Generally, the situation hasn't changed much since yesterday. Gold and silver have been trading sideways in early trading today and for the past 2 days. Mining stocks haven't declined today (so far), but overall, they don't seem to have bottomed - they are still below their Monday low, while gold and silver are above analogous price levels.
Our next target for the XAU Index is the 82 level (based on the 2000 and 2008 bottoms and the support line created by connecting them) and this would likely correspond to HUI at 215 or so. This is how low we think miners will go if gold does indeed decline below $1,300 (to $1,286 or so).
Today we will reply to another portion of questions that we have received recently.
Q: "I am tired of all the Peter Schiff's and ted Butler's crying about manipulation. Manipulation is obvious to anyone with the intelligence of a salamander. Why harp about it? The real question is, "What can be done about it?" Crying about manipulation can be read as a signal or "selling" point for those advocating to sell ones holdings. A "selling" point for one to accumulate more holdings would be to come up with a workable solution to end price manipulation, not simply cry about it. As it stands, the only thing Ted Butler and his ilk are selling is the idea that it somehow is a winnable war to fight city hall. They never devise a plan of how to win the war."
A: There were attempts to do something about it, but it didn't work out as expected - the case was dismissed (consult our article on JP Morgan and silver manipulation). The war against "city hall" might be very though to win, but on the other hand market forces always prevail, eventually. At that time, gold and gold derivatives may go in different directions. There will be demand for gold, but not for gold derivatives and the market for the latter could collapse. We certainly don't know when that will happen, but it's quite likely to happen "at some point" and with long-term investments, one should be prepared for it. On a side note, please keep in mind that all markets are at least somewhat manipulated. Short-term interest rates are set artificially and they impact virtually all markets, including the currency markets. Therefore, even markets considered "free" are still somewhat manipulated.
Q: "I do not think the reference to the correction in 1976 fits the current crash/correction. The seventies bull ran from 1968-1980..12 years & the 1975-6 corection was in the middle of that bull. THIS "correction" is at the end of this 12 year run from Sept 1999 at 250 to 1920 in Sept 2011...again 12 years. The current ongoing massive downside volume tells me this bull is now OVER. Sayonara"
A: The volume was huge also in 2008 and the decline was significant - especially in mining stocks - as well. Yet, the bull market didn't end back then. Many investors were interested in gold in 2011 but we didn't see the real speculative mania in which everyone (not only people who normally invest) wanted to buy gold. Gold didn't reach it's inflation-adjusted high from 1980, not to mention that silver was not even close to its real highs - only the nominal one. Ratios also suggest that the bull market is not over. Finally, before the 1980 top was formed, it was preceded by a series of interest rate hikes which were supposed to tame the inflation - gold didn't give up easily and kept rallying higher until reaching the final top. At this time we actually have a more and more positive situation for the precious metals market. Not only are the rates extremely low, but if that wasn't enough, we now get series of QE programs. It does not look like the bull market's end in our view.
Q: "THe prices on these gold stocks are crazy cheap. I cant believe they keep going lower. After all these years I am actually HAPPY to see this happen. Hopefully they will continue to get killed. I would also prefer them to go down at a even more rapid pace.I am not short. A little gun shy at the moment. Wish I was, but this buying opportunity is going to be incredible. Either that or All of the talk about gold being a safe haven since the history of time is a lie or is about to change. This is going to be fun. This probably means the bottom is already here. But I would love to see it get crushed even more."
A: Yes, it does create a major opportunity and it would be even better if the decline was sharp as it would make it easier to make the decision about re-entering the market.
Our trading plan and stop-loss levels remain unchanged (see our Midweek Update on precious metals).
In short:
Investment capital - no position.
Speculative capital - short position in gold, silver and mining stocks (half).
As always, we'll keep you updated should our views on the market change. We will continue to send out Market Alerts on a daily basis (except when Premium Updates are posted) at least until the end of April, 2013 and we will send additional Market Alerts whenever appropriate.
Thank you.
Sincerely,
Przemyslaw Radomski, CFA
