Gold: "Bullish Though Chagrined"

“I love the fact that gold is finally breaking down,” says the inimitable Marc Faber, turning our attention back to the markets. “That will offer an excellent buying opportunity.”

The good doctor, interviewed by Bloomberg yesterday, is looking pretty smart today. “As a trader, I would probably enter the market quickly for a rebound of $20 or $40.” Sure enough, the spot price is up $30 as we write, to $1,383. Silver has recovered to $23.53.

“I am happy we have a sell-off that will lead to a major low,” he continued. “It could be at $1,400. It could be today at $1,300. But I think that the bull market in gold is not completed… the fundamentals for gold are still intact.”

Faber also pointed out that while gold is down 28% from its September 2011 high, Apple is down nearly 40% from its high only seven months ago. Heh…

Look for gold to keep tumbling in the “foreseeable future,” advises Faber’s fellow Vancouver veteran Jim Rogers.

Recall from yesterday that reporters couldn’t draw a price target out of Rogers at which he would start buying again. In a separate interview, Business Insider had slightly better luck: “I have repeatedly babbled about $1,200-1,300, but that is just because that would be a 30-35% correction, which is normal in markets.”

“We’d like to see gold crash down around $1,300… or lower,” says Bill Bonner.

“This would mark a real correction in the bull market. It’s been going on for 12 years without a serious correction. Not a healthy situation. We’d like to get the correction out of the way… shaking out the Johnny-come-latelies and the two-bit speculators. Then, the final stage in the bull market could begin.”

“I remain bullish, though chagrined,” remarks James Grant of Grant’s Interest Rate Observer.

Interviewed by Bloomberg and uncharacteristically wearing a long tie, Grant said gold’s action yesterday and Friday is analogous to the stock crash of 1987 and the bond crash of 1994. In both cases, decades-long bull markets remained intact.

“It seems to me that what is intact at the moment is the determination of central banks to print their way out of trouble — which is terrifically bullish for gold over the long term.”

“In the past four years, gold is still up almost 100%,” fund manager and Vancouver veteran Frank Holmes tells CNBC.

A move as extreme as yesterday’s has occurred on only 10 trading days in the last 10 years. “The math indicates that the metal will not stay at these lows.” Indeed, he sees a “high probability” of a 15% rally over the next year.

“Gold bullion prices have been subjected to a cleverly orchestrated bear raid,” suggests another fund manager, the Tocqueville Gold Fund’s John Hathaway.

“Selling of paper Comex contracts on Friday, April 12, and Monday, April 15, totaled 1 million contracts, exceeding global annual gold production by 12%. The attack succeeded when the technical support in the low $1,500s per ounce easily gave way and led to waves of forced selling.

“The volume is without precedent and has all the characteristics of a panic liquidation driven by naked short selling. There is no way to know where or when the liquidation will end, but it will inevitably do so, probably sooner, rather than later.”

“Reports suggest that on Friday morning, a 124.4-tonne sell order by a large investment bank spooked the markets and led to this decline,” says another Vancouver veteran, David Franklin of Sprott Asset Management.

“Intense liquidation of gold ETFs, a favorite investment theme two years ago, suddenly seemed like a trade that has ‘played out.’ As a result, panic set in, and the gold market moved quickly to capitulation.

“For all the short-term pain it has caused,” he adds, “we view this sell-off as an opportunity.”

“I hate the term ‘the powers that be,'” chimes in another Vancouver alum, James Howard Kunstler, “with its odors of recycled paranoia and lumpen extremism, but signs of collusion abounded last week.”

First came the Goldman Sachs “short gold” call that we duly noted in The 5. Then came a front-page New York Times story on Thursday: “Gold, Long a Secure Investment, Loses Its Luster.”

“The story,” says Mr. Kunstler, “featured a quote by supreme market manipulator and world-class schmickler George Soros: ‘Gold was destroyed as a safe haven, proved to be unsafe,’ Mr. Soros said in an interview last week with the South China Morning Post of Hong Kong. ‘Because of the disappointment, most people are reducing their holdings of gold.’

“Well, there you have it. Soros sez: Gold = s***. If you get some on your shoe, scrape it off. All that set the stage for the Friday smack-down. Notice how falling gold and silver prices make the U.S. dollar look good — it takes fewer dollars to buy more precious metal. The dollar must, therefore, be sound!”

Dave Gonigam

The Daily Reckoning