Precious Metal Manipulation?

Often times I’m asked: “What’s a good investment?” My answer is, it depends. Do you know how to manage risk and keep your emotions in check? Can you focus on the merits of your analysis without being influenced by the crowd? If you are a bad investor, you will find a way to be unprofitable; if you are a good investor, you will find a way to be profitable. Some people never learn, and one of the main reasons why is that they make excuses.

I’m starting to realize that people are just going to screw up profiting from the last stages of the gold bull market. Let’s look back at silver’s rally to $50. Everyone was getting bulled up on margin while silver was clearly overstretched. When the COMEX raised margin requirements a couple of times and silver got pummeled, what did these investors do? They blamed their losses on manipulation. Obviously manipulation was the source of their losses, not going long when silver was 70% above its 200-day moving average. Their losses also couldn’t possibly be attributed to going long when the rally in silver was more extreme than the spike rally at the tail end of the tech bubble. Those who were burned will say that no one could have possibly seen a correction of this magnitude coming. Leave them alone, they believe their own lies.

Now don’t get me wrong, I’m not saying that markets aren’t manipulated- they probably are. But if you’re smart, you’ll know how the manipulators think and work around them. Don’t use manipulation, or anything for that matter, as an excuse for your losses. At the end of the day, manipulators have no power to stop the bull market in gold and silver. If they really are trying to create a bear market in gold and silver, they have been doing an awfully poor job the past 11 years.

Manipulators can change short-term trends, not long-term bull markets. I remember reading something pretty amusing when I first started trading. Basically some new hot shot trader who thought technical analysis was the holy grail was telling an old veteran how a certain price level was guaranteed to act as support. The  savvy veteran asked if he was sure. The new trader confirmed that yes he was sure the price level he indicated would act as support. Well as the support level approached, the old trader put in a massive sell order, and guess what? Support broke. The new trader was humbled.

Anything can happen in the short run, it doesn’t matter what asset we are talking about. But understand that assets that are traded on paper are also traded physically. If China continues to build its gold reserves at its current pace, no amount of manipulation would be able to counteract those organic forces. If anything, “manipulated” lower prices would be welcomed with open arms by the Chinese; they think like traders. Eric Sprott would probably also be buying as would John Paulson. These are not the type of people to be unnerved by manipulation.

I think the mistake people will make is holding on too long because they are expecting a huge mania in gold. People need to understand that it’s extremely difficult to predict a mania. Off the top of my head, I can think of 2 or 3 times when it appeared gold was in its final “mania” stage. How many TV commercials about gold would prove there is a mania? How long do the lines at gold shops have to be? I’m not saying there won’t be a mania in gold, I’m just recommending scaling out on the way up because you never know when the mania will come to an abrupt halt.

I am not too comfortable holding an asset when I “know” it is in a mania. To me, that’s not investing, that’s gambling.. You saw a glimpse of this gambling mentality recently in silver. It is going to reappear in gold. Those who get too caught up in the hype will pay a very heavy price. I just hope I can get out in time.

Precious Metal Manipulation? is a post from: Expected Returns

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