Buying Gold When Ambivalence Prevails

Another day, another pre-market shellacking of gold. I’ve seen enough of these suspicious pre-market sell-offs over the years to know that going long into deep selling is profitable. Bull markets always overpower short-term selling pressure.

Sentiment in the gold space is currently the exact opposite of exuberant. Go up to 10 random people and tell them to buy gold at $1200 dollars. How many do you think are going to buy? I suspect 0. Not exactly the hallmark of a gold bubble if you ask me.
Apparently gold is selling off today because of a negative July CPI print that is sparking fears of deflation. These fears are way overdone. There will be no widespread deflation as long as Helicopter Ben is at the helm of the Fed- he loves the printing press too much.

Stocks and Gold

The 2 lines in the sand I indicated, 1070 for stocks and $1190 for gold, are holding (barely) so far. While it’s too early to tell whether we have found a solid level of support, I believe gold shares are presenting value. In the long-term, it is wise to add at these levels.

The current ambivalence to gold is expressed in the charts. Notice the steep decline in volume in the Gold Miners Index (GDX) over the past month; investors are far from excited about gold. The last time this happened was last September, right before the dramatic 50% rise in gold shares that caught most people off-guard. Keep this in mind. There is always a sleep-inducing calm before the storm.

You all know where I stand by now. By the end of the year, there should be a game-changing rise in gold. That most investors can’t pull the trigger at current levels should give you comfort. Buy when no one cares.

No objective observer can tell me gold is showing signs of topping. Tops exhibit unique characteristics, not the least of which being a steep decline over a very short period of time. A 5% drop in 1 month doesn’t qualify. Sorry gold permabears, but this is called a correction.

I can already foresee some of the things I will be saying 6 months from now: Don’t you regret not buying? Are gold bears officially extinct? Where are Prechter and the deflationists? Are persistent gold top callers officially braindead?

Yes it will be fun. Hopefully you won’t be one of the countless people who regret missing the next leg up.