The Sell-Off In The Precious Metals and Mining Stocks Is Just Plain Silly Now

Currently, I don't think it's possible for the media reporting and investor sentiment to get any more negative toward gold. But quite frankly, given the extreme negative sentiment, in addition to the numerous other contrarian indicators I've outlined in previous articles, I have never in my life seen a market set up technically for a big bull move as gold/silver and the mining stocks are now.  - Dave Kranzler, Seeking Alpha:  LINK

Let's be clear here, if I thought the fundamentals of the global financial system were improving in a way that was negative for gold, I would go short gold and load up on stocks and junk bonds.  No question about that.  When I came out of business school in 1991, I was one of two top-10 b-school grads who went into junk bonds. That's 2 people out of about 5000 grads.  No one was interested in junk bonds in 1991.  But I had examined the fundamentals and determined that it was still a valid form of corporate finance.  Recall, Drexel had just collapsed and everyone was screaming that junk bonds were dead.  In fact, 1992 marked the start of a new bull market in junk bonds.

The key to understanding relative value is not found in charts, "technical" indicators, CNBC, Bloomberg News, any Wall Street research, Barron's, chat board, etc.  Realistic and honest assessment and study of fundamentals is nowhere to be found in any of those sources.  None.  Zero.

The key to understanding value is doing your own research, which includes knowing where to look to find the best possible information available.  Since 2002, when I first really understood just how corrupted and doomed the U.S. financial and political system is, I have yet to run into anyone, and I mean anyone, who can answer this simple proposition:

Please tell me - I'm all ears and open mind - how the U.S. Government can possibly start reducing and eventually balance the amount of money of that it takes in vs. the amount of money that it spends - not just on a cash-in/cash-out basis but include the rapidly growing future liability payments connected with Federal pensions, social security and all the legacy entitlement programs.  Then tell me how it can accomplish this feat plus start to reduce the enormous load of Government debt.

Remember, back in 2002 the U.S. Treasury debt outstanding was only about $6 trillion, about 60% of GDP.   Now, it's close to $17 trillion now - about 108% of GDP -  and the economy, inflation-adjusted, has not grown at all since then, especially in relation to the amount of growth in overall debt in system and in relation to the trillions in wealth being consumed by the Government.  Furthermore, the spending deficits were measured in the low $100's of billions.  Every year since and including 2009 the deficit has been over one trillion dollars.  See any trend here?  And notwithstanding the deceptive headlines recently proclaiming that the deficit will smaller this year, the truth is - the cold hard fact - that the Treasury has issued $100 billion of new debt for the first 7 months of this fiscal year - $700 billion.  The trend is still the friend of my fundamental analysis.

Every single time I've presented anyone with that proposition, I get nothing but blank stares.  No can map a solution.  Not only that, but since 2002, the systemic predicament in the U.S. has gotten inexorably worse every single year, especially when you peel away all the deceitful reporting designed to hide the interminably growing problem.   When someone can tell me how the above proposition will not only be accomplished but will be put into definitive action, then I will sell all my gold, silver and mining stocks, go short gold and load up on real estate, stocks and risky bonds.

For this reason - the reason that the fundamentals supporting a significantly higher price of gold than the current manipulated price - gold remains not only the best store of wealth but also, because it is tremendously undervalued in relation to the fundamentals, but the best possible investment.

Have a great weekend and remember:  sit tight and be right.