As a follower and participant in the gold bull market from 2002 until now I can say unequivocally that the two most bearish periods sentiment-wise in the bull market so far are the fall of 2008, and right now. Therefore, by definition, the two most profitable times to buy gold stocks were in the fall of 2008, and right now. This simple concept is incredibly difficult for most people to understand and put into action.
The media will always lead you astray when it comes to these phenomenal buying opportunities. In early-2009 it was an incredible time to pick up just about any asset you could think of: real estate, stocks, commodities, etc. But the overwhelming mood on TV and the Internet back then was bearishness at that epic buying opportunity. My second favorite glaringly wrong example from the media was the end of 2012 when the media was petrified of the fiscal cliff. For a month straight in December 2012 that's all you heard on CNBC, how the fiscal cliff was going to be terrible for stocks in 2013. But it turns out 2013 was an awesome year for stocks, and the bears in the media were 100% wrong.
What do early 2009 and late 2012 have in common? Both were the ends of periods that were bad for the markets. In 2009 of course it was the end of the epic stock market meltdown, and in 2012 it was a two year period from 2011-2012 where stocks didn't make a lot of head way. Instead of being bullish at the bottom though the media extrapolated these negative periods out into the future and predicted more bearishness to come. The media is always focused on the short term and in sensationalizing whatever is happening right now. This puts way too much emphasis on the current state of the market and forgets the cyclical nature of the market over the long term. So at the turning point in long term cycles they are always going to be 100% wrong and look foolish.
You can't listen to the average money manager these days either because like the media they are controlled by the tyranny of the present. They are slaves to quarterly performance, beating benchmarks, and siphoning profits from their customers who will go away if they lose money in the markets. Therefore they can't be involved in getting in too early in a bear market and sustaining losses over a long period of time. That will ruin their business prospects for the future and they will avoid that whenever possible.
I personally believe what we saw at the end of October was the capitulation of professional money managers who had assets in gold and gold stocks. They finally threw in the towel at a key tax loss selling time of the year and decided to get out of gold and gold stocks. The evidence for this is the surge in volume across gold and gold stocks and massive losses over a short period of time. That usually only happens when the big money gets out all at once. But they are human like everyone else. And combined with the fact that their actions are way more affected by short term performance, it's not surprising that we see massive liquidations of positions at the bottom of a trend, even by the "pros".
Let's talk about the life changing opportunity that those that are tied to the present are completely oblivious. Gold stocks are now at the tail end of a 4-year bear market if you go by the XAU gold stock mining index. Four year bear markets are typically brutal in gold stocks and this is one of the most brutal yet. But we know from the chart below that due to the cyclical nature of markets in general and of the gold market in particular, that what we should expect next is a bull market. And if its a bull market in gold stocks it should offer big gains.
Even during the secular bear market in gold from 1980-2000, the gold market went through cyclical bull markets that offered big gains for gold stocks. The 1993-1996 bull market is shown above and offered more than a 100% gain even though the secular trend for gold at that time was down.
Now starting in 2001 gold had shifted into a secular bull market which caused the bull market in gold stocks that launched in 2001 to be spectacular. This bull leg offered more than a 5-bagger for the XAU and even bigger gains for individual gold stocks. Then we got the 2008 meltdown, which produced the next epic buy point for gold stocks and a 3-bagger bull market. It was incredibly painful to buy at the depths of that 2008 bear market. But not only was there a 3-fold gain in the XAU, some of the individual returns on specific mining stocks during that period dwarfed anything else in the entire stock market. Silver Wheaton and First Majestic Silver are two stocks that come to mine that had 20-baggers from their 2008 lows.
I personally didn't believe we would get another opportunity like 2008 in this gold bull market but here it is, staring us right in the face. And I think the prospects for this next bull run are truly mind boggling if you think about all the money that is going to come flooding back into this sector when the secular bull resumes.
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Gold stocks are providing a rare opportunity that doesn't happen very often in markets. Basically what is going on right now is a liquidation, where losses have become unbearable for many different investors in the sector and they are just dumping everything they have. This has been exacerbated by a couple of different unique factors including: 1) tax loss selling for funds ending by October 31 2) a major rally in the U.S. dollar and 3) a long term bear market in the precious metals that is in the "give up" phase for the bulls. This toxic mix has spelled disaster over the last week or so for precious metals bulls.
Volume on the downside is off the charts which provides a key clue that we are in a capitulation. I tweeted a link earlier in the week about a top German newsletter writer who admitted recently dumping all his gold stocks. This guy apparently is around 25 year old, which leads me to believe this is probably his first major wipe-out in the investment world. So you're seeing real life evidence of emotional capitulation and mass dumping of gold and gold stocks.
As long as you're not overly leveraged though, this is an awesome opportunity. The "pros" don't get themselves into this type of precarious position very often, but when they do you can basically just pick their pockets at incredible prices. If you have a long term outlook, whenever gold and silver re-enter a bull market again, which WILL happen at some point, then the gains from here will be awesome.
I've been looking for an end to the gold bear market all year, and even though it hasn't quite happened yet we've already had 2 great opportunities to buy gold stocks in the past year. In late 2013 and early 2014 I picked up a bunch of gold stocks myself as everyone was panicking at made some great gains on some positions, including triple digit gains as gold stocks had a big rally early in the year. You had to do some trading to make money in gold stocks this year, but even if you didn't and have just bought and held, you have another stellar opportunity here to get a great entry point.
You just don't get an opportunity like this very often because as I said, it's rare for a market to be in a liquidation phase. I think this will eventually cement the final end to this gold bear market, and provide either the basis for a V-bounce and the birth of a new gold bull phase or a basing phase followed by a bull phase.
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This isn't 2008. Those that are expecting fireworks for the U.S. dollar if this bear market continues are in for a rude awakening. The setup for the dollar is completely opposite to what happened leading into it's mega run in 2008. Let me explain.
The dollar was approaching a 3 year bear market heading into late 2008 as the stock market was beginning to crash. And the bears were out in full force proclaiming the death of the dollar right at the bottom. Being a dollar bull at that time in 2008 was totally contrarian after a 6 year overall bear market in the dollar, but it was the exactly right position to take.
This time the dollar has been going up for 3+ years, and is actually late in a cyclical bull market and ready for a top. Sentiment is dollar bullish now after the dollar has not made a major new low for 6 years since 2008. Discussion of King Dollar being back has been all over the Internet recently when it made a big surge higher. In reality it's more likely the dollar is overdue for a major top and could be headed for a new bear market shortly.
Some might say that the big surge higher in the dollar recently is proof that the dollar is ready for a new bull market. The problem with that narrative though is the fact that markets tend to make false moves before they make big trend changes, as they fool people right at the end of their move. Two examples of this were what happened with gold and oil in 2007 into 2008 as the stock market transitioned into a bear market.
Gold and oil actually bucked the trend of the stock market and went higher into 2008 as stocks had already topped. And they didn't just make minor moves higher, they made big moves higher with oil making a crazy parabolic spike higher right before stocks got crushed. So there is precedent for extreme false moves right before bear markets begin and I think it's quite possible what we just witnessed in the dollar was another example of this.
The story for gold right now is very similar to what happened with the dollar in 2008. Everyone is bearish at the bottom after a 3+ year cyclical bear market, and nobody expects a major move higher. Market participants are actually positioned for the exact opposite thing to occur in a big way. Small speculators in the futures markets were recently the most net short they've been of gold in the last 13 years! Gold is actually overdue to start a bull market and take everyone by surprise just like the dollar did in 2008.