Shorting Gold: 8 More Signs Gold is Overdue for a Correction

Thursday, February 26, 2009: Issue #944

Two weeks ago I told you it was time to start shorting gold. And the recommendation, as I expected, ignited a brew-ha-ha on our Investment U message board.

That’s because there’s not much middle ground. Most investors are either fanatical or supremely skeptical. If you have any doubt, check out the comments – and all the wonderful names I got called – on our website.

But since I’m a glutton for punishment, and since gold moved in exactly the opposite direction I predicted, it’s time for an update and a little clarification.

A Morsel of Clarification on Shorting Gold

Let me start off with a morsel of clarification. I don’t hate gold. I own it, or more accurately, an interest in gold via gold mining shares. And I believe a small allocation (5% to 7%) has a useful place in a well-diversified portfolio. Over the long haul, studies confirm it helps increase returns while minimizing risk. A benefit we can all agree is desirable.

But over the short-to-intermediate term – the next six to nine months – I think gold is a terrible investment. After breaching the $1,000 per ounce mark again, as I suggested would happen to my subscribers on February 2, it is overdue for a retracement back to roughly$700 per ounce.

Those of you who expected it to drop the day after I suggested shorting gold need to understand that “short term” doesn’t mean “this week.” Just because it moved higher doesn’t negate the point of the recommendation.

Long story short, I view shorting gold as a way for me to hedge my long-term holdings. For traders, it’s a profit opportunity to consider. And whether we see eye to on this is irrelevant. Ultimately, the market will be the great arbiter of our differences.

For kicks though, let’s address a few of those minor points of disagreement…

Shorting Gold is Not Really Contrarian

A small army of you suggested I was being an “arbitrary” contrarian when I suggested that it was time to start shorting gold. That no evidence, just a warm and fuzzy feeling, existed to back up my call.

Are you kidding?

Sure your “Cousin Vinnie” as chronic poster Todd opined, the trash collector or the newspaper boy might not be investing in gold. But the rest of the lemmings certainly are…

• Investments in coins and bars increased 811% in the fourth quarter, according to the World Gold Council.
• Headlines abound in the mainstream press like this one from The Financial Times – “Gold primed to be ‘mania asset.’”
• Wannabe gold bugs are paying – willfully I might add – 20% premiums for coins and small bars. Forget buying gold, we should all become coin dealers!
• Investors – like teenage girls at New Kids on the Block concerts in the late 1980s – can’t reach out and touch the SPDR Gold ETF (GLD) enough. It’s now the second-largest ETF in the United States with a market cap of roughly $33 billion. With more than 1,000 metric tonnes of gold, speculators now control more gold than many industrialized nations. If that doesn’t scream “out of whack” I don’t know what does. Many of you respond by saying the investors here are institutions, so the inflows are not indicative of a top. You’re wrong. Individuals, according to Morningstar, accounted for an estimated 60% to 70% of the investments in the last four years. • The world’s largest gold refinery is pumping gold coin blanks at a rate not seen in 23 years, according to Bloomberg. • Reuters reports investment consultants are now advising pension funds and high-net worth clients to invest 5% to 7% percent allocation toward gold and gold stocks. After being an investment consultant to such clients, I can confirm such allocations are new. And will be followed, if they haven’t been already. • If you’re a newsletter junkie, like myself, no doubt you also noticed the sudden explosion in “gold experts” that have some overlooked, stealth play on gold you need to consider. It’s poised for 500% gains (or more), they say! All you have to do is read a 16-page teaser and sign-up for some newsletter. Marketers tap into what’s hot, typically as a trend is cresting. Don’t expect this time to be any different. • From today’s Wall Street Journal, futures investors are taking delivery of gold at more than double recent levels (4.5% versus 2%). Paranoia anyone? If the above isn’t sufficient evidence to be a contrarian, I don’t know what qualifies then. Why should I listen to you, Lou? Others of you simply wanted to know, why you should listen to me – a Wall Street flunky, “idiot” or a “young analyst who thinks he’s got the magic touch and will never be wrong.” Forget that the last reader – and yes it’s the chronic poster and my new “buddy” Todd – is completely clueless and didn’t catch my transparent about-face on the dollar here. Or my confession that I flubbed the rebound in financials. I’m human. I will be wrong. I’m man enough to admit it. But I don’t think shorting gold will be one of those times. And if I don’t have enough credentials to make such a claim, in your opinion, fine by me. Listen to someone more “qualified.” Plenty of them exist that are also starting to question the merits of investing in gold, or at least acknowledge the mania… …Newsletter god, Dennis Gartman says, “It’s a little worrisome that so many people are piling in [to gold].” He expects a pullback, too. Just not as far as me. …Peter Munk, founder of Barrick Gold, says he’s never seen such strong interest in physical gold ownership. …”This will all end badly, just like all other bubbles,” predicts Leonard Kaplan, President of Prospector Asset Management, a commodities futures brokerage in Evanston, Ill. …”Historically, when stocks begin to underperform gold, that’s a sign that gold is running out of steam,” according to Ray Hanson, a technical analyst at RBC. My Biggest Concern What really scares me is that some people take gold investing to an extreme. They actually believe in a government-orchestrated conspiracy to suppress prices, as some of you revealed in your comments. It’s pointless to engage in lengthy debates with conspiracy theorists. Logic means little. But let’s suspend disbelief for a millisecond and say you’re right, that the price of gold is being fixed. Why in the world would you throw hard-earned money after the slim prospects of actually exposing and overturning the fix? Talk about a low probability of success. But I digress. What’s most troubling is many investors, including some in my industry, say gold is a forever position and they are committed to “a lifetime pattern of purchasing” and will never sell. Some of you even revealed 50% of your portfolio is invested in gold. Here’s the thing. I know that Christopher Columbus says, “Whoever possesses it [gold] is lord of all he wants. By means of gold one can even get souls into Paradise.” But if financial Armageddon unfolds, which many gold bulls predict and in some sickly way wish for, gold will be priceless and worthless at the same time. How so? If world governments collapse, social order goes to heck, McDonald’s won’t magically be set-up to “make change” for your gold bars. ATMs won’t spit out Krugerrands. What’s more, even if the price of gold tops, say$5,000 per ounce under such circumstances, what can you do about it? Cashing in on the gains means accepting the thing gold bugs completely despise, paper currency, in return. So indeed, it will be priceless, useless and worthless all at the same time.

Bottom line, the world isn’t set up to handle gold as a currency. Not now. Not ever. It’s merely an asset. And like all other assets, it’s susceptible to bubbles.

If you’re in the speculative mood, I recommend shorting gold in the coming months. Especially since, as the saying goes, “gold goes up on an escalator and comes down in an elevator.”

At the very least, examine your reasons for owning gold. If you believe the end of capitalism is nigh and financial ruin is imminent, just remember you need gold to be liquid, acceptable and portable for your investment to be really worth anything.

All three are big question marks, convincing me John Maynard Keynes was more right than most want to admit. Outside of a small allocation for diversification purposes, gold is indeed a barbarous relic.

I’m off to the message board to prepare for the onslaught of “fan mail”…

Good investing,

Lou Basenese

Today’s Investment U Crib Sheet

Lou Basenese has been a firm believer that small-caps are the place to be for 2009. He’s been encouraging readers to consider adding small caps during the market’s slump. Here’s an excerpt from his Small Caps for 2009 article below.

Why 2009 Will Be a Small-Cap Stock World After All

“Let me tell you why jumping into the deep-end and buying traditionally riskier small cap stocks is actually the smartest bet right now. I’ll let the data, not my own personal convictions, do most of the talking…

• Coming out of recessions, nothing beats small caps. Last month, the National Bureau of Economic Research (NBER) made it official. The U.S. economy is in a recession. No matter when we make the calculation (after one month, six months, one year, even three years) small cap stocks trounce their larger brethren coming out of slowdowns, according to the data crunchers at Old Mutual and Morningstar.

• Even if the economy doesn’t recover in 2009, small cap stocks should shine. The latest from Citigroup Global Markets indicates small caps could care less about the underlying economy. Even in years of flat or negative GDP growth (up to 2%), small caps return an average of 44%.
• One month can make a difference. Based on the 10 worst years for stocks since 1927, small caps jumped 18.17% in January alone. Meanwhile, large caps barely showed up for the much-heralded January effect. They only muster a 3.1% gain, on average, according to Cambria investments. I don’t know about you, but the prospect of one-month double-digit gains, especially after this year’s drubbing, excites me. The fact that they could come just weeks from now is even more tempting.

In the end, only time will tell if a small-cap rally is truly underway. By then it will be too late. I suggest you heed the data that keeps piling up in favor of small caps. I’m not saying you should invest in nothing but such stocks. But you should at least consider increasing your exposure.

Here’s one last data point to chew on: Since 1926, Morgan Stanley found large caps return more, on average, when they trail small caps. When large caps lead the way they only return 7% per year on average. When small caps shine, large caps return 13% per year, on average.

Put more plainly, a small-cap rally is a win-win. Their strength brings our large-cap holdings along for the ride, too.”

Lou also touched on the Best Way to Play the Emerging Small Cap Rally and Two IPO’s the Market Should be Watching. In short (pun intended), there’s lots of data that’s pointing to reasons why you shouldn’t discount small caps for 2009.

Any investment contains risk. Please see our disclaimer.

63 Responses to “Shorting Gold: 8 More Signs Gold is Overdue for a Correction”

1. Franc Says:

Whew! At last someone puts my mind at ease on the question: What the heck do I do with these pieces of gold?

Where I am, I can open what I call a “gold-denominated account” in a bank. The balance in the account changes with the price of gold. So, in a way, it’s like owning gold, only you own it in the form of money, not metal. I think that’s so much more useful.

I thought I was quite alone in this, and was wondering what I was missing in the decision not to rush into the gold rush. Well, now thanks to this article, I can feel fine about not being a gold bug.

2. Jeff Says:

BANK PARTICIPATION IN FUTURES MARKETS
(IN CONTRACTS)

BANK BANK LONG SHORT OPEN
DATE COMMODITY TYPE COUNT FUTURES% FUTURES% INTEREST

02/03/09 CMX GOLD U.S. 3 3,629 1.0 111,190 32.1 346,288
NON U.S. 23 33,434 9.7 42,335 12.2
—- ——— —- ——— —-
26 37,063 10.7 153,525 44.3

02/03/09 CMX SILVER U.S. 2 0 0.0 27,189 29.0 93,813
NON U.S. 13 8,416 9.0 1,871 2.0
—- ——— —- ——— —-
15 8,416 9.0 9,060 31.0

The Bank Participation Report for positions as of February 3, indicates that three or fewer U.S. banks hold a record short position in COMEX gold futures of 111,190 contracts (over 11 million oz). an increase of 28,690 contracts from the January report. The previous record short position by U.S. banks was 86,398 contracts in the August Bank Participation Report.

http://www.cftc.gov/marketreports/bankparticipation/index.htm

In other words, the current short position held by two or three U.S. banks is almost 30% greater than the previous record. After the previous record August short position was reported, gold prices fell almost $200 over the next two months. Will that happen again? I don’t know. What I do know is that if gold prices do suffer a sharp decline, it will only be because this manipulation by two or three U.S. banks was successful. Allow me to put the concentrated short positions in gold and silver into perspective. As the February BP report indicates, one or two U.S. banks held a 29% share of the COMEX silver market and two or three U.S banks held a 32.1% share of COMEX gold futures. Of the 73 markets covered in the report, no other market has a U.S. bank percentage even close to silver and gold, save the smallest market listed, 90-day EuroYen Tibor (Although I have over 35 years of futures experience, I don’t know, nor do I wish to know, what that is). Please keep in mind that the Hunt Brothers and all their reported associates had a futures market position (COMEX and CBOT combined) that was under a 10% share of the total silver futures contracts outstanding at that time and were charged with manipulation. What aren’t short positions three times as large also manipulative? As large as the current gold and silver percentages of the market held by one, two or three U.S. banks may be, those percentages are grossly understated because spread positions are included in open interest totals. Remove all spread positions (non-commercial and commercial) and the share of the market held by one or two U.S. banks in silver rises to 41.5%, and not 29%. In gold, the share of the market held by two or three US banks is really 45%, not 32.1%. How could one or two traders holding 41.5% of any market, or two or three traders holding 45% of any market not be manipulative? When the market share of the one, or two, or three U.S. banks in silver and gold are compared to the total share of all commercial traders, the result is truly shocking. In silver, the one or two U.S. banks account for more than 81.6% of the total net short position of all commercial traders. In gold the three or fewer U.S. banks account for more than 62.3% of all commercial shorts. With such a lion’s share, these big banks completely dominate and control the gold and silver markets. Lastly, by comparing corresponding COT and BP report data from January 6 to February 3, I can make the following statement. The entire net increase in the commercial short position in silver and gold (2,500 contracts in silver and 28,000 contracts in gold) basically came as a result of new shorting by the big U.S. banks. In other words, neither the 5 through 8 largest traders, nor the 9+ commercial traders (the raptors) changed their positions much during that period. Almost all the selling was by the big U.S. banks in both silver and gold. Ask yourself this – what would the price of gold or silver have been if these big U.S. banks hadn’t sold short in such quantities? How can that not be manipulation? It appears obvious that the CFTC began its current silver investigation as a result of revelations in my article “The Smoking Gun” http://www.investmentrarities.com/08-22-08.html and because many hundreds of you wrote in to the Commission. Without that public participation, there would have been no investigation. But one thing always puzzled me, namely, why did that investigation appear to center on silver? What about gold? After all, in my article, I highlighted the extreme concentration on the short side of COMEX silver and gold futures and asked how it was possible that such concentrations could not be considered manipulative in both markets. Make no mistake, the silver market is the most manipulated market in the world. But gold is close behind. For the record, I am neither a gold proponent or antagonist. I am a gold agnostic. I like to think that makes me more objective than most. I understand why people buy and hold gold, and I respect their reasoning. I study the facts concerning gold closely. If there were no such substance and story as silver, I would imagine I would be a gold proponent. Certainly, higher gold prices do not harm silver. I know there are times when gold is positioned to rise and fall and I try to analyze appropriately. While I profess to a neutrality on gold, I don’t profess to a neutrality on manipulation. The latest data from the CFTC confirm a manipulation in gold. Gold people should not tolerate it. Since there must be at least a hundred times more people interested in gold than are interested in silver, their collective voice could be forceful. The evidence in the February Bank Participation report is clear – two or three U.S. banks held a record net short position equal to 15% of total world annual production of gold, a staggering and unprecedented number, exceeded only by the absurd percentage in silver (currently 20%). In every reasonable measurement of market share, two or three U.S. banks are completely dominating and controlling the gold market. All according to government data. Who gave these U.S. banks the right to manipulate gold prices? The U.S. Treasury Department? Why are banks who are receiving taxpayer bailout funds even shorting gold and silver in the first place, especially at a time when so few other big entities chose not to? Shouldn’t they be looking to make loans to real people and businesses and leave market speculation to others? Are there no honest market regulators left? I sure hope gold people get to the bottom of this and give these crooks what they deserve. Law & Order I want to thank all who wrote to me about the recent testimony of Harry Markopolos before a congressional committee regarding his prior warnings to the SEC about Bernard Madoff. All compared this episode to my two-decades long campaign to get the CFTC to end the silver manipulation. If you haven’t heard or read Mr. Markopolos’s testimony, you should do so. It’s long, but it’s very instructive http://financialservices.house.gov/markopolos020409.pdf In his statement, Mr. Markopolos highlights the SEC’s ineptness and arrogance, and comes up with a no-nonsense solution – fire and replace the entire senior staff who should have caught Madoff years earlier and revamp the structure for uncovering fraud. As far as the comparison to the CFTC, let me just note that it is widely acknowledged that the SEC is considered much more competent and alert than the CFTC. So, if the SEC could bungle and miss a major fraud for more than a decade, despite repeated warnings, is it not possible that a much smaller staffed agency could do the very same thing? There was a sharp contrast between the television coverage of Mr. Markopolos’s testimony and what I usually watch on TV for entertainment. Most of my leisure television viewing time involves watching reruns of the show “Law & Order.” It’s been that way for many years. I watch the show for much the same reason I imagine children watch Disney cartoons, namely, for fantasy escape purposes. Where Disney portrays heroic and kindly animal cartoon characters, “Law & Order” portrays dedicated public servants, police and prosecutors alike, who risk their lives and devote all their time to protecting society and upholding the law. The show allows me to balance the reality I face each day with a nightly escape of what should be. There is no SEC ignoring credible warnings, nor a CFTC dismissing hundreds of bona fide complaints on any of the nightly reruns. Instead, the public servants on TV leave no stone unturned to get to the truth and let justice and the law prevail. Oftentimes, the TV public servants cross the line and are too aggressive in their pursuit of the bad guys and are reprimanded, with the resultant message that the rule of law must be observed at all times. The irony is that the fictional characters on TV have sworn to the same oath of office as have their real-life counterparts at the CFTC and other government agencies. I accept that my TV viewing is fantasy and escape, as much as I accept that the CFTC is incompetent, uncaring or worse. The only issue is what to do about it? Live in a world where the law is upheld only on television, or bring pressure in the real world where it is not? For me, it’s an easy choice. I know I must do what I can to terminate the silver manipulation. That’s the primary purpose why I write publicly. Specifically, my role has evolved into presenting credible evidence of the manipulation and then trying to persuade you to pressure public officials to terminate the manipulation. Reply John Galt Says: A good summation of the manipulation of the gold and silver commodities markets by two or three big U.S. banks (who are now recipients of the TARP taxpayer-financed bailout funds) can be found as an answer (by “Jeff”–answer #2, scroll down) to an article suggesting that gold should now be short sold at http://www.investmentu.com/IUEL/2009/February/shorting-gold2.html?o=1652087&u=7445297&l=1605124 . I have long considered this big-bank manipulation of the silver market, in particular, to be a key element in sustaining, or propping up, the value of otherwise worthless government currency. This process, in fact, must be ongoing to preserve the illusion that silver (and gold) is merely a commodity (and not money). If silver were to surface as a monetary instrument, it would be “all she wrote” for the government currencies of the world. By maintaining their massive short positions in silver, and adding to them at critical moments to shake out would-be long investors, silver continues to be artificially depressed, maintaining the supremacy of government currency. Industrial destruction of silver thus can continue until the silver stocks of our ancestors, built up through centuries of thrift, can be forever erased from existence (practical recovery being impossible from waste and sea water, and the discovery of future “bonanza” deposits being highly doubtful). This process is the essential machination of J.M. Keynes’ hatred of silver money (and that of other medievalists born and sworn to the service of kings and their government currencies), his desire to see it forever effaced from existence, leaving mankind again and forever at the mercy of kings and tyrants. This process is now being continued, as “Jeff” points out, at taxpayer expense, as these two or three large banks are presumably major TARP recipients. How can this destructive process be ended? I am confident that it shall continue until the exchanges themselves are closed down by physical withdrawal, and physical shipment out of storage at New York and other government controlled banks, of the metals in question (silver and gold). Who is in a position to do this? For one, some foreign governments can, those which are philosophically alienated from the U.S. but upon which the U.S. depends for resources or to help it “roll over” its monstrous debt (Russia, China, Venezuela and Iran for openers). Private citizens also may attempt this (although they generally will be subject to future re-confiscation by government G-men acting under future emergency edicts or legislation empowering gun-toting agents to drag off, even torture, those who hold metals and are made known to the government by informers and “paper trails”). So, yes, these silver market manipulators can–and inevitably will–be beaten, but only by people clever enough, or powerful enough, to avoid the pitfalls. Unfortunately, the great mass of humanity, foolish enough to buy into the agenda of government currency lock, stock and barrel, will be the thorough losers in the coming transition. I highly suspect that the mean American household has less than a single silver dollar (or its equivalent in their physical possession), as opposed to their American ancestors who, only 110 years ago, probably had a mean of approximately 25 silver dollars (including fractional silver coins such as dimes, quarters and half-dollars) at their fingertips. I further suspect that, after the government’s inevitable, forthcoming attempt at confiscation of all silver and gold money, only a handful of rich families, who live “above” the powers of the confiscators–and a few extremely thoughtful and careful individuals who have amassed their silver/gold wealth without “tipping their hand” to those around them, or, of course, the government thru “paper/electronic trails”–will hold the concentrated silver/gold wealth of an entire nation (or the fragments of that nation). At least 95% of the American population, I suspect, will emerge completely destitute of silver and gold money at that time–simply because they either explicitly or implicitly trusted the folly of the silver-hating (government-currency-loving) J. M. Keynes. Reply 3. DR C Reuben Geeslin Says: Before you bury gold in trail dust, I suggest you be informed that we are sitting on not only a 3,000 year (at 24/7 production from our own mines) supply from our own privately held mines but also more long term orders for both dore’ and bullion priced at moving scales upward over thirty six months. Up and down shorting sure, but constant upward pressure from existing orders to 1800/2500 per troy ounce by July, 2010. DR. C Reuben Geeslin, Ch, Gold Network Mines Pte. Ltd, Singapore Reply 4. philadelphia trader Says: Lou- Bravo… I’m not very knowledgeable about gold per say, but if I ever read a more insightful article regarding same, I can’t remember! Let the know-it-alls beat you up over your article, the’ll wish they had understood when gold is down under 800 dollars. Well Done! Reply 5. P Swift Says: Excellent follow-up, Lou! I especially enjoy the following… “What’s more, even if the price of gold tops, say$5,000 per ounce under such circumstances, what can you do about it? Cashing in on the gains means accepting the thing gold bugs completely despise, paper currency, in return.”

It’s exactly what I was thinking when I read
it’s at!

6. Mike Stevens Says:

As I said in that “other” thread, previously I had twice ignored Lou to my loss and this time I spoke to my trader with more understanding and I decided Lou was right and I sold my gold and silver three days ago (for a small profit) and went short on Silver which as I write was the right thing to do. I shorted yesterday at $13.70 and this morning we are down to 13.08. I’d be interest to know how Lou get his$700 gold target as my trader has a low target of $880 – a big difference. Reply john Says: what to you recommend as the best way to short gold/silver? Reply Bob Says: If you don’t have a commodity futures account just short GLD (the ETF) or buy puts on it. Reply Mike Stevens Says: I don’t use funds I deal with the base metal via a bullion dealer. mike 7. Bob Says: Lou, Thanks for clarifying your position – glad you made it clear you were only talking about a trade for possible short-term gain. But is 9 months really an intermediate time frame? More importantly, for those of us with a longer investment horizon (say 1 year or longer), shouldn’t we be more concerned about the possible inflationary consequences of the large increase in the money supply that the Fed has been orchestrating since the financial crisis hit? If so, then it seems to me that jumping in and out of gold at this point is like playing with fire. Reply 8. Katharine Cotrell Says: The best and most concise article I have read on this subject. If your thinking is elegant, your exposition is even more so. Thank you! Reply 9. Richard T. Says: I will not contest your points nor ridicule you or your character, Louis, regarding shorting gold. I think there are all sorts of reasons you will be right. However I would like to make one point regarding your suggestion that gold will be both priceless and worthless. If the huge govenment spending program we are now initiating at full throttle does, as it rightly should, lead to a bout of hyper-inflation to make ends meet, would you rather own worthless paper that no longer can be used to buy anything of value or a gold bar that can be exchanged at the going rate where you can actually buy something of value? Reply John rountree Says: Please feel free to short your gold & everyone else too, so the price will yhereby drop & I can purchase more gold at a lower price in expectation of hyper-inflation and the devalued dollar as we head into a national debt of 13 trillion dollars and as China attempts to destroy our economy by undervaluing the juan & cashing in our treasury bills. I thought it was great to plug everbank for gold purchases while at the same time giving advice to short gold. The next 7 months will give you & me an answer on the validity of your advice. Reply Mike Stevens Says: I think the advice to go short is short term. With hyper-inflation and goverment controlled banks the long term outlook is up. Reply Liz Gray Says: I don’t have the cash available to either buy or short gold, but I am investing. I would suggest “stocking up” on durable goods. If China closes it’s Ports…how long will your shoes last? Your coat…the tires for your car? All those people with gold or silver coins will be buying necessities. Does anyone remember what happened when the German mark collapsed early in the 20th century? It took a wheelbarrow of paper cash to buy a loaf of bread. Perhaps the best thing one can do is learn to grow food. Since WW II, wars have destroyed several ecconomies. Gold and diamonds are impossible to digest, so think about farmland, a truck garden in a vacant lot, or a few plants hanging in a window or under a grow lamp. My friend is a Civil War reenactor. During a major power outage in Omaha, tents were pitched, and food prepared over camp fires. “We just turned back the calender 150 years…” This country needs to admit that Kenessian ecconomics (spelled wishful thinking) doesn’t work over time. The King is NAKED. As I remember the tale, people were told that only the incompetent would be unable to see the lavish clothing, so all pretended to see the garments. Was gold involved? Yeah as both payment for the tailoring, and gold thread woven into the nonexistant “cloth of gold” Can some researcher find the “Cross of Gold” speech by William Cullen Bryant? I may not remember the name, but he lost to Abe Lincoln. We need to have our cash backed by more than the liars in Washington. No inflation? Compare the price of bread, eggs, hay, tires, wheat or corn. Worse, look at the price of seed and fertilizer. Oil dropped yet shipping is still high, and all the prices that went up due to high deisel have NOT dropped. Is that inflation or greed? If things get a lot worse, one might be trading bars of soap for bars of gold. It can’t hurt to stuff a couple old fruitcake cans with cake soap, and powder detergent. Liquids can evaporate… even Bourbon, still sealed. How many days shelf stable food do you have? Most grocery stores rely on daily deliveries. Shelves get stripped bare when a hurricane is reported. An ecconomic storm could be much worse. I sincerely hope I never have to rely on what I grow personally. I got one tomato from 12 plants. I will keep trying to grow them. It’s said that one brings about what one thinks about, so lets put the panic button away. New industries will arise, providing marvels most of us have never imagined. Who would have believed in huge trucks while pushing a hand cart to Utah? More soldiers died from diseases than wounds, until the discovery of antibiotics. New inventions industries will create wealh and prosperity. One individual with a dream and the guts to make it come true can change the world. Look to Henry Ford, and Dr Pauling for proof. We are all reading this on computers that didn’t exist when I married in 1975. Now strangers meet over the internet, and some eventually marry, according to the ads. What will be the next thing to improve our world? Will space colonization provide us with ways to grow food and fiber with less expense, in land now desolate? What new materials will appear? Plastic and polyester are not old enough to collect pensions. I’ve heard rumor of a nuclear power plant the size of a gazebo that can supply power for 22,000 homes! Right now all my stock comes equiped with four legs, but I’ll sell a horse for shares in that company! Please let me know if these are in production, and what company is making them. Thanks Liz Gray Reply Indiana John Says: I hope that you have enough hogs. A saddle will fit on them, but don’t look worth a darn. horse don’t look worth a darn either, when he’s a- hangin’ in the meat cooler. About that powerplant, I’ll pitch in to put one in my county. Reply 10. JT Says: What does it say about the future price of gold when people are _paying_ to advertise its sale on television? To me it says they have gold they want to sell and they are willing to pay for the advertising to get rid of it at these wonderful prices. The “safest investment in the world” is a sales pitch that plays on the investors’ insecurity, of which, there is plenty at the moment. So it is a partcularly good time to sell since I don’t have to pay for the advertising. Reply Bob Says: I don’t have a television so I’m not up to date on what advertisements appear there. The only advertisements I’m aware of come from cash4gold, which is advertising for people to sell their gold, not buy it. It is targeting hard up people who want to trade in their old jewelry for a couple of twenties. That tells me that we are in hard times, not that gold is over priced. I can’t imagine why any seller would bother to spend money on expensive TV advertising because they’re already getting more demand than they can handle. Reply Tom E. Says: It is not because of demand it is because they are paying 25% of market price to desperate and naive victims. Reply 11. Larry Kovar Says: I enjoyed your article on gold. I never understand why people get upset when an advisor recommends shorting gold and or the gold/mining stocks. Negative reactions to a recommendation like that makes absolutely no sense to me. Reply 12. Bob L. Says: This is the first time I’ve read an analyst report citing the problem with the “gold and silver as money” issue. While it is true that ATM’s and the local grocer probably won’t take your gold coins as legal tender (except at face value). You miss the obvious solution which most knowledgeable gold investors support. A gold and/or silver backed currency. It isn’t the paper currency we abhor, it’s the paper backed by nothing and the endless supply provided by the Treasury. That would truely be a topic worthy of discussion by those in your business. Reply Mike Stevens Says: I think the fact that paper money is un-backed is not that relevant. You own real wealth when you have tangibles like stock in a good company or own real estate. If I’m in gold and if it get to historic inflation adjusted highs, then I will sell it and buy real estate and sound stocks. i will have no need to ever convert my gold into paper, so on this issue I do take some exception to Lou. His or anyones counter argument would be much welcome. Reply Liz Gray Says: You are absolutely correct. The paper need not be tied to metal. Any item of intrinsic value would suffice. I wonder how the people who used the statues at Easter Island “made change” Was prestiege of “owning” adequate compensation? Shells, beads, feathers, horses, cattle and hides (Buck lingers in our slang)have all been used as mediums of exchange. Reply 13. Thomas T Machaj Says: Anybody that gives credence to Keynes, is starting out wrong. I recommend a study in Austrian economics to get straightened out. Conspiricy theory or not, the central banks were in fact suppressing the price of gold by their selling. That is a fact, not a simple opinion. Gold is presently correcting and will soon continue it’s advance to new highs. Reply 14. Betty A Says: I have quite a few, about 60 gold Maple Leaf coins, that I inherited when my mother died in January of 2003. They were revalued at that time at about$325 an ounce. Since this would create a large capital gains for me and money I do not need at this time, would it still be wiser to keep them and let them be revalued at my death, so that my 4 children can benefit more at that time? I am now in my early eighties and have a more vulnerable health situation that has developed in the last few years.

Fred P Says:

Your Mother died in 2003 and you are in your 80′s. God bless her soul. She must has lived a wonderful life.
If it was me, I’d leave the coins for the children’s inheritance. Will more than likely be worth more or at least a significant advantage in capital gains tax for them.

15. Betty A Says:

Thought it possible others might have a similar situation and wonder whether to take advantage of the high price of gold regardless of high cost of selling.

Joe M. Says:

Betty ,takes Freds advice. I’m a novice invester, but one thing I do know is gold and silver. I Have studied it for the past 5 years. I am curently dating a woman who sells her gold regularly out of need for cash. I helped her find the best place around , that pays top dollar, Is highly certified and recommended, and is very safe. She gets about 25% on the spot price that day on the market. If you were to cash them in there, or at an equaul establishment, you would have gotten about $225.00 per coin as of today. An ounce of gold on the comex settled at about$917.00 ! Your coins are worth much more than $225 !!! SELLER BEWARE. Note Tom E’s reply. Good luck and GOD BLESS you. As for Lou’s advice, I have to Agree. But only short for short term, and long- long term. Good luck to all Reply 16. gary poth Says: \it is good to hear more of these statements. contrarian investing has always worked. It’s funny that people can’t figure it out that there is a time when you just run out of buyers, simple fact, and of course that is when sentiment is at it’s highest.. the only problem here is if people continue listening to you we won’t be able to make money on emotional investors.. Reply 17. Al Smith Says: This article makes little sense to me. The government is debasing the currency in such a way they probably dont want to save it with talk of the Amero since 2003 before this situation was obvious. There’s another conspiracy for you. People don’t want to see what is obvious, this government is crooked and these markets are totally manipulated whether you believe it or not. Who really believes Greenspan didn’t know the problem he was creating. He’s been caught lying more than once so you can’t trust what he says. Trust what Bush and his administration had to say, give me a break. They’ve been pumping money since 1995 they caused the boom in the stock market and housing and ultimately in gold and silver. The reasons you invest in them even though they are manipulated is because the market does what it wants in the end. Few doubt the plunge protection team but the market still falls because it is bigger than the fixers. The dollar does what the market wants and rises even though it is junk. The rest of the currencies are suspect or just too small so money ran back to the dollar in 2008. Financial history says gold will do better than a wasted currency ask the Germans who can remember the Reich Mark. Beans and rice should do well also. Reply 18. Bob Says: Lou never addressed the fundamental issues that made me buy gold some years back. We have a breathtaking federal deficit of at least$2 trillion this fiscal year. Every week Obama and his Democratic pals are finding some new way to spend another $100 billion. They are using the financial crisis as an excuse to do the wasteful pork barrel spending they’ve always wanted to do. Obama said that we will have trillion dollar deficits for years to come and that we shouldn’t worry about it. If our politicians wanted to make the currency worthless they’d do exactly what they’re doing now. None of this means we can’t have a short term correction. The week to week and month to month price of gold is driven by psychology, not fundamentals (as is the short term price behavior of any asset). If you hold physical gold, there is no reason not to keep it. If you’re trading ETFs, sure, this might be a good time to go short. I’m never good at guessing short term price movements myself, so I stay away from such trades. I still see no one I know personally aside from myself who actually owns gold. And my circle of friends and acquaintances is not limited to trash collectors and newspaper boys. Sure, there’s more talk about gold in the financial press than there used to be, but I doubt that 1 in 50 people with an IRA or 401(k) has any gold at all. But almost everybody has bonds, including treasuries paying 3% or less. If you’re looking for a bubble, there it is. “The world’s largest gold refinery is pumping gold coin blanks at a rate not seen in 23 years, according to Bloomberg.” Well, it’s about time. I haven’t bought any gold recently, even on dips, because the premiums for coins are at such nose bleed levels. If they can finally meet the demand we won’t have those absurdly high premiums anymore. But it seems odd to argue that gold will go down both because jewelry demand is down and because investment demand is up. Reply 19. Ralph Pennisi Says: I’m no fan of Keynes nor many other economists. But I do believe in the Law of supply and demand in a free and transparent market….and this is the only issue I have with your recommendation to short gold over the short term. Current market intervention in the US and its trading partners’ economies is making (majority of) investors very nervous and increasing demand/putting serious upward pressure on gold prices. From where I sit, these economies are not (anywhere near) recoverying fast enough to cause their governments to end bailouts or reduce spending or stop printing money….hence my concern that shorting Gold in next 6 – 9 months may be a high risk strategy (unless you are hedging/protecting your current holdings)…even though over the median/long term (i.e. 12-18 month+), I agree with you that the bubble can only burst. Reply 20. pavan Says: the article makes me to rethink on gold and gold stocks. its responding same as crude when it was 140 many advised for the target of 160 and even 200. now gold is given a minimum target of 1200 . lets see what happens. Reply 21. Eddie Loreto Says: I acquired the majority of my gold holdings between 2002 & 2006. I took some profit when gold hit$1000+ last year. I have been pleased with my gut feeling, also.

My greatest concern right now is the overprinting of the dollar. There is destined to be a point of hyperinflation where gold shall rise even further than we have seen to date.

Despite your well written article and the good points you make to back it up. Nothing concerned me more than your incorrect statement. “Bottom line, the world isn’t set up to handle gold as a currency. Not now. Not ever. It’s merely an asset. And like all other assets, it’s susceptible to bubbles.”

Even our constitution was originally written so that we would only use “real money”, what has been used for thousands of years gold and silver as the only currency.

It wasn’t until the introduction of the FED and the amendments that followed after the Great Depression, that we went to fiat currency. Nothing would do our economy greater good than a return to gold and silver. We would never be in a position to create trillion dollar deficits by printing money out of thin air. I pray for the day that those running our government see the error.

Before, our economy fails as have all past fiat economies and only those holding something tangible such as gold and silver can trade for a bite to eat.

As for your prediction of gold at $700, that would give me an opportunity to buy some more. For in the long term, 1-2 yrs. I see gold surpassing it’s previous record. Reply 22. Ed Merritt Says: Very interesting article, the only thing is if gold does go to$5,000 per once would I not be better off holding gold and selling for $5,000 than shorting gold now for a couple of hundred bucks. Something does not add up with your argument. Can you explain what you are trying to accomplish by shorting at this time? Reply 23. Ed Merritt Says: something does not add up with your argument. Why would I short gold for a coule of hundred dollar gain, rather than holding for$2,000 or $5,000. Would I not be better off with two thousand than a couple of hundred dollars gain on a short position. Can you explain your argument? Ed Merritt Reply 24. Libba Mills Says: Louis–Re: your article on shorting gold. The word brouhaha has nothing to do with beer or brew—though, as a University man, you might think differently. Reply 25. Tom Saecker Says: Louis. I think you are remaining very sober in a age of mass euphoria and delusion. I am not against gold, I have mining stocks and believe gold and silver will eventually go way higher, There is a tendency in human nature that gets drunk on euphoria which is a very dangerous place to be and don’t realise it until its too late. You perception is right on. Reply 26. Jimmy Says: Interesting information and I like your points regarding MdDonalds not being in a position to accept gold bars in payment for a big mac. But, I can see that in a world of turmoil created by hyper-inflation, there might be a source of short term paper money from the exchange of gold, that can then be rushed to McDonalds for a burger. I always wondered where those Germans got their wheelbarrow full of money to exchange for a loaf of bread. Reply 27. Bob Says: Please, Louise, I know everything is just great and the turn around is just around the corner and the DOW will seen 1400 with the next 30 months . . . just stop, we are following the Oxford Clubs recommendation and we feel very good about them. Oh, one thing . . . I don’t see the 5% allocation for gold in the Oxford Club Portfolio . . . Isn’t that straying from the Allocation Model? Reply 28. Cameron Payne Says: Back when 700 U.S. S&Ls were collapsing (and were then “nationalized”), many of them used the the same tactic in a desparate attempt to increase their common equity, namely to take huge risks. This was called betting big on red at the roulette table. Perhaps that is what these 1-3 US banks are doing with their gigantic short positions in gold and silver. Reply 29. Buell Swift Says: One reason for gold at these prices would be if we get the rumored AmeriEuro (for lack of a better term) new currency issue. If there is a repeat of the 30′s dollar devaulation to cover the printing press creation of money we see now and they use a similar high Treasury gold price to reissue our currency based on that price, gold should go up the same percentage or dollar is devalued. The same argument has been made for simply having hyper inflation to correct our currency creation. Reply 30. Rich Lefcourt Says: Fundamentals: Have we ever seen such a prolonged negative balance of trade before? Is Obama & Co. addressing our two fundamental problems: OPEC and China? Is our situation so secure that we can day-trade gold now and not worry anymore? If we sell gold, where do we put the cash and for how long? I’m sticking with the miners long term until I see more domestic oil production and goods that are once again made in America. Reply 31. Nigel Says: Lou says “What’s more, even if the price of gold tops, say$5,000 per ounce under such circumstances, what can you do about it? ……”

The above statement is just the point gold has held its value against a depreciating asset/fiat currency, now I can pay off my prior debt and keep the profit.

32. Mark Says:

Give me a break! I just want to smack you and everyone else in the head who says gold as money is impractical. You say that MacDonalds won’t be set up to take gold. What world do you live in? Who pays with physical cash for anything anymore? If I can walk into any restaurant in any country in the world and pay for my meal with my credit card and get billed in my home country currency when I get home, why can’t I pay with a credit or debit card and gold is transferred electronically from my gold account to someone elses? The world is already set up to transact in gold as currency. All we need is the will to do it.

33. Tom Says:

Lou’s extraordinary ignorance of the whole subject is encapsulated in the statement ‘the world’s not set up to handle gold as a currency. Not now. Not ever. It’s merely an asset.” Funny, unless I missed something in my study of history, it has only been for a very short time in thousands of years of world history that gold has NOT been currency. Only someone with the limited vision of a Lou Basenese would assume that the brief period of their existence represents the way things are and will be. As always, Lou NEVER, EVER addresses the one incontrovertible argument for owning gold – the fact that world governments have basically announced that they will print money until the cows come home. The pace of gold sales and gold production is nothing compared to this tsunami of paper.

So don’t listen to this guy no matter how many times he makes a fool of himself in print.

34. Capt Brian Says:

Well, I suppose if you said you should short anything or buy anything, I am sure one could make a case for it, being that we have over 1,000,000 words in our language, and on average they have about four different meanings each, that you could make a good case for shorting gold. Especially when it is in a downtrend.

I think that few newletter writers ever stick their head too far from their keyboard.

We all have axes to grind, want to become rich and famous etc. And to do so, very few care what they have to do to arrange for their high place in the pecking order.

If Gold has not outperformed the general market since we came off the gold standard, then I am a plucked chicken. If I am not better off by selling ALL my stocks about 18 months ago, then I need to re-educate myself in understanding a balance sheet.

If I was wrong, and Luminent Mtg, E-Trade, ALL the presidents, and all the Congress’people’ never lied to us, then I must have a lot more money than my statements show.

I did, however begin to buy silver and gold about 19 years ago. (Gold was about $250, and silver about$4.00 I have not sold a single ounce, and keep adding to my larder. NOw stocks are a little different story. I got cleaned, reamed, steamed, and the cremains are in an urn next to my dear old mother.

Where is the change I can believe in? I tell you where they are, forged into claims we can believe in, and chains we can believe in.

Watch the birdie [stock market] die of lack of nutrition. [income]…

Watch the gold bug eat the cremains of stock certificates moldering in drawers etc.

Watch the Fed gobble up everything. Watch Obamma continue to feel it is okay to spend more than you earn. (I could never make that work, so I invented savings)

Enough rant, I have to save enough time to give money to folks who did not plan as well as I did. Those wonderful car assemblers In Detroit for years thought their gravy bowl would never be empty so they didn’t save. They had their union to protect them. {hmmm, had is correct} geez I could go on and on, but I think you get the picture.

Oh, by the way. You can buy gold in big ounce things for big things, and silver coins for coffee, remember the Mercury dimes, etc, I will take them for currency anytime u want to dump them on me. And gold too. oh nevermind no one is listening.

To prove it, I will coin a word. Watch this

D E C E S S I O N = Where recession morphs into depression.

Watch the birdie.

35. Earl Ellison Says:

#2 Jeff is taking from Ted Butler http://www.butlerresearch.com Its the proof of manipulation in mostly silver but also gold. If we get gold to 750 it is just JPM being successful playing the paper holders which includes the ETFs who think they own physical silver and gold. Only CEF is trustwothy.

36. Daren K Says:

Gold has only gone down in recent times because of profit-taking. I don’t think it is an early indication of a serious downward trend.

Just because demand for physical gold has reached an all-time high, this doesn’t mean that demand is saturated. It simply means that we live in uncertain times and are witnessing unprecedented events. We have never experienced anything worse in our financial markets which are in complete disarray with no relief in sight. The demand for gold more likely reflects the reality of the situation, that we are in deep sh*t, and it isn’t going to get better soon.

Your comments on not being able to use gold as a meaningful form of currency is a bit silly also. I don’t think pushing a wheelbarrow full of cash to buy a cheeseburger is practical either.

Everybody knows that gold simply represents a store of value, and that in most cases when hyper-inflation hits and a new currency is eventually introduced, gold will hold its relative value compared to paper currency. I would feel sorry for the poor sods who got stuck with old currency in the bank.

37. cal Says:

Back in dec. i read a article on silver investing.Mining shares investment U wrote about were silver wheaton & Sterling mining. Is sterling mining still a good speculation? Or should I stay clear of the stock all together! Chairman Circle Member Oxford Club ; Cal Busby

38. Sterling Wirth Says:

Actually, I predicted this gold market, and the drop as Lou says; back in 1999. In 19999, I said we would have stagflation within 3 years, followed by the biggest run up in real estate in over 30 years…then it would drop. I further said a Democrat would win the White House in 2008, and it would be a “repeat of the Jimmy Carter years; marked by hyperinflation at the end of his term, and embarrassment on the world stage.” Imagine my surprise when Obama appointed Paul Volker…Jimmy Carter’s guy. I follow Master Cycles and Minor cycles. Sure there are always peole trying to manipulate markets. We would be fools to think otherwise. But the same goes for thinking they are controlled, when it is really the Master Cycles that are in control. It is foolishness to think otherwise. It cracks me up to see everybody trying to cash in on Peter Schiff, because he said his comment about housing 2 years ago. So what? I predicted the RISE of housing as well as the fall; almost 10 years ago…along with a dozen other MAJOR moves that have all come true. I have been doing this, accurately, since 1974.
On gold, I said it would rise, as it has. I had the timing accurate. I said EVERYONE will be talking, and buying, gold. Then it will drop, bottoming in June 2010…a higher bottom. Around $550 to$650. Then will begin an erratic rise, that will become steeper and accelerated from 2011 till peaking in 2013. That will be the point of global depression, marked by inflation here, and deflation abroad…the opposite of the Great Depression. In 2013 will be the start of a 3 year world war. Again…all these were said in 1999. Also, I stated that people that are jumping into gold en-masse would lose their shorts. And when it becomes time to really take the plunge; no one will listen. Much like in 1976, June, when I said that gold would go to $300 to$400 for certain, maybe even $500 to$600. It was $120 at that time, and 20 major publications came out saying that gold was dead. The Wall Street Journal ran a headline that same summer that said, “$189 Gold a Fluke; Never Happen Again.” Since $189 was the previous all time high; my predictions sounded insane. (I had also said that it would briefly drop from the$120 area to near $100….which it did, at just under$104.) So 3 years after my INSANE prediction; gold was at $420, and 2 years later over$800. Again, I predicted the RISE and FALL of real estate. The 1 year to 1 1/2 year run of the dollar strengthening. The drop in oil, the coming drop in gold, and the coming mania in gold…2011 to 2013. I predicted the party in the White House, and the policies. Also, in ’99 I said we would have war in the middle east within 3 years…we did. And I said a war with the UN was a possibility….which sounded insane at the time; but not so crazy 3 years later. I said oil would bottom at the mid $10′s per barrel, which happened in Feb. 2000. In January 2006 I said gold would peak the last week in April, and the buy time would come when the spot price hit$550 sometime between June and September. The gold peaked almost a week later in May, and the Buy target came in June. I could go on, as there a couple dozen more predictions that I made that have already come true….and the others are on the way.
Bottom line….Lou is right. The decline in gold is certain…..as is the coming explosive rise in gold; starting out slowly in June 2010, then getting explosive in 2011 thru 2013.

Shelby Says:

http://www.investmentu.com/IUEL/2009/February/shorting-gold2.html?o=1652087&u=7445297&l=1605124

Here is my logic:

Thanks for your thought provoking article.

But consider that the 30 million oz in GLD is only $30 billion. Figure there are maybe 100 million global investors with access, so$3000 each on average. Is that saturation in a “death of financial system” scenario? They’ve got $trillions in net worth in fiat. Short-term correction yes. Secular bubble for gold, no. The move up has been a little too fast, correction to give time to build up more participants from the next wave of fear and the eventual run from long-dated Treasuries once inflation heats up. And that means other investments may have more upside than gold which just peaked at all time highs in most currencies, specifically silver which is still way off it’s recent highs even in other currencies. Of course there are better shorter term speculations than gold (e.g. shorting long-dated treasuries if you know what you doing, picking small caps, etc), because gold’s role is to be a smooth interperolation of the transformation of the current global financial system. Other things are priced relative to gold, and thus will have more price action, including fiat itself. But long term, gold is the currency, always has been, always will be. And if you want a play on that with more leverage, then silver leaves the monetary world periodically but always comes back with a venegence. It depends on your investment goals. For me, I need my savings to represent stored labor, not extract more labor from me, chasing investments 24 x 7. The simplest play right now, is buy silver and sit back. It is coming back to play it’s historical role as money, as it always does. Why? Because the financial system is a Ponzi system in extremis (read the logic at VaultOz.com — apologies for the plug because that site is not taking orders yet). I make my living programming software, not as an investor. And I want it to remain that way. I want to protect my stored past labor. And equities have not out performed generally over time. I set out to start some preliminary research on whether this theory is true or not. I know Warren Buffet has mentioned Coca-Cola (NYSE:KO) as one of those type of companies he likes to buy and hold (forever is his preferred holding time). Yahoo Finance reports the share price was 1.98 on January 2, 1962. I plugged this into the ShadowStats.com Inflation Calculator (using the SGS adjustments for correctness), I see the inflation adjusted price as of Sept, 2008 is$41.25 ($14.44 for incorrect BLS inflation). I see the share price today hit$41.50.

So all the price gains in Coca-Cola stock since 1962 have been due to inflation. No stockholder has made a real inflation-adjusted penny in equity in Coca-Cola in 46 years. I have read that Coca-Cola pays a dividend of about 2 – 4% per year, which I bet just about has kept up with world population growth since 1920. The point being that the investment would take about 25 years to double, adjusted to inflation.

Gold since it was un-pegged from a govt mandated price in 1971 of $40.80, has a inflation adjust price as of Sept. 2008 of$640, yet recently gold has been between $750 to$950. However, a 3% inflation adjusted annual yield would be $1911. So clearly gold is under performing Coca-Cola thus far. Thus clearly Coca-Cola has thus far been a superior investment than gold, yet Coca-Cola still has not been a fabulous investment so far during my lifetime. But physical gold in my hands, has less risk than Coca-Cola, because it can’t nationalized, frozen, nor debased with hyperinflation. I pay for this lowered risk, by expecting gold not to yield anything but keep pace with inflation, which it has done. This response will likely appear this week as an editorial published at financialsense.com and gold-eagle.com All the best, Shelby Reply Daren K Says: Sterling Wirth, hindsight is 20-20. It is easy to sit back and talk about how you were right about the past, but unfortunately you don’t have a visible track record – so your predictions are as worthless as mine (unless you wish to back it up rather than blowing your own trumpet) Reply 39. Mark D Says: True Gold Bugs do not despise paper money, as you put it. A true Gold Bug knows the safety of Gold and understands the danger (and utility) of paper money. The leprechaun dances happily with everyone while the music plays. But he is the first to jump and run when the music stops! Then, he comes back quietly later and collects the ‘cash’. Reply 40. Shelby Says: The following comment is thought-provoking: [quote]…On gold, I said it would rise, as it has. I had the timing accurate. I said EVERYONE will be talking, and buying, gold. Then it will drop, bottoming in June 2010…a higher bottom. Around$550 to $650. Then will begin an erratic rise, that will become steeper and accelerated from 2011 till peaking in 2013. That will be the point of global depression, marked by inflation here, and deflation abroad…the opposite of the Great Depression. In 2013 will be the start of a 3 year world war. Again…all these were said in 1999. Also, I stated that people that are jumping into gold en-masse would lose their shorts. And when it becomes time to really take the plunge; no one will listen. Much like in 1976, June, when I said that gold would go to$300 to $400 for certain, maybe even$500 to $600. It was$120 at that time, and 20 major publications came out saying that gold was dead…[/quote]

Especially if viewed in context of this commentary:

http://www.gold-eagle.com/editorials_08/ash030109.html

And the scenario that could possibly make gold top temporarily, would be rising long-dated treasury interest rates, as people abandon them in hyperinflation for either higher returns in equities and dividends (and possibly commodities) and/or safety of short-term 0% interest treasuries (you can hold them to maturity so no capital loss). [b]So maybe shorting long-dated Treasuries is a good diversification right now[/b]. But keep in mind that is speculative because it depends on the velocity of money. We do know Paul Volcker is in there, and he knows to raise interest rates and has said the biggest mistake we made in 1970s was not capping the gold price. But what will long-dated Treasury interest rate rises do to the financial system? Massive defaults or does that get the credit moving again because there is enough return on risk? Lots of questions that I don’t have time to develop scientifically thorough answers to. I like silver on any dip below $12. The worst downside is probably$9, and the upside is tremendous, especially if holding to 2010 when any dip in gold will be finished.

41. Schruh den Vester Says:

“Sterling Wirth” you sound like a wise man, but sorry, never heard of you (I live in Europe). Please enlighten me and others as to where we can learn more about you and your predictions?

42. Sterling Wirth Says:

For Daren K.
I didn’t read your predictions…till just now. But it seems that we agree on one of the most important points; that hyperinflation will come one day. The difference is that I have openly stated timing…and also price points as well. “Blow my trumpet”..? Not at all. Just pointing out where I was right in the past. Any analyst worth salt does the same. When we have a record of being right; it increases the odds we are right about the future. Every prediction I stated here from the past, and many others I have not made known in this forum; can be backed up by witnesses..family, friends, and professional brokers etc. and also trade records in cases where I traded the prediction.
I do disagree with you, obviously, about why gold has dropped from time to time here…and will drop into early to mid 2010. You say profit taking. I say cycles. If you were right and it is profit taking; why?…at this point would that be so widespread? When fear is increasing daily?
I have said when I believe gold will bottom, and around what price point. But between now and then; I have not commented except in passing; that I believe Lou is right. So now I will: I think it is a “possibility” that gold could exceed previous highs; before dropping into early 2010. Many analysts and other investors believe that if gold blows thru the high of last March; that it will rocket MUCH higher, (Peter Schiff is one who says that). I disagree. I believe it could “possibly” shoot thru that high by $30 to$100; and drop like a rock. That is another reason I said people will lose their underwear. Of course there would be dramatic rallys and bounces. But the bottom line is; a bottom in early to mid 2010; as I said, June, around $550 to$650. More important than the price; is the time to buy. THAT will be the time to blindly buy, and add to positions on pull-backs.
All you need to do to understand why I say people will get burned, and refuse to invest at the proper time; is to understand investor psychology. Back in ’98 I received an offer of a gold newsletter in the mail. The writer of that newsletter said he was the world’s foremost “expert” on gold prices; and that he was the one recommending buying gold back in 1974 when it was “only” $189, and it later went to over$800. I was really annoyed by this highway robber. He reco’ed buying gold when it was at it’s HIGH..!! Then claimed later he was right. Yet we all know that as gold dropped from that high; that large percentages of people dropped out at a loss. Then when it bottomed, as I previously wrote; between $120 and a brief flirt below$104; another huge percentage got out at the exact bottom. Then the vast majority of the rest, that took this “experts” advice; got out when it reached “break even” for them. So, 99.9% of anyone who took his advice in 1974 at the peak, either lost money or broke even. Now, when I was saying it was time to buy gold, (and real estate as well…and yes; I did buy both), who do you think would listen? A hint…it wasn’t the previous subscribers to this “experts” advice. That is the same scenario that I predicted would happen here…since ’99. I make a prediction; then I enjoy watching it unfold. In ’99 when I made this prediction about a Dem winning the White House, and hyperinflation towards the end of the term, (and a repeat of Jimmy Carter); I had never heard of Obama, and there was not even a hint of any bubbles developing in the credit markets, or any of these other issues. Obviously now we can see that the bailouts, etc. are going to fuel the master cycle I predicted of hyperinflation…more than even I imagined.
In 1981 and ’82 people were saying gold was going to $2000 an ounce. I said “no” its going down. I said it would drop, and bottom in 1996. Now, I admit I was wrong THAT time. In 1999 it got$10 lower than in ’96. So I missed that by $10 and 3 years. But I was, after all, predicting 15 years into the future. But here is the good news; I didn’t buy until June ’99, when I bought Feb.$310 calls for $100 each. Around 3 months later, near the end of September; those call options were worth$4500 each. But I am NOT perfect; and admit that I sold mine for “only” $3000 each. As gold goes, I like to play it, because it is soooo predictable. But I am not married to any particular market. In Dec. ’74 I bought stock like a madman. I was young, working in a lumber yard. Hadn’t traded stock in years. But that market was a no brainer. I bought Rocket Research in Seattle for$1.60 per share. I went in debt to buy it. I bought every chance I got, all the way to $7.50 then stopped. A couple months later, in May I believe, ’76, I sold it all for$9.50 a share, and it peaked at $10.25 a bit later. I bailed and bought real estate and gold. Real estate doubled in the next 3 years, and I already posted what I said gold would do; and what gold did. The sad fact is that all the “gurus” will say they are right no matter what happens. They are saying “load up on gold” like Peter Schiff. Even tho the timing is off, and most who follow them will bail later at a loss; when gold does get hit by inflation as I said it would almost 10 years ago; they will all say they were right. Reply 43. Joe Baker Says: Me thinks that you have studied W.D.Gann well. Are you offering your forecasts ? Reply 44. Jim Says: To Mr. Sterling Wirth, You’re analysis are amazing but only someone who really understands cycles can appreciate your work . I have a very important issue about gold and the stock market and interested in discussing it with you, so if you’re interested my email is : maple_fan2@hotmail.com ,my name is Jim . feel free to send me an email as soon as you see this message . Reply 45. AGoldhamster Says: “But the bottom line is; a bottom in early to mid 2010; as I said, June, around$550 to \$650. More important than the price; is the time to buy. THAT will be the time to blindly buy, and add to positions on pull-backs.”

Oh you are the most clueless guy on gold i know actually. I know several well connected investors as well as since decades successful traders following Gann and Cycles – and i can only say: either you are a payed affiliate of da gold cabal – or you are just absolutely clueless on golds fundamentals and what is going on beneath the surface. So just this to your subscribers: Anybody short gold and hoping for prices below 850 (or 900 in my opinion) again will get badly badly burned.
Of course not investment advise and always DYOD!

46. Rick @ Canadian Paper Money Says:

I’ve been reading your blog for awhile now. It is one that I really enjoy and keep coming back to read when my busy schedule allows me to.
Please keep up the nice work.

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