Gold’s Terrible, Horrible, No-Good, Very Bad Slump

Sean Brodrick

The first part of recovery is admitting you have a problem, yes?

So let’s admit that gold and silver are having a terrible time of it.

In fact, let’s call it “Gold’s Terrible, Horrible, No-Good, Very Bad Slump.”

Gold has had a great run, but even some of the biggest believers in the yellow metal have had their faith shaken.

  • George Soros says the 12-year bull run for gold is running out of steam. He even reduced his stake by more than 50% in a prominent Exchange-Traded Product.
  • Meanwhile, John Paulson’s Gold Fund declined 18% in February alone.
  • On top of that, gold experts at Credit Suisse, Barclays and more are betting against gold.

However, not everyone is losing faith. While they make a powerful case to be bearish on bullion, recently Jim Rogers said NOT to sell gold or silver.

Even more convincingly, by now, you’ve heard my interview with investing legend Rick Rule … and he’s getting more bullish on gold. (If you haven’t heard that interview yet, simply click on this link now.)

Here’s What You Should Take Away From It …

We’re at a unique moment in time when dozens of forces are starting to converge in one place to create one of the greatest profit opportunities in gold over the last 30 years.

The road to higher ground is going to be a bumpy one, no doubt about that. But reports of gold’s demise are exaggerated, to say the least.

Once you arm yourself with information — the good, bad and the (temporarily) ugly — you can make the best decisions for yourself on how to manage this metal to help you meet your own personal investing goals.

I have lots of good information for you designed to help you do just that. Today we’ll look at three reasons why gold is getting crushed. And in Wednesday’s edition, I’ll share with you my six reasons for optimism, PLUS the potential buying opportunity of the decade!

Now let’s look at what’s holding gold down, and why it’s actually not as low as it could easily go …

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Trouble Comes in Threes

Gold has been hurt by three important factors in three important places.

1. India. Last year, India imposed restrictions on loans to buy gold. At the same time, it tripled its import tax on gold.

The reason is simple: India would prefer its citizens put money in the bank rather than buy gold.

Result: According to the World Gold Council, India’s gold imports fell to 860 metric tons last year from an all-time high of 969 tons in 2011. Demand for jewelry and investment fell to 864.2 tons in 2012, the second-straight year of decline.

And then there’s everybody’s favorite headline- (and trouble-) maker …

2. Europe. Then, Europe slipped into another financial crisis, this time a banking crisis in Cyprus. It might be a tiny island, but its crisis had continent-wide implications.

Unlike Europe’s last financial crisis, this time investors and citizens did not rush out to buy gold. Instead, many bought U.S. dollars. Still others put their money into Bitcoins, a new electronic currency that is also a commodity.

Bitcoins appeal to anarcho-goldbugs the way no other currency can. This “virtual currency” is controlled by no government or corporation, and it is anonymous.

Bitcoins are also a powder keg of misery waiting to blow up in someone’s face. But for now, fortune favors them.

And the more money goes into Bitcoins, the less goes into gold.

Speaking of more money (and boatloads of it) flowing away from gold’s safe haven …

3. Japan. More recently, the Bank of Japan announced Thursday a policy overhaul intended to double its money supply.

Japan will pour money into the system at a rate of 1% of GDP — twice the (relative) rate of money-printing that the U.S. Federal Reserve is doing. Japan is doing this to try to escape the grip of deflation.

Money-printing should boost gold’s appeal. Yet, gold goes lower. Japan’s money is flowing out of yen … but into U.S. dollars and Treasuries.

So as investors, here are the new realities we’re working with right now:

  • Gold is usually a hedge against financial panic —  but now, the dollar and Bitcoins take that title.
  • Gold is usually the investment of choice for people in India — but the government of India is making that harder.
  • Gold should go up when money is being created — but deflation is the threat now, not inflation.

Facing these three forces, we shouldn’t be asking, “Why isn’t gold over $1,800?” Perhaps a better question right now is, “Why isn’t gold under $1,000?”

So, Why Isn’t Gold Under $1K?

I’ll tell you why.

First, some chart action. Let’s look at a monthly, long-term chart for now.

It’s reassuring, isn’t it? Gold has been in a bull market since 2002.

(Updated chart)

However, gold has also been in a sideways consolidation since 2011. Let’s look at another weekly chart  …

(Updated chart)

More than two years of congestion is going to resolve in one of two ways.

  • If gold closes below $1,520 (a 20-month low), or perhaps $1,510 if you’re generous, we’re probably headed even lower. Support levels would include $1,433, $1,289 and $1,145. If you’re more bearish, gold won’t find support till $1,350, $1,275 or $1,079.
  • If gold can get back above $1,800, its consolidation will be over, and we should look for higher prices. That would certainly surprise investors, who are almost universally bearish on gold and miners.

Perhaps you prefer a chart of the SPDR Gold Trust (GLD), a fund that holds physical gold?

GLD got hit with an ugly stick  …

(Updated chart)

In fact, as sentiment has turned against gold, gold ETFs like the GLD have sold their holdings.

They used to be a bullish force in the market; now they are a bearish force.

Global holdings of Exchange-Traded Products backed by gold are down 7.4% this year, data compiled by Bloomberg recently showed.

More Bearishness

In fact, overall, world gold investment —  including bars and coins —  fell to a four-year low of 1,605 metric tons at the end of last year.

Finally, there is more gold around. Gold mine production rose to a record high in 2012, according to the World Gold Council, coming in at 2,861 tons. This is the fourth year of growth in gold mine production.

Is more gold production good for gold miners?

Apparently not.

Look at this next chart of the Market Vectors Gold Miners ETF (GDX)  …

(Updated chart)

Looking at the chart of the GDX, you can see that it broke below price support and has been unable to get back above that level.

This is a critical breakdown. If we were really bearish, we’d set our sights on the low from 2008.

However, before you get all wide-eyed at the thought of that kind of buying opportunity, I’ll point out two mitigating factors.

  • First, the bullish trading volume is bigger than the bearish volume recently. That’s not what I would expect to see with a real breakdown.
  • Second, the GDX is oversold. That makes it harder — but not impossible — for the GDX to take a big plunge.

If we DO get a big plunge, we’ll want to use that as a shopping opportunity.

Heck, it could be the buying opportunity of the decade.

I’ll tell you why this coming Wednesday … plus give you six solid reasons to stay optimistic … so stay tuned!

All the best,

Sean

P.S. In the meantime, I’ve created a brand-new presentation where I lay out all the evidence on exactly why gold is about to soar. Simply click on this link and wait for the video to start playing!

Your thoughts on “Gold’s Terrible, Horrible, No-Good, Very Bad Slump”

  1. Re: India would prefer its citizens put money in the bank rather than buy gold.

    Since the end of WWII when the Indian rupee, which used to contain 10 gms of silver (the word rupee itself is derived from Roupya, the Sanskrit word for silver) was turned into fiat currency, its purchasing power has eroded by a full 99.8% . In more recent times, the rupee has dropped by 99.5% since 1970 while the purchasing power of gold has roughly doubled during the same time. To put it another way, in 1970 anyone with life savings of 100,000 (1 lakh) rupees was considered a very wealthy man. Today it is one month’s rent for an upscale apartment in New Delhi.

    At the same time as the U.S. government’s gold price suppression policy is keeping gold artificially low and astute nations from Russia and China to Turkey and Kazakhstan are all loading up on the metal at bargain basement prices the Indian policymakers, after a couple of decades of unaccustomed sanity, have declared jihad on gold and are trying to force the public to trade their gold for fiat currency (a/k/a “money in the bank”).

    And when their plan backfires big time, they will blame everything else except their own stupidity.

  2. I believe George begs to differ:

    April 8, 2013>> Soros: ‘Gold Has Been Destroyed as a Safe Haven’

    In an interview with the South China Morning Post that otherwise focused on prospects for China, Soros seemed to sound a note of caution on the precious metal.
    “It has disappointed the public, because it is meant to be the ultimate safe haven. But when the euro was close to collapsing in the last year, actually gold went down, because if people needed to sell something, they could sell gold,” Soros said.

  3. I’m glad to see the anti-American George Soros get out of gold, as he is not good for anything he puts his hands on. Gold is still on the path of the Grand Daddy of all bull market runs, as none of the factors or support of what started this run have changed since 1999-2000 and if anything many of those supports have gotten stronger. Wars, lack of faith in financial systems and governments are only but a hand full of reasons for gold to continue upwards. Wall street and regulating agencies like the SEC and the US congress who make rules, but do not follow them, are key factors to mistrust the money markets and stock markets. Bank and business nail outs by a rogue government body are just more fuel to the bull market. I stand by my 1999 prediction on the Bema gold site, for a 25 year minimum gold bull run market. Fuel that has been added to the bull run since 1999 is Iraq; Iran; Afghanistan: China; Korea and Washington DC.

    1. Indeed, Soros is in the service of the Globalist clique spreading support for Islamism(political Islam) all over the map, is an anti-semite by belief, and is working as a foot soldier of the Globalists for a new world order. But, bear in mind that his anti-Americanism does not extend to the common goal of spreading and supporting Islamism, just like Obama administration is pursuing. So, his ‘anti-Americanism’ does stop shy of the common goals of his leash holders and the current US administration’s foreign policy.
      Enough said.

      But he being a mere tool and point man for the Globalist financiers makes him the perfect candidate to go around bashing gold. Agreed. However, knowing what we know–or should know–about the powerful money masters who run him and others(run Obama too), do we think for a milli-second that they are going to allow gold to reach loft levels like some chronic goldbugs like Turk call for $11,000/oz. gold price? I mean, seriously.

      If gold makes it to $3,000; if it ever does, sell sell sell and get out while you’re ahead.
      Highly doubtful they will even allow that even.
      I would say they will draw the line at $2500 or so.

  4. number 1 reason for the stalling of gold price is that the market has been flooded with gold printed by bankers. Futures contracts, depositary receipts and exchange traded gold securities are securities linked to the gold price not real gold.
    Gold is the insurance against the failure of the bankers. Buying faux-gold backed by bankers promises is for people who just don’t get it.

  5. And what are the Central Banks doing, as they talk down their books? Buying gold like there’s no tomorrow. Follow what they do – not what they say…

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