Just because the future you expect and have prepared for hasn't yet materialized, don't think it won't. The very structure of the world's financial system has been fractured beyond repair, as have the foundations of the largest economies. The only thing holding it together is the fiat-currency system that was behind the fracturing in the first place and that is now being taken to an extreme and extraordinary level in an attempt to keep the whole shebang from literally collapsing. - David Galland, Casey ResearchBefore I get started on my topic du jour, I wanted to link a stock investing article I wrote on Gold Resource Corporation (GORO) that was published on www.seekingalpha.com today: LINK I think GORO is a particularly attractive risk/return mining stock play right now and my write-up goes into detail on that view.
As for this latest take-down in the precious metals, it's more wash, rinse, repeat. What makes this latest charade so transparent is the fact that the SPX has gone straight up for past two days and the dollar has tanked. Sorry. There's just no fundamental basis for this and it can't and won't last.
This action in gold and silver reminds me of the action in October 2008 when the sector was being mercilessly pounded with Comex paper. Recall, that bottom in the metals preceded the banking system collapse and new era of QE and Government deficit "stimulus" spending. I believe we're on the cusp of a lot more of that than the market is expecting and the big paper shorts in gold/silver are desperately trying to get the illegally large short positions covered before the market takes off again.
Think about the the Fiscal Cliff situation for a moment, outside of all of the rhetoric and media blow-hards. They are going to come to an agreement sooner or later. There's no way in hell that agreement possibly does not entail more deficit spending. The Government spending deficit has already hit close $300 billion for the first two months of fiscal 2013: LINK That was as of the end of November, so the Government is well over $300 billion by now.
The economy, despite the b.s. being reported by homebuilders and the Government, is tanking - hard:
That chart shows the business "sentiment" of independent businesses in this country. It's a literal cliff-dive in November and it's consistent with true unemployment, the real wage decline and real retail sales declines. It is worth reading the accompanying commentary on Zerohedge: LINK
My point here is that even if the Cliff agreement includes higher taxes, that won't raise more revenues to cover increases in deficit spending. That means the Treasury is going to have to issue even more debt. Who is going to buy that debt, given that the Fed has been buying close 100% of all new issuance over the last 18 months? China and Japan are not going to make up the difference. The debt ceiling is going to be raised significantly, if not entirely removed, and the Fed will have to print even more money in order to prevent the market from driving interest rates to the moon in order to attract new marginal buyers.
Bottom line: Gold and silver are going a lot higher, as are the mining stocks. Just like in late 2008. In the context of big price corrections that we get in this sector, this one isn't close to being as severe as the one in 2008. That one took silver down almost 60% from top to bottom. This one so far has been 47% top to bottom for silver. In the context of duration, this one so far isn't as long as the one in 2008, which lasted over 2 years before silver climbed over its 2008 peak.
BUT, the undisputed fact remains that, If you had bought silver at the top of the 2008 market ($21) and held til now ($32.20), you are still up 53% over 4 years. That's worst case. Unless the Fed and the Govt have decided to address the real deficit spending variables and will stop printing money and issuing debt, the smart money is buying the metals here and will be holding when the metals make another run at a new all-time high.
I'll leave off with an email inquiry to Jim Sinclair (www.jsmineset.com) from a worried reader:
Dear Jim: How should I read the negative pressure over gold and gold stocks? What’s going to change this negative scenario?
Dear reader: This is capitulation everywhere. This event has been a manufactured market move since $1800, with clearly planned and executed intervention. The gold price take downs during low volume periods internationally is a known price moving only tactic. I simply shut off the machine because all the regular causes for the gold price will make themselves effective with time. A manufactured market event will not change the trend. Even the most professional can be reduced to sheeple by their emotions. I refuse emotions and emotional people in a market context. To save yourself from all this that has happened and will continue to happen requires commitment and courage. You have it or you do not. Admit who you are and act accordingly. Like every mistake made by Westerners, what you see today is simply driving gold into Asian control.