An Exclusive Report for GoldSeek.com
Ka-boom!
About a week ago gold was in the $715 range and then last week ka-boom! It feels like several months ago doesn’t it? Well, after that mark of $715 was hit, we received our long awaited correction closing at a low of around $654 last Friday. That was about a 9% drop and was the largest single day drop since March of 1983. I’ve been sitting back waiting for the dust to settle. This morning, Monday May 22, 2006, we hit a low of $636 US and have now bounced off that figure and are up $20 to about $656.
On a short term basis, no one really knows what is going to happen so we have to rely more on long term trends. All the rest is noise, and believe it or not, this recent correction was noise—a big Ka-boom to be sure, but just a loud noise.
However, the impact on the underlying sentiment was severe indeed. Anxious investors became frightened because they have been reviewing point and figure charts and saw that something had to give. The view was one of a commodity moving almost straight up for several months. Most folks realize that nothing goes straight up forever and so when it finally corrected, it was a bit of a doosey. However, it is still noise in the overall scheme of things.
Above you have two different charts of Gold. Both views tell me that we have considerable room for “variables” before we panic. We have a long way to go before we even touch our 50 day moving average.
If you’re not on margin, and if you’re not in the derivatives market, look past this current consolidation. That’s what I’m calling it, a healthy consolidation.
Geopolitical Considerations
I know full well that we are in a long term bull market in the precious metals and that fundamentally nothing has changed—at least not on the surface. Beneath the radar of the international geo-political infrastructure, lies a “virtual environment of ethereal whispers”. It is a setting to which few mortals are allowed access—contained within a mind-set that still fewer comprehend. Fewer still accept its very existence. Within this virtual nether land, moral corrosion and political deterioration continues on unabated. This is the dark side that is kept hidden from all but the most powerful. Gold, precious metals, and to some degree hard assets have always been the antithesis of the inhabitants of this setting. Why is this? It’s because “they” cannot really control “them” over time. In the short term, perhaps—but as we all know, nothing can stand in the way of the primary trend once it has been established. Gold and silver are in primary up trends.
We are in a fertile environment where gold and precious metals will take hold and continue to grow in popularity. The furor of the masses will also grow when they ultimately discover and comprehend how they’ve been hoodwinked once again. Currently, the tired and burdened masses are extremely weary of the enormous debt loads they are carrying. Combine this with a feeling of total impotence within the system and it is easy to see why so many are disenfranchised.
America can move in one of two directions. We can do nothing except to try and get through another day or we can learn (at any age) how to become free men and women once again. Knowledge is the path. Education is the answer. You are the catalyst. KEY as in we hold the key.
Putin of Russia is endeavoring to expand the middle class of his country because he understands that a strong middle class will give him a stronger country. He will have a stronger “tax base” from which to rely upon. China is opening its doors to free enterprise and is encouraging its citizens to buy and hold gold. Russia is also trying to strengthen the Ruble by backing it with larger and larger amounts of gold. India, Asia, Australasia, and many other parts of the world understand the value of gold. More importantly they understand the value of gold in the hands of its citizens.
What is wrong with this picture? Even though many of these countries have fiat currencies backed only by promises of IOU (nothing) and cannot be held up as “poster children” or examples for sound monetary policy, they are taking steps to reinvent themselves by encouraging the ownership of gold in their respective countries. The United States is not doing this. On the contrary, it would appear that the US is petrified of anything competing with the dollar; especially gold, and the resistance to it has been intense for quite some time. Raising interest rates is not the answer because the Federal Reserve is between a rock and a hard place. Raise the interest rates and you risk throwing the US economy into a tail spin. If you don’t raise interest rates, then how will the dollar be competitive in the currency markets? It truly is a Catch 22 because if you “lose” the economy all bets are off.
A country with the world’s only reserve currency cannot literally create trillions of dollars out of thin air and have those dollars retain their value. An excess of any widget means they become less valuable. The dollar is a widget. There are too many of them They are becoming less valuable.
Repaying debt in diminished and compromised dollars is a two edged sword. It is “good” for the debtor but very hard on those trying to save for a rainy day. It becomes an extremely difficult choice for countries lending us money to continue throwing good money after bad. After all, someone or some entity has to purchase the US debt. It is counter intuitive for a country to debase its currency and when this process is occurring, you know there is a reason. That reason is usually not beneficial to the citizens of that country. You cannot fool all the people all the time. The friends of gold and silver understand this.
I ask you if this fragmented condition in North America is not in the best interests of the international powers that be. The multinational corporations, the oil companies, the governments, the power brokers, the arms dealers, the drug interests—both legal and illegal, all have a stake in keeping chains on the populace at large. A populace that is held in chains, both real and virtual, “owing their souls to the company store” have little energy left to fight the injustices of the world. And it would appear from all indications that these perpetually perpetrated injustices of the world are increasing in number and are being swept under the carpet at an alarming rate. Gold knows this. You can’t fool gold because it’s been around for 5000 years and it knows every trick in the book and a few that this generation has yet to invent.
You’ve often heard it said that gold is no one else’s liability. The same can be said for silver and currently silver has benefits over gold in some arenas and in some particular applications. In this financial environment you don’t want to be holding someone else’s liabilities. You want to be free. As a free man or woman you can think much more clearly.
In the World of the Blind, the One Eyed Man is King
In this dangerous and unpredictable world we live in, knowledge is key. “In the world of the blind, the one eyed man is king”. This is a favorite axiom of a friend of mine. Take a little time to prepare yourselves. With consistent practice a habit can be instituted in thirty days. There are habits that we all need to initiate. Good habits, learning habits, reading habits, ability to think habits, all translate into financial success. And gentle reader, gold and silver are financial habits that we need to learn and learn quickly. All financial roads point to gold and hard assets.
And while you’re at it, scrub your karma with a few good deeds, eat your veggies, exercise, and be nice to children, animals, and ladies!
The younger you are, the less you are likely to understand what really happened in 1980. What is occurring in 2006 is in many ways an extended manifestation of what began in 1980, which in turn revolved around what occurred in 1971 which is tied to 1913 and subsequently to 1929. There are threads that go back a hundred years and we are soon to learn that history will repeat itself. I ask only that you try and be prepared. As for the dates, they are really not so esoteric and most of you realize what they represent.
Let me just say that 1913 was the year that The Federal Reserve was created. It was and still is the most profoundly destructive force ever to hit the United States. The Federal Reserve is not “Federal” in any way—it is not part of the US government and to this day 99% of the people of this country do not understand its true significance or how it was created. Might I urge you all to pick up a copy of The Creature from Jekyll Island by G. Edward Griffin. Amazon carries it as does your local book store. If you simply skim through it you will understand why this was such a monumental date in this country’s history. If you read it carefully, you will see the handwriting on the wall.
I know it is incredibly difficult to change because inertia is a difficult beast to overcome. But 30 minutes a day can be found in your schedule and good habits will set you ahead of the pack. Good habits will set you free. Good financial habits will make your wealthy.
Informational Avenues
What I’d like to do once again, is to offer you ear plugs. Simple little ole ear plugs will assist you in filtering out that aforementioned noise. Along with those ear plugs you’ll receive a full set of body armor. Such a deal!
I believe that if you are reading Goldseek.com and the articles contained within, you are probably up to speed on gold and silver and you don’t need me to add anything to the equation. What I’ve suggested over the past several years is that you read guys like Bill Buckler (www.the-privateer.com) Richard Russell (www.dowtheoryletters.com), Bill Murphy (www.lemetropolecafe.com) along with Jim Sinclair (www.jsmineset.com) and several others such as James Turk Founder & Chairman of GoldMoney.com and Julian Phillips.
Speaking of Julian Phillips, I’d like to mention that he and Peter Spina write a letter called Global Watch, The Gold Forecaster. It is excellent to say the least as they offer up a mix of everything from big picture components all the way down to specific stock recommendations. I believe they are currently offering a special introductory rate which can be found at www.goldforecaster.com. Julian really adds an international flavor to the mix and Peter has become a very good technician over the years.
I should also mention that I think very highly of Jay Taylor and his commentaries. I know for a fact that he works hard at what he does, as do they all. Jay Taylor publishes J. Taylor’s Gold & Technology Stocks Newsletter (www.miningstocks.com or call Claudio in New York at 1.718.457.1426) and it includes a weekly “telephone” commentary that is difficult to beat. Of course there are many more excellent commentators such as the Aden Sisters and Peter Brimelow. Take your pick or pick them all.
The reason I like this particular mix of minds is that they cover the financial-geopolitical bases from many different angles. This results in offering us a much broader perspective than any one individual.
The US populace is currently under attack via weapons of mass distraction. That distraction is causing this country to lose its moral and financial compass. That distraction is allowing the political establishment to make decisions on behalf of the country that are not in the best interests of its citizens. If you love the principals upon which America was founded, you will take pen to paper and write your Congressional representatives expressing your concerns. A hand written note is all it takes. They are also much more influential than an Email message.
One final tip and I’ll move on from this line of thought. Chris Mullen of Gold Seeker, offers a daily and a weekly wrap up of the precious metals markets on www.Goldseek.com. If you aren’t following Chris’s commentary, you are missing out on a great service and you certainly can’t beat the price. Goldseek offers many ways to prosper from this young bull market in gold, precious metals, and the surging commodities markets. Do stay tuned.
You put all of these people and their services together along with your own particular favorites and you’ve got a leg up on 99.5% of the North American Population. I tell you this because often times you can search for years for “the keys” in these hard money markets. Hopefully, I’ll save you a bit of time and steer you in a positive direction. Right now, we don’t have a lot of time to waste.
The reason I have gone to the trouble of posting the information above is so when the next down turn occurs, perhaps you’ll see it coming and know the reasons why. Remember, “in the land of the blind, the one eyed man is king”.
Where are We Now?
So after this extended preface, I’ll offer some comfort if possible, as I know many of you are wondering if this bull market is real. You’ve seen some of your “juniors” take a bath over the past several weeks and of course last week in particular. However, and this is important; many if not most of these junior mining stocks are down in price because of a lack of “bids”. There is no intense volume on the down side. Prices drop in this type of environment because no one wants to step up to the plate and buy. Fear reigns and therefore, volume is light and prices fall. My sensing is that prices will head up rather quickly once people realize that the golden sky is not falling. I should also hasten to add that most people are sitting tight. You can discern this important piece of information by reviewing the overall volumes being traded. Again, they are light so that tells me that “everyone” is not dumping their shares.
So where are we now? It is my opinion that we are simply in a relatively short term correction in Gold. I’d suggest short term being from four weeks to two months. I think we might hold at $600 to $625 US and create a floor in that vicinity. I don’t believe we’re going much below $600 and I’d be surprised to see that scenario unfold. The demand for physical is too great and again, no there is still no political will present to address the real problems of the day. It is still smoke and mirrors combined with spin combined with weapons of mass distraction.
We are currently early in the second stage of this three perhaps four stage bull market in gold. It is going to be an epic battle and the enemies of gold and real money are going to throw everything and the kitchen sink at it in order to try and contain its advance. After all, their entire way of life is at stake here. Change does not come easily when big money, big government, big corporations are challenged.
I would add one caveat. If there is a substantial correction in the major indices such as the Dow, the Naz, the S&P, then there just might be a rush for liquidity. This will most certainly exert a downward pressure on gold and gold stocks for the short term. However, once the dust settles, there will also be a rush for financial instruments that have timeless value. Gold, Silver and other hard assets will fill this void and do so rather rapidly. So there might be a lag between gold stocks and the metal itself, but eventually any gold or company that is well run and which has a real gold or silver component will do well over the long term. If we do have a severe market correction, tenaciously hold on to your physical metals as they will appreciate in value even under those dire circumstances.
Now may I add one caveat to the caveat? We must realize that there is so much liquidity currently in the system that a full fledged stock market crash is unlikely. It is certainly possible over the next year or so, but unlikely given the current circumstances.
Where are we Going?
Where are we going? We are on our way to $850 and then on to $1,000 and then on to $1650 according to Jim Sinclair. But I think Jim is being conservative. I believe we will be going post $2500 an ounce on the blow-off stage of this cycle when all is said and done. If that’s the case, fasten your seat belts. I would suggest that when in doubt you return to basics, the basics being the physical metal. Do not store it in your safety deposit box!
However, $1000 gold is not going to happen tomorrow. Timing in this resource sector is very difficult because of all the cross currents in these markets. Not the least of which we have “da big boyz” trying to protect the dollar, tell the world that the US economy is humming along, and that debts and deficits don’t matter. But we know better and we know that gold is a barometer. The barometer has begun working again and that is not a good thing for the PTB.
So whereas Humpty Dummy (sic) cannot be put back together again, the gold barometer has overcome some real obstacles and is once again functioning. This is a good thing.
This bull market is real, and it is going significantly higher based upon a multitude of factors both fundamental and technical. My advice would be to hold on for dear life. We are in a simple correction that may last anywhere from one week to several months. When it is over, our next target will be in the $850 US vicinity, and if you are “out” for some reason, I’d counsel getting back “in” as this is a terrific buying opportunity.
Gold has been over $700 and relatively soon it will return to those levels. The age of volatility has begun so it is best to become accustomed to it or you’ll be whipsawed to pieces. These are the times when you have to determine within your own mind – Deal or No Deal? Are we in or are we out? In the common vernacular, are we bulls or bears?
Conclusion
It is now Tuesday morning, May 23, 2006 and the gold market appears to be a bit more positive. We’ve had a bit of a consolidation which is healthy.
Arm yourself with ear plugs and a coat of armor. The KEY is the key. Knowledge, Education and You should not be mutually exclusive categories.
Be ready for the next consolidation by reading articles from people who have been there, done that and who have your best interests at heart. Keep your eye on the primary trend, filter out the noise, and “stay the course”.
If you own physical, and have the means, the current environment is an opportunity to add to your holdings. Most small investors have some stock and some physical metal; now is not the time to let go of either of these if at all possible.
If you’re new to the precious metals markets, now is an excellent time to step up to the plate. If you’re not comfortable with stocks in general, then by all means purchase the physical metals themselves. Purchase American Eagle one ounce gold coins. Purchase one ounce Silver Eagles. I’m told that the bags ($1000 face value) of pre-1964 silver coins are selling at “melt value” or less. One ounce silver Eagles might be prettier but you’ll pay anywhere from $1.75 to $2.00 over the spot price. (For newcomers to these markets, “Spot” is the actual underlying value of the metal itself.) Consider also that the new silver dollars have a full one ounce of silver and the old Morgan Silver dollars have about ¾ of an ounce of silver.
Most of the reputable “guidance crowd” have told you time and again—not to be on margin. Unless you are a true professional, stay away from derivatives of all types. Futures and options are not for neophytes.
So, are we long term oriented or short term oriented? Do we listen to the noise of the maddening crowd? Do we follow the next guru down the path to “Quik Riches—otherwise known as “Quack Riches”? Do we follow our own counsel after performing our own due diligence or do we blindly follow the next hot tip never considering a long term strategy? You have the answers at your disposal and now you know where to find the rest of the story.
Remember that volatility will become more prevalent so be prepared for wild swings. But the next time we go on a roller coaster ride, you are going to be prepared because you have found the KEY.
Richard Russell is fond of saying, find the primary trend, get in front of it, and hold on until the primary trend ends. Can it really be that simple? Yes, in a word, it is. However, the devil is in the details and details require discipline.
Until Next Time,
D. Stewart Armstrong
Posted by D.Stewart Armstrong in Articles