The turning point and the next leg in Gold

We have been warned about further near-term weakness in gold and pretty much else by prominent investors such as Jim Rogers (link here)

That is not to say that gold is bulletproof. In fact, Rogers says a gold price correction could happen sooner rather than later, and the downside is USD1200 - USD1300 a troy ounce.

and Marc Faber (link here)

Gold may not perform very well in the near future. The gold market has performed so well, we could have some setback.

Which is part of a broader market weakness stressed again by Marc Faber (link here)

The market is vulnerable. Many stocks sell off on news that is not really bad, but not just as good as expected. So I am of the view that maybe we have something more serious here.

Bear in mind that no asset will inflate more without additional monetary stimulus. The inability to generate profits at the same pace than overall interest payments due to sustained high energy prices is burning the money that solvent businesses have. A credit implosion burns money and removes liquidity, creating a monetary deflation whose effects are similar to the Great Depression. This is what Bernanke knows, but I don't know whether he has factored in the true importance of oil in the equation.

In any case, without monetary easing, equities will crash, draining liquidity out of the system and making several institutions insolvent, which will spur fear into the already weakened markets and will drive them further down. That is the signal Bernanke is waiting. I've been hearing talk about further QE since April 2011, but Bernanke is an elegant guy and will not let politicians, economists and the broad public criticize him over QE. They will have them begging him for more QE. And that moment will come once equities crash.

This scenario is a market-wide collapse in which only one asset would survive: oil in case of a conflict with Iran, an option that has become increasingly likely. Short everything, long oil.

Concerning gold and silver, bloggers Dan D. from The Fundamental View, Mr. Hui from Humble Student of the Markets, and of course the previously mentioned investors Jim Rogers and Marc Faber, and myself, are expecting further short-term weakness that will make the metal plunge (for the last time in my opinion) until reaching the max pain point of many investors, only to recover after institutional investors (not the small investor) counts on immediate easing. Look for a massive drop in both the price and open interest in the COT (Commitment of Traders). I am no chartist (and I could use one), but I believe that USD18 to USD20 could be a bottom for silver in the worst-case scenario, that would revert all gains from QE2. That would put gold in USD1260 to USD1400 using a crashed-BDI ratio of 70. I chose this ratio because it would coincide with low industrial demand for silver, and would correlate very well with another plunge in the Baltic Dry Index.

I believe the 1260 number is appealing to technical chartists, since it is the bottom gold made back in 2010. This figure is also in the range Jim Rogers is saying in the media.

So, wait for those beautiful Chinese 2012 silver pandas to fall into your hand at incredibly cheap prices. Be patient, buying silver will again be profitable and a very good investment because it will react with the same strength as it did in 2011.

And if you plan to trade these markets, trade safe and good luck.

DISCLAIMER: I have no position in commodities at this time, nor I plan to open any position in the near future.