We have always regarded the markets as a grand casino subject to the manipulations of the Croupier and the House. This being said it is only rational to react in the face of the irrational. I remember speaking to a floor specialist who informed me that he reads the same price charts that most technicians do. This means we should be careful of any traps or head-feints at this critical juncture.
No doubt the patterns tell us that we are testing support levels and that technical damage has been inflicted on most stocks including the precious metals. The weak hands inform that the golden bubble may have been broken and the warning inscription written on the entrance to hell “abandon all hope, yea who enter here” may be applicable. We do not agree and may be considering this recent downward move in response to Bernanke and Draghi a fake out and that we may witness a reversal sooner rather than later.
Observe that in the midst of the carnage some positive notes are beginning to appear. We feel that this is a classical panic with all of the textbook characteristics of a selling capitulation. Bullish reversals may soon occur at oversold conditions and is providing long term gold and silver investors additional secondary buypoints.
Be not dismayed! The long range upward trajectory of the precious metals particularly gold is continuing higher and has considerably more to go. Factoring in inflation, gold (NYSEARCA:GLD) and silver (NYSEARCA:SLV) have yet to challenge inflation adjusted all time highs. Most industrial countries are trying to stimulate growth through accommodative easing and through record negative interest rates. Investors in five countries in Europe now face negative real rates. This means they are losing money with their savings in the bank. Many investors are holding the U.S. dollar (NYSEARCA:UUP) which has one of the worst real interest rates. Do not forget behind the scenes M2 money supply has reached record levels. This historically leads to hyperinflation.
Be not dismayed! The long range upward trajectory of the precious metals particularly gold is continuing higher and has considerably more to go. Factoring in inflation, gold (NYSEARCA:GLD) and silver (NYSEARCA:SLV) have yet to challenge inflation adjusted all time highs. Most industrial countries are trying to stimulate growth through accommodative easing and through record negative interest rates. Investors in five countries in Europe now face negative real rates. This means they are losing money with their savings in the bank. Many investors are holding the U.S. dollar (NYSEARCA:UUP) which has one of the worst real interest rates. Do not forget behind the scenes M2 money supply has reached record levels. This historically leads to hyperinflation.
While the amount of money in the economy has grown, the velocity is still weak as institutions are hoarding cash. One method to discourage this is through a devaluation or quantitative easing. Where will the cash go on the sidelines as investors try to exit? Just like in 2009 and 2010, cash went into precious metals and mining stocks. Gold Stock Trades believes that this may occur again in the second half of 2012.
That is why we are not encouraging investors to panic into the U.S. dollar at this time and sell their mining stocks (NYSEARCA:GDX) and precious metals for pennies on the dollar. The media is trumpeting any bad news on precious metals that is fit to print. Let us take a deep breath and consider the long term picture before making any irrational moves.
The picture of gold and miners versus global currencies especially the Euro show that the long multi-year trends are still higher.
We have been told by some eminent pundits that there has been a meltdown below the 200 day moving average for the first time since early 2009 and that they are selling everything and are going short. We do not adhere to such actions. We believe the long term trend is being tested but we may find support for a reversal move higher.
Instead, we note that investors are rattled and are raising cash, fleeing to U.S. dollars and treasuries, despite knowing that their investments will receive negative returns. Moreover, at times such as these, many nightmarish scenarios begin to haunt the markets. One is that European sovereign nations may sell their surprisingly substantial official gold holdings.
See the list published by the World Gold Council/International Monetary Fund above. Astonishingly, Spain has approximately four times the gold holdings as a share of GDP as the United States. Spain has 11.2% vs. The U.S. with 3.1%. The U.S. government debt is 94%, while Spain’s government debt is 60%. Germany and France clock in at 5.8% and 5.3%. Are the dollar and U.S. treasuries such safe havens when looking at this table above?
This data may infer that gold may not be dumped by these countries helter-skelter, although investors may be led to believe that the sovereigns are selling. However, the troubled Eurozone nations may have been steadfast in not selling their gold holdings at this juncture.
We may doubt that the European’s would resist pulling down the pillars of the temple and that Armageddon has not quite arrived. The Eurozone nations realize they are in need of cash, but still have not touched their precious metals. They realize just like we do that it is their only protection from the printing press. It is inevitable that the European nations and the U.S. will be forced to print to stimulate economic growth.
Source:http://etfdailynews.com/2012/08/03/gold-and-silver-prices-regaining-footing-as-treasuries-make-bearish-reversal-gld-slv-uup-gdx-euo/
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