Friday, September 23, 2011

The $100 Day in Gold I've Been Waiting For... Almost!

9 August & 23 September 2011

This essay was originally posted August 9, 2011. As we've just had a $100 down day in gold (these go hand in hand with $100 up days), I thought I would repost it, with an addendum (see below)....

I've been saying for years that we were going to start seeing $100 days in the gold market.

I'm old enough to remember when this started occurring in the Dow. It is routine now, but it was a big deal at the time.

Well, here's what's happened so far: On Sunday night, we started the week with gold just over $1660 per ounce. As you've heard me say before, "That's a high price." Well, so is $1500, $1400, $1300, etc.

Except that in only slightly over 24 hours, gold had run as high as $1772.30. Granted, it took 31 hours to achieve this gain of approximately $110. However, gold appreciated at the rate of $3.55 per hour during this 31-hour period.

Jim Sinclair had been telling us to look for a $1764 gold price ($100 up from Sunday evening's start). So, hey, where we are now is pretty close. He'd been writing about $1650 gold for years. But $1764 - we had only five days to digest the transition.

The times they are a changing.

Will we see volatility from here?

For sure. We're going to need more than 5 days to adjust to this surge. Movements of this kind are always associated with increased volatility.

Will Mr. Bernanke announce QE3 today?

I'd be surprised - among other things, each infusion of newly-printed money produces less effect - and we've already witnessed diminishing returns with QE1 and QE2. The bankers get the money, but they're fearful of loaning it, so they increase their reserves, and deposit it with the Fed for a hefty 0.25% annual return - better than loaning it in this dangerous environment!

So Mr. Bernanke may announce an end to the 0.25% rate - to discourage the banks from socking away their Monopoly money....

But watch Jackson Hole later this month!

Will we have more $100 days in gold this decade?

My guess is - several per year - for the next decade. And a few years down the road - get ready for $100, $200 and $300 leaps. It's a process. But that is where we are headed.

This is the gold tsunami.

23 September 2011: Another $100 day in gold. No secret - this time down, from $1747.40 to $1629.50. And let's not forget that we were at $1923.70 on September 6, 2011, a lucky 13 trading days ago (and an almost $300 move - down - in less than 3 weeks)....

LinkIs there any fundamental reason for the pullback? Not that I can tell. Banks are collapsing, currencies are imploding, and senior economic prognosticators are warning of recession. It is certainly in times such as these that gold does best.

The following headline may be significant, however:

CME Group Raises Comex Gold Margins By 21.5%, Silver Margins By 15.6%

Obviously some folks pull out when the cost of entering a particular trade rises. There's no conspiracy, margins have to rise as the price of gold rises. Certainly, if the CME thought that gold were headed back to lower levels, there would have been no need to up their margin requirements in the first place. So at least some of the players who had a hand in gold's fall today are anticipating higher prices in future (as am I).

Let me emphasize that while the "paper trade" in gold and silver is down (no physical delivery is involved in most global trading of the metals), it has again become difficult to obtain physical gold and silver for sale, due to the fact that physical demand for the precious metals explodes with every significant pullback in price. (As precious metals are sentiment indicators, their market prices are very volatile.)

While I pay attention to short-term moves, my primary investment strategy is to discern very long-term (secular) trends. At this point, there is nothing on my multi-decade radar that substantially threatens the rising price of gold. As the years pass, the price of gold will continue to rise. That is how it goes when the fundamentals are "at your back."

In fact, these fierce pullbacks actually create the conditions necessary to gold's rise. The "weak hands" sell. The "strong hands" hold. Those who have been sitting out start wondering if our favourite archaic relic might soon (or now) be trading at a bargain price.

Given our recent 15% pullback, expect gold to trade now (or soon) like a coiled spring.

Let me summarize it like this. If you are a gold investor, any price in this range is "high," whether near $1400 or $1900. You don't have to go far back in time at all to see when gold was priced much lower. And if you're a buyer? Gold at $1658.20 will certainly look economical when it ploughs through the $2000 and $3000 levels (and so on).

In fact, it is starting to seem somewhat absurd to value gold in moribund US dollars (yet another failing currency). Wouldn't it be more reasonable to ask how many ounces of gold a US dollar will buy?

Look at the CDNX index (Canadian small capitalization companies, mostly miners) valued in gold terms - it's flatlining - building a base! And... up a bit today from yesterday, relative to the only currency that wlil still be in existence at the turn of the next century....

May I coin a phrase here?

What comes down must go up!

See you soon, closer to $2000 than to $1500. Then at $3000. Etc. Sooner than you think.

Anything is possible.

This is the gold tsunami.

It comes in waves...

As it did on August 9, 2011 ($100 up) and today ($100 down).

And, as it will again - and again - and again....

Be ready.


  1. I don't know, Brother Laurence ... the 200dma is 1522, and I have a feeling we'll be hitting that level before the inevitable launch to 2k.