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It is a thought that has often crossed my mind since
the horrific double top correction in the price of gold. It could very well be
we have seen the top in the gold price for some time to come and while
statements like this are often controversial among gold investors and those
that are adamant that the price of gold and silver for that matter is nothing
but manipulated, the reality is that gold has been on a massive 11 year tear
and that we have seen the final move that has now started a decline that
could take gold back down to $1,300 level if not lower.
Say what you want about Dennis Gartman, but he may
be right when looking at today’s Bloomberg piece. Death of Gold Bull Market Seen by
Gartman. At the very least it would be
extremely foolish not to consider the other side of the argument as presented
by Gartman.
Gold, in the 11th year
of its longest winning streak in at least nine decades, is poised to enter a
bear market, according to Dennis Gartman, who correctly predicted the slump
in commodities in 2008.
The metal, which traded
at $1,666.30 an ounce at 2:43 p.m. in London, may decline to as low as
$1,475, the economist wrote today in his Suffolk, Virginia-based Gartman
Letter. He sold the last of his gold yesterday. Bullion has already dropped
13 percent from the record $1,921.15 reached Sept. 6 and $1,475 would extend
that to more than 20 percent, the common definition of a bear market.
“Since the early
autumn here in the Northern Hemisphere gold has failed to make a new
high,” Gartman wrote. “Each high has been progressively lower
than the previous high, and now we’ve confirmation that the new interim
low is lower than the previous low. We have the beginnings of a real bear
market, and the death of a bull.”
The metal typically
moves inversely to the dollar, which today reached a two-month high against
the euro after Fitch Ratings and Moody’s Investors Service said
yesterday that a European Union summit last week offered little help in
ending the region’s debt crisis. Bullion is still 17 percent higher
this year and holdings in gold-backed exchange-traded products are at a
record, a hoard now valued at $126.5 billion.
“So much damage
has been done to the psychology of the market in the past week and so many
late longs have been caught off guard that we think wholesale liquidation,
and perhaps forced liquidation, shall be the outcome,” Gartman wrote.
When assessing the relative merits of any asset it
is important to consider all views, even if those views don’t
necessarily affirm your own personal beliefs. I have said though since the
double top that I even encouraged readers to short, that we may have seen the
top in gold for a while. If you have noticed, my stance on the precious metal
has been increasingly bearish since the double top in gold and more
importantly, since the second major correction in silver this year back in
October. It was those sentiments that led me to sell my silver bullion,
except for some completed Silver Maple collections that I have built over the
years. The last of my physical sales fetched me $43.50 and so far I am
content in the fact that since that last sale was made, silver has continued
to decline in price. Why I’m content is easy … because I
didn’t lose any money.
Now keep in mind that the end of any bull market in
gold or silver doesn’t mean I’ve gone bearish on exploration
companies. While the price of the underlying metal may decrease, there is
still value in holding out for future discoveries. Investing in junior
exploration companies didn’t come to a stand still when gold was
$300.00 and it won’t if gold were to decline to beneath $1300.00. You
will find it very difficult to argue a case that gold can continue to surge
in today’s climate especially with the world on the brink of a
liquidity crisis and with potential deflationary headwinds. Of course my
views and opinions can change because I am constantly reassessing them in
light of today’s world where economic conditions change so rapidly. For
now however, I really find it hard to argue against Gartman’s position
because quite frankly it has been position that I have been pondering for
quite some time myself.
See my pieces that allude to gold declines here, here,and when I wrote my contrarian views in
early October. Feel free to go back through my gold labeled posts as well.
The bottom line is that investors need to be
prepared and look at the markets without blinders. Nothing beats the feel of
physical silver and gold in your hands but nothing beats the fear and anxiety
in watching the value of that metal decline while you sit back and fail to
take action on the real possibility that we may have seen the top for a long
time to come.
I had a discussion about this with a friend the
other day and he brought up the troubles in Europe. I pointed out to him that
gold and silver weren’t acting like they were taking much of the fear
trade but that instead, it looked like the US dollar was going to benefit the
most. He shot back with the same “Max Keiser-ish” rubbish that I
so despise which in turn made be even stronger in my conviction.
On November 21’st I reiterated my October
views that Gold would see $1600.00 and was mocked with “how did that
turn out?” and received emails calling me nuts. Well today we sit in
front of our terminals and see gold at $1,657 and silver ready to crack
$30.00. Keep your eyes and ears open and never never
disregard the other side of the argument even if you don’t particularly
care for the messenger.
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