|
There was a time not
so long ago on this planet that obtaining information on gold, be it
fundamental, technical or quantitive was a daunting task. From a technical
price perspective, if you wanted to look at a chart you had two choices. You
could buy the Wall St Journal, get the price, and then draw (yes draw) your
price chart. Or you could mail order for a yearly subscription to one of only
a few companies that provided this service. Every Thursday or Friday you
would get your charts and then spend the weekend drawing Thursday and
Friday’s bars on your chart and recalculating your indicators for the
upcoming week. Your charts were only updated to the preceding Wednesday
because they had to be printed and circulated to subscribers. So for every
stock or commodity you tracked you had to take a pencil or pen and update all
of those pages with price bars from the past few days.
Now if you wanted
fundamental information there was the Wall St Journal, the Journal of
Commerce, Annual reports from mining companies, and the local Library. I
mention this not for a nostalgic look back, but to make a point about how
difficult and time consuming it was to obtain basic information that we whip
up on the internet now in a matter of moments.
We are clearly in the
information age and the ease of “info at your fingertips” has
spawned a whole new bull market in….technical analysis and information
gathering.
Whatever your opinion
you may have of the precious metals future price, there is information out
there to justify your “position.” Myriads of information. This
can be very dangerous for the individual investor. No matter how much
we’d like to think we are not biased and opinionated, there is no way
around it. It is inherent and in our nature. The exceptions are rare. What
usually happens is we tend to gravitate towards the information that most
fits our view of the market’s future price direction. And this type of
information is especially powerful when we hold a larger than we should
position in a stock, or commodity sector. And there are many voices
(commentary) out there mixed in with an incredible amount of supporting data.
The investor is left with the problem of sorting it all out by himself or
procuring the services of a market maven to assist him with the details at
hand. And even there I have seen a good analyst go from bullish to bearish
and actually get subscriber cancellations. Unfortunately, this makes it very
difficult for the analyst to remain unbiased knowing if he/she becomes a
bear, and then subscriptions will suffer. Who do you know who’s a bull
in gold or any other commodity for that matter that accumulates bearish data
and subscribes to an advisor who is an outright bear?
The proliferation of
analysts and websites on the internet are many.
In order to be
successful the advisor must have made some good/great calls at some point in
time, and must have a good reputation. Most importantly is how the advisor
performs when a trend change develops. A perma bull analyst who had services
in the 90’s for stocks must have built quite a reputation by just being
long. But what were their results in this last decade?
If you’re a
perma bull there are subscription gold advisors and websites that held thru
the entire collapse of the Mining stock sector where week after week a new
“support” area would be chosen, a new channel drawn, and another
key CYCLE would be due to bottom. One advisor, in order to remain bullish
during the crash of 2008 would change indicators to suit their outlook. Near
the end it got silly as the moving averages would be lengthened as long as it
took to make the moving average look like it had not been broken by the price
of gold during the bull market. I think near the lows the advisor was using a
21 or 29 month moving average on his long term charts. You’d look at it
and it would show all the lows holding and of course the latest low was
showing resting right on the line too !!! The advisor would go thru all the
reasons why the low was about to be made, and if one got off he/she might miss
the train.
The reality was that
most of his subscribers were in STOCKS and not gold the metal. While gold was
only dropping 30 percent the gold stocks collapsed. At their lows in 2008, a
lot of investors had been pistol whipped to the tune of losses from 50%-70%.
Those who used margin by buying the major producers and then using their
margin to buy the junior miners lost everything and were wiped out even
before the low arrived via margin calls.
On the other side of
the aisle are the perma bears. There are some very famous ones too that have
been allowed to be perma bears for many a year. There was a certain bear, who
in all fairness called for a rally near the lows in gold. But in his view
this was only a bear market rally in an on-going bear market. He called for a
rally to 420 and was right on the money all the way up. Now we are talking a
guy who had been bearish since the peak in 1980 and the results spoke for
themselves. He had been correct for 20 years on the long term price of gold.
And by the time we got to 420 in gold, he gave his first sell signal. Then a
second sell signal at 460. By this time of course he had built up quite the
case as to why gold was about to peak. How gold doesn’t do well in a
recession, and how the US dollar was still in a bull market and was just
going through a correction. Well by the time we got to 480 his case data read
like a dossier. He gave us the millennium cycles, the historical data from
the last great depression, actually making a case that Homestake mining only
went up after the whole stock market bottomed.
Finally in great
detail, he laid out how the psychologies of the masses were not ready for a
bull market in gold. At that 480 level in his own words he said to his
audience “This is your LAST chance to short the precious metals at
these prices for a long time”. He was right on that call. It was the
last chance to short gold at those price levels because gold just took off
and we never saw those levels again. And do you know what? He has remained
bearish throughout this entire rally all the way to today.
Now the above examples
are not extraordinary just because each call could not have been more wrong
about market direction. What is extraordinary about it is they still have a
huge following. Granted there must have been a lot who left (what else you
going to do once your broke) but the process of wiping out entire client
fortunes are not achieved overnight. What happens is that once the
“clients” are committed on the wrong side of the market, the
advisor babysits himself and his subscribers throughout the demise of their
equity account by assuring them at each new high or each new bottom that
“this is it.” This is the bottom and the bull or bear market is
about to resume.
And that leads us to
today. We have so much information at our fingertips. I recall reading that a
study was made to determine if investor performance of today has improved
along with the information age. It hasn’t.
Fortunately there are
advisory services that are not afraid to follow the trends and are willing to
be bullish at times and also bearish when price dictates. Twenty year rallies
are the exception not the rule. And even during bull markets, there are times
when one needs to be bearish as most bull markets suffer at one point or other
pullbacks that are as deep as 38% and even 50% or 61%. The commodity chart
below speaks for itself. One must be flexible in the world of commodities
because at the top, few were bearish.
Goldman Sacs Commodity Index
Recently, after a long
consolidation of five months the commodity markets have come alive again as
price has broken out to the upside. With the Asian miracle there have been
new demands on food and energy to the global supply as an increase in wealth
always brings new demand.
With the onslaught of
fiat currency and the mass printing press of the United States and the loss
of confidence in various governments, the investment world is also shifting
towards gold and silver as a means of preserving their purchasing power.
Taken in context, the fundamentals for food, energy, and hard money assets
(barring another meltdown) favor the upside. The crude oil chart shows how
close it mirrors the commodity chart.
Crude Oil Commodity Price
Here too we see that
crude oil has recently moved out of a consolidation pattern of pretty much
the same length of time as the GS commodity chart. In both charts, we see
that we are not that far away from price resistance. Now if all resistance
areas halted each commodity price appreciation, it would not be called
resistance. It would be called “the top.” So while the resistance
for crude is going to be the 90 to 110 area over the medium term, the key is
going to be providing the analysis of whether we get through that area. And
that’s where an unbiased investment advisor becomes the important
factor. The chart above clearly demonstrates that you cannot buy and hold oil
forever. (You can but your results will not be that good. There are some who
bought above 140. But even more important, even the ones who bought at 90 are
looking at a zero net gain over the last two years. So we think buying and
holding is not a good strategy. If you’re the type of person who uses
an advisor, you would be well served with one who follows the trend, is
patient and waits for low risk set-up’s for his clients. That is our
number one goal for our subscribers.
This recent breakout
in energy and commodities is one that we’ve been watching and we think
that the possibility of trend resumption has merit. Let’s look at one
more market.
Gold Commodity Prices
Since the meltdown of
2008 there is only one major market that has broken out to new highs and that
is GOLD. Shunned as a barbaric metal for over 20 years, gold has quietly
rallied 4X over this decade. More importantly, it has broken out to new
historic highs after a long 19 month consolidation pattern. Long term price
breakouts of this fashion can produce great price moves and the prospects for
gold, when viewed in relation to what is happening in the United States,
suggests that the potential for an inflationary environment down the road is
one that is difficult to dismiss.
All of the
demand/supply prospects look very bullish for gold and should investment
demand increase from here, it could (and is already) overwhelming the demand.
With the advent of ETF’s the ability to buy commodities like crude and
gold has been a huge success as far as providing vehicles for investors to
participate in these commodities. But as we’ve seen, there are times
you need to be out of the market. If we think about it for a moment, knowing
when to get in is certainly important to success but knowing when to get out
is the KEY to profits in markets like this.
Over the past few
years, it was easy. Get in and stay in. We think over the next few years
it’s going to be a lot more difficult as volatility is the order of the
day. Crude’s drop from 147 to 35 is a clear demonstration that
“holding” for the long term might not necessarily be the best way
to go. While the fundamentals are known today, we can expect one thing. And
that is that fundamentals will change. Crude is an excellent example. At the
turn of the century, guess what was a key energy source? WHALE BLUBBER.
Sounds incredible now but such is the case. Petroleum’s only use was
Petroleum Jelly. Remember that stuff? Petroleum is now the main supply of
energy for the entire globe. Can you imagine telling a whaler 100 years ago
that the stuff (petroleum jelly) that you rub on a baby’s butt to keep
it dry while in cloth diapers was going to replace whale blubber and become “the”
worlds main energy component and that the world would consume 400 million
gallons of petroleum a day by the turn of the next century? You would have
been laughed off the docks.
How about gold? Can
you imagine telling someone 100 years ago that real money (gold), the stuff
used since the dawn of civilization would be replaced by ……PAPER.
Not only would it be replaced by paper, but less than 2% of the world’s
population would even own gold. Then you would lay this bombshell on him/her.
Even though paper has replaced gold and that less than 2% of the population
own gold, the price of gold would rise from $20 dollars per ounce to
1000………..a fifty fold increase. Surely they would look at
you as if you were some nut. You could carry on with your story. You tell
them that the United States government would confiscate all gold from its
citizens, pay them $20 dollars for their gold, and then once they had it all,
they would revalue it (overnight) at 35 dollars. Then they would make it
illegal over the next 40 years for you to even OWN any gold. Can you imagine
the look on their faces?
Since the dawn of
civilization gold has been real money. However, in most of our lifetime that
has not been the case. Real money (overall) does not lose its purchasing
power. But paper money does. We can even make the case that the PRICE OF
ANYTHING in the long term does not go up. What you’re really seeing is
the value of the paper dollar going down. Here’s what I mean.
In 1908, Henry Ford
sold his model T cars for $850 dollars or 42.5 ounces of gold. The base price
of the all-wheel-drive 2010 Ford Taurus SHO with some (but not all) options
comes to about $42,500 dollar or
………………………42.5 OUNCES OF
GOLD!!!!
Any questions?
Now that we know what
real money is, don’t you think its time you started buying some? If
you’re answer is a resounding yes, and you have never done so, do
yourself a favor. Get the services of someone who is familiar with the trends
so you can have the confidence to buy some. If you don’t, 100 years from
now some person will say something like this to another person. “Did
you know 100 years ago, given the choice, people used to keep their wealth in
paper instead of gold even though they knew that they would lose 90% of their
purchasing power?
Think of how much more
sophisticated the new 2010 Ford Taurus SHO is comparatively speaking to the
Model T. Yet the price, in terms of gold has not increased one iota in all
that time. If you don’t own gold, do yourself a favor. Get some. If you
don’t have an advisor who is tracking the market for you, get one. One
that follows price trends.
Let’s take a
look at one more chart.
Recall the story about
whale blubber and how a SUBSTITUTE eventually arrived on the scene? The chart
below is a chart of Natural Gas. As you can see, it has incurred a tremendous
drop as it saw prices that were near 10 year lows. Recently natural gas seems
to have made a MAJOR LOW in price. The move is in its infancy and for the
last month we have been consolidating. While gold and crude oil are well
along their way in their bull markets, Natural Gas is really just beginning
to show signs that a major long term trend change may be in the making. Now
is the time to seek out opportunities in this upcoming market. This is a
market that has the potential to increase its usage in the area of
transportation and home energy. Already cities use natural gas for their bus
fleets and the technology to burn cleaner increases every few years.
Natural Gas Commodity Price
In summary, the
potential for the world to move away from paper is growing in leaps and
bounds and the growing demand for energy is rapidly expanding. The advent of
ETF’s and other investment vehicles has made the participation of these
markets to the average investor easier than it ever has. Gold is in a major
bull market, crude is the horsepower of the world, and natural gas is a
market that has probably put in a long term bottom and has the potential to
do what crude did to whale blubber.
The charts also
demonstrate however, that drops of up to 75% can and do occur in these
markets. It also shows that 400% increases (gold) and 1400% increases (crude
from $10 dollars to $147 this decade) can also occur. Thus the ability to
cash in on these markets requires only two things. Knowing when to get in and
knowing when to get out. We invite you to come to our website and follow
along with us as we analyze the trends of these markets and look for low risk
set-ups to enter them and participate in their current trends.
John Winston
Technical
Commodity Trader
Visit his website
John Winston is the technical commodity trader analyst. He provides detailed
technical analysis for popular commodities like gold, silver, copper, oil,
and natural gas. By focusing strictly on these commodity price movements
trading become strictly technical and simple to trade. His free trading
reports are available at his website: www.TechnicalCommodityTrader.com
|
