long term bull market in gold are in place
Saturday, October 18, 2003
More Evidence of the Generational Nature of the Gold Bull Market
Author: Jim Sinclair
Bank of England Governor Mervyn King warned yesterday of a decade long period of higher interest rates which would create a bear market in bonds and a fundamental requirement for a generational long-term bull market in gold.
Interest rates are not made by the Bank of England or the Federal Reserve. They are made in the marketplace. Interest rates rise when the quoted prices of bonds fall.
This gold market has yet to even get started and the price breakout above the multi-year Tea Cup with Handle in gold will mark the birth of a generational gold bull market that will coincide with the decade long bear market in bonds.
I will continue to make a living selling the bond market short on rallies via Puts and by not trying to be perfect in my sales price. As the bond market rises, I will simply Put it and as it falls buy Calls in similar settlement months. I intend to make a living by buying gold each time it reacts via Calls and closing the Calls or buying Puts as it rises.
This is what I have been trying to teach you how to do in shares, futures and in options, depending on your qualification, experience and risk profile. To be absolutely perfect in my buys and sells matters little to me because I am convinced of the fundamental and technical characteristics that now exist for a long term bear market in bonds and a long term bull market in gold.
Trying for the absolute low and absolute high is wanting to make a hole-in-one with every swing of a golf club. All I want is 60% to 80% of the middle of each move. At the end of the day, I will better any hot shot Parker pen letter writer with my trading record. All you need to do is to get the rhythm correct and pace yourself.
I just completed my Puts on the long bonds from 106 to 112 and covered below my cheapest Put purchase. I am too old to do out rights all the time but am willing to lose 100% of what I commit to the options. I do out rights when we get the action in gold like yesterday.
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Saturday, October 18, 2003
Standing Back For Perspective
Author: Jim Sinclair
At the request of Golden Comet, Charles, our Friday roundup was in fact a look at the technical picture of gold and selected gold shares in the longer term. Charles made a point that all gold-for- hire advisors who talk markets are focused so tightly on gold and gold shares that they have lost proper targeting for the message they are communicating.
He suggested that although they give lip service to the real function of gold as insurance against the damage done by politically motivated economic decisions, they have become short term trading advisors.
As a result, those outside of our Community are living by the minute and are therefore losing their grip on why they got into gold in the first place. For those who entered gold to protect their other assets, technical analysis has to be based on a long term technical view. I agree totally with that and emphasis this point regularly.
So having covered the technical long term picture on Friday, I want to review where we stand now in terms of the long term fundamentals of gold.
The Five Golden Keys
The Five Golden Keys are the fundamental factors that must exist for a long term bull market in gold to unfold within a historical context. Each of the Five Gold Keys will of course ebb and flow during the long term bull market for gold.
But if anyone of the keys falls off the keychain, then we must question the integrity of the gold bull. This is where we separate opinion from data. Opinion always leads to confusion while data leads to fruitful conclusions. Let’s review the five keys”
1/ There must exist a recognized top in the US Dollar. There can be no argument that this important fundamental requirement is in place today. Not only is it in place, but it has reached a place from which any further drop would render the dollar a public disgrace. Yes, we are also at a critical defensive point but that is only a moment of temporary pause between two pains. The possibility of the US dollar being a launching pad for a long term bull market has the same chance as a snow ball surviving in hell or Baghdad. This Golden Key to a long-term bull market in gold is firmly in place.
2/ There must exist a recognized top in the US Treasury 30 year bond market. Like the US dollar, the bond market has made a clear top. After many years of low cost money, a strong fundamental argument can be made for both stagflation or modest inflation and higher interest rates over time. This Golden Key to a long-term bull market in gold is firmly in place.
3/ You must be in a bullish phase within general commodity markets. With hot money having discovered the commodity market, the recent technical triangular breakout of the CRB may well have set up a test of the multi-year highs. We are clearly in a bull phase of the general commodity market. It is possible that a new high could be established thereby declaring an extended bull market in general commodities. Therefore, this prerequisite has been fulfilled. Having said that, it is reasonable to conclude that this Golden Key for a long term bull market is in place.
4/ The triple deficits of US Budget, Current Account and Trade are all firmly in place in the required deficit form. By all account, these deficits will be with us for the decade to come. They will of course ebb and flow in size probably more a result of the artful dogging that government accountants are capable of performing for the sitting administration.
By all accounts, these triple deficits will continue to break records over the next decade. This Golden Key to a long-term bull market in gold is firmly in place.
5/ Trust in paper assets must be declining. We would be in trouble in this Golden Key if the only paper asset that gold looks at was general equities. Although this is clearly not the case, at current levels the nuttiness of the bulls that was evident during the high tech boom a few years ago seems to be making a comeback. But as they say, “better the garbage you know than the garbage you don’t.” However, the severe trashing of the US dollar and US Treasury bonds fulfills the requirement that there is a decline in the overall trust in paper assets as long term store houses of value.
The appreciation of the general equity sector clearly has lost its momentum appeal and that generally precedes a severe correction after a full year of appreciation. If you assume that the re-election period is the goal of the positive market in general equities, then it has to react here or burn out in the months preceding November of 2004. This Golden Key to a long-term bull market in gold is in place.
Conclusion:
As we approach the NO-Barrier but still benchmark level of $400, all prerequisite fundamental factors for the long term bull market in gold are in place