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A Discussion of Larry Edelson’s Latest Take on Gold

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I am not picking on Larry Edelson.  But Andy Hoffman and I are in complete agreement that people like Edelson, who try and influence our readers to “time the market” and “trade the market” and whose advice has kept people on the sidelines for the last $200 move up in gold are doing our readers a huge dis-service.

Today Larry Edelson sent out his latest email blast justifying his view that although gold is still in a bull market and will hit at least $5,000, he builds a case that until gold closes at $1,823 on a weekly and monthly basis, he sees a huge correction in the wings, one that will take gold down to $1,400.  I’ll give Larry this much, he sure is consistent.

I sent his email to Trader David R and asked him what he thought of Larry’s views.  David R sent me back the following email:

No I disagree…. I think we will continue to see Central Bank and good physical demand on any dip below $1,750 now.  I am surprised that we are not at $2,000 yet.  We have to await the election results I think.  But with the FED printing more money now (open ended) gold will be supported.  I am currently in Florida and all of my father’s wealthy friends are long cash waiting for dips to buy physical gold and silver.  I was out with some big money Hedge Funds in New York last Tuesday and they were all bullish gold, as they don’t think the public has really understood what the Federal Reserve has done to them and their savings……….  I just don’t know who will sell gold here.

Take care

David

I listed David R’s credentials in my opening comments in yesterday’s daily.  To sum them up for those of you who missed it:

I worked at some of the largest bullion banks in the world over my career and I ran all types of books and did a lot of business with Central Banks around the globe.  I was involved in the largest gold hedge ever done in the history of the world back in 1996.  This has been my life for the past 18 years.  From 2000 to 2006 I was the gold trader at Barclays London. I have worked for AIG, Barclays, and UBS, some of the biggest bullion desks in the world.

I worked for three of the major bullion banks for 11 years and was in charge of Barkleys gold book and the hired 42 Brinks trucks to move our 27 million ounces of gold out of HSBC ‘s vault and into JPMs vault when HSBC raised storage costs on us.

Unlike Larry Edelson who makes his living as a newsletter writer, David R. not only understands the ins and outs of the business, he is one of the most successful gold and silver traders around and runs his own privately funded hedge fund.  He doesn’t have to write a newsletter to make a living; he makes his living by trading gold and silver.  If Larry was as good at timing the markets, as he would have you believe, why does he have to sell newsletters?  He could retire a zillionaire by trading the same markets he is advising you on when to buy.

This reminds me of Robert Allen who made a fortune advising people, for a fee of course, how to make money buying cheap real estate.  I attended one of his seminars in the summer of 1983.  After hearing his presentation, I said to myself, “If it’s so easy then why does he spend his time doing seminars and writing books on the subject?  If it’s that easy why isn’t he out there doing it himself?”  A majority of the financial newsletter industry is based on charging you a fee for “can’t miss advice on how to get rich with gold and silver.”  Of course there are exceptions.  Jim Sinclair is number one on the list and there is a fair amount of quality “free” information out there if you take the time to find it.  I would hope that our two daily newsletters (mine and Ranting Andy Hoffman’s) qualify as “worthwhile” free information.  Of course we would appreciate it if you check us out as a source for precious metals, but if you don’t, our newsletters are there for you regardless.

Getting back to Larry Edelson – I would like to address a few of the points that he makes and throw my two cents into the ring.

Larry wrote in his article What Gold Is Saying …, “All that money-printing, and gold is nearly $150 below its all-time record high.”  That is correct, but how about the trend over the last 60-days?  Aren’t you holding court a bit too soon here Larry?

Larry continues:

Where’s the evidence that all that money-printing is overpowering the credit contraction that’s occurring nearly worldwide?

Where’s the evidence that inflation is about to break out to the upside and send the U.S. economy into hyperinflation?

I am not going to take the time or space here to discuss the deflation scenario.  For the most part, deflation is confined to the deflating real estate bubble, but all one has to do is look at the increase in oil, food, gold and silver since the markets crashed in late 2007.  Where is the deflation?

John Williams (Shadowstats) wrote the following on September 14th:

No. 470: August CPI, PPI, Retail Sales, Industrial Production – Shadowstats.com

• Fed Easing Aimed at Propping Banking System, Not Boosting Economy
• CPI and PPI Headline Inflation Highest Since June 2009
• Headline CPI Held at 0.6%, Instead of 1.0%, Due to Intervention Analysis?
• August Year-to-Year Inflation: 1.7% (CPI-U), 1.7% (CPI-W), 9.3% (SGS)

August M3 Money Supply Annual Growth at About 3.1%.  Based on more than three weeks of reported data, the preliminary estimate of annual growth for the August 2012 SGS Ongoing-M3 Estimate—to be published tomorrow (September 8th) in the Alternate Data section—is on track to hit 3.1%, up from a revised 2.9% (previously 2.8%) in July.  As usual, revisions to prior months were due primarily to Federal Reserve revisions to underlying data.  Nonetheless, with recent annual growth having peaked at 4.2% in February 2012, the upturn in annual broad money growth that began in February 2011, had faltered and appears now to be leveling out.  Such a pattern—in an environment of massive Federal Reserve accommodation—still remains suggestive of an intensifying systemic-solvency crisis.

The seasonally-adjusted, month-to-month change estimated for August 2012 M3 likely will be around 0.2%, versus 0.5% in July.  The estimated month-to-month M3 changes, however, remain less reliable than the estimates of annual growth.

For August 2012, early estimates of year-to-year and month-to-month changes follow for the narrower M1 and M2 measures (M2 includes M1, M3 includes M2).  Full definitions are found in the Money Supply Special Report.  M2 for August is on track to show year-to-year growth of about 6.3%, versus 8.1% in July, with month-to-month growth estimated at roughly 0.3% in August, versus 0.8% in July.  The early estimate of M1 for August shows year-to-year growth of roughly 10.3%, versus a revised 15.7% (previously 15.9%) in July, with month-to-month change a likely gain of 0.2% in August, versus a revised 2.8% (previously 3.0%) in July.  The variability in year-to-year growth rates reflects sharp monthly gains a year ago in M1 and M2 that reflected a shifting of funds out of M3 accounts into the M1 and M2 accounts

Neither economic nor systemic-solvency issues have been resolved by U.S. government or Federal Reserve actions.  With the economy weak enough to provide cover for further Fed accommodation to the still-struggling banking system, the next easing by the Fed—and it should follow as needed to support the banking system—likely will lead to a massive dollar-selling crisis, and that will begin the process of a rapid upturn in domestic consumer inflation A dollar-selling crisis, however, could begin at any time, triggered by any number of economic, sovereign-solvency or political issues.

Subscribe to John Williams’ Shadow Stats

The key thing to note in Williams’ report is the sentence that “A dollar-selling crisis, however, could begin at any time, triggered by any number of economic, sovereign-solvency or political issues.”  To be out of the market now, waiting for the unlikely plunge to $1,400 makes no sense at all!  This is NOT the time to bottom-fish and try and time the market.  We are in the midst of a giant game of musical chairs and you do not want to be the one left standing while waiting for a lower purchase price.  Plus, even if Larry is right, gold, according to him, is headed to $5,000 so an extra two or three hundred dollars an ounce is not a game changer.  So far, he has been wrong and has cost his followers over $200 an ounce.

Even more important, the accepted definition of inflation is an increase in the money supply compared to available goods and services.  You saw John Williams’ numbers.  M1, M2 and M3 are all increasing.  It won’t take much for the velocity to speed up, especially if the dollar continues to fall as Jim Sinclair postures.

Larry wrote, “That there isn’t even record demand for gold right now; instead, demand is actually slumping. I must be getting my information from different sources that Larry.  According to John Embry, Jim Willie, Bill Murphy and Eric Sport (plus a litany of others) the central banks are on a massive gold buying spree, led by China.  Sales are once again on the move (up) in India.  The only area that is not terribly robust is the retail market for bullion coins in the US.  Gold is within a fraction of a percent of hitting an all-time high in euro and the buying pressure there must be enormous.

Larry’s final argument is also weak.  He says:

Until then, gold remains highly vulnerable to the kind of action we saw this week in crude oil. Crude oil, with all the geopolitical tension with Iran and in the Middle East — coupled with all the money-printing — should be soaring, right? 

I’d bet my bottom dollar that the pullback in oil was nothing more than a political move, led by the PPT to hold back the price prior to the election.  It has nothing to do with fundamentals.

If you want to follow Larry’s advice, be my guest.  Personally, I think it’s ill-timed bad advice and he has been on the wrong side of the entire move up from around $1,550 but still stubbornly holds to his precious little chart.

My suggestion is that you adhere to Richard Russell’s advice:  

September 21, 2012

Gold timing — and I might as well say this — I believe there is only one safe, eternal repository of wealth — and that is gold. Therefore, I believe that there is only one item worth buying at this time, and that is physical gold in the form of bullion coins. If you buy gold bullion coins, you can forget about timing. I don’t care what the price of gold is now, in a month, six months, or five years from now. Gold is eternal wealth that you can physically own. So forget what you paid for the gold coins, and forget their price a year from now. Accumulate them and put them away in a safe place. They represent the safest form of pure intrinsic wealth, and they are the only items whose price you do not have to worry about. The reason is that gold has no true competition. Nothing on earth compares in eternal safety with physical gold.

It is possible that Larry will prove to be correct (highly unlikely) but if he does, it won’t be because of his charts or analysis, it will be because JP Morgan decided that’s what they wanted to do and they can move the market at will in either direction.

You can read Larry’s full article here:

What Gold is Saying…

Also read this bullish article from his boss, Martin Weiss:

The Simple Case for Gold

It seems to me that Larry’s boss, Martin D. Weiss is much less worried about a large correction now.  His article, also released Monday is very bullish indeed.  I give Martin credit for allowing Edelson to write what he believes.  We do the same thing here at Miles Franklin.  No one tells Andy Hoffman or Bill Holter what to write.  That is how it should be and there is nothing wrong with discussing both sides of any issue.

 

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