The other night we had guests over for dinner. During the evening, the question came up, “What is going on with gold?” That’s the question most people are probably asking, especially those who don’t closely follow the industry, or read our newsletter. I replied, “Nothing special. This is normal.” He gave me a funny look – to be expected.
I added, “The same thing happened in the summer of 2008 when gold plunged from over $1,000 to below $800. The drop was around 30%, similar to what we have now, and people were as frightened, disillusioned and ready to proclaim the bull market over then as they are now. Then gold reversed course and moved back up to an all-time high of over $1,900 over the next 36 months. There was joy in Mudville!”
“We’ve seen this before. More of the same old, same old – and the current drop of around 30% is not out of line. People are once again disillusioned and ready to proclaim the bull market is over. And it will reverse course and set new highs just like before.”
It’s the age-old case of freezing up and not being able to buy at the bottom. Human nature screams at you to buy at the top. (Stocks are a perfect example now. They have to deal with unemployment numbers that are signaling no real growth; housing numbers that are signaling a downturn; interest rates that are straining to rise. None of this is positive for strong growth but the stock market is priced to expect it). So what do most investors do? They buy stocks and avoid gold. Some things never change. And I have to answer the same question to my friends, “What’s wrong with gold?” I wonder what they would say to me if I asked them, “What’s wrong with the stock market?” Which of these markets could best be described as on the verge of “Irrational Exuberance?” The echoes of the Maestro are still haunting us.
Do you watch the price of gold all day long? I do, I’m addicted. But there is a reason I tell you that this short-term day to day up and down is just “noise.” Only someone with a rabbits foot that actually works, or a deep-pocket hedged fund with insider information or sensational day traders can make any money in this market. There are easier markets to trade. Why even bother with gold or silver, which are manipulated at will by JPM and a few buddies.
Look at Friday’s chart, as a perfect example. It can make you paranoid and crazy if you watch it all unfold.
(Green line) Gold is up in the after market (after the Comex close when the trading volume is light and it is easy to move the market up or down without much effort or capital), starting at 6:00 (EDT) gold rises until after midnight in Asia. Then there was a sell-off that continued through the London market, into New York and then it fell some more. Things were not looking good. Suddenly, for no apparent reason, gold started to rise, before noon, and continued to rise throughout the rest of the afternoon. At last glance it was back over $1,330. That’s about where it finished yesterday, but what a roller coaster ride to get there. Up, down, up and in the end, nothing. All in one day. How can you trade this? Well, you can’t unless you love to lose money. Gold is not a short-term trading vehicle. It is a long-term hold, not necessarily for profit, but as insurance for the certain loss of buying power with the Fed’s debasing dollar policy (QE).
Also of interest, gold fell all day Friday while the dollar was also FALLING. The Cartel usually uses rising gold to smack down gold, but a falling dollar rarely adds much juice to the move up. Anyone who thinks gold trades freely is lying or living in dreamland, unwilling to see the facts.
But that is not a negative. Gold has had to deal with this kind of crap since it was $250/oz, all the way up. The message is simple, manipulation DOES NOT WORK over a longer period of time. It is only effective short-term. They really cannot do this much longer. Too much physical demand, at prices below production cost, to allow it to. Most of you will not pay any attention to these facts and will wonder why they didn’t see the light – after the fact, when all the Johnny come lately analysts and newsletter writers jump on the bandwagon. At $1650 or higher.
You know my philosophy. I don’t sell my (physical) gold! I accumulate gold. For me, it’s not a buy and sell investment; it’s a long-term hold that I keep for an emergency, retirement or to pass down to my kids. I might change my mind in a few years when latecomers are offering me $3,500 or $5,000 an ounce for it. I might sell some of it; but it depends if, at the time, there is something else that is a better choice to replace it with. Those kinds of decisions we make at the time, not before the event.