The Dancing Bears Are Back

Tyler Durden's picture

Authored by Jeff Thomas via InternationalMan.com,

In the early 2000s, I recommended to associates that we were in for a major gold boom. Most thought that this was a ridiculous suggestion and didn’t buy a single ounce. I continued to recommend the purchase of gold regularly over the ensuing years, and the price continued to rise. Only in 2011 did they start to buy, at a time when gold was peaking. We were due for a correction and in late 2011, it arrived.

For several years, the price has remained in the neighbourhood of $1,200 - roughly the price it needs to be to bother removing it from the ground.

During that time, gold has periodically risen a bit, then gotten knocked down again. It’s understandable that this should happen. Central banks have a stake in holding down the gold price, since a rising gold price makes it appear more attractive than storing cash in banks. We’ve reached the point that the central banks have run out of tricks to float the economy and we’re already past due for a crash.

But crashes don’t always occur as soon as they become logical. As long as the public can be fooled into remaining confident in the system, a doomed economy can limp along for a bit before toppling. Statistics on unemployment and inflation can be fudged (and they have been). The stock market can be falsely pumped up (and it has been) in order to create the illusion that all is well. These factors, taken together with knocking down the price of gold periodically, helps to convince people that they should keep their money in cash and their cash in the bank, not in gold.

Just as in 2000, the number of people who understand that gold is not the equivalent of a stock but a store of wealth during dramatically changing times is quite small—certainly less than 1% and more likely less than 1/10th of 1%. Those that possess this understanding tend to hold gold long-term and are relatively unconcerned about fluctuations—even if they’re over $100 in a given month. They’re in it for the long haul and believe that, eventually, gold will rise dramatically and may well be the only safe haven after a crash.

But let’s go back to those speculators that waited until gold had risen dramatically before jumping on board the gold train. During the last four-year period, whenever gold rose as a result of economic and political developments, many of them would buy in once more, after it had risen significantly. Then, when it had been knocked down again, they tended to sell—often at the new bottom.

Of course, this behaviour is not limited just to the purchase of gold. In fact, a very high percentage of investors “play” the stock market in this way. They wait until everyone and his dog is buying in and the price is peaking, often buying on margin in order to maximize their positions. Then, when the bubble pops, they tend to ride the market down, hoping in vain that the price will return at least to what it was when they bought in. In essence, they tend to buy high and sell low almost every time.

The gold bears—those investors who don’t truly understand that gold is a very different animal from stocks—typically dislike gold but buy high when it becomes trendy to do so and sell low after it’s been knocked down. This dance is guaranteed to cause the gold bears to lose money time after time.

The dance is sometimes described as “chasing the market,” or “following the trends.” Brokers keep the dance going by advising their clients of established trends, telling them that they’re “missing out if they don’t get in now.” They serve as the market’s equivalent of a caller in a square dance: “Swing your client to and fro—watch his investment dollars go.”

Just as few investors understand the economic nature of gold, they also tend to overlook the fact that the broker doesn’t benefit from the success of the client - he makes his money when the client buys and sells frequently. So, of course his advice is going to be for the client to keep dancing.

So, will this dance go on as it is, ad infinitum? Well, no. There will be a dramatic change following a crash in the markets. Following any major crash, a panic occurs and whatever money is left on the table scrambles to find a new (hopefully safe) home. Following the coming crash, a portion of that money will head into gold. The price will rise dramatically, very possibly to such a degree that it can no longer be easily knocked down by the central banks.

At first the gold bears will assume that it’s an anomaly. Then, as gold passes $1,500, some will dip their toes in. As it passes $1,800, some will wade in. Beyond $2,000, this trend will strengthen quite a bit. As the crash deepens, stocks will tumble further. The bond bubble may also pop, increasing gold’s shine.

At some point, bankers may begin to freeze accounts, create bank holidays, and/or confiscate deposits. At that point, gold will head into its long-predicted mania phase and the bears will be falling over each other, chasing the buying trend.

Gold will rise to a logical price in keeping with its value as a hedge against a collapsing economy. At that point, it would make sense for it to stop, but that’s not what will happen. Those who understand gold will cease their purchases and sit on what they have. But then a new dance will begin. The bears will become decidedly bullish. It’s important to note that, at this point, they will not fully understand why gold is rising so dramatically; they’ll just know that it is. They’ll want to get in on the gold rush and will do whatever they have to in order to keep buying.

They’ll find that physical gold is in short supply, as traditional holders are unwilling to sell, seemingly at any price. Potential buyers will offer $50 above spot, then $100 above spot, then more. They’ll additionally buy on margin in order to increase their position.

It will be at this point that the mania will take hold. Irrationally high prices will become the new norm. How high will it go? $10,000? $20,000? Impossible to say. It will rise as high as desperation makes it rise, and we cannot now determine what that level of desperation will be.

A new bubble will be created, but this time, it won’t be in stocks or bonds. It’ll be in gold and, like all bubbles, it will eventually pop. This will occur when those who understand the nature of gold recognize that the price has far exceeded what’s logical and, as much as they value gold, they’ll sell a portion of their holdings and use the proceeds to invest in whatever assets have already bottomed and have nowhere to go but up.

They’re likely to retain a portion of their gold holdings for the same reason they always have, but will be happy to release a portion when it becomes significantly overvalued.

This will cause the gold bubble to pop and the gold bears, who have recently become bulls, will wonder where it all went wrong. At this point, they still won’t understand gold; they’ll simply have chased yet another trend and lost.

So, is there a moral here? Well, if so, it’s simply that an investor should not become involved in a market that he doesn’t understand. Nor should he trust his broker to understand it for him.

Ironically, as long as there have been markets, there have been those who go out on the dance floor without first learning the dance. A great deal of profit will be made by some gold investors, but the majority are likely to leave the floor with empty dance cards.

Gold is crisis insurance. Without it, you’re highly vulnerable. And there’s a good chance the next financial crisis could wipe you out.

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Raffie's picture

The trouble is people been hearing what gold/silver price should be for decades and think it will never happen due to FREE FIAT PRINTING......

I have yet to convince people I know to buy at least some silver.

Oh well.... did all I can.

sand_puppy's picture

I have been skiing for many years and have never broken a leg.  I have concluded that my legs are unbreakable!

Raffie's picture

Same peeps who think that it is impossible for America to be attacked since its been centries.

OKAY.....

Dame Ednas Possum's picture

The US attacks itself regularly.    

Kind of like a demented patient. 

City_Of_Champyinz's picture

I did the same, me and 3 guys in my office.  I do not think any of us convinced a single friend to buy some silver.

MrSteve's picture

You didn't start the process with them in the right condition: how do you make a small fortune in silver? start with a large one!

Then, transistion the story into currency debasement as seen in the CPI, diffusion this, confusion index that, natiional deflator, COLA adjustments (or not!) and then give them the clincher: why is China buying 100s, 1000s of tons of gold? Ponder that for a few minutes. Why buy all that gold? maybe to start a new international currency regime? negotiate a new int'l reserve currency basket?

And then what status will the dollar have? just like the 2000 Russkie ruble? change the silver story to why gold is timeless as a store of value and you might see your friends take a more nuanced view of the current currency debasement being coordinated by all worlds' central banks.

 

 

 

Dame Ednas Possum's picture

Show them the 'Get it. Got it? Good' video from Grant Williams. It's excellent. 

And this doesn't even consider the ETF fraud. 

monopoly's picture

Ahh, if only it were so. Many here have been waiting a long time for the above to happen. Will it? I have no idea but I am positioned for it. 

We shall see.

Raffie's picture

Silver is the one I really want to see correct to its true value. 

It will blow most people away when it does.

Mustafa Kemal's picture

Yup, some say silver is poor mans gold, but I say silver is spring loaded. Harder to haul around, but if you got a place to stash it........

Squid-puppets a-go-go's picture

the inference in the title here is that the bankers wont print money this time around.

What's stopping them? 

mkhs's picture

Damn.  I thought the title inferred that bears dance!

scoutshonor's picture

I thought it meant they had dug up Jerry Garcia and he was back on tour.

jmack's picture

They will always print money, but at one point no one will trust the money they are printing, and that is when the fun begins.    They will declare and spend much resources on enforcing a certain exchange rate, but only the bare minimum of goods will be sold at that price, and what is will be bought quickly and then resold on the black market for a currency, gold or silver, which is trusted.    There will be black market exchanges  to change your government paper for real money and that is where you will find the true value of your printed dollar...ie the rising price of gold.

Antifaschistische's picture

I think prudent people will continue to "position" themselves for what I believe is inevitable.  To that extent, perhaps I am "waiting" also, but in no way am I "longing" for that event.   Anyone, who lives in, or receives compensation in, or will receive any retirement income in....US Dollars can not possibly benefit from it's collapse unless your metal stash is worth three times the value of your home.

For those who do have three ounces of gold and pray every day that it goes to 10k per ounce have no idea what they're hoping for.

...as for convincing your neighbors and friends they should protect themselves against a dollar decline.   don't bother.  It's not worth the blame you'll get if it drops $50 below their buy price.

greenskeeper carl's picture

I almost never try to tell anyone else to buy gold or silver. It's very rare. As for the price moves, I don't care. I just dont think you will see positive real returns on the stock market, or almost all individual stocks, over the foreseeable future. Don't want to just stuff cash in my mattress, and don't like loaning corrupt, broke governments my money, so what's left?

Dame Ednas Possum's picture

Agreed. If they don't get it already, why take on the burden of trying to convince them?  

Mark Twain rightly said that it is much easier to get someone to believe a lie than believe that they've been lied to. 

The only person I succeeded in convincing was my much younger sister.  She's very bright (jumped a year at school and did a double degree at uni in chem. engg. and commerce). She listened for 30 minutes. Did some research of her own and within the week placed a good portion of an inherritance into phyzz. The other siblings listened politely then never gave it a further thought. All too difficult. 

Gold, dirt, seeds and lead. Easy really. 

rf80412's picture

For those who do have three ounces of gold and pray every day that it goes to 10k per ounce have no idea what they're hoping for.

I thought the goldbugs spent every day masturbating at the prospect of their metal dodecatupling in value overnight - while prices permanently deflate to where they were in 1776 or whenever - and then being one of the handful of people on the planet with any money.

You wonder if people like that only hate central bankers and Rockefellers because they're not members of that club themselves.

Dame Ednas Possum's picture

Well you thought wrong. Something you must surely be familiar with by now.

 

And by the way... Congratulations! 

A few short paragraphs and you just proved to the world beyond a reasonable doubt that you are an irreconcilable imbecile. 

Well done Einstein. 

 

You can return to your masturbation fantasies now.

Go on... off you go. 

 

 

Sledge-hammer's picture

When you have a story about Dancing Jews, please get back to me.  Mazeltov.

gm_general's picture

What I have seen is the dollar goes up in bad times as it is usually a deflationary recession. How does gold do in a deflationary environment? And this time should be no different, as we are in debt saturation - in such a condition money is evaporating rapidly as debt is being defaulted on. You could pump more money in such situations, but more money = more debt = more defaulting and decline in the money supply.

Sure there is a fear component benefiting the gold price in such a situation, but there is also the deflationary one countering it. And then there are disingenuous articles like this one that protest that the writer is buying gold to store value, and then he/she proceeds to slobber all over $2000 prices and up.

dogbreath's picture

Tyler wake up,  I heard Rokefeller died

MsCreant's picture

That picture is soooo cute!!

mkhs's picture

Wait till you see what it is dancing on.

MsCreant's picture

David Rockefeller's grave?

mkhs's picture

Do bears shit on graves?  Is the pope catholic?

 

just the tip's picture

looks photoshopped to me.  head is way bigger by proportion.  could be bear porn.

Shemp 4 Victory's picture

 

That picture is soooo cute!!

Here's one that you might find adorable:

http://s017.radikal.ru/i436/1610/94/ca83edec75b0.jpg

Food Loaf Junkie's picture

Is that a Russian bear spanking an American eagle?  Or am I reading too much into the Photo? :)

MsCreant's picture

Caption 1: Bear: "Bye bye, USA. Don't let the door slam your tail feathers on your way out."

Caption 2: Eagle: "Hey, I don't like it when you hit back. I can shit on you but it doesn't hurt you like the rest. No fair."

This is what it has come to, I think.

 

mtanimal's picture

That is a Bear sneaking up on a Pension Fund.

Able Ape's picture

Yeah, when you smear yourself with bacon grease, you're bound to attract bears!...

mkhs's picture

That is not a muzzie/ju repellant?

Tiwin's picture

What too many dont seem to understand is that a 100 dollar swing in gold is like a one dollar swing on a 12 dollar stock or a 50cent swing on a six dollar stock.

In other words , not really a big deal!

Montana Cowboy's picture

Somebody needs to explain something to me. If gold and silver have really been down-rigged in paper markets to fire-sale prices for so many years, then why is there a single physical ounce left in any warehouse anywhere? In fact, the PHYSICAL above-ground supply of gold and silver have been increasing every year since 2006, while coin dealers tell us delivery defaults will happen any day. Is paper really to blame? With any other commodity, a glut would cause prices to decline until equilibrium was achieved. How did metals get excused from this dynamic? The only explanation I can see is that the paper markets are holding the physical price up, not down. With growing gluts, the physical markets certainly can't be credited with holding up their own price.

If the physical marketplace can't empty warehouses when prices are allegedly down-rigged to fire-sale prices, how will the physical market ever endure price escalations?

I ask these questions to many popular metal advocates. I can't get a reply from a single one.

Tiwin's picture

Unlike the traditional Econ 101 answer that lower prices attract buyers, Gold is unique in that a rising price, especially a rapid rise attracts the most buyers. and yeah yeah , its down 650 bucks, like a 19 dollar stock going to 12 1/2.

Look at any long term chart of any stock and see bigger declines in an overall bull market.

Montana Cowboy's picture

Good info. But it doesn't explain why there is a single ounce available in the physical markets if prices have really been paper down-rigged to fire-sale prices for over a decade. This can't happen with any other commodity.

Innominate's picture

How many people are going to invest in something that they hear is suppressed in price? You would be making a bet that the "all powerful" authorities lose control of the market.

The important thing to watch is the capital expenditures on silver mining at these low prices. Is it worth investing capital into a high-risk, low-return new project? Is it even worth maintaining the existing capital assets at mature projects?

What happens when existing mining projects become uneconomic and there has been no investment in new projects to maintain supply?

Fucking manipulators never look past the immediate effects of their actions.

Dame Ednas Possum's picture

1. The vast majority of individual people do not understand the purpose of gold, so they don't buy it. They see it as complex or beyond their reach. Or they simply can't afford it as they are up to their eyeballs in debt. 

2. of the small portion who are in the PM market, most are in the 'paper' form, they see physical as antiquated. 

The above is extensively reinforced by the extremely negative 'pet rock' propaganda in the west, which is achievable as the bulk of society are careless, brainwashed, dumbed-down fools. 

Whatever the reason, the fundamentals of precious metals are irrefutable. 

silverserfer's picture

mine supply is enough to physical meet demand for now. 

CHX13's picture

Well not sure it's gonna pan out like that. Since as gold will rise (in fiat terms), the paper gold ponzi scheme will break for good and all hell will break loose; the rise in gold will only reflect the trillions upon trillions of fiat dollars printed out of thin air; it won't be gold that is in a bubble, but a pop of the current fiat currency/debt bubble. I'd think a debt jubilee and new fiat currencies will be in the cards at that point, along with global social unrest and possibly WW III.

Should anything along those lines happen, we wish we still had some dancing bear (eg. like this one https://www.youtube.com/watch?v=SNrXM4v78Yo :)

Fundies's picture

Do bears lay gold nuggets in the woods ?

mkhs's picture

I thought they laid Goldilocks?

MsCreant's picture

Nah, they don't eat "pizza." Politicians and other perverts in power do though (or so I hear). Bears, not so much.

mkhs's picture

Bears eat everything, and then some.  Where did you learn about animals ( I am not referring to politicians here).