Sinclair - Shorts Are About To Get Mauled In The Gold Market
Today legendary trader Jim Sinclair told King World News that when it comes to gold, “... the crowd has an opinion, the crowd is bearish, and the crowd is never right.” Sinclair also stated that the crowded short position in the gold market is going to get mauled.
Eric King: “Jim, the situation that’s going on right now in the gold sector, it really reminds me of when Warren Buffett purchased a large stake in the Washington Post in the 1970s. The press ended up going to him after about 18 months because he was down 40% on his investment in the Post, and they asked him, ‘What are you going to do now?’ If I remember correctly Buffett said, ‘Nothing.’ It turned out to be one of his greatest investments of his life. Buffett’s gain at one point in the Washington Post was a staggering 15,336%. I wanted to ask you today how Buffett’s experience relates to what is happening in the gold market?”
Sinclair: “It’s a mirror image. Buffett knew what the true value was. He knew what the long-term prospects were, and he knew without a doubt that he was going to do extremely well on that investment. This is especially true of a man who is holding a long position and says something like that in response to a question from the press. And of course Buffett knew what he was talking about....
“Let me say this, eventually the gold companies will become like utilities as the gold price is moving towards its final destination. These quality gold companies will pay big dividends the same way the utilities have always paid big dividends. If the company has the gold, the mineable ounces, and the ability to finance, then what are you worried about? It’s going to be fine.”
Eric King: “Jim, you called for this changing nature of the way this gold market is now trading, and Friday’s action surprised a lot of people, but not you. The reason you were not at all surprised by Friday’s rally in gold is you had been noting the changing nature of this market. What about gold going forward?”
Sinclair: “There is no question that the momentum of the gold market has made a significant change. The market has moved from decidedly bearish to neutral, and the potential for moving from neutral to positive is extremely high. My feeling is that the bottom we have already established will not be violated, and the market will now begin its move towards $3,500 coming out of this experience.”
Eric King: “Jim, we have been noting that the managed money and the speculators are incredibly short here at the worst possible moment in time. Does the gold market really need a catalyst here, or will it reverse on its own and just shock the shorts?”
Sinclair: “I believe it can reverse on its own and shock people because of the crowded short position, especially amongst general speculators. Everything that has broken down has to fight its technical position. Having said that, this will be an enormous move off the low, and probably only have to start fighting in the $1,700+ area.
Again, this will happen because of the crowded short position, and the bearishness being at historical levels, particularly in the shares. It wouldn’t surprise me if the quality mining shares put on a rally even better than gold itself. Remember, the crowd has an opinion, the crowd is bearish, and the crowd is never right.”