DENVER, CO — Just as it looked as if the summer doldrums were ending and gold was beginning to creep higher, WHAM, we have a huge sell-off that takes gold below $600 an ounce!
The past couple days, many have called or emailed me with their concerns, as is usually the case when something like this happens. So I welcome the opportunity to take some time in this piece to respond to all who have concerns.
The big sell-off this past Monday and Tuesday was due primarily to central bank selling concerns. Several European Central Banks were indicating their slant on whether they were going to sell or hold some of their gold holdings.
For those of you not familiar with the Washington Agreement, this was an arrangement to curtail excessive gold sales back in 1999 amongst the European Central Banks. This agreement set a limit on the amount of gold that collectively the European Central Banks could sell in a given time period. Each country had an allotment and would make statements from time to time about whether they would be selling any of their allotment or not.
The Washington Agreement itself had a very positive effect on the gold price when it was first announced and the agreement was renewed by the participating parties just a year or so ago.
In September, several banks were to state their intentions on whether they would be selling or holding any of the allotted gold they could sell. Evidently, one of the banks decided to sell some of its allotment on Monday, which in turn triggered other selling causing the big downdraft in price.
And, as is always the case when gold takes a big hit, the media machine jumps on board to tout the death of gold, causing concerns among investors. Is this it for gold? Has the high for gold already been hit? The answer to those two questions is— Of course not!
Just ask yourself the following questions: Has anything fundamentally changed? Is the U.S. Government suddenly becoming fiscally responsible? Are people more willing or less willing to buy and hold dollars and treasury bills? Is the world a safer place or a more dangerous place? Are the risks in the financial world lessening or increasing? I believe most of you already know the answers to those questions. If you know the answers to those questions then I shouldn’t have to tell you where the gold price is going.
This recent sell-off in gold is just another short-term aberration in the gold price. I fully expect gold to be reaching for new highs before the end of this year.
How many times have we been through this drill the last six years? For me it is almost boring. Gold moves to a new high, then corrects back. Suddenly their is a big sell-off point causing the weak hands to liquidate their positions, and then…..Gold moves to yet another new high. Look at the chart below for the past 6 years.
Gold has been in a bull market since 2000. We have seen volatility to the downside this entire period, yet gold keeps reaching for higher ground each year. The chart is telling me that we are getting closer to a major move to the upside as the volatility to the downside becomes sharper.
The sharpest drop in the past six years after a new high happened in May of this year. I see this as an indication that the numerous issues (unsustainable debt levels of U.S. Government, trade imbalances, geopolitical risk, etc, etc, etc ) we talk in these weekly reports are suddenly coming together to push the gold price higher, way higher.
I believe we will be moving into a super bull market in the near future that will surprise many as the dollar resumes its inevitable drop to much lower levels.
So take all this in stride and sleep well at night. This is a buy opportunity!
Don’t worry, be happy! Gold is going higher!
– Greg McCoach