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Gold and Silver are confidence insurance and
for the last 10 years I have no qualms in saying that people have had a
natural instinct for gold and silver. Of course that applies more when they
are owned outright or physically or without leverage. Gold and silver have
historically proven themselves to be the ultimate insurance against
government caused collapses of confidence. In today’s world that is
proving to be all too true.
As
I have often written Gold is the “magic bullet” around which all
currencies dance as they are worth less in times of deflation and more in
times of inflation. Gold is the mean or average or standard that is always
worth exactly what it should be worth. It is paper currencies that fluctuate
wildly. So while gold was up a staggering $41.00 today it was for no other
reason than this was the true worth of money as debt concerns, fiat printing
of paper currencies and concerns over a possible downgrade to the prestigious
United States “AAA” credit ranking gave investors confidence as
they sought a safe haven from the economic storm.
I
have a hedge fund friend, Adam Smith, and he taught me that the market is
much smarter than we are. When I asked him years ago how GE could be worth
$30.00 on one day and $45.00 the next day and he told me the reason was
because that was what the market had determined the stock was worth on that
day. The correlation is exactly the same with gold. How could Gold be worth
$1619.00 on Monday and be worth 1661.00 on Tuesday. The reason is that the
market has factored in all of the possible variables, probabilities and
concerns and the market had determined the value of gold.
Now we add
to this mix the fact that both the DOW and the S&P have both breached key
technical levels and we are getting set up for a perfect storm. Let’s
take a look at the chart of the S&P on the close yesterday.
A
look at this chart will show that we have not only breached the 200 day
moving average we obliterated it. This is a very bearish signal as yester day
we didn’t even take a pause as we closed down 33 points on the S&P.
For
further evidence let’s take a look at the chart of the DOW from
yesterday’s close.
A
look at this chart will show that we broke the key 200 day moving average and
closed down 266 point at 11866 or 20 points under the 200 day moving average.
Both of
these charts have indications that with all of the bad news that has come our
way it is beginning to look like a double dip. With the 1st Quarter
GDP revised numbers at an anemic 0.04% last week, the terrible ISM numbers on
Monday, the seeming dissatisfaction with the debt ceiling agreement by Wall
Street - a plan that gave everyone something to hate, the layoffs that have
been announced by Cisco, HSBC and the banking sector and what I can only
assume what will be terrible employment numbers on Friday I see a continued
sell off of the market.
Despite
what the professional economists say the recession never really ended. The
numbers were skewed to give the feds something good to report but you
don’t have to be a weatherman to know which way the wind is blowing.
The fact is that most Americans believe that the 2008 – 2009 downturn
never ended. Is it any wonder? Home prices have continued to fall, Estimates
are that 11 million homes have under water mortgages, banks have inventories
of as many as 2 million foreclosed homes and have now begun to solve the
problem by bulldozing the homes. Poof! No more problems. Wait a minute
– big problem.
However,
perhaps the most powerful example of the continued recession is the
persistent unemployment. There are fourteen million people out of work and a
third of those have been jobless for over a year. May unemployment numbers
were a body blow as the fragile economy added only 58,000 jobs and from what
I have read and heard most of them were part time jobs. Experts seem to agree
that the nagging unemployment rate will not improve until we start
consistently adding 300,000 jobs a month at a minimum. And using that number
it would take at least 2 years at that rate for the economy to come back to
what is traditionally considered a reasonable unemployment figure.
So in
conclusion, with the myriad of “Black Swans” swimming around us I
feel my readers have properly positioned themselves in Gold and Silver both
physical, ETF’s, closed end funds and mining stocks. For the foreseeable
future I see Gold and Silver as the safe haven in the perilous economic
waters.
I
continue to recommend GLD on a pullback to 145, SLV as close to $38.00 as
possible, PHYS below $14.00, PSLV as close to $16.50 as possible, SLW at
$36.75, ABX at $46.00, GG at under $48,00 and UXG (which is a junior miner
that will not bear fruit until 2015) at $6.00 or lower. While UXG closed at
$6.71 yesterday it will go under $6.00 on any eventual pullback on gold. One
more a reader brought to my attention and studied was AXU, This Company has
Eric Sprott’s finger prints all over it and the shorts are trying
unsuccessfully to kill it. I would advise everyone to take a good look at
this stock because it won’t be long before this one is a winner.
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