The gold bulls

It seems likely that a majority of the readers of this essay are of that species of person known as a gold bull. A quite hardy type, the gold bulls patiently sat through the sideways market from 1993 to late in 1995, when the gold price almost never budged out of the $ 375-395 range. They just knew that sooner or later the gold price would come back into its own – that the steep bull run of the late 70’s would repeat at some point in time and that the 1993 bull market, when the gold price surged from $ 325/oz to just over $ 400/oz in a mere 20 weeks was only the harbinger of what would come later.

A patient breed, the gold bulls. They stuck it through the three and a half years of going nowhere and then the gold price kicked off at the end of 1995, breaking above the $ 400 level and moving steeply higher as if it had received a new lease on life. And the bulls rejoiced! Their patience was rewarded. At last.

$ 415 came, but did not go. The gold price suddenly reversed in its tracks and the Big Bear took over, with gold starting a slide that would last into 2001 and take the price to a fraction above $ 250/oz.

What had become a rising trend due to increasing demand ran into a wall of fresh supply as central banks started to lease gold in quantity – continuing this practice even when it became clear that the excess supply was lowering the price of gold and thus reducing the value of the gold reserves in many central banks. That was of secondary importance to the need to protect the dollar.

1996 heralded a tough few years for the Gold Bulls. The previous sideways market was already nerve-wracking, but now there was erosion and even devastation of wealth among the gold bulls as gold fell $ 160 despite all market statistics showing clearly that demand was exceeding natural supply from mines and scrap. The numbers of Gold Bulls fell as numerous investors in gold stocks lost heart and turned first to the dot.coms of the high tech and internet era that promised more excitement.

Then, when the Nasdaq bubble burst, those that survived the slaughter did not return to gold – that had become recognised as a relic of the past; all the media said so.

But the true blue Gold bulls hung in there; even though relatively few were still invested, there were many supporters of the golden ideal waiting and watching. And they started to get excited when gold moved off the level off $ 250 to challenge resistance at the $ 275 and $ 280 levels. After briefly reaching $ 295 only to get pushed back below $ 275, the gold price took 4 months before it could begin to challenge the psychological $ 300 level.

Quite surprisingly, that barrier took only 2 months to crack and then the gold price moved higher to challenge what proved to be the next major resistance level at $ 325 after only an initial brief attempt to break above $ 330. That was in May last year, and it required 6 very volatile months before it could move higher. That was 6 months of pure torture for the Gold Bulls who believed that the new gold bull had already broken loose and was due to extend its stampede at any moment. On the other hand, it was pure bliss for speculators who saw in gold an opportunity to happily trade a very volatile market.

When Gold Bulls started to get excited and raided their piggy banks whenever it looked as if the current rally would break through the $ 325 barrier, the speculators took profit and sold to the Bulls, knowing full well that within a week they would be buying the same shares back at prices 15% and 20% lower.

The speculators made money and the Bulls got more and more frustrated – to the extent that they became ‘educated’; experience has shown them that every gold rally ends in a sell-off, of gold and even more so of gold shares. Which is why we now find that with gold at a post 1997 high of $ 357 the shares – local and US – are being sold off with few buyers eager to take up the freely available shares. Everybody, but everybody, ‘knows’ gold is going to slip back under $ 350 quite soon and offer a far better buying opportunity.

Except, of course, for the real True Blue Gold Bulls; they have remained fully committed to their positions, in metal and in the stock market, since long before gold had broken above $ 300. They no longer have a whole piggy bank in their homes and even their kids have to hide coins under the mattress if they want to have something to spend.

No wonder the shares are languishing despite the new high in gold. The real Bulls have no more money to invest and the traders are trying to take profit so that they can buy back later. This at a time when all indications from the market action is that demand is rising all the time, and that supply is thinning. Soon a minor event could happen and push the market over the brink where the short sellers decide to start covering.

And when that happens we will have the Bulls snorting with glee and the rest scrambling to get back into a market where the gold price may well gap $ 20 or more each day.