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There’s no point in
pretending it’s those sleazy, child-molesting bullion bankers at Morgan
Stanley, Goldman Sachs and J.P. Morgan who have been pounding on mining
stocks and bullion futures in the last few months. Lately, it has felt like
the whole world has been dumping them. For the record, we are ourselves
cautious buyers of bullion futures and select mining stocks at these levels,
since many popular trading and investment vehicles that we track are closing
on important Hidden Pivot correction targets. (Want to find out the exact
prices at which were are doing the buying? Click
here for a free trial subscription to Rick’s Picks,
including real-time guidance and a 24/7 chat room where the discussion never
stops.)
When bottom-fishing in
markets that have been falling as steeply as gold and silver have been
falling, we recall the advice of our friend, the late Malcolm Watts:
“When attempting to catch a falling piano,” Malcolm, a PSE option
trader and gifted technician, used to say, “wait until it has bounced
three times.” (It was not a falling piano that felled our friend when
he was in his thirties, by the way, but the stresses of the market on an
apparently defective heart.) So, have bullion futures bounced the required
three times yet? By our count, there have been more like four bounces since
February. And although that may not mean it’s perfectly safe to buy the
precious-metals complex at current levels, it does imply that those who
waited are happy they did.
By and large, however,
precious-metal bulls are probably feeling shell-shocked by now, since many of
the stocks that they hold dear – quality companies like Silver Wheaton,
Newmont and Yamana – have been sold nearly to
death. The shares of these firms and many others looked like great bargains
when the
were trading 35-40% higher, so just imagine what kind of bargains they
are now. Even so, we’ve always preferred to do our own buying at
promising levels, but with tight stops each step of the way, rather than by
averaging down. Using the latter strategy, it’s hard to imagine that
any gold bug would still be solvent. The saying “keep your powder
dry” may not even apply to bullion bulls, since gold and silver are their dry powder.
Europe,
then the U.S.
So what is weighing on
bullion, if not the nefarious designs of the bullion bankers? It’s
possible that the deflationary implosion of Europe may be a factor —
and perhaps the prospect of one even worse in the U.S. The hyperinflationists talk about QE3 and a torrent of new
money flooding into the markets to save the day. That would be extremely
bullish for gold and silver, for sure. But in point of fact, the massive
monetization has yet to come. Moreover, there are reasons to think that even
if it were attempted, it would crash the markets before the presumptive
trillions in new credit-money could find its way into the banking system.
This is the deflationary scenario we have written about before: a banking
collapse that occurs so swiftly that the effects of QE3 are negated by
skyrocketing yields for private debt. Peter Schiff says the central banks
will start monetizing all institutional debt at that point, triggering a
hyperinflation. But what if not? It seems plausible the banks would then shut
down and the economy would plunge instantly into deflation.
Is that why gold and
silver have been taking such a beating lately? We’ll concede that a
hyperinflation lies somewhere down the road, since sovereign debt will have
to be retired in some fashion. But perhaps bullion is telling us that, more
immediately, the central banks lack the guts to go all-out in their effort to
hold deflation at bay. Either that, or investors think it may no longer be
possible to do so.
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