Shakeout Before the Next Major Move in Gold And Silver Prices
Jeb Handwerger | Mar 05, 2012 03:20AM ET
One would believe that from recent action this week, particularly in the precious metals sector, that “Dear Me, The Sky Is Falling!”. In reality, very little has changed in the specter that is haunting the global economy.
There is an old French saying, “The more things change, the more they remain the same.” Observe that the Germans are ambivalent about bearing more gifts to the Greeks. Portugal, Italy, Spain are still in fiscal trouble. The vaunted employment figures omit the millions of our citizens who are living on unemployment benefits. What about the millions of bread winners over 50 years of age who have given up the search for employment.
Our facile economists and politicians are masters at “spinning” data to suit their thesis. So the mob is mesmerized and all is right with the world. Gold Stock Trades posits that there is much in the world’s sovereign economies that requires healing.
The Professors are saying that our economy has recovered. Look they say, on the one hand unemployment is declining, housing is turning the corner and our economy is on the verge of happy days are here again.
On the other hand, the academics are saying that the unemployment situation is a question mark, the housing recovery may or may not be in recovery mode and that stimulus is being shelved. Today we have witnessed the old Orwellian game of double-speak and double-think.
Our economists are in a bind. The so called positive advances in our economy has resulted from the very stimulus that they say to the public is no longer needed. Does this mean that the moribund banks of Europe who have just requested and accepted a second round of printed currency valued around $700 billion will return it to the Central Bankers?
The PhD’s in economics coming from our best universities can continue to stimulate by devices and means beyond the comprehension of mere mortals. We can be told that stimulus is passe but the reality is it will continue to be done before our very eyes. Do investors really think that they would accept declining fiat dollars and tissue paper Treasuries in exchange for solid gold and silver?
The recent selloff is just one of the many shakeouts that somehow manages to occur when precious metals are about to take off. For weeks we have stated that we were on the verge of a breakout at $35 in silver, $4 copper and $1800 gold. Coincidence??? Gold Stock Trades thinks not.
In 2012, we have recently witnessed a dramatic 18% move in gold from $1525 to approximately $1800 gold and silver has made an impressive 30% move from $27.5 to $37.50 since the beginning of the year. It is characteristic in gold and silver to witness short term volatile pullbacks at the beginning of major moves to shakeout the short term speculators looking for overnight riches and who lack patience and fortitude.
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Weeks such as these occur periodically as attempts to delay the inevitable. The trajectory of precious metals remains firmly upwards. The 50 day moving average has not been violated by Friday’s action and remains sloping upward. Indeed, this selloff may be providing a secondary entry point to add to precious metal positions. This pullback may have a few more days to run so patience and fortitude may be indicated. The U.S. dollar and long term Treasuries have bounced into strong resistance and should turn lower. Remember, there aren’t any roads that don’t have a pothole.
While the recent decline in gold and silver was precipitous, nevertheless, technical damage if any was minor. There were only 200 more declines than advances in the overall Dow Jones Industrials. Let the summer soldiers and the sunshine patriots run away as they catch their first whiff of gunpowder in 2012.
We remain steadfast in our advocacy of wealth in the earth equities. It's not what Bernanke said, it's what he didn’t say. Some investors may have been waiting for him to hint at a QE3. He didn’t go down that road this time. This may have created a certain amount of concern. Perhaps it was desired by the Fed to quell what they thought was excessive speculation and a possible runaway move in the precious metals market.
In conclusion, it may be that Bernanke’s actions were a diversionary tactic. On the other side of the Ocean, The European Central Bank (ECB) injected more than $700 billion into over 800 banks throughout Europe. This brings the total to over $1 trillion dollars. It may be entirely possible that the Federal Reserve acquiesced in this action by the ECB through the long arm of the International Monetary Fund, which usually acts as a cat’s paw.
Call it what you will, quantitative easing, monetary stimulus, liquidity injection, long term refinancing option, operation twist…the net result is the printing of paper money and the debasement of currency. This may only accrue to the benefit of wealth in the earth assets and precious metals.
We are just seeing another attempt by our monetary authorities to delay the inevitable and kick the can down the road. We may be assured precious metals and natural resources will resume their the long march upward sooner rather than later.
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