Bring on the gold correction

Whoa… ! On Friday gold got whacked hard. Down $78.

Is this the end for the bull market in gold? Everybody says so. The New York Times:

…in Pocatello, Idaho, the tiny golden treasure of Jon Norstog has dwindled, too. A $29,000 investment that Mr Norstog made in 2011 is now worth about $17,000, a loss of 42 percent.

“I thought if worst came to worst and the government brought down the world economy, I would still have something that was worth something,” Mr Norstog, 67, says of his foray into gold.

Gold, pride of Croesus and store of wealth since time immemorial, has turned out to be a very bad investment of late. A mere two years after its price raced to a nominal high, gold is sinking — fast. Its price has fallen 17 percent since late 2011.

Wednesday was another bad day for gold: the price of bullion dropped $28 to $1,558 an ounce.

And this was before gold tumbled on Friday.

We can barely stop laughing.

This sad sack ‘investor’ thought he would make money by putting $29,000 into gold stocks.

Ha ha ha… wrong on all counts. He thought gold was an ‘investment’… he thought an amateur speculator could make money in gold stocks… and The New York Times thought he was an investor.

And now, The New York Times thinks gold is going down. Why? Let’s let the NYT tell us:

Now, things are looking up for the economy and, as a result, down for gold. On top of that, concern that the loose monetary policy at Federal Reserve might set off inflation — a prospect that drove investors to gold — have so far proved to be unfounded.

And so Wall Street is growing increasingly bearish on gold, an investment that banks and others had deftly marketed to the masses only a few years ago.

Ha ha… do you remember Wall Street deftly marketing gold a few years ago? Show us the ads! Give us the brokers’ phone logs! Prove it!

The fact is, the masses never got anywhere near gold. Not even close. Most people have never seen a gold coin and few are as reckless as the aforementioned Mr Norstog. Most are even more reckless! They’ll wait for gold to hit $2,000 or $3,000 before they buy.

Which is why we’re nowhere close to the top. Wall Street never marketed gold, deftly or any other way. Not even in its usual greedy, heavy-handed fashion. And the masses never bought it.

Just the opposite. As the price of gold rose we saw ads in the paper soliciting people to sell gold. The masses held gold parties in which they sold their golden heirlooms at preposterously low prices.

And about those reports telling us that money printing by central banks would cause trouble, they have “so far proven unfounded”. Well stay tuned!

And get this. More good news: “On Wednesday, Goldman Sachs became the latest big bank to predict further declines, forecasting that the price of gold would sink to $1,390 within a year, down 11 percent from where it traded on Wednesday. Société Générale of France last week issued a report titled, ‘The End of the Gold Era’, which said the price should fall to $1,375 by the end of the year and could keep falling for years.”

Why good news? Because the more bearish on gold Wall Street becomes, the more the rubes and pumpkins sell. The more they sell, the cheaper it is for the smart money to buy.

Yes, dear reader, we hope Goldman and SocGen are right. We’d like to see gold crash down around $1,300… or lower.

First, because this would mark a real correction in the bull market. It’s been going on for 12 years without a serious correction. Not a healthy situation. We’d like to get the correction out of the way, shaking out the Johnnies-come-lately and the two-bit speculators. Then, the final stage in the bull market could begin.

Second, because it gives us a chance to buy more. Because no matter what noise you hear in the press or in the street, central bankers are far more reckless than Mr Norstog. The monetary authorities are convinced that they can revive sluggish economies by printing money and they’ll continue printing until all Hell breaks loose.

Then, when the dust settles, when pounds, pesos, yen, euros and dollars have all been beaten and bruised, there will be one money still standing tall. That will be gold.

• Don’t miss Bill’s next Daily Reckoning. To receive the next article straight into your inbox as soon as he’s written it, sign up to the email list here .

Information in The Daily Reckoning is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Appropriate independent advice should be obtained before making any such decision. Your capital is at risk when you invest in shares – you can lose some or all of your money, so never risk more than you can afford to lose. Always seek personal advice if you are unsure about the suitability of any investment. The Daily Reckoning is an unregulated product published by Fleet Street Publications Ltd. Customer services: 020 7633 3600. Fleet Street Publications Ltd is authorised and regulated by the Financial Services Authority. http://www.fsa.gov.uk/register/home.do FSA number: 1152 34

8 Responses

  1. 15/04/2013, Johnny Cyprus wrote

    The Gold Market is fickle; Cyprus might have to sell it’s modest reserves and the bottom falls out.

    As I always thought, and is now clear; Cypriots were the richest people on the planet. Unfortunately, now they don’t have any money to buy up this surplus gold.

  2. 15/04/2013, Boris MacDonut wrote

    9.3% in a day today and 22% in 4 months. Surely the bear arrived before Xmas.

  3. 15/04/2013, Jeff wrote

    Good article Mr B.

    I remember you wrote back in Aug 2011, when gold was $1800, that the bull market had not given us a true test yet. You said that it was more likely we would see $1200 prices again and only then would the last stage of the bull market start. Looks like you were right.

  4. 15/04/2013, Ian wrote

    $1375 by the end of the year?? Past that already since you write your article!

  5. 15/04/2013, astrogeezer wrote

    Hmmm, let’s think…….$1300 greenback or $1300 of bullion? £1000 sterling (I promise to pay the bearer, snigger, snigger) or £1000 of bullion?
    The Fed will use every dirty and illegal trick in their armoury (inc naked shorting) to manipulate the gold price downwards to support the scabby dollar, with the full backing of good ol’ Merv and ‘what ever it takes’ Mario.
    The Truth will out.

  6. 16/04/2013, Commenter wrote

    You want the price of gold to drop? Then stop advertising it maybe?

  7. 16/04/2013, Uy wrote

    Why are you advertising gold if you want it to drop in price?

  8. 16/04/2013, Big Si wrote

    I think the time to buy was 6-7 years ago when no matter which tv channel you were on the ‘cash for gold’ adverts kept repeating every 15 minutes. Im personally gonna hold the physical metal, i have never had money in an ETF, i dont need the money so what is the point in selling? The chances are it will be passed to my family, the future generations need to be taught about ‘real money’.

Comment on this article

MoneyWeek magazine

Latest issue:

Magazine cover
Profit from the agriculture boom

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 3 FREE Issues
Shale gas 'fracking' promises to transform Britain's energy market. Find out what it is, what it means, and how to invest.

More from MoneyWeek

The problem with the Bank of England

Fracking: Nine reasons not to get carried away

Five small-cap stocks worth a flutter

This Dutch company could help us tame floods

ScreenHunter_01 Mar. 25 09.51

Get the latest tips and investment opportunities from MoneyWeek magazine: Claim 3 FREE issues HERE