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It’s been all downhill since December 31.  The last week has been particularly brutal.  Gold was down again today by $18.50 and as I am writing my comments at 4:30 on Thursday gold is down another $6.50 in the thinly traded aftermarket.

Several of my friends expressed concern and asked me what I was going to do.  Only one actually bailed out but he has never understood that this is a long-term bull market and you have to ignore the corrections.  His gold and silver stocks have no special significance to him and he trades them like regular stocks, which I think is a bad idea.

I gave serious consideration to buying some “insurance” should the pullback turn out to be long and deep.  I wrote about the double-short funds in gold and silver that you can buy, but in the end I decided to ride it through, naked, once again.

If you need a simple explanation why gold and silver have been correcting over the past few days, Tyler Durden says “Wonder why the smart money was rushing headlong out of gold and silver over the past few days, and especially today in the AM session? Here’s your answer: in tried and true fashion the Comex just hiked margins in gold, and silver by about 6%, and threw in a few other commodities to mask things up.”

Leave it to JPMorgan to strong-arm the underfunded technical longs and cause them to puke up their long positions. This is typical bullion bank and Comex manipulation. With position limits around the corner, the bullion banks are really serious about getting out of their short positions this time and especially in silver.  They pound gold knowing that as gold falls, silver moves along in tandem.  They will milk this until they have squeezed out every long and picked up every speculative long Comex contract that they can find.

Of all the opinions I considered, only the Fractal Gold Report foresees a long and drawn out correction.  Larry Edelson is of the opinion that the correction has a ways to go, but gold and silver will rebound and make new highs and not to worry.

Harry Schultz, one of the wisest of the “gold bugs,” sent a message today. His advice is to relax!

Jim Sinclair wrote, “Right now Gold and the US dollar are tied at the hip in trader’s minds.

The paper Comex gold market is, as always, thin, and is therefore multiplying the move in the gold price versus the dollar.  A move down in the dollar here would be exactly what few expect. Alf’s take on Gold is supported by the action of the dollar today.

Conclusion: gold has either already finished the correction or requires one minor drop below yesterday’s fixings to finish it.”

Gold needs to hold $1340 or it will test $1320.  The next major support comes in around $1280 – $1290.  It will take a close above $1370 to re-ignite the bull market now.

Rick Ackerman has a great track record for calling market turning points.  He says, “From a technical standpoint, we do see more downside to this shakeout – to at least 1322.20, basis the Comex February futures.  That’s $24.30 below Thursday’s settlement price, and if it is reached, gold will have corrected a whopping six percent from December’s record highs. Frankly, because we like to see symmetry in our charts, we’d be more comfortable with a correction of 15% that matches the one that occurred at the beginning of last year. That would bring the price of gold down to about $1217. Whatever happens, and regardless of whether it is inflation or deflation that is perceived as the bigger threat, we would be inclined to view the selloff as merely corrective rather than the beginning of a long-term bear market.”

The folks at Five Min. Forecast aren’t concerned.  They wrote, “Well… Gold sure is taking it on the chin today — down more than $30 in 24 hours, to $1,347. And silver’s been knocked down to $27.61.

  • “Gold Prices Slammed by Brazil Rate Hike,” cries The Street
  • “Gold Futures Decline to 2-month Low as Strengthening Dollar Cuts Demand,” says Bloomberg
  • “Comex Gold Lower Amid General Commodity Market Weakness on China News,” says a headline at Kitco.

You get the sense everyone’s fishing for an explanation? Here at The 5, we make no pretense of parsing the fickle hour-by-hour moves. Gold at a two-month low? It’s a buying opportunity.”

Brian Hunt, over at Daily Wealth wouldn’t be worried if gold corrected to $1,000. He says:

“Here’s the thing: That uninterrupted 10-year uptrend is not a natural state for gold. It’s not a natural state for any asset.

Knowing this… and knowing that even the biggest, healthiest multiyear bull markets need to take “breathers,” it’s as natural to expect gold to correct and end the year lower as it is to expect someone who has run flat out for 10 miles to take break.

How deep could gold’s “break” go? Below is a 10-year chart of gold. As you can see, gold could correct all the way down to $1,100 an ounce and remain in the confines of its big bull trend.

Most people who own gold would freak out about a 20%-plus drop. That’s because most people who own gold view it the wrong way. They think it’s an investment… and they’d like to get filthy rich from it. That’s not how the seasoned investor views gold.

Gold isn’t an investment.

A thousand shares of health-care company Johnson & Johnson is an investment. J&J pays a dividend. It’s a stable, profitable business that’s going to grow its cash flows and distribute a portion of those cash flows to its shareholders.

An income-producing rental property is an investment. Bought at the right price, a rental property will return all your original capital in the form of rent checks.

Gold isn’t like those two examples at all. Gold doesn’t pay interest or a dividend. It doesn’t have profit margins. You can’t price it based on earnings.

Gold is money. It’s a real, hold-in-your-hand form of wealth. The hot shots on CNBC dismiss gold’s role as money as a bubble or a fad. I have to agree with them… It’s just a passing fad that has lasted for 5,000 years. It should only last a few thousand more.

Gold has been used for money for thousands of years because it’s easily divisible, it’s easily transportable, it has intrinsic value, it’s durable, and its form is consistent around the world. And as our friend Doug Casey reminds us, it’s a good form of money because governments can’t print it up on a whim. You can’t Bernanke your way to wealth with gold. You have to work and save to accumulate it.

In sum, could gold suffer a big correction from here? Absolutely. It’s had an amazing string of gains. Gold is well within its rights to take a break. That break could easily shave hundreds of dollars off its current price.

But when I look at the U.S. government’s absolutely stupid “kick the can down the road” approach to our fiscal problems… when I hear howls from special interest groups after even small government spending cuts are suggested… I begin to see a potential gold decline as a huge opportunity to accumulate more real wealth.

That’s why if a natural gold correction occurs in 2011, I’ll be buying more.”

Gerald Celente, my favorite “futurist,” has just released his 2011 Special 20thAnniversary Edition and I can hardly wait to sit down and dig into it – all 44 pages of it.

Of course, I will be most interested in his thoughts on gold.  Here is part of his introduction to the report:

On the finance/economic fronts, as subscribers know, I have been very bullish on gold for decades.  But with gold prices down from their 2010 highs, I’ve been asked if gold has peaked and if there is a steep downside risk?

While there is the risk of a sharp sell-off (the higher the price, the greater the price swings) for me personally, gold is a long-term investment that I plan to take into my “golden” years.  That said, with increasing geopolitical unrest on the horizon and forecasts for economic/financial upheaval this year (especially among the many debtor nations in Europe and the debt-bloated US giant), we hold by our forecast of “Gold $2,000” … and possibly much higher.

It is, however, worth repeating that we are forecasters, not prophets.  Our forecasts are fact-based, nothing is conjecture, and, as political atheists, we are not honor-bound to endorse – or make excuses for – any particular agenda.

Nevertheless, no compilation of available facts or interpretation of facts can take specific wild cards into account, and there are always wild cards – man-made or natural.  Terror strikes, unanticipated wars, political assassinations, floods, earthquakes, pandemics, environmental catastrophes, etc. may derail the best-researched trend forecast.

Understanding these realities, it is legitimate to forecast that some of these negative wild cards can, must, and will come into play.  In the broadest sense they can be predicted, factored in and even prepared for.

What cannot be factored in on the political/economic front are the “schemes-undreamed-of” … dreamt up by financial/political White Shoe Boyz to further entrench and enrich themselves at the expense of everyone else.  These schemes, disguised as “policy,” are sometimes foisted upon the public in broad daylight, or if so egregious that even the public might object, weaseled into law behind closed doors.

For example, Bush’s TARP and the Obama stimulus were publically hawked as essential props needed to support the faltering US economy.  But only recently was it revealed (through a one-time-only reporting provision in the Dodd-Frank Bill) that over $20 trillion in secret backdoor bailouts was funneled from the Federal Reserve by way of “emergency lending programs” to banks worldwide, hedge funds, select financial firms, and favored corporations.  Yes, “trillion” with a capital “T”.  And not one penny for the people.

It is the same abroad.  As the bailouts of failing European banks and bankrupt nations prove, new schemes are dreamed, games are changed, agreements broken, and treaties trashed whenever convenient.  No law is binding for the lawmakers.  Enforcement applies only to the public, living on the other side of the tracks, quarantined safely from contact with special political and financial interests.

Will the global Ponzi scheme come crashing down in 2011?  Will our previous and current trend forecasts come to pass?  “Schemes-undreamed-of” will make tomorrow’s headlines … that is predictable, though the details themselves cannot be forecast.

But short of some major constructive wild card (not impossible, just in all likelihood too late), we stick by our forecasts, and we will continue to keep you on top of the news and ahead of the trends.

Here are Celente’s comments on gold.


What had begun under George Bush continued under Barack Obama. The names in the new administration had changed, but the game was the same. Americans would be forced to bail out more Bigs to save the economy, and they would be forced to relinquish more of their rights in order to maintain their “freedom.”

The Obama team of “brilliant” economists and wise advisors would assure the nation (as had Bush’s) that the economy would improve, real estate would rebound, business would grow, and jobs would be created … if only Congress green-lighted their stimulus plan.

Obama barkers warned that without the stimulus, unemployment would hit about 8.5 percent in 2009, and peak at 9 percent in 2010. But an $800billion stimulus injection, they predicted, would create some four million jobs, hold the unemployment rate at 8 percent in 2009, and drop it to 7.5 percent in 2010.

Yet, with stimulus dollars flowing, the unemployment rate actually peaked at 10.2 percent in October 2009, and by November 2010, unemployment stubbornly hovered around 10 percent. Real, on-the-street unemployment, as experienced by the work-a-day populace, was nearly double the “official” number.

In short, that “momentous” and “historic” game changing 2010 election meant essentially nothing – a shuffle of names and a change of clothes. The only significant development was a November 3rd announcement from the Federal Reserve (which had nothing to do with people going to the polls). Emboldened by the failure of its previous rounds of economic stimulus, the Fed pledged to pump another $600 billion of digital money not worth the paper it’s not printed on into the markets.

The international backlash was immediate. Gold, trading at $1,324 per ounce on Election Day, would spike above $1,400 within days.

Trendpost: With the wave of a White Shoe hand, suddenly, miraculously, gold – ridiculed for decades as a “Doomsday” investment, the financial equivalent of a hoard of canned pork & beans – had achieved legitimacy. In November 2010, as gold prices soared and EU economies failed or teetered on the brink of failure (Ireland, Portugal, Spain, Greece), Robert Zoellick, President of the World Bank, gave the following advice to world leaders: to help stabilize the shaken monetary system, he recommended their adopting a modified global gold standard. ” Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today,” he said. As though the Deity had spoken, Zoellick’s words of wisdom resounded throughout the business press. Indeed, if El Presidente of el Banco del Mondo said gold was golden and was recommending that paper money be again pegged to it, then it must be true!

When Gerald Celente predicted the beginning of the Gold Bull Run in 2001, with gold trading at $275 an ounce, people of the Zoellick persuasion dismissed his forecast, claiming gold had no real value except as jewelry, and said that no upstanding investor would waste valuable time on it.

Now, ten years later and some 500 percent higher, we are often asked if it’s too late to take a position in gold – or for those who bought low, is now a good time to take profits?

We are not financial advisors and thus not permitted to make such recommendations. Our forecast, however, has long been “Gold $2,000.” Others believe it will go much higher. While we agree it can rocket past our forecast, we settled on the $2,000 range because we believe there could be some form of Central Bank/government intervention to regulate and/or peg the price of gold when it reaches that mark.

PUBLISHER’S NOTE: As for when to sell gold … there is nothing wrong with taking profits. My plan is to take the bulk of my gold investments into my very old age. I will never forget the wise words of my Aunt Zizi, who, in her mid-eighties said to me, “Gerald, when you get old, make sure you have money.” And today, money means gold. (See my book “WhatZizi Gave Honeyboy: A True Story About Love, Wisdom and the Soul of America,” Harper Collins)


David Schectman

Miles Franklin