Keep Gold Bug Dogma On A Leash

2016 has seen a big rally in gold, silver and the miners.  It has progressed from disbelief to full frontal bull market in 6 months' time.  Nearly one year ago we began noting the elements that would need to come into place for a legitimate gold bull market to engage (ref. Macrocosm), and wouldn't you know that gold's upturn vs. US and global stock markets has greatly aided the case for gold's fundamentals?  The net result of these macrocosmic elements has been the most important fundamental of all, a loss of confidence by the average market participant in centralized monetary authority the world over.

Okay, that's the good news (for gold, anyway).  The bad news?  Every damn gold bug on the planet is out of the woodwork to ply their trade.  In some cases their trade is to provide quality (if sometimes cliched or strident) advice about the fundamental backdrop.  In others, it is to provide 'best guess', but relatively sound technical analysis.  But in all too many cases their trade is you dear reader who may with a level of anxiety, be looking for financial refuge in the storm.  Beware of writing that uses fear, hyperbole and worst of all, borderline religious 'good vs. evil' imagery.  That is emotion and the gold "community"* (as it calls itself) have a long and checkered history of tugging at people's heart strings.

Gold is simply an anchor asset.  It's price does not move.  What moves is everything around it; all the dividend paying or growth investments and speculations.  When risk is 'on' gold tends to go out of favor.  When risk is 'off', the fear trade is in play and gold - the ultimate financial insurance - is in favor.  For the sake of mental health, it pays not to read much more into it than that. 

At the more speculative end of the sector are silver and the miners.  Can you say "momentum"?  These are the vehicles that casino patrons (a term I use for the mass of investors, traders, quants, algos, black boxes and substance abusers that make up the technologically, globally connected financial markets) favor for profit making.  And right now, momentum has led to some very nice profits for those of us who have been involved in 2016. 

It is clear that gold has confirmed a new bull market and silver has blasted up to its short-term target, but may also be confirming a new bull.  But in the near-term realize that the sector is getting over bought and understand that now is not the time to become aggressive.  I would recommend tuning out any gold bug who aggressively pumps the sector right now.  They are the same gold bug who was bullish in 2012, 2013, 2014, 2015 and 2016... when he was FINALLY right.

We'll end with a look at the HUI Gold Bugs index (daily chart).  We had a target of 251 based on longer-term charts, which was achieved.  Now we have a short-term pattern in play with its target of 275 nearly registered.  It is getting over bought (by RSI, MACD and proximity to shorter-term moving averages) and gold sector sentiment is strenuously over bullish.  While we noted some mitigating factors in a recent TalkMarkets exclusive, the Commitments of Traders are at extreme levels that would be consistent with the conditions that would be in place when a correction arrives. 

I am just asking that readers use something at this time that is generally in short supply in the "community"; moderation and critical thinking.

* I have long felt that this "community" is little more than a cult of ideology.  In many cases this ideology is packaged and sold.  Due to the dynamism and power of message, there is no shortage in the supply of willing consumers.

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Louis Jackson 7 years ago Member's comment

I agree that gold bugs can become particularly cultish. I think this happens because some of the gold bull "leaders" like Jim Rickards, Peter Schiff, etc. talk about the metals in an almost doomsday fashion. When some of them talk about $5,000-$10,000 an ounce gold, the people who listen to them will chase gold and the mining stocks at any price. I'm bullish on gold and silver, but I just don't see a scenario in which gold (physical and/or paper) becomes a 5-10 bagger.

Gary Tanashian 7 years ago Contributor's comment

If an insurance policy becomes a 10 bagger we have bigger problems to worry about than the markets. What I don't care for is how the "community" professors monetary soundness, but is actually among the sectors that displays the most casino mentality. Always about the price gold is going to or the prices stocks are going DOWN to. Emotion has no place in market management. That said, I am a gold bull. Just a sedate one.

Patrick Avery 7 years ago Member's comment

Excellent points to you both.

Gary Tanashian 7 years ago Contributor's comment

Thank you Patrick. I was actually preparing for negative incoming. :-(

Louis Jackson 7 years ago Member's comment

Yeah, I can imagine that you get some negative comments when you express any degree of skepticism about gold not going vertical to the moon. In the world of PM markets, publishing an article like this is along the lines of someone being critical of Scientology. It ruffles feathers when some of the diehard gold bugs find writings that don't strengthen their confirmation bias.

Gary Tanashian 7 years ago Contributor's comment

Absolutely Louis. Well put. I used to get hate mail, but now I think the hard core bugz just think 'oh him again... '. The thing is, bashing the "community" became hip in the bear market. So I tried to ease up. But esp. during a bull we need measured discussion because people seem to lose their minds with this asset for some reason.

Gary A. Brothers 7 years ago Member's comment

It's the same when you try to disagree with Apple Fan Boys, or #Bitcoin fanatics. Some people just can't have a level headed discussion.

Gary Tanashian 7 years ago Contributor's comment

The thing in markets is that we have to learn to grow out of those habits. I remember I was the same way back in the 90's with certain tech stocks. You simply could not tell me that optical networking was not the future. Well, it was. But it was also a low barrier to entry business and highly competitive.

The latest example was the 3D Printer craze. I wrote an article called 3D Printing; No Barrier to Future Losses for Investors. DDD then went from 93 to 6 bucks. I had lots of negative comments (at other site where it was published) on that from 3Dp defenders.

Gary Tanashian 7 years ago Contributor's comment
Louis Jackson 7 years ago Member's comment

I love Apple products, but I wouldn't touch the stock at this point. I love gold and silver coins, but I wouldn't be buying any right now.

GoPro, Fitbit, DDD, Apple, Twitter, Netflix....I can see why these stocks have been labelled as "cult stocks." Once you start believing in them, it's hard to see drops as anything but opportunities to average down. "If you liked it at $90, you'll like it more at $70, and you'll LOVE it at $50." History repeats itself, it would seem. I see a lot of "Hale-Bopp" stocks around and a lot of people who are scared of missing out on a ride....