Hasten slowly and ye shall soon arrive.
We were very bullish on gold starting from 2002 and our bullishness continued until the beginning of 2011.
In 2011, we started to voice concern as the gold camp was chanting “Kumbaya my love," and almost every Tom, Dick and Harry in the gold market were all busy issuing higher targets. Towards the middle of 2011, there were many signs that all was not well.
Key technical indicators were issuing negative divergence signals, the dollar was generating strong signals that a bottom was close at hand, and as we already stated the gold camp was simply too ecstatic for our liking. We advised our clients to close the bulk of their bullion positions and to embrace the dollar as it was getting ready to break out; the rest as they say is history.
From 2011 to the present day, gold experts have continued to proclaim that a bottom is close at hand; on each occasion their dreams failed to materialize. Divorced from reality they continued to grip onto the illusion that just because the Fed was printing more money, gold was destined to soar to new highs. If this were true, then gold should already be trading north of $3,500. Since its inception, its sole function, albeit indirectly while boldly proclaiming to do other good deeds was to destroy the dollar.
The only difference between yesteryear and today is that the Fed has decided to turbo charge the process. What one needs to understand is that gold is very much like any other market out there. This means that like all markets, it needs to let out some steam. As it experienced a very strong run up, it was only natural to anticipate gold that gold like any other market, would eventually experience back breaking correction. During the market sell off, in August, gold performed rather dismally as noted in the following statement.
During the market sell off, gold performed rather dismally and the trend did not strengthen. All this indicates that a bottom might not be fully in place yet.
Market update Sept 1st, 2015
How do things stack up now?
Gold has let out a lot of steam, so the downside risk is rather limited from here. Shorting gold at these levels would be an imprudent decision. The risk to reward ratio is simply not favorable.
Many contrarians, including some Elliot wavers are predicting that gold is ready to mount a stunning turnaround; we do not share the same sentiment. We would like to, but what you want and what you will get are two different things altogether. Embracing the illusory does not mean it’s going to become reality. We do feel that the downside action is limited from here, and if you have not put any money into gold than deploying some now would not be a bad idea if you are a long term investor; at this point, only put money into bullion. If you have a long-term view, then gold is definitely going to be trading a lot higher three years from now.
Consider the money you are putting into gold bullion now as a form of insurance against some possible future event. As the world is in the midst of a massive currency war or what we like to fondly refer to as the “devalue or die era,” it goes without saying that we will experience another currency crisis at some point in the future. Again, there is no point pandering to the naysayers who claim the world is going to end or that we are going to experience a financial catastrophe, the likes of which we have never seen. This same pathetic broken record has been playing for decades and the world is still here.
We agree that another financial type disaster is bound to occur, but we would rather view that as opportunity knocking in disguise, then treat it as a call to flee and hide in a bunker. Disaster is the secret code word for opportunity. The astute understand this and wait for these pristine moments to present themselves. Next time opportunity comes knocking be ready to grab it, instead of slapping it in the face and slamming the door on it. When you take insurance, you do not purchase the insurance because you are sure the house is going to burn down. You purchase it so that you are protected in case it burns down.