the dow~richard russell comments, page-10

re: the dow~richard russell - position paper on go So Few Believe

Dr. Richard S. Appel

Today’s great gold Bull Market continues to grudgingly move higher while attracting as few followers as possible. It darts and weaves higher only to fall like a rock, as if the rug had been pulled out from under it. It began when true believers of gold were writhing in the depths of despair, and were left questioning if the earlier lengthy Bear Market would ever end. The bear had been in control from gold’s $875 peak in February, 1980, until its final $252 low was posted in August, 1999. A massive double bottom was completed two years later when a second low point at $255 was touched in February, 2001.

This torturous twenty-year period had drained both the hopes and the pocketbooks of those who understood the importance and position that gold would eternally hold for mankind. Most of these true believers bought into gold’s Bear Market rallies of 1986-87, 1989-1990 and 1992-1996, only to suffer from being “right too soon”. Despite the fact that they presently feel that gold is in a new primary Bull Market they are so scarred from being wrong so many times in the past, that they constantly question the veracity of their belief.

At the current juncture in its secular Bull Market, gold’s price action continues to confound the marketplace. Its plodding upward movements are frequently punctuated by sharp breathtaking price breaks. These act to both rattle the nerves of its adherents, and those questioning if a Bull Market truly exists, and deter onlookers from entering the market. Further, the skepticism of the masses, of the existence of the gold bull, is constantly fanned by the talking heads and virtually all information that they read or hear in the various media. The bold few that muster sufficient courage to venture into these markets run at the first sign of any setback. How can they possibly initiate and maintain positions when they are bombarded by negative or misleading information? This makes them constantly second guess themselves!

When a reversal or the threat of one begins, today’s neophyte gold investors are quick to enter the fray. They aggressively jettison their gold and gold share positions with little thought. They have no concern for the prices that they receive for their terror of far greater losses controls their emotions. As panic begins to set in their stop-loss orders are triggered. These only add to the intensity of the decline. The fear spreads and feeds upon itself as gold spirals downward. Many of these new investors intuitively understand that they should own the noble metal. This, if for no other reason than it has been a safe haven for the public from the beginning of civilization, and that it may protect them from the gathering storm that any thinking and aware person must sense. Yet, they sell in any event, as their fear overcomes their better judgment. They do not truly believe!

It is understandable that the momentum players and traders that have entered the gold market would act in this fashion. For them, trading gold is no different than buying high-tech or dot-com stocks, or wheat or corn futures for that matter. They neither understand nor care whether or not gold is destined to trade far higher. All that is meaningful to them is that an opportunity has presented itself from which they can garner profits. Because they do not recognize gold’s Bull Market they are quickly frightened by the severe price reversals. They lead the pack, taking the market with them.

It is amazing to this observer that even though gold has rallied nearly $150 from its nadir, it is as though a preponderance of gold believers still have one foot out of the door! Have those who truly understand why they invest in gold and gold equities been so battered and bloodied by their experience during the past twenty years? Or, do they too question their belief due to the ever-present banter deriding gold and its ownership?

Whatever the various reasons for the sharp corrections that we have been forced to endure, and the three recent one day gold routs since October 3, one thing is certain. That is, there is only a small contingent of those who are steadfast believers in gold’s secular Bull Market. These are the very few individuals who both understand and also firmly recognize that gold’s rise is real and is only in its infancy. These are the astute and stouthearted souls who have withstood the negative press and the sharp teeth-rattling declines, and have held fast if not added to their positions. For they recognize that these reversals offer them important buying opportunities. In fact, they had gained courage from the higher peaks and lower troughs that personifies gold’s current Bull Market. This brings me to the crux of this missive.

It is important that there are as few true believers of gold’s Bull Market as today exists. It is a great positive, not a significant negative, that gold is being regularly trashed. It is a major plus when the wholesale liquidation of gold and gold share positions occurs at the first sign of a gold down-wave. Further, it is significant that the press continues to belittle gold and the major central banks are aligned against the yellow metal and periodically act to impede its advance.

If these conditions were not occurring we would know that a major top was near! Indeed, other than the influence of the central bankers, these will not exist during the final Bull Market stage that I believe lurks in the distant future. With my tongue in cheek I must even say that part of me is pleased with the above set of circumstances. For it tells me that this Bull Market will likely far outdistance the one from which investors profited during the 1970's.

The early stages of all great Bull Markets are conceived when the most astute investors recognize their presence. They gingerly begin to acquire positions, because they themselves cannot be positive that the Bear Market has ended. Later, as the market works higher, two conditions occur. A second contingent of investors appears and joins the first group that have themselves gained greater confidence in their belief, and continue to add to their portfolios. The latecomers that arrive at various times during the Bull Market have been observing the market from afar as it moved higher. One by one, as their confidence in the bull’s presence grows, they begin to make purchases. They move through the same psychological and buying stages as the initial entrants into the market, but they start later and continue as the Bull Market moves through its second and third stages.

Eventually, during the last stage of the Bull Market the third and the far largest body of investors arrive. They finally recognize that a Bull Market has been in existence. These latecomers sat idly by observing the unfolding of the Bull Market. They heard of great profits and fortunes that were garnered by those who earlier invested in it. They begin to berate themselves for not having made earlier purchases and count the profits that should have been theirs. Their avarice begins to surface and tells them that they can no longer remain on the sidelines. For if they do, they feel that they may never forgive themselves for missing out on the bonanza of profits, from which everyone else appears to be benefiting.

When the herd finally moves during the terminal phase of all Bull Markets, price movements become exaggerated! Rather than moving 5% to 10% during an earlier Bull Market timeframe, now they soar 20% to 30% or more in magnitude. This frothy period attracts an incredible influx of capital that stokes the Bull Market’s fire and generates extraordinary and explosive price advances. When this time arrives and everyone is a true believer, it is time to exit the market! The masses never learn! They disbelieve and distrust all Bull Markets until their final stages. Then, like a herd of Lemmings, they cannot prevent themselves from moving en masse to their destruction.

For all of these reasons and more it appears obvious that the gold and gold share Bull Markets are not only intact, but they are destined to move far higher under the cloak of disbelief. It is difficult, nay virtually impossible to believe in the gold Bull Market, with so many reasons to question it. It makes even its most ardent advocates doubt their judgments! With so few believers it is apparent that the gold bull remains in control.



Dr. Richard S. Appel
www.financialinsights.org
November 10, 2003