Subscribe to Money Morning get daily headlines subscribe now! Money Morning Private Briefing today's private briefing Access Your Profit Alerts

If You're Worried About Gold Prices, You Need to Read This

When stocks fall by 20% or more from their peak, it's labeled as a "bear market."

With gold prices down 26% from their record close back in August 2011, the "yellow metal" has entered a bear market of its own.

It took an especially ugly day on Monday to get us to that point.

Two days ago, gold prices plunged as much as 9.7% – the biggest decline since 1980 – and continued a sell-off that saw the yellow metal fall by 4.7% last week, including a 4.1% drop on Friday.

The metal has now fallen 26% from its Aug. 22, 2011 settlement record of $1,888.70.

To get some expert insights on this sell-off, I telephoned Peter Krauth, our resident natural resources expert and editor of our Real Asset Returns research service. Peter based himself in Canada to be closer to the miners and natural-resources companies he covers for his subscribers.

I asked Peter for insights on the following three questions:

  • Why this is happening.
  • What you can expect from here.
  • And what investors should do.

He was as accommodating as ever.

"Bill, it's been ugly – really ugly – there's no question about that," Peter said. "But there's an interesting twist to this, one that I'm glad we're taking the time to talk about here. You see, I really believe this is one of those situations that investors would do well to drill into. In fact, I will go on record here and say that I firmly believe that investors who take the time to understand the forces at work here, who take the time to find the right profit opportunities, and who are willing to take the long view will end up being well-rewarded for having done so."

Peter said there are at least four catalysts that are fueling this historic sell-off, including:

  • How the Cypriot Gold Dump Could Ignite Follow-The-Leader Fears: Cyprus is going to sell about $550 million worth of its 13.9 metric tons of gold reserves to help finance its bailout. That amount, by itself, isn't enough to increase the world supply. But it sends a message that some of the other struggling Eurozone players may pursue the same strategy. Such Euro-Wheezers as Portugal, Ireland, Greece, Spain and Italy together hold an aggregate 3,230 metric tons of gold – three-quarters of which is held by Italy. Even with the sell-off we've seen, all that gold is worth about $145 billion. That won't put a dent in the trillions in debt these countries owe. But the bailout plans only require them to contribute a small percentage (with Cyprus, it's 3%, for example), meaning the gold sales would be an easy way for those countries to raise the needed cash. "That realization has the gold market spooked," Peter says. "But the reality is that the central bankers around the world are net buyers – and will continue to be as global debt levels continue to rise … Gold is the single-best store of value on the planet, and that's not going to change."
  • The "Packaged" Messages From Team Bernanke: After performing their usual CSI-like postmortem on the latest set of U.S. Federal Reserve minutes, central-bank watchers concluded that Team Bernanke could curtail, or even switch off the quantitative-easing spigot much sooner than had been expected. "The fear is that such a move would put a kibosh on inflationary fears, and probably push gold prices down even more," Peter says. "But the Fed actually only said it may curtail QE, not that it would. Besides, it's basing its assessment of the health of the U.S. economy partly on the official unemployment rate. And that statistic, as we know, has become increasingly more flawed as time goes on. The truly weak status of the American economy can't be covered up forever."
  • Nobody Wants to Step in Front of a Train: One pundit quoted in a news report yesterday said that "nobody wants to step in front of a speeding train" – meaning no investors want to buy gold right now. Indeed, panic selling has gripped the gold market, leading many pundits to say that there's no bottom in sight. Gold-backed ETFs are being forced to sell bullion to cover the redemptions, and that selling is exacerbating the decline. And the continued decline is then triggering "stops" and margin calls – forcing additional sales, and furthering the sell-off. "In markets like this, you eventually get to a point … to a level … where there's really no one left to sell," Peter says. "When that happens … when you've reached such a market extreme … the forces are much more likely to be to the upside. Prices can't fall to zero; when they fall below the price of production, market forces will force prices higher."
  • Market Manipulation: Big investment banks like Goldman Sachs Group Inc. (NYSE: GS) have been forecasting lower gold prices for some time. And now that prices are falling, instead of taking a victory lap and taking credit for having made a correct call, Goldman and others are once again slashing their target prices. "In a panic-selling market like this one, they know this will become a self-fulfilling prophecy," Peter says.

Despite the sell-off Peter says gold should be part of every portfolio.

"It's an important holding," he explained. "It's the best insurance you can find against government stupidity … including the ill-advised ongoing overprinting of fiat money. Gold has an intrinsic value, and can't be devalued by overprinting. And it's sure to rebound because I have no doubt that governments around the world will continue to do stupid things. The gold bull market isn't over … not by a long shot."

Given these views, I asked Peter what investors should do. We talked about the moves you can make right now.

Among them, he detailed four solid gold and silver investments you can buy at a discount now, including two that he called "Special Situations."

What makes them special is that they're gold-mining stocks that stand to gain (and gain big) even if gold prices don't rebound.

Each recommendation offers investors a massive potential upside because of projects they're working on, and internal changes they're making – which, once fulfilled, could more than offset the declines we've seen in gold prices.

So if you have ever felt that your holdings were light on gold, but the high prices kept you at bay, now is the time use the sell-off to start establishing new positions.

I've detailed exactly how to do just that in a Private Briefing alert I sent out just yesterday.

To read that alert and take advantage of a free two-week trial to Private Briefing, click here now.

In just 18 months, ourrecommendations have generated two triples, four doubles, four takeovers and nearly 70 winners.   The stocks we've recommended based on the sell-off in precious metals are just the latest picks that we expect will pay off big in the long run.

Related Articles and News:

Join the conversation. Click here to jump to comments…

About the Author

Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.

Read full bio

  1. Walter Baltzley | April 17, 2013

    "Gold has an intrinsic value, and can't be devalued by overprinting"…and yet it CAN be devalued by mass SELLING…In 1980's the price of gold plummeted from a peak of $800 to a low of $200…a loss of 400%. Central banks hold MILLIONS of TONS of Gold, allowing them to easily manipulate the price. They can also print gold certificates…"Paper Gold"…to manipulate the price.

    My opinion…the banks are going to push the price of gold down to $400 an ounce and then snap it up at bargain prices before inflating it again. It is this cycle of inflation then deflation that gives banks their power. It does not matter what we use for currency…only who CONTROLS THE QUANTITY in the market.

    • Counting Ace | April 17, 2013

      Walt, you might wanna work on your math. That's a 75% loss. Makes me wonder, is the rest of your "insight" just as flawed?

      • Rick | April 18, 2013

        Math skills have no relation to the ability of sound logical observation. Walter has a natural gift. If this manipulation is within their grasp, you know it's going to be tried by those big boys [bullies], with the corrupt politicans blessings.

    • Drew | April 17, 2013

      You can't sustain a loss of 400% genius. $800 to $200 is a 75% loss.

  2. Joe Sabo | April 17, 2013

    Judas sold Christ for 30 pieces of silver not Euros or Dollars. Gold has been around before the Romans so with that said, when pictures of dead presidents can't
    Buy a loaf of bread or a gallon of gas, take a guess what will.

    Great article.

  3. ID Shearer | April 17, 2013

    There is a case for saying the slope upward of the monthly gold price has been too steep. Below it is a shallower sloping long trend line which points to $1200 in 3 months. Punter's should see if that line is tested and holds in the next three months before buying.

  4. ron | April 17, 2013

    Hi I am wanting to purchase some Gold and silver i am in Canada and looking at a company called Guildhall wealth management they finance and store product how do I tell if this company is legit

    • LESLIE TROY | April 17, 2013

      I am in the US and have never heard of Guildhall but that is not to say there is anything wrong with them.
      Two names I trust in Canada are Eric Sprott's companies and Europac Canada, owned by Peter Schiff. Both can sell you gold and silver in various forms and have storage options. For low margin bullion dealers I like Gainsville Coins and Border Gold but I think Sprott and Europac have margins not much higher. Check the prices, delivery options and storage costs to decide what is best for you.

      • DD | April 17, 2013

        I would not store any physical PM's except at home or to hide it somewhere where it would be very hard to find. Only tell someone you truly trust where it is, on the off chance should you die, then that person could go to get it or let it be until the time is right. I have heard that if you put items in say bank vaults, there could come a day where they would not allow you to take what's your out, hence this is why I would avoid 'certain' storage facilities.

    • AG | April 17, 2013

      Buy from Kitco. By far the best source anywhere!

    • Rodzilla | April 18, 2013

      I'd go to Kitco my self

  5. fallingman | April 17, 2013

    Here's a riddle for you. How can a man stand 10 feet from the Empire State building with his eyes open and functioning and not see it?

    The Cyprus gold sale and Fed minutes were cover for an orchestrated takedown.

    What? The idea that the bankrupt club med countries might be forced to sell some assets never occurred to anybody before last week? Come on. And even if they were to put it all on the market, which would never happen, as it would be pledged as collateral rather than sold, guess who would buy it before the public even got a whiff of it? Our friends in China, Russia, India, et al. It's not as if they'd have a public auction.

    If the Fed minutes sent a signal to the gold market that wild money conjuring operation might be slowing down, why didn't the stock market get the same signal? It rallied like crazy that same day. The reason reason cited was that market participants had seen the dreadful employment numbers from the Friday previous and concluded (correctly) that there was no way QE4ever would be with us for less than…well…forever.

    I don't have the time and you don't want an essay, so I won't continue. I'll just say this was the most obvious…and successful…bit of suppression the Fed and the bullion banks have ever undertaken. Rather than concoct silly ex post facto "explanations," do some invetigation. Follow the money. Nobody seeking the best price places what was effectively a sell order for 124.4 tons at the market. 500 tons were sold in a day on Friday, probably double that on Monday…and who was doing the buying? Hmmm. Good questions, huh?

    And the answer to our riddle: If his back is turned to it.

  6. Rick | April 18, 2013

    Or if it is pitch black with the lights out. And our sold out one sided media for the most part has us turned around & the lights out. thanks for the light & insight; right on.

Leave a Reply

Your email address will not be published. Required fields are marked *

Some HTML is OK