A New Cyclical Gold Stock Bull Market Is Born

And it is about time! After a 40% bear market (the second worst of the secular Gold stock bull so far), the large majority of investors and speculators have been worn out or scared out. The mid-May bottom was THE bottom in my opinion and we have a long way to go on the upside. The metals will rise as well, but Gold stocks will outperform this time.

Now, keep in mind that I favor physical Gold over Gold stocks over the long term and, in fact, own no Gold stocks for the long term. My long-term holdings are in physical Gold held outside the banking system. This is the safer place to be during this nasty secular common stock bear market, particularly when sovereign defaults are the theme of this next decade. We will not exit this secular common stock bear market until we have a new monetary system based on a modicum of common sense - in other words, one that involves Gold.

 Let Charlie Munger speak of how uncivilized it is to make a lot more money than he has for shareholders over the past decade by holding a shiny piece of metal instead of the paper promises of Wall Street's "finest." Sounds like sour grapes to me. By the way, shiny metal will continue to far outperform the Berkshire Hathaway stock price over the next several years - of that, you can be sure.

To the charts, I say, as this is where the answers lie in my opinion once one understands the fundamentals. Here's a "big picture" view of the XAU Mining Index ($XAU) using a monthly log scale plot over roughly the past 30 years thru Friday's close:

Others might say that we are headed for another 2008-style meltdown and we are going to lose that blue support line again, as we did in 2008. Hey, that's what makes a market. But there are fundamental and technical reasons for why we ain't going there again any time soon. The most important, in my opinion, is the fact that Gold stocks have already crashed relative to the Gold price. Here's a monthly log scale view of the XAU Mining Index divided by the price of Gold ($XAU:$GOLD) thru Friday's close:

Over the long term, it is apparent that Gold stocks have underperformed the metal and may well continue to do so for the longer term haul (i.e. next decade). However, speculative gains during a cyclical Gold stock bull come fast and furious once Gold stocks decide it is their turn to lead the way. Next up, the "Gold stocks to common stocks" ratio, using the XAU and the S&P 500 as proxies ($XAU:$SPX) on a monthly chart over the past 13 years thru Friday's close:

Furthermore, the fundamentals continue to improve for producing Gold companies due to a rising "real price" of Gold. I learned this concept from Bob Hoye and it makes sense. When the Gold price is rising relative to the cost of mining (regardless of what the nominal price of Gold is doing), operating margins for producing miners should improve, all other things being equal (which they never are...). Using the Gold price divided by the price of a basket of commodities, we can get a rough estimate of this trend. Here is a 30 year monthly chart of Gold divided by the CCI commodities index ($GOLD:$CCI) thru Friday's close using a log scale format:

This is where the "Dollar to zero" and hyperinflation crowd misses some of the nuances along the way. Sure, every currency becomes worthless eventually, but the turns along the way are what make things interesting to those who follow markets. For example, despite being a staunch Gold bull, I have been looking for a new cyclical bull market in the US Dollar Index since last summer, and I don't think the one that seems to be developing is over yet by a long shot. All currencies are declining against Gold, but doing so at different rates.

And if you are into technical analysis, you should have noticed the volume on the GDX ETF. May was the highest monthly volume in the history of GDX (with a bullish monthly candle to mark a bottom) and Friday was the highest daily volume in the history of the GDX ETF. Clearly, the big boys see the same things I do and have now established their positions. They are doing so at a time when sentiment in the Gold stock sector is as poor as it has been since the darkest days of the 2008 panic.

I had to smile at the number of recent articles I have seen describing how much Gold stocks suck and how they will never outperform the metal. Perfect! Here's my homemade sentiment chart using the data from the Rydex Precious Metals Mutual Fund (a PM stock fund), the plot showing the net asset value (NAV) of the fund (i.e. amount of money in the fund) over time. When the plot is low, the money in the fund is low, which is generally a combination of declining prices and money withdrawals from the fund. When the herd is bearish (i.e. NAV low), you want to be bullish and vice versa. Here's a 10 year plot of the NAV of the Rydex fund thru Friday's close:

I'd say we're not going to get much lower than the 2008 meltdown, but feel free to disagree. The turn has already come and gone, in my opinion. However, the bulk of speculative gains in this cyclical Gold stock bull market are ahead of us. For those with a longer-term view, ignore the squiggles until the GDX is 80 or more and we'll get there within a year if history is reliable guide. For those who like to try to play/trade the shorter term swings in the volatile Gold mining sector, consider giving my low cost subscription service a try (it's only $15/month). For those with a lower risk tolerance, simply hold onto your Gold until the Dow to Gold ratio gets to 2 (and we may well go below 1 this cycle). Speaking of my favorite secular road map chart, it looks like we have finally made the turn - here's a monthly log scale chart of $INDU:$GOLD over the past 15 years thru Friday's close:

And Yet Another One Bites the Dust

To all those who say that deflationary collapses cannot happen in paper monetary systems, I ask you: don't the PIIGS-ies of Europe count? Because they're all falling, one right after the other, like dominoes. Today, the Spanish stock market ($SMSI) closed below its spring, 2009 lows. Here's a 5 year weekly chart through today's close:





Spain joins Greece, Portugal and Italy in slow motion deflationary stock market crashes. Italy (Milan [$MIB] Index) did a peek-a-boo below the spring, 2009 lows in 2011, and then had a weak rebound. It looks set to break to new lower lows soon. Here's a 20 year monthly chart of $MIB thru today's close:






These are modern-day examples of deflationary stock market collapses right in front of our eyes. Those who say the bankstaz would never let it happen just don't want to face reality. Bankers can profit from both deflation and inflation. Who do you think is going to buy up the assets in these European countries for pennies on the dollar (after they print themselves up some fresh new money)? Now, I don't suspect that the larger economies with their own printing presses are going to go this route quietly, but Japan sure doesn't seem to have the inflationary central banksta rescue thing down so far after 22 years.

Unlike many Gold bulls, I don't see stocks as a better play than cash or US bonds here. I am not a buy and hold investor of these asset classes (that's what Gold is for), but I don't expect the US bond market to crater any time soon with a global recession in the works. I also really like the US Dollar right now as a trade. I know it's blasphemy for a Gold bull to talk of US Dollar strength (relative to other paper currencies), but that's what I see coming.

Will Gold survive a US Dollar rally? Is it remotely possible? Of course. Not every US Dollar rally causes a 2008-style meltdown. All currencies are sinking relative to Gold, simply at different rates (trampoline jumping is what I like to call it). The bears in the PM sector are out in force and I even watched a recent interview (hat tip to John Rubino at dollarcollapse.com for the link) talking about the Gold "bubble" collapsing with a book to back it up (an "author" sound more authoritative than a "blogger," eh?) - here's the link for those interested in hearing the other side of the debate.

Me? I'll stick with Gold. It's a no-brainer for the long term. Short-term? Sure, we can correct more. I would love a dip below $1600 to shake out a few more weak hands while Gold stocks take one more dive before starting a new cyclical bull market. But these are short-term, casino-related concerns, not the big picture. The big picture is shown below, a monthly chart of the Gold to Dow ratio ($GOLD:$INDU) from 1980 thru today's close:







Its stocks, real estate, cash, bonds or hard assets. I'll take cash in a secular economic contraction/Kondratieff winter/economic depression. However, I prefer cash that cannot be debased by decree, so I'll stick with Gold. I want to be like a banksta with the money left over to buy assets for pennies on the dollar some day when the house of cards finishes falling. The nice thing about Gold is that this will work in both a deflationary or hyperinflationary poop storm. Those who say Gold isn't a good hedge against deflation haven't studied their history. One of the hallmarks of a depression is that the purchasing power of Gold rises, which has been happening since 2000. The Gold to Dow ratio is only one example. Try the Gold to real estate ratio (in most parts of the world), Gold to commodities ratio or Gold to bonds ratio. They all add up to the same thing: Gold continues to trump other asset classes and this trend is nowhere near completion. And yes, I am aware of what happened to Gold in the fall of 2008. For anyone asking: are you aware that Gold was back at $1000/oz by February of 2009 (i.e. net flat during the deflationary crash) while stocks kept right on going lower into their March lows?

Having settled the long term (in my own mind, at least), I still enjoy the short term. Short term tactics are technically based, not fundamentally based. Trading is a tough game and 95% of traders fail. I like the game and have learned to be quite good at it, but it is not for everyone. I will go long or short any asset class if I think there is money to be made when trading (for example, I have a short position in Gold stocks right now). As for investing, however, you couldn't get me to touch paper cash, bonds, most real estate, or most common stocks with a ten foot pole. I'll become a paperbug again, but only once we have reached reasonable historical metrics to support such a move (e.g., how about a dividend yield for the average common stock in the 7-10% range?).

Right now, my subscribers and I are waiting to buy the next low in the precious metals patch, which is certainly close to being here. If this pending low isn't "THE" low, it won't matter to me from a trading perspective, because I can still make a lot of money trading "a" low. If you are crazy enough to try to trade with a portion of your capital, consider trying my low-cost subscription service. A one month trial is only $15. If you're too smart to take that kind of risk, then hold onto to your shiny, precious, edible Gold until the Dow to Gold ratio hits 2 (and we may well go below 1 this cycle).

Eating Humble Pie

It's hard to make predictions, especially about the future. At least so the saying goes. When you're wrong, in my opinion, best to admit it and move on. This is what all traders must do if they plan to survive long enough to become the 5% (or less) that can actually do it profitably over the long term.

I thought the big neckline in Gold stocks would hold. My subscribers and I bought the neckline assuming it would. Instead, the neckline failed and we got out immediately with a loss. This is an ominous development for the precious metal (PM) stocks in particular and a warning for the whole PM sector in my opinion. This neckline is no secret and should be respected for what it is trying to tell us. Here's a 5 year chart of the GDX thru this week's close to show you what I mean:





It was a reasonable trade to go long at the neckline in my opinion given lousy PM sector sentiment, oversold momentum readings, low "Gold stocks to Gold" ratio and low "Gold stocks to common stocks" ratio readings. However, once that neckline broke, it was shown to be the wrong trade and out we go, waiting for a better opportunity. That opportunity may come from much lower levels.

Gold stocks are "seeing" trouble up ahead. I suspect Gold stocks are leading global equities into the next cyclical common equity bear market.

BUT IT CAN'T HAPPEN, BECAUSE IT'S AN ELECTION YEAR AND "THEY" WON'T LET MARKETS FALL UNTIL AFTER THE ELECTION.

How'd that work out for you in 2008?

If you are looking for advice in navigating and trading through what I believe to be impending market turmoil, consider trying my low cost subscription service - a one month trial is only $15. If not, my longer term advice is free: buy physical Gold, store it outside the banking system, and don't sell it until the Dow to Gold ratio dips below 2 (and we may well go below 1 this cycle).

Calling Another Bottom in the Precious Metals Sector

The last time I called an important bottom in the precious metals sector was on December 29, 2011 (as documented here). Well, it's time for another important bottom. I believe the late December lows in the precious metals (PM) sector were THE lows for the metals, for the GDXJ ETF (a rough representation of the junior Gold mining sector) and for silver stocks (as represented by the SIL ETF). The current bottom is much more important for those seemingly perpetual laggards, the senior Gold mining stocks.

And why do I think this is such an important bottom? Well, there are several reasons. These were summarized in a recent subscriber letter dated March 16th, re-published below:


Gold Versus Paper March 16 2012 Letter


Subsequent to this letter, we had last week's action. I believe Tuesday was THE low for the senior Gold mining sector and my subscribers and I bought our remaining 50% bullish position on Tuesday. This week (for once), senior Gold stocks (as represented by the GDX ETF) refused to make a new lower low with Gold on Thursday, setting up a nice short-term divergence at a time when the PM sector was so under loved and undervalued on a short-to-intermediate term basis that a survey of professional Gold market timers recommended a net short position (according to a blogger I respect, as I don't subscribe to this information - link here) and this graphic from sentimentrader.com was floating around the internet:





And then we had the classic "fake out" drop in Gold on Thursday, as captured so well by candlestick charting, followed by a gap up candle on Friday morning. Here's a daily candlestick chart of the GLD ETF (as a proxy for the Gold price) over the past 8 months thru Friday's close to show you what I mean:





I think it is finally time for metal stocks to outperform the metal for a few months (at least). I am bullish on the whole PM sector, however, and think all items will do well. If this type of real-time actionable analysis appeals to you, consider trying my low cost subscription service - a one month trial is only $15.

For those uninterested in the risk of speculating on the short-term chart squiggles with a portion of their capital, my advice is simple: buy physical Gold (and a little silver) and store it outside the banking system until the Dow to Gold ratio hits 2 (and we may well go below 1 this cycle).

Why Are Precious Metals Bulls Scared?

Well, first of all, bull markets climb a wall of worry. But second, there are some powerful media forces trying to maintain the status quo. They are constantly disparaging Gold and talking about imminent corrections, bubbles, etc. As a recent example, Warren Buffett did a recent hit piece on Gold published in the Wall Street Journal (video talking head summary here). And, of course, there is always Jon Nadler at kitco.com to make sure you are NEVER bullish on precious metals no matter what.

Actually, specifically, kitco.com having Jon Nadler as its spokesperson is quite revealing and concerning. What is this company, which sells derivative positions in Gold (a la pooled accounts), trying to accomplish? As someone who learned all his lessons the hard way in the precious metals market, I can attest to the fact that this company talked me out of physical metal and encouraged me to buy a "pooled account" position in metal when I first began to try to invest in physical metal back in 2003.

I would like to share some quotes from a recent piece by Jon Nadler. I no longer read his commentary and haven't for years, but Bob Moriarty over at 321gold.com posted one of his pieces, so I assumed it had some value and read it. What a mistake and waste of my time. Nadler is a plague on the Gold community but refuses to go away. How could anyone spend more time trying to disparage the product his company sells? The tone, the anger, the bearishness. It's so over-the-top that it seems beyond intentional and I believe is simply trying to make fun of those who have cast their lot with physical metal held outside the banking system. Anyone who does business with kitco.com knowing that Nadler is their main market commentator is asking for trouble. When the poop hits the fan exactly, I don't know, but this is a firm that should not be trusted primarily because they employ this fellow.

Here are quotes from his most recent piece (link here), with my comment following each quote:

"That the latest round of price increases in gold has been an overwhelmingly fund-engendered phenomenon is quite obvious. More worrisome on the other hand are certain trends in the physical markets (we covered the potential erosion in India’s 2012 imports and the decline in USA-based physical investment in 2011 in last week’s articles)."

He sounds nervous that this is simply "hot money" chasing metal prices and that people aren't interested in physical metal at current prices. Gosh, maybe I should sell now and beat the herd to the exits.

"Well, you can now add Vietnam to the roster of countries where domestic investors are suddenly ‘uncertain’ about continued, (some say endless) gains in gold."

Ohmygosh, those Vietnamese are some of the smartest and shrewdest Gold traders out there. If they are 'uncertain,' then I should be panicked!

"In any case, gold’s “paper” bullish sentiment is approaching certain levels (above 90% according to trade-futures.com’s Daily Sentiment Index) from which previous sharp corrections have ensued. Silver has some work left to do as it begins to encounter overhead resistance that extends all the way up towards the $37.85 overhead resistance level. If and when support near $32.62 is breached, the tenor of the market will tilt towards deeper corrections."

Overhead resistance from here to Mars in silver - holy cow! That means the bulls have no chance whatsoever! My gosh, we are so close to breeching $32.62 that I better just sell now...

"That’s the best such level of betting [in commodities- GVP] since September of last year. However, this time, the bullish tilt (in gold for example) comes amid expectations for economic recovery (in the USA mainly) as opposed to the economic and financial Armageddon that many had expected to materialize for several years now. In so many words, this is now a niche that simply does not make room for anything but positive news. That’s when the worrying should begin…"

Wow! If the world is not coming to an end and bullets and beans are not the investment theme of the day, you're darn right I'm worried! Call kitco and tell them that I want to sell them every piece of physical metal I own and even my neighbor's metal that I don't own, since they understand pooling of resources and derivatives on physical metal better than I do!

"The enthusiasm being seen in commodity futures and options positioning is most certainly not being mirrored in the still poorly performing mining share sector and the type of betting going on is itself being questioned by some: “The latest commodity flow numbers is catch-up with previous positive trends. People are moving into them based on a string of relatively positive numbers. Whether those will continue to carry weight is a little more questionable,” said one money flow analyst at EPFR Global in Cambridge, Mass."

CALL MY BROKER! AN UNNAMED BROKER AT SOME FIRM I HAVE NEVER HEARD OF IS BEARISH! Those smart Wall Street guys have been right on Gold since, well... I guess their track record sucks, BUT YOU NEVER KNOW!

{Sarcasm off}

In short, I call "foul" on kitco.com for doing a disservice to the very people they claim to try to represent and/or market to. Nadler is a mouthpiece, albeit a lousy one, for the status quo. And if he doesn't think so, well that is even worse. I have never seen a more bearish Gold analyst unless paperbugs Warren Buffett and Nouriel (half-a-hit sort-of-wonder) Roubini count as Gold analysts. And let's not forget that Buffett would be broke right now if it weren't for government largess coming to his rescue. And Roubini, I assume, has already finished his Spam and has nothing left but paper to eat (try the hot sauce, dude!).

My subscribers and I are long silver and Gold stocks and have been since catching the bottom on February 16th. If you are looking for more reasonable advice than that spewed by Nadler and Buffett when it comes to the precious metals, why don't you give my low cost subscription service a try? And believe me, I can be bearish on the precious metals sector as well when appropriate, just not as a matter of course and not as a religious conviction that clouds every statement I make. Until the Dow to Gold ratio gets to 2 (and we may well go below 1 this cycle), Gold will continue to make Buffett look like the feeble has-been paper permabull that he is (at least until he gets his next tranche of bailout money...).

Back to Bullish on PM Sector

Closed out my "short senior Gold stocks" trade last week for good profits. My subscribers and I bought the early Thursday AM lows in senior Gold stocks and silver. Think we have begun a 4-6 week bull run into a spring top. After that, we'll have to wait and see what happens.

I will be very interested to see how Gold does during this move. I think it re-tests the 2011 summer highs. Here's a one year daily chart thru Friday's close:





After the spring top in mid to late March, we'll likely get a significant correction. A new all-time high in Gold would likely indicate a milder correction than if the price gets stopped at or before the old highs. Either way, I am bullish for the next month in the precious metal (PM) sector for my trading account and think all PM sectors will do well.

Longer term, I own physical metal and don't worry about it as an investment at all. Now that the ECB is trying to [further] undermine the integrity of its bond markets by putting itself at the front of the line and subordinating other European sovereign debt holders in the Greek debacle, the final pillar is coming into play. That pillar has been pointed out by Mr. James Sinclair at jsmineset.com and it is that of the bond markets of the Western world. Once people are seriously worried about the safety of bond markets and currencies, Gold will really start to, ahem, shine. Everything is lining up to create "the mother of all bull markets" in Gold and silver.

Of course, this is all just a normal reaction to the financial mania that preceded the current secular Gold bull market. A secular correction in the Dow to Gold ratio down to 2 or less (we may well go below 1 this cycle) will teach everyone to avoid common stocks forever. Everyone will have learned their lesson the hard way. This, of course, is when it will finally make sense to buy common stocks again as a "buy and hold" proposition. In the mean time, it's all about the bling bling for this secular cycle. All you have to do to ride the wave is buy pieces of shiny metal and watch your wealth and real purchasing power grow while paper assets are debased into oblivion. What could be easier?

Ummm, Really?

My worst trading performance has been when I have gone short. I have made big money (like when I was leveraged short during the fall of 2008 as documented here and here), but I have also lost large amounts of money fighting the hoards of determined bulltards still stuck in last century's paradigms. The tsunami of paper depreciation unleashed upon us over the past decade makes shorting any market much more hazardous than being long. Trust me, I have learned my lesson in this regard the hard way.

Right now, my subscribers and I are short senior Gold stocks as a scalp trade (after catching the high in the GDX ETF on February 2nd). So far, so good. It is almost time to flip back to going bullish on the precious metals sector. When I look at the general common equity markets, I see rabid paperbug froth everywhere. Just a few minor points of extremely bullish sentiment to point out.

First up, here's a chart from a piece by sentimentrader.com, which examines the ratio of money flowing into a Rydex bull mutual fund versus a bear fund (i.e. examines retail money flows into bullish bets versus bearish bets):





Next up, a chart of a proprietary NASDAQ sentiment indicator from Market Harmonics:




Record highs, eh? I can see why, what with the super-strong economy and what not. And here's the opinion of the trusted and revered investment advisors that always buy low and sell high for their clients (sarcasm off). Following is the NAAIM (National Association of Active Investment Managers) sentiment survey thru last week:




I am thinking a sharp chop lower in common equities followed by a drunken and staggering final charge into a March peak. After that, we'll have to see. But for now, risk is exceedingly high in common equities. There's rarely a need to tell a Gold bull about such risk, as those who have crossed over to the dark side and embraced the secular bull market that is the enemy of the state rarely need reminding that we are in the cycle where paper declines relative to real/hard assets.

Own physical Gold and sleep well. When the Dow to Gold ratio hits 2 (and we may well go below 1 this cycle), consider waking up from that comfortable financial sleep and looking for something to buy with your bling bling. And if you're interesting in speculating in the paper markets after you have established a core position of physical metal held outside the banking system, consider trying my low cost subscription service.

Waiting to Pounce on Precious Metal Profits

Let me start by re-iterating that I am a secular permabull on physical precious metals, particularly Gold. When you're dealing with the end of the road for the current international monetary system (a la the 1930s and the 1970s), there's only one asset that is a complete no-brainer to own. As a hint, that asset is shiny and owned by every central bank in the world "just in case."

However, I also like to trade. When trading, I would sell or buy anything if I though there was a profit to be had. For example, my subscribers and I have been short senior Gold stocks as a "scalp" trade over the past week. Does this make me a traitor? I don't think in those terms, as I am a more practical Gold bug/bull. The more paper I make, the more metal I can buy.

However, once the current short-term correction finishes, it is back to bull mode. Gold, silver, and Gold and silver stocks - they're all going to go higher. The only real conundrum is which of these items to buy as a bull trade once the correction is complete. In another week or so, we'll hit bottom and find out which of these items will outperform.

I like the prospects for the entire precious metals patch. From a trader's perspective, I think silver has an obvious minimum target when using the SLV ETF. Here's an 8 month daily chart of the SLV ETF thru today's close to show you what I mean:





Once we correct a little (likely in a scary fashion over a few days for silver and senior Gold stocks, as they both seem to enjoy volatility as much as Bernanke likes creating money out of thin air), a decent 15-20% move higher is likely. After that, we'll have to see. All precious metal bulls know that we'll ultimately make new highs in silver above $50/oz., but the exact timing is uncertain from a trader's perspective. This is why it is best to simply buy physical metal and hold on for the volatile ride. However, some of us like to speculate with a portion of our capital and this message is for you fellow punters out there in the PM patch.

Now, the senior Gold stocks are the basket case of the PM sector. All this crap about Gold stocks leveraging the price of Gold and having bullish fundamentals doesn't mean anything if they won't perform here and now. And I'll be honest, I'm very concerned about their recent performance. That doesn't mean there isn't money to be made trading the senior Gold stock indices like the GDX ETF, but I am not impressed with the move off the late December bottom so far. Here's an $HUI:$GOLD ratio chart to show you what I mean:





A permabull will tell you that any minute now, Gold stocks are going to blast higher and if you don't buy right now (yesterday, in fact), you're going to miss out on a quadrillion dollars. Me, I don't think so. I think this warning signal should be taken seriously. It means that the senior Gold stocks could be headed for something like this over the next few months (2 year daily chart of GDX thru today's close):





This is not a prediction, by the way, but if senior Gold stocks don't start outperforming Gold soon, don't be surprised if something like this happens. I trade Gold stocks, I don't own them. I prefer to own physical metal and then speculate in stocks and paper metal (as well as anything else that looks like it might be good for a winning trade). Investing and trading are very different and require a different type of focus and attitude. With physical Gold, I never worry about the price on a day-to-day or week-to-week basis (unless I am looking to buy more). Why? Because I understand the secular bull market in Gold and why it won't be over for some time. I never lose sleep or worry if Gold drops 10 or 20% when priced in my local currency (i.e. US Dollars). Wake me when the Dow to Gold ratio gets to 2 (and we may well go below 1 this cycle).

The bottom line is that we're going higher in the PM sector. Exactly how we get there, only Mr Market knows for sure. But I believe there are profits to be made speculating in the paper markets. After calling the exact day of the bottom in the PM patch for my subscribers and I in late December, we sold our long trading positions in senior Gold stocks 2 weeks ago in anticipation of the current correction. We went short senior Gold stocks on February 2nd, catching the high that day. In a week or so, we will be going long again in the PM sector. If you'd care to join us in the dark jungle known as the paper markets, a one month trial subscription is only $15. But please, don't even think about subscribing until you've secured a core investment in actual physical metal held outside the banking system.

The Last Gasp

I am speaking of the intermediate term move in paper assets versus hard assets, affectionately referred to as "Gold versus paper" around here. Paperbugs had their moment in the sun these past few months and I hope they enjoyed it. The reversal in fortunes has begun.

This reversal of fortunes is on a relative basis of course, as the sea of electronic money created out of thin air in the last few months is enough to make Rudolf von Havenstein blush. When the currency units around the globe are dissolving in front of our collective (and dismayed) eyes, relative wealth becomes a more meaningful concept than to contemplate what a quadrillion means.

Bernanke decided to help the US Dollar along last week by extending a monetary policy of insanity, approved by Keynesian clowns everywhere, namely that of further destroying the value of savings and the average person's ability to keep up with the costs of living. In the absence of reason or checks on the power of centralized monetary authorities, debasement of currency can always be achieved in a paper monetary system. And a Gold standard simply means that the Gold standard can be suspended in times of trouble. Easy money, baby. It's almost as old as the concept of money itself.

In the later stages of a monetary system, speculation runs rampant as a means to try to keep up with the ravages of inflation. We are there now and I am one of the many pied pipers claiming to have the answers to establish gains in excess of this pernicious and global monetary catastrophe unfolding at an uncomfortably rapid pace. I believe physical Gold (and silver) held outside the banking system are the easiest and most conservative means of preserving wealth in the current secular cycle (which is far from over), but I also like to speculate with a portion of my capital.

Currently, the charts to me are unambiguous. It is time for hard assets to trump paper once again. First, the chart nearest and dearest to my heart, the Dow to Gold ratio ($INDU:$GOLD). Here is a 7 year log scale ratio chart of $INDU:$GOLD thru Friday's close:





And here is a chart of the S&P 500 index divided by the price of commodities using the CCI Commodities Index (i.e., $SPX:$CCI), employing the same 7 year weekly format thru Friday's close:





In the short-term, I believe both the precious metals sector as well as other risk assets like commodities and common stocks are set to decline for a few weeks. After that, however, my subscribers and I will be looking to go long again in the precious metals sector after closing out trading positions on Friday for big gains. I don't advocate speculation, as it is riskier than buying and holding physical precious metals to profit from the further gains that lie ahead in the secular precious metals bull market.

However, for those who are interested in speculating with a portion of their savings, I offer a low-cost subscription trading service that focuses on the precious metals sector but also looks for opportunities in common stocks, commodities, currencies and bonds. I believe there is a significant amount of money to be made trading in the PM sector over the next few months (and, of course, beyond).

Has the Central Fund of Canada Given Us Another Silver Buy Signal?

I stumbled onto this little gem about a year ago and I think it is about to work its magic again. I am speaking of the ratio of the Central Fund of Canada (CEF) to the price of Gold. Please see the original blog post for an explanation of this CEF:Gold ratio.

This CEF:Gold ratio barely triggered a buy signal for silver on December 27, 2011. Of course, a "barely triggered" signal may be all we are able to achieve if silver is getting ready to rocket higher after a brutal but fairly typical (for silver) correction from the the spring, 2011 highs. Here's a chart of this ratio thru today's close to show the buy signal for silver (the top plot is the price of silver, while the lower plot is the CEF:$GOLD ratio):





Coupled with horrible sentiment for the restless metal and rampant fears of a deflationary collapse, I think the low is already in for silver. I give you this chart of money supply growth courtesy of shadowstats.com:





This type of monetary madness is what gave rise to silver's last run! We'll have to see what happens, but I think the CEF:Gold ratio will once again prove to be right. I like metal stocks over metal right now and silver over Gold. However, I like anything precious and metal-related at current levels. My subscribers and I are fully invested in order to profit from a further advance in the PM sector, so I am biased. Why don't you join us - a one month trial is only $15.