THE MICIK MARKET LETTER
Scare 'Em Out and Wear 'Em Out
Alan Micik snippet
Posted Jun 11, 2013
$U.S. Gold:
As we all are painfully aware, U.S. stocks have provided stiff competition for gold in 2013. It is important for physical gold
buyers, or ETF buyers, to understand the competition (stocks and such), because gold does not trade in a vacuum as we noted in
our 5/12/13 Subscriber Update.
“The U.S. & World Stock markets have been providing significant competition to gold for two reasons. First, they have
been advancing as gold has declined, and many ETF gold buyers have been liquidating the gold they bought well above
$1,540 and moving it into stocks or even fixed income products in a well documented world-wide “frenzy” to obtain yield.
Second, many stocks pay a dividend, and gold doesn’t.
The ETF sellers of gold are of a different breed than physical gold buyers because each group has their own unique
reasoning as to why they own gold. Nevertheless, until the ETF liquidation phase is complete gold will not likely mount a
significant advance. The first warning that this liquidation phase may be complete will be seen by gold’s price challenging
the resistance levels above the market (noted for Subscribers). Another likely requirement will be a period of base-
building, or one of our lower levels being hit by the gold price as noted in our 4/28/13 Subscriber Update.”
In our 4/28/13 Update MML noted that:
“In the beginning of any bull market, there is almost always no obvious Fundamental reason to be bullish for the majority,
but the technical position of such a market becomes bullish. Bull markets keep rising until everyone understands the
“why” (the Fundamentals) behind the bull market advance.
The opposite, of course, is true for bear markets. In the beginning of any bear market, there is almost always no obvious Fundamental reason to be bearish for the majority, but the technical position of such a market becomes bearish. Bear
markets keep declining until everyone understands the “why” (the Fundamentals) behind the bear market decline.
Some investors bought gold above $1,750 because there was a great “cover story” that provided the “why” (the Fundamentals) behind the bull market advance. Probably the biggest Fundamental “cover story” was that the FED was going to do QE Forever, so gold became over-owned by the majority.
Today, the opposite “cover story” during this bear phase is that the FED is going to “pare back” on QE Forever…maybe eliminate it if employment and such improve. Now, the buyers above $1,750 have become sellers below $1,540 because they understand the “why” (the Fundamentals) behind the bear market decline. Gold is now likely under-owned by the
majority once again.
The other “cover story” for this bear phase is that with U.S. Stocks advancing in 2013 why do you need gold?
This is the normal cyclical change between the bull and bear phases as described above. These phases have a rhythm over
time, and since we now know the “why’s” behind gold’s bear phase, it tells us that it is likely late, not early in this bear
phase.
These bull and bear phases produce emotions in Investors and Traders. We all like to think we are totally unique (and we
are), but when it comes to emotions in markets we are all part of the herd. The prudent Trader and Investor understands
that their emotions are almost always incorrect when it comes to markets, so they do the opposite of their emotional urges.
(In our MML newsletter, we recently provided the normal “sequence” of market emotions for Subscribers).
For gold, the “Panic” phase was the break of $1,540. Now we have been in the “Capitulation” phase since being bombarded with emotional inducements to sell gold ETF’s nearly every day by the U.S. media. Many investors have done exactly that as evidenced by the ongoing decreases in gold ETF holdings (now at 15 straight weeks as we exited May).
There are only two emotional phases left before gold advances, and there are many clues that we are in these final phases.”
Certainly, long-term Sentiment measures are quite contrarily bullish when compared to 2008 levels. The COT’s are also quite
contrarily bullish, and additional dissecting of that data makes a very compelling case for the upside which has been extremely
well-documented at 321Gold by various gold analysts. Also, the “true all-in cost” of producing an ounce of gold by the top 13
Majors has been conservatively estimated by well-regarded mining experts as something north of $1,400, so this is long-term
bullish for gold in due course.
We also observe the U.S. media endlessly highlighting and reporting bearish pronouncements by banks, brokerage firms,
magazines, and even a well-known economist this last week (gold at $1,300 by year-end, and $1,000 in two years is his call).
That’s contrarily interesting, because we don’t recall any of them being bearish or “hedging” at $1,800+.
Given this Evidence, there is no compelling reason to “hedge” one’s physical gold at this time for physical long-term holders,
but do understand that Mr. Gold Market can still “scare you out” and/or “wear you out” during “plunges” and “base-building
periods.” The “base-building period” phase is more likely what we are in now, since the “Capitulation” phase seems “long in
the tooth” after 15 weeks of ETF liquidations.
MML has written about gold “hedging” strategies since late 2011 (see 321gold archives here)
and 321Gold (Bob Moriarty) posted our unpopular articles for the gold community when gold was $1,800+, while most other
gold websites were only posting bullish views, much less a “hedging” strategy (we had a lot of “hate” emails back in 2011-12).
Today, our closed Investor “hedging” profits are $160 per ounce, and our Trader’s profits are now $110 per ounce. Total MML Trading and “hedging” gains are now $270 per ounce, so these results have offset some of the difficult period gold has faced
since September, 2011.
MML continues to suggest a cautious and observational approach at this time, and we continue to hold our physical gold
without a “hedge.” We have reported areas (above and below the current market) for Subscribers to monitor as we wait for this
“base-building” phase to conclude (which it can do at any time given today’s Sentiment). Our MML philosophy is the same
today as always…never sell your physical gold. Hold the amount of physical gold you are comfortable with, and periodically
“hedge” some of it (or all of it) when it is overvalued. If trading is suitable given your investment objectives, MML does
periodically provide guidance which Subscribers can elect.
If you would like to review our current MML forecasts for gold and other markets, consider a subscription (details are listed below). In deference to our Subscribers, we have a 4 day calendar “Quiet Period” from all Subscriber Updates before any Posts.
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Jun 6, 2013
Al Micik
email: atmmail@sbcglobal.net
The Micik Market Letter (MML) covers opportunities in any market sector when low-risk opportunities are identified for the investor and/or trader. Ongoing
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