a counter to arhidas' view on gold

  1. 9,081 Posts.
    Having waded through Arhidas' negative posts on gold I post this counter view without editorial comment.

    Arhidas is entitled to his views - but there are plenty of differering analyses of the likely gold scenario out there:

    "Louis Paquette - Emerging Growth Stocks

    I received a fair amount of email from a recent article entitled "Thar she blows" on December 12, that wonderful day gold finally burst over the massively important $330 level. Subscribers know just how significant this break was so early in the positive annual cycle for gold and forgive me for being just a little giddy as we watched the ascending triangle breakout.

    Oddly enough, very few others were willing to join in. I thought Kitco would be flooded with such articles - but it wasn’t. I received all sorts of email from players all over the world with the same basic message of fear and scepticism "I sure hope you’re right" kind of thing. Gold bugs did not rejoice in the event I figured was the go ahead for a move to $350 soon. The only true belief was that they were about to be punished again, exactly as they have after every other rally of the previous six months.

    The break held and indeed signalled a strong impulse to the mid $350’s exactly as predicted by esteemed market technician Ron Meisels.

    Ever since then - gold has been defying almost every gold stock and commodity technician out there. The "commercial" futures traders - the gang that is always, always right, now currently hold the second largest short position against gold in history.

    Gold stock players suffer from Rear-View Mirror Syndrome

    Meanwhile Gold Stock players have spent the last couple weeks selling their stocks, convinced that the relative underperformance of the stocks to the metal price is paramount to the end of of the world. Every other post on Kitco these days reads like: "I sold out today", or, "Dumped half my golds today."

    They are fearful and bearish, here in mid-January, very early in the bullish portion of the six month seasonal cycle and well before the best expected gains in the cycle - and with everything else in the world so bullish for gold right now. I can’t ever recall witnessing such irrational bearishness. They just can’t seem to shake the "Rear-View Mirror Syndrome" - resulting from the June/July correction that dragged out to November. They are convinced the end is nigh, that gold stocks will never, ever outperform again, and this ironically in the face of the most bullish overall scenario I have ever seen for gold.

    Maybe I am getting over exuberant. A short sharp pullback, correction, whatever, is most certainly due anytime. Technical indicators are overbought. The RSI is bearish. Every other time the price has rallied last year like this, it did correct for painful months at a time. A single piece of positive geopolitical news could trigger it.

    On the other hand, think about this:

    The MARKET - always eventually fools most of the people. Right now the majority are bearish and nervous. Commercial traders are so hugely short, they have only been more short one other time in history.

    IF, and it’s admittedly a pretty big if because the commercial are usually right - but if the price of gold manages to hold 50% of Thursday’s gains and finds support around say $354.50 - the shorts will become extremely nervous. It could even violate fleetingly the $354.50 level - but pop right back up again. Then the shorts will be offside. The horror. They will only go so long before covering. It’s one thing to be offside on a long position - but another entirely to be offside on a short. If enough of them start covering - watch out. A massive short position like this cannot be covered in today’s gold market.

    A covering panic could ensue.

    Relative underperformance of gold stocks could end as abruptly as it began

    And then the nervous Nelly gold stock players who have been profit taking will be left with a bleak prospect as well. Either: 1.start jumping back in at higher prices now, or, 2. risk being left behind for the rest of the seasonally strong period lasting until the end of May. Not to mention a collapsing US Dollar Index, war and who knows what else that could happen between now and then. This relative weakness of the gold stocks to the gold price that has so disturbed the gold stock players would abruptly end. The weak hands will lose. Strong hands (i.e.: like EGS readers who bought last year and patiently waited) will win big time.

    I’m not saying it’s a sure thing. This is new territory. Betting against the Commercial players is foolish. You have to be out of your mind to do such a thing since they are almost always right. I’m not for a minute suggesting going long here. We did that long ago when prices were lower and safer.

    What I am saying is, that if ever the conditions were in place for such a rare event as a short squeeze, this could be it. Or at least, the conditions are starting to come together very nicely for such an event. Fasten your seatbelts, just in case.

    All last year subscribers will recall how I practically drooled over the powerful and rare "poetic symmetry" in the gold charts.

    Since of June of last year - we have witnessed extreme Underperformance of the stocks relative to gold prices (correcting the previous year of extreme Over performance). This has been one of the most dynamic "Wall’s of Worry" I’ve ever seen.

    Now, we may soon witness something else I have mentioned offhand lately. The "Perfect Storm" in favour of gold prices - a buying panic and a price melt up.

    Definitely NOT a time to be thinking about being short. I hand out this warning to subscribers one final time. In bull markets you buy and hold the dips. Not try to grab the odd short sharp correction by shorting. If you must, at least WAIT UNTIL MAY. (Although, I don’t believe the gold market should be shorted in general for the indefinite future at all).

    Seasonal profit taking for the big annual move in May is another thing, catching the big swings of the year.

    Trying to nail 10% declines in between - we aren’t smart enough to do that, so why try? Why try to second guess the market when we know - over time - it will always win."

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