Hereís hoping for
another PM beat-down
By John Bayard
Note: You can click
images in this article to enlarge them
The beat-down of the precious metals
on the Comex in mid-April was a chart sight to behold, clearly no fun for most
metals investors. Now that itís starting to fade in the rearview mirror, it may
be heartening to examine it in the context of the secular bull market.
Speaking of the secular bull, itís
interesting to hear some investors (even major league ones like Jim Rogers)
refer to the current correction as a bear market. Of course, that term fills the
bill technically, but is there anyone outside of dyed-in-the-wool
deflationists who believe goldís peak near $1,900 in the latter part of 2011 was
the end of the bull market that began at the turn of the millennium? The actions
of Messrs Bernanke, Draghi and Kuroda, as well as the spending habits of the
politicians in their respective nations, point to currency dilution as far as
the eye can see.
Gold market commentators reference
exact numbers and dates, lending an air of precision to the market which is
hardly deserved. For example, if you ask anyone who follows gold closely where
the last secular bear market bottomed, heíll say ďJuly 1999.Ē And true enough,
the low occurred on July 20, with the London close of $252.80. But letís take a
look at the long-term chart:
Pulling back from the trees to see
the forest, that $253 low in summer of 1999 is hardly of interest except to the
people who write the questions in Trivial Pursuit. The fact is, gold was stuck
between $250 and $350 from the middle of 1997 to the end of 2002 Ö five and
a half years. That was one heck of a protracted end of a bear market, and
one heck of a base for the proceeding bull market to launch from.
As the calendar turned to December
in 2005, gold was finally moving through $500. It had taken two years to rise
25%, and the MSM of course treated it as an unsustainable, parabolic move. Those
crazy gold bugs, the poor fools. Chasing gold up so high when its fair market
value is $200 at best! But the significance of that breach of $500 wasnít lost
on Kitcoís editors. They placed a little animated image of a girl cheering on
their home page, jumping up and down with pom-poms, with the caption:
$500 GOLD! I wish Iíd taken a screen shot.
I did snap a picture a few days
later, when the cheerleader had been replaced with this hilarious bullion ad
featuring the face of Fed chairman Alan Greenspan:
The move through $500 turned out to
be the beginning of a major upleg that peaked around $700 in May 2006, and that
price was not exceeded for some 15 months, when the move toward $1,000 began.
After that milestone was reached, it would be another 17 months before $1,000
was left behind. The biggest move of the bull market thus far then commenced: A
90% rise over a period of 25 months. In that mighty upleg, sixteen of those
twenty-five months printed a record high. We have now (at the end of April 2013)
gone 19 months without a new high, the longest dry spell of the entire bull
market. Given the technical damage wrought by the mid-April takedown, and the
historic tendency of the summer months to be quiescent, it appears unlikely
weíll revisit the all-time high near $1,900 for at least a few months.
So, given my minimum target for the
bull market of $10,000, where are we now? The obvious answer is: In another
correction, an annoyingly long one.
For those with a long-term view, the
metals are an excellent buy, and there are phenomenal bargains to be had in
Back when I started buying the
miners in autumn of 2001, I would not have believed that, come 2013, inflation
would still be tame, and (relative to bullion) even the better mining stocks
would be at giveaway levels. Stunning! Once again, Iím buying with both hands,
and my only regret is that I donít have more free cash with which to do so.
What silver price will $10,000 gold
translate into? At a conservative 5%, it would be $500 per ounce, more than
twenty times todayís price. What will that do to the price of a Silver Wheaton?
To the prices of the slim stable of other pure silver plays?
Itís Y2K again. Money is laying
there on the floor, waiting to be picked up, and few can see it. Just as in
2000, sentiment is at rock bottom, everyone is afraid. The stocks are lagging
metal big-time, and the metals are in their longest correction since the bull
ďThe bull market is over.Ē
Like hell it is.
Could another short-term beat-down
occur before the next upleg commences? Sure. If it happens, Iíll be doing
another jig, delighted to be in position yet again to buy stocks at surreally
low prices. Hereís hoping.