Some gold bugs are being foolish. Gold stocks have been under performing the price of gold now since November. Gold stocks tend to lead gold so when they begin to lag the price of gold it usually signals an upcoming correction in both. And that correction is here.
Gold bulls should see this correction as a godsend - a chance to buy into gold stocks - and hold them - ahead of a coming collapse in the dollar and explosion in gold prices. This will cause a parabolic rise in the mining shares in 2005.
What we are about to get is a last chance buying opportunity and I want you to be coolheaded so that you can take advantage of it. Many of the gold bugs will panic and throw in the towel. Don't get scared if the gold stocks fall and you hear scare talk about how everything is over or how the "manipulators" will never let the mining stocks go up again.
Fear and hysteria is already coming from some gold bugs. Last week Alex Wallenwein, who publishes a gold newsletter called EURO Vs. Dollar Currency War, claimed that gold stocks have been lagging gold because of a Wall Street conspiracy. Wallenwein is a great writer, and I love his articles, but I have to disagree with what he wrote last week:
"If you were in the "gold-price management" business and wanted to keep US investors from getting too hyped up about gold, what would you do? Would you keep shorting gold when everybody and their brother is already on to your game, or would you shift it to the shares, where nobody expects you to be active - yet? "
"Would you do it in the price of bullion, into which you know few investors are actually putting their money - or would you do it in the market segment they all are piling into when gold starts looking good?"
"That's one way of explaining the lagging share prices. So far, it's pure speculation and extrapolation from a few known factors. Maybe someone with a stronger motive to prove this will look into it and find the evidence, but the point is that bullion is the clear winner in this new era."
I've been reading articles for the past several weeks by some gold bugs who seem to believe that gold is never going to have any corrections. With that belief so firmly held they have had to come up with reasons to explain the weakness in gold shares.
Wallenwein is only one of these commentators - and happens to be one of the best ones. Wallenwein's reasoning is typical of some of these commentators - it's a Wall Street conspiracy that is making the gold stocks drop.
There are two problems with this thinking. First of all there is no proof for it at all. With no evidence it is simply fantasy thinking. Why assume something when you have no proof for it when a simple explanation is more logical?
And here, the simple explanation is proving itself as reality once again - gold stocks lead gold, the stocks have been lagging, which happens before a correction - and now here is the correction. I told you this was likely to happen a couple of weeks ago.
Such a correction has happened before during this gold bull market - and each time it has happened it has been a fantastic buying opportunity. Bull markets don't go straight up forever. They all have their dips that provide entry points for those prudent enough to take advantage of them. Accept the fact that this is how markets work and you can think rationally and not fall prey to scare talk.
And that's the final problem with this type of thinking. It is totally defeatist. If you listen to the conspiracy and defeatist talk from some gold bugs you will end up giving up on gold stocks and missing out on an incredible buying opportunity. Or even worse, you'll sell on the bottom.
Financial markets create wild emotions in those who participate in them. Tops often culminate in wide spread optimism and wild bullish sentiment. Bottoms bring with them defeatism, fear, and disgust. Irrationality reigns.
Keep your wits about you. Accept markets for what they are and not what you think they should be. Sure, I think the dollar is going to go much lower over time and gold will probably eventually top $1,000 an ounce. I don't think it's a conspiracy, because gold isn't at that level yet. It takes time for bull markets to run their course.
Keep your chin up. And don't lose hope because of a little correction and defeatism from some gold bugs. See this for what it will become - a last chance buying opportunity and a godsend. It's not here yet - but it's coming. Be ready.
This isn't the time to be scared of gold stocks. It's time to get ready to buy. You don't buy and sell based on emotion - and that is what worrying about manipulators will do. Instead you buy using contrarian methods and strategies that work. You want to buy when everyone else is scared. That is when stocks are on discount.
To find out what gold stocks Mike Swanson holds and plans on buying subscribe to his free Weekly Gold Report at http://wallstreetwindow.com/weeklygold.htm.