As we close out the year in gold and silver more or less at the June lows, the decimation in the precious-metals space is nearly complete. By historical standards, some sort of significant bottom is being put in place. For silver, along with the 2008 and 1992 lows, this current bear market is the worst of the past 50 years, except for 1980. The mining shares are within 20% of their worst bear market lows seen in 1982 and 2000. Gold is not quite as oversold from a historical perspective, and yet its decline of nearly 40% represents the third worst loss for the yellow metal after 1982 and 1976. Sentiment for the precious metals stocks has repeatedly been near zero since the spring of this year, which perhaps tells you more than anything else regarding the near extermination of the gold bugs in 2013. It truly was unlucky number 13 for this market, in terms of its secular bull market.
Bull Market Still In Place
But, just so we are clear, I do believe that the secular bull market in the precious metals remains intact.
The fundamentals for the precious metals– zero percent interest rates, the need for quantitative easing, the lack of credibility of many central banks concerning their supervision of the western economy before the 2008 crisis, a contained global depression masked by propaganda concerning a recovery, record levels of inequality, record levels of youth unemployment, welfare assistance coupled with a record low number of people in the workforce all speak to a confidence problem for those trying to shape, mold, and control the social mood.
In the end, asset values ultimately reflect this social mood, or mass psychology of investors and speculators alike. This may not be the case every single year (like this last one), but it is the case over time. Never forget the long consolidation in the precious metals space from 1968-1971. Few were paying attention during those three weak years in the silver market, but it turned out to be simply an interlude between two powerful bull market moves. Many former precious metals bulls moved on to other investments, but it ultimately proved to be the wrong thing to do, for all sorts of reasons as the 1970s unfolded. Markets are a mind game, after all, and while it may be hard to hang on 2014 if the conventional equity markets continue their march higher, I believe that in the long run it will have been the right thing to do. I don’t expect a huge turn around in 2014, but I do think that we begin to build a base that eventually launches the next phase of this bull market.