12/15/11 Baltimore, Maryland – Hey…what’s going on with gold? The dollar up, gold down. When we checked yesterday the price was crashing through the $1,550 level.

Our friend, Dennis Gartman, tells us to get out. Here’s the report:

Gold, in the 11th year of its longest winning streak in at least nine decades, is poised to enter a bear market, according to Dennis Gartman, who correctly predicted the slump in commodities in 2008.

The metal…may decline to as low as $1,475, the economist wrote today in his Suffolk, Virginia-based Gartman Letter. He sold the last of his gold yesterday. Bullion has already dropped 13 percent from the record $1,921.15 reached Sept. 6 and $1,475 would extend that to more than 20 percent, the common definition of a bear market.

“Since the early autumn here in the Northern Hemisphere gold has failed to make a new high,” Gartman wrote. “Each high has been progressively lower than the previous high, and now we’ve confirmation that the new interim low is lower than the previous low. We have the beginnings of a real bear market, and the death of a bull.”

In China, the second-largest consumer, gold imports to the mainland from Hong Kong surged 51 percent to 86.3 tons in October to a monthly record, according to the Census and Statistics Department of the Hong Kong government. China imported more than 300 tons for all of 2010, Yi Gang, People’s Bank of China Vice Governor, said in February.

“Buying of that sort should have sent gold prices soaring,” Gartman wrote. “One of the oldest rules of trading is simply this: a market that cannot or does not respond to bullish news is a bearish market not a bullish one.”

But another friend, Dominic Frisby in London, says ‘not so fast…’

Well, gold is up about 16% on the year so far. So no bear market there.

This compares with an S&P 500 which is ever so slightly down; a FTSE 100 that’s down around 10%; a commodities index that’s also down around 10%; a US bond market that’s up about 17%; and a US dollar which is ever so slightly up.

If we use the definition that a bear market is a market that is down 20% from its highs, then Gartman may well be right. I don’t say it will happen, but there is a very good chance that gold could fall more than 20% from its early September high of $1,920 an ounce.

This would be perfectly normal. Gold has had three 20% corrections since this bull market began in 2001. Once in 2006, again in 2008, and just three months ago in September — yes, just three months ago. If you look at intra-day prices, it fell from a high on 6 September of $1,923 to a low on 26 September of $1,535. I make that 20%.

So, first, I look at the fundamentals for gold. Have these changed? No. If anything they’ve intensified. I won’t go on about them here save to say we are going through a generational monetary [unraveling] and in such a situation you want to own gold. You may well also need your metaphorical tins, guns and bomb shelters at some stage, but I do not have a buy signal on those just yet.

So…in or out? You know our answer, dear reader.

Gold has been going up for 11 years straight. Or is it 12? It needs to settle down. Rest. Catch its breath. And, like a lover, it needs to test its most ardent admirers.

How far would it have to go do to give gold buyers a proper shake-out? Maybe to 1,300. Maybe 1,200. Typically, a bull market retraces nearly 50% of its gain before completing its rendezvous with the top. We don’t know if that’s true or not…it’s just what the old-timers say.

Gold has gone from about $260 to over $1,900. Let’s see, take off half of that gain and you have $1,080. Whoa… Are you ready for that kind of test, dear reader?

If it goes down that much, even we might have to revisit our convictions.

In the meantime, sell stocks on rallies, buy gold on dips.

Bill Bonner
for The Daily Reckoning

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010. 

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Gold $1,565  Silver $28.50

In almost three decades in and around Wall Street, I’ve never seen such widespread distaste and outright hatred of an investment that for almost a decade has greatly outperformed just about every other investment vehicle: gold. I will discuss why I believe this is the case in a moment, but I want to first respond to what I can only describe as one of the “Three Stooges of Gold Forecasting’s” latest forecasts that has once again caused near hysteria among gold players and the media that follows it.

Dennis Gartman, a true master of self-promotion but who’s actual track record (if anyone in the media actually delved into it I believe they would see for themselves) better suits him for the lead role in “The Boy Who Cried Wolf,” has once again grabbed headlines with yet another the-gold-bull-market-is-over assertion.

Mr. Gartman is one of three people who many in the media continue to quote despite a nearly decade-long poor overall track record on gold. He, Jeff Christian and Jon Nadler have demonstrated to me (and I suspect many others) that a broken clock’s percentage of telling the correct time in any given day is about the same as their actual accurate forecasts for gold in the last decade.

Yours truly has called this the “mother” of all gold bull markets and, by making the following offer to the Three Stooges of gold forecasting, I would like to offer up a million reasons why:

I will wager any one of them (or a combination of all three) one million dollars U.S. that gold will hit $2000 before it hits $1,000 on the COMEX. I have arranged for the law firm of Lomurro, Davison, Eastman & Munoz of Freehold, New Jersey to hold the funds in trust. For once, let one or all of the most arrogant and often wrong gold forecasters truly put their money where their mouth is when it comes to gold forecasting. This offer shall be good until midnight, December 31, 2011 (I will donate my winnings to charities).

With regard to gold and the fact that I was supposed to be on vacation until January 3rd, I will be short and sweet: the great “Bull Run” won’t end until the price of gold has at least a “2” in the front ($2,000+).
In a nutshell, gold basically traded between $300 and $500 from the time in began free trading in the early 70s. It did briefly overall hit the mid $800s in early 80s. Up until the new millennium began, gold was greatly hindered by three factors, all of which are no longer negatives:

• Large-scale Central Bank selling;
• Gold producers cutting their noses to spite their faces by selling large quantities of production forward (hedging);
• No vehicle that could provide institutional type investors the ability to acquire/control large quantities of gold easily and provide liquidity. (The choices were purchasing physical bullion with costs and storage concerns and/or mining shares that proved more than once not to be exactly like owning gold).

Asian Screech-Dollar Zoom?  
  
I find it interesting how complacent many still are regarding Asia, China in particular.  But I guess if one vests so much time and effort to wave a convincing story, it is difficult to be objective (guilty as charged).  But the slowdown in Asia is palpable, and soon it could turn into an all-out run thanks to falling dollar liquidity, thanks to the Eurozone banking crisis, and thanks to the Chinese housing bubble …