Is The Gold And Silver Bull Dead?

But what we call our despair is often only the painful eagerness of unfed hope.
George Eliot

Gold and precious metals in general had a spectacular run from 2003-2011. Moreover, it was around that time we published our first article on Gold-Eagle. In that period, we were pounding the table on Gold, Silver and the entire precious metal's sector. Is this the end? Is this monstrous bull dead?  We have stated repeatedly, that every major bull market has to experience one back breaking correction... Usually the correction ends with a 50% pullback from the highs, which would translate to a low of roughly $960. On September. 6, 2011, gold reached an all-time high of $1921.50.

Apparently, Jim Rogers holds a similar view.

Gold is in a correction, and the correction has gone on for four years," Rogers said. "Although I am not buying gold, I am expecting an opportunity to buy gold sometime in the next year or two. For instance, if gold goes under $1,000, I hope I'm smart enough to buy a lot more gold.”

For the past two years until April or so of this year, Gold bugs abruptly found faith. And when you find religion in an area that does not merit or warrant it, the result is always dire. Against the backdrop of trillions of new dollars  being created every year, how could the Gold Price put in a top, and to make matters worse pullback so strongly? Unable to find a plausibe answer, they started to chant kumbaya or look at tea leaves or anything that might offer a reason for this back-breaking  correction. Prayers, magical incantations, etc. are always answered, but  instead of reward, the retort meted out is usually further melancholy and anguish. Based on these development we stated several months ago that we could expect Gold to trade even lower.   Again, Jim Rogers appears to concur.

“There are still too many mystics in the gold market who think gold is holy so cannot decline. When/if they give up and throw their gold out the window because ‘she lied to me,’ gold will make a firm bottom,” Rogers said.

Now that Gold has traded below $1100, religion is being abandoned, and the wailing and gnashing of teeth phase is taking hold; all their prayers have gone unanswered  and hopelessness is setting in. They cannot fathom how with trillions of more dollars being printed, Gold instead of soaring continues to get hammered. Again, we need to repeat the phrase we recently used........ “Welcome to my lair said the spider to the fly... to which the fly responded which one"...    We have two worlds coexisting together, the illusory and the real. The masses (crowd) have embraced the illusory, so the illusory supercedes reality for now, and this is what the Gold bugs do not fathom.   The masses actually believe money is created from trees in contrast to sweat and labour, and so until they think otherwise, the Fed can continue running the press, and the masses will be none the wiser.  They have not yet grasped the true meaning “Fiat money."  The assumption is that these worthless pieces of paper backed by nothing are worth their weight in Gold. The masses will be none the wiser, but you can; Gold is not going to drop to zero, not in the face of the largest currency war the world has ever witnessed. We have spoken of this war in the past and termed it the “race to the bottom”.  Every nation is actively looking for a means to debase its currency to maintain its competitive edge. The Chinese have decided to join the currency war and stunned the markets by devaluing their currency twice in two days. We warned of these coming currency wars as early as 2003.   

The two devaluations come after a run of poor economic data and have raised suspicions that China is embarking on a longer-term slide in the exchange rate. A cheaper yuan will help Chinese exports by making them less expensive on overseas markets. Full Story

This is a signal to the USA that they can also play the same game.  As we like to say it takes one to cry, two to tango and three to have a party.  China has now actively joined the currency wars, and the battle is going to pick up in intensity from here. We expect a  host of nations to follow suit. Vietnam has already joined the bandwagon, and devalued it currency twice to maintain its competitiveness. Indonesia has been allowing its rupiah to literally collapse since Jokowi took power.  From a low of 11,500 to the dollar, it is currently trading a 13,800.  Do you really think as these currency wars pick up in intenstiy, gold will continue to plunge?

For the trader or investor who was paying attention, Gold issued several signals that a top was close at hand; the two major signals were issued in the second half of 2011 and towards the end of 2012.   There was ample time to take some money off the table or hedge one’s position; one should never try to get out at the exact top or try to get in at the exact bottom. Besides being something that is almost impossible to achieve, it's a process that is fraught with pain and misery.

Gold has violated its long term uptrend line, and this automatically indicates that the bottoming phase is going to be rather volatile and frustrating.  The above chart is a chart of the Gold ETF (GLD), but it mimics Gold relatively well give or take a few points; this is of no importance as we are focusing on the big picture.  The first level of support kicks in at 100, which correlates roughly to $1000 for Gold. A weekly close below this level will most likely result in the gold price testing the $960 level.  A test or a break of $1000 should be viewed as a mouth-watering  opportunity to load up on this precious metal. In this age of extremely volatility, there is always chance that Gold could overshoot; on the same token, it could refuse to buckle and trade down to the $960 area.  Don’t fixate on absolute prices; if its bargain jump in and buy, instead of trying to save a penny and losing a pound. The astute investor will use this phase to build up and add to his or her position, instead of complaining.  Only imbeciles complain…and then turn around and state that they would have done things differently given the opportunity.... The reality being that they will never change and will always react in the same way.    

This is the advice we offered our subscribers recently. 

The drug pushers in the media are giving the news junkies their daily fix; they are catering to the twaddle scenario that the world will end. Step back and reflect on how lucky you are that individuals of such calibre exist; ones that seem to feed and thrive on this rubbish. Every time you run into an idiot be grateful for it’s those idiots who make your life infinitely easier. Most do not see this part of the equation or story; they focus on the false premise that idiots make their lives harder, when, in fact, the opposite is true.  Market Update July 17, 2015

We could list a plethora of factoids (fundamental data) as to why the Gold price should soar. Every Gold analayst and  every Gold bug expert over the past five years has done this repeatedly…and all to no avail.  We are not going to recite what you can easily find on the net by conducting a simple search.  The trend is your friend, and everything else is your foe.  The sentiment readings right now are conducive to market bottoming action; however, the technical outlook indicates that there could be more downside.   

Our trading methodology focuses extensively on mass psychology and technical analysis.  From the mass psychology perspective, Gold is very close to putting in a bottom.  Sentiment investors, contrarian investors and investors who are familiar with the concept of mass psychology should consider taking a closer look at the precious metal’s sector now.  From the Technical analysis perspective, the potential for more downside is still there as our reliable trend indicator has not turned bullish yet. However, we have been advising our subscribers to deploy small amounts of money into Gold, because we sold close to the top, and so we are using profits to get back in. Incidentally, we did warn our subscribers to close the bulk of their positions in Gold, Sillver and their entire Palladium bullion position around August of 2011. Just for the record, selling close to the top was not something we were attempting and attribute that more to lady luck than anythign else. Even though this phenomena has occured before, we will always attribute it to lady luck; as noted before, trying to predict the top or bottom is a task best reserved for fools with plenty of time on their hands. We look for bottoming or topping action and for change in the direction of the trend.  If we were establishing positions for the first time, we might have been a bit more conservative. This appears to be Jim Roger’s current stance.  

“I have explained for five years that I am not a buyer of gold or silver [except a few coins as gifts] since I expect a lower bottom. I own both and have not sold any, but I have hedged some.”

In terms of the way the markets are leveraged today, there is no guarantee that you will find the exact bottom; looking for the precise bottom is like trying to find a needle in a mound of cow dung; a nasty and stinky process where the odds of success are rather low. If you liked Gold at $1800 or $1600 or even $1200, you must love the fact that it is now trading at $1100. Do not mimic the crowd (mass mindset), whose sole function  is to sell when its time to buy, and buy when its time sell. These individuals always make the following statement “I wish I bought when the markets were falling apart," but when that situation finally presents itself, these very same individuals are the first to head for the exit.

Conclusion

 From a mass psychology and trading perspective, a bottom is not too far in the making.  Sentiment readings are bearish; Gold bugs are in despair, and even many contrarian investors are not sure of their footing anymore. All this bodes well for the precious metal's sector in the long run.  From the Technical analysis perspective, the gold price has one more leg down, but the last leg might or might not be too steep.  It will serve to bolster the foolish notion that the Gold bull is dead.  Every bull market undergoes a back-breaking correction, and Gold is no exception. We believe the next leg up will yield even larger profits.

The back-breaking  correction phase usually (not always) ends when the 50% mark has been hit......... From the high to the low, the total pullback amounts to 50%.  In this case, it means that Gold would need to dip roughly down to the $960 level.  If this scenario should come to pass, what will you do?  Think about it while sipping a cup of chai.  No, you run out, back the truck up and buy like the world is going to end

There are some market technicians and analysts offering lofty targets of $10,000, $15,000 and even past $20,000.  While we are at, why not suggest $100,000.  We are sure someone will come out and issue such a silly target. This begs the following question: How many generations would have to pass for those targets to be hit.  Why the focus on such lofty targets when Gold has not even traded to $2000.  Our targets issued years ago still stand.  Our first target of 1500-1800 has been hit.  The next stage is for Gold to trade to $2000; once 2,000 is taken the next phase of the true bull will begin. Our high target is in the $5000-$5500 range, with a possible overshoot to $6,000.  

And that is all we have to say on this topic. The focus now should be making sure you are in the market and not jabbering about how high Gold will trade. As the saying goes “you need to be in it to win it” The trend is your friend; everything else is your foe.    

The mass of men lead lives of quiet desperation.

Henry David Thoreau

******** 

Courtesy of www.tacticalinvestor.com