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The interim bear market in gold and other precious metals that I’ve been tracking for you isn’t the only bear market out there. As I warned quite some time ago, the price of crude oil would also fall substantially, down to below $70 a barrel, and quite possibly lower, before it bottoms.
Since June 19, oil has plunged from $107.44 a barrel to $67.22 as I pen this column, a $40.22 hit, an amazing plunge of more than 37 percent!
More losses are coming for oil. In fact, take a look at this monthly chart of oil that I showed you at the end of last year, and notice how spot on my forecast has been.
Oil is now hovering just above that first major support level. Once it cracks that, oil will plunge to as low as $40.
That leg down to $40 could begin any moment, or perhaps after a short-term rally.
The crash in oil prices is hard to believe, when there are so many diehard oil bulls out there. Even more so when you consider all the political hot-spots around the world that are now causing so much turmoil.
But from a fundamental point of view, oil is not bullish. Global oil inventories are fine now; there is no squeeze in supplies.
Moreover, as we all know, the U.S. now has more energy of its own than it’s ever had.
So what is driving oil prices lower? The answer, in my opinion, is simple.
And no, it’s not some far-fetched market manipulation to bring down Putin and Russia.
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| Oil prices are tumbling now, and the fall will continue. But it won’t last forever. |
What’s driving oil lower is the same thing that is driving nearly all commodities lower. It’s called deflation. That’s especially true for Europe. The euro region is in a freefall. Almost every country in Europe is contracting, severely. Unemployment remains sky high, threatening to move even higher.
And all across the globe, rising geo-political tensions and conflict are driving most business people and investors to play it safe, park money in cash, take risk off the table, and hoard and protect their capital and wealth.
That too is deflationary, for all but the U.S. equity markets. So it’s hardly surprising that oil — like gold, silver, copper and so many other commodities — is still in bear-market territory.
But mark my words: a new oil bull market will form from this decline.
How so, when deflation is so strong right now? When there are so many dynamic changes occurring in the oil market, with the U.S. set to become energy independent?
There are three reasons oil will soar again, after it bottoms (in 2015).
First, there’s China. While China is home to oodles of natural gas, its economy is still oil thirsty and will be for a very long time. Â
In fact, in terms of dependence on oil, the U.S. and China are moving in opposite directions. While the U.S. will soon be energy independent, China will soon be the #1 consumer of oil and almost entirely dependent upon foreign supplies.
Second, there’s incipient global inflation, and a coming end to the dollar reserve system. Europe will crash into a steep deflationary mode in 2015. But it won’t last forever.
At some point in the not-too-distant future, the euro will crash so much that inflation will reappear in Europe, and even here, too.
In addition, the U.S. dollar will eventually lose its reserve currency role, and be supplanted by a new global reserve currency, in electronic form. The dollar’s diminished global role and the uncertainty of a new monetary system and reserve currency is bound to be very bullish down the road for oil prices.
Third is the war cycles. Right now, they are bearish for oil, as they are for gold. But keep in mind that the cycles of war point consistently higher into the year 2020.
That means that rising geo-political tension around the globe is going to accelerate DRAMATICALLY in the months and years ahead, and at some point — also not too far off in the distant future — it IS going to put a firm bid under oil and energy prices.
The question now, though, is how can you play the downside in oil over the next few months, as oil heads toward a major bottom near the $40 level?
Simple: Buy shares in an inverse ETF. My favorite for oil is the ProShares UltraShort DJ-AIG Crude Oil, symbol SCO.
What about energy shares? With very few exceptions, most should trade lower along with oil over the next few months. Then they will become a fantastic buy.
Until next week …
Best wishes,
Larry
Larry Edelson, one of the world’s foremost experts on gold and precious metals, is the editor of Real Wealth Report and Supercycle Trader.
Larry has called the ups and downs in the gold market time and again. As a result, he is often called upon by the media for his investing views. Larry has been featured on Bloomberg, Reuters and CNBC as well as The New York Times and New York Sun.
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“We are so close to a bottom in precious metals, I can taste it†– Larry Edelson (6/7/13)
Yes Manny
It was the first real sign of a bottom which held for a while and has since been breached. This is old news. Tell all of us what you think will happen next.
Manny- keep it u !!!!!
Was the forecast for oil to go below $70 before or after the forecast for it to go to $200? And how does anyone predict a “time” for anything to happen when things can, and do, change overnight on what some nut says or does?
Larry is the best hindsight trader out there hmmm i don’t remember him saying oil was going to fall to $70 but after it does wow he warned us all it would now whats his take on gold as its rose $100 in the last few weeks but its still going to $900?? or is the bear market over now??I guess when its over $1400 it will be i warned the bottom was in in December.
I have been following Larry for years now and I can say that Larry is one of the best long term forecasters that I know. For instance take a look at this article from nearly 6 years ago: http://www.moneyandmarkets.com/enormous-profits-ahead-32746
If you expect Larry to be spot on every time then you know nothing about trading.
If Larry is calling for $40 oil it means next stop is back to $80
Don’t say that!,. i’ve just taken out a very big position in ULTRASHORT crude on Larry’s recommendation,. LMFAO
nobody can see the future. Some can recall the past, but I can’t remember what I ate yesterday. I can see the gas prices are down to $2.75 from $4.00 a gallon few months ago. I also know that all the gas stations that were on 4 corners of major intersections are replaced by Banks, CVS and Wallgreens. What is that telling us? How do banks make money? How do these retailers make money? can anyone answer me?
The low oil price has already caused major damage in the credit markets. With $1.2 trillion of leveraged debt at risk. The BIS reported in it’s recent quarterly that 55% of CDO’s now being issued are based on leveraged loans. Play it (2008) again Sam!
The 5 shale oil States that have reaped all the jobs over the past 5 years, will now be the ones to suffer higher unemployment as the oil sector down sizes. These oil plays take major capex to start and if moth balled, require up to 2 years re-start.
Deflation? Yes. Expect all major assets to suffer. On the surface the USD will seem to be the go to safe financial vehicle. The best looking train wreck! Until the next round of Fed easing, when confidence in the USD will be lost. At that point expect high price inflation, leading to possibly a hyperinflationary environment. Got gold & silver?
remember, all those inverse ETFs are “doing great”.
Actually I consider Larry’s position as being a possible capitulation phase indicator for gold. When the last bull turns bear……..that’s the definition. He claims to know the future with such certainty that it’s hard not to be skeptical. Nothing against the guy any one with this sense of certainty in an uncertain environment has to be taken with a grain of salt.
My sentiments exactly, Rick. You hear all the claims but nothing about the negatives. The Weiss newsletter was amongst the ten worst in 2010 according to Mark Hurlburt but you would have had to read that elsewhere. So why pay for it? If they get it wrong and they have many times you lose money but that’s just tough, no?
He is like the broken clock,,,,he gets it right sometime,,,,BUT changes his prediction more times than his underwear.
how do you know his laundry habits?
simple supply & demand. lotta oil means low prices. deflationary today, but no better stimulus to the economy than low oil prices. soon, low oil prices beget high oil prices. we’ve all seen this movie before.
You sound very balanced. I would like to see more or what you have to say
high oil prices put us in recessions, like 2008. low oil prices do the opposite. i can’t think of a time in history when low oil prices were bad for an ecomomy. can you?
There is no overall deflation.My food bill has risen faster than my gas prices have declined.Just like housing was deflating a few years ago, overall prices are still rising.Now it’s oil deflating.Oil can only give you deflation for a short period.Once it’s over,inflation will rise faster.Most Americans are supporting minimum wage increases.That means,everyone working,will have to see wages rise,to keep the differential between skills.If prices are rising now,in spite of the Dollar’s strength,against other junk currencies,imagine what inflation will be,when the Dollar and other fiat currencies’ bubble bursts.All these countries,thinking they can load all their economic problems onto their currencies is crazy.Junk,fiat currencies are going to go into freefall.
headline inflation should remain flat because it includes (dropping) oil prices. but core inflation should rise because it does not include oil prices. this is why the fed follows core inflation in favor of headline inflation. rising core inflation caused by an improving economy resulting from cheap oil will cause the fed to tighten credit next year with a rate hike. it’s all good. the s&p should continue to do well next year, if not even better than this year.
Junk bonds free falling…oil free falling…..small third world markets free falling….those are symptoms of deflation.
nothing goes up in a straight line. if oil were suddenly free tomorrow it would appear deflationary at first, yet become inflationary over time. the long-term trend will be rising rates, increasing inflation and a stronger dollar in the years ahead. cheap oil may soon be the impetus that moves us in that direction.
nearly every recession we’ve had in the last half century has coincided with high oil prices, (i’ve checked every recession dating back to the 1970s when oil was deregulated). the low oil prices we have now is good for the economy and a good sign a recession is a ways off.
i noticed with Edelson, when the price of something is dropping, well, it’s gonna drop some more…when it’s rising, it’s a gonna rise some more…..and, when it’s cresting, well he speaks from both sides of his mouth…..and somehow is still wrong…..i can look at a sine wave and tell you the same things, but i couldn’t convince a single person to pay me a hundred and fifty bucks like this guy can….
Time to Buy
Gold Miners, Oil Major’s, General Miners,
Sell the Rest of the Market
Put Your Stops in and Wait.
i’m holding JDST & DUST gold miner shorts. they’re up 20% today. do you still think i should buy gold miners? :-)
The continued selling of pm’s just shows how much more severe the sovereign debt crisis really is. We knew it’s aweful, just not this awful. I was never a “run for the hills” kind of guy until this past year. This is a collapse of the entire system.
Been explaining things to the wife who now gets it. Business is crushed, but investments providing the income now and God willing, for the remainder of the future. Lost material supply contracts to every wholesaler/retailer. Whatever businesses that are still in business are doing so on the “real cheap.” One major retailer replaced me with a company final bidding at half my already ‘cheapened’ price! I went to one a few weeks ago(I honestly nevershopped there anyway. I always supported my local mom and pop business owner),
and was surprised to my competitors product, which I know what he bid, being sold for 10% more then what they sold me for!!! They got his product for half my price and then raised their price anyway! This is going on ALL over and getting more competitive.
Closed up shop and let everyone go. Nothing to sell. Exited my lease and never looked back. Well, except for that one day at Lowe’s:)
Its cutthroat out there, figuratively speaking, for now. But in a few short years it will be literally speaking.
Heading for those hills and not looking back. Well, maybe just once. A few years after the fact. Just like a few weeks ago. To reassure myself that it was the right decision. Godspeed to all of you.
P.s.
Not in anyway prepared to go yet. It will be a few short years before TSHTF. But they still are YEARS. :D
Third is the war cycles. Right now, they are bearish for oil, as they are for gold. But keep in mind that the cycles of war point consistently higher into the year 2020.
That means that rising geo-political tension around the globe is going to accelerate DRAMATICALLY in the months and years ahead, and at some point — also not too far off in the distant future — it IS going to put a firm bid under oil and energy prices.
Can i just say that WISHING for war to break out just to justify your stupid wars cycles theory is crazy,. stop with all the war nonsense please,.
War nonsense? Mr. Edelson is only referring unto major military movements during times of conflict, which we have at present, always causing the prices at the pump to rise immediately before the strike occurs.
Larry says oil is dropping further that means it is time to buy. Do the opposite and you will make money. Sell at the bottom and buy at the top. Some things never change do they.
He runs to many news letters. He needs to dedicate his time to one recommendation service. Way to scattered makes a scattered brain. I think that’s the real problem. I don’t think the guy is stupid I just think he has to keep up with to many services. No good…..
Larry’s and Mike’s predictions some three years ago about the immediate U.S. stock market and dollar crash cost me half of my investment. And I even paid for their BS predictions.
Huanjo…. he sells a trading service. He is right 2 out of every 10 trades, if that, and the winners can’t cover the lossers. Sorry, but that sucks. Long term predictions are no good when you sell a short term trading service. Stop after stop after stop.
Larry has a bogus track record, when you sign up for his trading service it shows as he hits 1 out of 10 – crappy for a guy who claims to have called the 1987 crash.
Cause he didn’t really call it.
Larry is selling investment newsletters.He has to make a lot of short term predictions for subscribers to stay.If he just made long term recommendations,people would just quit subscribing.So,if you like short term trading and the stress that comes with it,subscribe to a letter,like Larry’s.
George N . Harry Dent say’s market are about to collapse to 6000 by 2017. Larry E say’s the market will be 31000 by 2017. Harry D say’s gold will drop below 900.00 by 2017 Larry E say’s gold will be 5000.00 by 2017. Talk about two opposites. Who’s right. I will put my money on Larry E.
Don’t bother with these shysters – they have no clue. I researched and read for years and finally came on the “secret” of the market – any market. I now can predict the movements of any market and yes, I am making a lot of money. I suspect this is also what Armstrong had discovered. And like him I won’t be telling anyone what it is.
George …Harry Dent has been wrong for years why does he still write ? Because we have so many suckers out there who can’t remember what he wrote the last year.
George…..we are in deflationary times. Suggest you consider watching the coming action in the stock market over the next few months. Then think hard about your conclusions and do some research as to what happened in the 1930s during similar deflationary times……. before you invest a lot of your savings based on those conclusions.
last time u addressed oil it was at 95 ish and u said 92-93 was the floor and to get in on good oil companies.. ur a dumb@$$
in fact i took ur stupid advice and sold sco and missed out on 120% profit
Fred ; I know what happened in the 1930s I was here then, and man it was rough, But that will never happen again because were in the electronic age to day. and the volume of shares trading today is in the billions. I remember when gold was $35.00 per oz. and the Dow ratio was 15 -1 and in 2014 it still is.
No one can accurately predict the markets or what will happen in the future. Especially with the “unnatural” manipulation of monetary policy by governments that has created massive speculation in all markets. At some point in time all of the debt wil need to deleverage. We are starting to see that now with global deflation. I follow Harry Dent and I think his philosophies are spot on but again no one can accurately forecast what will happen or when. All I know is that it’s going to end badly and we need to protect our families and our assets now.
YES! oil is down to recent historical lows, and everyone knows that as oil goes historically, it will also go UP!!!! So, why is no one, NO ONE, is telling us what stocks or ETFs to buy now so we can all catch the wave up? it will come. I want to know, and not with an offer to join yet another super wealth fund subscription from Weiss. Steve