I have very bad news to tell. Do you know those big investment banks … who can’t get their heads together with gold?
They no longer seem to hate it so much. In fact, some of them too lovebullion now.
Imagine turning up the news last week and seeing a top strategist explain the wonders of gold – “$ 1,400 an ounce is a kink for 2016”.
But, wait a minute, why is this bad news?
It also means that the big gold bull market, the biggest rally in 25 years, will soon take a well-deserved break (albeit temporarily) …
It’s all about time.
As a former Wall Street reporter, I spoke to people from large investment banks and brokerage houses. Opinions don’t change, at least not quickly or easily. But when the price jumps by 20% within three or four months, that forces the problem.
A committee meeting is called, and someone says, “What are we going to do with this thing with gold? It’s a rocket. We can’t tell customers not to ignore the rally.”
If you’re famous for Goldman Sachs gold, you’ll inadvertently announce (as you did last week) that you’re raising your target price (however, keeping owning things has a “limited fluctuation”).
Or, if you’re another group, at the end of April, now growing on gold and other products, you say, “It’s been a lot faster than investors think of returning money to commodities.”
But all this takes time. Because investment bankers look at the same graphs, visit the same restaurants, and don’t want to be too far away, they all come to the same conclusion at about the same time.
So when a major bank or brokerage finally puts itself behind a new idea, such as “central banks are failing in their mission – to buy gold and gold shares,” the proverbial train has already left the station. And the passenger cars on that train? They are as crowded as the local subway during rush hour.
He catches the gold
That’s why I think the sector has lagged behind in price. Bullion’s price has risen more than 20% from last year’s lows, and major gold stock indices have doubled in price.
When any stock or goods are very popular, it is dangerous to sell. This is especially true after a sharp opening rally in the new naughty cycle with gold, which we have seen since the beginning of the year. You can find many similar examples from the beginning of the previous bull markets – 1986, 1993, 2001, 2008 – gold fell 20-30% … and sometimes more.
It doesn’t mean the long-term rise in gold is over. If you’ve bought gold stocks or bullion, congratulations – you’ll have a second chance to buy even more at lower prices.
But a sale is part of a sustainable and healthy bull market that needs to be sold over days, weeks or months. It cleanses unbelievable speculators and “weak hands” and paves the way for much higher prices in the future.