first majestic silver

Bull Market in Gold that Few Believe

August 3, 2005

Today's (to be giant) Gold Bull Market continues grudgingly backing and filling so as to attract as few followers as possible. It began when true believers of gold were mired in the depths of despair, and were left questioning if the 21 year Bear Market would ever end. The bear had been in control from gold's $875 peak in February, 1980, until its $252 low in August, 1999. and into its successful test of the bottom two years later, as $255 was touched in February, 2001.

This torturous twenty-year period had drained both the hopes and the pocketbooks of those who understood the importance and position that gold still holds for mankind.

Most of the true believers bought into gold's Bear Market rallies of 1986-87, 1989-1990 and 1992-1996, only to suffer very painfully for years. Despite the fact that they presently feel that gold is in a new primary Bull Market they too are still a bit leery because of being trapped so many times, that they constantly question the veracity of their convictions. At the current juncture, gold's price action continues to confound the marketplace. Its plodding upward movements are frequently punctuated by sharp breathtaking price breaks. These act to both rattle the nerves of its adherents, causing them to question if a Bull Market truly exists, as well as deterring onlookers from entering the market. Further more, the skepticism by the masses, of the existence of the gold bull, is constantly fanned by the Wall St. talking heads and virtually all of the information that they read or hear in the popular media. How many of you realize that among the top performing mutual funds since 2001 are precious metal funds? The bold few that muster sufficient courage to venture into these markets run at the first sign of any setback. How can they possibly initiate and maintain positions when they are bombarded by negative or misleading information? When a reversal or the threat of one begins, today's neophyte gold investors (Hedge Funds) are quick to exit the fray, as panic sets in and their stop-loss orders are triggered. Many of these new investors intuitively understand that they should own the noble metal. If for no other reason than it has been a safe haven for the public, to maintain their wealth from the beginning of civilization and that it may protect them from the gathering storm that any thinking and aware person must sense.

It is understandable that the momentum players and traders that have entered the gold market would act in this fashion. For them, trading gold is no different than buying high-tech or dot-com stocks, or wheat or corn futures for that matter. They neither understand nor care whether or not gold is destined to trade far higher. All that is meaningful to them is that an opportunity has presented itself from which they can garner profits quickly. Because they do not recognize gold's Bull Market they are quickly frightened by the severe price reversals. It is amazing to this observer that even though gold is up nearly $200 from its low, it is as though a preponderance of gold believers still have one foot out the door! Whatever the reasons for the sharp corrections that we have been forced to endure, they are nothing that hasn't happened before.

One thing is certain there is still only a small contingent of those who are steadfast believers in gold's secular Bull Market. These are the very few individuals who both understand and also firmly recognize that gold's rise is real and is only in its infancy. This brings me to the crux of this missive.

If these conditions were not occurring everyone would know that a major Bull Market is at hand and there would not be this opportunity now at hand. Indeed, other than the influence of the central bankers, these negatives will not exist during the final Bull Market stage. With tongue in cheek I must even say that part of me is pleased with the above set of circumstances. For it tells me that this Bull Market will likely far outdistance the one from which investors profited so handsomely during the 1970's. The early stages of all great Bull Markets are conceived when the most astute investors gingerly begin to acquire positions, which no one else wants, because they themselves cannot be positive that the Bear Market has ended. Later, as the market works higher, two conditions occur. A second contingent of investors appears and joins the first group, that have now gained greater confidence in their belief and continue to add to their positions. The newcomers that arrive at the early stages of the Bull Market have been observing the market from afar as it moved higher. One by one, as their confidence in the bull's presence grows, they begin to make purchases. They move through the same psychological and buying stages as the initial entrants into the market, even though they started later they continue to add to positions, as the Bull Market moves through its first through third stages. Eventually, during the fifth and last stage of the Bull Market, the third and by far the largest body of investors arrive. They have finally recognize that a Bull Market has been in existence. These latecomers sat idly by observing the unfolding of the Bull Market. They heard of all the great profits and fortunes that were garnered by those who had earlier invested in it. They begin to berate themselves for not having made earlier purchases and count the profits that should have been theirs. As the Bull pushes relentlessly on up, and as the pull backs get shallower and shallower their avarice begins to surface and tells them that they can no longer remain on the sidelines. For if they do, they feel that they may never forgive themselves for missing out on this great bonanza of profits, from which everyone else appears to be benefiting.

When the herd finally moves during the terminal phase of all Bull Markets, price movements become exaggerated! The Momentum players, the hedge Funds with over a Trillion Dollars can no longer wait to jump on board whole hog. The movements now rather than being 2% to 3% as during the earlier phases of the Bull Market, now soar 10% to 30% or more in one day. This frothy period attracts an incredible influx of capital that further stokes the Bull Market's fire and generates extraordinary and explosive price advances.

The momentum players have finally arrived. When this time arrives and everyone is a true believer, it is then time to start thinking about exiting the market! The masses never learn! They disbelieve and distrust all Bull Markets until their final stages. Then, like a herd of Lemmings, they cannot prevent themselves from moving en masse to their destruction. For all of these reasons and more it appears obvious that the gold and gold shares Bull Markets are not only intact, but they are destined to move far higher under the cloak of disbelief.

It is difficult, nay virtually impossible to believe in the gold Bull Market, with so many reasons to question it. It makes even its most ardent advocates doubt their judgments! With so few believers it is apparent to me anyway that the gold bull remains in control, and just like during the stock market bubble brought predictions and books of DOW 36000. This Bull Market in GOLD won't end until we see the $10,000/oz plus projections for gold appear.

The Bible tells us that there is a time and a place for every thing. Now is the time and the place for gold. Like any good roller-coaster ride just buy on dips and hang on. Yelling is permissible but not mandatory.


Aubie Baltin CFA, CTA, CFP, Phd. (retired)
Palm Beach Gardens, FL
[email protected]


3 August 2005

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