But Why Did Gold Sell Off?
Okay, but if Mr. Market has flipped from greed to fear, why did gold sell off?
Well first, gold was up so much in over the last three months, it too was due for a correction.
My takeaway here is that Im not in the least worried about gold or silver.
Seriously. I dont see how anyone can imagine that a majority of market participants all around the worldincluding the Chinese, Indians, and Arabssuddenly decided in a moment of panic that gold is a risk asset. As soon as the immediate need for liquidity passes, I expect the global easy-money regime to reassert itself and start driving prices higher.
But
Until the liquidity crunch passes, gold and silver could be pushed lower.
And with fear in the air, gold and silver stocks could get truly crushed before the rebound.
If were in for a 2018-style event, that rebound could be in days or weeks.
If were in for a 2008-style crash, it could be months.
Either way, Ive no doubt it will come
and thats pretty exciting
So, Is It Time to Buy?
No.
Let me repeat that
Whether its broader market darlings, gold and silver stocks, or the metals themselves, I think its too soon to rush in and buy.
Remember what experienced investors say about trying to catch a falling safe. My thoughtsince the painful lessons of 2008has been that its better to step aside and let a falling safe smash. Then we step in and pick up whatever valuable pieces are available for pennies on the dollar.
What if prices seem to recover Monday? Dont be fooled; it could just be a temporary dead cat bounce.
Several readers have written in to say that they see gold and silver as oversold, and gold and silver stocks as way oversold. Im not sure I agree about the metals. Gold closed the week at $1,585.50 or $1,587.30, depending on which stat you use. Thats well above official correction levels.
Im not saying it will, but I could see gold retesting $1,500 before heading higher again.
I do, however, feel the allure of the stocks, which have just shown how brutal the leverage they offer us on the upside can be on the downside.
But
I remember feeling the same way in September of 2008
and in October
and November.
Reaching further back, the charts tell us that there was a large dead-cat bounce after the first big drop in the infamous crash of 1987before the real carnage. The same thing was true in 1929. The 1987 event was faster, but the 1929 crash was about three months from peak to trough, much like 2008.
For me, the implications are clear:
As oversold as some things look today, there is no law of nature to prevent them from getting even cheaper
and cheaper
and cheaper.
If were in for another 2018, the selling may last three more weeks.
If were in for another 2008, the selling may last three more months.
Valuation is irrelevant in a market panic. Profitable production, exploration success, stupid cheap ounces or pounds in the groundnone of these things matter in a panic.
The risk here is asymmetricalin a bad way. If we dont buy the current dip, we miss some great bargains but can still participate in the coming rally. But if we buy this dip and it turns out to be just the first in a series of many waterfalls, we could be forced to realize larger losses and wed miss far greater bargains.
Bottom line: I do NOT think were going into a gold and silver bear, but we are likely facing a short, sharp shock.
The extent remains TBD.
On the Bright Side...
We all know what happened in 2008. But back then, nothing like it had been seen in a generation. This time, we all know. Even mainstream investors who normally couldnt care less about gold know that gold shone like never before after the crash of 2008. People remember 2008but they also remember 20092011.
This tells me that the recoveryin gold first, then the stockscould be much quicker and rise much higher than last time.
Adding zest to this scenario is that this retreat is being tacked on to a relatively low starting point.
Consider the relative performance of gold vs gold stocks over the last five years.
Ich finde, der Analyst hat es gut getroffen...
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