Today a legendary short seller said the gold market may finally be ready to explode higher.
By Bill Fleckenstein President Of Fleckenstein Capital
July 31 (King World News) – The market tried to rally out of the gate but was unable to, as there was an undertow in the FAANG group, led by Amazon, which dropped 2%, piercing the supposedly important $1,000 level, which helped take the rest of the momentum sector with it and led the Nasdaq to lose 0.5% in the first couple of hours, while the other major indices held up a bit better…
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In the afternoon, the market struggled to get back to unchanged (although the Nasdaq was still 0.25% lower), which is where it was with a half an hour to go, when I had to leave.
Truth and Consequences
It does seem that we are seeing a little more damage to key stocks each week, which all sort of started on June 9, even though the indices have made new highs since. So for those of us looking for a return to sanity, at least we are making progress in the deterioration department, although we could have a ways to go before it really matters. Then again, we might not. It is really impossible to predict, for reasons I have discussed a number of times. Thus, the point is to pay attention so that when something significant does become clear, we are not caught off guard.
Away from stocks, green paper was weaker again, although not dramatically so. Oil lost a percent, fixed income was flattish, and the metals were a bit higher, with silver gaining 0.5% to gold’s miniscule gain.
Hey, Buddy, Gotta Light?
For what it’s worth, I have noticed any number of folks who look at the gold market from a technical perspective pointing out that the metals complex is doing better and it really wouldn’t take much to create an explosion in the sector. I don’t know whether there is going to be one more pullback or if gold will move higher without taking another dip but, despite the action in the miners and gold that is not what everyone would like or expect to see (given how weak the dollar has been), I do feel we are very close to some serious upside commencing.
King World News
I was interviewed by Eric King last Friday and we dug in on topics such as how interesting and confusing the gold market can be, particularly on the theme of gold not “acting right.” I think readers will enjoy it.
Included below are three questions and answers from the Q&A’s with Bill Fleckenstein.
Question: I’m seeing an uptick in talk about Doug Casey, and his predictions of an impending financial hurricane. I’ve done some web searching to try to figure out if he’s legit or not, but the preponderance of fake websites either praising or bashing people and companies with ulterior motives is fairly daunting. You, I trust to tell us the truth. Is Doug Casey legit, or just another yo-yo, best viewed as a contrarian indicator?
Answer from Fleck: “I’m sure he means well, but I don’t read him. I haven’t seen anything from him in ages, but my old impression was he wasn’t worth reading. I can’t exactly recall why.”
Question: Hi Fleck, I was following your thread on Twitter about your GLD evaluation. Are you thinking that the decline in GLD holdings is due to a move to use that vehicle as a way to obtain physical gold? Moreover, would a run on GLD holdings be bullish for gold prospects, as it would mean that investors don’t want to hold allocated gold and are scrambling for the real thing? I saw a stat just now, that Chinese gold production fell 5.89%, but consumption was up 9.89%. I was thinking that there might be a connection? Thanks for all you do!
Answer from Fleck: “Is it a demand for physical? Is it just puked out? I’m not sure exactly what it means yet, but there is unlikely to be a “run” on GLD.”
Question: Hi Fleck, I am looking at P/E ratios in gold equities and they are pretty high: GG is ~30, NEM ~30, ABX ~20, and so forth. So absent one’s belief that gold itself is about to move much higher, there is no reason to buy these stocks. So why do you think that the gold equities should be going higher?
Answer from Fleck: “Not to be rude, but you are being w-a-a-a-y too simplistic, i.e., there are lots of ways to value stocks: P/E, book value, dividends, cash flow, etc., and each industry is different. Cyclical stocks (like CAT, DE, etc.) often have no earnings and high P/Es when you need to buy them, and then you sell them when P/Es are low. Miners are a bit like that, but also have all the gold, etc., in the ground. Having said that, those P/Es would be cheap in tech.”
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