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No Time for Gold Bulls to Throw in the Towel

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Our friend Chuck Cohen, a gold timer with a proven gift for knowing when to bet against the crowd, phoned the other day with urgent advice. Almost no one sees it coming, he said, but bullion is getting ready to explode. “It’s time to jump in head-first!”  Chuck has been wrong before, and we’d all but tuned him out for the last eight months or so, since his bullish drumbeat went against the asphyxiating weight of bullion charts that have shouted “lower” since last October.  Now, he says, the winning bet is to be short stocks and long gold and silver. Will he be right? From a technical standpoint, it’s still too early to tell. To be sure, some key vehicles, including gold futures and the Gold Bug’s Index (HUI), have turned higher from levels that coincide with Hidden Pivot correction targets of our own. But the bounce so far, especially in Comex quotes, seems tentative at best. Moreover, this is occurring at a time when  the juggernaut of deflation is threatening to overwhelm the central banks’ desperate efforts to thwart the collapse of a quadrillion dollar financial-asset bubble.

All things considered, we’re inclined to give Chuck the benefit of the doubt right now.  Here are some persuasive points that he makes:

  • Sentiment indicators suggest that gold is the leper of the investment world, with Rydex bulls currently at an astounding 2%.
  • Shares of mining companies with real gold and silver in the ground, juniors in particular, have collapsed beyond the point of despair.
  • As the price of paper gold has fallen in recent weeks, physical supplies have tightened sharply.
  • Mining-share options are trading at giveaway volatilities.

In addition, Chuck notes some troubling signs on Wall Street:

  • Bull-mania has been brazenly flouting weaker corporate earnings, stagnant incomes and fizzling retail sales.
  • With the Dow in record territory, institutional buyers have turned defensive, focusing on health care, big pharma and consumer staples.
  • Ominously, the banking sector has turned weak even though it is by far the biggest beneficiary of a global money blowout.
  • With respect to seasonality, the month of May has typically been anything but merry.
  • Europe’s deepening recession has become intractable.
  • China’s economy is turning down as well.

A Major Turning Point?

All of these factors suggest that stocks, bullion and financial assets could be at a major turning point. If this proves to be the case, and it leads to the epiphany that quantitative easing isn’t working, a stepped-up response by the central banks could be the signal that bullion markets have long awaited.

In the meantime, we’ve been recommending bottom-fishing in gold futures, GDXJ, HUI and some other popular bullion vehicles, since we know how difficult it will be, psychologically speaking, to buy these erstwhile dogs after they’ve exploded for 15%-20% gains in mere days. That is how great bull markets often begin, and the only way to avoid being shut out is to be aboard before they leave the launching pad.  This is the lesson we learned when stocks took off in August of 1982 with a burst of ebullience and power such as we had never before witnessed. It’s going to happen in bullion sooner or later; but even if not now, with shares and T-bonds wafting ever higher on a sea of brazen lies, our gut instinct is telling us that this is no time for bullion bulls to throw in the towel.

Please do not ask trading questions!

  • Bed Rock April 26, 2013, 6:30 pm

    Time is 11:15 CDT. Gold, silver, oil and feeder cattle have all been taken down big at the same time. Just as someone sold all in large amounts at the same time. Form your own opinion as to who and why.

    • Cam Fitzgerald April 27, 2013, 10:21 am

      I didn’t think there was much to add today to the gold story but then I came across this fascinating article on Seeking Alpha that was just too much to ignore.

      Below is a snippet from that story.

      And it does makes for a very interesting read. But is it telling us that the (paper) metals tree has been shaken to its very roots and does it also weigh heavily on related news of Comex and JPM vaults being virtually emptied these past few weeks?

      If there was a war on Gold then this one has been fought well as the small speculators were cut loose en masse while much of the available physical has migrated into much stronger hands in the blink of an eye. Almost everyone has been caught off guard by theses sudden events and there is still little in the way of analysis to draw conclusions about what just happened.

      Vault declines and ETF redemptions combined with a dramatic shortage of coins worldwide are leading to an event that may come as a shock to the small spec gold investment community who have been blindsided by the recent crash in price.

      Bye Bye phsical?

      Under such circumstances is confiscation even necessary? While I still forsee another down leg for metals prices this coming week and a continuation of ETF redemptions it would now appear that the stage is set for a rather significant increase in prices.

      Most of those who got stung badly will not participate though.

      The window on buying discounted miners meanwhile is looking more and more to be one that will be slammed shut on those who are waffling and waiting for a better time to buy. Miners should now be set to make a surge.

      So this could finally be it. Gold has already seen its Chernobyl moment and now we can move on the really big game.
      ———————————-

      “Gold And Silver Speculator Long Positions Wiped Out” ~~~ Chris Mack @ Seeking Alpha.

      “Small speculators, also known as individual investors, have had their net long positions in gold (GLD) and silver (SLV) completely wiped out over the last two weeks. As of last Tuesday, these small investors held a mere 133 net long gold contracts, and 2163 net long silver contracts. As recently as September, when we turned cautious on the metals, small speculators held over 60,000 net long gold contracts and 20,000 silver contracts. If the small speculators were to sell anymore gold and silver, they would become net short”.

      Read more at Seeking Alpha:
      http://seekingalpha.com/article/1378651-gold-and-silver-speculator-long-positions-wiped-out
      ———————————-

      Yikes! My immediate reaction is to suggest getting prepared to invest in miners and to do it very quickly. That is strictly a personal opinion of course but it is looking more and more like we have come to the checkmate moment where the small band of ETF goldbugs that have dominated the blogs for the last few years have finally met their Waterloo and the trade will now shift decisively as the most serious players step in to fill the gap.

      Quite some time ago (May 10 2012) I had warned that the moment to get invested in metals would not arrive until the “nuts had been shaken out of the trees”.

      Back then I wrote:

      “I think you are correct in your assessment, Avocado. These declines in gold and the miners are meant to shake out some of the hardliners and embitter the fanatics while opening the way for the pros to get a really good entry point. When the tree gets shaken the nuts fall out……… This may help to explain why it is my belief that gold (and gold miners) will continue to correct downward again despite the many months they have already fallen. This will be much to the disgust and dismay of the metals hardliners who will watch in amazement as obvious deflationary forces take another bite out of their cherished choice of investments. I will therefore continue to sit on the sidelines and await the nuts falling from the trees before buying”.
      ——————

      That moment has finally arrived. I am now a buyer.

    • Buster April 28, 2013, 11:15 am

      Hi Cam. There’s definitely a good case for it going either way. I at least expect one more down in the metals, for what little that’s worth, but would be very cautious as far as paper & leverage is concerned. I found the following wave count analysis of interest, particularly as short leveraged trading accounts seem to be getting paid interest for the first time in a very long time, as far as I can remember?? It’s at least an incentive for the downside, anyway. Take care out there buddy, & everyone:
      http://theelliottwavesufer.blogspot.dk/2012/06/gold-is-shine-about-to-disappear.html

  • KeivnR April 26, 2013, 1:56 pm

    There is only 1 point that comes to my mind when it comes to actual gold reserves – if the US has a supposed 8200 tones of it, why has no audit been done in over 50 years?

    I’m a billionaire, honestly you can trust me! NOT!

    • John Jay April 26, 2013, 2:28 pm

      Kevin,
      Who knows for sure how much Gold the US actually still holds. But I am sure once Russian ICBMs came on line back in the day Fort Knox was at least partially emptied out. You could not ask for a better target than that building in Fort Knox, it looks like a giant bulls eye.
      Whatever Gold we had back then was probably dispersed to salt mines or something so it would not be vaporized if Nuclear Combat with the Rooskies came to be.
      How much of it is actually left after decades of fraud is any ones guess, not much is my guess.

  • gary leibowitz April 26, 2013, 4:41 am

    If Gold has been manipulated as a good number here suggest didn’t the recent rout have the reverse affect from what they would have wanted? Clearly the demand to own Gold at these prices has been sparked, along with the quick run up. Now here is the thing. If it was manipulated wouldn’t they want to do it again to discourage further hording? Gold is within 50 dollars of hitting an important resistance level. We should soon find out how this plays out. My guess is if it can’t break through we should see round two of a swift drop.

  • martin schnell April 26, 2013, 3:05 am

    I think the key question on gold is … is it really there?

    If all the talk about manipulation, naked shorting, borrowing central bank gold and selling it on is untrue, then gold goes lower.

    But … we are seeing interesting things that give me pause. Central banks from Venezuela to Germany wanting physical possession. Steadily declining GLD holdings, steadily declining Crimex holdings, steadily increasing China and other CB holdings.

    Gold is an interesting item. We really don’t know who has it and who has how much. And it, in theory at least, is easy to artificially add to supply (let us say that I buy a gold certificate from my bank. Even if I am charged a custodian fee I have no way of ensuring that the bank actually bought and holds gold against this paper. – So who knows how much real, gold there is against all the claims)

    If this has been a artificially inflated supply game then the cracks we are seeing (with folks taking possession) now may be a forewarning that a big move is coming as a scramble develops for physical. Not saying that it will, but there are interesting hints floating about. Time will tell I guess.

  • Rich April 26, 2013, 2:52 am

    Nice gold trades Rick.
    Having just seen NEM’s building in Elko,
    can assure they are still in business and hiring,
    even if the point and figure target flipped from 80 to 30 and Big4 are still short gold.
    I don’t know about the GDXJ’s of the world, currently hungry for capital, hurt by rising costs and floating product, targeting 5, despite Sprott buying direct.
    More to the point, as JJ noted, physical gold and silver American Eagles sell at record 4% and 21% premiums to spot, with the Bingham/Kennecott/Rio Tinto UT Copper, gold silver mine landslide removing a good portion of the world supply, so COMEX and other bullion exchanges are defaulting delivery, settling in cash rather than precious, which could be good for new highs in both if bonds soar and equities melt down.
    In the Thirties, bonds and gold moved up together, leading Curt Carlson to form the Gold Bond Stamp Company in 1938, the start of his $15 B private companies employing 190,000, now headed by his daughter Marilyn.
    In other minor matters, bought XLF May 17 puts in size for entertainment value, the Aprils having crapped

    &&&&&&

    My friend Doug Behnfield, a T-Bond bull for the last thirty years, sees the long bond falliing below 2%. Specs and commercials are massively short, he notes, and every talking head interviewed on Bloomberg, MSNBC and Fox hates them. More on this later in the week via a guest commentary from Doug
    . RA

    • John Jay April 26, 2013, 4:37 am

      Rich,
      If the Gold/Silver futures market in Hong Kong can make physical deliveries happen when the US market can not, then perhaps real price discovery is on the horizon.
      Some people actually need to take physical delivery because they actually produce something, and don’t just shuffle paper.
      The United States markets may just become a parimutuel type betting sideshow with no relationship to real world supply and demand determined prices for commodities.

  • Buster April 25, 2013, 7:03 pm

    Me neither, Rick, unfortunately. But I’m pretty certain that most traders could lose a fortune even going with the trend whilst you’d probably make a fortune trading against it!

  • Buster April 25, 2013, 9:32 am

    I wrote last year about three possible big moves, which were:

    1/ The reversal of the Yen from a multi decade Elliotwave 5
    2/ The bottoming in the price of US natural gas after the fracking boom in production
    3/ Basel 3 accord allowing Gold to be used as a bank asset

    The Yen is now the biggest reversing currency play in the world, US natural gas is up almost 100% but Gold failed to break out & formed a bull trap instead. Two out of three aint bad, & now I wouldn’t be buying Gold or silver for a while maybe.

    I now believe that we are possibly in a deflationary cycle for the hard down phase of this global bust which is an inevitability of the debt based monetary system. The banksters have bailed members of their little club out, the real economy is starved of money, & now a continued deflation would leverage the advantage of those with the money due to lower prices of assets. As a consequence i would stay in cash, short something or downsize or go down market & pocket the difference. As short candidates I would probably choose West Texas oil.

    http://www.kitco.com/ind/Tablish/2013-04-23-Weekend-Report-The-Surprising-Case-For-Deflation-Now.html

  • brutlstrudl April 25, 2013, 7:39 am

    As the deflationary spiral picks up speed, Gold will hold its own as the world deflates around it. Have some cash on hand to protect it.

    • Cam Fitzgerald April 26, 2013, 11:15 am

      Yes, Cash. Do it now.

  • Oregon April 25, 2013, 6:47 am

    Seems to me gold gets a rebound for at least a couple weeks if for no other reason than the dollar needs a breather. Maybe we hit 1500-1525 before we get the “sell in May and go away”. I still think gold goes sub 1200 before we really head north.

    .02 if you care.

    • Cam Fitzgerald April 25, 2013, 8:07 am

      Agree, Oregon. 1200 gold is on my radar too. Perhaps a bit lower. I do not think this correction has played itself out yet and the hype surrounding physical buying of coins does not allay my conclusion. There is not in fact a shortage of gold as the bugs would have us believe, only a temporary shortage of some coin issues that the market can see right through. I think Rick has a very good point about signals of economic weakness bringing on a big response from the various Central Banks and the Fed. It has always been my contention that if inflation was urgently desired it could be manufactured on short notice. Just a matter of putting cash directly into the hands of those most likely to drive consumption while pushing rates to absolutely zero. However it might be contrived, whether through forgiveness of some student loan debt, increases in welfare rates and more extensions on unemployment benefits there are still tools to compell a fresh outburst of demand while driving savings to new lows and thus stimulating some consumption. Needless to say, a serious policy response to deflationary winds would indeed boost the fortunes of gold. Presumably, as growth globally is flattening we might anticipate intervention to continue and even accelerate amongst all the major economies. Japan is on a two year time-line and so we might conclude that the rest of the worlds major CB’s will be prepared to devalue in lockstep for at least that long.

    • Rick Ackerman April 25, 2013, 3:44 pm

      I don’t have a crystal ball, nor do I pretend to know how an unprecedented global monetary blowout will eventually react with a deflating, quadrillion dollar derivatives edifice. Our buying in gold is simply opportunistic, and the goal is to make money at it even when we are dead wrong. This time around, if gold should collapse from this morning’s 1454.80 high, subscribers would still be able to come out of the trade with a profit of $1400 or more per contract. To that end, I’ve advised a stop-loss at 1443.60 for a position whose cost basis has been reduced by partial profit-taking to 1427.30. A new rally target of 1507.20 currently obtains.

  • John Jay April 25, 2013, 4:26 am

    It is very amusing to watch someone, very likely the Fed, play “Whack A Mole” with the precious metals and crude oil market.
    Every nations Treasury Department seems to be “Sold Out” or close to it in their Gold and Silver coin offerings.
    Traders attempting to take delivery on futures contracts for PMs are told, “No way man, cash settlement only!”
    TPTB could possibly send Gold as low as they want, at least in the paper markets.
    But it only seems to increase demand for physical, and the gap between the paper price and the physical price only makes the Fed or whoever look foolish to China, India and the rest of the East.
    CL had a nice rebound today as well.
    House prices are bubbling away here in California.
    So all is well Ben.
    At least on paper anyway.

    • Bed Rock April 26, 2013, 4:17 am

      You can add feeder cattle to you short list. And just like the metals markets, the local cattle auctions didn’t move with the paper contracts either.

  • gary leibowitz April 25, 2013, 3:13 am

    I would also have to agree with Rick on the assumption of deflation putting pressure on commodities. Since the drop in Gold coincided with a bunch of other commodities it seems logical to assume it had nothing to do with the one metal. Deflation will also prop up the dollar, which will create headwinds for Gold to rise.

    As for equities, I am pretty darn sure we don’t go into a full fledged bear market for months yet. The move is not impulsive, no euphoric actions seen, skepticism is still there, and most importantly quarterly earnings did not disappoint. I still see the current equity move as unfinished correction. I now expect a stair step move that can take a few days to barely break the SPX high. If that does occur than we should see a final move down to perhaps 1525 or so.

  • Troll April 25, 2013, 1:50 am

    Chuck has been wrong a few times, but take a look at the Gold Bugs Index from its absolute low in 2000 to its absolute high and do a Fibonacci retracement. It comes in at 265.76 at the 0.618 retrace.

    Then we can do an HP pattern A = 638.76 C = 529.80 and D comes in at 263.78.

    Both were surpassed slightly, but, how often have we seen that happen?

    I think you, Rick, will admit, there is much work to be done for the Gold Bugs to present pivoteers with a technical AB bullish reversal leg on larger charts, but every reversal starts with a tick chart, doesn’t it?

    • Rick Ackerman April 25, 2013, 7:32 am

      With a 1451.40 rally target [recently revised to 1507.20] in June Gold, subscribers were advised to get long Wednesday night using ‘camouflage’ tactics on the 5-minute chart. The trade worked as described, and with partial profit-taking factored in, I am tracking for their further guidance a single contract with an effective cost basis of 1427.


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