One More Round

After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting.  In a bull market the game is to buy and hold until you believe the bull market is near its end. 

–  Jesse Livermore, Reminiscences of a Stock Operator 

As Gold accelerated past $1200 per ounce in early December, we cautioned investors that after such a rapid gain, we would not be surprised to see precious metals take a breather.  Extreme optimism is now evident in various sentiment measures, so a consolidation period is likely at a minimum. 

Gold prices quickly retreated by more than ten percent in the blink of an eye, but encouragingly, bullish sentiment for the precious metal collapsed just as fast.  We view this as a constructive set up from a contrarian perspective as longer term tops are more easily identified by stubborn bulls in the face of declining prices.  The fact that sentiment has quickly retreated to levels best described as extreme pessimism, can be viewed as evidence that weak hands have likely been shaken out and increases the odds that the worst of this correction is likely behind us. 



Jesse Livermore reminds us that the Big Money is made through the proper identification of long term trends.  We can relate.  It is all too easy to get distracted by the day to day noise in the markets, but more money is made by sitting than by active trading.  The chart above illustrates the inverse relationship between Gold and Real Rates.  This is the only picture that matters folks.  As long as “He Who Sees No Bubbles” (Keith McCullough’s affectionate nickname for our Beloved Fed Chairman) continues to sit on Zero Interest Rates, investors can continue to sit on their gold positions. 

We plan to do the same and continue to view weakness as thoughtful little gifts from Uncle Ben.  Given gold’s sharp correction and sharper fall off in bullish sentiment, we are getting ready for “One More Round.”  We didn’t hear no bell either Rock. 


Disclosure: At the time of publication, the author was long SPDR Gold Shares, although positions may change at any time.