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Hold On (to those gold coins and bars)!

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Published : May 24th, 2013
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Category : Editorials

When the world ain't treatin' you good, you got to hold on…

When everybody's lookin' at you funny, you got to hold on…

You got to hold on…

"Hold On" by Alabama Shakes

Strong Hands

I want to discuss one more concept, the concept of strong hands going into Freegold.


Each time the price swings up and down like this the "gold" traders trade their way in and out of their favorite paper gold positions. But the physical side is slowly working its way into stronger and stronger hands with each swing. Strong hands buy the dips while weak hands are selling in a panic.


This could potentially be the final shakeout of weak physical hands, because there will be plenty of strong hands catching that physical even though physical buying won't stop the price from falling. Unfortunately for a few long-time gold bugs, the lack of a fundamental and foundational understanding of a much higher value could see them liquidating at the worst possible time in all of history. And that would truly be a shame. At least I have given fair warning. I'm not predicting that this is the way it will play out. Only that it could. And being aware of this possibility has value if it gives you strong hands at a key point in time.

That's an excerpt from an old post, about a year and a half ago, after gold had fallen about $250 during the preceding four months. Today it has fallen about $325 in four months. My perspective reveals that the "price" of gold may fall quite low just prior to a very quick revaluation upward. But that is just the temporary price that's falling, not the true value of physical gold.

All of my savings are in physical gold coins and bars, and yet I have been anticipating an eventual price plunge to some really low number at least since my post The Shoeshine Boy back in 2010. And now, ever since this past December, I have been discussing the possibility of a plunge in the price of gold this year, with more frequency than in previous years, and how it fits within my view. I even dubbed 2013 "The Year of the Window" on New Year's Day, referring to the possibility that this is the year it happens. So why would I keep all of my savings in physical gold at the same time as I expected an eventual collapse in the price of gold? Interesting question, isn't it? Here's how I illustrated my view in that 2010 post:

I'm not trying to scare anyone, quite the opposite actually. I want to help people have the same strong hands and peace of mind that I have, even if the price of gold continues downward. And those things come from understanding a well-reasoned scenario that looks a lot like what has been happening so far this year. I don't want anyone to take my advice. I only want you to understand the scenario and make up your own mind.

Another question you might be asking is why wouldn't I wait for the lowest price and buy my gold then? That's a great question, and yes, the answer is here in my blog somewhere. ;D You know, a funny thing has been happening lately. It's quite an unusual phenomenon if I do say so myself. While gold bugs far and wide are either panicking or throwing in the towel right now (some forums have even shut down), the "evil gold hoarders, jerks, time misallocators and brainwashed cult members" [2] here are all cheering as the price goes down. Isn't that weird?

Anyway, I was wondering why I haven't seen more curiosity about why these strange PGAs (physical gold advocates) would be cheering for a gold price decline. Perhaps no one has actually seen this phenomenon in action, so I thought that maybe if I put some of it here, front and center in a post, a few of the panicking gold bugs might take notice and ask WTF?

So here's just a sampling of what some of my followers on Twitter have been saying since the gold price really started tumbling on April 15th:

@jimc3 @burningfiat @darenpa72 We must be the weirdest type of supporters. We cheer every time the price declines. xD
— Motley Fool (@Am_a_Fool) May 14, 2013

Those freegolders are feeling good when the price goes down #gold #transition #speed #stress #system !GLD #euro
— Freegolds (@freegolds) April 18, 2013

@am_a_fool @jimc3 @darenpa72 Yes, it must look pretty bipolar for outsiders, hehe... #Freegolders #HopesGoldPriceCrashes
— burningfiat (@burningfiat) May 14, 2013

@jimc3 Why, hellooooo sexy! Looks like I might get my wish! #InterestPiquedAgain
— Max De Niro (@maxdeniroPGA) April 15, 2013

@jimc3 Hm back from lunch. $1375? Doesn't everyone know this stuff is worthless by now? #disappointed
— Jim (@jimc3) April 15, 2013

@5kofx Silver typically has more downside leverage than gold. Plus I'm selling silver and accumulating more gold. Lower price? Bring it
— Kay Ling (@polly_metallic) May 16, 2013

@freegolds Not cheap enough!#Grumble #Grumble
— Aquilus (@Aquilus_sum) April 8, 2013

@freegolds =/
— Jim (@jimc3) April 22, 2013

@burningfiat Resistance appears solid at 1440. Let's hope it breaks down further this week and goes splat. @darenpa72
— Jim (@jimc3) May 14, 2013

Oh boy, gold is dropping like a rock... What to do what to do #nothing
— Freegolds (@freegolds) April 12, 2013

@matrixsentry That would be pretty hard to believe. Funny, I see perfect sense in a weak gold price, and it is extremely bullish for GOLD.
— Matrixsentry (@matrixsentry) April 9, 2013

As the price of gold drops, physical gold is transferred from weak hands to strong hands.
— Nickelsaver (@Nickelsaver) April 17, 2013

Remember, a falling price speeds up the transition #gold #euro
— Freegolds (@freegolds) April 23, 2013

Nervous about the price of gold? You wouldn’t be if you’d learned how to walk in the footsteps of Giants:
— RonaldJamesPadavona (@RJPadavona) April 15, 2013

@darenpa72 Zero, zero, zero, zero!
— Aquilus (@Aquilus_sum) April 12, 2013

If you want more gold..what do you want..cheaper gold off course #Asians #ME
— Freegolds (@freegolds) April 17, 2013

Dear gods of gold, some fiat is coming my way. Can you get me a better price still ? Thank you.
— Freegolds (@freegolds) April 5, 2013

Yay not ouch RT @matthewphillips: Down goes gold! Ouch. $GLD #GoldMore here:……
— Aquilus (@Aquilus_sum) April 10, 2013

@alderlaneeggs i will sleep like a baby
— Freegolds (@freegolds) April 12, 2013

@aquilus_sum @freegolds how many goldbugs do you know that cheer a drop in $PoG?

— Nickelsaver (@Nickelsaver) August 1, 2012

There's something else that a few of my Twitter followers have been watching in addition to the declining price of gold. And that's the declining inventory in GLD. They even have a contest each day to guess how many tonnes will be leaving that day! GLD has lost 315 tonnes or 23% of its inventory since mid-December. I think this is symptomatic of the physical reserves of the LBMA leaving the system, either through allocation or delivery. You can read more about why I think that in this post.

Burning Fiat even wrote a "GLDpuker app" for his Twitter account which automatically detects and then tweets the daily decline (or increase) about 10 seconds after the SPDR spreadsheet updates on their website. Strangely, after he launched the app, organizations like Sprott Global and Fitch Rating agency followed him on Twitter. Here's how it looks:

|GLDpuker app| #GLD change today (16-May-2013): -5.71t (-0.55%), inventory now: 1041.42t

— burningfiat (@burningfiat) May 16, 2013

ByiamBYoung sent me a donation last week, and somehow he fit quite a long message into the Paypal message box:

Hi FOFOA, A long time since I promised to contribute, but finally I can throw in a donation. I hope many in the hive are doing the same! Great new post. It seems that the winds of change are blowing more erratically every day lately. The hereafter may not be so far off... Maybe Mrs FOFOA could write a guest post, for all of those hand-wringing spouses out there? I know someone I would forward that link to ;) Cheers, byiamBYoung

I forwarded it to Mrs. FOFOA as I do with all donations, and here's what she came back with:

Ha - me write a guest post? It would be simple...

Dear Freegolders,

The time has finally come. Be at peace with the plummet because the pot is about to explode at the other end of the rainbow!!! Enjoy the ride - I know I am :)

Warmest regards,

Now I must tell you that Mrs. FOFOA is just as bad at timing as me, so please take her pronouncement with more than just a grain of salt. You'll never hear me say this is it, it is now. All I can offer are possibilities and probabilities along with reasoned scenarios. You know where I have all of my savings, you know that I'm not worried about the price of gold, and if you follow this blog, you know why.

I don't care what the price of gold does tomorrow. It can go up, or it can go down. I don't know if this is it. I don't know if this year is the year. "Window" means opportunity, possibility and probability, and it is backed up with a well-articulated and well-reasoned theory. If you disagree, that's fine with me.

All I can tell you is what I think "it" will look like. And as I said, I've thought it would look a little like this since at least 2010. So in my mind that raises the probability at present. And that's why I don't like the idea of long-time gold bugs selling off their physical gold right now without at least considering this perspective for balance.

This post isn't meant to give you my full perspective, or even links to the appropriate posts, like The Two-Legged Dog, Legs or Checkmate. I only hope to catch your attention. And then, if you have questions about my view, I'm sure that a few of the regulars, maybe even some of the Twits featured above, will be more than happy to either answer them in the comments or direct you to the appropriate posts and comments.

And be sure to check out the song below. It's a recommendation from JR that was meant to inspire a post. Indeed it worked! JR has a good track record with songs like Wake Up, Bankrupt on Selling and How It Ends, so I always pay attention to his music recommendations. I just hope this quick and dirty post lives up to his expectations. JR's email was titled "Alabama Shakes got 'Strong Hands'".


[1] Excerpt from The Gold Must Flow
[2] "Evil gold hoarders, jerks, time misallocators and brainwashed cult members" is the affectionate title I came up with for my followers. It is based on just a few of the insulting names we have been called over the years. Scroll down to the very bottom of the blog if you'd like to join the cult. ;D

2013 Grammy nominated for Best New Artist & Best Rock Performance
"Hold On" by Alabama Shakes:

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