Seeking Alpha
Long/short equity, contrarian, special situations, wild cards
Profile| Send Message|
( followers)  

Call me an old fashioned Austrian economics guy, but sometimes I see headlines with regards to precious metals that simply don't make too much sense for me.

I've admitted over and over in past gold & silver articles, that I'm perpetually long both of the precious metals.

I also find it hilarious that every time gold pulls back for a couple of days it turns into major headlines suggesting that the "rally" is over. Well, I have news for you - the rally has lasted the last 10 years, and it's not over:

(click to enlarge)

Has the price of gold pulled back in recent years? Yes, it certainly has. Should that detract you from holding gold for the long-term? Absolutely not.

Piling onto the recent drop, of course, is Goldman Sachs, who is claiming that gold is going to tank in 2014. Goldman Sachs is so all over the board with gold in the past year, they make a schizophrenic look decisive. Here's an article I wrote in October 2013 commenting on Goldman Sachs downgrade - then upgrade - then downgrade - then downgrade again of gold; all within the span of 8 months. Goldman's precious metals analysts need to lay off the coffee.

When I wrote my first couple of articles about Goldman and gold during the beginning of 2013, the SA editors were wary - claiming that I was making bold claims (that I later qualified to make nice) based on speculation. In this last article, I made these claims based on proof - Goldman Sachs pushed gold prices down early in 2013 so they could cover a short.

So, forgive me if I take anything that Goldman has to say on gold seriously.

It was announced this morning that the Fed is likely to continue its taper. MarketWatch reported:

The Federal Reserve is on track to trim its bond-buying program for the second time in six weeks as a lackluster December jobs report failed to diminish the central bank's expectations for solid U.S. economic growth this year, according to interviews with officials and their public comments.

A reduction in the program to $65 billion a month from the current $75 billion could be announced at the end of the Jan. 28-29 meeting, which would be the last meeting for outgoing Chairman Ben Bernanke.

Wow - $65 billion a month that the Fed continues to inject into the U.S. economy? Sure sounds like a great time to be buying gold, the world standard of non-renewable value on a planet that continues to plant money. But, no! Gold has fallen 2% on this news - because apparently a taper to just $65 billion a month is signs of progress.

Let's perform an exercise here. If you remember correctly, gold's ten year bull run that it's been on all happened well before QE was even a glimmer in our eyes. 15 years ago, if I told you the Fed would be injecting $65 billion/month into the U.S. economy, what do you think gold prices would have done then? Can you say $5,000 an ounce?

But, alas, our blinders are on because we only pay attention to the short-term with precious metals, which will be the downfall of those who fail to hold silver (NYSEARCA:SLV) and gold (NYSEARCA:GLD) (NYSEARCA:IAU) for the long term.

Even better - all this comes just days after continued reaffirmation that China wants the gold - badly:

Gold is higher in early Asian hours hitting a nearly six-week high of $1,261.97/oz helped by seasonal buying from China. Traders say physical demand --mainly jewelry, bars and coins--will hold up until the Lunar New Year which starts on Jan. 31 this year.

China is holding tons of U.S. debt, and they're continuing to gun for the gold, which they've been hoarding for years. Why don't you think the Chinese are sitting back going "They've tapered QE down to $65 billion a month! Sell all the gold! It's worthless!"

You don't need an Econ degree from Yale to figure out this one.

Never have we had the wrong idea about precious metals in this country than we do right now. The earth has given us these non-renewable gifts to set standards which we can hold our currency against. Again, this is why banks hold it in reserve. No matter what Bernanke or Yellen thinks, gold is - and will always be - currency.

I remain extremely bullish on gold and silver in the long-term.

Source: Precious Metals, You've Got The Wrong Idea