Tepid Media Make Gold an Enticing Buy

  

[Rick has been under the weather with a possible case of food poisoning. Filling in for him today is Chuck Cohen, a financial consultant whose work will be familiar to many of you. The following appeared at LeMetropole.com over the weekend. Chuck thinks that as long as the news media continue to stumble around in the dark in their coverage of the gold world, we should remain confident about accumulating more bullion and precious metal shares for the long haul. RA]

It took a mix of $1000 gold, the media’s reaction to it, and a very fallow day to compose this piece. As serious as the news is these days, it is still difficult not to see the absurdity in what is unfolding. Now that gold has finally pierced $1000, I had expected to find repentance and mea culpas by a news media that has persistently resisted and even mocked the gold bugs for nearly a decade. But if the news over the weekend is an indication, gold might need to hit $5000 before the media finally head to the confession booth.  But that’s great news, as far as I’m concerned. As we know by now, the less company we keep, especially from the mainstream, the better.

 Gold-for-sale

Consider the following, penetrating insights into gold that I found over the weekend. (And if the media are puzzled by why they have lost almost all credibility and readership, according to the latest Pew Research survey, then they should read these articles.

 For This We Buy Barron’s?

This weekend’s featured article in Barron’s, by a Ms. Jacqueline Doherty (although I am suspicious that this might be merely a nom de plume of Jon Nadler, the Scarlet Pimpernel of the gold world), who concludes prophetically that “after a likely pullback of 10-20%, or $100 or $200 in the price, it is likely that gold will rise some more… Consequently, investors should consider allocating 5% to 10% of their portfolios to gold, buying advantageously when prices dip.”  Wow! That’s why they charge $5 for a thin issue, and why Barron’s deemed this information so. This is not hemming-and-hawing advice, but an unhedged, clarion call to action. It is likely to go down, but it is also likely to go up. Now that’s deep!

With the clarity this brings, I wonder, what should I do now. Should I scale down, starting at about $825 — or really try to finesse it, at say, $805. Maybe I can locate Ms. Doherty — or Mr. Nadler, if that’s who it is — and get a precise price for my bid. But I think Jon is still looking for $600, not $800, so there must be a real Ms. Doherty. Gold is so confusing. No wonder, Americans prefer to sell it, or to buy an overpriced house or Citigroup shares with their clunker money.

But if gold then rallies back to $1000, producing a 25% profit, wouldn’t it be grossly overbought by then and therefore likely to slide back to $800? At that point, might we not be looking at a pattern, like Sisyphus eternally pushing the rock uphill? At that point, Barron’s is going to come up with another crackerjack insight into the mysterious yellow metal. I’ll alert you, not if, but when, her or his predictions come to pass.

IMF in Mass Selloff

From Cortlan Bennett, Business Editor, Perth Now, we get word on Kitco of an impending large IMF sale of gold: “The International Monetary Fund will sell 403.3 tonnes of its gold reserves, worth an estimated $A15 billion, to provide loans to poor countries and shore up its finances. While the fund’s executive board said it decided on Friday to sell its stocks in a way that would not disrupt commodity markets, gold prices are expected to be hit hard.  Perth-based Stock Analysis author Peter Strachan agreed. ‘When it was announced, (the gold price) went down about US $5,’ he said. `I think it will be under pressure and the Chinese will probably be buying it on the back foot. We might see it go down $US20-$30, but I think ultimately the Chinese will be looking at this as a great opportunity to get a big chunk of it.’ ”

 My Reaction

First, there was that headline: “IMF In Mass Selloff.” Gripping, right?  I think he meant mass ‘selling,’ not ‘selloff.’ Probably, his anti-gold subconscious was programmed to think ‘selloff, ‘ not selling, since he has used the word so often when covering gold. And a selloff of $20-30? One man’s plunge is another man’s manipulation, and yet another’s opportunity. That comes to 2% compared to a rise of 400% since 2001. Am I too biased or blind to think that this is a very small reaction given the scheme of things? And is $14 billion a tiny fraction of China’s foreign reserves? Also, the IMF has only been threatening this sale since Spain invaded the New World, but such a shocking announcement coming conveniently after a Friday close might cause me a restless and sleepless weekend, as I wonder if gold might really collapse back to $980. Maybe I’ll lighten up on Monday, or even in Asia before the Comex opens, and then wait anxiously to see how far down gold will plunge. It might even plummet back to, gulp, $970, and then from there who knows it might go straight down to $400, and Mr. Prechter would finally be vindicated. Alas, far too many variables for my mind to sort out. Does anyone have Jon’s or Leonard Kaplan’s email address to get my hands held?

 Reflecting on a slew of nervous-Nelly articles concerning gold over the weekend, Chuck finds reason to be amused by it all:

I am going to take immediate action and plunder my wife’s jewelry box and her dresser drawers, grab every single gold-related piece and ship it all off to Money-for-Gold, which will generously pay me 50% of their value based on gold content. That seems like a fair price, since the company needs to make a profit. And, who knows? Gold might be under $1000 by the close tomorrow, and my 46″ HDTV is beginning to look mighty puny against the new 72″ models. And they are on sale for under $4000 — just about what I would get at 50% of the value of her jewelry, At least I’ll wind up with something of real value.

 Bizarre Market

Don’t these articles continue to reinforce the bizarre and absurd idiosyncrasies of this gold market? No wonder most of us are paranoid and continually on edge even as gold has climbed 400% — climbed in each and every year of the 21st Century. Just as a quick reprise, here is what we have had to battle against over the last eight years or more:  1) the constant threat of central bank dumping; 2) the constant threat of IMF selling; 3) the fear of the commercials capping the price; 4) the historic liquidity squeeze last year; 5) the constant fear of a dollar rally; 6) a slowdown in world jewelry sales; 7) the huge, scrap jewelry sales, and 7) daily manipulation by the world monetary authorities and others with a vested interest in discouraging enthusiasm for bullion. Finally, we have the fifth columnists that masquerade as gold ‘advisors’ but mainly try to scare us into thinking a top is at hand — and you had better get out before you lose everything. I call that subscription by fear.

But take a moment to think about this: Have all of these threats made a difference to the trend? And, is it logical that it will make any difference, since the fundamentals have only gotten more and more favorable?

Same Old Game

What am I getting at? Just this: Here we are on September 20, 2009, the price of gold is $1000, the world economies have just rammed trillions of dollars more of worthless paper into a failing world economy, and yet the system is more rotten and corrupt than ever. This is the scenario that most true gold people have anticipated for a very long time, and now it is upon us. The odds that this drama is going to end or reverse are so remote that the Las Vegas oddsmakers would probably not book a bet on it happening. We are lifting off in a historic parabolic pattern (look again at the charts)  Questions concerning where it will end, and how high it will go, are pure speculation. But it won’t be soon, and it won’t be anywhere near the current price.

Just be sure you understand the value and the future of gold. We know we’re in a lonely minority, but we don’t need a validation by a mainstream who have never or will never understand gold or the company of supposedly renowned people. As I always point out, it is like faith in Jesus — you either see him or you don’t.

When to Sell

You don’t need Bob Prechter, Warren Buffett, Alan Greenspan, Jon Nadler, Leonard Kaplan, Jim Cramer, Larry King, Abbe Joseph Cohen, Larry Kudlow, Oprah, Barack, Paula Abdul, Jimmy Carter, Bono, Tom Cruise, or, finally, a front-page feature in the New York Times to assure you that they are in the gold camp.  When that happens it will be time to sell and retire to a safe and hidden location.

Please relax. The $1000 level is just another weigh station on a very long journey. There are going to be many dramatic episodes on the way, but the ultimate destination is still far, far away.  

To contact Chuck via e-mail, click here.  And if you’d like to have Rick’s Picks commentary delivered free each day to your e-mail box, click here.)

  • Terry S September 22, 2009, 8:27 pm

    Well done, Chuck et al! Best repartee I’ve read in a long while; keep up the good work …. And Rick, only when you don’t have it, do you realize that good health is the best wealth.

    So what about silver? (Ben’s question). I recall reading a guest commentary on this site, a few months back, saying, ” Silver’s dead, just an industrial metal” – or some such.

    • Charles Cohen September 23, 2009, 5:04 pm

      Terry: thanks for the generous but well-deserved praise. At first, I was not a big silver person because of my contrariness, but I believe it will do well as the system implodes. Perhaps, if we have a giant sell off in stocks it will get hit disproportionatly hard. If you see the ratio racing down as silver outperforms gold, you might take precautions. But once it is over, it should do well, but I prefer the gold companies without the base metals.

  • Vance September 22, 2009, 7:52 pm

    These days headlines seem to carry less weight as the mainstream media itself seem more and more under the ever expanding grasp of the elitist banking cartel. CNBC contributor Zach Karabell said on the air today he did not understand why people buy gold, because there is no practical use for it. I suggested to CNBC that Mr Karabell have a look at Gold VS the S&P 500 the past 10 years or so ( during the post internet bubble “Recovery”).

  • Chris T. September 22, 2009, 7:36 pm

    >>the news media continue to stumble around in the dark in their coverage of the gold
    >>world

    This is the view that they are all just ignorant, and have no clue. At least some of these people, the ones who matter (not your average Jane Doe reporter), are smarter than that.

    They broadcast their opinions not out of ignorance, but to keep the ignorant from wising up. Volcker (and Greenspan) are the perfect example, they know how it really is, and that is why they need these tools to deceive us. (perhaps Greenspan has consumed too much of his own, so that he now can’t ell the difference, but who knows?) I bet in secrect, all these people have a nice chunk of PMs stashed away off-shore.

    Rick, as to all the dollar comments, a question:

    Looking at the 5 year EUR/$ chart, there are some interim peaks on both sides of the rise to the mid-2008 double top at 1.59xx. These occured from about 10/07-12/07 at about 1.48, and again around 8/08 at the same level.
    We are now there again. Would a breached of that resistance be of significance?

    Perhaps you can comment on that area at some point. (it’s not the dollar index to be sure, but somehow looks significant).

    Thanks and to a speedy recovery.

    &&&&&

    Speaking as a former newspaper reporter and editor, I’d say journalists are simply too lazy intellectually to pursue arguments that don’t fit the script. Reporters could nail Greenspan and Bernanke for their lies and their sometimes startling economic ignorance, but that would be a much more difficult story to write than the ones that flow so easily from press releases and speeches. Journalists’ other big problem is that 95% of them are hard-core liberals for whom Big Government, warts and all, will always be the answer.

    Regarding the euro, I featured two important targets for the U.S. Dollar Index in a recent commentary. DXY is currently within a fraction of a point of hitting the higher of the two targets, 75.57 the lower is at 72.93). (RA

    RA

  • Rich September 22, 2009, 4:15 pm

    Do we all agree we can make money fading headlines or cover stories in the government monopoly media?

    Or that sentiment may be a valuable contrary indicator?

    Isn’t sentiment pretty bullish with Barrick Gold committing $5.6 B to cover its shorts, China buying and refusing to export gold. Aren’t CNBC stories full of bullish articles on gold over $1000 and inflation?

    Few journalists are successful traders for their own account. But what about the most successful traders, the insiders who know their company and industry?

    ABX for instance, just sold $3.5 B of stock, the largest stock sale by a non-financial company this year, hardly bullish on ABX profits from gold.

    If we look at the COTBig4 as RA (be well) did recently, the biggest 4 traders are 28.6% short and 15.3% long net open interest, hardly bullish.

    On the other hand, after GDP fell in excess of -16.5% yoy, the textbook definition of depression being a greater than -10% drop in GDP, just try to find a headline article on depression or even deflation on Google News search.

    The few that dare use the D word are in denial. They assert the Great Depression just can’t happen again, because of brave Fed and Treasury actions, forgetting they claim they did not see it coming after tightening hidden M-3 -13% for over a year. (shadowstats.com)

    Motley Fool perhaps had the most denial today: Deflation Unmasked: Why It Can’t Exist a Fiat Money System (sic). Presumably they meant In. The opening of the article leaves no doubt: For all you deflationists out there.. I’m calling you out! Please keep your ignorance to yourself, there is already enough throughout the economy.

    Okay Fools.

    Perhaps this is how the Big4 used the cover of popular sentiment to accumulate long positions in the dollar from the large numbers shorting it. The Big4 were recently 68.4% long and 29.7% short the dollar, hardly a sign they expect a dollar collapse or hyperinflation any time soon. If history is any guide, the smartest money figured out gold is going down and the dollar up in deflation.

    Small fry can fantasize how this time, it may be different, and the big smart money will be wrong and GATA right the first time in a decade or more as the COMEX collapses. We would rather bet on the sun coming up, at least until the Big4 change their positions…

    Regards*Rich

    http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3251493

    &&&&&&

    Thanks once again, Rich. Concerning Motley Fool, once upstarts, they made their reputation by being bullish on dot-com stocks early on in the dot-com mania. Now, though, they are about as mainstream as an Associated Press wrap-up of financial stories, worthy of a guest spot on CNBC. RA

  • Dusty September 22, 2009, 6:27 am

    The International Monetary Fund will sell 403.3 tonnes of its gold reserves, worth an estimated $A15 billion

    What makes you think the IMF has 403.3 tonnes of gold to sell? Fort Knox hasn’t been audited since 1953 and the Federal Reserve refuses to let the gov’t audit their own gold reserves. Reagan tried but failed to get it audited. If there is any gold left in Fort Knox, it is probably owned by China or Japan.

    What I want to know is who is going to take delivery of this 403.3 tonnes of gold? Are they going to have a photo shoot like they do in Vegas when someone wins a million dollars? Will we see the gold loaded onto a freighter bound for Africa to be used as collateral for loans? Or will we just see a few sheets of paper being shuffled saying “Here is your gold, but we’ll continue to keep it for you in our vaults where it is safe. Nudge nudge, wink wink.” The bullion banks are effectively shorting gold that they do not have. How is this legal?

    Once foreigners realize the U.S. is short of gold, there will be a run on the COMEX which will cause gold to go parabolic and the dollar to crash.

    Dusty

  • Ben September 22, 2009, 5:53 am

    Hello Mr. Cohen and forum

    First, I hope Mr. Ackerman hasn’t suffered botulism poisoning. I had that about five years ago, and I can yell you… it’s no fun at all! And it was all the worse when it took the doctors three years to figure it out. So, Mr Ackerman, if you had severe breathing difficulties, experienced sudden, severe dehydration, muscle control difficulties, continued difficulties in moving, swallowing, and speaking, be sure to tell the doctors that because, botulism being very rare today, they might overlook that possibility and you’ll go through a hell you never thought existed.

    This was a great article, and thank you for reminding me, Mr Cohen, that gold isn’t about who acknowledges it and buys it.

    I too often forget that axiom. My mind goes back to seeing gold price purely in terms of supply and demand because seeing as how all countries are being hammered by the massive amount of debt created to make these poisonous injecitons possible, my first reaction is to see the gold price either going flat(ish) or down. After all, with all the debt, who can afford it?!

    But that’s not the way it is. Even if no one pays attention, no matter how much or how little people buy, the price is destined rise. I must keep that in mind if I’m to have a full nights sleep!

    But I’m wondering… what are your thoughts on silver, given that it has a dual role as (historically) a monetary and industrial metal? With all things destined to go down the toilet, would killing silver demand in the latter sense more or less even out with the former (at least intitially)?

    &&&&&&

    Thank you for your concern, Ben. Seems it was just routine food poisoning, although the symptoms were severe for one restless night. RA

  • Shimon September 22, 2009, 2:41 am

    Get well soon, Rick !

    Chuck,

    You’ve echoed the sentiments of many of us as we’ve watched the metal of kings get killed every time it shows life but continues to confound the cabal rising fourfold in eight years.

    Thanks for the great article and ably filling in for Rick.

    Now we wait for the “air pocket” drop in the dollar that will catch all the doltar holders by surprise.

    grace,

    Shimon