Buy the dips; it’s a long-term bull market

The reactions to last week’s hammering of gold and silver further exhibits that we are still in the early stages of a long-term precious metals bull market.  With Tuesday’s huge declines in gold and silver, public sentiment turned bearish almost instantly, which is exactly what the sellers wanted.

In the early stages of a bull market, setbacks produce last week’s results: nearly instant negativity, in some cases panic.  In the latter stages of a bull market, price declines are viewed universally as buying opportunities, which are jumped on with confidence.  In the early stages, setbacks generate concern, cause investors to question the wisdom of their positions.  In the later stages, positions are increased.

Richard Russell, of Dow Theory Letters fame, used to say that if you aren’t sweating your buys you aren’t buying right.  To buy right, you have to separate yourself from the crowd.

Last week’s selling has been reported by experts in the industry to have been an absolute manipulative move.  Andrew Maguire, now known as the London whistleblower because of his email to the CFTC about a coming manipulative move last year, had this to say in a KingWorldNews.com interview: “. . . it couldn’t have been more blatant (intervention in the gold market) could it?  Talk about not worrying about hiding your footprints.  This was obviously sanctioned somewhere at a higher level because the amounts of contracts, paper contracts that hit the market, all at once, within seconds of each other, this was not normal trading.”

Maguire also said: “We were seeing massive order flows.  We were seeing every single bid being hit.  The offers were just massive.  I mean we were seeing 10’s and 20 thousand contracts at a time being unloaded by single individuals.”

James Turk, famed long-time gold trader said, also in a KWN.com interview: “We’ve seen this so many times over the past twelve years, Eric.  I’m taking last week’s smash in the metals in stride.  The fact that central banks chose to intervene when silver had broken out on massive volume and gold was on the verge of a breakout is not surprising.  The situation was getting desperate and they had to intervene at that point or things were going to get out of control on the upside.

“The reason, of course, is that the underlying fundamentals for gold and silver remain very bullish.  I know that corrections, like the one we are experiencing, can be disconcerting to investors who have made recent purchases, but as we have said so many times in the past, the hardest thing to do is to sit tight during these downdrafts.”

The sellers got the results they wanted: negative news on the metals, big declines, which send the message to investors thinking of joining the gold and silver march upward that the metals are dangerous investments.  Not discussed is that gold is up nearly seven times off its low a decade ago and that silver is up nearly nine times off its decade ago low.

Turk notes that “the fundamentals for gold and silver remain very bullish.”  Frankly, I haven’t looked at gold’s supply/demand fundamentals in a long time.  Silver’s fundamentals, of course, are widely discussed in precious metals circles and difficult to miss.  Besides, I’m a silver bull and know well silver fundamentals.  However, I’m not a gold and silver bull because of either gold’s or silver’s fundamentals.

I am a gold and silver bull because the metals are in long-term bull markets as a result of the US’s expansive monetary policy, and not just because of the massive creation of dollars since 2008.  The US went on a dollar binge immediately after Nixon closed the gold window, entering a great inflationary period.  Look at the graph below.

For now, ignore the action from 2008.  Admittedly, it’s hard to look at the graph without being drawn to the part that shows the massive money supply growth since 2008, but for now concentrate on the money supply increase from August 1971 to 2008.

In the decades before 1971, the money supply saw small growth.  In the following decades, the money supply ballooned.  Monetary inflation is followed by price inflation, and massive monetary inflation is followed by massive price inflation.  Gold and silver will remain in bull market regardless of their fundamentals.

A final note on last Tuesday’s (Feb. 28, 2012) bear raid.  Many analysts said it was because of the Fed’s statement that there was no need for another quantitative easing program at this time, which suggested that monetary policy would be “tight over the foreseeable future.”  The Fed could withhold printing another single dollar, and we will still face massive price inflation.  Now, concentrate on the graph for the years following 2008.  Enough money has already been printed to guarantee continued price inflation.  This dip should be bought although there’s no way of know how much further prices will fall before they stabilize and afterwards rebound.

Another piece of advice from by Richard Russell: a bull market will bailout your timing mistakes.  Don’t worry about buying a little too soon.  Only one investor buys at the absolute bottom.