The Death of Gold (Market Situation Report’s Transcription)

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The Death of Gold

Whether you are a new holder, or have been holding precious metals for the past ten years, it’s never a trivial thing to go through a clean-out phase or a correction phase; which we are coming out of.

The ‘Financial Times’ ran a story on December 13, 1997, and titled it “The Death of Gold”.

Up to that point, gold had been falling since 1980.  Gold had been dropping for seventeen straight years.  Gold started at about $850 dollars an ounce and, by the time the Financial Times ran their headline story, gold was sitting at $253.

The Financial Times should have titled their story, “The Birth of Gold”.

Let’s look at gold a little differently from how you may have in the past.

But before we do, I want to make one thing very clear.  (And it has nothing to do with gold.)  It has everything to do with investing.

Please write down the following and put it on your wall.

News Follows Price.

If the price of something is falling, guess what?  The news is bad.  However, when the price of something is rising, guess what?  The news is good.

Owning gold is much different than owning Microsoft.  The news on gold for the past 12 years has been all negative.  There hasn’t been a word of good news about gold in the mainstream press since 1980.

Remember, you don’t win by pretending to be something that you are not.  You don’t win by playing the rules that someone else sets.

If you are following the news to figure out which way gold will move, then you are playing by someone else’s rules: rules that are designed to enrich them, and not you.

I often think of the David and Goliath story when David dresses to battle Goliath.  He doesn’t put on the armor, or the chain mail with the big sword.  (Which others before him had done, and died.) 

Instead, he gets in his clothes, he gets comfortable, he gets his slingshot (not a sword), he gets five smooth stones from the creek and he wins.

How did he win?

He played by his own rules.
He recognized his weaknesses.
He recognized his strengths.

The thing is, “Davids” win all the time.  However, they first have to acknowledge their weaknesses and choose not to play by someone else’s rules.

How does this relate?

You are not going to beat high-frequency traders.  That can trade 100,000 shares in two nanoseconds. You are not going to beat a private equity company with twenty Ph.Ds working for them.  Do not even attempt to play by those rules.

Remember, you also do not have to answer to your investors, provide quarterly reports and explain why their money hasn’t gone up this week, month or quarter.  You don’t have to answer to anyone but yourself.  This is a huge advantage.

Not answering to other people is the reason Dell and Heinz are going private.

You have advantages.  If you are playing against a person (or a team) that knows how to really manage money in a very unique way, the last thing you want to do is play that same game.  You want to play a different game.

So with that, let us turn our attention to precious metals.

The chart below shows the percentage of bullishness in the precious metal sector.  Basically, how many people are bullish on Gold Mining stocks.


The chart above goes back to 2008.  You can see that today we are at one of those tipping points, or turning points.  The percentage of bullishness has been lower only one time before.

That was during the complete meltdown of 2008 when everyone thought the world was coming apart. 

The bullishness then was zero. Today it’s 7%.

Whether we get a little less bullishness over the next couple of days or a week, we are near the bottom; if not at the bottom. 

I am not saying today is the bottom; though it could be, statistically.  What I am saying is that there is a much lower downside, than upside, to Gold Mining stocks.

This is a time to buy and not sell.

The next chart shows the bullishness of the S&P 500.

Notice how this chart looks like the exact opposite of the precious metal sector.


What is interesting, is that people are practically yelling to buy the S&P 500, and sell the precious metal sector.  The charts are saying something quite different.

The S&P 500 may still go up, but it is looking like a breather is seriously needed.

Look at the chart below. Before you know specifically what you are looking at, let me ask you: what direction is the trend?


The price chart above is an inverted price chart of gold going back to 2005.

To my brain, it looks like this inverted price chart is falling, and going through a consolidation period.

Whenever something consolidates after a long trend, it has an 80% chance of breaking out in the same direction that it came into the consolidation (downward, in this case).

The last chart I want to share, has a lot of numbers on it; but just one row of green cells.  Direct your attention to the row of green cells.


The chart above is a list of precious metal mining stocks that make up the AMEX Gold Bug Index.

Notice what is happening to the earnings of this sector.

Do you see it?

They are going up.

Earnings have gone from $5.00 to $36.00 since 2004.  Not bad.  A 700% increase in ten years.

Clearly, earnings are not the reason why precious metal stocks have fallen.  

I look at this correction as a cleaning-out period. There are big clean-outs in any secular bull markets.  We are in one now for precious metals.

The fundamentals have not changed.  The deficits and debts have not changed.  The interest rates have not changed.  It is a correction on the way to higher prices.

Sleep tight and be a buyer.

Together, we are growing and protecting your wealth,


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