On August 23rd of this year I made a bold call. That call was to short gold. Never
before in the 3.5 year history of my blog did that
one post result in so many emails telling me that I didn’t know a thing
about what I was talking about. Although the post itself only attracted 10
comments publicly, I can assure you that my email box was flooded 10 fold.
Why those that bothered to take the time to email me didn’t post their
views publicly is not for me to judge but suffice to say that perhaps they
too were feeling the heat and didn’t want to publicly go out on a limb
and make the wrong call. Here’s what I wrote:
This brings us to Gold which is, technically
speaking, the safest currency. However the rise in gold in the last 60 days
has been so steep that even I, a staunch gold bull admits
that we will see a
significant correction in the yellow metal before we continue the upward
movement. To say one expects gold to retreat does not make
one a gold bear. However, take a look at the chart of gold below and come to
the realization that nothing goes straight up despite what many perma-bulls will tell you. Gold might get to $2,000,
$2,500 or $5,000 an ounce….who knows… but it will not get there
tomorrow or the day after. The last parabolic move we saw came at the expense
of silver and we all recall what happened last May. Silver was off significantly
today and what failed to inspire me in the recent gold rally was that silver
did not follow the lead as Gold continued to make new highs.
This was written on August 23rd. The internet is a
buzz about the CME Margin hikes that were announced at the close of business
Friday and point to that as the significant factor as to why gold was
clobbered. No. Sorry. That is the wrong way to approach these things.
Remember, gold looked considerably over-bought a month ago … not three
In any event, I tried to tell anyone that would
listen to take a step back, and
not get carried up in the nonsensical talk that gold would go to the moon and
never stop. Even I, an investor in junior exploration
companies and the shiny metals never bother myself with corrections when I
have a firm grip of the underlying fundamentals. For some passionate folks
out there though it has somehow become criminal to even mention the words
“gold is overbought”. My warnings have gotten me booted off the
ever popular Zero Hedge BlogSpot. I suspect my posting there that the gold
pumpers needed to get a grip and prepare for what could be a harsh correction
was what did me in. You see, anyone who goes against the tide at that site
is immediately labelled a “troll”
which is discouraging. I really have no time for people that shoot down
commentary with a simple “F-off troll”. It shows me just how
ignorant those people are and how they perhaps don’t even know what
their reasons for owning gold are. You see, alarmist headlines and sensationalized
commentary attract visitors and web-hits. People follow
without doing their own homework and then somehow someone trying to give them
a different perspective is demonized.
I’m not trying to smash my chest here or wag
my finger in an “I told you so” moment. I am simply trying to
remind people not to get blinded by what they want to see but to analyze things as they are at the moment. liken it to a football handicapper/bettor who also happens
to be a NY Giants fan. A poor handicapper will pick the Giants to win and
then handicap his bet using only the statistical data to make his selection
look stronger and make him sleep at night while all the while paying little
to no attention to the statistics that tell him that the opponent is perhaps
the better bet on game day. Gold investors, and I refer to the extreme bugs,
look to a target price for gold. A number that most of them can’t even
formulate themselves. It is a number they read somewhere on some other
website or like a Zero Hedge for example. That investor becomes so consumed
with that target and with that one way train of thought that they become
blinded to data telling them otherwise.
This is not unlike the crash in silver as it
approached $50.00. To the die hard and blinded silver bug, $100 – $200
silver was a reality. Those poor souls bought all the way down during the
correction and now almost 5 months after that parabolic move ended, not ONCE
did the price of silver come close to breaking $45.00.
You see, one can not be
blinded by what they want. You can always tell a conspiracy theorist in a
debate. Any rationale position is shot down with another excuse. “Aha!
Gold was smashed because of a margin hike and people were tipped
off!!!” Come on. Look at the chart. The warning signs were there as I said,
back in August. An excuse is always at the ready when something doesn’t
go someone’s way. Learn
to ignore the masses who are piling into the metals
trade without really knowing why. Look at Max Keiser’s
“silver army”. All that garbage about buying an ounce of silver
to bankrupt JP Morgan has turned out, as expected, to be horse manure. The
same goes for gold. I buy gold as a hedge against inflation and as a store of
wealth for the future but let us be honest here
… it as been in a 10 year bull market, far
surpassing anyone’s expectations. A massive correction should not have
caught anyone off-guard.
In my original piece I posted carts of gold’s
recent move. I also stated:
What I want you to focus on the green line I have
drawn. Notice how gold
can technically correct to $1,725.00 an ounce yet still maintain the uptrend
that it has been on. To say that gold was not overbought recently in light of
its move since early August is being naive. This parabolic move that gold has
had the last 3 weeks or so was the main reason why I initiated a short via
GLD puts that I posted the other day. Perhaps what is more concerning to me though is the
move since July. We saw a move of over $400.00 an ounce since July so a
$200.00 correction in the price of gold would not necessarily mean that the
run is over but that a healthy consolidation has taken place. Gold needs this
in order to maintain a healthy ascent. I will state again, before today,
prices had surged 17 percent in just three weeks.
Also look at the moving averages and note how far
above them the price has moved. Take note of the 50 day moving average in
blue at $1,623.34 and the red at $1,475.00.
Did you catch that? Why wasn’t anyone
screaming on the long side when gold moved 17% in 3 short weeks …
something that has never happened historically? When these moves happen and
everyone and their sister is screaming that gold
will continue to climb and then vehemently opposes anyone trying to give
reason to the equation is the first sign that the asset is in bubble phase.
People didn’t want to hear that gold was due for a massive correction.
Anyone even trying to point out any bubble like tendencies was getting hammered
The signs were there at $1900 and then again when
the double top was formed for anyone who WANTED to pay attention. To those
that didn’t and were blinded by their notions that gold was only going
to continue to climb have gotten smashed. Again, these signs were there
before Friday’s margin hike.
Here’s the chart posted on august 24th noting
that gold had gotten away from the trend it had been following for the last 3
years … that is that it had moved exponentially above its moving
average. I pointed out that every time it got away, it moved back to straddle
Where will gold go from here? Remember what I posted
before … that gold could fall to the $1,725 mark and still maintain its
upper trend. Well … it did that and more. Significant technical damage
was done to gold this past week and especially on Friday. Gold may bounce and
I fully expect it to. As a gold investor what I would want to see is
for gold to find a tight range and trade within that range for a while to
clean up the chart and to prepare for what is hopefully a move higher.
Realistically though, it still can test the 200 day MA which sits now at
$1,522.00 which would bring us close to where gold was back in July,
As for liquidations, I don’t doubt that banks,
hedge funds and governments who were invested in gold did in fact liquidate.
Heck… why not? Nobody can give me one compelling answer as to why
anyone wouldn’t want to liquidate gold a one year 47% gain? (Better
than a 100% gain over a 3 year period). In a liquidation scenario you take
your best performing and highest percentage gain assets and you sell those to
raise cash. The headlines are there for anyone who cares to read them. Banks
need money. People are scared. Credit may tighten up. You still can’t
pay your bills with gold…at some point one needs to convert their gold
to cash in order to use it.
Make no bones about it. The next few days are going
to be interesting. I expect the US dollar to correct a bit after the massive
move it had and I expect gold to perhaps have a small down day Monday as the
remaining margin liquidations come in following the margin hikes at which
point, gold should bounce. Whether the correction will be swift is still to be
seen but if Europe continues ahead with its plan to print their way out of
the debt crisis and if the United States follows with their own additional
money printing exercise then yes, all the reasons for continuing to own gold
continue to be in play.
But if we head into a slowdown globally, don’t expect the swift comeback
for silver and copper. You see, the difference between those
two as has always been argued by silver bugs is that silver, unlike gold, has
many industrial uses. If the need for industrial usage declines due to an
economic slowdown then silver and copper will continue to face massive
headwinds. Because gold has an investment place in a portfolio and is not
industrially driven, it may continue to move. What happens next in this
messed up global financial system remains to be seen. However, I do want to
keep some of the long held beliefs about gold in check and I don’t want
my readers to be blinded by the notion that gold can only go in one
Perhaps a 10 year bull market creates complacency.
Perhaps the fact that so many people are talking about it keeps
people’s interest in the metal. Perhaps the fact that every second
commercial I hear on Sirius talk radio stations is about gold, owning gold,
people willing to buy your gold or sell you theirs or perhaps the fact that
even my barber is now asking me if where he can buy gold is keeping people
complacent. However remember this … at the height of the real estate
bubble everyone was talking about how you could never lose money by buying
real estate, how you could afford 4,000 square feet when you only needed
1800, how you could borrow for the cheap without any collateral or how no
property was bad. Perhaps you recall every second show on home and gardening
channels was about flipping homes in 30 days for 30% gains with only minor
fix-ups done inside. Hey, real estate would
only go up!!! Remember that?
I love gold. If the price falls I will add to my
physical gold. However please…do not be blinded by greed and
don’t let fear get in the way of deciding to sell some now and then if
you are up significantly on your investment.
One thing is for sure … next week is going to
be very interesting.
P.S. Before my inbox is flooded with hundreds of
angry emails from gold hoarders and those who claim I’m an idiot, read
my 3 year long
thoughts on gold. I’m not a hater folks …
I’m a realist. Yes, the world financial system is going to hell in a handbasket and reasons for owning gold are ever present.
However, what is the true value of any asset? Answer? What someone is willing
to pay for it. Know your reasons for owning gold and
never be afraid to go against the crowd now and then when the data is telling
you that you should.