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Sunday, June 20, 2010

GOLD BUBBLE? WHAT BUBBLE?

We continue to hear pundits describe gold as a bubble. Certainly it will turn into a bubble before this is all over but we are hardly in the bubble stage yet. In order for a bubble to form you need the public to come into an asset class. The public is pretty dim and it can take 15-20 years before they "catch on". It took 18 before they noticed the tech bubble.

Once they do start to "get it" we will have about a year to a year and a half as gold enters the parabolic stage before the bubble pops. See the Nasdaq chart below from late 98 to March of 2000.

At gold's top, half of your neighbors will be buying gold (not selling like they are doing now).

At the top there will be lines outside the the local coin dealer waiting for the next shipment of gold to come in.

At the top 7 of 10 billboards you see driving down the highway will have something to do with precious metals.

At the top the guy standing next to you in the grocery store will tell you how many thousands of dollars he made last month off his gold coins.

At the top everyone will have become convinced the dollar is toilet paper and will only continue to decline until it has become worthless.

At the top the population will believe that we have to go back on a gold standard.  By the way, a gold standard never stopped any country from debasing its currency. In ancient Rome they clipped some of the gold out of the coins. Roosevelt confiscated and arbitrarily revalued gold in the 30's. A gold standard will not prevent a government from trying to get something for nothing by debasing the currency.

At the top stocks will be universally hated and gold universally loved. In reality, stocks will at that time, represent true value. Much more so than a shiny metal with virtually no industrial uses. 


At the top smart money will eventually come to their senses and realize that true value (profitable companies making the necessities for life on Earth) are being given away for pennies on the dollar to purchase a shiny metal that really has no intrinsic value.

Here is a chart of the Nasdaq followed by a chart of gold. You tell me, does gold look like a bubble yet?




Of course not!

I think we might be getting close to the Nasdaq 1998 level, but gold is hardly in the runaway parabolic stage where it rallies over 100% in a year. Not to mention that none of the other signs I noted above are even remotely present yet.


But no one needs to worry about a bubble just yet.  We need to have at least one more serious correction similar to what happened in `08 or in tech stocks in 1998 to wash out bullish sentiment before we can start the final parabolic run into a true bubble top.

If I had to guess I would say that will occur during the next liquidation event which should be due in mid to late 2012 as the stock market collapses down into the third leg of the secular bear market.


That should mark the next four year cycle low and possibly the nominal bottom for the secular bear market in stocks that began in March of 2000. I expect the selling pressure at that climactic event will also drag gold down into the correction that should separate the second phase (what gold has been in since early '06) from the third and final bubble stage. Gold will quickly recover, like it did from the last selling climax, and when it does this is when we will see the public begin to panic into gold.

Then and only then can we start talking about a bubble.

At the moment I think we are about to enter the second leg of an ongoing C-wave advance that began in September of last year. I'm expecting this leg to take gold to the $1400-$1500 level before experiencing a major D-wave correction.

I'll be monitoring the advance on a daily basis to keep subscribers appraised of where gold is in its intermediate cycle. When I think we are getting close to the top of the C-wave I'll warn subscribers to take profits and exit the precious metals market so as not to get caught in a D-wave correction.

38 comments:

  1. Hey Gary - -

    would you please give us your thoughts on Spain?

    Doesn't have to be lengthy... just your thoughts on its direction, resistance (near or longer term), impact on global markets...

    Thanks man. Have a great day.

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  2. I suppose Spain will follow the rest of the world markets.

    We've obviously put in an intermediate cycle bottom and are very early in the next cycle. So I expect the global markets to rally for the next 6-7 weeks at least. It depends on how long the dollar takes to move down into it's intermediate cycle low.

    I covered this in the weekend report.

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  3. G,
    Kudos an great calls in gold and the stock market. You've been on fire lately :)

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  4. Exciting day....yawn!

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  5. TOOOOO many long and wrongers today.

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  6. Well maybe if you are a day trader but it certainly appears that the intermediate trend has turned back up. What's a down day or two other than a buying opportunity if the trend has reversed?

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  7. Just checking in, and I see we had a tough day today, even though still sitting very nicely profitable (+28%, Thanks Gary!)

    I sure hope Timmy Knight and Dawler Boy come out with "strong short" recommendations on Gold so we can resume our ride higher! :)

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  8. +28% in DGP that is, with average cost of $25.77.

    Thanks again, Gary!

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  9. Regardless of what Gary says about correlation, I'm always happy to see solid buying in GLD on the WSJ's BOW page. Nothing like having big money on your side :)

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  10. My non-trading cyrstal bull is saying down for a bit. But I don't trade, so the more important long run bull is the eye on the prize. The longer it takes for this bull to keep kicking and nipping, and plain well keep acting like an SOB, the higher the final price will be for gold. Ironic, the stronger this bull kicks the more tempted we are to act as traders, but the more long-term profit we will get later.

    Cany you imagine if gold very quietly, without anybody knowing, gradually creeps up to 2k. I mean how many noticed a double from 250 to 500? So ssssshhhh its a big secret. And really what's the difference between 1k and 2k. The public would notice 900 to 1k maybe, but what's the difference from 1k to 2k to 3k.

    So kick bull...Gold goes higher.

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  11. Leave precious metals alone. They have no intrinsic value. All gambling. Just keep passing it down to the next sucker before they all come crashing down.

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  12. Considering that gold is the only asset that has been up every single year since 2000 that's probably not the soundest advice.

    It's called a secular bull market my doubting friend and it's how investors get rich.

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  13. Anon 5:09
    They have no intrinsic value.

    Intrisic value compared to ???? All about choices...stocks are overvalued, so nope. Oil..maybe for a time but if we hit 150 again it will most likely crash yet again....real-estate..not portable and from what I hear is still very fragile(ie banks can't foreclose)...what else?

    Maybe you can give me an alternative, because I would love to get a dividend or rent or something while I hold.

    Moreso if gold has been predicating a currency crisis for the last decade, it is way freaking smarter than me! Moreso if gold predicted correctly why would it be wrong when its prediction comes to climax.

    Only good thing about PMs is that you can hold them and own them. Agree with the enigma about gold...I mean its yellow and doesn't rust...oh and you can sell it to rappers for their teeth...but ya, but then again our USD is worth even less...you can clean the kitty litter with it, or blow your nose...the rest is just belief.

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  14. Why is silver crashing?

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  15. Silver is normally nuts. 10% swings in a month are normal.

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  16. silver was dwon 2.3%. How is that crashing?

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  17. ANON 5:09 said



    BHP and RTP. now give me something, like peace and quiet...

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  18. Buying gold is like buying tulips, neither has any intrinsic value. People only buy them because the price keeps on going up. All gambling. No value to society. Now you understand why we have the Tulipmania a century ago.

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  19. "Why is silver crashing?"

    Ha! Must be a noob. These guys wet their pants at the slightest wiggle - PMs will utterly destroy these people if they don't grow a pair quick.

    "Buying gold is like buying tulips, neither has any intrinsic value."

    Have you never heard of the concept of 'money'? Do you know how valuable that concept has been to the development of the human race? I suggest googling a little bit and catching up on some reading before you make empty-headed statements like that. Paper dollar are just as useless as gold and tulips. But without 'money', we'd still be a barter society and barely above the functionality of apes. What you seem to be upset with is the fact that gold is starting to compete with paper money for the title of 'money' in this country, and others.

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  20. Tulipmania was three centuries ago, and there's nothing wrong with investing in a bubble, as long as you recognize it as such and step away before it pops. Easier said ...

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  21. It's actually not hard to do at all. I easily spotted the real estate bubble and exited within 6 months of the top.

    When you start to see the public panic into an asset you have about 1 to 1 1/2 years before it pops.

    The mistake most people make is to assume that when they start to see some of the public catching on it's time to exit.

    Nothing could be further from the truth. That's the time when the really huge gains are about to be made. As the public starts to come in they can drive a bubble up 100, 200 even 300% in a year or less.

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  22. Gold to replace paper money? haha. Never!

    Going back to gold is like throwing away all our technology and going back to medieval times.

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  23. I also seriously doubt we will ever go back to a gold standard.

    Politicians will never be willing to give up the ability to print money.

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  24. Gold bull timeframe? Should occur by 2015? :)

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  25. Gold bull peak that is...we are in a bull now. sorry

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  26. Either way, up, up and away!!!!

    If we're lucky to see a dip tomorrow morning (or a gap lower), but with both fists.

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  27. that is, "BUY with both fists!"

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  28. Gary I'm scared we're going to crash again. What do you think? Hold my hands.

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  29. I seriously doubt we will crash twice. The Fed will starting printing like crazy again.

    Plus the next 4 year cycle low isn't due till 2012. It's more likely the next leg of the bear will be a slow grinding affair just like 2000-02 and just like every leg down in the Nikkei.

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  30. Pansies! We're surrounded by pansies!

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  31. Pansies is right. Did you see how I box? Like a British!

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  32. I like pansies. They smell nice.

    Funny though 90% of people are pansies given enough of a drawdown and everybody until then is super well endowed.

    I would rather be a pansy now and sell now, rather than my thresehold being 30% down and then sell.

    If your a pansy now, then you are too invested in whatever it is or you have taken on too much risk. Leverage will kill you and if you need the money to live and are trying to make a quick buck you are also in the wrong position. The only investment here, is the belief that in 5 years or 10 years or some period of time that gold is going up at least say 5 fold or so. If you don't believe in this, I would not be in any PM positions and be a massive pansy right now too.

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  33. I thinnk you are correct. If you don't believe in the bull then you have no business being invested in PM. Miners especially are too volatile for the vast majority of people to be able to trade successfully, so investing is probably the only sane appraoch to this sector.

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  34. @Anon - I have concluded that a low tolerance for pain is a good thing (if you are a trader).

    @Gary - I advise everyone to swing trade the triple levered small caps for a few months.

    After that experience a position in unlevered physical seems like a glacier.

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  35. LOL great advice except I think I'll pass on the triples :)

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  36. Yes Gary but you're discounting the possibility that, given our current fiscal and monetary policy, the dollar may truly be toilet paper one day soon. Recovering confidence in a currency is not as simple a process as recovering confidence in an individual stock or even an entire stock market...

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