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Today
was one of the wildest days in the market that I can remember and zurbo and I
had the fortune to be on the phone discussing the market the moment that the
bad craziness went down. We watched the Dow and other stock indices dive
about 10% in the course of a few minutes and then recover to 5% losses
immediately. We quickly scrambled to fill some orders on positions
we’ve been eyeing to accumulate at lower prices, but with only moderate
success due to the fast and furious price movements. We do think that some
weakness will carry over to the next couple of days so we will be looking for
more buying opportunities to present themselves.
There
were some important lessons learned today.
One. Gold
showed today that the next time there is a flight to safety amid a crisis of
confidence, we can expect the gold price to be firm and even strong while
other markets are crashing. Clearly there is a different group in charge of
gold today compared to the Fall of 2008. The last couple of weeks I have felt
that gold could make a tiring move to $1,200 but the Midas metal easily
slashed through that level today to reach a high slightly above $1,210 spot.
Gold continues to hang above the $1,200 level as I write this. Importantly,
the basis measures are indicating that the price rise is being supported by
bouts of BOTH paper AND physical buying. For example, at several points today
June COMEX gold reached a $10 contango (normally around $1 with about 3 weeks
to first delivery notice). As I write this, the contango continues to spike
momentarily into the $6 range, which is more than 5 times its normal level.
What this means is that there is periodically a wave of buying pressure in
COMEX gold as compared to the physical market. But the physical market is no
slouch either, there having been a number of trades today with gold in
backwardation. Moreover, the Gold ETF Basis has seen some spikes in the NAV
premium as well to above normal levels, indicating that even while investors
were dumping stocks in general, they were buying the gold ETF GLD. The basis
indicators don’t show off very well on a crazy day like this but I will
try to post some charts later for Metal Augmentor subscribers.
Two.
Silver is not being bought as a crisis hedge, at least not in a widespread
manner. The second monetary metal did have periodic indications of strong
buying today similar to gold on the basis charts but the price action is
quite telling. With gold up $30 or almost 3%, silver was actually down 20
cents or about 1% at one point. In the last few minutes, we are finally
seeing some sanity return to silver and it is now up 20 cents for the day.
Expect more sanity in the days ahead if gold is able to maintain $1,200.
Still, we should not expect silver to be a big performer as long as the
market is being driven by fear and flight to safety (which I don’t
think will last for long). Silver is apparently still being viewed mostly as
a speculative investment and not an instrument to store wealth to shield it
from the financial storm. That will change, as it apparently has changed for
gold since the Fall of 2008, but we aren’t there yet. Perhaps the
change will come in a manner similar to the 1970s when all hell broke lose
after only a single billionaire family attempted to move all of their wealth
into silver.
Three. When
there is panic, fundamentals and technicals are largely meaningless. Today we
saw strange and aberrant behavior out of many of the stocks we follow as well
as those we don’t. Some stocks were rallying nicely even while the Dow
was crashing, only to drop like a stone when the equity markets were
recovering and gold was exploding higher. There really was no rhyme or reason
as to what the stocks did today. The determining factor seems to have been
whether or not some of the larger (and sometimes even smaller) shareholders
of a particular company were standing firm (or even buying) as blood ran in
the streets or being panicked into selling.
Four. There
is now no question in my mind that the Greek and other debt issues will be
swept under the rug very soon with large bailouts. The markets today were
screaming murder whereas the last few days they were only throwing temper
tantrums. The result of the bailout packages, in my opinion, will be a return
to the status quo for a while (at least 3-4 months taking us into late summer
for the next stage of the evolving crisis). We should see the U.S. dollar
start to sink back down from the current levels, U.S. Treasury bond yields
start to climb and dare I say the general equity markets to make an attempt
at their recent highs. Under these conditions, gold can easily stay in the
top band of its recent trading range and even make a move to new highs
targeting the $1,325 level. Under these conditions, silver would be expected
to finally make its move with the gold/silver ratio dropping back under 60:1.
The implication is that silver should finally take out its March 2008 high
and perhaps even make an attempt at the $25 level. We are already considering
strategies to take advantage of that possibility for Metal Augmentor
subscribers.
We’ll
have more on this historic day later.
Tom Szabo
Silveraxis.com
Tom Szabo
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