[To be a successful speculator, one must be willing to go against the mainstream investment trends, as John is. There's no better way to get a primer on contrarian investing than by sitting in on the recently concluded Casey Research Recovery Reality Check Summit – and you can do that by ordering the Summit Audio Collection today. Every presentation, every chart and graph, and every actionable investment tip can be yours, in either the instantly available MP3 files, or in CD format.]

Louis James: Ladies and gentleman, thanks for tuning in. We’re at the Casey Research Recovery Reality Check Summit. We’re talking with John Hathaway, one of the more successful fund investors – institutional investors – in our precious metals field near and dear to my heart. John, can you give us a quick version of what you talked about here, for those who didn’t make it to the conference?

John Hathaway: Sure, yes. I think we’re at the end of a correction that resulted from the peak last summer. It was overcooked, kind of hyperventilated hysteria over the debt-ceiling talks, the rating downgrade of the US sovereign debt, and I think basically the stocks and the metal had been working off that boiled down to what we now have is a simmer. I think we are at a position where there’s not a lot of downside, and I would not be surprised by revisiting the previous highs of $1,900 and maybe even new highs over $2,000 this year.

What will do that is basically – so much of the narrative has been quantitative easing. When Bernanke announced on the 29^th of February that they were done with quantitative easing (and if you believe that I’ve got a bridge to sell you, but for the time being let’s assume that there won’t be any), I was very impressed that gold did not go to a new low. It printed somewhere below $1,600 at the end of the year, made a couple-of-day swoon, but it didn’t go to a new low. And then when the Fed minutes came out it also did not go to a new low, it kind of reiterated what Bernanke said. So the narrative may be changing. I’m not ruling out quantitative easing as a possibility, but there are things out there that gold might be looking at that the CNBC mentality hasn’t figured out.

Remember that gold rose for many years before we even heard of quantitative easing; it was in a steady uptrend. So what could those things be? What would take gold – what would be the new headlines that might take gold to higher highs? To me, the biggest thing is that the Federal Reserve has purchased something like 61% of all new Treasury debt in the last year; and if they aren’t going to continue that, then what’s going to happen to rates?

Louis: Right.

John: The Chinese – who had been big supporters because they were rigging their currency – have not been generating foreign exchange to anything like the extent they were, so their participation rate in Treasury auctions has gone way down. If you look up the TIC numbers, foreign buying of Treasuries has dropped precipitously, so you have the two biggest pillars of support for keeping rates low in question here, and let’s see what happens on June 30^th. If you don’t have a political buyer, either the Chinese and foreign buyers who are manipulating currency, and the Fed because they said they aren’t going to do it, what are rates going to do?

If you are going to get a risk-free return inflation-adjusted today that’s not politically motivated, it’s got to be somewhere around 4-5% on the short end of the curve. Every hundred basis points adds a huge amount to the budget deficit, so to me we’re in a real trap here, where it’s going to be a game of chicken as to whether the Fed can really live up to what Bernanke said on the 29^th.

Louis: Isn’t that really the bottom line? They can’t allow that interest rate to rise with the debt outstanding –

John: It seems very difficult. The recovery, the alleged recovery that we had, is very… I’ll grant that things are better than they were a year ago or two years ago, but you’d have to call it feeble at best and maybe not sustainable. That’s one thing that I think could affect the gold market.

The second thing, and I think it’s very important too, is that inflation is rising. Even though the economy is soft, the number I look at – and I know we’re going to have John Williams speak at lunch, and we know he has a very good take on it – is the MIT Inflation Index, because that’s real-time pricing of billions of products. You can get to that website just by googling “MIT Inflation Project”; and that does not include services. Most of the services I take are inflating at more than 5%; they are closer to 10%. But goods that could be measured in real time are rising at 5%, so that’s also going to be a factor. That means if rates stay where they are, the Feds are just going to be that much more behind the curve.

So those are two things; and the third thing is that there’s $1.5 trillion of liquidity in the system that should the recovery – and I’m not a macro forecaster, but let’s say the recovery does sustain itself – you’ve got $1.5 trillion of free reserves that could just turn into money supply. Then you really would have a potentially hyperinflationary scenario, and the Fed would be completely powerless to do anything about it. So I think that’s bullish for gold – gold is not backward looking, it basically looks forward. I can go on and on. You’ve got the European unresolved sovereign debt crisis in Europe.

Louis: Let me jump in with a question about this, then. You’ve stood out really from the crowd in that most people agree on the general prognosis for gold. Most people are sort of near-term bearish, you know, the ones –

John: It makes me so happy.

Louis: [Laughs] But, you know, once a bear sentiment sets in, it seems to almost have its own momentum.

John: Yes.

Louis: You’re the only who’s saying “I think we’re near the bottom.” Most people are saying, “Sell in May and go away” –

John: Yes, I heard a couple of things from this session that just made me want to jump up and buy –

Louis: I understand the contrarian reason for that, but can you tell our audience a couple of reasons why you think we might be near the bottom or why you’re ready to buy now and not waiting to see how this summer turns out?

John: Sure. Well, first of all, I’m not a trader. I mean, I’m long, and last summer I thought, “Gee, this is really a little spooky, we’re not at a sustainable level,” but there wasn’t a whole lot I could do about it. And here we are and we have some cash, we have some inflows, so we are able to put money to work. And what is it that makes me think we’re there? Sentiment numbers are extremely negative, historically, when they’ve gotten to these levels. By the way, I put out a quarterly newsletter now that has a lot of this data, which can be found on our website.

Louis: Go ahead and give us the website.

John: It’s the Tocqueville Asset Management website, and it should be fairly easy to find. So sentiment is at levels that have been associated with big rallies. Traders’ commitments, net longs, net spec longs are way, way down there. I look at that a lot just as a way to see where the market is positioned. The guys who can create some volatility are not there, and so if gold starts moving, they won’t want to miss it, and so they’ll come in. And then, we’ve looked at some technical stuff. I’m not a technician but most of what I see from a technical perspective is extremely constructive. So I put those things together.

Sentiment is rock bottom. COMEX traders’ commitments are very, very constructive, and technical things that we look at are very constructive. So I would say all of those things, plus hearing these guys say that they are not going to step in – that’s more anecdotal, but that to me is just very, very positive. So I – frankly I don’t stake my reputation the way that Dennis Gartman does on making trading calls, but just as an experienced observer of this market for some number of years now, I think we’re ready to make a move higher.

Louis: Okay, well, thank you very much. Word to the wise.

John: Thank you.

Around the year 1650 A.D. the word highwaymen entered our language.  It referred to robbery committed on a public road against travelers.  Now we use the phrase “highway robbery” for which we pay the tolls to travel on modern day roads.  The highwaymen alas are among us and we have elected them.  At such times it would not take much more in the destruction of mining equities to make investors feel as if they have been seduced by sweet talk and abandoned to the wolves of Wall Street by latter day highwaymen.

Simply put it has been one in which the elites have shrugged their collective soldiers, leaving the rest of us bewitched, bothered and bewildered.   There are no safe havens unless one reaches for the carrot dangled on a stick in the form of treasuries (TLT) and dollar bills (UUP).

It is as if investors who have played the game fairly are uneasily realizing they have been dealt a series of sucker blows from the elites who in essence have fixed the game.  Investors believe that treasuries and cash will protect their capital.  This may be a conclusion founded on quicksand. 

Many investors could face significant losses should yields rise in the U.S. as it has done in Europe.  Due to the volatility in the global equity markets, investors have maxed out their portfolio holdings in cash and U.S. treasuries.

If bond prices drop resulting in rising yields we could see a mass flight out of bonds into the oversold commodities (DBC) and miners (GDX) which are trading at a record discount to the global equity market.  How can so called experts call a gold bubble (GLD) when gold equities are trading at historically cheap valuations?  Could it be that the real bubble is in the U.S. Treasury market where investors are actually receiving negative returns?

A growing fear of the financial system is increasing similar to 1933 when FDR was elected.  Fears that FDR would devalue the currency caused a bank run where investors withdrew their cash to buy gold.  Could something similar be brewing in Europe with the election of Hollande in France and Greece threatening to leave the Euro?

We learn that our elected U.S. officials have indulged in profiting from insider trading for which we citizens could have done hard time.  Imagine buying VISA for $46 and the next day making a handsome profit at $64 on 5 million shares.  This actually happened and continues to occur as a matter of lifestyle for our elected officials.

Then there is the chutzpah of Freddie Mac and Fannie Mae coming before the public requesting $1.8 million dollars for a Christmas Bonus for non performance and downright destruction of a major mortgage institution.   Then there is the $191 million dollar loss in MF Global trading European Government Bonds.  There is still $1.6 billion of client’s money missing.  Then we have the wife of Switzerland’s central bank chief who went long the U.S. dollar right before he imposed a cap on the Swiss franc.

Similarly we had the $2 billion+ carnage experienced by JP Morgan and Jamie Dimon.  Here we have a team of the best and brightest minds on Wall St. screwing up gloriously trying to time the short term.  This may be a cautionary tale for those who try to play the markets in the short term particularly in the arena of wealth in the earth assets where long term stratagems pay off in hundreds of percentage points.  The MF Global and JP Morgan (JPM) debacle may be adding to the volatility of the sell off in commodities and mining equities as they may have had to cover their bad bets in European Sovereign Debt.

What does this all mean for tax paying investors who are constrained to play according to the rules.  Joe Louis famously said, “You can run, but you can’t hide.”

WIth the market covered with crimson yesterday it might appear that our natural resource selections in gold, silver (SIL) rare earths (REMX) and uranium (URA) miners are a thin blanket for a cold night.  Since when has wealth in the earth not experienced breathtaking corrections as they continue in their upward trajectories?   Remember there may have been selling to satisfy a deluge of margin calls.

It is folly to look at the day to day gyrations of our wealth in the earth selections.  There are those critics who might question the absence of risk management in precious metal selections.  They miss the basic point completely.  Play that game with miners at your own risk.  Just as swiftly as they go down, so is the consequent upside.   Investing in resource stocks is a risky game.  Only the most disciplined market participants can manage to play the swings profitably.  So hold on for what has been this tumultuous ride.  The markets are swept by waves of fear and distrust of the Western Capitalist System.

Delayed until 2012-2013 will avail us little except postponement of the inevitable.  What was really needed was a plan of attack to bring our debt levels down.    One would’ve thought that our well payed solons could have come up with a better solution.  Instead, they will be forced to monetize the debt and pay it off with cheap dollars.  Sooner or later, this is eventually a win-win situation for investors in precious metals and tangible assets.

Do not underestimate the intelligence of the investor.  Are our elected representatives waiting for a Tahir Square to take place on American and European Streets?  It is growing late in the game.

The Iranian situation which we continue to highlight is simmering to a boil.  The United States and its allies Britain and Canada are using the outmoded tactic of gunboat diplomacy to wag warning fingers at an Iran that ignores us and grows stronger everyday.

Is this not an admission by the West that they lack the financial wherewithal to undertake another military expedition?  This is all part in parcel of the disintegrating situation which lack of leadership and American resolve has brought us.

Are we facing the stark reality that the Emperor-America has no clothes?  Hopefully, this is not the case.  But the markets are speaking differently.  Thus the disconnect between mining equities and bullion.  Now the clarion call is “cash is king” as the herd rushes for what seems to be the latest safe haven fad.

Of course the mouse thinks that the cheese will always be there, not realizing that it is the bait in what may be a fiscal trap.   Ergo where do our subscribers go from here?  The answer may be what it has always been from the days of Babylon to the present…wealth in the earth natural resources which are fungible into food and shelter.

Gold Report Sign Up Below

Obviously the keys to long-term success involve proper position sizing, risk management mechanisms, and ultimately leveraging probability. Professional traders are masters of these tenets. These characteristics are what separate successful traders from average traders over the long haul.

Sometimes through my rigorous analysis I come across price charts and oscillators that help put together a picture that helps shape my view of the marketplace. The past few months have been some of the most difficult market conditions that I have seen in some time.

The “wall of worries” permeates the financial landscape as risk at present seems unprecedented. The list of macroeconomic concerns ranges from the European sovereign debt crisis to escalation of military action in the Middle East.

I could probably write an entire article about the various risks that plague global financial markets at present, but I try to focus on the positive in any situation. Right now remaining optimistic is a daily battle amid the constant barrage of depressed economic data. Instead of focusing on all of the various risks, I focus on finding opportunities where probabilities are favorable based primarily on historical price data, cycle analysis, and tape reading.

Back on April 9th I proffered an article that discussed my expectation that the U.S. Dollar Index would rally while risk assets such as equities and oil prices would collapse. Additionally I commented on my expectations for weakness in gold, silver, and the entire mining complex. I was wrong about the timing of the U.S. Dollar’s advance, but the ultimate price action analysis was correct.

The following quote came from that article, “As shown above, I believe that short term targets to the downside are likely somewhere in the 1,475 – 1,525 price range. I think gold will find a major bottom near these levels and a strong bounce will play out.” (Click here to view the entire article)

When I originally wrote that article referring to a decline in gold prices gold futures were trading around 1,630 an ounce. Price rallied sharply higher after my article went public, but fast forward to today and my concerns appear to be well founded. I am a long-term gold bull and I ultimately believe that new highs will occur in the future. However, gold and gold miner’s may have further to fall before they find major support.

As stated above, my original expectations for the Dollar Index did not happen in the time frame I was anticipating. However, the belief that a rally was forthcoming proved to be accurate as can be seen from the price chart of the U.S. Dollar Index shown below.

U.S. Dollar Index Daily Chart

Traders Video Analysis Chart

As can be seen above, the price action is confirming serious strength. The weekly close on Friday saw the Dollar close above a key short-term resistance level. Additionally I would point out the double bottom that has been carved out on the chart above which is also bullish. Should resistance near 80.76 give way to higher prices a test of the recent highs is quite possible.

The technical picture suggests higher prices in the near term for the greenback. From a fundamental  viewpoint, recent economic data also suggests that higher prices may await as one the largest weekly debt issuance of 2012 among sovereigns within the Eurozone will transpire next week. If any of the debt auctions go poorly it will reflect negatively on the Euro currency and help push the Dollar higher.

Most of the debt issuance is outside of the 3 year maturity window so the LTRO justification to encumber risk does not apply. Next week we will find out just how serious investors are about accepting default risk on European debt instruments. I would be shocked if the ECB sits idly by, but the sheer amount of capital required to safeguard debt issuance next week is extreme, even for a major central bank.

The Euro currency continues to fall and has broken key resistance around the 1.30 price level on the EUR/USD currency pair. Price is not collapsing as of yet, but we are seeing a slow and steady slog lower for the Euro. This price action serves to boost the Dollar which ultimately places downward pressure on risk assets such as equities and oil. Additionally, it reduces the valuation of gold. The daily chart of gold futures is shown below.

Gold Futures Daily Chart

Gold Trading Video Chart

The recent price action in gold has been quite ugly and price is resting at key support stemming from an intermediate-term descending channel shown above. Should the lower bound break to the downside a sharp move lower could play out.

It is important to remember that gold is coming off a monster multi-year bull run and it only serves to make sense that a nasty pullback that shakes out the bulls would be forthcoming. I continue to believe that strong support and buyers will come back into gold around the 1,450 – 1,550 price range as significant long-term support levels should hold up prices. The key support zone is clearly illustrated in the chart above.

I continue to wait for price to reach that key support level and based on the current proximity those support levels are magnetizing price toward them. When long-term support / resistance levels are near price a test is a common occurrence. The most important question to ask is whether the support zone shown above will hold, or will even lower prices ultimately play out?

Gold and silver both are starting to become oversold on the daily time frame. While the gold bugs have been feeling pain the past few weeks, the gold miners have been taken out back to the woodshed for a good whipping. The miners have been absolutely crushed in 2012 .

My long term analysis revealed something quite extraordinary on the longer term weekly chart of the HUI gold mining index which I believe is critical for readers to watch and monitor. We are nearing valuation levels based on the true strength index that have not been seen since the market crash that took place back in 2008. The weekly chart of the gold bugs index is shown below.

Gold Bugs Index Weekly Chart

Gold HUI Trading Video Chart

As can be seen above, the Gold Bugs Index (HUI) has been under considerable selling pressure since early September of 2011. However, note how low the True Strength Index is based on 5 years of price data. We are nearing the same level that we saw back in 2008 which marked a major bottom that ultimately resulted in a monster move to the upside for the gold miners.

I am of the opinion that this chart demonstrates quite clearly that a great buying opportunity for gold, silver, and the miners is likely going to present itself in the near future. I will be watching this price relationship over the next few weeks waiting for a strong entry point for a longer-term purchase. After this pullback concludes, the potential returns that could occur in gold, silver, and the miners could be breathtaking.

With 3 clear support levels, a defined risk approach could be used in order to scale in or to reduce market risk should prices continue to move below each support level. While the time is not right just yet, more than likely a solid long-term risk / reward trade may very well present itself in the precious metals and mining space. I am likely a bit early, but the ultimate end game as it relates to fiat currency is documented throughout history. The final result has a finality that few truly comprehend.

If you enjoyed this article and analysis, you can get our detailed trading analysis videos every Sunday, Monday, Wednesday and Thursday here risk free: 

We begin with a daily chart of Gold which shows its daily closing prices and a volatility indicator. The percentage figure refers to the percent bullish reading from the daily sentiment index. As we noted recently, each bottom in Gold (except 2008) has come during a period of low and declining volatility. Volatility is currently at a 9-month low while only 7% of traders are bullish on Gold.

Next, let’s take a look at the current Commitment of Traders Report (COT) for Gold which shows the commercial short position and open interest at the bottom. The current commercial short position has reached a 3-year low while open interest recently touched a two and a half year low.

Moving to Silver, we see the metal is nearing significant support at $27. Silver closed at $28.93 and has a bit of room to fall before testing $27 and the 600-day moving average, which has been an important pivot point since late 2008. The current daily sentiment index is 16%. We think, with another day or two of weakness in Silver, the daily sentiment index would decline to single digits. We also want to note that $26 is the 50% retracement of the entire bull market.

Silver, unlike Gold, has seen more interest recently as open interest has increased since late last year. However, open interest would have to rise 40% to reach the old high. Commercial traders are net short 17.9K contracts, which is a within a whisker of the 10-year low which was reached at the end of last December.

We remain encouraged that a bottom is developing in the mining equities. Below we show a weekly chart of GDX. Last week GDX bounced from $41, which is the 50% retracement from the 2008 low to 2011 high. $41 also marks the strongest pivot point since $52. Furthermore, GDX’s volume was very close to a 3-year high. Note how strong volume has market past bottoms.

Breadth indicators suggest the gold stocks are near a major bottom. The chart below is fromSentimenTrader.com. The McClellan Summation index is near levels last seen at bottoms in 2008 and 2006. The bottom row shows the percentage of stocks in the sector that closed above their 200-day moving average. The figure has been at zero percent for more than a month. The last time that happened? 2008.

The next chart, also from SentimenTrader.com, shows the assets in the Rydex Precious Metals Fund. Since the late 2010 peak, the fund has dropped by 40% while the assets in the fund have declined by 70%! Interestingly, the assets in the fund declined by 70% in 2008. The difference is the fund’s price declined by 73%. In other words, we are seeing the same amount of outflows as in 2008 yet the market has declined by 40% and not 73%.

While technical analysis and sentiment indicators make a convincing case that a major bottom is near, it is important to note the fundamental considerations which support our thesis. In recent editorials we’ve noted the trend of weakening data in the US. Obviously, should it continue into the summer, then it would raise the odds of Fed action. Shifting east, Europe is headed for a recession and monetization is badly needed first to prevent debt contagion and second to prevent economic contagion. Germany, the lone hold out against monetization, indicated last week it might budge a little bit. Continuing eastward, China cut the reserve ratio for its banks and is likely to do so again reports the Wall Street Journal. Also, India and Australia recently cut interest rates.

Consider these emerging fundamentals and then consider our technical analysis. Technicals always lead fundamentals and markets tend to look six to nine months into the future. We are not predicting imminent action from the Fed or imminent money printing from the ECB. However, we are noting the emerging positive developments which will drive precious metals higher into 2013. Policy from the east is shifting towards easy. Europe will have to embark on some major money printing likely by the end of the summer. Finally, continued weakness in US data along with the strength in US Bonds and the US Dollar will facilitate the environment for the next round of Fed action.

We anticipate a bottom this month to be followed by a higher low in July or August. The fundamentals should become more clear by the end of the summer and would drive the precious metals complex much higher during the seasonally strong period. Remember, major bottoms take some time to develop. We believe a bottom is at hand and that is why last week we began to scale into some positions. If you’d be interested in professional guidance then we invite you to learn more about our service.   

Good Luck!

Jordan Roy-Byrne, CMT
Jordan@TheDailyGold.com

Greek Politicians are struggling to form a new government.   Concerns are increasing that Greece will drop out of the Euro.
Last week we spoke about the upcoming election in France where we saw a changing of the regime over the weekend.  France’s new socialist leader Hollande is much more supportive of the European Central Bank intervening to boost the european economy by taxing the rich and industry.  This is at odds with Angela Merkel who faces a possible ousting herself as it is clear that austerity is not popular. At one point there was a strong partnership between France and Germany but voters are choosing socialist means of taxing the rich rather than boosting industry like the Chinese and Russians.  This may be destabilizing causing investors to return to gold and silver as a hedge against a european currency on the brink of a possible crash.
This means we may see a new round of Euro uncertainty this summer which could lead to the next leg higher in precious metals.  While the Europeans may be selling their gold to raise capital, the Chinese are important gold at a record pace and are becoming the largest consumer.  China’s imports of gold are skyrocketing more than sixfold in the first quarter. China is realizing the need to increase their reserves and are on the record that they are on the search for natural resources worldwide.
Operation Twist is set to expire in June.  If we don’t hear word of a QE3 or additional stimulus then we can see a downward move in U.S equities.  we saw this in the summer of 2011 as QE2 expired and in the summer of 2010 as QE1 expired.  These stimulative moves boost stocks higher, then when the programs end we see liquidity traps.  We need to be careful of a repeat of such a move in the overbought equities and look for a rotation into the precious metals which are continuing to make higher highs and in a long term uptrend while the Euro and Dollar remain in downtrends.  For instance the dollar is still significantly lower than the summer of 2010 before this eurozone crisis intensified.
Support for gold is at $1600 and $27.50.  We may see an initial correction in us dollar terms but gold and silver are near key support levels, oversold and possibly just about to takeoff.  We are reaching extremely negative sentiment indicators indicating a bottom both in precious metals and the extremely undervalued miners.  When indicators reach this level a bottom reversal may occur sooner rather than later.

• Do you own cash flow real estate you rent out every month and collect monthly checks from?
• Do you have a pension plan or military retirement plan that pays you every month, no matter whether you work or not?
• Do you collect royalties or residuals on work you did in the past that still pays you today?

I am making Monday’s premium report available to the public.

I doubt anyone was surprised by the reversal in the dollar index today.

It’s been made painfully clear that Bernanke is not going to tolerate a rising dollar, at least not for very long. Cycles are still working, and still generating bounces out of daily cycle lows, but they are never allowed to get any traction before the next beat down starts.

I would say there’s a pretty good chance that today’s reversal is signaling that the current daily cycle topped on day four, and the pattern of lower lows and lower highs is still intact.

Presumably the dollar will now start to decline and penetrate the May 1st intraday low before the next significant bounce. The daily cycle timing bands have adhered pretty closely to standard durations in the dollar index. I don’t see any indication that has changed, so we can probably expect the next significant bounce sometime around the last week of May.

Stocks:
If the dollar cycle has topped then the half cycle low scenario is still on the table.

In this scenario the stock market is on day 19 of its daily cycle and due to form a half cycle low at any time. As most of you probably remember, I’ve been expecting an extended consolidation in the general stock market. A dollar cycle topping on day 4 and a half cycle low on day 19 would be consistent with that theory.

If by some chance the dollar can recover and continue to rally for a few more days it could force stocks to penetrate the April 10th low. In that scenario I would re-phase of the daily and intermediate cycles as shown in the chart below.

At the moment I have no idea which scenario has a greater odds of playing out, although I must admit the reversal today does not look good for the dollar.

Gold:
In my opinion gold is trying to move down into one more failed and left translated daily cycle, which I’m fairly confident would mark an intermediate degree bottom. However, as you can see from the chart below, as soon as Bernanke broke the dollar rally gold lost all of its downside momentum.

This has turned gold’s B-Wave decline into a mostly sideways consolidation for the last two months. If the dollar has indeed topped then I have my doubts that gold will be able to finish its intermediate decline and penetrate the April 4 low. The fact that the current daily cycle is running out of time may indicate that we are going to have to leave the April 4 low as an early intermediate bottom.

I would prefer to see gold drop down and penetrate $1612 as it would make the intermediate cycle count “fit” better. I know that’s not what most of you would like to see. Most of you probably just want the draw down to end as quickly as possible. I on the other hand understand that this is a secular bull market and that this is going to be a winning trade (well unless the bull market has ended ). So I’m not overly worried about a draw down. In a bull market timing mistakes get corrected.

To me a move below $1612 means that we didn’t waste an entire daily cycle on a sideways consolidation and that we have all of a new intermediate cycle still ahead of us. That’s why I would prefer to see gold poke through the April 4 low. It would signal that we have more time to rally, an entire daily cycle more.

So even though we weren’t  able to time a perfect bottom, I’m confident that we have entered “close enough” and when the regression to the mean occurs, and it always eventually does, our mining positions are going to deliver a very hefty profit.

Heck, if one was willing to just turn their computer off and wait for the bubble phase of the bull market, our current positions are probably set up to deliver a 500-1000 percent gain. Of course the cost is that you have to ignore the market and go on with your life for the next several years.

When you think about it, that’s a pretty good bargain. Do absolutely nothing, and get rich doing it.

Gold Report Sign Up Below

It is no secret that Warren Buffett publicly dislikes gold. Earlier this year, Berkshire’s CEO and largest shareholder reminded investors in a Fortune article that gold has limited industrial demand and even said the precious metal “will remain lifeless forever.” Apparently, the strong distaste for the yellow metal runs throughout the Omaha-based company.

Charlie Munger, vice chairman of Berkshire, recently sat down with CNBC’s Becky Quick to discuss the economy, Federal Reserve and even gold. When asked about the Fed, Munger says he has no real quarrel with the central bank system. However, he clearly has some issues with gold. He said, “I think gold is a great thing to sew onto your garments if you’re a Jewish family in Vienna in 1939, but civilized people don’t buy gold, they invest in productive businesses.” The statement is extreme to say the least, but reinforced the view from Buffett’s right-hand man.

In 2010, Munger gave a speech at the University of Michigan that discussed bailouts and also touched on gold. While Munger says we should all thank God for the bailouts, he spoke quite differently on gold. He said, “I don’t have the slightest interest in gold. I like understanding what works and what doesn’t in human systems. To me that’s not optional; that’s a moral obligation. If you’re capable of understanding the world, you have a moral obligation to become rational. And I don’t see how you become rational hoarding gold. Even if it works, you’re a jerk.”

Don’t Miss: What Do Americans Think About Gold?

Ironically, the United States and the Federal Reserve system holds more gold than any other country in the world. According to the latest statistics from the World Gold Council, the U.S. holds 8,133.5 tonnes of gold, representing 77.1 percent of its reserves. Furthermore, Berkshire owns several subsidiary companies such as Ben Bridge Jeweler, Borsheims Fine Jewelry and Helzberg Diamonds. I doubt these companies, which rely on “lifeless” elements such as gold to run a business, would appreciate the remarks made by Buffett and Munger.

Perhaps the hostility Buffett and Munger have towards gold comes from the hard asset outperforming Berkshire shares for the past decade? Since May 2002, Berkshire shares have increased 64 percent. Meanwhile, the price of gold has surged 430 percent in the same period. While the 80-something billionaire investors probably couldn’t care less about gold’s outshining performance, Berkshire’s recent underwhelming performance against the S&P 500 is beginning to attract more attention. As Bloomberg notes, Berkshire’s annual weekend this past Saturday marked a three-year period where shares have climbed nearly 32 percent, lagging the S&P 500’s gain of about 60 percent.

Although gold investors may be considered “uncivilized” by some, even “jerks” need to diversify their portfolios and preserve wealth. Investing in productive businesses is worthy advice, but it is also hard to ignore the financial headwinds facing the global economy. In regards to individuals protecting their wealth from the printing-press, a Congressman from Nebraska years-ago once said, “The taxpayer is completely outmatched in such an unequal contest. Always heretofore he possessed an equalizer. If government finances weren’t run according to his idea of soundness, he had an individual right to protect himself by obtaining gold.” He continued to explain, “Also those elements here and abroad who are getting rich from the continued American inflation will oppose a return to sound money. You must be prepared to meet their opposition intelligently and vigorously.” The source of this insightful and cautionary quote comes from none other than Howard Buffett, Warren’s father.

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