“Let me explain what I mean by that. One thing that is going on is there is a massive run on the banks globally. It is primarily centered in Europe, but also around the world. There is a huge demand for dollars. There’s a liquidity shortage and people just need dollars.
So let’s just say, hypothetically, I have gold and I like gold for the long-run and think it’s a good investment. I’m a bank let’s say and they (depositors) are withdrawing money and I need dollars. Well, I will sell the gold to get the dollars, even though I like my gold position and I think it’s going higher. I may have to sell it to get cash to meet these other obligations in a liquidity crisis and we are seeing a liquidity crisis.
So the action this week is technically driven, but the fundamentals are still intact. The fundamentals have everything to do with the excess of paper money relative to gold and the potential loss of confidence in paper money that’s coming from over-printing. Jim Rickards
On Thursday, we had our third biggest day ever at Miles Franklin. Wednesday was very strong too. It is rewarding to see that so many of our readers and clients have figured out the drill – buy the dips! All of our effort is paying off – for you. That is how you beat the mindless funds, who allow computers and algorithms to make the buy and sell decisions for them, puke up gold and silver, without any regard to fundamentals or their long-term value.
One of my favorite movies is Leap of Faith. There is a scene where the evangelist, brilliantly played by Steve Martin, asks the question, “When’s it gonna rain?” Well, today the question on everyone’s mind is “when’s it gonna stop?” (Not raining – the plunge in gold and silver) In today’s daily, I will give you my two cents worth, and present the views of a few of my favorite “experts” in the field.
I get the feeling that the worst is behind us, and those of you who bought gold on Thursday likely caught the bottom. As you will see, shortly, Jim Sinclair says if you buy within 10% of the bottom you did well. At these prices, that surely is the case now. If you are still nervous and are waiting for a “safe” time to enter the market, then place your buy orders when gold tops $1,610. (Gold is $1,590 at the moment and $1,610 could be breached on Friday)
My trusted friend, Trader David R. believes that we are at, or very near a bottom now and further, he believes that 2012 will be “an explosive year” for gold and silver. David is as talented a trader as you will find and he rarely leads me astray.
When in doubt, Jim Sinclair is the first person I go to. He was writing about gold before my son Andy was out of the crib (in 1970). He has been very accurate for the entirety of this decade-long bull market. Here are his views, and you should pay attention to what he has to say.
King World News
With gold trading down over $60 and silver lower by more than $2, today King World News interviewed legendary Jim Sinclair. When asked about the action in gold, Sinclair stated, “Statements made by Mrs. Merkel, in Germany, this morning would have us believe that both the US Fed and Germany’s influence on the ECB would result in a willingness to accept a severe deflation, rather than willingness to accept a severe inflation. The selling (in gold) sent some of the fundamental guys out of their positions in gold, which affected the technicals.”
Jim Sinclair continues:
“Technical analysis, when looked at, is really everybody looking at the same thing. So the sellers are chasing each other trying to find the bid. I believe that what started all of this is purely political in nature. I firmly believe there is no political will, on the planet anywhere, but especially in the Western world, to invite a severe deflation.
As the deflationary forces continue to surface you will see the absolute opposite. I firmly believe you are more apt to have QE to infinity than you are to welcome rising unemployment and declining business activity.”
When asked about the technical damage in the gold market, Sinclair stated, “It isn’t really longer-term. The technical damage right here and now is something that from today’s lows could be corrected in a few days, easily repairable.
You’ve got support between $1,549 and $1,577. You’ve also got it overlaying $1,519 to $1,572. There is every possibility that you’ve seen the absolute worst of this as we’re talking now.
The most important thing is volatility. One thing this shows you, and it increases continually, is this is the wildest chop we’ve ever been in, in the history of trading gold, in terms of ups and downs. It means to me that gold is going to rise to prices even higher than I expected….
“I don’t see gold trading significantly lower than it is trading at right now.”
When asked what his father Bert Seligman and legendary trader Jesse Livermore, who were business partners, would be thinking on a day like today, Sinclair replied, “If this isn’t a sign of capitulation, I’ve never seen one. Today I think that’s just what you’ve seen.
You’ll know very soon. It will depend over the next few days whether or not this supposed technical damage is not technically repaired.”
When asked how Bert and Jesse would play gold right here, Sinclair commented, “They were momentum traders. They wouldn’t seek to be the first ones buying or the last ones selling.”
When asked what Bert and Jesse would look for to indicate a turn in the gold market, Sinclair said,“An upside that erased the activity, or in the parlance of TA (technical analysis), a move above the 200-day moving average.
They wanted 80% of the middle. They didn’t care about giving away 10% to somebody else on both sides. They would look for a defined decline in the momentum of the downside before they would start operating on the positive side.
In those days momentum was actually part and parcel of listening to the level of the voices on the trading floors because you didn’t have all of the statistics so fast and so accurately (as you do today). So if selling came in and the sound of the voices were to pick up, that would be a sign that momentum was increasing. It actually had a lot to do with not only reading the tape, but listening to the action.”
This was an extremely important and timely interview with the man whose father was business partners with Jesse Livermore. Sinclair discussed the recent gold action in great detail, what it means for the listeners globally and where we are headed from here.