When Gold Turns It Will Trade Violently To The Upside

Today Bill Fleckenstein spoke with King World News about gold and global stock markets.  Fleckenstein, who is President of Fleckenstein Capital, believes the gold market is at or near the end of the long correction.  He also issued a warning about global stock markets. 

“Eric King:  “Bill, we’ve had a lot of the mainstream media the past few weeks saying that the gold bull market is over, your thoughts on that?”

Fleckenstein:  “Don’t they say that every day, every week?  Haven’t they said that for 12 years?  It’s just another phase of a correction that’s been underway for quite some time.  I think now that sentiment has probably gotten about as lopsided on the downside as it ever gets on the upside....
We’re into the phase where it doesn’t matter what the news is, gold just gets sold, and it’s got a certain amount of momentum.  When that happens on the upside that’s usually near the end (of a move), and so I think we’re probably near the end of the correction.

Sentiment is quite low and a lot of people have piled in on the short side.  Meanwhile, physical demand continues to inhale metal.  So we are set up for a low that gets made somewhere in the not-too-distant-future.  When it does it could be kind of explosive (to the upside) when the market finally turns.”

Eric King:  “Is this the kind of thing where even when gold starts to go to the upside there will be disbelief in the rally?”

Fleckentstein:  “That’s what happens with all rallies after you’ve had a big enough selloff and a rally starts, nobody believes it ... The fact of the matter is people are terrified that own it, and the miners have been so bad for so long.  Gold itself has been heavy and nothing makes it go up.

These are the kinds of things that get people to give up.  Action is so negative that guys who are short (start to) press (to the downside).  It doesn’t matter whether you are talking about gold or any market, when it gets like this it’s near the end, and when it turns it turns violently. 

I think we are pretty close to the low ... It could have been Friday, it could be any day, but I don’t think it’s very far in the future.”

Fleckenstein also added this warning about global stock markets:  “Barring the odd correction that could happen at any time or the random flash crash which could happen at any time because of what computers do on a daily basis, I think for some really serious downside in the stock market, the bond market is going to have to discipline the central banks.

Think about it, what if the central banks were precluded from printing their way through problems because the bond markets had started to price in too much inflation, and the Fed wanted to do QE but the bond market actually went down?  Can you imagine if you were in Zimbabwe, do you think the bond markets would respond to the central bank there printing more money?  It doesn’t have to get that bad, but people need to understand the psychology can change, and when that happens equities will be re-priced.”