July 16, 2010

Do you remember the market mood several years ago when Crude Oil was pushing $150 a barrel? All the talk about “peak oil” and unceasing demand out of China and India? Do you remember it? Do you remember all the hype that accompanied this supposedly bulletproof bull market?  Do you remember the seemingly unanimous analytical community’s blithe calls for $200 a barrel, even though this represented another 25% increase in value, as though another 50 bucks would be “easy” to see? Maybe it’s because I live in the middle of all this stuff, but I remember it quite well, especially when oil had hit what I’d call “the stupid stage”, by which I mean prices had gotten SO high they simply had totally lost touch with reality…In fact, reality was what I was writing about at that $145 a barrel top in July, 2008.

Here’s one comment I made along those lines in my July 7, 2008 newsletter…

You all know what followed but here is a chart showing how it  really did happen…and you’ll note that, as gigantic as the sell off became, it didn’t come all in one big week or month…And it also didn’t all start with a big bang…It really just stopped going up, turned south, then eroded and eroded and eroded, with the cumulative result being that five months later, Crude had lost 75% of its value…

And you'll note there were very rallies and those that did occur were very brief and not big at all...

I don’t stick this out there to say, “Look how smart I was” (I’ve proven the opposite by sitting on short soybean oil for 1 ½ years now), but to simply point out that EVERY BULL MARKET I’VE SEEN DURING THE PAST 30 YEARS HAS COME TO AN END…AND THE BIGGER THEY ARE, THE HARDER THEY FALL DOES OFTEN HOLD TRUE FOR THE COMMODITY MARKETS. I don’t care how great the story…Eventually, they have all come to the same end. They DO reach a point where all the buyers have bought. They do reach a point where buying them just doesn’t make economic sense. They do reach a point where EVERYBODY has heard ALL the reasons it will keep going higher…and they ALL do reach a point where they just STOP…then start falling, and with every potential buyer already owning it, all you really have left are sellers.

WHILE I DON’T SIT HERE AND PREDICT WE’LL SEE $300 GOLD WITHIN THE NEXT FIVE MONTHS, I DO BELIEVE THAT THE GOLD MARKET NOW IS TOTALLY AKIN TO WHERE CRUDE OIL WAS TWO YEARS AGO. I DO BELIEVE GOLD HAS SEEN ITS HIGH TICK. I DO BELIEVE IS IN THE BEGINNING OF A MAJOR, MAJOR LONG TERM BEAR MARKET. IT IS NOW “QUIETLY” ABOUT $85 AWAY FROM ITS JUNE 21^ST ALL TIME HIGH AND ON ITS WAY, I BELIEVE, IN A RELATIVELY STRAIGHT TRIP, TO THE $800-$900 AREA…I CAN IMAGINE GOLD BULLS WILL BE ASSUMING EVERY $10-$15 RALLY IS THE BEGINNING OF THE “NEXT LEG UP” BUT ALL THEY’LL GET WILL BE BRIEF SPUTTERING ATTEMPTS BEFORE SINKING RELENTLESSLY (MUCH LIKE OIL CHART ABOVE AND A 1000 OTHER BEAR MARKETS) INTO NEWER AND NEWER LOWS.

Here is one way to get short…

 And if you read anything in this newsletter, do take note of these next two paragraphs...

All of that recent trading above $1200 was due to what I’d call classic top-of-a-market hype, in this case the absurd notion that Europe was going under...In fact, as noted on the chart, on May 25th, more money went into the world's biggest gold ETF, the SPDR Gold Trust (GLD) than had gone into the fund in over a year...If that isn't  a terrific example of speculators piling in at the end of a bull market, I don't know what would be... Now we are back under those lows and I'd ask, "What in the hell is left out there that might be bigger than the ludicrous idea that Europe was about to collapse?” I’d say nothing…

Let’s remember  this IS a big game, and players entering and exiting the markets (sometimes in dribbles, sometimes in droves) is what really moves prices…and at the top of every bull market is where you ALWAYS have the most participants, and yes, it is because they have all bought into (too late) the bull market “logic” that ALWAYS seems to make so much sense…Now consider the following statistic:  During April, May and June of this year, Gold exchange-traded product (ETF’s) inflows were up more than 11-fold over the previous quarter. What does that mean? That during the last quarter, which includes all of that trading up above $1200, and all of that stupid hype about Europe failing, ELEVEN TIMES AS MUCH MONEY WENT INTO PAPER OWNERSHIP (IN OTHER WORDS, NOT THE REAL THING) OF GOLD, AND TO ME, THIS JUST REEKS AND REEKS AND REEKS OF A TOP IN THIS MARKET.

I’ve got a lot more to say here but it’s late and I want to get this out…I DO think gold is on the move and any next day could see it get hit for 25, 50 or 100 bucks…

As I’ve said before, this IS basically the only market out there that seems to be universally “accepted” as being a bull market. Think about it. There’s a mix of opinion in stocks, in bonds, in currencies, in oil…in almost every market we trade…but not in Gold. It is THE bull market. And per the numbers, the public has been absolutely PILING into this market during the past three months…and I seriously doubt all those VERY, VERY latecomers are going to make money. Truth is, with Gold at $1180, they are all pretty much already losing money…but still have no idea how bad it CAN get in this stuff.

Get short Gold NOW. For what it’s worth, there are a number of ways to do this, including futures and mini futures. As always, I may be dead wrong but I do believe seeing this market drop $300-$400 in the next 3-5 months would be no big deal.

And folks, this ain’t bean oil…Sideways is NOT where it’s headed…

And nobody is doing this…

Give me a ring if you’re interested…I know this is not a cheap trade but this is a contract that is actually worth $118,000…and a 20-30% move does approximate to $25,000 to $30,000 per futures contract…

Thanks,

Bill

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