UNCOMMON COMMON SENSE
For People Who Think
21st Century Gold
Rush Re-Examined
Back in late 1979, the lineups to
buy Gold looked more like the lineups to buy Stanley Cup Hockey tickets at the
then famous Montreal Forum. There they stood all wrapped up in their parkas,
ski jackets, and bulky sweaters wearing anything from construction boots to
overshoes; there was even a sprinkling of executives in their Italian leather
shoes, business suits and cashmere coats, all waiting to get in on a sure
thing. The analysts and economists cited a litany of reasons to explain the
Gold Rush, but nobody cared. Gold prices were said to have become a barometer
of political and economic fears, but in the end it was just pure GREED that
drove the price until it finally peaked in January 1980 at $875 an ounce. This
was yet another example of ‘The Obvious is Obviously Wrong” The only
important factor was simply that prices were skyrocketing. Anybody who was
already in was making money (of course not as much as they claimed) and
everyone else was afraid of missing out on a sure thing and being left out in
the cold. It was Can-Slim 20 years
before IBD made it popular.
Gold was selling for $250 when
1979 began. By December, amazed at the sudden surge above $700, Gold devotees
began talking $1,000 plus, some were even trying to justify $5000. The
rocketing prices startled all the experts and even frightened some of those
analysts who, like me, had forecast the precious metals boom early on, but none
had called for anything like this. For the first seven years of this Bull
Market, the newspapers and magazines had completely ignored Gold, just as they are
doing today. Then suddenly in late 1979,
Gold hit the front pages of all newspapers. Reports and articles on Gold and
Silver began to appear everywhere and not only in the financial newspapers, but
in the dailies and magazines as well. This time around, there are still NO
signs of even a beginning to the newspaper articles on Gold and Silver and
certainly not on the front pages. In fact it is even difficult to get quotes on
most Juniors, especially those trading in
IS
THE GOLDEN BULL MARKET OVER?
If you’re worried that you missed
the Bull Market and that it ended at $1,030, just ask yourself how much space
is being devoted to the fact that Gold has pulled back 20% to its natural
support levels, during its fairly consistent and regular weak (slow) season.
Gold Mutual Funds after being the top performing funds for the last 7 years are
(would you believe) have still not ever been recommended by any Mutual Fund
experts or Financial Advisors. I had been expecting a $1,200 to $1,400 target
to mark the end of Wave I. After 7 years of almost perfect calls, I became too overconfident
and began to think I was God, but He gently (maybe not so gently) reminded me
that there is only one God and it’s not me as I was brought back down to earth.
Back on earth; let me now revise
my short term projections. I had thought that we were in Wave 5 of Wave (5) to
complete major Wave I and my target price was $1,200 to $1,400. The recent
sell-off was unexpected but upon reflection, I realized that we are still in Wave
(4) which should be completed within the next 5 to 10 days then up up and away into Wave (5) whose target is still $1,225 to
$1,425 to complete Wave I by the end of 2008. We will then still have up Waves
III and V to look forward to and they will move a lot faster and more furious
than Wave I. I will then be giving a much more detailed picture of what Wave II
will look. In the mean time look to accumulate
both Gold and their juniors on any further weakness over the next week
or so, THE SAME ANALYSIS holds for SILVER.
DOES
HISTORY REPEAT?
Today, as back then, throughout
most of Gold’s Bull Market until 1979, most analysts and the media are virtually
ignoring Gold. It’s only the so called Gold Bugs that continue to believe then
as now in Gold. Well I’m not a Gold Bug
- I’m a realist and an economist, who likes to make money and studies not only
the past, but human nature as well.
The last Gold rush lasted eight
years (1972 to 1980). This one started in 1999 and should last a minimum of 16
years and is therefore only half over and has another minimum 7 years left to
run. BUT remember that most Commodity Bull Markets have their most explosive
and dynamic run in their fifth and final Wave.
I now take you back in time to the 1970’s and point out that WAVE I
lasted from 1972 until 1976, four years which was also 50% of that entire Bull
Market. During that time, Gold appreciated from $35 to $200, a 575% increase.
If today’s Wave I ended at $1,030, then it would have increased from $250 to
$1035 or 400%. However, as I now believe we are about to enter Wave (5), and
should we hit my projected target range of $1,200 to $1,400, then it too will
have increased 575% at $1,450. More
immediately, should today’s Wave II react in the most common Elliott Wave fashion
and pull back to its Wave 4 of one lesser degree, that would bring us back into
the neighborhood of $800.
It’s possible, but highly
improbable, given today’s financial condition of the US dollar that the market retrenches
all the way back to $600 where it would then make a 50% pull-back and meet its
major long term uptrend line. However that is a worst case scenario, but even
then we would still be in a Bull Market. The more probable event is a 25% bull-back
to the $800 area which is the apex of Wave 4 of one lesser degree. But
regardless of what takes place, WE ARE
ONLY
INFLATION:
The
bright side of the story is that Gold has to increase to $2,500 just to equal
its 1980 inflation adjusted high of $875. Should Gold have the same percentage
move as it had in the 1970’s, it would give us a target of over $6,250.
WARNING: A Bull Market
will always do whatever it has to do to shake off the majority of investors,
especially the ones that do not have a firm conviction. To make real money you
must have the courage of your convictions and hang on through the most gut-wrenching
consolidations, and seize these opportunities to buy low, if you want to make
the BIG MONEY.
A
LOOK BACK IN TIME
To give you some idea of what a
real Bull Market looks and acts like, I take you back to the 1970’s:
The library that I went to had
the Financial Post newspapers on microfilm all the way back to 1972, the very
beginning of the last Gold and Silver Bull Market.
There were very few if any
articles when Gold first moved from $35 in1972 to $200 by 1976, completing Wave
I of Gold’s Bull Market. Hardly anybody noticed, certainly not the newspapers,
when Gold dropped back down to $100 in late 1976, completing Wave II. It was
not until Gold was exploding past $200 and well into its Wave III rally phase that
a few stories on Gold and Silver began to get published and then not until late
1978 early ‘79 as Wave III was peeking at $250. Gold headlines did not hit the
front page until late December 1979 and into the January 1980 TOP, helping to
fuel the final Wave 5 into its eventual blow off top. We are definitely not even close to that kind of action now.
The stock tables that I found
were absolutely amazing and brought back some very fond and some not so fond
memories. In 1975, three years into its Bull Market, most Gold and Silver
stocks were trading at under $2 and the majority were penny stocks trading
under $0.25. Don’t forget that we were at or near the bottom of the worst Bear
Market since 1929–1932. Even with Gold up 600% from the 1971 low of $35 to the
1975 top of $200, most Gold and Silver shares did little to make anyone, except
perennial Gold and penny stock traders, wake up and take notice. I held a few seminars in an attempt to push
Gold as the best way to make money during a falling market (the general markets
were down 45+ % in less than 2 years), but getting an order was like pulling
teeth. It was not until Gold was well into Wave III and had retraced all of its
first big sell-off and got back well above $200 (the equivalent to $730 today)
that I started to open some new accounts and get some decent size orders, as
the Gold and Silver stocks started their historic Bull Market runs that would
end at unimaginable prices.
Some
examples were: Lion Mines – 1975 price $0.07 / 1980 price $380.
YES, that’s right it’s not a misprint - you could have bought 10,000 shares of
Lion Mines in 1975 for around $700 dollars and if you held on for the whole 5
years until January 1980, you could have netted a total profit of around
$3,799,300. Not bad ay!!!!! A few others
were Bankeno – 1975 price $1.25 / 1980 price $430; Steep Rock – 1975 price $0.93 / 1980 price
$440; Mineral Resources – 1975 price $.60 / 1980 price $415; Azure Resources – 1975 price $0.05 / 1980
price $109. The Majors also performed superbly well, but nothing compared to
the Juniors. WARNING: The Juniors, although offering great potential, also
contain much greater risk as most of them ended up falling back to zero. So be
careful.
No question about it, that was
one of the biggest and best financial opportunities in history. I don’t know of
any other time, not even the dot.com bubble (how may of us could get in on the
IPO’s anyway) where in only a 3 year time span, you could have turned so little
money into so much wealth. “You only need to make one good investment decision
in your whole life to be super successful.”
I believe we will, in the not
to distant future, be approaching that same juncture that we were in 1976-78,
only this time the fundamentals are even better for Gold and Silver than they
were back then. The similarities between the 1970s and today are uncanny. Then,
as now, we were in a GUNS & BUTTER economy. The Oil Sheiks couldn’t wait to
get out of Dollars and into Gold and Swiss Franks (would you believe that
people had to pay 20% negative interest if you wanted to keep more than
$100,000 in SF). Every time trading in Gold was halted due to and IMF auctions
of 4 million ounces of Gold, it would open up $40 higher. What would happen
this time should we once again pull out of
As For Israel: They will most
likely take out the Iranian nuclear facility in the days following our
Presidential Election, (if it was up to me I would do it the day of the
election) with no greater difficulty than they had in taking out the Iraqi and
Syrian nuclear facilities. The two carriers recently sent to the Gulf to
bolster American Forces were not sent to help
Although history always repeats,
it never does so in an identical fashion so it only ends up being recognizable
long after the fact. These are only some of the real fundamental cornerstones
of why Gold is in a Bull Market today and why the current PULL-BACK that we are
in is only a normal and expected correction and is thus far following the
script of my Alternate Wave (4) of Wave I count.
Just like the current Stock
Market Rally it too is also only a correction in an ongoing Major Bear Market
along the lines of 1930 of the 1929-1932 Bear Market. Now, as back then, with our
near record low interest rates, the FED and the rest of the world’s Central
Banks are flooding the world with fiat money in what will turn out to be their failed
attempt to stave off Depression. Our FED is caught between a “Rock and a
Hard Place” and don’t let the dollar’s recent strength fool you, they will shortly
be forced to raise interest rates in an attempt to save the dollar and stop
inflation from exploding. The first causality will be to exacerbate the crash
of the Real Estate market: Then comes the imploding of the Stock Market and especially
the Bond Markets, which are much
larger than the Stock Market. This will result in a further implosion of the
credit markets as more financials begin to fail. You are now bearing witness to
the Laws of Supply & Demand in action as all the One Way Corrigans learn that trees do not
grow to the sky.”
MUNI
BONDS: What happens to them as more and more people fail to pay their real
estate taxes? How safe are they and the Monolines that insure them? Will FNM
and FRE be paying the Taxes on all their foreclosed properties?
THE
US DOLLAR and STOCK MARKET
These are but another two perfect
examples of what happens when everyone is sure that things can only going one
way; some even made $ projections down as low as 40. I repeat “Things do not
move in straight lines.” Although it seems obvious that both the market and the
dollar have made some kind of low, IT IS
NOT “THE” LOW. The fundamentals going forward have not changed; in fact
they may have gotten worse. After a bit (one to three weeks), and everyone is
sure that the crisis is over, the dollar will reverse and make new lows. As
sure as the Stock Market, after a week or three of an exciting short covering
rally that could go has high as 12,000,
it too will also head back down to make new lows.
I sent you all out a SPECIAL
BULLOTIN picking the exact low on July 15: Who should you be listening to now?
Check their track records
Greenspan and then Bernanke were attempting
to create a soft landing by slowly raising rates before being forced to. Alas
it was too little and too late as Bernanke, instead
of swallowing the bitter pill of a mild recession and correct the major
imbalances, has caved into the
short-sighted media and political pressure or as is most probable he actually believes
in his Ivy league, Keynesian philosophy, of pursuing a policy of easy money in
an attempt to keep the Banks, Brokers, and the economy afloat while trying to
engineer a soft landing for real estate: The Piper must always, eventually be
paid: Greenspan had painted the FED, as well as the rest of the world, into a
corner that his successor Bernanke will not be able to get us out of without a
whole lot more pain and suffering. Investing in Gold and Silver shares and the
physical metals now and holding them
for the next 8 years could be the only major financial decision you may ever
have to make.
Do
NOT trade in and out. Just buy some stocks and bullion now, add to you
positions on any further short term sell-offs or on break-outs to new highs and
wait until you see Gold and Silver splashed all over the headlines in the
newspapers and magazines, not just the financial ones. Or, if you have not yet
taken a position, then scale into any precious metals mutual fund or ETF. When
Gold breaks out to new highs above $955, use your increased buying power to
increase your positions. By the time those front page stories that ran in
January 1980 appeared, most Gold and Silver stocks were trading over $50 per
share and many were trading over $100 and $200, some even as high as $500 per
share. Only a few years earlier (just like today), you could have bought the
same stocks quietly for between $1 to $5.
I know it’s hard for most of you to believe that Gold and Silver will
surpass their old inflation adjusted January 1980 highs, but that is what a 16
to 20 year generational Bear Market will do to a whole generation of investors
who have grown up with falling real assets (Gold, Silver and commodities) and
rising paper assets (stocks and bonds). When the tide of human emotions swings
and paper assets really start to fall hard, the lust and fervor for real assets
will be unbelievable. Gold will have to increase to over $2,500 just to get
back to its previous, inflation adjusted high in real dollar terms. However, if
Gold in this Bull Market should increase at the same percentage increase as it
did from 1972-1980, the target becomes $6,250. The dot.com bubble will look
like small potatoes compared to some of the upcoming gains in the Gold and
Silver Bull Market of the 21st century. But unlike the dot.com
bubble that was based on easy financing, unrealistic dreams of profits,
aggressive accounting and pure greed, the coming explosion in Gold and Silver
stocks will be all about not only Greed, but abject FEAR as well, to protect one’s savings
from the destruction of fiat paper money, combined with the GREED to get in on a sure thing. There is nothing that can stand in the way
of a combination of both GREED and FEAR both going in the same direction.
TOTAL
EQUITY OF ALL GOLD STOCKS
When the entire world wants a
piece of the Gold and Silver Bull Market, they will discover that there is only
a relatively very limited supply of shares and you can’t create a Gold mine out
of thin air like you could a Dot.com company. The combined total of all Gold
stocks is less than that of the equity of EXXON and GE. Yet it is estimated that
there is over $2.2 trillion in Hedge Fund money alone and that’s not counting
all the leverage ability they have at their disposal. Can you imagine what happens if suddenly they
wake up and begin a rush to Gold? There are over 10,000 mutual funds that have
not even looked at Gold and yet they have a mandate to be fully invested. What
do you think they will do when the only stocks going up are Gold and Silver
stocks (maybe Uranium, Platinum and Palladium as well)? Remember, most mutual
funds cannot go short, so what better way to make money in a falling market
than buying into the only markets that are rising?
The Gold and Silver stock sector
is very small compared to the bond and stock markets and it won’t take much
buying, percentage wise, to push these stocks into the stratosphere. I
am sure that most of you have friends who can’t name even one Gold stock. But
I’m also sure that in the not too distant future, they will be touting you about the latest hot
Gold new issue coming out of Vancouver, or Alberta or Denver even though they
don’t know where Vancouver and Alberta are.
That will be the first major sign that the top is near. I firmly believe
that the current opportunity in Gold and Silver and the companies that mine
them may be presenting you with a once in a lifetime opportunity where
even a modest investment could change your financial destiny.
NEAR TERM OUTLOOK
Plain and simple: The Junior
stocks are near their lows for this Bull Market. That is the first sign that this
Bull Market in Gold is only half over. Junior Gold shares usually lead Gold
bullion both up and down. Check out their respective charts. The Majors look to
me like they too are near completion of their consolidation phase as they will
soon be increasing their takeovers of midsized and exploration companies.
WARNING:
If you are already invested and
you attempt to trade a GOLD RUSH like you trade any other market, you will be
sadly disappointed. You may be lucky enough to pick a short term top that will
make you feel smart for a week or so or maybe even a month or two, but then
suddenly you will be left standing at the station with your hands in your
pockets clutching on to your shrinking dollars and watching as the Gold Rocket
Ship takes off and you will not have the courage to jump back in at
accelerating new highs. You will sit there waiting for the pull back that we
are in now, but will not come again. If that happens to you, be ultra careful
that you don’t get sucked back in at or near the HIGH 7 years from now as the
front page headlines clamor about the Bull Market in Gold and Silver. If you have been lucky enough to have been sucked
or scared into taking profits and are now sitting on the sidelines, start SCALING BACK IN NOW.
Whenever Investors begin to hate stock, especially gold
stocks, the professional traders know it’s time to start buying. The current
setup for Junior Golds is similar to the way the
overall market was on July 15th and is probably as good as it is
going to get and is similar to the setup at the 2001 bottom. Anniversary dates
of major highs and lows can often mark major turning points in the market. Last
year’s low in the XAU came on August 16th and the market may wait
until then before moving higher. Extreme pessimism runs high at major lows and
the price relative to Gold ratio measures that pessimism. The current reading
is as low as the 2001 bottom and that bottom lead to a 400% gain. Next rally up
should be truly explosive. We are 5 to10 days away from the bottom, if we are
not already there , so don’t chicken out now!
August
8, 2008
GOOD LUCK AND GOD BLESS
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Aubie Baltin
CFA, CTA, CFP, PhD.
aubiebat@yahoo.com
561-840-9767
Please
Note: This article is
for education purposes only and is designed to help you make up your own mind,
not for me to make it up for you. Only you know your own personal circumstances
so only you can decide the best places to invest your money and the degree of
risk that you are prepared to take. The Information on data included here has
been gleaned from sources deemed to be reliable, but is not guaranteed by me.
Nothing stated in here should be taken as recommendation for you to buy or sell
securities.