The Dow and S&P 500 is reversing lower as leaders in Washington fail to make the necessary cuts. Whether this is a new leg lower in a confirmed bear market remains to be seen. For the time being the downward move in equities might cause a decline in gold and silver bullion as well as the junior miners investors may be forced to sell the good resource stocks with the bad stocks.
For several months we have seen Europe’s Debt Crisis worsening. The large caps in Europe are down close to 30% going into the second half of 2011. In September we alerted our reader that Gold has reached overhead resistance and investors should continue to be prepared for a healthy pause. This is the chart we sent them on 9-13-11.
Gold’s accelerated move past $1600 to $1900 indicates we were seeing a path similar to December of 2010. After that move gold retreated for two months to the 150 day moving average. Gold Stock Trades indicated an extremely overbought condition not seen since late 2010 and maintained a hold recommendation as gold failed to break $1900.
Right now gold and silver are selling at long term support levels, which GST considers to be on discount and a secondary buypoint.
A healthy consolidation has provided additional buying opportunities as gold and silver has pulled back and is ready for its next upward move much like a runner who must push back in his starting block. We may see investors return to precious metals as a safe haven as they question the viability of U.S. debt. Could the current convulsions and irrationality in the markets anticipate further accommodative measures or QE3 by the end of the year? To reiterate, normal and healthy profit taking in gold and silver is characteristic of this market. Both metals are oversold and at support indicating potential reversals in gold and silver.
The Eurozone Crisis continues to trouble global markets and now the United States is having trouble making the necessary budget cuts needed to avert another market meltdown. Many want to sell their miners and bullion in favor of U.S. dollars and treasuries. The consortium of solvent banks in Europe state that they are ready to create Eurobonds for yet another bailout for the PIIGS.
Not to be upstaged, Premier Wen Jiabao from China has offered his good services in offering money to the Eurozone. Such altruism is sure to be well rewarded.
History is replete with cautionary tales of The Trojan Horse, which was built by the Greeks and deposited at Troy’s Gates. The Trojans regarded this as a gift and brought it into the city, not knowing there were thirty elite soldiers hidden inside the magnificent horse. Once inside under cover of night the soldiers were able to open the gates to allow the Greek Army to enter and defeat The Trojans. Modern wars are fought with fungible fiat money without a shot being fired.
What does this all mean to Gold Stock Trades subscribers? Refer to my previous articles where the concept was introduced of the “Chinamese Twins” where it was suggested that there was a grand design entered into during a secretive candlelight dinner.
The conclave was attended by the respective heads of state and representatives from both countries major industries. We feel that is within the realm of possibility that the elites of both nations have a good thing going enjoying “la dolce vida.”
What both sides may want is the dividing of the global spoils. The West needs cheaper currencies to monetize their horrendous debts and to increase exports. The U.S. dollar and the Euro are in similar binds in that they are facing further stimulative moves to increase liquidity. However, these measures may operate on a quid pro quo...one hand washes the other. The Chinese need entree into the Western Marketplace. They have plenty of U.S. Dollars, Euros and U.S. Treasuries which they would prefer translating into the form of Western wealth in the earth mineral assets.
Regardless of any deals that were made at the dinner, there are always daily wheeling-dealing to confuse the herd. Nevertheless, the eagle uses his dual vision to keep both the panoramic view as well as the immediate view in perspective. The near view reveals the Hanlong Bank of China standing accused of underhanded short selling. The possibility exists such sovereign banks may be complicit in shorting so many of the mining stocks. The Chinese Financial entities have been accused before of this slight of hand, shorting resources assets to be able to purchase them for pennies on the dollar.
Such recent actions on the part of corporate takeover attempts reveal the extremely underpriced and downright cheap valuations in the miners. Our technical charts indicate mining assets will eventually leap ahead at many times their present prices. The waiting game continues and has ever been thus, it is not a question of if, it is a question of when these assets will be fairly priced in the marketplace at many times their present value.
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Disclosure: Long GLD and SLV.