Guest Post: What Lies Ahead for Gold?

Tyler Durden's picture

Submitted by Jeff Clark via Casey Research,

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."

Recent market actions have left many staunch gold advocates uncertain about what's ahead... not to mention how to invest wisely for both the short and long term. What gold assets are the best to buy? Should investors be buying today or holding for further drops?

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unwashedmass's picture

 

most of the risk is to the downside now. 

the commercials are long

the specs are short.

JPM has closed its gold and silver shorts --- and given that they own the CTFC, you can be absolutely sure they are never wrong. it simply isn't allowed. 

now, its a bear trap.... a mega bear trap designed by blythe for jamie....with love. 

unwashedmass's picture

 

actually. yes. the cost of production of both silver & gold is in reach now, and soon, since our fabulous leaders have sanctioned this manipulation and have sold massive quantities of the real thing.....they can't afford to start putting miners --- particularly US miners out of business......

cause guess what? the world knows that Ben and Jamie sold the gold........and they want to be made good on all that.....

just doesn't seem to be there in the basement of the Fed any more. 

now, where could that stuff have gone? 

bigdumbnugly's picture
"What Lies Ahead for Gold?"

is this a play on words?

because i would guess more lies.

nope-1004's picture

What lies ahead for the truth, honest money, freedom of citizens, peace and civilitiy?

Nothing.  Which is the same for gold.  Nothing lies ahead, because gold itself IS all that is needed.  It's the fake monetary system surrounding it that is skewing perception.

Question should be:  What lies ahead for this failed, fake, and fraudulent financial system we have?

Gold is gold and needs no definiing.  This system, on the other hand, needs FED minutes, dog and pony show press conferences, BLS-BS, IRS swaps, derivatives, Michigan confidence, and all the other nonsense thrown at us to try to make it believable.

Gold is.

 

jbvtme's picture

the difference between then and now is the gold etf, GLD.  where folks can play a paper game.  am i wrong?

Silveramada's picture

So, price (paper)is collapsing, right? who is selling all the gold and silver (physical) then? Nobody

http://zysites.com/silververitas/

...except the US mint! 

Pegasus Muse's picture

"A lifetime buying opportunity is shaping up."

Trouble is that a big price fall from here will likely result in significant shortages of physical.  You might not be able to find it at that "got to have it" reduced price. 

Here's a true story.  I tried buying in size from Tulving yesterday (6.20.13) but they would not quote me a "we buy" or "we sell" price.  Their reason --  Kitco was not quoting "buy" or "sell" prices on their website.  "The price is too volatile and we don't know what to buy and sell for", was what the Tulving guy said.  So I tried calling Kitco several times.  No answer -- all day long.  They pulled a "don't call us" on their customers. 

Next I checked out APMEX.  They had pretty good stockage of what I was looking for (Monster Boxes and one-ounce gold bars/coins) and they were selling at spot + their normal premium (which is higher than Tulving's). 

To make a long story short, I checked back with Tulving today.  They were back in business so I placed an order.

Could the prices decline from here?  Sure.  But I'd rather have a "bird in the hand" than have Bill Engvall send me one of his "Here's your sign" t-shirts.  http://www.youtube.com/watch?feature=player_detailpage&v=ZBjelRDKHUk#t=49s

====

Maguire - World Just Witnessed Massive Shift In Physical Gold 

Today whistleblower Andrew Maguire told King World News that the world has just witnessed a massive and irreversible shift in the global balance of physical gold.  Maguire, who recently appeared in the extraordinary CBC production titled, “The Secret World of Gold,” also spoke about the breathtaking gold and silver smash and what stunned investors around the world should expect next.  Below is a collection of what Maguire had to say to KWN in a mixture of communications since chaos erupted in key markets.

Maguire: “Just off wholesaler calls.  Most are too busy to talk at this time, but today (Thursday) will be the largest volume day this year and possibly 2 years.  Central bank purchases are almost certainly far in excess of paper sales.  We are so close to the marginal cost of production that my contacts are saying the gates are wide open here to purchase all physical that is available....

Continue reading the Andrew Maguire interview below...

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/6/21_Maguire_-_World_Just_Witnessed_Massive_Shift_In_Physical_Gold.html

 

DoChenRollingBearing's picture

Silveramada wrote:

"who is selling all the gold and silver (physical) then?"

The gold mines are!

***

"The Malartic Gold Mine"

http://tinyurl.com/kyg4ovx

 

Kirk2NCC1701's picture

"What lies ahead for gold owners?"  might be a better question.

A: golden opportunity for some, golden showers for others.

e_goldstein's picture

I'd pay a 1/10th toz canadian maple to piss in Dimon's face.

jimmytorpedo's picture

Just spent the average Americans annual salary on PM's.

Now I'm experiencing buyers remorse.

I wish I had bought more.

unwashedmass's picture

JM Bullion still has some at reasonable premiums....slightly lower than APMEX>

ShrNfr's picture

Cost of production is kinda meaningless at times. When gold is at 1800, the marginal mines with a cost of production come on line. When gold is at 1400, they go off line. A lot silver (and actually a fair amount of gold) is produced as a byproduct of copper mining. That supply is inelastic.

unwashedmass's picture

my point precisely....they can't have people going off line now....not now that the world is starting to wake up to the massive theft and sale of the gold & silver "held in storage". 

this really is the crime of the past two centuries. 

Levadiakos's picture

Yeah! Dat Stalling was nuttin

James_Cole's picture

The first person on here other than me I've heard point out this obvious fact. Silver is almost free up to a certain supply and most silver demand is industrial and can't be compared to the investment side of the market. But people on here refuse to acknowledge that...

Bay of Pigs's picture

"Silver is almost free"

No, there was a former poster here who used to say that and his name was Math Man. He said, "It only costs $5 bucks to dig it out of the ground".

You are getting close to him as far as ignorance and stupidity go concerning silver production.

Levadiakos's picture

You're acting like a bag holder

Bay of Pigs's picture

LOL, having purchased my silver some fifteen years ago, I'm really shitting my pants.

Interesting how all the old trolls and PM bears are now back at ZH taunting everyone again.

Levadiakos's picture

How's turd and mosley? They lost their ball sacks just like you

RockyRacoon's picture

You have trouble reading?  He said he bought 15 years ago -- as did I.  Our basis is MUCH lower than silver will probably be in our lifetimes, barring a meteor or global volcanic eruption.  How's about 100 oz bars for under $650.

Dumbass.

Pancho Villa's picture

I think the return of the anti-PM trolls to ZH is a hopeful sign. The old ones like JB and Mathman pretty much went away in 2011.

oddjob's picture

Hell, I have a sealed monster box i paid 40.68 per/oz, never checked whats inside, not to worried about it.

chindit13's picture

This sort of comment always surprises me.  Then again, maybe it doesn't.  There is this oft neglected term called "marked-to-market".  Apparently it is an affront to all that is decent and wholesome if banks do not do it, but just plain smart if holders of some other asset don't do it.

The only entity truly concerned with where someone bought something is the IRS.  For everyone else it's just an ego salve.

People here laugh at APPL holders who held from $705, even if the holder acquired his APPL at the 1980s IPO, but Ag holders who have sat and watched an almost 60% drop in the value of silver are "okay, because they bought 15 years ago".

Reminds me of the Yasumitsu Shigeta, the founder of Hikari Tsushin.  During the Dotcom bubble his stock went from about 2 yen to 241000 yen (IIRC).  His net worth went from about fifty bucks to $45 billion dollars.  He was then one of the Top Five richest people on the planet.  An elaborate strategy was presented to him that would have allowed him to lock in a substantial portion of that wealth (he had a lock on a lot of the shares, so could not sell, but there was an alternative that could have let him keep at least a third of that peak net worth).  He refused.  The stock tumbled to about 600 yen.

He's "okay", though, because as a founder, his acquisition cost (after intial IPO sales) was $0.  I guess the Pets.com founders are also okay, because their DCA was $0, so they are still at break even. And UST holders who bought the then-benchmark 30-yr in 1984 are still good despite the recent rate back-up.

Mark-to-market isn't just for banks.  If wealth preservation, rather than becoming a mere collector, is a goal, an asset holder should ask himself every day:  do I still like this asset at this price?  The market, as well as one's personal wealth, don't care where one bought.  That's only for ego (or, as noted, the IRS).

Here's a "purely hypothetical" additional example.  Let's say I bought gold in 1999 for a DCA of $283/oz and silver in the mid 1990s at just under $5.  Let's say I sold the first at a DCA of a shade above $1700, and the silver about $38.  Of course there would have been a touch of seller's remorse when Au then went above $1900 and Ag above $48, but what the heck.  Looks okay now.  Apparently, though, those who bought below my "hypothetical" DCA of $283 and $5, but who still hold both, are better off than me.  Should I feel hypothetically bad?

My "mistake" was that I ask every day, "do I like this asset at this price?"

A paper gain is a paper gain, but a paper loss is real money.  Anyone who has held from $48.50 has lost the same amount of potential wealth per ounce as the poor guy who paid top tick. Some people just find a way to rationalize.  Whether it's "money" or not, a holder can exchange for less goods or services than he/she could have exchanged it for two years ago.  The term for that is loss of wealth.  If the metal is intended for indefinite retention, then it is merely a collectible, like a Beanie Baby, so neither daily price moves nor articles about price moves should elicit any comments.

By the way (this is to answer another poster, but I'll toss it in here), physical bid-ask equals paper bid-ask, unless one is helping the LCS or online retailer cover their nut.  There is so much BS spewing from the promoters in their ads, on their sites, and in their articles.  This Casey Group is the ultimate shill.  The sell fear, and always have.  Invariably they turn out wrong, but I doubt they care.  They write books and give lectures, cash-in in the here and now, and probably don't care when five years from now their books get plopped on to the Steal Me Table just outside the doors of Borders and Barnes and Noble.

FreeNewEnergy's picture

chindit, I agree with much of what you say, especially that Doug Casey and his gang should have gone into politics because they are such magnificent panders.

One thing to consider, gold and silver have declined recently in terms of dollars - and almost every other currency - so, theoretically, one should be able to buy more of "something" with the increased buying power of the dollar if one converts gold or silver into fiat.

That's theory, not always practicable.

OTOH, everything is fungible and speculative today. Many metals holders think in terms of ounces, not dollars or yen or euros, so, they have what they have and await the eventual deconstruction of the fiat pyramid. Time. It's either an ally or a foe, depending on your particular horizon.

RockyRacoon's picture

Love ya, man.  Your example of dollar cost averaging is that of a holder of stock.  It just ain't the same.

When the Weltanschauung is gold as money, then the analogy falls apart.

Vooter's picture

How's being last in the European civilization standings?

GoinFawr's picture

"How's turd and mosley? They lost their ball sacks just like you"

Levadiakos

Last August 5 2012 wrote:

"Gold is a serial loser. If you own gold it is a serial killer "

"The crackerjack gold doomers only buy."

August 5 ,2012 Au @ ~1600US bitzn'bytes,

followed almost immediately by a ~12.5% rally (not to mention the gains some of the miners had).

Nice timing: Your raisins got yanked off like a paper towel on that one.

oddjob's picture

Considering your 'handle' is a reference to a group of greek men that enjoy showering together, your attempted insult carries very little weight.

Levadiakos's picture

It's a soccer team you household servant

Bay of Pigs's picture

You smell bad. Go take that shower.

oddjob's picture

I know. They usually forfeit games by halftime in a rush to get to the showers.

mqg25's picture

I bet your Greek soccer "soap rangers" would gladly take silver over euros.

From what I hear now the most popular Greek sport is dumpster diving. Maybe now you can finally achieve your lifelong dream of becoming a real sports hero.

Gandalf6900's picture

You are either in your pre teens or ridiculously:

1. Not very smart

2. Not very clever

3. Not very sharp

...Correct answer shall follow

Vooter's picture

Uh oh, look out...it's a SOCCER TEAM!

e_goldstein's picture

Isn't that European for serial sheep gang-rapists?

nope-1004's picture

LOL.... "most of silvers demand is industrial".

James, you're either a complete idiot, or clever - because silver rounds sold for coinage are not counted in the calculation toward what is industrial use.  So you're right about the details but wrong about the metal as a whole.

 

James_Cole's picture

"Silver is almost free"

No, there was a former poster here who used to say that and his name was Math Man. He said, "It only costs $5 bucks to dig it out of the ground".

The basics:

http://en.wikipedia.org/wiki/Silver_mining

The principal sources of silver are copper, copper-nickelgoldlead, and lead-zinc ores obtained from Canada, (such as Cobalt, Ontario); Mexico (such as Batopilas); PolandPeruBoliviaAustralia; and the United States.

https://en.wikipedia.org/wiki/Copper_extraction_techniques

Because a large portion of copper sulfide ore bodies contain silver or gold in appreciable amounts, a credit can be paid to the miner for these metals if their concentration within the concentrate is above a certain amount. Usually the refiner or smelter charges the miner a fee based on the concentration; a typical contract will say a credit is due for every ounce of the metal in concentrate above a certain concentration; below that, if it is recovered, the smelter will keep the metal and sell it to defray costs.

James_Cole's picture

So you understand? They get the silver no matter what, whether they want it or not. Hence why it's "almost free"

Either the Miner keeps it or if they're sending to a smelter the smelter either keeps it or charges a credit, therefore zero sum cost.  

RockyRacoon's picture

Well.  That explains why they are giving the stuff away.

Bay of Pigs's picture

Rocky, the people in my neighborhood are all throwing silver from their rooftops screaming at the top of their lungs. 

They are gouging out their eyeballs too.

Think for yourself's picture

Oh, I see. Since silver often comes along piggybacking on the mining of other ores, that fraction of the income is not considered in the financial analysis. It doesn't matter if the geological assays identified the presence of silver, they just go, "Hey, Silver! Bonus!"

Similarly, when budgeting for paying back a loan, I don't take interest into account, cuz that's just something which comes along.

James_Cole's picture

The point I was responding to, way up the thread, was about silver production costs. There's a lot of claims of production costs being as high as ~$30 and therefore silver must stay above x spot price. I regularly point out this is absurd, silver spot price could go to $0 and silver would still be produced. 

Of course it often factors into financial statements / analysis of a project (so does moly, Au etc.) but generally as - yes - a bonus. When you melt a tonne of rock depending on what it is you're going to get a bunch of things, silver you'll always recover it if it's mixed with Cu. But not in the kinds of quantities where it will compare to the Cu being extracted, so cost analysis always reflects the Cu in a copper ore project (duh). 

Disagree? Give me an example of a copper project where this is not the case, i.e. silver byproduct is used as a major component for project cost analysis. There are lots of examples where silver isn't even included. 

James_Cole's picture

SRS Rocco is a clown who has changed his theories every couple years totally contradicting earlier claims. I've brought it up to him on here before and he's never responded. Anyway... 

So his example here is of a primary silver producer and he's trying to make the claim that a declining yield at Fresnillo is some broad-based indicator of silver production costs. 

What we are witnessing here is the evaporation of high-grade silver production only to be replaced by a much more expensive low yielding supply. 

As spot price goes up, grade goes down - not rocket science (the exception is when including non-primary silver producers / spot becomes irrelevant). But looking at primary silver producers is misleading...

>> Primary silver mine supply grew by 1 percent to account for 28 percent of global silver mine output. <<

>> Primary silver mine cash costs rose to $8.88 an ounce, reflecting higher prices for labor, electricity, and maintenance charges.<<

http://www.silverinstitute.org/site/supply-demand/silver-production/

fonzannoon's picture

James if the dollar were to begin to decline in a big way, would the price of silver go up? I mean like a monster drop in the dollar's value.