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 …
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.
However, gold has also been in a sideways consolidation since 2011. Let’s look at another weekly 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 …
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.
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?
Look at this next chart of the Market Vectors Gold Miners ETF (GDX) …
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,
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!