It’s baffling….baffling, how so many completely unsupported market theories continue to persist, even with access to such great historical data. There’s a trendy one to discuss in a bit which always appears when gold is weak, and it’s always used to support the case why the price will fall. The thing about these theories about markets is they are always trend-related. Meaning the trend actually causes the “trendy” theory of the day, the theory doesn’t cause the trend. But the theory does reinforce the trend. These theories are used to “explain” “why” a market is going up or down, because gosh, we can’t make money unless we know (after the fact) why a market is moving. In other words, when the consensus view of a market is up (perceived or actual), and especially when it’s strongly up, certain theories are trotted out. And the same for a downtrend, especially in an apathetic and/or hated market, like gold in late 2015 (again perceived or actual). The reason for saying perceived or actual, is because most people don’t recognize (or refuse to believe/accept) a market has generated a major top or a major bottom until well after the fact. So these former theories will even persist after the top or bottom is in, and these theories will then cause people to incompetently invest, or not to invest, based on the old theory. And the fact that the old theory was false to begin with doesn’t even matter. Like the money printing theories used (started?) by the gold scam artists/sellers to get people to buy gold into 2011, but especially leading right into the big September highs. Because the big push higher in 2010-11 got the weak hands to believe in the useless theories about “why” gold was going up, and why it will continue to soar. And then after the top, the same theories about QE, and US Treasury debt, were still used to buy, buy, buy every selloff after the huge top. Of course the selloffs were blamed on manipulation – what other reason could there be? But notice these scam artist have been proven dead wrong, and have lost a lot of credibility. Why? – because the downtrend in prices caused people to lose faith in the old theories. The theories weren’t “working”. Why weren’t the theories working anymore – because the prices were falling. It’s the market movements, or trends, which generate the news and the theories about “why”, and it’s the public buying which reinforces the theory. And it works until it doesn’t.
Why is it that at major market bottoms, there is a barrage of bad “news’, and the opposite at a top. The market moves generate the slant of the stories. But even though a lot of bad “news” is no guarantee of a bottom being in place, the bottom will certainly be accompanied by a barrage of bad “news”. And after the bottom is well in place, then the reverse happens – the old theories used as the excuse during the downtrend about “why” we shouldn’t buy will still continue to persist. Until the uptrend starts changing the narrative, and then the new theories slowly take hold about “why” the market is going up, therefore “why” we should buy – reinforcing the theories in a big loop. The scam artists in gold will be back in full force eventually, as the rising prices are what get people to “believe”. So according to the gold seller scammers, the falling prices are “caused” by manipulation, yet the rising prices are “caused” by their favorite theory of the day. Instead of using the extremes in the falling prices and the scariness to step up and buy, then thanks to the gold gurus, people believe in the manipulation theories and avoid the incredible buying opportunities. But fast forward, and then the rising prices “confirm” the various theories and therefore it’s a sure thing to buy. Wow. Why do people do this to themselves time after time?
And we can’t let the gold permabears off the hook. They get very boisterous and confident into the big selloffs in gold. They were out in full force late last year, but the rally has shut them up a bit. And in late 2015, we heard all of their absolutely moronic comments about gold, right into the best buying opportunity since 1999. Like this genius from the esteemed WSJ calling gold a “pet rock”. And this guy actually writes a column for the esteemed WSJ which is called “The Intelligent Investor”. Seriously? But these bearish theories will continue to be trotted out, because once again on the other side, 90% of the people won’t recognize/accept the gold bull market until well after the fact – and then some new theories will emerge. But the one trendy theory which has been used for years is “gold goes down when interest rates are rising”. It was trotted out several times into the weakness in December. And it will be used again in the next selling wave. But here are the facts (and there will be an updated extensive post on this soon about interest rates and gold prices) pertinent to one of the most spectacular examples of a totally useless theory regarding gold and interest rates: in February, 1971 to July, 1974, the Fed went on a rate increase binge – they raised rates 10% points, and yet gold rallied from around $40 to around $200. And of course gold then fell as the Fed dropped rates. Someone should tell the WSJ and its’ “Intelligent Investor”.
Lastly, look at this classic article from the esteemed WSJ on 12/14/2015 – three days prior to the secular low in gold: The prospect of a U.S. interest-rate rise has heaped pressure on metal prices since the summer, but an increase this week won’t spell the end of the pain being felt by gold, copper and other metals.” So the esteemed WSJ couldn’t see the high probability of a huge secular low in gold (and commodities) sitting right in front of their Wall Streetered noses. The Fed was meeting on the 15th and the 16th – the bearishness about gold was mind boggling. And contrary to the WSJ’s hit piece on gold, my belief then, was it was finally time to buy. Maybe we need to keep an eye out for when the Intelligent Investor turns bullish on gold. Don’t hold your breath.
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