Is the Gold Bull Really Dead?
By Greg Hunter’s USAWatchdog.com
Economist Dennis Gartman announced in his newsletter, yesterday, that he has sold all of his gold. I don’t know if it was physical or paper gold in an ETF (exchange traded fund), but it is gone. According to Bloomberg, Gartman said, “Since the early autumn here in the Northern Hemisphere gold has failed to make a new high. . . . 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.” Mr. Gartman thinks so much damage has been done to the price of gold and to market psychology that, in his words, “. . . wholesale liquidation, and perhaps forced liquidation, shall be the outcome.” (Click here to read the complete Bloomberg story featuring Mr. Gartman’s call on Au.)
I think Mr. Gartman is a trader at heart, but there is a big difference between a gold trader and a gold investor. Traders are usually looking at the short term, and in the short term, Gartman is probably correct. The price of gold will probably sell off some more before this move is through, but the gold bull is hardly finished. I say this because of two main reasons. Unprecedented global debt is reason number one. More debt has been created than ever before in human history. Global over-the-counter derivatives total more than $700 trillion according to the Bank of International Settlements (BIS). (This is more than a $100 trillion increase from the BIS number from December 2010.) This is a staggering amount of debt that is more than 10 times the entire world GDP. You cannot “grow” your way out of this kind of leverage. This is a mostly unregulated dark pool of debt bets with no rules, guarantees or public market. Dr. Marc Faber of the popular GloomBoomDoom.com recently predicted one day the entire derivatives market will, “. . . cease to exist and become zero.” Farber thinks that “global collapse” is coming and “most people will be lucky to still have 50% of their wealth in 5 years’ time.” That is one big reason to hold physical assets like gold. (Click here for more from Dr. Marc Faber.) Gold should be looked at as insurance. Selling your physical gold now would be like driving your car or living in your home without an insurance policy.
When it comes to Europe and the bank solvency crisis, the euro could disappear, but, then again, don’t think the money printing is over—it’s not. Dr. Stephen Leeb of Leeb Capital Management said in a recent interview, “So the Germans are really flirting with the same kind of situation that occurred in the 1930s. If Europe continues to sink and the Germans don’t relent on this stuff, we are going to head for a real deflationary depression. My big picture is that Merkel and the Germans will allow the printing of money, and once that happens, just as it happened in 2008, once you get a sign, that’s blastoff time for gold. Gold and silver will shoot up like rockets. In my opinion, gold will close 2012 at $2,500 or above, probably above. Gold could easily double from here in the next 12 months if you get the kind of money printing that I expect to happen in Europe.” (Click here for more from Stephen Leeb.)
For those of you who think America is in much better shape, there is the new report from economist John Williams of Shadowstats.com. Williams thinks the economy is not getting better, it’s getting worse despite what the Fed said this week. He goes on to say, “Accordingly, the ongoing outlook for retail sales and the broad economy remains one of deteriorating bottom-bouncing—a second dip that eventually will be recognized formally—not a near-term economic recovery of any form. An unexpectedly weak economy has a wide range of negative implications, including for state, local and federal budget projections; for funding needs of the U.S. Treasury; and for banking system solvency.” (Click here to go to the Shadowstats.com home page.) Do you really think the U.S. government will let the economy sink in an election year? I don’t. More money will be printed one way or another. Renowned gold trader Jim Sinclair of JSMineset.com contends stimulation is continuing at the Fed. Yesterday, he said, “A Fed which has just made major swaps available to the ECB and today promised to keep rates near zero until at least mid-2013 also said they are not doing anything to further stimulate the economy. That is total double talk.” (Click here to go to the JSMineset.com home page.)
Let’s not forget the war wild card. Countries such as Syria, China, Russia and Israel are all making news on a possible war in the Middle East. The U.S. just lost an expensive spy drone to the Iranians, and President Obama has asked for it back. Just yesterday, there was a rumor of the Iranians closing down the Strait of Hormuz. That proved to be false, but there are reports that Iranians are thinking about taking that action in time of war. Reuters reported earlier this week, “A member of the Iranian parliament’s National Security Committee said on Monday that the military was set to practise its ability to close the Gulf to shipping at the narrow Strait of Hormuz, the most important oil transit channel in the world, but there was no official confirmation. The legislator, Parviz Sarvari, told the student news agency ISNA: “Soon we will hold a military manoeuvre on how to close the Strait of Hormuz. If the world wants to make the region insecure, we will make the world insecure.” (Click here for more on the Reuters story.)
What do you suppose would happen to most of that $700 trillion in derivative contracts if a major war broke out? Do you think they would all settle without a hitch, or cause a global collapse? What do you think spiking oil prices would do to the global economy? Do you think we would all just muddle along paying $7 or $8 a gallon for gasoline or would there be a worldwide crash in the economy? If you are a trader, then, by all means, listen to Dennis Gartman. Short term, he may be correct. If you are buying gold for protection and insurance against calamity, then this price pull back is nothing more than an opportunity to buy more insurance. How much protection you need and can afford is entirely up to you. I think the wildcards are so extreme that it’s foolish to be without insurance. I hear a bull snorting in the distance.
To all those who are concerned that gold prices haven’t continued to run up quickly; here is a little ditty I was told as a teenager from an uncle.
Two bulls stood on a hill overlooking a herd of cows. The young bull said to the older, “hey let’s run over there and mount that cow”. To which the old bull replied, ” why don’t we walk there and mount them all”.
Patience preserves and perseveres..
I am in full agreement with everything you’ve stated, but I rarely read about how one can expect to reconvert gold into cash for daily use once it becomes very expensive. At that point the economy will be in dire straits, coin dealers will not have the funds, nor desire, to cash everyone out. People will need what cash they have to survive, so who will buy your gold? Stores are not set up for gold transactions – you can’t use coins to buy gas, food, pay your bills, etc. The theory of gold insurance is correct but I’m not sure it will work in the real world. What am I missing?
I like calling gold trade not money. You walk up to the dude and say, you want some gold for that there pig. The old trade would say how much coin you got.
GOLD is the Currency of Kings.
Silver is the Currency of Gentlemen.
Barter is the Currency of Commoners.
DEBT is the Currency of Slaves.
The Golden Rule; he who has gold, rules.
Are you ready to take charge and rule?
Are you ready to Set the Price instead
of asking for the price set by others?
You are assuming that everyone will follow that belief system. What do you see happening to belief systems around the world?
Good point, Mr. Garcia. The total amount of gold in the world, per capita, amounts only to a little dust. There would have to be paper analogs for gold — just like in the old days of the (mostly hated) gold standard. Gold may, or may not, prove to be a good “investment” going forward, but in any event, it is wrong to consider that it can ever be “money” in the sense of currency. Currency should be intrinsically worthless and non-collectible: gold is neither. … The reason Progressives hated the gold standard, back in pre-Fed days, was its negative effect on farmers and small businessmen. A finite money supply, which is what gold was, makes prices fall as population increases (more people sharing a fixed number of dollars); this is the exact opposite of what most folks would want their “money” to do. Gold impoverishes.
Precisely. But high prices will put more USD in my pocket since lots of people seem to believe in tieing wealth up in currency (Gold as money). At this point, the already rich people hold most of the Gold. If they sold it off the Gold price would crash- we have 165,000 tonnes above ground atm and are currently consuming about 1,000 tonnes annually with 88% as jewelery and bars. So much effort goes into this stuff and it does nothing but sit around for the most part.
I think Gold has great value, just not as money. It is a very important trace in many technologies. The problem is that rich people made a good play for the wrong reason over the last couple 1,000 years (it sucks they are being rewarded for it but it nevertheless isn’t unreasonable). They had no idea that it would be important in communication devices, space infrastructure, computers, and nearly anything with a chip in it. They definitely did not have benign interests in their plays since most of them were looking for dominion.
My sentiments also lie along the lines you’ve written about. Gartman is not only a trader but not the most successful at that. I know few on the internet that listen to him.
On the other side of the equation, I try to be cognizent of my reading actions and whether I’m looking for and enjoying articles with your theme only………..! Hopefully you are right.
“Dennis The Menace” Gartman is the SINGLE BEST Contrary Indicator in the gold world, bar none. If “Menace” has sold – or CLAIMS he has – the bottom is either in or is nigh; and buying can be done with near-certainty of a positive outcome.
Wow, silver is almost down to half the price it was just seven months ago. I think it may finally be time for me to take possession of some “junk” silver coins…
maybe gold is like a sweat potato, over price so you buy a Russet. peace
Thank you for an excellent article, Greg. Sounds like Gartman prefers dollars to gold; enough said! He’s always late to the party, anyway. This temporary tumble in gold (and corresponding rise in the US $$) was predicted by many, as the initial reaction to stress in the financial world (wrongly) tends to favor the dollar. When the dust settles and the world suddenly realizes the Emperor (the US) has no clothes (more so than the Europeans), the US dollar will tumble with the rest of the paper currencies and gold will soar.
We here in the States do not have an open-ended license to print money ad infinitum no matter what you read, hear or see in the mainstream media. The US is flat broke and the US dollar (unfortunately) is the ultimate house of cards waiting to topple…
Greg, you are making, pardon the pun, a fundamental error. 🙂
Gartman’s analyst is giving a technical argument – gold has started making lower highs and lower lows. This is an indication of a beginning of a downtrend. It, by itself, it not a sufficient technical indication that a major top is in place, so I don’t know why he is reaching such a conclusion – but, then, I haven’t read his analysis; maybe he has additional technical arguments.
You, however, are countering his position by making fundamental arguments. Debt, derivatives, war, blah, blah, blah. Trust me, this is wrong. There is always some kind of fundamental argument supporting some position in the market – and another fundamental argument, supporting the opposite position. The best thing to do is ignore the fundamentals completely and concentrate on the technical picture.
That said, as a technician, I disagree that the bull market in gold is over. Gold just broke down from a symmetrical triangle or started a wave C down (the second and last leg down) of its correction from the top, depending on how you look at it. This implies a downside target of, at worst, 1415-1450 – which happens to be smack in the middle of strong support area. (There are, of course, much more bullish scenarios but I’m trying to be a pessimist here.) I see no technical reason to believe that gold will fall lower than that. Only if gold breaks this support decisively, I will re-evaluate my position.
BTW, one cannot “invest” in gold. Gold is money; it is not an investment. And investment is capital – i.e., money put to work in something that is likely to bring some kind of return in the future. Gold can’t do that. Gold’s price going up is illusory. Its value is constant. It is the buying power of paper money that is going down – not the value of gold going up. Gold is simply a very safe way of saving (which is not investment!) – safer than paper money, because it is less subject to inflation.
(Inflation in gold is not non-existent! It is about 1.5-2% annually, due to the increased supply from mines, plus the storage and insurance costs. But that’s nothing compared to the speed at which paper money loses value due to increased supply.)
If you want to really invest in gold, buy the stocks of gold mining companies. That’s a real investment and your expected return is proportional to the profits they will make from the difference between gold mining costs and its sales price.
Well said, and true.
I and others agree that there is very strong technical support
in the 1420 area BUT consensus does not grant veracity.
For worst case, consider the two previous gold price cliff dives
in 2006 and 2008. In each case, the bottom was 70% of the top.
A repetition of that magnitude fall would give a gold price of
around 1330. That is when Gartman will publically write that
“I was right” while buying gold like crazy in secret, imo.
Shoot the Golden Bull! cry is screaming out from wall Street and the commodities markets because they know how much phony gold paper contracts are soon due. I believe this is one reason why MF went down. The money which was stolen represents many gold futures positions which were coming due. MF could not cover it because the gold did not exist. So they had a pre-emptive strike on the futures coming due which shifted the argument from the “illegal taking of the money VS the gold was never there and the contracts were just another piece of phony financial paper!
Perhaps of all the newsletter guru’s out there, Mr. Dennis Gartman’s forecast is the best to be taken as a contrarian play.
You can set your stopwatch to these sentiment shifts. It takes 30 days or less, of either choppy or downward trending prices for all of the ‘King Dollar’ types to hatch, and their subsequent swarm of Gold bearishness and ‘end of the bull’ stories to overwhelm common sense and steady action regarding the PM sector.
Pay them no mind. Economically, we are where we’re at for a reason. Chiefly, Western governments refuse to reign in Debt, and their societies are ill prepared all the same, for what a major market clearing event would bring in the way of personal hardship.
In simple terms: This isn’t the 1930’s and we don’t have the same crop of hearty souls as we did back then, broadly speaking. That means, for the life of the political establishment, government will do what is necessary to preserve (materially/outwardly), the Status Quo.
in addition; the CME dropped their oil futures margins becaus ethey are in a liquidity crisis trying to cover all of the phony gold and silver paper with physical delivery. This reduction in margin requirements will push oil higher leading to another commodity bubble
I could not agree with you more.
This is an opportunity to get more insurance.
“Veritas ante omnia” (truth above all).
Keep up the good work.
Gartman -fartman .Anybody who follows him is very foolish .He is the best contrarian indicator about.Changes like the wind one day bullish next bearish .I think the only reason he is on tv so much is for amusement not for any rational analysis.Can’t beleive anyboby actually pays for his letter.
‘Keep on Trukin’, Greg….You relentlessly pour out the daily news not to be seen/heard on MSM….MSM i’m sure today is hammering out the ‘Is it too late to sell?’ scenario on the world that is golden….as someone once said, you always hear on MSM about times to ‘buy’ and times to ‘hold’ when it comes to equities, but the only time one hears a ‘sell’ signal on MSM is when it comes to gold! Next year sometime when the european situation is chaos with america not far behind and gold is making new highs, pundits on MSM will all be saying ‘everyone saw this coming’ on the gold market with world problems being as they are…..
Well said Greg. Sadly people are throwing away their insurance against a systemic breakdown because of advisors like Gartman.
All major currencies are de facto irreversibly broken by debt. They have to be replaced, one way or another. When they are, I will start thinking about trading my gold and silver for other investments.
Keep getting the truth out.
There are a lot a black swans swimming in the ponds on this earth……all it takes is one…….
I think the big question on a lot of people’s minds (at least mine), is not about the gold/silver price. I have no intention of selling, and no price will be interesting to me until the fiat system has collapsed, in which case PM’s would be used as money.
My big worry is what to do about the stocks. They are performing terribly, and in the event of global economic collapse, what is to prevent dollar denominated assets like the shares from collapsing along with it?
Thanks, Greg, for a well-written and informative article. There are a couple of reflections that I’d like to add to this discussion, if I may.
On the one hand, fundamentals, as you point out, suggest that gold should go higher–and certainly not down the drain as it is doing now. On the other hand, the technical picture is glum, suggesting a continuing retreat. How can you explain this contradiction? The probable cause is manipulation by the 8 or so families who, in turn, control most central banks of the world. It’s in the interest of these families to bring precious metals down, and they probably can. In fact, they can legally print all the money they need to illegally sell all the gold and silver they do not have. They can break the law with impunity, since they have enough money to bribe any willing (the vast majority) politician, judge, and regulator on this planet.
So, should you buy precious metals under these conditions, knowing that you are thereby defying the wishes of the real rulers of this planet? This is what is at stake here, and this is what your readers ought to take into account. My gut feeling is that you (Greg) are absolutely correct: Buying precious metals as a short-term investment is too risky for folks of moderate means. But buying them as a long-term investment is an excellent idea. My reasoning: Eventually the dollar must collapse: 1. There is too much debt in the system. 2. The dollar caretakers are absolutely corrupt. 3. They like wars, and wars pose a risk to the dollar. 4. These caretakers’ plan, as far as it can be guessed, is to eventually bring the USA and the dollar down. Moreover, they are now playing a game of financial repression, and precious metals offer the best option of escaping this game, hence their ongoing war on gold and silver. So my view is this: Hang on, buy more if you can, and brace yourself for a very rough ride. Eventually, the two most probable outcomes are these: 1. Precious metals escape manipulation, 2. The manipulators themselves change tactics. In either case, precious metals are likely to go up, up, and away.
Greg, how many folks have fell into the traps set by the cartels of bankers who brought us CDS’s, MBS’s, OCD’d & ETF’s? World wide it has spread like bad virus & look how many have lost every thing in these rigged markets! Those who are calling Gold & the other PM’s has hit its high do not underetand what Armstrong, Sinclair & others who look at the long term health of the worlds economic woes that have in no way have been sloved, if any thing they have been made worse by the actions of all those agents of the federal reserve’s cartel of bankers in Europe & in the USA. The banks in the USA who were in bad shape in the 1st blow up are now 100 times worse! HFT trading has took the place of real trading in NY alone. The courts are so corrupt thieves walk free do to as they please even when there is proof of their crimes against the people & the gov, but still are protected, buying off congress pays off & buying off the office of the president pays better!
None of the peole I know who holds physical is selling nor have changed the way they feel now about gold or sliver as the best insurance policy for the future we will all face very soon, this is a gift if you look at the true facts the gov always fails to tell you!There is blood in the streets & you know what that means! BUY if you can!
Nice article, Greg.
Also, if people are so worried about volatility, they need just look at some YTD numbers.
Dow: ~ +2%
S&P: ~ -3.5%
NASDAQ: ~ -4.25%
GOLD: ~ +13%
This will be white noise in the end. As Jim Sinclair says, the volatility will increase going forward. Best to turn off the TV, close the browser monitoring the price, and ‘be right, and sit tight!’
Nice to know that we have no need for the Congress in this administration. Let the tyranny begin. Please watch
Greg, a lot of good comments above, not much more to add … except a few comments.
Today from Market Watch:
….”Gold’s decline early in the session sent the contract below a 200-day moving average of around $1,619 an ounce, its first break below this level since January 2009. The drop deepened from there, pushing the contract below $1,600.
A break below that average usually marks the start of a bear market, said Jon Nadler, senior metals analyst at Kitco Metals Inc. North America. “….
Mr. Nadler IMO seems to always be a “bear”, not much fun reading him, so I pass. But, it is important to note. Tomorrow will tell the tale though if there are enough “bulls” to ride the price up. One day does not make a market.
I am sure hoping the price goes up, I am all for a Bull Market! I have been buying gold for a few years now, ah … made one big mistake I will not forget. Bought some gold just as it double topped around $1900. Of course lesson learned, lesson is to wait, as a few people have commented above. (Why is that so hard to learn?)
SO, YES I AM ALL IN FOR A BULL MARKET … GO BULL GO!!
a lot of good comments above and just one thing to say about today :
Gold is now below 1600$ !
Saw such a comment on another board:
They told me that I’ve lost a lot of money yesterday, because the gold price fell. When I got home, I counted my ounces of gold and there were still the same number of them, so I guess I didn’t lose anything.
BOA recently talked to their buddy Ben Bernanke and asked him to do them a little favour.
Bank of America has mountains of debt and it also had 17 trillion dollars worth of risky derivatives on their books. Ben being their buddy and all went ahead and did what BOA wanted.
The Federal Reserve very recently placed this 17 trillion worth of derivatives owned by Bank of America into the F.D.I.C. and thus onto the backs of American taxpayers. The F.D.I.C. is an insurance policy against bank runs or bank defaults for depositors. By placing this toxic junk into F.D.I.C. B.O.A can improve its bottom line.
The Fed head Bernanke simply gave B.O.A. a nice big gift.
Now Americans are the proud owners of 17 trillion dollars worth of risky derivatives. If these default tax payers are on the hook for it.
That is just one reason to own some gold or silver.
Greg, all of your readers should go to http://www.kingworldnews.com & hear what Jim Sinclair has to say about the big price drop in PM’s. I would also read over at http://www.goldseek.com what Jim Willie CB has put into print today dec,15,2011. Americans are being robbed blind by the Power Elite in broad day light with all those are supposed to police the markets do nothing but talk in circles while the truth is being painted over so the public thinks all will be fine. Well all is not fine, the EU is a total FUBAR, just like the U.S. & the MENA Nations where the pressures are building toward war breaking out all over the place. The MSM said U.S. troops are leaving Iraq, but not that many will be returning to the U.S. as the MSM reports, many out side sources reports NATO & U.S.forces are staging on the boarders of Syria. With all these events going on & no one in the MSM reporting it to the public, those who think Gold is no longer insurance are being lead to the house of ruin.The Fed is doing QE at full speed ahead while telling the public lie after lies. I trust the two Jim’s take on what is really going on a world wide stage than a government who has been telling lies to the public for over a 100 years. Also Armstrong answers a question from a person who is concerned where to put his money now that MF Global has made the U.S. no longer a safe place for any one to hold/invest any assets!
Does anyone remember that 3 weeks ago, even the MSM was reporting that gold would be $2000 by the end of the year? Who was behind that and who is making money now, or covering for huge purchases? I think it is like a Tsunami and the tide is going far out before the big wave hits. It looks to me like the TBTF banks are loading up before the fiat failure. “He who has the gold makes the rules”
If there is one thing Gartman is consistant in it is in being on the loosing end of every gold trade he has ever made. Paper market gold and silver prices are declining because the Fed’s dollar swaps have run their course and the European banks are once again running out of US dollars. Faced with with lack of liquidity they have few choices left but to cash out their gold leases and sell what remaining gold they have to raise cash, hence the market price drops.
None of this has any effect on growing inflation or central bank money printing. The can is reaching the cliff’s edge at the end of the road and as is falls off gold and silver prices will rise expotentially.
Gartman is a CNBC $lut/[email protected]/pro$titute—–he is a liar, a criminal, and a crook like most of the other thugs the CNBS, Bloomberg, and Fox Business criminal channels parade out to get the country to send their money to crime central—NEW YORK. The fact is the New York/Chicago crime syndicate along with their propaganda ministers in the media use people like Gartman as a means to fleece mainstream Amerika of their money, plain and simple.
People like Gartman should be hung, not listened to!
As to Mr. Gartman gold theory of gold busting its simply TECHNICAL TRADING. Look, you can’t take a technical trader and made him or her into anything else. Technical traders live & breath double tops and bottoms, etc. always denying the reality situation on the ground. Somewhat reminds me of the wars we have been waging, we are always winning “technically” but the reality on the ground and the govern- ments in place at the end are 180 degrees in opposition. Anyone can look at a graph and read into anything into it much like, the ink blot test in psychology 101, highly irrational. The only slight impact the “techs” have on the market is if enough “techs” see a new bottom they are herd animals and will sell making the stock drop a point or two, otherwise, its a bunch of phooey. Greg, your thought about a difference between a trader and a investor is well taken, large difference.
Greg, your wildcard comments are so valid, Iran is challenging the western world and its only time till Iran makes a wrong move because of seeing some guy come up out of a thousand year old well. Believe me Iran’s leadership are not that smart and their mouths will get them in the end. Sooner or later, probably sooner, Iran will make a false move such as get caught supplying nuclear parts to some terrorists organization and that will be their undoing. If Iran causes oil prices to spike then the west has nothing to lose but to go ahead and bomb their little well ghost back into its well.