21st Century Gold Rush Re-Examined

Back in late 1979, the lineups to buy Gold looked more like the lineups to buy Stanley Cup Hockey tickets at the then famous Montreal Forum. There they stood all wrapped up in their parkas, ski jackets, and bulky sweaters wearing anything from construction boots to overshoes; there was even a sprinkling of executives in their Italian leather shoes, business suits and cashmere coats, all waiting to get in on a sure thing. The analysts and economists cited a litany of reasons to explain the Gold Rush, but nobody cared. Gold prices were said to have become a barometer of political and economic fears, but in the end it was just pure GREED that drove the price until it finally peaked in January 1980 at $875 an ounce. This was yet another example of "The Obvious is Obviously Wrong." The only important factor was simply that prices were skyrocketing. Anybody who was already in was making money (of course not as much as they claimed) and everyone else was afraid of missing out on a sure thing and being left out in the cold. It was Can-Slim 20 years before IBD made it popular.

Gold was selling for $250 when 1979 began. By December, amazed at the sudden surge above $700, Gold devotees began talking $1,000 plus, some were even trying to justify $5000. The rocketing prices startled all the experts and even frightened some of those analysts who, like me, had forecast the precious metals boom early on, but none had called for anything like this. For the first seven years of this Bull Market, the newspapers and magazines had completely ignored Gold, just as they are doing today. Then suddenly in late 1979, Gold hit the front pages of all newspapers. Reports and articles on Gold and Silver began to appear everywhere and not only in the financial newspapers, but in the dailies and magazines as well. This time around, there are still NO signs of even a beginning to the newspaper articles on Gold and Silver and certainly not on the front pages. In fact it is even difficult to get quotes on most Juniors, especially those trading in Vancouver or Toronto, unless they are listed on a US exchange. But rest assured that before this Bull Market in precious metals is over, there will be similar front page stories around the world and Kramer will be yelling booya booya at every one of the Gold stocks that will permeate his program. By the way, the Fast Money boys and girl who all currently HATE Gold will love it before this Golden Bull is over.

IS THE GOLDEN BULL MARKET OVER?

If you’re worried that you missed the Bull Market and that it ended at $1,030, just ask yourself how much space is being devoted to the fact that Gold has pulled back 20% to its natural support levels, during its fairly consistent and regular weak (slow) season. Gold Mutual Funds after being the top performing funds for the last 7 years are (would you believe) have still not ever been recommended by any Mutual Fund experts or Financial Advisors. I had been expecting a $1,200 to $1,400 target to mark the end of Wave I. After 7 years of almost perfect calls, I became too overconfident and began to think I was God, but He gently (maybe not so gently) reminded me that there is only one God and it’s not me as I was brought back down to earth.

Back on earth; let me now revise my short term projections. I had thought that we were in Wave 5 of Wave (5) to complete major Wave I and my target price was $1,200 to $1,400. The recent sell-off was unexpected but upon reflection, I realized that we are still in Wave (4) which should be completed within the next 5 to 10 days then up up and away into Wave (5) whose target is still $1,225 to $1,425 to complete Wave I by the end of 2008. We will then still have up Waves III and V to look forward to and they will move a lot faster and more furious than Wave I. I will then be giving a much more detailed picture of what Wave II will look. In the mean time look to accumulate both Gold and their juniors on any further weakness over the next week or so, THE SAME ANALYSIS holds for SILVER.

DOES HISTORY REPEAT?

Today, as back then, throughout most of Gold’s Bull Market until 1979, most analysts and the media are virtually ignoring Gold. It’s only the so called Gold Bugs that continue to believe then as now in Gold. Well I’m not a Gold Bug - I’m a realist and an economist, who likes to make money and studies not only the past, but human nature as well.

The last Gold rush lasted eight years (1972 to 1980). This one started in 1999 and should last a minimum of 16 years and is therefore only half over and has another minimum 7 years left to run. BUT remember that most Commodity Bull Markets have their most explosive and dynamic run in their fifth and final Wave. I now take you back in time to the 1970’s and point out that WAVE I lasted from 1972 until 1976, four years which was also 50% of that entire Bull Market. During that time, Gold appreciated from $35 to $200, a 575% increase. If today’s Wave I ended at $1,030, then it would have increased from $250 to $1035 or 400%. However, as I now believe we are about to enter Wave (5), and should we hit my projected target range of $1,200 to $1,400, then it too will have increased 575% at $1,450. More immediately, should today’s Wave II react in the most common Elliott Wave fashion and pull back to its Wave 4 of one lesser degree, that would bring us back into the neighborhood of $800.

It’s possible, but highly improbable, given today’s financial condition of the US dollar that the market retrenches all the way back to $600 where it would then make a 50% pull-back and meet its major long term uptrend line. However that is a worst case scenario, but even then we would still be in a Bull Market. The more probable event is a 25% bull-back to the $800 area which is the apex of Wave 4 of one lesser degree. But regardless of what takes place, WE ARE ONLY HALF WAY THROUGH THIS GOLDEN BULL MARKET.

INFLATION: The bright side of the story is that Gold has to increase to $2,500 just to equal its 1980 inflation adjusted high of $875. Should Gold have the same percentage move as it had in the 1970’s, it would give us a target of over $6,250.

WARNING: A Bull Market will always do whatever it has to do to shake off the majority of investors, especially the ones that do not have a firm conviction. To make real money you must have the courage of your convictions and hang on through the most gut-wrenching consolidations, and seize these opportunities to buy low, if you want to make the BIG MONEY.

A LOOK BACK IN TIME

To give you some idea of what a real Bull Market looks and acts like, I take you back to the 1970’s:

The library that I went to had the Financial Post newspapers on microfilm all the way back to 1972, the very beginning of the last Gold and Silver Bull Market.

There were very few if any articles when Gold first moved from $35 in1972 to $200 by 1976, completing Wave I of Gold’s Bull Market. Hardly anybody noticed, certainly not the newspapers, when Gold dropped back down to $100 in late 1976, completing Wave II. It was not until Gold was exploding past $200 and well into its Wave III rally phase that a few stories on Gold and Silver began to get published and then not until late 1978 early ‘79 as Wave III was peeking at $250. Gold headlines did not hit the front page until late December 1979 and into the January 1980 TOP, helping to fuel the final Wave 5 into its eventual blow off top. We are definitely not even close to that kind of action now.

The stock tables that I found were absolutely amazing and brought back some very fond and some not so fond memories. In 1975, three years into its Bull Market, most Gold and Silver stocks were trading at under $2 and the majority were penny stocks trading under $0.25. Don’t forget that we were at or near the bottom of the worst Bear Market since 1929–1932. Even with Gold up 600% from the 1971 low of $35 to the 1975 top of $200, most Gold and Silver shares did little to make anyone, except perennial Gold and penny stock traders, wake up and take notice. I held a few seminars in an attempt to push Gold as the best way to make money during a falling market (the general markets were down 45+ % in less than 2 years), but getting an order was like pulling teeth. It was not until Gold was well into Wave III and had retraced all of its first big sell-off and got back well above $200 (the equivalent to $730 today) that I started to open some new accounts and get some decent size orders, as the Gold and Silver stocks started their historic Bull Market runs that would end at unimaginable prices.

Some examples were: Lion Mines – 1975 price $0.07 / 1980 price $380. YES, that’s right it’s not a misprint - you could have bought 10,000 shares of Lion Mines in 1975 for around $700 dollars and if you held on for the whole 5 years until January 1980, you could have netted a total profit of around $3,799,300. Not bad ay!!!!! A few others were Bankeno – 1975 price $1.25 / 1980 price $430; Steep Rock – 1975 price $0.93 / 1980 price $440; Mineral Resources – 1975 price $.60 / 1980 price $415; Azure Resources – 1975 price $0.05 / 1980 price $109. The Majors also performed superbly well, but nothing compared to the Juniors. WARNING: The Juniors, although offering great potential, also contain much greater risk as most of them ended up falling back to zero. So be careful.

No question about it, that was one of the biggest and best financial opportunities in history. I don’t know of any other time, not even the dot.com bubble (how may of us could get in on the IPO’s anyway) where in only a 3 year time span, you could have turned so little money into so much wealth. “You only need to make one good investment decision in your whole life to be super successful.”

I believe we will, in the not to distant future, be approaching that same juncture that we were in 1976-78, only this time the fundamentals are even better for Gold and Silver than they were back then. The similarities between the 1970s and today are uncanny. Then, as now, we were in a GUNS & BUTTER economy. The Oil Sheiks couldn’t wait to get out of Dollars and into Gold and Swiss Franks (would you believe that people had to pay 20% negative interest if you wanted to keep more than $100,000 in SF). Every time trading in Gold was halted due to and IMF auctions of 4 million ounces of Gold, it would open up $40 higher. What would happen this time should we once again pull out of Iraq with our tail between our legs? Regardless of the fact that the USA is not acting unilaterally as our left wing media keeps trying to tell us, there are 38 countries that have supplied troops and only four European countries that voted against us, who have now slowly but surely seen the error of their ways and are now following our lead with respect to Iran and North Korea. What about all the Arab countries like Saudi Arabia, Jordan, Kuwait and the Trucial States, etc. that have been supporting us? What happens to them and our oil supplies should Iran and Al Qaeda take-over Iraq? Thank goodness the surge is working and we may actually win this one, but at a terrible cost in inflation.

ISRAEL AND IRAN

As For Israel: They will most likely take out the Iranian nuclear facility in the days following our Presidential Election, (if it was up to me I would do it the day of the election) with no greater difficulty than they had in taking out the Iraqi and Syrian nuclear facilities. The two carriers recently sent to the Gulf to bolster American Forces were not sent to help Israel, but to make sure that the Straights of Hormuz are not blocked. The world will outwardly be outraged and pass a few anti-Israel UN resolutions (what else is new), but inwardly everyone including all the Arab states will be relieved. Use whatever day or two spike in Oil following the Iranian Bombing to re-establish your short position in oil. As for Gold, it should by then be well on its way and will probably coincide with my original projection in the $1200 to $1400 range. Take profits on your options and margined Gold positions, BUT DO NOT SELL YOUR CORE HOLDINGS. Become a subscriber and I will signal you in plenty of time when to get back in as the Big Bull Market in Gold and Silver will still only be half over.

Although history always repeats, it never does so in an identical fashion so it only ends up being recognizable long after the fact. These are only some of the real fundamental cornerstones of why Gold is in a Bull Market today and why the current PULL-BACK that we are in is only a normal and expected correction and is thus far following the script of my Alternate Wave (4) of Wave I count.

Just like the current Stock Market Rally it too is also only a correction in an ongoing Major Bear Market along the lines of 1930 of the 1929-1932 Bear Market. Now, as back then, with our near record low interest rates, the FED and the rest of the world’s Central Banks are flooding the world with fiat money in what will turn out to be their failed attempt to stave off Depression. Our FED is caught between a “Rock and a Hard Place” and don’t let the dollar’s recent strength fool you, they will shortly be forced to raise interest rates in an attempt to save the dollar and stop inflation from exploding. The first causality will be to exacerbate the crash of the Real Estate market: Then comes the imploding of the Stock Market and especially the Bond Markets, which are much larger than the Stock Market. This will result in a further implosion of the credit markets as more financials begin to fail. You are now bearing witness to the Laws of Supply & Demand in action as all the One Way Corrigans learn that trees do not grow to the sky.”

MUNI BONDS: What happens to them as more and more people fail to pay their real estate taxes? How safe are they and the Monolines that insure them? Will FNM and FRE be paying the Taxes on all their foreclosed properties?

THE US DOLLAR and STOCK MARKET

These are but another two perfect examples of what happens when everyone is sure that things can only going one way; some even made $ projections down as low as 40. I repeat “Things do not move in straight lines.” Although it seems obvious that both the market and the dollar have made some kind of low, IT IS NOT “THE” LOW. The fundamentals going forward have not changed; in fact they may have gotten worse. After a bit (one to three weeks), and everyone is sure that the crisis is over, the dollar will reverse and make new lows. As sure as the Stock Market, after a week or three of an exciting short covering rally that could go has high as12,000, it too will also head back down to make new lows.

I sent you all out a SPECIAL BULLOTIN picking the exact low on July 15: Who should you be listening to now? Check their track records

Greenspan and then Bernanke were attempting to create a soft landing by slowly raising rates before being forced to. Alas it was too little and too late as Bernanke, instead of swallowing the bitter pill of a mild recession and correct the major imbalances, has caved into the short-sighted media and political pressure or as is most probable he actually believes in his Ivy league, Keynesian philosophy, of pursuing a policy of easy money in an attempt to keep the Banks, Brokers, and the economy afloat while trying to engineer a soft landing for real estate: The Piper must always, eventually be paid: Greenspan had painted the FED, as well as the rest of the world, into a corner that his successor Bernanke will not be able to get us out of without a whole lot more pain and suffering. Investing in Gold and Silver shares and the physical metals now and holding them for the next 8 years could be the only major financial decision you may ever have to make.

Do NOT trade in and out. Just buy some stocks and bullion now, add to you positions on any further short term sell-offs or on break-outs to new highs and wait until you see Gold and Silver splashed all over the headlines in the newspapers and magazines, not just the financial ones. Or, if you have not yet taken a position, then scale into any precious metals mutual fund or ETF. When Gold breaks out to new highs above $955, use your increased buying power to increase your positions. By the time those front page stories that ran in January 1980 appeared, most Gold and Silver stocks were trading over $50 per share and many were trading over $100 and $200, some even as high as $500 per share. Only a few years earlier (just like today), you could have bought the same stocks quietly for between $1 to $5. I know it’s hard for most of you to believe that Gold and Silver will surpass their old inflation adjusted January 1980 highs, but that is what a 16 to 20 year generational Bear Market will do to a whole generation of investors who have grown up with falling real assets (Gold, Silver and commodities) and rising paper assets (stocks and bonds). When the tide of human emotions swings and paper assets really start to fall hard, the lust and fervor for real assets will be unbelievable. Gold will have to increase to over $2,500 just to get back to its previous, inflation adjusted high in real dollar terms. However, if Gold in this Bull Market should increase at the same percentage increase as it did from 1972-1980, the target becomes $6,250. The dot.com bubble will look like small potatoes compared to some of the upcoming gains in the Gold and Silver Bull Market of the 21st century. But unlike the dot.com bubble that was based on easy financing, unrealistic dreams of profits, aggressive accounting and pure greed, the coming explosion in Gold and Silver stocks will be all about not only Greed, but abject FEAR as well, to protect one’s savings from the destruction of fiat paper money, combined with the GREED to get in on a sure thing. There is nothing that can stand in the way of a combination of both GREED and FEAR both going in the same direction.

TOTAL EQUITY OF ALL GOLD STOCKS

When the entire world wants a piece of the Gold and Silver Bull Market, they will discover that there is only a relatively very limited supply of shares and you can’t create a Gold mine out of thin air like you could a Dot.com company. The combined total of all Gold stocks is less than that of the equity of EXXON and GE. Yet it is estimated that there is over $2.2 trillion in Hedge Fund money alone and that’s not counting all the leverage ability they have at their disposal. Can you imagine what happens if suddenly they wake up and begin a rush to Gold? There are over 10,000 mutual funds that have not even looked at Gold and yet they have a mandate to be fully invested. What do you think they will do when the only stocks going up are Gold and Silver stocks (maybe Uranium, Platinum and Palladium as well)? Remember, most mutual funds cannot go short, so what better way to make money in a falling market than buying into the only markets that are rising?

The Gold and Silver stock sector is very small compared to the bond and stock markets and it won’t take much buying, percentage wise, to push these stocks into the stratosphere. I am sure that most of you have friends who can’t name even one Gold stock. But I’m also sure that in the not too distant future, they will be touting you about the latest hot Gold new issue coming out of Vancouver, or Alberta or Denver even though they don’t know where Vancouver and Alberta are. That will be the first major sign that the top is near. I firmly believe that the current opportunity in Gold and Silver and the companies that mine them may be presenting you with aonce in a lifetime opportunity where even a modest investment could change your financial destiny.

NEAR TERM OUTLOOK

Plain and simple: The Junior stocks are near their lows for this Bull Market. That is the first sign that this Bull Market in Gold is only half over. Junior Gold shares usually lead Gold bullion both up and down. Check out their respective charts. The Majors look to me like they too are near completion of their consolidation phase as they will soon be increasing their takeovers of midsized and exploration companies.

WARNING:

If you are already invested and you attempt to trade a GOLD RUSH like you trade any other market, you will be sadly disappointed. You may be lucky enough to pick a short term top that will make you feel smart for a week or so or maybe even a month or two, but then suddenly you will be left standing at the station with your hands in your pockets clutching on to your shrinking dollars and watching as the Gold Rocket Ship takes off and you will not have the courage to jump back in at accelerating new highs. You will sit there waiting for the pull back that we are in now, but will not come again. If that happens to you, be ultra careful that you don’t get sucked back in at or near the HIGH 7 years from now as the front page headlines clamor about the Bull Market in Gold and Silver. If you have been lucky enough to have been sucked or scared into taking profits, and are now sitting on the sidelines, start SCALING BACK IN NOW.

Whenever Investors begin to hate stock, especially gold stocks, the professional traders know it’s time to start buying. The current setup for Junior Golds is similar to the way the overall market was on July 15th and is probably as good as it is going to get and is similar to the setup at the 2001 bottom. Anniversary dates of major highs and lows can often mark major turning points in the market. Last year’s low in the XAU came on August 16th and the market may wait until then before moving higher. Extreme pessimism runs high at major lows and the price relative to Gold ratio measures that pessimism. The current reading is as low as the 2001 bottom and that bottom lead to a 400% gain. Next rally up should be truly explosive. We are 5 to10 days away from the bottom, if we are not already there , so don’t chicken out now!

August 8, 2008

GOOD LUCK AND GOD BLESS

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Aubie Baltin CFA, CTA, CFP, PhD.

2078 Bonisle Circle

Palm Beach Gardens FL. 33418

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