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We are experiencing a pullback in
precious metals and mining stocks as investors react momentarily to a
purported better than expected jobs report. It is reported that the
unemployment rate increased despite adding 171,000 new jobs.
The numbers look abysmal. However, the
media reports that the economy is picking up and no more QE will be needed.
Hence, precious metals are hammered. We have seen this before where investors
are shaken out during corrections while the long term gold and silver players
add more on pullbacks.
Now gold and silver are in correction
mode and beginning to reach key reversal levels. Our readers know that there
will be pullbacks to shakeout investors from the long term upward trend and a
base may be formed to be able to regain the technical strength to break
through all time highs.
The U.S. will continue to keep interest
rates at record lows to pay down skyrocketing debts. This will devalue the
dollar causing a long term inflation which will continue to cause the value
of gold and silver to be the ultimate safe haven at this time.
Precious metals are selling off and the
weak hands may be shaken out soon as we reach oversold levels. Investors may
be misdirected out of their core positions in precious metals and miners at at time when we may see a reversal and a move into new all time highs in gold and silver.
Gold (GLD) is the most oversold since
May, where we saw a major reversal and eventual breakout in August on the
open ended QE3 announcement. Notice now that gold has pulled back to that
breakout area, its 50% retracement and six month uptrend. It is also pulling
back to the 200 day moving average. This is a healthy and normal correction
with an extremely strong technical support area. We may see a possible reversal
and the strong hands regain control at these critical technical levels.
We are once again going through a time
for testing of our essential position in wealth in the earth equities.
Investors are experiencing pain at a time that it is easy to throw in the
towel and run to the sidelines in the form of cash and treasuries. For many
of my readers we know this could be a snare exactly at the wrong time. We
have Central Banks all over the world devaluing currencies through
quantitative easing, the Fiscal Cliff is around the corner which could mean
another credit downgrades and don’t forget about nuclear Iran. These
are all fundamental forces which could send not only oil and gold higher but
silver soaring.
Silver has made a 50% retracement of its
July to October move and is the most oversold since the July reversal. Silver
looks like it is coming into major support at $30 at the 200 day moving
average and rising uptrend.
The demand for silver could rise rapidly
as an alternative to fiat currency not only for American citizens, but in all
the regions where currency debasement are taking place. Silver is one of the
easiest alternatives for the common individual to diversify his holdings away
from fiat currency as it is more affordable and fungible than gold. Also gold
is currently overvalued to silver according to the historic mean of the
gold-silver ratio. Silver provides a cheap alternative for the working-middle
class citizen. Look for $30 to be a strong base for the silver price.
We reiterate,
the markets are like a casino, where the House tries to discourage the majority
of the players who go home empty handed, while a select few go home winners.
We have learned that market makers look at the same charts that we do and use
them to fake out investors only to put in important reversals at support
areas.
This is exactly what is happening now.
Charts can serve to fake us out. The shorts are taking advantage of the low
volume and uncertainty originating from Hurricane Sandy and the upcoming U.S.
election. Remember politicians tend to make promises during campaigns which are
forgotten as soon as the election is over. Not much will change in our view.
Whoever is elected will be facing significant hurdles both economically and
geopolitically.
Many of the major players and banks in
Manhattan have not yet returned to the market due to the Hurricane and
Election. The volume is low at a time during which the next base is being
established for eventual lift-offs into new highs possibly right after the
vote.
Remember, that the long range technical picture
of the upward trajectory of wealth in the earth equities is still intact and
undergoing a needed period of rest and rehabilitation in this ongoing long
term upward cycle. We had a powerful move up-move this summer as an open
ended QE3 was announced.
Despite the recent myopic focus of
investors from the jobs report, the world ignores major gold and silver swans
such as the recently announced open ended QE3 and its impact on the U.S.
dollar. We are deluged by global instabilities, fiscal cliffs and unsustainable
sovereign debt.
Public sentiment in the junior miners is
at a record low. Some small explorers are selling at fractions of their true
value. We may be far from a bubble in precious metals indicated by this
negative sentiment in the sector.
At the time of a bubble, junior mining
equities would be selling at multiples of their true value. Instead, they
currently represent fire-sale purchases as some great assets are being
completely overlooked by the masses. The juniors continue to be bought by major
players such as the emerging nations who are placing large bets on the long
term upward trend in our chosen sectors of gold, silver, uranium and rare
earths.
Note China continues to purchase
undervalued miners in North America and is opening banks to finance mine
development. This was approved by our own Federal Reserve.
The meaning of this activity is that
this volatility in precious metals and mining equities while striking panic
is just a test to shake us out. This is precisely a time not to be concerned.
The more sophisticated buyers may be taking advantage of the situation to
hold on and indeed add to positions for those who were not able to get in
before this summer breakout.
Remember, bull trends in gold and silver
rise on walls of worry. Healthy pullbacks afford secondary opportunities. We
may be basing and bottoming right now. A powerful reversal could occur after
the election.
In fact, the junior miners are
outrageously oversold and represent a deeply discounted contrarian
opportunity. Many of our readers were concerned by some brokers putting
downgrades on the uranium miners. These bearish downgrades are lovely music
to our ears. Remember these are the same banks which may be financing these
companies at record lows. Is the same old game of smart money buying low when
nobody wants it and selling it to the masses at record highs being played?
There may be additional short selling
for the period immediately ahead before the election. The negative sentiment
and oversold conditions in precious metals and mining equities are the major
ingredients for the coming reversal which could be a year
end rally in precious metals and miners into new highs.
Disclosure: Long Gold, Silver and The Miners
Please do your own due diligence.
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