a similar pattern, US Job Openings are set to collapse below the level seen in 2009.  This indicates incredible turmoil ahead for the United States, and this is why this chart has everyone in Washington so terrified.  The question is, exactly what lies ahead that would cause this kind of massive job destruction? 

Fitzpatrick continues:  “Initial claims have been falling sharply ... At the same time there has been a huge surge in claimants for disability and food stamps over the last 3-6 years. 

A lot of jobs that are being created are in service and leisure/hospitality industry (Generally low paying) and part time jobs.  So overall there is a very strong argument that the qualitative nature of job creation is very poor ... If we then add to this the fact that the dysfunctional environment in Washington is likely to continue to be a drag on confidence and the economy as we likely re-live the recent debacle again in 3-4 months’ time, at which point can we expect that Senator Schumer be telling “Madam Chair” to “get to work?”

In addition to the above we have seen an aggressive surge in yields and in particular mortgage rates this year over the summer months in particular which history suggests will have a negative feedback loop. 

Our favorite currency is regaining its shine

–  Gold is beginning to break through initial resistance levels and we continue to expect it to move towards $3,500 over the next few years.


–  Current monetary and fiscal policy in the US (and the rest of the world for that matter) further support our view of preferring hard currencies to paper ones.


–  Should Gold rally as we expect, Silver may actually outperform. 

Gold has broken through the parallel downward sloping trend lines around $1306-$1309 and a close through there would suggest the downward trend which began in August has come to an end (see insert for greater detail).


There is additional resistance around $1340-$1350 that we would like to see taken out first, though, before suggesting the next move higher in Gold has begun (those resistance levels are the converging 55-day moving average, May low and July high).  A break through there opens the way towards $1430-$1440, the converging 200-day moving average and August high....

Continue reading the Tom Fitzpatrick piece below...


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“We continue to view the $1522-$1532 area as an important resistance area to get through in the medium term.  These levels held multiple times in 2011 and 2012 as support and the break below in 2013 led to an accelerated move lower (it was also the neckline of the big double bottom).  A break back above the area would solidify the view that this correction lower is over and Gold should resume what we believe will be a multi-year move higher. 

How high can Gold ultimately go?

We still retain a view that we can see a “low to high” percentage move in this bull market similar to what we saw in the bull market of 1970-1980.

If we extract the final leg of that move in December 1979-Jan 1980 which was totally driven by the USSR invasion of Afghanistan almost doubling the price of Gold over 5 weeks then we end up with a target of around $3,500 over the next 3 years or so. 

The Ever Expanding Debt Limit

The relationship over the long-term is clear (see chart above).

Although the recent US Congressional debates and government shutdown may seem to imply that raising the limit over the years will be difficult, the reality is that the debt limit is simply used as a negotiation tactic.  In reality, without massive entitlement reforms (which are not even part of the discussion at this point), the US has no choice but to continue to raise the debt limit in order to finance its massive deficit (accounting tricks can only make the deficit appear small for so long).

Some estimates suggest the debt limit (and the outstanding debt in general) may rise to $22 trillion over the next few years.  If the above trend continues, we can extrapolate a Gold price of $3,500, in line with our target based on the 1970s Gold price action (see chart above). 

One of the more interesting points about the above chart is that it still holds true if the US Debt Limit is replaced with the size of the Fed Balance sheet (which we expect to continue expanding) or the balance sheet of many other major Central Banks.  As major Central Banks continue to maintain an easing policy and “currency wars” continue to take place, we remain of the bias that hard currencies should outperform paper ones. 

If Gold does continue to rally as we expect, Silver should also perform well (see below):

We have seen over the last decade that in the periods where Gold rallied, Silver actually outperformed (red arrows). During periods where Gold prices declined, Silver did worse than Gold (green arrows).  If we are in fact seeing the beginning of a long-term Gold rally, we would expect Silver to once again outperform. 

We are already seeing the Gold-Silver ratio turn lower (Silver outperforming) off of the 76.4% retracement of the 2008-2011 decline.  In addition, a bearish key week reversal was posted two weeks ago off of the 50% retracement of the July-August decline (see insert).  The ratio should continue moving lower towards support around 57-58, where the pivot and 55-day moving average converge.  A break below there points to further outperformance by Silver.” 

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