By Jeff Clark, Senior Precious Metals Analyst
Bear markets always end. Has this one?
Evidence is mounting that the bottom for gold may be in. While there's still risk, there's a new air of bullishness in the industry, something we haven't seen in over two years.
An ever-growing number of industry insiders and investment analysts believe the downturn has come to a close. If that's true, it has immediate and critical implications for investors.
Doug Casey told me last week: "In my lifetime, the best time to have bought gold was 1971, at $35; it ran to over $800 by 1980. In 2001, gold was $250: in real terms even cheaper than in 1971. It ran to over $1,900 in 2011.
"It's now at $1,250. Not as cheap, in real terms, as in 1971 or 2001, but the world's financial and economic state is far more shaky.
"Gold is, once again, not just a prudent holding, but an excellent, high-potential, low-risk speculation. And gold stocks are about to create a whole new class of millionaires."
Just a couple of months ago, you would have had a hard time finding even one analyst saying something positive about gold and gold stocks—even some of the most bullish investment pros had gone silent.
But that's changing. Case in point: When Chief Metals & Mining Strategist Louis James and I attended last week's Resource Investment Conference in Vancouver, we witnessed quite a few very optimistic speakers.
Take Frank Giustra, for example, a self-made billionaire and philanthropist who made his fortune both in the mining sector and the entertainment industry. He's the founder of Lionsgate Entertainment, which is responsible for blockbuster movies like The Hunger Games, but he was just as heavily involved with mining blockbusters such as Iamgold, Wheaton River Minerals, Silver Wheaton, and others.
More Upturn AdvocatesHere's a quick scan of the growing number of voices that think the decline is over, some of which are outright bullish: "The worst is over with gold. It's time to call your broker." —Frank Holmes, US Global Investors "Sentiment is as black as night on gold, so I’m actually long on some gold miners." "We'll see a gradual recovering throughout the year, because all the negative factors are already in the price." —Eugen Weinberg, head of commodities research at Commerzbank "Looking ahead, the downside risks seem to be diminishing, and overall we feel that the big shocks we've seen over the last two or three years are done..." —Marc Elliott, Investec "The mainstream narrative on gold is changing, indicating a possible bottom." —Bron Suchecki, Perth Mint "Orthodox investments are working on a cyclical peak, as precious metals are working on a cyclical bottom. The big pattern could be fully reversed by February-March, with gold becoming one of the best-performing sectors through the rest of 2014. The advice is to seriously reduce exposure in stocks and bonds and get fully invested in the precious metals sector. This should be completed in the first quarter." —Bob Hoye, Institutional Advisors |
"I'm telling you, you've seen the bottom of the gold market," he told the rapt audience at the conference, offering a bet to the Goldman Sachs analyst who claimed gold is going to $1,000.
The stakes: Whoever loses has to stand on a popular street in downtown Vancouver dressed in women's underwear.
Tom McClellan, editor of the McClellan Market Report, stated in a recent interview on CNBC: "The commercial traders are at their most bullish stance since the 2001 low, and they usually get proven right. It's a hugely bullish condition for gold, and I'm expecting a really large rebound.
"The moment we see a major gold producer announce that it's curtailing production or it's going out of business," McClellan continued, "that'll be the moment we mark the low in gold. I expect to have one of those announcements any minute. We're getting down to the production price of gold right now, and they won't continue producing gold at that level for very long."
Are they just guessing? To answer that, first consider the historical context of this bear market—it's getting very long in the tooth:
- The current correction in gold stocks is the fourth longest since 1879. The decline of 66% ranks in the top 10 of recorded history.
- In silver, only two corrections have lasted longer—the ones that ended in 1936 and 1983.
Some technical analysts have pointed to positive chart formations, most notably the powerful "double bottom" that can portend a strong upward move. Based on intraday prices…
- Gold formed a double bottom last year, hitting $1,180.64 on June 28 and $1,182.60 on December 31, a convincing six-month span.
- Silver formed a higher low: $18.20 on June 28 vs. $18.72 on December 31, a bullish development.
- Gold stocks (XAU) formed a slightly lower low: $82.29 on June 26 vs. $79.73 December 19, 2103, a difference of 3.2%. However, as our friend Dominick Graziano, who successfully helped us earn doubles on three GLD puts last year, recently pointed out…
- The TSX Venture Index, where most junior mining stocks trade, has stayed above its June low. In fact, it recently soared above both the 50-day and 40-week moving averages for the first time since 2011.
Meanwhile, Goldcorp (GG) sent a huge bullish signal to the market earlier this month. It decided to pounce on the opportunities available right now, launching a takeover bid of Osisko Mining for $2.6 billion. The company wouldn't be buying now if it thought gold was headed to $1,000.
As Dennis Gartman, editor and publisher of The Gartman Letter, says, "It's time to be quietly bullish."
The smart money, like resource billionaire Rick Rule, is not just quietly bullish, though—they are actively buying top-quality junior mining stocks at bargain-basement prices to make a killing when prices rise.
To make sure that you can invest right alongside them, we decided to host a sequel to our 2013 Downturn Millionaires event, titled Upturn Millionaires—How to Play the Turning Tides in the Precious Metals Market.
Back then, we made a strong case for this once-in-a-generation opportunity—but it was still undetermined when the bottom would be in. It looks like that time is now very near, and we believe it's time to act.
On Wednesday, February 5, at 2 p.m. EST, resource legends Frank Giustra, Doug Casey, Rick Rule, and Ross Beaty, investment gurus John Mauldin and Porter Stansberry, and Casey Research resource experts Louis James and Marin Katusa will present the evidence and discuss the possibilities for life-changing gains for investors with the cash and courage to grab this bull by the horns.
How do we know the absolute bottom is in? I'll answer that with a quote from a recent Mineweb interview with mining giant Rob McEwen, former chairman and CEO of Goldcorp:
"I'd say we're either at or extremely close to the bottom, and as an investor I'm not prepared to wait to see if the bottom's there because it's very hard to pick it. Because … if you're not taking advantage of it right now, you're going to miss a big part of the move. And when you look at the distance these stocks have to travel to get to their old highs, there's some wonderful numbers in terms of performance that I think we're going to see."
Granted, these voices are still in the minority—but that's what makes this opportunity wonderfully contrarian. After all, once "Buy gold stocks" is investor consensus, we'll be approaching the time to sell.
Our Upturn Millionaires experts believe that our patience is about to be rewarded. And when that happens, gold stocks will be easy doubles—and the best juniors potential ten-baggers.
Don't miss the free Upturn Millionaires video event—register here to save your seat. (Even if you don't have time to watch the premiere, register anyway to receive a video recording of the event.)
Its favourable to look at the usa dollar,euro and many other world currencies--MAYBE YE CAN SEE THAT GOLD I S THE BEST ,NEVER MIND YE'RE SPECULATING.PRESERVE WHAT YE HAVE.GOD HELP YE..PADDY
1. My sentiments are with Sparrows on this one.
2. Do not believe these spruikers. They really have no more of an idea of what is going to happen to the Gold price than you do.
When they are wrong, which is quite often now, they come up with the same litany of excuses. If the price does not go the way they guessed, one of the favourite excuses is that the market is "manipulated". If it does go the way they predicted in the short term it is never manipulated though.
3. According to the Casey Research site, the author is.........
"While working as a psychological counselor, Jeff invested in the IPO of Snapple, made a bundle, and discovered how very profitable speculating can be. Investing in precious metals and mining became the most natural thing in the world for him.
Making money in the precious metals industry — both for himself and his subscribers — is what drives Jeff. "
4. Another of the Gold advocates are some of the people at Sprott Asset Management. (There are many others ). I have been reading their comments predicting the future Gold price all year and according to them it is still a great time to buy. But for anyone wanting to sell you something it is usually a good time to buy. So how good an investment has Gold been? Well, for example if you look up performance of one of the Sprott managed funds this is what they have published on their web site Feb 02 2014:
PERFORMANCE net of all Fees
Sprott Gold Bullion Fund: minus 23.9 (1 year %) minus 4.4 (3 year %) plus 1.2 (% annualised since inception - March 2009)
Look it up yourself.
Speaks for itself I believe. Investors believing all the hype that has been tossed at them from all quarters have not done well in that example.
In an article on Usawatchdog.com DEC 22 2013, Mr Eric Sprott is quoted:
"As far as gold is concerned, Sprott charges central banks have little gold left, saying, “The gold’s not there, and ultimately . . . somebody will fail to deliver here. . . . What happens to the bond markets and stock markets when you have to admit that it’s been a fraud the whole time?” Sprott says that the price of gold and silver will both hit new highs in 2014. Sprott predicts, “The price of gold goes north of $2,000, and silver will quickly go over $50, and when it does, it will get a little crazy.”
So there you go. You cannot go wrong with gold apparently.
5. When Gold hit $1800- 1900 range for the first time we were all told by the same advocates that the Gold was going to go over $2000 per ounce and various numbers exceeding 2000 were thrown around. In fact well before Gold hit 1800 we were told it was going to go above 2000 imminently. We were told to buy. Well it did not get to 2000 as we all know.
When Gold fell to around the 1600 mark after falling from its highs we were all told by many of these Gold experts that it was a great buying opportunity and it could only go higher from there and you were a fool if you did not buy.
Then when gold fell to around the 1400 mark we were all told again what a great buying opportunity it was by most of the same people. (They forgot they told you to buy around 1600. But this time really is your last chance.)
With gold now floundering below 1300, most of them are at it again. "Gold can only increase from here so you had better buy to get in on the ground floor or miss out because it has now bottomed."
Maybe and maybe not.
Reality. They do not really know. It's a guess as it was previously.
Many of the past predictions of these people have been totally laughable but few bother to look back at what these same people were saying 2-3 years ago, 1 year ago or even 6 months ago.
6. I feel sorry for all of the investors that relied on the investment advice of the Gold advocates when gold sat at more elevated prices than now because, inter alia, many of these advocates said they were precious metals "experts" and knew where the price was going. Now these investors are sitting on big losses and they have been continually encouraged by many not to sell (as they have seen their investments decline) for the same old tired reasons.
7. For many of the Gold advoocates it always a good time to buy. Rarely will they advise you to sell - if ever.
8. Personally I like to investigate the background of authors of articles offering bullish investment advice. In relation to Gold I have frequently found that they are associated with an organisation which sells gold or gold related products or some other product they want to sell you or they have large personal gold holdings themselves. Those selling gold products as part of their business are not going to advise you to sell nor are others who have a personal vested interest or other business interest in seeing the gold price increase.
9. As for buying Gold on the hope it will increase? " Hope" was never a sound investment strategy.
10. For every bullish list of arguments for a higher gold price , there is a case that can be made for an alternative scenario. At the end of the day markets run on the demands, expectations, whims and emotions of buyers and sellers, not on pure logic and certainly not on the predictions of all the specialist analysts out there.
And no. I was NOT a sucker buyer now or previously sitting on losses from gold investments.
If somehow it should be possible that no metals pundits should ever be allowed to make claims of a "final low" after having already made 10 previous calls in a row all failing, wouldn't it be nice. Then to have a public egg throwing to their faces, with a hearty laugh A big caution flag for metals is the numbers of guys like this who are throwing out numbers like $2,000. The same guys that have been so incredibly wrong showing absolutely no humility, is quite often not a good sign. Especially ones that say "the bull market is not over" utterly failing to even acknowledge the reality of a brutal bear market.
Claiming 'we're all going to be millionaires!" is not comforting in the least from a sentiment perspective, it's too bad that more ilke Gartman etc. have not been totally wiped out or at least have a lot more fear showing as in capitulation. For that would be much more indicative of a final low.
Not one of these guys bother to use oversold/overbought indicators from the 90's, because they have failed to recognize that this too is and has been a bear market, and using bull market parameters has led to nothing but deeper losses.
There is never a time to be out of metals if you listen to most of the pundits who have an agenda, and that of course is to sell subscriptions. Don't get me wrong, I like the metals, just despise beyond measure the pom pom prognosticators that are always full of excuses and prey on the hopes of people to gain their subscription business. Bottom line, no one can be trusted to handle and advise your finances more than the person looking in the mirror.
This is a death knell: As Dennis Gartman, editor and publisher of The Gartman Letter, says, "It's time to be quietly bullish."
Excellent points, Sparrow. In my opinion, the best way to 'own' metals is sock them away in your safety deposit box or safe at home and just leave them alone. There is nothing in this trade that I see as viable as the trend is not completely over (on the downside, that is.) The wager isn't terribly big in my opinion, either - "The stakes: Whoever loses has to stand on a popular street in downtown Vancouver dressed in women's underwear." I'd be more impressed if they put real money behind this bet.
A perpetual goldbug: "The smart money, like resource billionaire Rick Rule, is not just quietly bullish, though—they are actively buying top-quality junior mining stocks at bargain-basement prices to make a killing when prices rise."
When investors are enticed to make millions, I am immediately suspect. So, I will gladly watch how this plays out as a trader, not a long-term investor. Best of luck to those and their get-rich-quick schemes. I'll just trade what I see.
What is this about again? Ah, gold again? Yawn!
PS: may you'll get luckier with biotech, if I may suggest an uptrending sector....
I see people are still stuck in the paper is king mindset. Get physical, take delivery and forget about options. You're only fattening the bad boys by playing their game. But yes, I know, nobody on this site or any other EVER loses a trade. It is always the OTHER people who are losing trades. Funny you can never find those folks...
Dear Mr. Goldman and Mr. Sachs - please short gold some more; I love getting in a those lows,
but without your help it just costs me too much. Any help you can offer is really appreciated.
I've sold my gold for now ... holding on to the silver.
Dennis,is it not better to buy and take possession of the physical gold,than messing with call options on GG,ESPECIALLY IF YOU ARE 67 YEARS OLD.AND BEING WORKING CLASS ALL YOUR LIFE.
Absolutely, my roommate has been doing that for years. Buy low, sell high, but always keep some. My call options are for March, quite a good bit of time.
Took profits on GG calls on Friday. It is time to reassess.
I LIVE IN IRELAND,BUT I HAVE WORKED AS A GOLD MINER IN 3 DIFFERENT PARTS OF THE WORLD.DO NOT INVEST IN A GOLD MINE,THAT IS NOT PRODUCING A VERY HIGH GRADE OF ORE.FORGET ABOUT ALL THE OTHER REASONS THAT SO CALLED GOLD GURU'S ARE TALKING ABOUT.GOD BLESS YE.PADDY.
I hope you are correct. However, so far the break out has not been confirmed, in fact, it is looking a bit like a false break out although what matters is how gold closes. I assume the trade triangles are green?
Dennis,
I always like when you weigh in.
How you seeing things right now?
How you allocated, hedged, etc.?
Sunday
I have GG calls and just bought USO puts. I see the stock market going lower.
Israel is very nervous about Iran's nuclear program. If they attack you might be better off with USO calls. BTW they need not win for this to be true. I am sitting on the fence about GLD calls. Good luck with your positions.