I’m starting to warm once again to gold. Like many of you, I never gave up
on it, I had just grown too bored to care. With the bear market in bullion
about to enter its fourth year, who could be blamed for losing interest?
Gold has looked so punk for so long that every time it rallies sharply,
I get that nagging feeling, as you probably do, that we’re about to get
sandbagged for the umpteenth time. So why the change of heart? All
credit to Richard “Doc” Postma, a friend and regular guest panelist with me
on interviews with the (Al ) Korelin
Economic Report. Doc, a physician by training, is also an
astute investor and market timer. A patient sort as well, he is that rare
bird who can watch and wait for months or even years while exceptional
opportunities slowly take shape. I hasten to add that on more than one
occasion, he has been a crucial step ahead of me in calling some important
price swings in gold. Naturally, that got my attention.
He now thinks gold and silver are about to take off — as soon as late
September or early October. The very idea of it caused me to look with
fresh eyes at my charts for corroborating signs. The inescapable
conclusion is that Doc is onto something. The evidence is there for anyone
who cares to look. For one, bullion continues to hit marginal new lows, but
without breaking down. Rallies have been fleeting, followed by slumps
that continue to wear down even gold’s most loyal followers. Most telling of
all, mining shares have shown increasing reluctance to give ground on days
when demand for physical is weak.
Signs of Bottoming
Although the meaning of these signs when taken together seems clear to me
now, I might have missed the big picture had I not sat down with Doc to
compare notes during a recent junket we took to a Nevada ore property under
exploration by a company called Idaho North Resources (OTC: IDAH). In the
course of an extended conversation we had on the flight back to Denver, we
discovered just how closely some of our timing ideas match up. He sees gold
and silver correcting just a little more before they take off. Likewise, I’ve
been looking for at least somewhat lower lows in Comex gold and silver, as
well as in some widely watched mining stocks. In one case, Silver Wheaton, a
stock that is popular with Rick’s Picks subscribers, Doc’s
correction target and mine are just a penny apart. SLW settled on
Friday at 24.73, but we both see it falling by a further $1.00 before it can
form a lasting bottom.
But it is the broader picture of a precious metals sector bottoming
quietly that is most compelling. This is how bull markets often start.
First, the bear breaks the spirit of even the most steadfast bulls by
declining relentlessly for an extended period of time. The dirge is
invariably punctuated by strong rallies that raise hopes briefly before
dashing them on the rocks with equally sharp selloffs. When the
inevitable bear rallies come, investors have grown conditioned to greet them
with a shrug. Over time, fewer and fewer gold bugs will possess the
energy or conviction to buy precious-metal assets when they are moving higher.
This is understandable, given that all of bullion’s rallies over the last
three years have failed.
One of These Days…
One day these days, however – and perhaps sooner than many erstwhile gold
bugs expect — bullion is going to blast off and not pull back. Most
will take it for just another sucker rally; they will ignore it and brace for
the selloff that always seems to follow. Instead, gold will continue on its
rampage for yet a few more weeks before it dawns on doubters that perhaps
it’s different this time. By then it will be too late for them. Gold’s price
will have increased by perhaps $300 to $400 in the space of a month, and any
investor who hesitated will be frozen in place, psychologically unable to pay
up. That’s because buying on weakness over the past three years has earned
them only pain and anguish.
Those who were around when the August 1982 bull took off with a
breathtaking leap will recognize similarities to the current precious metals
market. In the doldrums of one of the most stultifyingly boring summers
imaginable, stocks exploded higher one day for no apparent reason;
then they continued to run up…and up…and up, with barely a pause until
October 1987. It is from the depths of such asphyxiating tedium
as we now see in bullion that great bull markets emerge. If you
are going to be ready for it, as opposed to choking on its dust when it bolts
for the blue, you had best do your buying now, while stocks continue to firm
up oh-so-quietly above their bear-market lows.
About Rick Ackerman
Rick's professional background includes 12 years as a market maker on the
floor of the Pacific Coast Exchange, three as an investigator with renowned
San Francisco private eye Hal Lipset, seven as a reporter and newspaper
editor, three as a columnist for the Sunday San Francisco Examiner, and two
decades as a contributor to publications ranging from Barron’s to The
Antiquarian Bookman to Fleet Street Letter and Utne Reader. His detailed
strategies for stocks, options, and indexes have appeared since the early
1990s in Black Box Forecasts, a newsletter he founded that originally was
geared to professional option traders.