What Are Reasonable Gold Market Expectations?

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 |  Includes: GLD, IAU, PHYS
by: Jeff Clark

The historical record shows that those who get washed out during big corrections miss the greatest buying opportunities of a bull market.

With that as context, what can we expect from gold moving forward? Let's start with the short term…

Full market capitulation is underway. Headlines about gold are almost universally negative today, and all about selling. This feeds on itself, and the process may not be over. In this kind of environment, prices will overshoot to the downside. In other words, the bottom may not be in.

What if we get more short-term pain?

Differentiate between short-term sentiment and long-term reality. It's not deleveraging and fear that has hit our sector like it did in 2008, but renewed confidence in the broader markets and lack of higher inflation rates that many expected by now. The current thinking by sellers is that crisis has been averted and therefore there's no need to own gold.

Contrast the selling by these short-sighted investors against record levels of buying by central banks, China and India gobbling up 20% of global annual production, and runaway demand at mints.

Fundamentals dictate long-term trends - and fundamentals don't lie. The longer our fiscal problems are allowed to fester, the greater the eventual structural damage to global economies and standards of living. These forces will sooner or later come to a head, and will play out for several years.

The broader investment community does not yet see a compelling reason to invest in gold - but when inflation starts pinching pocketbooks and budgets, a sea change will take place. Remember, roughly 98% of US investors don't own gold - that will change when higher rates of price inflation begin making headlines.

Should gold end the year down, it will not mean the bull market is over. It will mean that inflation remains contained and that we have a longer-than-expected buying opportunity. My suspicion is that it will also mean the turnaround will be stronger and longer than we've seen before.

Let the sea change come when it comes.

In the meantime…

Prepare yourself psychologically and financially to act. Emotional investment decisions rarely pay off, so don't succumb. Easy to say, hard to do, I know. We at Casey Research understand the fear - but giving up and selling is the worst thing to do right now. It locks in a loss and leaves one wondering when to buy back in - if at all. We heard emotional outbursts in late 2008, too - and that was the best time to buy in years, precisely because so many people were giving up.

The bottom line is that we're looking for onramps, not exits.

The best onramps, profit-wise, come when most other investors are heading out of a sector. Is that what's happening with gold right now? Is it a dead cat? Or is this a protracted lull... just giving the bull time to catch its breath?

Only time will tell for sure, but investors who wait for the answer will likely miss a once-in-a-lifetime profit opportunity that could be life changing. Don't be among those investors.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.