• 303 days Will The ECB Continue To Hike Rates?
  • 303 days Forbes: Aramco Remains Largest Company In The Middle East
  • 305 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 705 days Could Crypto Overtake Traditional Investment?
  • 710 days Americans Still Quitting Jobs At Record Pace
  • 712 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 715 days Is The Dollar Too Strong?
  • 715 days Big Tech Disappoints Investors on Earnings Calls
  • 716 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 718 days China Is Quietly Trying To Distance Itself From Russia
  • 718 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 722 days Crypto Investors Won Big In 2021
  • 722 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 723 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 725 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 726 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 729 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 730 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 730 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 732 days Are NFTs About To Take Over Gaming?
Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

  1. Home
  2. Markets
  3. Other

2013 - The Year of the Gold Bull?

2012 wasn't a fun year for most Gold bulls. Seeing the S&P 500 outperform Gold and seeing Gold stocks get decimated through the 1st half of the year was enough to create suicidal sentiment that is now only marginally improved after another prolonged correction in the precious metals (PM) sector to end the year. But as the many calls for an end of the PM bull market by several of the same people who have been wrong / missed out the whole way up get louder, the risk in the PM sector gets lower and lower.

The bigger picture hasn't changed and isn't going to for some time: a major private sector secular economic contraction in the West being fought with manufactured money/credit units by governments and central bankstaz. This is not a period to favor paper, as reflected by common stocks, over Gold. My trade of the year for 2013 is the same as my favored trade back in August: go long the "Gold to Dow" ratio (or short the "Dow to Gold" ratio).

The secular chart of the S&P 500 (a broader index) to Gold ratio shows that time has run out for the paperbugs on this correction:

SPX:GOLD

Of course, such a ratio chart doesn't tell us anything about nominal prices of either of these items. But it does tell us that a shiny piece of metal with no dividends or growth prospects should continue to trounce the wizards of Wall Street over the next several years. This is the forest one does not want to lose sight of the next time Warren Buffett talks about how perplexed he is by Gold. Perhaps Warren should have listened to his father, Howard (a congressman), a little more:

"I warn you that politicians of both parties will oppose the restoration of gold, although they may outwardly seemingly favor it, unless you are willing to surrender your children and your country to galloping inflation, war and slavery then this cause demands your support. For if human liberty is to survive in America, we must win the battle to restore honest money."

[Read more: http://www.businessinsider.com/tired-of-warren-buffett-trashing-gold-here-are-some-quotes-from-his-gold-loving-father-2012-2]

Now, I am not interested in politics, as I fully expect politicians to play their role and do the exact opposite of the right thing regardless of which party or platform they claim to represent. I also don't believe that a Gold standard can fix the world's problems, as governments controlling money is the problem, not the form of monetary system governments foist upon the masses. In most countries in the world currently, one is free to save in Gold rather than paper currency, which is the important thing for pragmatists like myself. But if one uses history as a guide, I think Howard Buffett was closer to the mark than his son Warren.

In any case, Gold will win over Warren and his paperbug minions this cycle because it is simply the time for this to occur. Cycles in markets exist much like cycles in nature, as financial markets are but a manifestation of the thoughts and emotions of one of nature's more curious species. We are in a secular fear and uncertainty cycle for conventional financial assets, which benefits Gold.

Moving from the philosophical to the tactical, now is the time to be bullish on Gold and its derivatives, not bearish. The intermediate term correction from the fall 2012 highs in the PM sector was much longer and deeper than I thought it would be, but we are where we are now. And keeping a healthy perspective on the intermediate term, the current set up is much more likely to lead to a bullish outcome than a bearish one. Here's a 12 year weekly chart of Gold thru Friday's close to show you what I mean:

Gold 10-Year Chart

And the beleaguered Gold stock sector is also oversold and significantly undervalued for the 3rd time in the past year. An interesting phenomenon occurred to end last week, however, in the small cap Gold mining sector. Using the GLDX ETF as a proxy for the explorer/small cap Gold mining sector, here is the weekly price action over the past few years thru Friday's close:

Gold Explorers ETF

I remain wildly bullish on the whole PM sector. If you would like some assistance navigating the PM sector with an orientation towards trading the intermediate-term swings.

 


I publish a low cost subscription trading service that is only $15/month. Otherwise, keep the faith and hold onto your PM sector items tight. Don't let the short and intermediate-term noise distract you from what still promises to be a secular bull market for the history books. The Dow to Gold ratio will hit 2 (and we may well go below 1 this cycle).

 

Back to homepage

Leave a comment

Leave a comment