Guru Waits for Gold to Drop Even More!

OK, so perhaps we were a year early.

At the start of 2012, we suggested gold was due for a rest after 11 straight years in which the price on Dec. 31 was higher than a year earlier.

In the end, the Midas metal eked out a 7% gain.

As we write, gold is at $1,380. That’s down 17% from the start of the year. And nearly 12% since the open on Friday.

As two-day drops go, this is shaping up to be the fifth-worst on record.

Silver’s been smashed more than 8% today alone, to $23.66.

“This may be the correction that gold needs,” says adventure capitalist and Vancouver veteran Jim Rogers.

“If it goes down enough,” he told reporters in Singapore today, “I will start buying it.”

No, he did not specify what’s “enough” for him…

“Sellers are now in control,” writes our resident technician Greg Guenthner, now that gold has failed miserably to bounce off the key $1,550 level that had held since mid-2011.

“You’ll hear a lot about how gold is ‘oversold’ after this huge drop,” he adds in today’s Rude Awakening. “But it’s too early for this type of analysis. In fact, most bear markets begin with scale-tipping oversold readings. Stocks were massively oversold in summer 2008.”

In the large community of technicians, an “expert consensus” has developed: If $1,400 can’t hold — and it’s looking tenuous right now — the next downside target is $1,315.

Greg says they’re optimistic.

[You might wish to grab on to a stable surface before you read the following sentence…]

“My longer-term price target is between $1,000-1,100. This is where the metal consolidated immediately before and after the 2008 financial crisis, before its three-year push toward $2,000. Book it.”

Yes, that would be a drop of nearly 50% — on a par with gold’s drop from $200 to $100 during 1974-76, before the run past $800 on Jan. 21, 1980.

Heh… We suspect that would be “enough” for Jim Rogers.

“Remember,” writes GoldSwitzerland proprietor and Vancouver veteran Egon von Greyerz this morning, “that in 2008, gold corrected 34% from $1,032 to $681.

“From the $681 low, gold then went up almost three times in just 34 months.” His target: $3,500-5,000 in the “next few years.”

“The Fed is rigging the bullion market,” wrote Paul Craig Roberts over the weekend, “in order to protect the U.S. dollar’s exchange value, which is threatened by the Fed’s quantitative easing.

“Rapidly rising bullion prices were an indication of loss of confidence in the dollar and were signaling a drop in the dollar’s exchange rate. The Fed used naked shorts in the paper gold market to offset the price effect of a rising demand for bullion possession.”

Mr. Roberts is the Reagan-era Treasury Department official sometimes credited as the “father of Reaganomics.” Now in his 70s, he falls squarely into the “gold-is-manipulated” camp championed by the Gold Anti-Trust Action Committee (GATA).

“GATA… has come up with some interesting data,”writes an even-handed Lawrence Williams at Mineweb, “…which certainly do suggest that the financial powers that be are, at the very least, conscious that some kind of control of the gold price can work to the favor of an attempt to maintain global financial stability, and that of the U.S. dollar in particular.

“Where perhaps GATA gets it wrong, perhaps unintentionally,” he says, “is that it appears from some of its statements that this price manipulation is seen as something of a plot designed to do down the gold investor, whereas it would be better presented as a desire to protect the perception of currency value in people’s minds.”

In other words: It’s not all about you.The aim is to mask the erosion of paper currencies.

Think back to September 2011. From its all-time high at $1,921, gold fell nearly $400 in three weeks — a much bigger percentage drop than we’ve experienced this month.

It was at that moment the news gods delivered The 5 one of our all-time favorite video clips. Then, we watched it as a knee-slapper. Now we watch it with an eye toward the sort of perception management Paul Craig Roberts is talking about…

This morning, we see Matt Drudge is following the script. Gee, we’d have thought he’d be more interested in the vain and fatuous message Justin Bieber left in the guest book at the Anne Frank Museum…

Among the amusing links provided by Drudge is a CNBC interview with Dennis Gartman, attributing the movement to the news last week that the Cypriot central bank might unload 10 metric tons of gold.

Yeah, right… The Chinese imported nearly 10 times that amount in February alone.

“The manipulation [has] been going on for years,” says John Embry, chief investment strategist at Sprott Asset Management, “but the fact is it’s becoming more widely recognized” since an earlier Paul Craig Roberts article posted on April 4.

“As a result of the counterintuitive price action we’ve seen for a considerable period of time,” Embry tells Mineweb, “sentiment is dismal, and when you put that combination together, undervaluation, dismal sentiment and improving fundamentals, to me it’s just a matter of time.

“I think when we look back at this period, we will recognize this may have turned out to be the single best buying opportunity in the entire bull market, which is now in its 13th year.”

Dave Gonigam

The Daily Reckoning