Following last week’s panic sell-off in gold (and resultant explosion in physical buying worldwide), one of the world’s top gold traders and recent interview guest, Gary Savage, shared some powerful commentary on the psychology of these buyers.
Gary said, ”The buying frenzy we’re seeing in the gold market isn’t dumb money buying at a top. This isn’t the same thing as we saw in the real estate market in 2006 and tech in 2000. That was every Tom, Dick, Harry and Jane chasing a parabolic move expecting to get rich quick with no effort. That was people looking for a free lunch.
We don’t have those kind of conditions in the metals market at this time. On the contrary gold is making new lows, not new highs. There is no parabolic move, and there never was. In a true bubble, a market will increase 200-500% in a year and a half. Oil doubled in a year and a half. The Nasdaq tripled. Gold was barely able to pull off a 170% increase over a three year period. That isn’t even vaguely parabolic.
No sir, the buying we are seeing now is a result of prices being artificially suppressed below the natural market value.
This is not dumb money buying gold. This is smart money recognizing that gold is too cheap.
By Tekoa Da Silva:
I used the analogy in the weekend report of Walmart putting 60 inch TV’s on sale for $100. Of course that is going to cause a supply problem, [because]$100 is too cheap. Those TV’s are going to evaporate off the shelves in minutes. If nothing else people will buy them for $100 and then sell them on Ebay for $200 or $300 once the sale ends.
Well gold is no different…If [the] price is depressed below that natural market value then buyers will line up to buy it. I’ll say it again, this is not dumb money buying gold. This is smart money recognizing that gold is too cheap.
…If you asked ten people on the street today nine of them couldn’t tell you the price of gold within $500. That isn’t a bubble. Even during the peak in 2011 precious metals barely [represented] 2 or 3% of the average money manager’s portfolio. During the bubble it [may reach] 15-20% or more.
People are [just] trying to find some fundamental reason for golds drop. I’ll say it again, there was no fundamental reason…It was just a stop run by some big money players to juice their short positions. It has no bearing on the status of the secular bull market, [which] can’t end until the money printing ends. And [money printing] hasn’t ended—it’s intensified.”
Special thanks to Gary Savage for his comments here. To learn more about Gary’s daily gold commentary visit: SmartMoneyTracker.
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Tekoa Da Silva
Bull Market Thinking