A little over one year ago, I wrote a commentary outlining “two, short-term scenarios for the gold market.” While I acknowledged that there was still the possibility of a mid-summer sell-off, if there was no sell-off by the end of July, I stated that we should expect the “fall rally” to commence earlier than usual, leading to “a run-up to at least $1200/oz”.
In fact, there was no sell-off, the gold rally did start earlier than usual – and it ended (for the time being) with a spike above $1200/oz. As I stated in that commentary, I don't make a lot of “short-term predictions” with respect to precious metals, for the obvious reason: “predicting” the movements of a highly-manipulated market is generally a fool's game. However, there are times when market factors and fundamentals stack-up so heavily on one side (or the other) that we can act with reasonable confidence.
I remind readers that there was still the usual chorus of bears (and sheep) arguing that we should “sell in May, and go away” this year - the standard mantra in the gold market, back when it behaved in clear, seasonal patterns. However, as I wrote back in March, in “Gold: The End of Seasons”, supply/demand fundamentals have changed so drastically that such “seasonality” can no longer be rationally justified.
I would argue that the performance of the gold market has validated that conclusion, even though we haven't seen the “break-out” to a new price-level, which has appeared imminent on several occasions. Instead, I suggest that the simple fact that there has not been a significant sell-off justifies a “buy and hold” strategy for bullion.
All sophisticated precious metals investors know where gold (and silver) is heading over the long term. The question which any sane investor must ask himself is: do you really want to risk getting caught with much of your money on the 'sidelines' when gold has its next break-out – simply to try to eke-out a 10% swing-trade?
Obviously, “risk/reward” analysis would reject such a foolhardy strategy. Unlike the sheep, who willingly allow themselves to he “herded” in one direction, and then herded in the opposite direction a few weeks later, true “investors” must learn the lesson of patience. As I have stressed on a number of occasions, unlike most equities and various forms of banker-paper, when it comes to precious metals, “buy-and-hold isn't dead.”
For those who didn't read the earlier commentary on gold's “seasons”, there are two basic reasons why gold will no longer exhibit the seasonal patterns of previous years. First of all, the gold market is no longer dominated by India – and the previous seasonal pattern in the gold market was, in fact, the exact buying-pattern of the Indian gold market.
Indian gold-buying commences with its fall religious festivals. It continues on into the spring – which is the traditional Indian “wedding season”, where gifts of gold for the wedding couple are a long-held tradition. When Indian wedding-season ended, their gold-buying would stop, the entire global gold market would stagnate for four or five months – and then the whole pattern would repeat itself the following autumn.
With the rise of China as the world's new gold-buying capital, India's demand-pattern can no longer dominate this market. However, there is a more general reason why gold's India-based seasonal patterns are no longer applicable.
Not only are ever-increasing numbers of investors lining-up on the “buy” side with respect to the bullion market, but so are sovereign governments (for the first time in decades). Concurrently, the “sellers” of bullion have all but disappeared. “It takes two to tango” in markets – a buyer and a seller – and if the sellers are gone, then obviously it's not possible for gold to have “weak seasons” any longer.
Instead, we can expect many future years to follow the current pattern: gold's strength during the fall/winter/spring will continue – when markets around the world experience higher trading-volumes. Then, in the summer, when such trading-volumes wane, while the machinations of the anti-gold cabal are no longer capable of causing any severe pull-backs in bullion, (for the moment) the cabal appears to be capable of beating-back the price of gold to prevent more upward movement.
There is no reason to believe their price-suppression will be any more effective than last year – when the buyers got back from their summer vacations and immediately sent gold and silver surging higher. However, what I want to impress upon readers is that my reasoning in advising people to hold through the summer, and to be prepared to do their buying before Labour Day is not based upon correctly predicting what happened one year ago.
Instead, what investors must remain focused upon is the “opportunity cost” of holding cash – either through never being fully-invested, or through liquidating some of their holdings in the spring. Cash generates virtually nothing in “interest” (in any short-term deposits). Meanwhile, the insane money-printing of our governments rapidly consumes the wealth of our paper money even as we hold it.
Lastly, as most reputable precious metals commentators are saying to readers, the “big moves” in the bullion market are still ahead of us. Despite the gains over the past decade, the reckless and incompetent economic policies of our so-called “leaders” have been ratcheting-up the real value of gold and silver, even more quickly than their prices have been able to advance, against the permanent manipulation of the banksters.
In other words, in an era when we know that severe, economic turbulence lies ahead of us (if not total collapse), we must adopt a defensive strategy. Thus, the first question each investor must ask himself/herself is not “what can I do to maximize potential gains?”, but instead they must ask “what do I need to do to prevent huge losses?”
Despite the efforts of the propaganda-machine to pretend that precious metals no longer represent the ultimate “safe haven” in times of economic turbulence, the buying patterns of investors clearly indicate that such propaganda is rapidly losing influence in preventing people from taking necessary steps to protect themselves from what lies ahead.
Some investors (who were “ahead of the curve”) may already have fully protected themselves with whatever “quota” of bullion they believe will be necessary. Such investors have the luxury of being more aggressive with their investment decisions – and to go looking for higher returns with the discretionary dollars at their disposal. For most of us, however, we are still not close to the point in our accumulation of bullion where we can afford such luxuries.
“Capital preservation” must be our mantra, and that means doing our bullion-buying sooner rather than later. Given that both gold and silver are at only a tiny fraction of their true, current value, it is foolish for investors to penny-pinch – and delay their bullion-buying hoping that there will be some gift-wrapped “buying opportunity” (perhaps accompanied by a polite warning from the bankers that this is our “last chance” to buy).
At the best of times, markets rarely “telegraph” such buying-opportunities, and the economic nightmares which lie ahead do not provide investors with the luxury of simply regretting their failure to buy (in hindsight). We all have a choice today on whether to “protect” our futures, or to “gamble” with them.
In this case, it is quite easy to see which group various “players” in markets belong to – as the gamblers are the ones sitting with a fistful of banker-paper.