Is gold still in a bull market or a bear market? Opinions differ but in reality the answer to both questions could well be yes. It all depends where you start from! Over 12 years gold has risen from $250 to around $1,230 at the time of writing – definitely a bull market then? Over the past two and a bit years gold has fallen from around $1,900 to $1,220. That looks as though it may be a bear market then? Well yes – or is this just a major correction in a secular bull market? To an extent it depends on whether you are a gold bull or a gold bear as to which viewpoint you take.

It was thus interesting to listen to some of the views expressed at the Mines & Money conference in London which has just ended. Speakers were perhaps more biased to the major correction in an ongoing bull market angle and they certainly had some strong historical evidence to support their viewpoints. Whether history will again repeat itself is obviously the major question here, but it does have the uncanny ability to repeat itself and one suspects it will do so yet again with the markets and gold – the only real question being how much further will gold fall before the market turns, and then how far and fast it will rise when it does.

Rick Rule in his presentation on the Tuesday pointed back to 1975 as being what he thinks is likely to happen again. Those with long enough memories may recall that gold virtually halved in price back then over a 2 year period down to close to $100. Commentators and analysts at the time were predicting falls back towards the $40 level from whence it had risen over the previous three years. It had been truly written off, but this was the inflection point after which gold rose about eight times up to around $800 plus before it came crashing back down again to settle at the level from which the recent, or current if that’s your viewpoint, bull market developed.

We are seeing now something similar to the views on the gold price future as expressed in 1975 yet again. Bank analysts, who tend to be totally reactive in their predictions for the most part, are almost universally preaching further falls – down to $1,000 or less which would be around a 50% fall from its peak. Ultra bears see maybe $800 despite that price level suggesting a complete shutdown of nearly all current gold mining operations and what that might do to the supply/demand balance – if that is even relevant in the current gold marketplace driven as it is almost entirely by paper gold.

Meanwhile the ultra bulls are still predicting enormous rises in the gold price ahead as currencies collapse under the weight of debt and hyperinflation results.

Tocqueville Gold Fund manager John Hathaway noted that the recent decline in the gold price reminded him of the NASDAQ tech bubble, but in reverse so he was another speaker predicting a turnaround in the fortunes for gold investors. He didn’t feel that U.S. Fed tapering would take place at all – or if it did it would only be at a small trial level and the effects on the markets would be so horrendous that the taper would be reversed at the first possible opportunity. He also expressed puzzlement over the recent bearish performance of gold given that in his view all the macro fundamentals would seem positive for gold. There seemed to be a concerted effort in the financial press to talk up the general stock market whereas what is reported is in direct contrast to reality, he reckoned. This has been successful in moving investment from safe haven type assets like gold into what could well be a far riskier stock sector.

Hathaway also expressed concerns about keeping assets in cash using Cyprus as a warning as what could be a pattern in future bank bailouts with, in effect large cash deposits at banks being treated as unsecured loans to the bank thus totally vulnerable in any kind of default/bailout situation.

In a panel discussion which followed Hathaway’s presentation, many of the same arguments were put forward with only one panel member, Kunal Shah of Mumbai securities firm, Nirmal Bang, expressing the likelihood that the gold price could yet fall much further before a recovery might be initiated. It should be noted though that all the panellists did themselves hold some gold or gold funds in their portfolios which may have coloured their views.

Michael Belkin of The Belkin Report which largely comments on the technical analysis picture commented that the U.S. Fed leverage is out of control and the Fed itself seems to be trying to bamboozle investors into risky assets (junk bonds and equities) and sees gold stocks, many down 80-90% or more as offering some tremendous buying opportunities. 

Ross Norman drew attention to the huge flows of gold from West to East noting that a few years ago Asian demand accounted for about 46% of global annual gold output. Now China and India probably between them account for over 80% – possibly more if some analyses of China’s gold imports and consumption are correct. And mine production isn’t really rising – miners are running hard to stand still with little in the way of major new mines in the pipeline as older operations continue to run out of steam. At the moment production is being kept up by mining higher grades but this can only continue for a very limited space of time.

All this points to a reversal in the recent gold price trend ahead. But while the traders and paper gold currently seem to hold sway in the precious metals markets it may well require a change in their attitudes towards investment – or the total movement of virtually all the available physical gold supply to the buyers in the East and Middle East thus creating serious shortages in North America and Europe – shortages which look inevitable at current rates of flow, to get gold moving strongly upwards again.

Which brings us back to John Hathaway. The title of his presentation was ‘Lets get physical’ and he seriously recommends taking up physical gold as the principal protector against what he sees as likely serious mayhem in the Capital Markets with governments perhaps needing to take ‘Orwellian’ measures to try and keep matters under control. You have been warned!