The Hindenburg Omen and Gold
There is an ominous stock market technical indicator signaling that a significant downturn may be imminent. The “Hindenburg Omen” (HO) was made famous as a precursor to the infamous 1987 market crash and has preceded many significant market corrections since. What the HO signifies in a nutshell, is when a higher concentration of stocks are making new lows, than stocks making new highs, even when the overall market indexes are rising. Often when we hear the news that the stock market was up for the day, we wrongly assume that most stocks were up. In reality, the higher indexes sometimes belie the fact that many stocks are actually in retreat. This indicates, the theory says, that there are unusual financial stresses being felt underneath the surface. With stocks near record highs, and precious metals bumping off of recent lows, today seems to be a prudent time to lock in paper market gains by purchasing Gold and Silver. When we look at prior instances of the Hindenburg Omen alerting an upcoming market event, several periods come to mind. We have already mentioned 1987 when HO signaled in August. Within 6 weeks of the signal, 35% of the market value was wiped away. In June 0f 2001, HO signaled again. Over the next 3 months, the market lost 25%. In June of 2002, HO preceded another market decline of around 25% over a 4-month period. In July of 2007, HO preceded a precipitous 50% decline over the next 18-20 months. You might recall the 12% market decline this year (2018) from mid-January into February, which was also preceded by HO. The high concentration of consecutive signals that have been triggered this September should not be ignored. To be sure, some observers have been quick to point out that HO has preceded a significant downturn only 30% of the time the Omen appears. But when we consider that every market drop of 15% or more is preceded by HO, it is important to consider safety. We are also in a situation where 11 HO have been triggered in a short time, with 9 triggered in 9 consecutive days this month (September 2018). This is a record-breaking quantity of consecutive HO signals indicated since records have been kept. Even using the naysayer’s statistic of 30% accuracy would indicate that at least 3 of the 11 recent HO signals could portend significant mayhem. As quoted in “The 7.0% Solution”, No one has ever gone broke by taking a profit. We believe it is time for prudent investors to take some money off of the stock market table, and consider a depressed asset like precious metals.
Fall Season Known for Historic Market FallAs September draws to a close, we are also reminded of other ominous events that have occurred in October. The “Panic of 1907”, “Black Tuesday”, “Black Thursday”, “Black Monday” (x2), etc, all occurred in October. While there is nothing that proves October 2018 will be a difficult month for stocks, when we consider the September Hindenburg Omen signals, it is certainly not out of the realm of possibility. The best time to be changing investment positions is before the crowd catches on. With less than 1% of investment capital currently allocated to physical precious metals, you still have time to beat the crowd. Once the mayhem begins, big money starts looking for a safe place to go. With other areas of the world already experiencing mayhem of their own as we discussed here, there are fewer options to consider besides precious metals. By liquidating risky paper assets before they decline, and purchasing depressed metals before they rise, you can do your family a huge favor. Besides the technical market indicators that are flashing red, there are also other conditions that threaten the markets and economy. The average American consumer today is somewhat strapped for cash, with fewer than 40% having $1,000 or more in savings. 34% have no savings whatsoever. This means there is little ability to pay higher interest rates on burgeoning consumer debt, without cutting corners elsewhere. Without consumers purchasing an increasing quantity of goods, there can be little sales or revenue growth. Since the stock market is forward-looking, these facts portend slower growth ahead. With many companies warning about the effects of trade tariffs, the future becomes even more uncertain.
Warnings From Money ManagersEven the company synonymous with “stock market”, Merrill Lynch, believes it is a good time to purchase Gold. Their latest research indicates that while the economy might have some hiccups, Gold next year should average $1,350 per ounce. This is a 12.5% increase from where it closed today. Meanwhile, Goldman Sachs is concerned not only about current stock levels but also for difficulties ahead in the bond market. There is over $1 Trillion in debt to be rolled over in the coming year, at higher interest rates. This will make it more difficult for corporations to refinance, continue to service their debt, and will likely impact corporate earnings. Recently the US Mint ran out of Silver Eagles, but the product is coming back online now and is currently available. Premiums are relatively low, while the metal price is also low. This provides a rare opportunity to stack some Silver before the next market panic sets in American Eagles come cheaper by the tube.
Metals Offer Diversification and SafetyWhile bullion prices have been challenging the last few years, Gold Bureau exclusive investment grade coins endorsed by Ed Moy have been consistent performers throughout. In fact, these coins have been outperforming bullion 15 to 1. While a balanced portfolio is best, no collection would be complete without some of these highly graded coins. Here is more information explaining the performance differences of various grades of metal. With or without the recent Hindenburg Omen signals, stocks are at near record levels and likely unable to repeat their performance of the last few years. Precious metals, on the other hand, seem to be poised to come out of their slumber and offers the serious investor a more conservative way to increase their assets in the months ahead. Someday, there will be ample opportunity in the US financial markets once again. But we believe that currently, the greatest opportunities for safety and growth of purchasing power are with precious metals.
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