As we move deeper into the trenches of this 10-month correction in gold, market sentiment among retail investors is becoming more encouraging by the day. Specifically, is it sentiment among participants who have been investing in gold for less than three years that interests me most, and let me tell you why:
After the 2008-2009 crash, a new crowd of investors began pouring into gold, silver, and mining shares. Recognizing the reliability of hard assets, these investors moved in with great confidence in obtaining and owning the “real thing.” But the key concept I’d like to emphasize here, is that these people came in after the crash. This group hadn’t survived the gut-wrenching, soul-peering, “can’t turn on my computer screen today,” experience that many others including myself went through during the crash. This new crowd came in the year just after, which was a real opportune time to buy, and hence they became accustomed to the idea that gold, silver, and mining shares will always move up in a straight line. Each small pullback was considered a “buying dip,” taking place just before the inevitable hyperinflation---which would result in a 10 times move in bullion overnight, and a move higher in mining shares by 50 times.
However, it is the return of today’s market environments in which metals market participants exhibit their true colors, staying power, and solvency. One of the fortunate aspects of conducting an interview program at BullMarketThinking.com, is that I receive countless emails from listeners, many of whom excitedly share their outlook and feelings on where the market is headed. It is through this constant stream of emails that I’m lucky enough to shape my own sense of where market sentiment stands at any given time.
In terms of where sentiment is at the moment—nearly every comment I’m receiving right now from retail investors who’ve been in the market for less than three years is conveying the same thing: “I wouldn’t buy gold or silver here, because I think it’s going to get cheaper.” They’re saying the same about mining shares: “I’m not buying yet, because I think they can go much lower.”
Why is it that now when gold is 18% cheaper than a year ago, all of a sudden everyone “thinks it’s going to go lower?” And why is it that when gold was touching $1900 an ounce, every comment made by me or an interview guest regarding the risk of a significant pullback in the metals, was greeted with 20-30 emails of why hyperinflation was just around the corner?
I’ve come to my own conclusion about today’s metals environment, which is: tough markets are meant for tough people. Much like the mountain climber who scales a peak in solitude, the Jesse Livermores, Rick Rules, and Ross Beattys of the world must move forward and leave the crowd behind at the last comfortable resting point. The concept is summed up well by Edmond Dantes in the exciting story of, “The Count of Monte Cristo,” when speaking to his comrade Jacapo, he said, “I make my next trip alone.”
As depicted here in this chart of the 2008-2009 crash in mining stocks, the summits of life and markets are clearly not for the faint of heart:
While I have not yet identified a mountain peak that conveniently matches the shape of today’s market correction, my point is simply this; the real winners in the market today are not waiting for anything, or anybody else to move forward. They are executing and scaling the summit (i.e. acquiring private placements, shares, and bullion) at this very moment.
Now moving on to a second and unrelated topic, I wish to bring to your attention a recent article produced by James B. Stewart of the New York Times, entitled, “A Loophole Big Enough to Lose a Billion.” Stewart’s thesis and discovery was that after the MF Global debacle nothing changed in the financial market regulatory structure of the United States. According to Stewart, “The loophole that allowed MF Global to convert more than $1 billion in customer property to its own reckless bet on European debt is still in effect.” Stewart further addresses the regulatory loophole by adding that, “It allowed firms to do whatever they wanted with customer money, including using it to speculate for their own accounts.”
While I was very pleased to see Stewart’s article and great reporting, I was not at all surprised with his conclusion. After publishing BulletProof Shares: How to Protect Your Stock Investments From Broker Bankruptcy & Theft earlier this year, I began hearing back from countless readers, all describing their experiences in dealing with brokerage houses. Quite often, a regular stock trading account carries fine print disclosures indicating that all stocks, cash, or other assets may be used as firm collateral in proprietary trading activities. Additionally, most employees of the brokerage firms are unaware of their own firm’s collateral policies and trading activities, which is concerning to say the least.
The stock brokerage community has changed dramatically over the last 10 years, and these times warrant new personal responsibility and accountability. The days of handing your money over to somebody else without any serious due diligence (whether it be a local bank, broker, insurance agent—anybody), are clearly over. The entire world as a matter of fact, seems to be turning into one giant game of three card monte. If it seems too easy to win, you may be lining up for trouble!
Circling back to the metals markets for a moment in closing, I think these summer months will be remembered and spoken about by the metals community with great fondness as being a repeat of the opportunities found in the market depths of early 2009. Not only does it take a wild courage to continue forward to the peak without the camaraderie of the crowd, it takes true staying power and conviction to remain there. As Robert Schuller once said, "Tough times never last, but tough people do."
In regards to Stewart’s editorial, to learn about the protecting your stock holdings from broker bankruptcy or fraud, I suggest learning about direct registration and paper share certificates. Both of these stock ownership methods are explained in detail in my recent report, BulletProof Shares: How to Protect Your Stock Investments From Broker Bankruptcy & Theft.
Stockhouse.com: Taking
it to the street
