Summary
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Three years ago in early 2011, I cautioned my readers to be careful to
chase gold and silver higher as it was moving parabolic. Now it is oversold
and ignored.
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Be careful now of parabolic rises in the S&P500 (SPY), Long term US
Treasuries (TLT) and US dollar (UUP). Investors are scared and looking
for liquidity.
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Silver (SLV) is trading below $17, Gold (GLD) is testing major support
at $1200. The GDXJ has been outperforming and has not violated 2013 lows.
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If $1180 does not hold, gold (GLD) may test lower prices near $1050 as
that is the approximate 50% retracement of the 2001-2011 bull market.
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Some smart traders are expecting a triple bottom at $1180 on gold with
a bounce off current oversold levels with a small pullback in December
for tax loss selling.
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Junior Gold Mining ETF (GDXJ) Makes Bullish Reversal at May Lows around
$33.
Over three years ago on April 28, 2011 at a time when investors were piling
with two fists into gold and silver ETFs, I wrote in this popular
article published on SafeHaven "The virtues of gold (NYSEARCA:GLD) and
silver (NYSEARCA:SLV) are being addressed far and wide. My readers know the
steady drumbeat of praise that is reaching a crescendo for the white metal
scares the hell out of me. A parabolic rise has formed in silver and gold...
Please note that at these times of extreme optimism volatile pullbacks become
more prevalent. Parabolic rises must be approached with caution." At that time
all over the mainstream media huge gold predictions of $5000 were forecasted
as Central Banks became net buyers of gold for the first time in many years.
The Chinese and Russians were some of the largest acquirers of physical gold.
Also large hedge funds, some managed by industry giants such as Paulson, Soros,
Rogers and Einhorn, began buying ETFs and junior miners. This led to a parabolic
and overbought move in precious metals, which I cautioned my readers about
in the referenced article above. It should be noted that a few days after this
article was published, silver topped at $50 and gold rolled over a few months
later at $1900.
Now silver is trading below $17 at prices not seen in years below its 2010
breakout price. Silver does look like it is approaching a major support uptrend
at the $15 level. If $1180 does not hold, gold may test lower prices near $1050
as that is the approximate 50% retracement of the move from $300 in 2001 to
$1900 in 2011.
It is evident that both precious metals are in a long term secular uptrend,
yet the mainstream is completely ignoring gold and silver, the exact opposite
of what was happening in 2011. Now we hear the steady drumbeat of the shorts
who say deflation is here to stay with low interest rates. They say stick to
financial assets like the dollar and large caps which brings music to my contrarian
ears. Low interest rates and low inflation do not last forever. They fuel asset
bubbles which burst.
Notice the recent bullish engulfing outside reversal in the junior gold miners
on high volume. Major support may be entering the junior gold miners at May
Lows at $33. This powerful reversal day could be a harbinger of a bullish change
in trend.
The best investments are found with real assets in neglected sectors such
as the junior miners which are trading at historic discount valuations. The
junior mining sector has grown completely out of favor which gives me excitement
in continuing my search for the best real assets in the world when there is
not much competition.
The junior gold mining sector (NYSEARCA:GDXJ) is completely overlooked by
the retail public, which makes contrarian investors who accumulate real assets
content as they can find the best deals at big discounts. Now the same momentum
funds that were piling into gold and silver in 2011, have been buying real
estate (NYSEARCA:XHB), the dollar (NYSEARCA:UUP) and S&P500 ignoring mining
and commodities.
For the past three years, the US economy has had low interest rates with supposedly
low inflation. How long can that last when governments all over the world are
using the printing press like never seen before? The financial markets are
100s of trillions of monopoly money not backed by anything. Remember, all the
gold ever mined is under $7 trillion. The US government alone has a $17 trillion
debt.
I will continue to search all over the Earth for the best real assets to hedge
against inflation and decline of paper currencies. The worst way to hedge against
inflation is by buying inflated assets. Right now, the S&P500 and dollar
are historically overpriced, while real mineral properties can be bought for
virtually pennies of a penny on the dollar. Despite record demand for gold
and silver coin sales, the price continues to drop because of the strong dollar
providing deeper value for acquirers of the most reliable form of money known
to man.
On another note, the dollar is very strong right now moving parabolically,
but that could be a trap. There are many potential black swans to change this
trend of rate hikes. Ebola, Jihad Terrorism, Ukraine, Iraq and now China crackdown
on Hong Kong protestors could spiral foreign exchange and commodity markets
out of control. Gold and silver is the best financial hedge against war, uncertainty
and instability. It may be time now if you are sitting on cash to diversify
into physical gold and silver and the highest quality junior gold and silver
miners (NYSEARCA:SIL) which have top properties, strong treasuries and experienced
management teams.
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