Over the past year and a half, I have written many articles on investing in gold and silver, and been one of the few who have told clients continually to dollar cost average into a position during this time-frame, hoping the price goes lower so they get an overall better price. I have been one of the few gold dealers who have been dollar bullish at the same time, because of my understanding that the dollar simply represents the currencies I was more negative on, primarily the Euro and the Yen. I have written that investing in gold is not a “get rich quick” path to prosperity, but rather a “tortoise vs. hare” approach where gold plays the part of the tortoise and ever increasing debt the part of the hare.
Today’s price action is exactly what I have predicted would occur, where Market Makers like to push prices down below previous lows, squeezing out those on leverage or those who bought for a trade recently, especially hedge fund managers who don’t really have a good track record when only 13% beat the S&P index for most of last year.
Ironically, unlike the beat down that GLD, SLV and other precious metal ETF’s have taken Friday, when speaking with one of my suppliers of the physical metals that morning, they told me everyone was buying and no one was selling.
Below are some of the articles I have written since September of 2011, explaining to precious metals investors what I see going on and how to play the market, with the important thoughts highlighted. I then conclude with my current thoughts on today’s first smack down by the Market Makers which has pushed gold down over $50 and silver over $1.50 as of the time of this writing.
In 2008, gold and silver prices peaked in March. They proceeded to fall while the dollar rose in price until September. It is best to take the tortoise approach to investing in precious metals than the hare.
The Monopoly game has been around since 1934. Ironically, the game of Monopoly came out at a time when the year before multiple banks had already failed and President Franklin Delano Roosevelt had declared a nationwide bank holiday to keep people from withdrawing their cash from the banks and hoarding it. How convenient was it then for the banking elite to have a game come out that people could enjoy with the following rule; ” The Bank never “goes broke.””
Yes, that’s right…if you read the Monopoly game rules, it says the following;
“The Bank never “goes broke.” If the Bank runs out of money, the Banker may issue as much more as may be needed by writing on any ordinary paper.”
The current pullback in price for gold and silver is offering you the perfect opportunity right now to “buy low.” No, there is no gold bubble but you’ll hear more and more rhetoric against gold as the prices continue to pull back as the dollar continues its rise (thank you Europe). Dollar cost averaging into a position is the best way to play this current pullback. You actually buy some now, and hope the price pulls back further so you can get an overall better price.The Fed, banks and Congress will, unfortunately for many, who are not prepared, see to the future appreciation of the price of gold and silver as they continually prescribe the wrong medicine to the economy.
The reason I continue to use the tortoise vs. the hare analogy with gold and silver is I don’t want people to think of gold and silver as much as a “get rich quick” investment, but rather, insurance against the United States unsustainable economic future. For me, it’s simple math. Perception though is another term I use often. People still perceive that U.S. Treasuries are strong and of course safe.
Just heard CNBC say that Goldman Sachs is reiterating their call for gold through 2012. Personally, I don’t trust anything Goldman Sachs says. They are a holding bank and a puppet of the Federal Reserve. The same goes for J.P. Morgan. Why exactly are they both holding banks? Why have they involved themselves heavily into the gold and silver markets? Again…stay tuned… Reference spot price of gold right now $1,780.90 and silver $34.28 with the U.S. dollar index sitting at 77.53.
While one can give Goldman Sachs the benefit of the doubt about holding through 2012, I found their timing rather odd to announce this “reiteration” of their point of view at a time when the dollar was moving higher because of the mess in Europe. Anytime I hear things that don’t make sense like this, I immediately think market manipulation. My brain is trained to hear the opposite. In this case, I was right. Gold is down $180 from that point in time and silver fell 24% since that call hitting a low of around $28.90 this week. Meanwhile, the Dollar Index has continued to climb past the 80 mark. They didn’t see this coming?
1/11/2012 2012 Predictions For Gold, Silver, Stock Market, Economy and Elections
I have been saying that while the U.S. dollar gains strength, primarily against the Euro, it could have some pressure on gold and silver. The dollar index is now past 81 and moving towards the 88, 89 levels while the Euro moves down to its lows of around 117,118. I do see these levels reached in 2012.
But there will come a point in time where gold and silver will bottom out and the dollar should continue to rise. This will break a near 40 year pattern that has the dollar and gold reacting inverse of each other. When do I think this will occur? I believe we get one more push down in gold and silver. This will catch all those who recently bought off guard, especially those on leverage. It will challenge them to keep their investment during the downturn and have second thoughts as to why they bought gold or silver to begin with. The financial media will say “the gold bubble has popped” like they tried to do last year and the year before. They will of course be wrong.
How many times do you hear someone who sells gold and silver be dollar bullish? Probably not very often. But when you look at what the Dollar Index represents, a basket of other currencies, it’s quite easy to be dollar bullish right now. This doesn’t mean that the dollar is any stronger as far as its purchasing power mind you. It just means that it will be stronger versus the main currencies that it competes against; the Euro and the Yen, which make up 71.2% of the Dollar Index. It is the Euro and the Yen that are in deeper trouble than the dollar itself, at least over the short term. The dollar will have its day, but maybe not in the manner that many think it will.
The Yen, which makes up 13.6% of the dollar, has had its glory days in the past as well. While I have been premature in my call for the fall of the Yen, at 230% debt to GDP ratio, the highest in the civilized world, the Yen’s glory days are numbered.
As you can see from the chart (click on link above to see charts from article) of the Euro above, the Euro has been in a downward trend since July of 2008, reaching a low of 119 in June of 2010, about the time of the European (fake) bank stress tests, and after heading up to 1.48 is now in a downward trend again because of all the issues that Greece, Portugal, Italy etc. are having. This fall in the Euro of course has been dollar bullish as seen in the chart below. Why? Because the Euro makes up 57.6% of the dollar.
What Does the Future Fall of the Euro and Yen Mean?
What does the future fall of the Euro and the Yen Mean? It means, as mentioned before, that 71.2% of the Dollar Index is declining and thus, by default, the Dollar will rise. While gold and silver are still needed as insurance against future banking failures here in America, I believe the domino’s will start falling in the Eurozone and Japan first. People can talk inflation and deflation all they want, but if the banks implode, real money is what’s needed, and that’s why I call gold and silver insurance.
I have been in the deflation camp all along during this credit contraction. The quantitative easing is just keeping the game going a little longer, but is not stimulating any real growth (See Japan), just temporary pockets of success, usually in the government related sectors (military industrial complex, green technology, infrastructure). These can hardly be called a success when they are funded by debt to begin with. Yes, inflation will come.
Gold is still in its second and longest phase. The professionals will still try and buck you off the gold and silver bull. The dips will come. Holders of physical gold and silver care not that it falls 20% or so on its way to appreciating 100% or more.
Any pullbacks are the perfect opportunity to acquire more gold and silver. Most people will wait for the price to move higher. They will buy when gold is over $2,000 an ounce rather than buy when the financial media is saying the party’s over. The smart investor naturally knows that buying low and selling higher is the way to go. The time for dollar cost averaging into a position is now.
Right now we are the tortoise vs. the hare scenario where the tortoise, gold, will win the race. My speculation is the tortoise might wait till 2013 to pull ahead in the race, but because of the banking issues everywhere, dollar cost averaging into a position is the best investing practice I can recommend right now.
I feel I have developed an intuition as to what’s occurring in the economy and with the Fed based on the enormous amount of reading I am doing. I am one of the few who speak of the banks in detail and I don’t need to write an article every day and talk about gold and silver and the markets (I would write more, but am knee deep in writing my next book, and what I do write is still words one can act upon – without all the day to day manipulation/dollar crashing hoopla from the gold community).
I get a kick out of reading the headlines over at Kitco.com and seeing how in one minute gold and silver are up “because of dollar weakness” in one headline, and then a few hours later read, “gold and silver down on selling pressure, Euro problems.” They can pick a reason out of a hat and make a title out of it based on whether gold is up or down!
I feel we will be somewhat status quo with gold and silver for the time being, and I think we need to look for that one burst down for the final opportunity to catch the bottom. My advice is still to dollar cost average into a position and this will give you a better overall price.
Part of the Fed’s reasoning for doing QE1, QE2, QE3 and Operation Twists is to bring down interest rates and hope the economy responds to it. But the Fed can’t force the consumer to spend. He can’t force Baby Boomers to buy another house when they have kids in college and their own mortgage to pay or are approaching or even in retirement and just are looking to conserve their wealth. Sorry, it isn’t going to happen.
Sure, there can be some temporary benefits, like a higher stock market or a bounce in real estate prices, but not enough to get the banks to mark to market their assets, that’s for sure.
11/15/2012 Turning Paper Into Gold Part 2
Everyone knows we have massive debt and future obligations here in the U.S. While the U.S. Debt to GDP ratio is hovering around 100%, we are still in better shape than Europe and Japan which is why I am dollar bullish. This could still have some ramifications for investors in gold moving forward as the Dollar and Gold have historically traded opposite of each other.
Smart investors will dollar cost average into a precious metals position and just sit tight. Further dips could come. Market Makers love to move markets they can control. Large banks that trade the precious metals market, like J.P. Morgan Chase, can wreak havoc on how gold and silver should be acting.
I fully expect over the next few months the Market Makers to test and break the 200 day moving averages lower on both gold and silver. I have written about expecting it and have seen it 100 times on various other assets/stocks. When you have an asset like gold or silver that big money can easy manipulate as J.P. Morgan and others who are increasingly playing the precious metals derivatives market have done (not talking about the alleged J.P. Morgan short here), then why not try and shake the late comers to gold and silver out? Why not make them scream UNCLE? That’s what they do!
When we do get such action, it should happen and be over with quickly. What to look for is the candle stick tail down on the charts.
End of Past Articles
Today’s Advice on Precious Metals
While I have expected this type of smack down for precious metals, I am not yet ready to write my all-in article. I did write before the last Presidential election that one should go all-in because it doesn’t matter who gets elected, the debt issues would still be the same whether welfare or warfare, both of which are out of control from both a left or right perspective (I am neither). Just because the stock market and real estate market are propped up from the liquidity produced by the Fed in trying to stimulate the economy, doesn’t mean the underlying data supports any long term growth. Unemployment is still high. Year-over-year growth in bank-wide real estate credit has turned down again. Europe and their banks are still a mess. Japan is a mess. The UK is a mess. The Dollar Index is still above 82. The dollar is still perceived to be king of the lousy bunch.
Starting with Friday’s price action we will see some bigger swings up and down in gold. Friday was the first leg down. It may have another leg down soon, before a bigger rally and an eventual fall of maybe even $100 in the price of gold in one day. This type of move would signify the bottom for me. Let’s see if there is a dead cat bounce or not first. As I mentioned in the beginning of the article, Dollar Cost Averaging into your position makes the most sense still. We are getting closer and closer to that final buy signal and I will write an article at that point in time with my thoughts.
I quoted Ludwig von Mises in my book, Buy Gold and Silver Safely who described how the current economic cycle we are experiencing might end. He said;
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
We have seen Japan as a prime example of government interference into the markets and while it is effective for a period of time, eventually the consequences of such increase in debt come to home to roost as they are today. That’s why gold priced in Yen is at record highs.
Many prefer to take control of their wealth through buying and taking delivery of the physical metals. The crack up still has a ways to go with the Fed interference through its various quantitative easing programs in their attempts to keep interest rates low and reduce unemployment, and the gold and silver boom will be just around the corner.
Doug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534
Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don’t trade with capital you can’t afford to lose. This is neither a solicitation nor an offer to Purchase/Sell futures or options. No representation is being made that any account will or is likely to achieve gains or losses similar to those discussed in this outlook. The past track record of any trading system or methodology is not necessarily indicative of future results.
All trades, patterns, charts, systems, etc. discussed in this outlook and the product materials are for illustrative purposes only and not to be construed as specific advisory recommendations. All ideas and material presented are entirely those of the author.