You are here

Star gold fund manager Embry leaves Royal Bank for Sprott Asset Management

Section: Daily Dispatches

Gold: A Modern Piggly Wiggly Event?

By Jim Sinclair
a href=
February 12, 2003

The recent selloff from the $390.80 high in
gold has not and, in my opinion, will not
alter the structure of this long-term bull
market in gold. Gold has always been and
will continue to be a market with
supply/demand skirmishes between titanic
forces with huge interests in the resulting
price. The almost straight-up action of
gold from $371.50 to $390.80, followed by
a similar reaction down, has all the
signs of a forced, expensive short cover.

Generally, the entity that acts as
broker/gold bank for the short cover can be
counted on to sell the final ounces SHORT
to the covering entity, followed by the
gold bank's pounding of the market after the
finish of the short cover. Generally, a short
cover action is recognized in the market by
pro traders who also seek to fill the final
purchases. Everyone tries to pile on the top
prices of a short cover to become short
themselves, as it always falls hard just

You might like to read about the life of the
great trader Jesse Livermore. After he
cornered Piggly Wiggly Stores (the Wal-
Mart of its time) on the NYSE and drove the
price sky-high, he had a falling out with the
chairman of PWS, who had retained him to
effect the long corner. Livermore quit the
operation and sold his final Piggly Wiggly
shares SHORT tothe strangled short sellers,
who were forcedto buy.

PigglyWiggly did exactly whatgold didtoday
-- exactly.

If it walks like a chicken, smells like a chicken,
clucks like a chicken, has feathers and lays
eggs, it IS a chicken. This smells like, looks like,
and acts like a short cover. Therefore, we well
may have seen the first painful and bloody short
cover of a gold-producer hedger.

Now, did this have anything to do with the
rather caustic announcementtodaythat
Randall Oliphant of Barrick Gold was fired?

That iscertainly a rough way to announce a
parting of the ways for someone who, in truth,
did make the company $2 billion on its hedge
account during the bear market in gold. To
announce that someone was fired certainly is
not a compliment.

Iexpect thatthis reaction in the gold price
has either ended today at the $351.50 low
or, at worst, will end atthe next Fibonacci
support line of $340 to $343. (Please see the
gold chart on our Internet site.)

The differencebetweenPiggly Wiggly Stores and
gold is that goldis fundamentally and technically
in a long-term bull market. So another hedger,
Newmont, mightbe shaking in their boots tonight.
The U.S. dollar cannot launch anything but a
technical rally from here. Thereis a $3 trillion
budget deficit coming up between the deficit
spending plans already inplace, the tax cut, and
the potential of war with Iraq.In my opinion there
is no way the dollaris headed long-term anywhere
but down.

Add to this today's news that NorthKorea has
missiles that could land a nuclear device in the
United States. Personally, I want gold. Period.

AsHarry Schultz recently informedhis private
clients:quot;Wehave two choices when a significant
reaction in the price of gold occurs. We canbe
bothered by it or, like the Asian/Islamic interests,
welcome the bargain.quot;

I see this as an opportunity. I took advantage of it
today in bullion. I will do it again if the cartel of
common interest continues to push its luck.

There are two lessons for today's activity in gold:

1. Those of us who trade must lessen our activity.
We have to be willing to step into the abyss when
gold is being hammered,guided by Fibonacci
mathematical concepts.

We also must be willing to supply markets that
appreciate at the angle of ascent we recently
witnessed. I am referring to the most extreme
power-up trend. You can view this on the chart I
have posted at

2. Volatility this early ina long-term goldbull
market meansthat we haven't seen even the
smallest part of the extreme activity we are in for.
It is an indicationthat theprice of gold is more
than likely going to $590 as an early indication of
objective. The implications of that are most
unwelcome in terms of what it means to other

A few conversations with the pros:

KA noted today: quot;Surprisingly,silver lost none of
itslong-term internal strength on this decline, even
though it failed to get through the $4.98-5.12key
overheadresistance.quot;That speaks well ofsilver's

MM said: quot;The pure gold shares openedlower,rose,
and then held around theirmodestly lower opening.
This is the first timethat the gold community in those
shares was not stampeded. That is a good signfor
them for the future.quot;