I hope you saw this week's amazing interview on gold that Larry gave to former British MP John Browne.
But if you didn't — or you'd like to review the highlights — here's an abridged transcript ...
GOLD: Four Secret Signals
How to Know When It's Time to Buy or Sell
John Browne: Hello and welcome to Money and Markets TV! My name is John Browne, former member of British Parliament and its Treasury Select Committee.
In this video, we're going to take a close look at how a top analyst identifies the major tops and bottoms in the gold market, and my guest today is the ONE man I can honestly say has absolutely nailed just about every major turn in the gold market over the past 12 years.
His name is Larry Edelson, and when it comes to gold and commodity investments, he has the kind of credentials that other analysts can only dream about. In the mid-1980s, he was one of the world's largest gold traders, handling an average of more than $1.9 billion worth of gold in today's money, every single day. As a result, Forbes, Bloomberg, CBS Marketwatch, CNBC and many other major financial programs and publications often turn to him for his analysis of the gold markets.
In his 35 years in finance, Larry has managed several investment funds and founded his own brokerage and money management firm with offices in New York, Hamburg, Dusseldorf, Vienna, and Osaka, Japan.
Our mission today is to show viewers how they can identify major tops and bottoms in gold, by showing them how you have done it since 2000. In 2000, with gold at $260 per ounce, you became one of the first analysts in the world — perhaps even THE first — to urge investors to buy gold. Larry, what did you see that nobody else did?
Larry Edelson: Gold had fallen for 20 years. Its decline was so persistent that most analysts were expecting gold to fall to below $100 an ounce. So the negativity was huge.
John: So your first clue was that gold was an obvious contrarian play at the time.
Larry: Exactly. Plus, at the same time, the bullishness in the stock market back then was also off the charts.
John: Are these kinds of extremes in investor sentiment easy to spot?
Larry: If you can keep an open mind, yes. But most people tend to get caught up in the emotions of the times, and that can cloud their vision.
So I've developed a proprietary system that helps me identify and quantify extremes in sentiment, and to do so on a daily trading basis, a monthly basis, a quarterly basis, and even an annual basis. That way, there's no guessing involved.
So these were my first signals — extreme pessimism in gold and extreme optimism in stocks. When you get those kinds of extremes, it almost always signals an imminent turn.
Second, my study on gold's long-term trading cycles told me a bottom was due.
Third, back in 2000, volume was drying up near the $260 level in gold, which told me the turn was here.
Fourth, it was also clear that the U.S. dollar had entered a long-term bear market. So that made buying and holding gold all that much easier.
John: In hindsight, it's clear that you were right about the dollar. In fact, over the following 11-years, the dollar lost 43 percent of its purchasing power.
Larry: Yes, and the final confirmation of a bottom came when gold failed to fall below its critical support levels for the entire year of 2000. That's when I concluded we were within inches of the bottom.
John: That was the bottom. Now let's fast forward to September 2011. That was a time when nearly everybody else was saying gold was headed to thousands of dollars an ounce, but you warned that a major correction was just ahead.
In fact, in a widely published bulletin dated September 18 — just 12 days after gold's record high at $1,920 — you announced that you had turned bearish and urged your readers to HEDGE their gold positions. Once again, you saw something that others didn't. What was it?
Larry: I saw the exact opposite of the signals that had told me gold was set to soar in 2000.
First, it was a contrarian play. Nearly everybody else was bullish on gold at the time — extreme optimism on gold. That told me that there was a good chance that everyone who was going to buy was already in the market. My computer confirmed it. A big correction was likely.
Second, my study of cycles told me that after 11 years of rising gold prices, a decline was inevitable, and that it would likely last two years.
Third, at the $1,920 high in September 2011, volume and open interest in the futures markets were contracting, the exact opposite of what was happening at the bottom back in 2000, also indicating the top was at hand.
And finally, it was clear that troubles in the euro zone were creating a strong new source of demand for U.S. dollars, likely to drive the value of the dollar higher against the euro, a major negative for gold at that time.
So in my September 2011 issue of the Real Wealth Report, I told my subscribers to hedge up with inverse ETFs.
John: Again the major indicators that warned you of the correction were (1) sentiment, (2) cycles, (3) trading volume, and (4) the U.S. dollar. And sure enough, gold subsequently plunged a couple of hundred dollars.
Larry: Yes. But gold's decline was just getting started. So I instructed my readers to add MORE hedges in October and December 2011. Plus, in December — immediately after the mining sector peaked — I recommended that my readers sell ALL of their mining shares.
John: Since you issued your now-famous warning on gold, the yellow metal has fallen as low as $1,310 — a 31.7 percent decline.
Larry: And the average mining share has fallen even farther, declining a whopping 61 percent.
John: So relying primarily on these same four major indicators, you have remained bearish on gold since its record high, repeatedly warning your readers that it still had farther to fall.
Larry: Yes, I have.
John: In recent months, though, most other analysts have been saying that the trillions of dollars being printed by the Fed — PLUS massive money-printing by the Bank of Japan and the European Central Bank — would instantaneously push gold prices through the roof. Yet, you've continued to tell your readers that the correction would not end anytime soon.
Larry: Right. And believe me, lots of people really hated me for that forecast. Many gold bulls were out to have my head. Others said I must have lost my mind.
John: So how and why did you stay bearish?
Larry: Simply because I didn't see any major reversals in the four major signals that caused me to forecast a correction in the first place. I'm not always right — but the markets are. They are never wrong. When they don't respond to what should be extremely bullish developments or forces, it's clear that the character of the market has changed.
John: So let me ask you the question that I get asked most often today: When is Larry Edelson going to turn bullish on gold again? When are you going to issue your long-awaited "BUY" signal?
Larry: I can't tell you until the market tells me. I can tell you, however, that we're getting very close. As I said before, gold's two-year correction ends this year.
John: That leaves two remaining questions: When during this year will gold bottom? And second, atwhat price level?
Larry: For the answers to these questions, I don't guess. I don't have opinions. But I do have my cycles and trading models. So when they tell me to start buying, you can bet that I'll be buying with both hands and that I'll start backing up the truck. Personally, I am super excited about it for three reasons:
It will be the most important buy signal in gold since my buy signal way back in 2000, 13 years ago.
It will represent the beginning of gold's next major leg higher, which will take it to over $5,000 an ounce in the next three years.
And, I personally plan on making more money in gold over the next three years than I did over the last 13. So it's going to be hugely rewarding and a lot of fun.
John: Thank you, Larry. We'll see you then.