The mail continues to pour in! Hundreds, if not thousands of readers want my head ― yet again ― for remaining short-term bearish on gold and silver.
I have never, and I mean NEVER, seen such an outpouring of emotions!
But truth be told, the level of emotions that are now running so high against anyone who dares to say that gold, silver, other metals, and commodities should fall in the short term is one large reason precisely why they probably will decline.
For one thing, bullish sentiment in the precious metals is still too high. That means those who have already bought have largely bought. And those who haven’t can only see one direction for the precious metals, UP.
That alone is a negative for the precious metals. When the majority expect a market to go in a particular direction, they are almost always wrong. That’s the ironic nature of crowd psychology and behavior.
For another, when any decent selling does hit gold and silver, when something frightens the herd, guess what will happen?
It will turn on a dime, start selling en masse, leading to a sharp decline.
Don’t get me wrong. As I’ve said many times, I am very, very bullish on the precious metals on a long-term basis. Ditto for most commodities.
|When the majority expects a market to go in a particular direction, they are almost always fooled.|
But the only way commodities in general are going to fulfill their long-term price targets is if they wring out some of the short-term excess that has flooded these markets. And they clean out all the weak longs and the majority of bulls.
By doing that, new energy, new buyers can come back into the markets and take them much higher.
Readers Ask and
With emotions running so high, and with so many events and fundamental forces arguing for higher prices, I know all of this is very hard to understand and grasp.
So today, I’m going to publish some recent emails I’ve received and my replies. Let’s get started …
One reader writes in: “Larry, you’re bearish gold and silver in the midst of the Cyprus event? Have you lost your mind?”
My reply: No, I haven’t lost my mind. Quite the contrary, it seems like the majority of investors have.
The most telling action is always to be found in the markets themselves. Given all the massive money-printing going on in the world now and the confiscation of depositor money in Cyprus, setting a precedent for the Troika in Europe to use that tactic in other situations, you’d think gold should already be at record new highs! But it’s not!
Instead, gold hardly reacted to the upside on the Cyprus news and silver actually declined. Why?
Because most investors just want cash right now. Period.
Look, I love gold just as much as anyone does. It is a great long-term store of value.
But I can’t go to the gas station and fill up my tank and pay for it in gold. I can’t pay for my haircut in gold. I can’t go grocery shopping and pay in gold. I can’t buy diapers for my two-year old son with gold.
Nor can I invest too much money in gold because it doesn’t pay me one red cent of interest.
So right now, investors of all sizes are opting more for cash than just about anything else. By default that is pushing the U.S. dollar higher. That is bearish for the precious metals.
Another reader writes in: “When the heck are you going to give your buy signal for gold, Larry?”
My answer: When one of two things happens …
A. Gold falls to $1,384 by August, or …
B. Gold rallies and closes above $1,760 on a Friday-closing basis.
Those are the latest signals on my models. In between $1,384 and $1,760 gold is in a neutral trading range. And as long as gold remains under $1,655.80, the bias will be to the downside and a test of $1,384 remains a high probability.
So you see, gold can bounce up to the $1,656 level and it still remains bearish short-term. Moreover, it would have to rally a full $160 to enter a new bull leg to the upside.
Now, I can hear even more questions: “If gold were to rally and close above $1,760 you will turn bullish, yet you will have missed a huge move!”
My reply: Then so be it. I don’t really care. What matters is buying when it’s safe to buy. And given that gold long-term is heading to more than $5,000 an ounce, I’m not concerned if I miss a $160 move to make sure I’m buying a confirmed bull market and not some giant bear market rally.
Another reader writes in: “You seem more bullish on equities and real estate than on gold or silver or any other commodity for that matter. What gives?!”
My reply: You are correct! I am more bullish on U.S. equity markets and real estate than I am on commodities right now. The reasons are simple …
First, on an inflation-adjusted basis, U.S. equities and real estate prices are cheap.
Second, on an international basis, U.S. equities and real estate prices are cheap.
Third, from an income perspective, U.S. equities and real estate can provide far more income than precious metals, which offer no income.
Fourth, due to Cyprus, we are entering a new period of insecurity in the monetary system. Cyprus has proven that European authorities and the Troika will confiscate bank depositors’ money.
It was the absolute worst decision that could have been made. Now, investors everywhere, small and large, are going to be highly suspicious of bank deposits.
And although I do not think it will ever happen, investors are now starting to also worry that their gold and silver can be confiscated.
So then, what do you do with your money? This is what’s going to happen …
Investors are going to start looking at equities not just for the potential income they spin off, but also because they believe governments will not move to confiscate your share holdings. That would be outright nationalization of companies. And it’s not likely to happen in the West, in Europe or the United States.
After all, can you imagine Europe or Washington saying they’re going to take away your shares in Dow Chemical, or Microsoft, or Apple or Johnson & Johnson, or McDonald’s?
Or Sanofi-Aventis, or Siemens, or Vodafone or Nestlé?
If they even tried, there would be a mass exodus of companies from Europe or the United States, sending them scurrying for new corporate homes, most likely in Asia.
Next on the list is real estate. Though certainly not as liquid as stocks or even precious metals, real estate is now also going to become a safe haven for capital.
Hundreds of billions of dollars are now going to leave Europe in droves and head for our shores, buying up real estate like crazy. And to Asia.
It will be very bullish for property prices. And it will be driven by geo-political concerns and fears of money confiscation in Europe and nothing else.
In short, and I urge you to commit this to your memory: Real estate and stocks are becoming the alternatives to bank deposits.
They offer income, a return on investment, and safety from confiscation.
Later, when the sovereign debt crisis fully infects Washington ― and the dollar resumes its long-term bear market ― you will be able to place gold and silver back into the mix of investments that investors will actively seek out.
But the crisis is not hitting Washington in full just yet. So yes, I do expect real estate and U.S. equities to outperform gold and silver in the intermediate-term.
Again, I know these are difficult concepts to understand, and completely unconventional. But if you are to financially survive what is happening, you cannot think conventionally.
You must question everything, and you must do so from many perspectives, putting yourself in the shoes of a European, an Asian, a corporate treasurer, and more.
If you do that, you will see the real forces at work today and you will not be blind-sided by what’s happening.
Further, you will realize that most advice you get is just plain brain dead, because it comes from analysts who can’t see past their own noses, who can’t think internationally and unconventionally.
Best wishes, as always …