"…A significant correction is lurking out there. It's highly likely to come out of left field and at its depth, it should end up giving cause to question if the bull market in gold is over…Any correction in gold is all but certain to carry over into silver, albeit it's likely to even be more vicious… The easy money is over…"
Gold was $720 and silver was $14.94 at the time. Just four hours later (at 1p.m. on May 11, 2006), I issued another Special Alert that stated,
"…An overbought/oversold indicator of mine that I've used since before the 1987 stock market crash, has given the most overbought reading ever for both copper and gold. Knowing that I'm going to trigger the nuts out there to call and email us, I'm going to suggest that risk in gold, silver and copper is now equal to, or much higher than reward in these markets for the near term. The long awaited sharp correction is within hours or days at the most."
My commentary did trigger the nuts but also dozens of calls and emails thanking me for speaking out!
On May 19, 2006, with gold at $656 and silver at $12.40, I said,
"…We can still see another 10% or so down from here (especially in copper-if not more). We can still move sideways to down through June…"
On May 24, 2006, with gold at $640 and silver $12.55, I said,
"…while a sentiment indicator of mine has turned positive for gold after reaching its most bearish level just two weeks ago, It's likely going to have to go to very bullish before we get 'the' bottom."
And finally on June 1, 2006, I said,
"I've been looking for gold to settle into a $625-$675 trading range before any new significant upside move can occur. We may need to shake out weak longs by testing $575-$600."
In a business where you're only as good as your last call and what have you done for me lately, most reading this will now only want to know what does my "crystal ball" see going forward? The late Kennedy Gammage used to say, "Those of us who make a living looking into the crystal ball, end up learning how to eat lots of broken glass." Translation - we'll all be wrong enough times to realize we, too, put our pants on one leg of the time! If there's just one sentence I want you to remember after reading this alert, it's the following:
The secular bull market in precious metals is far from over! At best, we're in the fourth or fifth inning. It's a very different story for most base metals, especially copper. There the game ended, only most fans apparently didn't hear the umpire yell "Strike Three- You're Out"!
Peter Grandich's Key Fundamental Factors:
The following are the most critical factors of mine and directly influence my financial markets outlooks:
With this in mind, let's look at the metals and mining shares.
There's an old saying that states, "You should look back before you look forward." I think it's most appropriate for gold.
As we entered the new millennium, the very survival of the metals and mining industry was in question. Those who still were attempting to eek out a living in it were literally trying just to keep the lights on. This period of time had a profound effect that we still feel today. The lack of substantial exploration has greatly helped the supply versus demand equation in favor of demand even today. While gold bottomed just above $250, it really never received wide attention (outside of our little goldbug world) until it broke above $500. In fact, it wasn't until it rose above $600 before the world seemingly beat a path to its door. I found it amusing at times, watching individuals and firms who never gave gold much of a thought all the way up to $600, knock each other over trying to get media attention that they were "raising their outlook" for gold. In fact, I pointed out that this very "feeding frenzy" was a key reason why when we broke above $700, I believed a serious correction had to take place. The icing on the cake was when media who normally couldn't care less about gold, were contacting me and reporting on gold's performance.
Now today, I find gone is most of the wild speculation that was occurring daily just a few weeks ago. In fact, I'm now seeing reports and commentaries questioning whether a bear market has begun (I love it). We may indeed need to trade between $575-$600 to get that feeling widespread, but most of my technical indicators have now returned to the bullish side or are at least no longer very bearish. Reward now equals or surpasses risk, going forward ($50 lower and up to $500 higher is worth risking being aggressively long again).
What are the main factors I see driving gold higher as we get into the second half of 2006 and beyond?
Gold can go as low as $575 before we see a major sustained move up but reward has now surpassed risk going forward. Most of the wild speculation is gone. Even the hate emails that would tell me I'm nuts for turning bearish on gold are gone and being replaced with frantic concerns from folks writing asking if they've missed the top. All in all, I feel we're hours or days at the most from "the" bottom.
7 June 2006
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