Gold and Silver Turn Bearish: No Conspiracy Here

The gold bugs have not enjoyed my reporting in the past month. They are certainly not going to like it this week!

In a nutshell, the precious metals are now in a confirmed Bear, and the gold bugs and silver crazies have been duped by their preachers. Now the flock is hearing all the old conspiracy theories, and the dialogue is getting more insane by the day.

If life were a computer game, I’d line all those precious metals newsletter writers up against the wall and dispose of them the way games do. They are a complete waste of your time and money, and those of you who continually ask me to comment on the value of their advice are wasting my time and trying my patience.

Professional traders laugh at that junk. Can you imagine what Xstrata’s Mick Davis and his Glencore backers, the Metals Men of Zug, think?

It’s time to get serious. I will always tell you straight. You trade prices. The answers are in the data, not in the words of a group of cheerleaders who have an axe to grind.

Moreover, the cheerleading crowd is so busy flying from one “investor” conference to the next, drinking in bars with their peers, scratching one another’s backs, that I don’t see how it’s possible for them to be spending the time needed to study the data—and do it with the independent and objective clear-headed mindset that traders need.

So, when people persist in asking me to meet so-and-so or call them, etc., you have to know I won’t even take the time to read the stuff. It’s dangerous.

So, why am I pushing hard here? It’s because I carefully set it up starting in early July, and now you have the proof of concept. The market has fundamentally changed. If you want to ignore it, there is nothing further I can do.

What the price series data shows is that gold and silver have turned bearish. If that’s a conspiracy, then how is that the commodity index, copper, palladium, platinum, oil (soon), the Euro, British Pound, Canadian and Australian Dollars, and Japanese Yen also turned bearish at the same time? These prices are all linked. We don’t trade in a vacuum.

Does anybody honestly believe that conspirators purposefully decided to short the penny mining and explorer stocks so the major companies could buy them out? Do you really think my old firm Canaccord Capital (CCDPF.PK), where I was founder/CEO of Eastern Canada, is making a killing shorting these stocks? One look at their chart and the most recent news releases shows that the world’s number one financier of junior miners and explorers can’t find many clients (corporate or retail) to put deals together. Their stock has plunged in the past 15 months or so from a high of $25.92 to a low this summer of $6.68. From a look at the P&L, I’d say their big producers are having trouble gassing up their Rolls Royces. The writing has been on the wall there since the start of May.

Let’s look at the big picture.

Something serious happened to capital markets on July 7. The commodities markets tanked. The oil price collapsed for two days, then recovered as the $USD lost more ground for the next four days. Then on July 14 and 15, the oil, platinum and palladium markets crashed and the Yen, Pound and Loonie swooned, followed later by the Euro, gold and silver. I had been watching two stocks for the keys to this move: Xstrata (XSRAF.PK) and Teck (TCK).

Let’s look at Teck since the Xstrata data is available only to those who get the London Exchange. But the Xstrata data is the same. So is the other major miners', as I’ll show in a moment.

While Canada enjoyed its national Flag Day on the 1st, the NYSE was open and there was no indication from price or volume in TCK that a sell-off was expected. But, on July 2, Teck shares on Toronto dropped from C$49.17 to C$45.06 (low of C$44.16) on 3.39 million shares, which at the time was very heavy volume. Selling over the next week became relentless on even higher volume as the price dropped to C$40.00. This was a typical Bear market cycle (i.e. -20%) in about two weeks.

But by the end of the month, which happens to be a convenient time for booking a nice profit, timed perfectly with the Company announcement of their purchase of the excellent Fording Canadian Coal Trust assets, there was a huge move back into TCK.B on Toronto (19 million shares in two days) and into TCK on the NYSE (13 million shares in those two days). That trading surge followed a mid-July low in the 30’s on both the NYSE and TSE, finishing with a month-end close of $45.38/C$47.03. Then, with more downward pressure on oil, there was an immediate sell-off in TCK to start August, where the stock dropped into the 30’s again, where it is today ($38.60).

It’s been quite a dance with a falling oil price and a corresponding rise in the $USD providing the music.

BMO’s commodity fund guy Don Coxe opined that the rush of capital into XLF (XLF) was the driving factor that killed commodity prices. I called him out. This chart proves my case. Commodities and the commodity-beneficiary stocks were crashing two weeks before XLF enjoyed a temporary moonshot.

For a guy who trades commodities (I call him a front man for a loser group of commodity traders), I’m wondering why he wasn’t watching the commodity-beneficiary stocks. In addition to the metal miners, he could have been looking at Exxon Mobil (XOM). After hitting a high of $96.12 on May 21, XOM had dropped to $88.35 on July 1, then down to $80.81 on July 16. That happened before XLF took off on a huge short-covering rally.

Anyway, I have the utmost respect for Don Coxe as a writer. For the year my parents were in hospitals and the nursing home, leading to their death in 2005, which, to take my mind off those circumstances was the reason I started blogging, I read everything Don had published in Macleans, the magazine of choice for healthcare waiting rooms.

Do you recall what I wrote at the end of June about the $XAU (goldminer share index): “Two-day rocket!” That was the trap that sucked the gold bugs in, and then I saw XTA and TCK shares plummeted immediately after that. I have opined in the blog that these two stocks are traded by the world’s best traders, bar none, so I always keep my eye on them.

Maybe you recall the take-over of Canada’s base metals mining industry in the summer of 2006? Xstrata acquired Falconbridge and CVRD/Vale (RIO) bought Inco. Teck for Vancouver was in the thick of it. The other majors watched this fight for control of metal supply (and, to a large extent, prices). The others are BHP (BHP), Rio Tinto (RTP) and Anglo American (AAUK).

These are the world’s major metals miners, and in the first couple days of July their share prices also crashed. In each case, gold mining is a very small part of their whole operation. Trust me; there was no conspiracy against gold or junior companies.

When all these stocks recover, then gold will recover.

As I told you all along, the goldminers and the gold bullion would be the last off the dance floor. How many times have I written that?

Oil, then metals, then gold. Up, then down. Only occasionally is that cycle contorted.

I’d like you to study the charts of major currencies I provide in this report, and you will see confirmation of the busting of the commodities boom cycle, and the new Bull for the $USD. That Bull phase for the US Dollar will first have to test the 200-day Moving Averages support ($USD) and resistance (Euro, Pound, Yen, Loonie, CRB commodities index) before it really breaks out. That will trap more gold bugs and ‘peak’ oil bulls, causing them more capital losses eventually. But, then the $USD will start to move higher as the media starts talking about deflation.

The first round of deflation talk will knock the price of gold down to its cycle low in its ongoing secular (i.e. multiple cycle) trend. That’s where I will be a buyer of gold again, maybe it’s here at 850-860, and maybe it’s down at 800, as originally forecast by me, or even lower. Nobody knows. We just need to watch the data.

Yes, watch the data. Connect the dots. Close your eyes and ears to newsletter writers unless they have proven themselves to be 100% independent and objective in their assessment of prices.

You need to learn this stuff because you are trading against the top traders in the world backed up by whatever resources (computers, analysts, capital) they need to screw you over. They want your capital. I’m speaking of Humongous Bank & Broker, your personal and corporate financial advisor, the very people who trade against your order flow.

It’s not a level playing field, and it may never be. But that doesn’t mean to say people like you and I can’t win at their game. We can move millions and billions; HB&B has to move trillions. We can move faster.

But the point to today’s blog is that we can’t be looking in all the wrong places. Regardless of how much we may like the enemy on a personal level, they are still the enemy. They want our capital; we want theirs.

Comments

[Muhammad Ovais:]

Well i read this artilcle..there were certain theories discuss there might be there will be the end of bull market for the commodities according to this article..but where my personal opinion the bull market is on the way where i think 800 - 845 level for the gold is the very good buyying opportuinity for the trader and this short term selling pressure is paving the way for the upcomming bull market which will be very near.In my opinion gold selling pressure will be soon ended and the new buyying will emerge in the market which supports the bull trend.

2008 Aug 11 05:40 AM

[Rene Cohrt:]

Nothing has really changed. Central bank money systems are doomed with the dollar first to go.

I will still keep to my gold and silver, because after en apocalyptic economic event tose are the only natural monetary instruments left.

My mother taught me as child never to listen to an investmentadvisor, all liars

2008 Aug 11 05:44 AM

[Gigem77:]

What a hoot. I like a good rant, but this is tripe.

I see some inflammatory tags like "goldbugs", "silver crazies", "duped", "confirmed bear", and you want to dispose of all metals newsletter writers. Wow. Does that include Richard Russell? Marc Faber? You aren't in their league, Bill.

Don Coxe is a "front man", but you have the utmost respect for him... yeah, whatever...

You might be a buyer of gold here at 850-860, or 800 or lower, but you don't know. . . gotta watch that price? ? ?

Well, er, that's great advice. lol Next....

2008 Aug 11 06:34 AM

[Melancholy ...:]

Bill,

Don't even bother. People are going to believe what they need/want to believe. It's funny because today, with so much information out there, all one has to do is just click a button to find legitimate sources of information and data--good, hard stuff that would have been impossible even ten years ago. The playing field has never been more level. There is less reason for the usual excuses than ever, but surprise, same old crap: It's always a "conspiracy" when people start losing money.

Hey, go ahead and sit in the echo chamber and rant. Whatever. More players in the market, the better!

2008 Aug 11 07:38 AM

[fxtrader07:]

Bill, please tell me, what's your time horizon on your advice?
What i am seeing is that the herd of big short-term oriented players (hedgefunds AND HB&B) rotates thorug the sectors in ever shoeter periods. Three months ago oil 200$ and further rises in the prices of base metals and grains were advertised convincingly citing emerging markets demand as driving those forr years to come.
Now, a quarter later everything has changed and the bottom will fall out of the global economy?
Give me a break! news and interpretations of data are changed in a second in order to explain any major market move. To me this is all noise and you are obviously keen on participating in that great shuffling game of chasing this sector than that then the next one, back to the first. That may be fine advice for daytraders or speculators with a 3-6 months time horizon. But for investors?
So you called people to get out of gold at 940$/oz and now you are mulling over whether 800 or 840$ might be a good re-entry. Pleazzze! We are talking about 10-15% correction stuff here that you try to time. Or is that buying at 800 or 840 or lower also just another short-term flip-flopping? Such as your Cara100 that is getting changed pretty frequently as well?

2008 Aug 11 08:34 AM

[ussmls7:]

More Bankers jumping off high buildings did not make the news,nor did the Fed explain the other Bank closeings,just a few words about some not being coverd by FDIC.You can search BIS web site & get your own data, & it tells a different story, not a pretty one! Your spin is like the rest of the talking heads,crap! Just like King Hank!

2008 Aug 11 08:38 AM

[CLH:]

Very good post. My only disagreement. Gold was not the last to turn but the first. The top was in March. When it reached 1000 I sold. I then prepared to short oil and the other commodities.

2008 Aug 11 08:42 AM

[User 30121:]

Hey Bill, why don't you and CLH tie the knot....in your tongues!

2008 Aug 11 08:56 AM

[NOWHEREMAN:]

Typical. Bubble this Bubble that.

Go to the Blackboard, 1000 times, "Bubbles are not Bubbles before the Fact".

The Media has been calling for a bubble for months in both Gold and Oil. Go tell it on the mountain.

2008 Aug 11 09:36 AM

[xsuddensam:]

One year from now, would you rather have $850 in cash or one oz. of gold?

2008 Aug 11 11:31 AM

[neeb??:]

If Gold tanks then the issue will be what next? When everything got commoditized we should have seen relativism coming. There is no downside protection. Deal with it.

2008 Aug 11 03:15 PM

[shoomar:]

So, you are right maybe, a guru maybe, god maybe, gloating maybe, but you still needed to show how good you are by sayin how bad Coxe was, you do not stand on your merits but on the mistep of another, you ain't got no class, guru or not

2008 Aug 11 04:21 PM

[User 164988:]

Many thanks for regularly sharing your insight and wisdom with us. History is filled with events where "the Little Guy" overcomes the gigantic odds placed against him by the established power structure - Jesus, Ghandi, King and the American (and French) Revolutions and the overthrow of Comunism by the Russian and Polish (Lech Wallesa) common men are only a few examples of the not so common, common man. Thank you for your honest daily commentary which contains the insight of your life experiance which you generously give freely but, more importantly, it is given in a most humaine and unselfish mannor. After all we "little guys" need only a few good men, of which Bill, you head the list!! Keep up the GOOD work for many more years. Your insight is a great and much appreciated asset in this era of BULLSHIT. ILLITGITIMUS CARBORUNDUM Thanks again. Regards, Jim Mc Dermott 134 Farmington Chase, Farmington Connecticut , 06032

2008 Aug 11 07:40 PM

[Francis Sch...:]

Gold is quoted in Dollars, Euro's, Yen, Sterling and many other currencies. Very interesting is to take a couple of minutes and check out how it all looks in a non-dollar currency. Amazing is to see that all secular bull trends are still alive and well. Even for Gold expressed in dollar one has to wear special glasses to find a Secular Bear Trend! Having said this, $ Gold has during the past secular bull never breached it 64 week moving average. Taking this sell of and the month of August in consideration, I am convinced a lot of investors could be in for a nasty surprise as losses could swiftly be reversed. Last but not least, there must be some reason why the Professional Gold miners are ALL one after the other closing their hedge books. Maybe some financial advisors are not so stupid after all!

2008 Aug 12 06:41 AM

[silver-bullet:]

Time to dollar cost average into bullion.

2008 Aug 12 07:18 AM

[Tom Szabo:]

Come on now, Bill! EVERYBODY HAS AN AGENDA. It's not like you have a book and trading advice for sale or anything. Some newsletter writers who like gold actually try to help their subscribers make money in the markets.

2008 Aug 12 08:30 AM

[Mark McHugh:]

What Bill is really trying to tell you is that there's no conspiracy, but everyone is out to get you.

2008 Aug 12 09:51 AM