Sunday, June 6, 2010


It's sad to say but I'm afraid 90/95% of all retail traders/investors are not going to successfully ride the gold bull. The reason of course is that they are deathly afraid of draw downs. It's glaringly apparent every time gold pulls back or suffers the slightest correction. Immediately a slew of traders come on the blog and warn of impending doom. "Gold is going to $600" (think Elliot wave). Some are even brave (maybe I should say 'foolish') enough to short. Here is one we hear alot lately, "miners are going to get crushed if the stock market enters a new leg down in the secular bear market".

Pure nonsense!

Let me show you what happened to gold and miners during the 2000-2003 bear market.

During one of the worst bear markets in history gold rallied over 50% and miners well over 200%. So this notion that the precious metals sector has to get hit during a bear market is simply ludicrous.

Now I know what you are going to say, "just look at what happened in `08".

The reality is that the crash in `08 was a very special set of circumstances that aren't likely to repeat. Up until September the bear market was following the normal path most bear markets follow. Slow grinding declines followed by explosive counter trend rallies. Gold was holding up amazingly well during this period as were miners. Both were actually up significantly during the first 5 months of the stock market bear. It wasn't until gold entered a normal D-wave correction in March of `08 that either corrected at all.

In September a rare event happened that drastically changed the entire fundamental picture of the bear market. At that time roughly $700 billion in debt came due. The financial system needed to roll that debt over but couldn't as the credit bubble was in the process of imploding. That led to one of the few true stock market crashes in history.

The ensuing panic led to a selling climax in every asset class even including, to some extent, gold. The actual price of physical gold never even came close to dropping to the levels of the paper market. Smart money investors were taking advantage of the irrational selling by buying up every single available oz. of physical gold on the market. At the time premiums on physical were over $100 above the paper price.

The point I'm trying to get across is it took a very special set of circumstances to create the kind of selling climax that could take down the precious metals sector. Those circumstances are not present today. The EU has already gone to the printing press to halt their debt problems. The US has done away with the mark to market rules and Ben stands ready to print so we have no looming debt crisis in our future.

So if we are about to enter another leg down in the secular stock market bear the odds are it will be another slow grinding affair, very similar to the 2000-2003 bear. There will be plenty of sharp counter trend rallies and one can bank on the Fed throwing more and more trillions of freshly printed dollars at the problem all along the way.

And that my friends is the fundamental bedrock of the gold bull.

Now let me show you a long term chart of the last great secular bull market.

This is just about text book for a big secular bull market. We see a very extended period of consolidation below a key resistance level. Eventually that resistance level gets broken. Once it does it's like a damn breaking, the force then becomes unstoppable, ultimately reaching heights far beyond what anyone can foresee at the original break out.

In oil's case the secular bull rallied almost 300% above the $40 breakout level, topping out with a massive parabolic move lasting about a year and a half (remember me saying bubbles tend to last about 1 to 1 1/2 years as the final phase tops out?).

I want to point out this happened in oil, a commodity that was virtually impossible for the average Joe to invest in. This was a bubble driven purely by the investing community. Remember this because it's important.

Now let's take a look at the next secular bull, one that's still in the baby stage.

Gold has just recently broken out above the old 1980 high of $850. It hasn't even doubled yet much less rallied 300%. Now if you think gold rallying to $3500 is ridiculous you are absolutely correct. There is no way gold is going to stop at a mere 300%.

Unlike oil, gold is readily available to the public and ultimately that is what drives the final stages of a secular bull market/bubble. When the public comes into the market their panic buying drives the final parabolic move to unbelievable heights. We saw perfect examples with both the tech and housing bubbles. The public was deeply involved in both.

And now, for the topping on the cake. The precious metals markets are infinitely smaller than the stock market, real estate markets or energy market. That means it won't take anywhere near as much money to drive these markets to incredible heights.

Look at that chart of oil again. A 300% gain in a very large liquid market without ever drawing in any perceptible buying from the general public.

Now look at that chart of gold again, only this time with fresh eyes. The possibilities are simply staggering. I wasn't kidding when I said this will be the greatest bull market any of us will ever see in our lifetime.

If, and this is a big if, you can ignore the nonsense from the Nervous Nellies or the gold Bears (a breed destined for extinction) and just hold on to your positions you will ultimately reap unimaginable rewards as this bull progresses.

Now I will say that yes, there are times to take profits in bull markets. You take profits when gold and miners are stretched far above the 200 day moving average. Everything eventually regresses to the mean. So when we see the HUI 40-55% above the 200 DMA then yes, you should think about selling at least some portion of your positions. But to sell positions with the miners 3% above the 200 DMA is ... well, it's just plain dumb. This isn't the time to sell it's time to buy, buy, buy.

Let me say this as plain as possible. If you want to get rich from this, the largest bull market you are ever going to see, you don't listen to the traders and you certainly don't adopt their flawed strategies. You simply can't think like that if you want to ride this bull. You need to think like a value investor. When you see value you scoop it up no questions asked. And if the market is foolish enough to give you an even better bargain down the road you buy more.

Unfortunately here is what happens. Retail investors are unable to buy value. For the average retail investor to buy he needs emotional confirmation. I see this all the time. "Wait till the breakout for confirmation before buying." The problem with that approach is that most breakouts soon fail. If one waited for the recent breakout above $1225 to buy they then had to weather an immediate draw down.

I saw this in spades at the December top. Retail traders entered in droves during that time. They were getting the emotional confirmation they needed. Then when gold corrected they either got knocked out for a loss or they held on just long enough to get out even. Most simply don't have the patience to ride the bull on his terms. They want the bull to do what they want, when they want. I suspect more investors have been lost to boredom that draw downs.

The best strategy right now is to just sit tight. Remember this is still just a baby bull and it has a long long way to go yet.


  1. This is a brilliant summary of the evolving precious metals bull market and covers many of the really important 'drivers' of where we should see things going over the intermediate term. Congratulations, Toby, on an excellent analysis.

    As an avid PM bull since mid-2001 I believe you've got a good handle on this massive welth-preserving & profit-making opportunity!

  2. Excellent article. I really liked your explanation of the big crash in 2008.

  3. I don't see how one man, even if he is Ben Bernanke with a printing press, can stop a bear market. And the European printing press isn't going to save the Euro or their markets either. I'm not sure you can dismiss the events of 2008 as not being possible of happening again. We've just seen a VIX reading over 40 again and we have the second largest currency in the world on the precipice of collapse. As long as people are emotional and can vote their pocketbooks with their emotions they can drive prices wherever they want, including a second stock market crash.

  4. Oh I'm not saying they can stop a bear market. They certainly can't. I'm not sure whether or not the next leg of the bear has begun or not. Actually I could care less as I have no desire to trade or invest in the stock market. I just want to ride the gold bull.

    And certainly the persistent printing of money will eventually destroy a currency. Why do you think the Euro is in such trouble? It's because the EU has agreed to turn on the presses. The same thing will happen with the dollar when we turn the presses back on and we will turn them back on.

    Ben can't create jobs but he can inflate asset prices and he will do everything he can to keep that going. Eventually he will break the currency just like the EU is in the process of breaking the Euro.

  5. I agree, very tough to keep riding gold stocks here. Gold bull doing its best shake-off before heading higher. Great analysis and I also dont think we will see an 08 repeat in the gold sector. Many market players a lot wiser since then.

  6. Great summary - do you have any information or comment on statements made in Ed Steer's "Gold and Silver Daily" newsletter, June 5, 2010? Is the precious metals market being manipulated? Are "they" shorting the silver market? Ed Steer's comments follow: "The Commitment of Traders report for Friday showed that the bullion banks added a small amount to their already grotesque short position in silver. This time it was 506 contracts. The '8 or less' bullion banks are short about 324 million ounce of silver... which translates into about 175 days of world silver production. And you wonder why Ted Butler keeps screaming about the concentrated short position... and why position limits are necessary.
    Of course, they've covered a huge pile of shorts [or added to their long position] since the Tuesday cut-off for yesterday's COT report... but regardless of that, it's still a mind-boggling number.
    In gold, the '8 or less' bullion banks improved their net short position by a smallish 75,600 ounces of gold... but they are still net short 27.5 million ounces of gold between them. And, with the Commercial net short position [where the bullion banks hide] sitting at 26.8 million ounces... these '8 or less' bullion banks are short more than 100% of the Commercial net short position. This short position represents about 34% of world gold production held by these 8 bullion banks."

  7. I don't really buy into the whole manipulation theory. Financial sense just had a debate between Jeff Christian and Bill Murphy of GATA and I must say Murphy came across looking like an idiot.

    That being said nothing is going to change the path of a bull market. If there is an attempt to manipulate price all it is going to do is hasten the bull.

    What do you think happens when price runs over all those shorts?

    A massive short squeeze and rocketing price is what happens.

    So all in all it would be great for us gold bulls if there is manipulation but I really doubt it is happening. The government has much bigger things to worry about than the price of a couple of shiny metals that aren't even linked to the money supply anymore.

  8. You are forgetting just one thing. Gold price can be easily manipulated with paper gold. JP Morgan, Bear Sterns and other central banks have been selling gold short for years. Gold that they don't have. LBMA is rumored to be leveraged 100:1. The gov't is concealing the fact that the metal exchanges (and perhaps many ETF's) are trading gold they don't have, in order to keep the price of gold down. It is very hard to win at a game when the dealer is dealing cards from the bottom of the deck and the "police" (gov't) is getting a cut of the action.

    The fifth estate, (major news networks) who are suppose to be the watch dogs, never reported Andrew Maguire's piece on the LBMA being highly leveraged. I guess they were told not to by their handlers otherwise there would be a run on the exchange.

    There was a crooked bank managed by a crooked man,
    Who was backed by a crooked regulator sporting a crooked tan.
    The investor trusted the crooked bank with his hard earned loot,
    Thinking it would grow fast and strong once it had taken root.
    It wasn't until he lost it all, did he realize he was playing a crooked game.
    He went for help down the crooked lane to the regulator to confess his shame,
    They laughed and snickered as he grew near,
    And dismissed his claims without shedding as much as a tear.
    He stood alone on the crooked sidewalk in the dead of night,
    Fleeced by a crooked system that no one will fight.

  9. If manipulation was possible how in the hell did gold get to $1250 from $250?

    The secular direction of the market can not be aaltered. Any attempt to do so will only accelerate the move.

    What do you think happens when price runs over all those shorts?

    Can you say giant short squeeze?

  10. now imagine a bullish wedge that just broke to the upside

  11. Goldscents, Bubbles happen in drives. During the oil bubble, do you see a move from 50 to 100 (=50$), a pull back to 90$ (say bull flag) and then 90 + 50 = 140$. The next big move will be equal to the previous big move (a = c) if it is in the same direction, that is the essence.

    It is not the % that matters. It is the price during the last big leg that matters.

    Adopt the same comparison to Gold and you will see that the run actually ended. If you take the bull run from 550 to 1040 (= ~ 500), then a pull back to 690, then a run up from 690 to 1240 (=500). IMO, Gold completed the bubble or bull market, whatever you want to call.

    Unless you are looking at another 500$ move, the gold bull has ended.

    I don't trade Gold, both long and short, because of the maverick moves. This is just my observation - I would appreciate your thoughts.

    I follow your blog often and I like your thoughts.

  12. Gold bulls don't end because of technical levels or percentage gains. They end when the last buyer buys. In secular bull markets that means the public has to come into the market.

    That hasn't even begun yet.

    Also secular gold bulls don't end until the Dow:gold ratio reaches at least 2:1. (I expect this time the ratio will actually drop below 1:1) The ratio right now is 1:8. Like

    I said this is a baby bull that's still in it's infancy. It just broke out to new all time highs above $850 recently. Gold hasn't even doubled that yet.

    No, this bull has a long long way to go. When 9 out of 10 billboards you see driving down the highway have to do with gold then it's getting close to the end. (Remember the housing bubble?)

    Huge bull markets always go way higher than anyone can possibly imagine. In this case $5000 would be a lowball estimate and $10,000 is certainly possible.

  13. "Gold bulls don't end because of technical levels or percentage gains"

    I thought we were talking technical levels, that is why I offered my technical view.

    Never mind.

  14. I'm not sure why you assumed the article was technical?

    I was just pointing out how far the oil bull traveled once it broke out to new all time highs and comparing gold to that market it's apparent the gold bull is still in it's infancy.

  15. I liked your article a lot and believe gold could go to $1400. I do not know if their will be as massive a deleveraging as in 2008 when eveything was sold to ridiculously low levels. But I do agree that this gold market will last several more years.

    Look how beautiful the chart was from August of 2009.

  16. The manipulation of gold and silver by JPMorgan (on behalf of the FederalReserve and USTreasury) is utterly trivial. No matter how much they lose on their shorts, they always settle in "cash" AKA fake-fiat-paper-FederalReserveNotes, which cost them ZERO to create.

    I mean really, to you who doubt any manipulation in gold and silver exists. You think the slime at JPMorgan are utterly stupid? I mean, gold and silver are obviously on a long term rise due to the irresponsible criminal financial activities of the FederalReserve and government of the USSA. In such a situation, why on earth would they want to ALWAYS, year after year after year after year after year want to hold the vast majority of short positions in gold and silver?

    The answer is blatantly obvious. Only gold and silver is money, and their utterly fraudulant criminal monopoly of creating fake-fiat-bogus-green-toilet-paper and forcing its adoption via blatantly unconstitutional [tender] laws is the most lucrative criminal scam in the history of mankind by a factor of zillions. They are the ultimate predators on mankind.

    To keep their bogus non-currency looking like a "viable" currency against REAL, HONEST money (gold and silver), they need to keep REAL money from looking like a good alternative. Finally this scam is starting to unravel, and gold is starting to look damn good to an increasing number of honest people world wide. The only reason this has taken so long is, the massive manipulation they've been practicing until now. Note that their activity is BLATANTLY ILLEGAL, because they are selling contracts to deliver PHYSICAL GOLD and SILVER, then DEFAULTING on that contract when they settle with the bogus fake-toilet-paper they and their co-conspirators print. You say JPMorgan doesn't print money? Who do you think owns the !private! FederalReserve? Answer: international megabanks, with JPMorgan at the top of the list of owners.

    Get wise to the greatest scam in the history of mankind - it is totally obvious, and the records prove it.

    Oh, and pretty good article.

    BTW, let's hope there IS a repeat of the short-term sharp downslide due to implosion of markets. That just gives us yet another chance to buy at bargain prices! Yeah!

    PS: Oh, and guess who runs the SLV ETF? That's right, JPMorgan... the same slimeballs who are ALWAYS shorting the silver market like crazy. Can you spell "confict of interest"? What do you think they'll do if FORCED to deliver the silver they owe? You got it - they'll STEAL IT from the owners/shareholders of SLV. What a scam, what a crime, what a bunch of slimeballs.

  17. Actually the vast majority of those shorts are miners hedging their production forward.

    You need to ignore these fools at GATA and just ride the bull.

    If one is so inclined they could go to financial sense and listen to the debate between Christian and Murphy.

    Murphy came off looking like a complete idiot. The best defense he could come up with was "that's our stance and we stand by it".

    Really? What does that prove?

    Listen folks there are always going to be scam artists like Murphy in the world. The conspiracy theory nonsense allows him to blame some neferious cult anytime his calls are wrong.

    "It was JPM fault gold didn't go where I said it would"

    If the dollar was still pegged to gold then yes I would maybe buy some government tampering to keep prices aligned where they needed to be. But Nixon took us off the gold standard for that very reason so they could print unchecked.

    Now the government has no check on money supply. They can print to their hearts content (as we just saw). So there is absolutely no reason for the governement to care how high gold goes.

    On top of that central banks are now net buyers of gold. Any attempt to artificailly depress price just means that another country can scoop up our gold at cheaper prices.

    Depressing price would make no sense at all unless we actually wanted to sell our gold below market value. I don't think even governments are that stupid.

  18. I am and have been a true believer in precious metals, since I was too young to remember and plucking the last 40% JFK's form old bank rolls that sat in storage.
    But that is not to say that gold will go to the sky in the short term, in the face of a few key megatrends happening now, which include :
    * Double Dip recession in Europe and US, and its impact to unravel asian economies, suppressing demand
    * Fiscal stimulus ending in US and other countries
    * Money supply still shrinking as institutions are delevering further, consumer and business loans are still tight, etc.
    * Dollar Rallying - as people throw money into US driven by instability in the world [despite our printing presses!]
    * massive shorting that happens weather or not by coordinated plan or not, and as mentioned Central Bank, IMF and other sales, as well as forward selling by miners.
    *The stock market could fall further as a rash of new taxes and regulations drain profits next year, the double dip hits, etc., thereby further adjusting the dow:gold ratio
    => This is a small market, and the public as far as I can tell HAS been participating in it - the demand created by the ETFs - Barlcays/JPM's etc, as well as purchasing of Bullion, sell-outs of US mint coinage, etc.

    I believe the price can run up more, but I wouldn't lose a balanced and rational expectation that it may be highly cyclic in the way it does, and that you may be better off trading the peaks and valleys, as much as buying and holding.

    If your goals are to get ~8-12% per annum, you may see this bumpily over the next few years, but even major bulls/goldbugs who have put their money in, have declared gold 'locally' to be expensive. We may see, after this round of elections, grid lock in Washington, preventing the excessive stimulus, spending etc., and a restoration to fiscal discipline, as we are seeing in the states, and now Europe, by necessity.

    And don't forget, that it was our friends, the Hunt Brothers, who did conspire and drove the Silver market to the peak seen 30 years ago.

  19. comparing oil to gold is wrong-period.
    "And now, for the topping on the cake. The precious metals markets are infinitely smaller than the stock market, real estate markets or energy market. That means it won't take anywhere near as much money to drive these markets to incredible heights."

    And it would not take much to crash the market in gold either!!
    the crashes in markets are ALL related to the payments for the continuous wars, on the planet and internally.
    the Republic of U-knighted states can NOT afford the wars for ROYAL oil-it will crash EVERYTHING.
    and it is.

    the war mongering fever that you ALL have (not just the talking heads on foxnoose or msnbc), is the real problem, and the avoidence is the cause of the mis information, spit on us all.

  20. Its for that very reason that gold will continue in it's bull market. We are running up unsustainable debt. The only way we will be able to service that debt is to print money.

  21. May I have a question:
    When we have inflation, what will happen to the stock market and house price ?

    Will they go much higher just like everything else or will they crash ?

    Thank you so much.


  22. It depends on what kind of inflation. During the 70's we had high inflation and it destroyed the economy the stock market cycled through large swings just like we have been doing since 2000.

    In a hyperinflation we could see the stock market go up to 50,000 but it wouldn't mean anything as a loaf of bread would cost you $1000.

    Anyone storing their wealth in paper money will have it destroyed in a hyperinflationary environment.

  23. What price ratio do you see gold and silver trading at over the next 6, 12, and 18 months? Is this a good time to invest in silver bullion as well?

  24. The historic average is about 20-25 oz. of silver to one oz. of gold. The ratio tends to spike during C-wave tops. I'm looking for a top to this C-wave sometime this year so I expect the ratio to move down under 50 at that time.

  25. Arnold Bock had this to say, and I fully agree:

    "...The Commodity Futures Trading Commission (CFTC) recently held a major hearing which blew the doors off the bullion metals trading markets - the "sleeper" which I predict will be viewed retrospectively as the gold price liberation event.

    We all knew JP Morgan Chase had been manipulating the metals markets on behalf of the FED and other central banks and this event proved it! The hearing (specifically Jeff Christensen’s statements) inadvertently confirmed that trading has been occurring using naked shorts/no hedging and that there was little bullion (only about one ounce of metal for 100 ounces of a trade) backing up such trades should the holders ask for it rather than cash or roll their futures into other futures paper. This revelation was much worse than even critics, such as the Gold Anti-Trust Action Committee (GATA), had expected."

  26. Folks just use a little common sense. If the government is manipulating the gold market why do shorts increase as gold is making new highs and decrease when gold pulls back?

    That is the normal pattern of an industry that is hedging production. Specifically most of the commercial shorts are miners hedging their production forward.

    If the governement really wanted to manipulate price we would see the opposite happen. As price declined the manipulators wouldn't take their shorts off they would pile them on to drive price down.

    Don't forget shorts have to be covered at some point. If someone is piling on naked shorts that isn't going to drive price down other than temporarily. Once those shorts are covered it will drive a huge surge higher so contrary to what the conspiracy theorist would like to belive that naked short argument is a gigantic bullish factor not a negative one.

    Folks all this conspiracy crap is just a scam GATA has pulled on a gullible retail public so they never have to accept responsibility for their mis-timed calls. Anytime gold doesn't do what they predict thay just blame it on some neferious cartel. It's one of the oldest tricks in the book.

    Come on folks just a little commone sense is all it takes.

  27. any reason why central banks are currently buying gold?

  28. Like wine, owner create a market by buying themselves, hence push price up.
    You can do that with coffee too!

  29. Really good info, but it doesn't take into account real inflation and market manipulation. If using real inflation ( and manipulation by the central banks and JPM, the price of gold would be at $7200.


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