For the sake of simplicity, let’s classify the people who own gold into three groups. There are the true believers, and they are in the minority. I classify myself in this camp. Then there are the people who start to lose faith as the price falls and they look for someone to blame for their (paper) losses. They send me emails proclaiming that Richard Russell and Jim Sinclair don’t know what they are talking about (it’s always Russell and Sinclair). They haven’t thrown in the towel quite yet, but they are getting nervous. The third group has thrown in the towel (so far, they are a very small minority). The market is getting too emotional for them.
The interesting thing is that Richard Russell is the last person to be upset with. Do not equate Russell with an ever-rising gold price. You should pay attention to what he says – and has been saying for as long as I have been following him, and that is a very long time. He says the purpose of a bull market is to throw off as many investors as it can. That’s why they call it a “bull.” The bull wants to take as few people forward as possible.
We are starting to witness that now, and it will intensify if gold starts to head back down toward $1,000. Russell says, “Think Big Picture and think Primary Trend.” That happens to be the best advice anyone can give you. Especially if you understand the role that gold is designed to play in a portfolio. Russell advises that you never sell your core position of gold coins and bars. He points out that gold is money. Now if you want to “invest” in gold, then you buy mining shares or options. But when you buy physical coins, they are keepers. Russell has written volumes on why we all need gold as a balance to the reckless monetary policies of the Federal Reserve. He is very pro-gold and anti-Fed. He does not whine or panic when gold falls. He is still resolute in his belief that at some point in the next few years gold will sell for one or two times the Dow. It’s around 15 to 1 now. Yes, Russell is bullish on gold – even now as it tests our mettle.
What about Jim “Mr. Gold” Sinclair? If there is anyone who breathes air who has more experience in this field I don’t know who it could possibly be. To say that Sinclair is bullish is an understatement. Sinclair is consistent in his view that the paper gold market and the physical gold market are starting to disconnect. He is certain that the paper gold market on the COMEX and London Bullion Market Association (LBMA) will no longer be able to control the price and the margin on gold will rise to 100%. It did in silver in 1980. He tirelessly points out that physical gold is moving from the west to the east. The Chinese, Indians, Russians and Arabs are accumulating the gold that is being foolishly dumped by the western central banks. He promises that the dollar will crash, falling to well below 72 on the USDX. It is currently around 82. Gold, he promises, will trade above $3,500, well above $3,500! He is resolute that the Fed is stuck with a QE to Infinity policy, and there is no exit.
It is easy to have faith in the Russells and the Sinclairs of the world when gold is RISING. But when gold is falling, most people start to lose their conviction.
That’s when I step back and ask myself, what’s changed? Are the fundamentals different today than they were for the last 12 years when gold was rising rapidly? The answer to that is yes, things have changed. They are worse today, more gold friendly that they have ever been since gold turned north in 2001. The Fed is creating a trillion dollars a year of new money. The Fed is printing money to buy US Treasuries. Congress is hopelessly bogged down in a trillion dollar a year deficit stretching as far as the eye can see. Since interest on the debt compounds, the number will get larger in the future, not smaller. The only thing holding up the economy, the stock market and the bond market is the liquidity provided by the Fed. The only thing holding down interest rates is $85,000,000,000 (I printed out all the zeros for effect) a month of newly created Fed money, also known as Funny Money and Banana Republic money.
Yes, things have changed, and gold benefits from all of the above.
So why then is gold falling? Have you noticed that whenever something bad happens to us we ask why me? Why did I get cancer? Why did I lose a child? Why did that car hit mine? Why am I losing money with my gold holdings? The “why,” my friends, is not important. It happened, that’s what’s important. Whether the fall in gold is due to manipulation (and I believe it is) or whether it is just a normal major correction in a long-term primary trend bull market designed to throw off the weak participants is not important. It happened, that’s what’s important. Now we have to deal with it.
We are all being tested. Do we sell? I say no! Do we panic? I say no! Do we buy the pullback? I say yes! This is the hardest thing to do. We have to fight human nature on this. Most of us find it easier to buy on the way up. Being able to buy when there is “blood in the streets” is a rare ability. That’s why so few people are as successful as the Rothschild’s or Jessie Livermore or Sinclair’s father Bert Seligman. Only a few of us will buy gold if it continues to “correct.”
I must confess, I am puzzled that Jim Sinclair’s timing is so off. He has been right as rain for the entirety of this 12-year bull market – until just recently. His first missed call was less than two months ago. We really do want him to be right and if he is misguided in his timing, then who can we trust? He is “Mr. Gold.” But I know that even if gold falls another few hundred dollars, when it does bottom and turns up to and past $3,500, few if any will fault him for being a bit early in his call. He must be as puzzled as I am when all the fundamentals say gold should be going up but it is going down. This is upside down! This is un-natural! This is illogical! And you know what – things that don’t make sense are not true (courtesy of Judge Judy).
We all understand, or should understand that we are right in our bullish views, in spite of the price (at the moment). When we remind ourself what gold is – MONEY and an insurance policy that protects our net worth against blatant Fed money creation and reckless government deficit spending, we should be able to hang firm and those with the greatest conviction will take the discount price and buy as much as we can afford. And if it goes lower, we will buy more. We do it because we understand the end game here and the end game is the winner is the one with the most ounces, and the loser is the one with the most dollars. There is no other way this can play out. Or, as our favorite cowboy Bill Holter likes to point out, it’s a mathematical certainty.
Just remember, the bull is trying to throw you off. Don’t fall for it. Don’t lose faith here. The reality is that we are being offered a once-in-a-lifetime sale on gold and silver. We really are. Let the hedge funds, the traders and the bullion banks fight it out over the paper price of gold and silver. To them, gold and silver are just “things” as my friend Bill Fleckenstein used to tell me. They are trading gold and silver the way they trade copper and orange juice. They are all things to be traded for profit. So, when they knock each other out and lower the price, we get to buy the “things” for fewer dollars. And to us, gold and silver are not “things,” they are wealth. Thank you for making it easier for me to increase my wealth – after this “correction” is over. I still stick to John Williams timetable – hyperinflation in a year and a half. When it hits, you will be thankful for all of the ounces you were able to accumulate at these truly bargain-basement fire sale prices.
PS: Even the most bearish in our industry, those who say gold could drop to $1,100, are long-term bullish. How could any thinking person not be bullish when the fundamentals are so gold friendly and the mathematical certainty of a watered-down dollar is so obvious?
Here are Larry Edelson’s most recent comments:
Yes, gold and silver and related mining shares may bounce a bit more. But mark my words: If you’re buying them now on the basis that they’ve bottomed, you’re going to lose your shirt!
So I repeat my warnings: Gold will NOT bottom until it moves below $1,100 an ounce. Silver will not bottom until it moves below $20. Mining shares, in general, will not bottom until they lose another 30 percent to 40 percent of their value.
But I will also go on record that the devastation in the precious metals sector, though not over, will come to an end over the next few months.
So while I maintain my view that you should continue to steer clear of the sector for now, you should also start preparing to move back in to the precious metals sector in a very big way.
So how do you prepare to do that?
In the next bull phase for the precious metals, I see gold ultimately reaching well over $5,000 … silver over $125 … and your typical, unhedged mining share tripling and quadrupling in value.
Continue reading on MoneyandMarkets.com
From Uncommon Wisdom, (Weiss Research) the same organization that brings you Larry Edelson, Sean Brodrick takes a very different view on gold. He says demand from China should put a floor beneath the price of gold. India is catching gold fever too. Sales are booming at the U.S. Mint. Central banks are buying. Gold buyers are forced to go on a waiting list.
Hope for a deeper pullback, but don’t count on it.
I find it interesting that the Chinese, Russians, Indians and Arabs are not sitting on the sidelines waiting for gold to fall to $1,100 before they start buying. They are buying all they can get right now. And they will keep buying should it fall, and will keep buying if it rises. I guess they must be asking themselves, “What would we rather have, dollars or gold at this price?” The answer is obvious! They are buying in record amounts NOW. What you do now is up to you. Ultimately you will win big-time. Either gold will go up from here or from a lower number in the next few months. If you are unsure what to do, split your planned purchases up and buy in thirds, one-third each month for the next three months. This may be the time to income average. If you wait for a deeper bottom that doesn’t arrive, you are losing as surly as if you buy now and it does go lower. If Brodrick and Edelson can’t agree, no one can give you the answer. But it’s getting down to splitting hairs now. Either the technical people will maneuver gold and silver lower or the physical demand will prevent it from happening. Be honest now, isn’t it exciting to watch this all unfold? Boring is not a word to use in the same sentence with precious metals anymore.