Are you in or out of Gold? - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 15 December 2011
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Baltimore, Maryland

Hey...what's going on with gold? The dollar up, gold down. When we checked yesterday the price was crashing through the $1,550 level.

Our friend, Dennis Gartman, tells us to get out. Here's the report:

Gold, in the 11th year of its longest winning streak in at least nine decades, is poised to enter a bear market, according to Dennis Gartman, who correctly predicted the slump in commodities in 2008.

The metal...may decline to as low as $1,475, the economist wrote today in his Suffolk, Virginia-based Gartman Letter. He sold the last of his gold yesterday. Bullion has already dropped 13 percent from the record $1,921.15 reached Sept. 6 and $1,475 would extend that to more than 20 percent, the common definition of a bear market.

"Since the early autumn here in the Northern Hemisphere gold has failed to make a new high," Gartman wrote. "Each high has been progressively lower than the previous high, and now we've confirmation that the new interim low is lower than the previous low. We have the beginnings of a real bear market, and the death of a bull."

In China, the second-largest consumer, gold imports to the mainland from Hong Kong surged 51 percent to 86.3 tons in October to a monthly record, according to the Census and Statistics Department of the Hong Kong government. China imported more than 300 tons for all of 2010, Yi Gang, People's Bank of China Vice Governor, said in February.

"Buying of that sort should have sent gold prices soaring," Gartman wrote. "One of the oldest rules of trading is simply this: a market that cannot or does not respond to bullish news is a bearish market not a bullish one."

*** But another friend, Dominic Frisby in London, says 'not so fast...'

Well, gold is up about 16% on the year so far. So no bear market there.

This compares with an S&P 500 which is ever so slightly down; a FTSE 100 that's down around 10%; a commodities index that's also down around 10%; a US bond market that's up about 17%; and a US dollar which is ever so slightly up.

If we use the definition that a bear market is a market that is down 20% from its highs, then Gartman may well be right. I don't say it will happen, but there is a very good chance that gold could fall more than 20% from its early September high of $1,920 an ounce.

This would be perfectly normal. Gold has had three 20% corrections since this bull market began in 2001. Once in 2006, again in 2008, and just three months ago in September - yes, just three months ago. If you look at intra-day prices, it fell from a high on 6 September of $1,923 to a low on 26 September of $1,535. I make that 20%.

So, first, I look at the fundamentals for gold. Have these changed? No. If anything they've intensified. I won't go on about them here save to say we are going through a generational monetary unravelling and in such a situation you want to own gold. You may well also need your metaphorical tins, guns and bomb shelters at some stage, but I do not have a buy signal on those just yet.

So...in or out? You know our answer, dear reader.

Gold has been going up for 11 years straight. Or is it 12? It needs to settle down. Rest. Catch its breath. And, like a lover, it needs to test its most ardent admirers.

How far would it have to go do to give gold buyers a proper shake-out? Maybe to 1,300. Maybe 1,200. Typically, a bull market retraces nearly 50% of its gain before completing its rendezvous with the top. We don't know if that's true or not...it's just what the old-timers say.

Gold has gone from about $260 to over $1,900. Let's see, take off half of that gain and you have $1,080. Whoa... Are you ready for that kind of test, dear reader?

If it goes down that much, even we might have to revisit our convictions.

In the meantime, sell stocks on rallies, buy gold on dips.

---------------------------------------- Have an enriching Saturday! ----------------------------------------

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*** Tested in Iraq and Afghanistan...now used in the USA!

As predicted, the techniques and technologies developed in the Middle East are now being turned against American citizens on American soil.

On the surface, the following story is unbelievable. A man was arrested for failing to report six cows that wandered onto his 3,000 acre farm! Then, the federales arrested the whole family. And the family dog too...


Cops use Predator drone to arrest ND farm family -- for 'stealing six cows'...

Meet the North Dakota family of anti-government separatists busted by cops using a Predator drone... after 'stealing six cows'

Meet the Brossarts, a North Dakota family deemed so dangerous that the local sheriff needed unleashed an unmanned Predator drone to help bring them in.

The Brossart's alleged crime? They wouldn't give back three cows and their calves that wandered onto their 3,000-acre farm this summer.

The same aerial vehicles used by the CIA to track down and assassinate terrorists and militants in Pakistan and Afghanistan are now being deployed by cops to spy on Americans in their own backyards.

The Brossarts are the first known subjects of the high-flying new surveillance technology that the federal government has made available to some local sheriffs and police chiefs - all without Congressional approval or search warrants.

Local authorities say the Brossarts are known for being armed, anti-government separatists whose sprawling farm is used as a compound. Rodney Brossart, 55, and his wife Susan live in a house and a trailer and two RVs with seven of their eight adult children.

When the cattle wandered onto the Brossarts' land, Sheriff Kelly Janke, who patrols a county of just 3,000 people, rounded up some sheriff's deputies and arrested Mr Brossart for failing to report the stray livestock.

They also took away his daughter, Abby, after she allegedly hit an officer during the arrest.

When cops returned to collect the lost cattle, three of Brossart's sons - Alex, Jacob and Thomas - confronted Sheriff Janke with rifles and shotguns and would not allow officers on the farm.

That's when the sheriff summoned a $154 million MQ-9 Predator B drone from nearby Grand Forks Air Force Base, where it was patrolling the US-Canada border for the US Department of Homeland Security.

Using a handheld device that picked up the video camera footage from the spy plane, Sheriff Janke was able to watch the movements of everyone on the farm.

During an 16-hour standoff, the sheriff and his deputies waited until they could see the remaining Brossarts put down their weapons. Then, dressed in SWAT gear, they stormed the compound and arrested the three Brossart sons. No shots were fired.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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1 Responses to "Are you in or out of Gold?"

AJ

Dec 17, 2011

The Americans are famous for over doing anything and the Brossart's incident doesn't seem to surprise the world. In fact we really have to have an index to measure courageous nation (the general public). Then India should be emerging as the one of the top most one with people not getting affected with the frequent terrorist attacks, bomb attacks and so on and still move around as if nothing has happened. This normally happens the very next of the incident and just see the way Americans react. Still they have not come out the 9/11 issue and the way they show their panic reactions even at any slightest threat.

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