Dave, thanks as ever for your posts and the great blog. We're dying out here and need the encouragement of someone who's lived through it before - Comment yesterdayI don't have much more to say about the current price correction in the metals/miners. Please keep in mind that most of the damage has been inflicted since Christmas Eve, when most traders and money managers are on vacation and the volume is extremely light. This is the ideal type of market for someone to manipulate. But having said that, and we'll know more tomorrow, I'm pretty confident that most of the selling this week has been coming from the "large spec" COT category - the hedge funds - who have sold down a substantial portion of their long position and are piling into the short side. I believe these traders are chasing the downward momentum of the market with aggressive short-selling in a very thin market. They will pay dearly, like they have every time they have engaged in this strategy over the last 10 years. Conversely, the "commercial" COT category has substantially reduced their short interest, especially in silver where the net short interest position of the big banks is as low as its been since 2001. In other words, the sellers are largely washed out of their longs and the short-side manipulators have largely covered their short position and have been taking on a bigger long position. The large specs will soon be squeezed into covering. This is uber-bullish. Those of us who have been involved in this sector since the inception of the bull over 10 years ago have seen this pattern repeated several times. Wash. Rinse. Repeat...then on to a new high in gold and silver.
As for the mining stocks, I received an email from a colleague this morning who, like all of us, likes to track the $BPGDM index on http://www.stockcharts.com/. Based on today's downdraft at the open, this index hit single digits, which reflects extreme bearish sentiment and an extremely oversold condition in the mining stocks. You can see the 3-yr chart HERE He timed a big move back into the mining stocks in October 2008 using this index and he's moving a lot of money back in now.
Beyond that, I thought I would post some quick comments from some highly respected analysts who study the market as much or more than me:
Ted Butler: "It’s no fun for silver investors to have to live through the current slam down in prices. Knowing that the sell-off is intentional makes the pain more acute. The sell-off this week, in particular, has taken on the characteristics of an historic bottom. Since the predominance of the evidence indicates that silver is oversold on an absolute basis and relative to just about everything else, the most logical investment approach is to treat it as a bottom. A deliberately created bottom, but a bottom nevertheless. That means holding or buying, not selling."
John Hathaway: “I think it’s games being played and you can always play games in thin markets. The bigger picture is, first of all, we are in a bottoming process for the stocks and the metal. Sentiment is rock bottom. I think we are seeing a number of different things that are indicative of a bottom."
John Embry: "It’s interesting, I’ve just been writing something internally here for our people. It really focuses the mind when you have to put this down for posterity. I was just going over it and when you do that exercise, the fundamentals are so compelling for gold and silver going forward. It amazes me the degree of human stupidity here, that people are parting company with the one thing that is going to save them in the future.”
Egon Von Grayerz: "I’m not really surprised because last time I talked to you I did say gold could go down to $1,550 support and maybe even $1,420. In my view that would be quite normal in a very thin market and I said that would probably happen by the year end...I wouldn’t be surprised to see several thousand dollars (for gold), let’s say between $3,000 and $5,000 next year. I see that as the next move and fundamentally everything supports that.”
I can't say it any better than that. I will say once again that the selling I'm seeing out there is coming from the amateurs who are afraid of their own shadow when it comes to the markets and it makes absolutely no sense to me - or any of the above market pros - to be moving from physical to cash. I can guarantee you that the professionals are buying (I'm one of them).