Capitulation in Gold
Gold topped in September of 2011. After almost four years of grinding lower the capitulation phase kicked into high gear last week with the worst performance for gold in 19 years. Gold dropped for a near record 12 days in a row in an 8% plunge in the two-week period. The bloodletting may have stopped on Friday as gold sank as low as $1077.90 before closing $22 higher. That's exactly what bottoms look like but the beaten up resource investors will no doubt wait until gold is hundreds of dollars higher before dipping their toes in the water. The last time this extreme took place, the XAU rose 38% in the next two months.
According to the books Nathan Rothschild said in 1810 to "buy on the cannons, sell on the trumpets." The phrase has parsed into "buy when there is the blood in the streets." Well, last week there was a lot of blood in the street.
How logical or rational was the selling?
Take a gander at Minco Silver. The company has a giant silver project in China. But it's China and there is the China discount. Minco Silver at the last count had $1.14 in cash per share. On Friday last you could buy Minco Silver at $.465 or Minco at $.41 for a dollar bill in cash. That's not capitulation, that's simply insane. Minco is worth more than that unless Monday is going to bring the 2nd coming of Christ or invasion by mean and nasty aliens.
I've got a couple of clowns who write me every time we have a new low and castigate me for not telling them to sell their shares, not withstanding that in 14 years I have never told people to sell shares. There is one and only one reason to buy and that's because you want to profit. There are hundreds of reasons to sell. You have to determine when to sell; only you understand your financial situation.
I go to projects, I write about the ones I like. If you want to profit, you have to buy when things are cheap and sell when they are dear. If you are waiting for some Guru to tell you when to sell, you may as well put your money in a bank where it is really safe.
I actually appreciate the clowns writing me, they always do it right at bottoms. They are a better contrarian indicator than Gata.
Speaking of Gata, they have done billions of dollars of damage to investors. Somehow they convinced tens of thousands of people that when gold went from $252 to $1923 that it was being suppressed and like the gold derivatives time bomb, gold was going to explode one day soon. If someone was manipulating gold from $252 to $1923, it wasn't down. Actually if you bought lumber or soybeans and they made the same percentage move as gold did from 1999 to 2011 and you didn't sell, it's because you are too stupid to recognize the difference between an investment and a religion.
On Sunday night a week ago, someone slammed gold when it was at $1130 and dropped it to $1080 in seconds. Billions of dollars that nervous investors had put in stop loss orders on their long positions were wiped out in that time frame. It was deliberate and designed to steal from investors. It is called "running the stops" and every guy who was ever a commodity broker or stockbroker understands what happened. It's perfectly legal. All those guys who claim to believe manipulation is the most important issue in investing should have had buy orders well below the November low in gold because that was really predictable.
They didn't, I doubt if any of the "manipulation-conspiracy" people actually care about making money. Me, I was buying with both hands on Friday. I got gold at $1083. Maybe it will go lower. But with Greece, Puerto Rico, the Chinese Stock market blowing sky high and the US stock market rolling over for the last year, I'm ok with gold at $1083.
Gold shares have been on the block for the last six months. If you were smart enough to buy them, you will be just fine. Sure, some are going to disappear but while the "manipulation-conspiracy" people are whining about how terrible it is for a financial product to be manipulated, you are going to own a lot of 10-20 baggers from here.
Hint! All financial markets are manipulated. Live with it.
If you want to profit, buy on the cannons, sell on the trumpets. I hear cannons.