Why Are Precious Metals Bulls Scared?

Well, first of all, bull markets climb a wall of worry. But second, there are some powerful media forces trying to maintain the status quo. They are constantly disparaging Gold and talking about imminent corrections, bubbles, etc. As a recent example, Warren Buffett did a recent hit piece on Gold published in the Wall Street Journal (video talking head summary here). And, of course, there is always Jon Nadler at kitco.com to make sure you are NEVER bullish on precious metals no matter what.

Actually, specifically, kitco.com having Jon Nadler as its spokesperson is quite revealing and concerning. What is this company, which sells derivative positions in Gold (a la pooled accounts), trying to accomplish? As someone who learned all his lessons the hard way in the precious metals market, I can attest to the fact that this company talked me out of physical metal and encouraged me to buy a "pooled account" position in metal when I first began to try to invest in physical metal back in 2003.

I would like to share some quotes from a recent piece by Jon Nadler. I no longer read his commentary and haven't for years, but Bob Moriarty over at 321gold.com posted one of his pieces, so I assumed it had some value and read it. What a mistake and waste of my time. Nadler is a plague on the Gold community but refuses to go away. How could anyone spend more time trying to disparage the product his company sells? The tone, the anger, the bearishness. It's so over-the-top that it seems beyond intentional and I believe is simply trying to make fun of those who have cast their lot with physical metal held outside the banking system. Anyone who does business with kitco.com knowing that Nadler is their main market commentator is asking for trouble. When the poop hits the fan exactly, I don't know, but this is a firm that should not be trusted primarily because they employ this fellow.

Here are quotes from his most recent piece (link here), with my comment following each quote:

"That the latest round of price increases in gold has been an overwhelmingly fund-engendered phenomenon is quite obvious. More worrisome on the other hand are certain trends in the physical markets (we covered the potential erosion in India’s 2012 imports and the decline in USA-based physical investment in 2011 in last week’s articles)."

He sounds nervous that this is simply "hot money" chasing metal prices and that people aren't interested in physical metal at current prices. Gosh, maybe I should sell now and beat the herd to the exits.

"Well, you can now add Vietnam to the roster of countries where domestic investors are suddenly ‘uncertain’ about continued, (some say endless) gains in gold."

Ohmygosh, those Vietnamese are some of the smartest and shrewdest Gold traders out there. If they are 'uncertain,' then I should be panicked!

"In any case, gold’s “paper” bullish sentiment is approaching certain levels (above 90% according to trade-futures.com’s Daily Sentiment Index) from which previous sharp corrections have ensued. Silver has some work left to do as it begins to encounter overhead resistance that extends all the way up towards the $37.85 overhead resistance level. If and when support near $32.62 is breached, the tenor of the market will tilt towards deeper corrections."

Overhead resistance from here to Mars in silver - holy cow! That means the bulls have no chance whatsoever! My gosh, we are so close to breeching $32.62 that I better just sell now...

"That’s the best such level of betting [in commodities- GVP] since September of last year. However, this time, the bullish tilt (in gold for example) comes amid expectations for economic recovery (in the USA mainly) as opposed to the economic and financial Armageddon that many had expected to materialize for several years now. In so many words, this is now a niche that simply does not make room for anything but positive news. That’s when the worrying should begin…"

Wow! If the world is not coming to an end and bullets and beans are not the investment theme of the day, you're darn right I'm worried! Call kitco and tell them that I want to sell them every piece of physical metal I own and even my neighbor's metal that I don't own, since they understand pooling of resources and derivatives on physical metal better than I do!

"The enthusiasm being seen in commodity futures and options positioning is most certainly not being mirrored in the still poorly performing mining share sector and the type of betting going on is itself being questioned by some: “The latest commodity flow numbers is catch-up with previous positive trends. People are moving into them based on a string of relatively positive numbers. Whether those will continue to carry weight is a little more questionable,” said one money flow analyst at EPFR Global in Cambridge, Mass."

CALL MY BROKER! AN UNNAMED BROKER AT SOME FIRM I HAVE NEVER HEARD OF IS BEARISH! Those smart Wall Street guys have been right on Gold since, well... I guess their track record sucks, BUT YOU NEVER KNOW!

{Sarcasm off}

In short, I call "foul" on kitco.com for doing a disservice to the very people they claim to try to represent and/or market to. Nadler is a mouthpiece, albeit a lousy one, for the status quo. And if he doesn't think so, well that is even worse. I have never seen a more bearish Gold analyst unless paperbugs Warren Buffett and Nouriel (half-a-hit sort-of-wonder) Roubini count as Gold analysts. And let's not forget that Buffett would be broke right now if it weren't for government largess coming to his rescue. And Roubini, I assume, has already finished his Spam and has nothing left but paper to eat (try the hot sauce, dude!).

My subscribers and I are long silver and Gold stocks and have been since catching the bottom on February 16th. If you are looking for more reasonable advice than that spewed by Nadler and Buffett when it comes to the precious metals, why don't you give my low cost subscription service a try? And believe me, I can be bearish on the precious metals sector as well when appropriate, just not as a matter of course and not as a religious conviction that clouds every statement I make. Until the Dow to Gold ratio gets to 2 (and we may well go below 1 this cycle), Gold will continue to make Buffett look like the feeble has-been paper permabull that he is (at least until he gets his next tranche of bailout money...).