GOLDBUGS AMEX Goldbugs Index (GOLD)

[DiscoverGold]

It's almost time to buy, not sell, gold
By Avi Gilburt

* November 20, 2014

I do not often write about the metals on MarketWatch, but have seen too many bearish articles calling for the death to the metals, so I felt compelled to speak up. While many are now saying it is time to sell metals, I will have to disagree. The time to sell your metals was several years ago. Now is the time to start looking to buy them back.

Please allow me to start with some of my history in this market.

For those of you that remember the summer of 2011, gold was in the middle of a parabolic run, with some days seeing more than $50 gains in price. However, in my first gold article on Seeking Alpha on Aug. 22, 2011, I provided my topping target for gold, in the face of the parabolic gold run, when everyone was so certain we would be easily seeing over $2000:

"Since we are most probably in the final stages of this parabolic fifth wave 'blow-off-top,' I would seriously consider anything approaching the $1,915 level to be a potential target for a top at this time."

Gold topped one month later within a few dollars of the target provided.

What someone just reminded me of the other day, in response to a question from a commenter to that article, and even before gold actually topped, I provided the downside targets on Aug. 25, 2011:

“Based upon the Elliott Wave Principle, I would expect a very large pullback. In fact, the target for such a pullback will probably be a minimum low of $1,400, it could fall as low as $1000, or even as low as $700. It will depend upon how the decline takes form. But those are very viable targets for gold on the downside.”

So, a few years ago, when gold was up at the $1400 region, I gave it an opportunity to prove that a low had been struck. When it invalidated that potential low, we started looking much lower, toward the 95-105 region on the SPDR Gold Trust GLD, -0.29% target I have maintained since that time. It seems that many others have only now adopted that target.

In fact, as we came into 2014, I continually reiterated that 2014 will be the year of the whipsaw and the year the gold bulls die. The market has followed through very nicely on both.

So, a very bearish gold column hit MarketWatch last Friday which compelled me to highlight the other side of the gold coin. In fact, we went long the metals that day, ending it with a 9% gain through the Market Vectors Gold Miners ETF GDX, -0.73% from the lows we bought at the open. Yes, death of the metals indeed.

(Don't get me wrong. That was only a trade. I still do believe lower lows will be seen in the metals, yet it will likely be a buying opportunity and not a selling opportunity).

Mr. Gold clearly presented the sentiment of most in the precious-metals world: "Can anyone seriously believe this isn't a long-term bear?" In fact, he was suggesting readers to consider selling their gold. Yes, he is suggesting you sell your gold now, as we approach, in our opinion, the bottoming of this market. However, I stand here today, loudly and proudly proclaiming "Mr. Gold, I seriously believe this is not a long-term bear." Moreover, I am looking to be a buyer and not a seller.

When purchasing goods and services, many spend great time and effort looking for "sales." But for some reason, they fail to apply that same discipline to stocks and precious metals. Rather, it is only when they see a stock or market soar that they want to buy it, and when a market is tanking is when they want to sell it. That is why investors most often buy at the highs, and sell at the lows. Again, this is all based upon human nature.

So, for all those that are in the same pain as Mr. Gold, as the phrase was popularized by Bill Clinton, "I feel your pain." I know many have been caught on the wrong side of this market, and the pain has only gotten worse and worse. I know the tremendous urge to sell when the market finally broke down. I was in that position at the start of my investing career.

So, when you have some time, please read "Buying High, Selling Low, No, No, No." It should give you a broader understanding of the feelings you may now be experiencing.

Ultimately, if you are a long-term investor and have a horizon of more than five years, selling right now would not be the prudent move, even though you will still likely be in for a little more pain in the coming months. If you understand the market, you can choose to hedge your portfolio at the top of a corrective rally to minimize your pain, rather than sell near the bottom.

Based upon the same methodology which identified the 2011 top and the potential bottoming region before we even topped in 2011, I want to provide you with a longer-term perspective along with the long-term upside targets I see for the next 10 to 30 years in metals and miners before we even bottom. So, you can do with it what you will, but I know how I will be handling this information.

For those that are not interested in short-term trading and are looking for the next bigger long-term investing opportunity, I don't believe there is one being presented in any market which represents greater wealth creation potential than the precious-metals market over the next half a year.

When we look at the NYSE Arca Gold BUGS Index HUI, -0.26% it is quite clear that further lows will likely be seen over the next few months. However, when one compares the relative extent of those lower lows to the projections we have once this bull market reasserts itself, well, your feelings of greed may make it hard for some you to maintain dry powder to buy at the lower levels we still expect.

As you can see from the chart linked below, based upon our Fibonacci Pinball method of Elliott Wave analysis, and using log-scale calculations, we see the potential for more than a tenfold increase in price for the Gold Bug Index within the next 10 to 15 years, with the further potential of thirtyfold increases over the next 20 to 25 years. It seems that the initial parabolic stage, based on our calculations, does not occur until the 2018-2020 time frame.

So, if your choice is to follow your feelings, and decide to be a seller soon, rather than a buyer, then I believe you may miss one of the most bullish market moves which can be seen in the next 10 to 15 years. But, as an investor, that is clearly your choice. I know that when all the analysts are now lining up to call the death to the metals, I will remain staunchly viewing the market as finally bottoming over the next six months because I am going to maintain a much bigger perspective on this market than most.



http://www.marketwatch.com/story/its-almost-time-to-buy-not-sell-gold-2014-11-20

George.

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