First, the bad news…
The selling is likely not over. The capitulation process may not be completed. Overall momentum remains down.
How low can gold and silver go? One can view all sorts of chart patterns and technical signals, and while a few will eventually be correct at calling the bottom, we prefer not to base our decisions on this type of strategy, starting with the fact that there are many different interpretations and too much variance in the predictions. What we do know is that given that capitulation is under way, the selling will overshoot to the downside, just like surges can overshoot to the upside. Our response should be to prepare to take advantage of that situation.
Sentiment has shifted to negative. All the headlines and stories about gold are negative and bearish. It will take a while for these investors to reenter the market, especially those who just sold for a loss. This won't be a years-long process in the making, but it likely won't happen in a month, either. The implication here is that patience will be required on the part of committed precious-metals investors.
Now the good news…
We've seen this before. Remember the autumn of 2008, when gold fell 28%? In the spring of 2006, the price dropped 22%. And as we've pointed out before, many proclaimed in 1976 that gold was over when it fell a dramatic 47%.
None of these selloffs dictated the end of the gold bull market. That won't be the case this time around, either. A panicked shakeout is just that.
The fundamental case for gold is growing, not diminishing. In spite of the downtrend in the price, the conditions that support the long-term bull market are increasing in importance. The US and Japan alone will flood the world with almost $2 trillion over the next 12 months. Europe's problems have not been solved, and the Eurozone teeters on the edge of a recession. And did you know that not one G20 country currently has a balanced budget? The current fiscal and monetary path of many major countries remains unsustainable, and no amount of selling by traders and hedge fund managers has changed that.
One might argue that these issues now have a diminished effect on the gold market. Regardless of whether that's true, the effects of these actions have not played out. There is no easy way out of the corner our political leaders have painted themselves into. In other words, the damage has already been done to our fiscal and monetary state. The endgame to our debt situation hasn't changed. When the ramifications begin setting in, it will be imperative that we all have meaningful exposure to gold.
In the end, fundamentals always win. In spite of the selloff, the long-term trend is still intact. Keep your eye on the big picture.
A lifetime buying opportunity is shaping up. We're not exaggerating by stating that. Given the waterfall decline in both precious metals and equities, investors with the courage to act and the cash to deploy will not just be rewarded, but could very well change their financial futures. The chance for enormous gains will be remarkable.
As a result, some of you reading this will, frankly, get rich, especially those who have exposure to the best junior gold stocks. Sadly, not all will realize this level of profit; while there are a lot of reasons for that, the biggest is because they won't have the two Cs – cash and courage. I hope you will be among those in the first camp.
I'll leave you with a quote from one of the most successful fund managers in the US, which was made while gold was in the midst of its dramatic selloff. It captures exactly how we feel about the current situation – and I hope yours:
"You should love this if you're a long-term holder of gold, or a believer in gold as a currency – you can buy your insurance cheaper," said Mark Fisher, CEO of MBF Clearing Corp. "A long-term buying opportunity is near."
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