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Are Gold Investors Finally Capitulating?

Sprott Asset Management’s Rick Rule is one of the smartest guys in the resource investing world — and one of the most reasonable — which has made his interviews of the past few years a little disconcerting. Along with the obligatory positive thoughts on the long-term value of gold and silver and the resulting bright future for the best precious metals miners, he always points out that the sector hasn’t yet endured a capitulation, where everyone just gives up and sells at any price, tanking prices and setting the stage for the next bull market.

Knowing that this kind of existential crisis is still out there has taken the fun out of buying ever-cheaper mining stocks, which of course has been Rule’s point. Just because something is cheap doesn’t mean it can’t get a lot cheaper before its bear market is done.

Some representative quotes from late in 2014:

Complete Capitulation Hasn’t Arrived: Rick Rule

Henry Bonner of Sprott’s Thoughts spoke to Rick Rule, chairman of Sprott US Holdings, to find out whether gold stocks’ recent problems are the result of capitulation “or just a particularly nasty sell-off.”

As quoted in the market news:

In a complete capitulation, stocks melt down dramatically and some stocks just go ‘no bid.’ That hasn’t happened yet, which means that we may be witnessing a very nasty sell-off, but not complete capitulation.

‘For those of you fond of surf,’ Rick explained at our San Diego office, ‘capitulation is sort of like getting caught under a particularly big wave. You get pummeled and tumbled around under water. Capitulation in 2000 only lasted for about two weeks. Just like when you’re stuck underwater and struggling to come back up, a short amount of time can seem like an eternity.’

The most important thing to do now? Prepare yourself psychologically.

‘Abandon your ‘hope stocks’ – the ones where there is no catalyst, asset, or enough cash to do anything important. Get rid of the stocks you own that have no reason to go up, and get into ones that do,’ Rick advises. In a complete sell-off, you may find that just a few investors will make the difference as to whether a particular stock survives, which means you must be willing to be one of those investors if the market gets much worse.

Which brings us to the last few days’ crash in gold and silver prices. Both metals are now below the production cost of most miners, whose shares are cratering on the prospect of some truly horrendous operating results in the coming year. Which sounds a lot like what Rule is describing.

One vote in favor of a near-term bottom (followed by a nice run to record prices) comes from Ned Schmidt, publisher of the Value View Gold newsletter, who in a report titled $GOLD: Prelude to a Double notes that based on historical measures of investor sentiment and equity prices to gold we’re just about there: “Last time the Street was as bearish on $Gold was 2007 when the price closed out the year at $830. $Gold went on to more than double.”

32 thoughts on "Are Gold Investors Finally Capitulating?"

  1. Gold was ‘allowed’ to rise to $1900, it will again be ‘allowed’ to rise to another new high.

    All in good time, stay the course.

  2. Remember that the hedge funds speculating in gold will never take delivery so the central banks can write paper shorts all they want to push gold spot down to keep the dollar in play as a reserve currency. Of course it’s all bullshit and the same douchebags that are artificially keeping gold low are buying the physical. It’s a race and anyone who doesn’t understand this will not have any of the new currency when the dollar is worthless.

  3. Certainly a pisser for everyone holding shares or physical. Shares, lots of em, are likely to be wiped out or reorganized. Physical is safe (for now), but still frustrating. It does seem we are on the verge of two pricing systems, one for paper PMs and one for the real stuff. If silver craters to $10, do you honestly thing you are going to get it at APMEX, JM Bullion, Silver.com or elsewhere at anything below $4 or $5 over spot? Physical demand is certainly up, maybe not for COMEX 100 oz gold and 1000 oz silver, but certainly for smaller stuff. In some ways, the big bars are too problematic anyway, even at these depressed levels. Even if you can afford 100 oz bars of silver, smaller bars for the sake of future flexibility seems to make sense.

  4. I know most of you buy the fiction that there is very little inflation, and maybe this is partly regional, but where I live the CPI is in hyperinflation mode. If one did an honest assessment of prices in the area for necessities (especially rent, food, insurance, and fuel) you would see vast skyrocketing inflation that is FAR worse than anything we saw in the 1970’s and early ’80’s, I would guess it to be close to 20% per year for at least the last 18-24 months and worse it looks like it is just getting started, especially with rents which are now up by 50% in the last 24 months.

    This region may be the canary in the coal mine and you all will see it soon if you are not yet. And in food I blame it partly on the merger between Albertsons and Safeway which account for 80% of grocery sales in this area, no competition = higher prices.

    But, the REASONS for higher prices are actually irrelevant, the fact is that the top 6 weighted components of the CPI here are all up by more than 20% except gasoline which is up 82% from it’s February lows but not up Y/Y, just about back to where it was last year at this time.

    What all this means is that hyperinflation is here, and will be where you are soon enough. That is EXACTLY the wrong time to sell gold, and if there is a route in the gold pits that is when you buy. Though on my fixed income I can’t afford an ounce of gold, even silver is beyond my means now, I would be lucky in this inflation to pay my rent much longer.

    1. Where do you live – Argentina? Venezuela?

      Your argument that inflation is rampant is based on where you live, BUT YOU FAIL TO TELL US WHERE YOU LIVE, or even state the region of the United States (if, indeed, you reside in the U.S.).

      As a result, your claim that ‘hyperinflation is here’ is highly suspect. Rather, it sounds like your problem isn’t inflation so much as a low income. My suggestion? Get a job tending carts at your local Albertson’s or Safeway store.

      1. Rarely have I read such an arrogant and un-empathetic reply. Reginald, I live I WA state, am disabled and considering secondary surgeries now am doubly handicapped. I am lucky that I can begin to walk again to water the garden. Inflation is here! and the comment about mergers between competing food chains was highly appropriate.Hekrie’s post reflects my own situation well, except that I own (owe) my house.
        “Get a job tending carts at your local Albertson’s (NOT) Safeway store.” was an obscene reply. Hope you get out and start campaigning for the Walkers and Trump’s out there. They need folks like you.

        1. Inflation or deflation, depends on where we look.

          But a person claiming no inflation, for costs that COMMON FOLKS need to spend in order to survive, is unquestionably out of touch with the living world.

    2. “,,, I would be lucky in this inflation to pay my rent much longer.” I so understand. I am just recovering from two surgeries and have to deal with the medical costs not covered from Medi-Care. Same food company merger has made an impact here as well. I began growing more of my own food, then the unexpected medical happened.
      Not a Republican but I sure was glad that John Kasich entered the Presidential race. His announcement speech was optimistic and worth noting. He mentioned declining opportunities for Americans but stressed ‘Those challenges made us better and we did it be staying together and by working together. with our eyes on the horizon, on the future.’

      At this point he had me paying attention.
      FINALLY: there is an adult in the room now. I am not saying that he is a perfect candidate. I don’t know his position on many issues yet. He simply seems like less of a nut case than the rest, and more prepared to lead, not dictate.
      The poster who would jump on your case certainly would be happy with the rest of the Republican field.
      This guy may be a preacher but his entry speech was nothing like Huckabee. It resonated and was inclusive. Somehow, I doubt he would be pushing for the ‘stasher’ mentality who hoard gold, food or ammunition.

  5. These kind of “paper”bombs dropped in the middle of the night are normal for gold. I expected them to increase in intensity as the manipulators got ever more frantic in their search for complete dominance of all our markets. They cannot seem to discourage gold and silver buyers. So early Sunday’s “bomb” was a sign to me that we may nearing the end. They are getting increasingly frantic in my mind. If anyone has capitulated it is the retail consumer. Retail keeps tanking and it is supposed to be 70% of the economy. How long can the manipulators extend and pretend when there is no actual economy ex the stock market? Actual physical gold and silver will be more in demand than ever at these prices! They cannot get out of their own way.

  6. I don’t keep up with all the blow-by-blow details of what’s going on with gold anymore, but this “capitulation” may have something to do with “a record number of short positions” I came across recently.

  7. Unless the CFTC is MADE to enforce the laws against the banksters…the criminals will continue to debase the PM’s….the CFTC should be run out of their surroundings by the CEO’s of the mining companies…who are refusing to look after the shareholders of their mines….this is a MUST do for the CEO’s or they all are just as guilty as the banksters that Steal shareholders MONEY…..only 1 Ceo has made any attempt to stop the stealing…First Majestic ceo…ALL the rest are complicit in this thievery

    1. Unfortunately, the management of gold mining companies are notorious for being corrupt and/or incompetent, which is why they tend to not receive a lot of investment. Ironically, I don’t trust Rick Rule either.

  8. Gold and Silver will be driven down as close to zero $ as it takes for Americans to figure out that GLD and SLV are bogus paper. When the utter fraud of this game comes to light there will be recriminations, disbelief and anger and maybe a stampede to physical and ETF’s like Sprott and Canada Central Fund.

    1. Last I heard GLD was never audited as it was never ordered as part of a litigant’s discovery activity, but I think SLV was audited TWICE. Once the silver on hand was 14% under, once it was 18% under. Crooks is crooks and I don’t like sleeping with snakes.

    2. Totally agree!
      SLV has long had a history of questionable management and I have always been amazed that people who thought investing in these holdings would be safe.
      On the other hand converting physical gold may get harder in the future as well if and when the govt. clamps down on currency transactions. Withdrawals, deposts to banks are just a beginning- as well as outward bound transfers of currency.

      I have less concern about underground barter transfers of silver. So my investment, had I the resources would probably be junk silver bags.

  9. I look forward to ‘buying’ China & the EU in the future (5 yrs?, 10 yrs?…) once their hard collapsing is finally complete.

  10. I would hardly call anyone that purchases paper, an investor.
    A trader at best, or more likely… a punter.

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