A Gold Stock Bull Gives Thanks To Mr. Hendry

Mr. Hugh Hendry is a successful hedge fund manager with a bit of a rock star aura in the financial community. He has a colorful personality and keen insights to accompany his track record of making good money for his investors. In a recent interview, he said the following:

"I am long gold and I am short gold mining equities. There is no rationale for owning gold mining equities. It is as close as you get to insanity." 

I want to thank Mr. Hendry for calling the bottom of the recent correction in the "Gold stocks to Gold" ratio. Because this was only a minor/short-term correction in a fledgling new uptrend in this ratio, Hendry's comment was not as powerful a contrarian signal as the plethora of articles on how crappy Gold stocks are relative to Gold that appeared last spring and summer (like this one). However, this recent comment sure is going to prove to be timely in my opinion. I would take the other side of Mr. Hendry's trade, but unfortunately I am long Gold as an investment and long Gold stocks as a speculation and don't see any rational reason to short Gold. In other words, I am talking my book just like Mr. Hendry, so take everything I say with a grain of salt. But I believe Mr. Hendry is going to get stopped out of his "long Gold, short Gold stocks" trade rather soon.

To be fair, Mr. Hendry also mentioned that he is long Gold and short the S&P 500, which is Gold Versus Paper's trade of the year, so we certainly see eye to eye on other issues. Gold stocks are set to go on a tear and I stand by my call that the GDX ETF will be at 80 by the end of May, 2013. That is my conservative target, by the way, and a triple digit price on GDX by then is not at all an unreasonable proposition in my opinion.

Here's the daily action of the "Gold stocks to Gold" ratio, using GDX:GLD as a proxy, over the last 8 months:

Of course, this is a shorter term consideration over the next few months or so, and ignores the bigger picture. Here's a monthly "Gold stocks to Gold" ratio over the past 30 years or so, using the XAU mining index as a proxy for senior Gold miners:

We just completed our third positive month in a row for this ratio. Today's Halloween action also suggests the correction in precious metals (PM) stocks is over. The silver stock ETF (ticker: SIL) has been relentlessly strong even during a steeper silver correction. The chart of the last 8 month's action shows the importance of today's volume on this early stage breakout higher, with the "silver stocks to silver" ratio (using SIL:SLV as a proxy) charted below to show the incredible relative strength of silver miners lately:

When Gold and silver stocks are leading their respective metals, this leads to the most consistent and the strongest cyclical bull moves in the PM sector for both the miners and metals (a la late 2000-2003, 2005-6 and 1973-1974). It is actually to the Gold stock bulls' benefit that Mr. Hendry and many other hedge funds are short Gold stocks right now, as their short covering will add fuel to the bullish fire. My subscribers and I finished buying into a new long Gold stocks position last week in anticipation of today's action and I continue to believe Gold stocks will outperform Gold over the next several months, though I expect both to continue rising.

For the very long term, I am a "Gold guy," not a "Gold stocks" guy, but the speculative opportunity in Gold and silver stocks right now is as good as it gets in my opinion (at least relative to the obvious bottoming this past spring and summer in Gold stocks).

If you are interested in speculating in the precious metals sector and would like some assistance, I run a low-cost subscription trading service that focuses on the shiny stuff and the companies that dig it out of the ground. A one month trial is only $15. Of course, there is nothing wrong with avoiding the speculative pool of sharks completely and simply holding on to your barbarous relics until the Dow to Gold ratio hits 2 (and we may well go below 1 this cycle).

Silver and the Myth of Diminishing Returns From QE

There is lots of talk in the financial media about how there are diminishing returns from QE (i.e. money printing) with each successive round of counterfeiting. This is only true because such commentators are stuck in paperbug world and focusing on common stocks. But common stocks are in a secular bear market, so it makes sense that there could be diminishing returns on common equities related to bailing out banks and governments by destroying the purchasing power of the currencies of the world.

But before we dismiss money printing as ineffective, we have to view it from the perspective of the investor that holds silver instead of paper money, certificates of confiscation (government bonds) or common equities.  Helicopter Ben's experiment with everyone else's savings is going quite well from the perspective of one invested in silver. Here's a 4 year weekly chart of the silver price in US Dollars to show you what I mean:

I think $100/oz. or so sounds about right for silver within the next 1-2 years. Gold and silver stocks certainly flew out of the gates to end the summer as if anticipating this kind of potential move in the metals. As secular bull markets mature, the cyclical bull moves within them get stronger and faster. We have already started a new cyclical bull market in the PM sector in my opinion.

One of the sneaky tricks about inflation is that once money is counterfeited and passed around to those with connections to the printing press, we little folks don't always know where the subsequent price inflation is going to come from. While I may be wrong in thinking the best performing asset class over the next few years will be precious metals, the precious metals sector is certainly the easiest, most conservative, no-brainer choice to put both investment and speculative money to work. The federal reserve and other central bankstaz around the world will get price inflation by creating insane amounts of money out of thin air, it just may not be price inflation in the items they want.

In fact, as someone who always harps on the Dow to Gold ratio, I thought the silver to S&P 500 ratio chart may offer a clue as to how much further the run in silver relative to common stocks has to go if we maintain the current course for the next several years:

If Gold is going to $3500/oz and beyond (and I wouldn't bet against Jim Sinclair even with JP Morgan's money), silver will have a price in the triple digits. It's not that I think the federal reserve (not federal and has no reserves, so I see no reason to capitalize their name) can stop another stock market crash and/or major common stock bear market from happening. But they have proven to me that they are determined to destroy what's left of the value of the US Dollar and no one with any authority is interested in stopping them. Once a few more percent of the general population catch on to this in the advanced economies of the world, which are all going thru the same escalating serial currency abuse process, critical mass will be reached and the real Gold and silver stampede will begin. We're not there yet, but it's coming...

Hold onto your Gold, silver, platinum and PM stocks. While things are a little overbought in the short-term, we're going much higher in the PM sector. I stand by my call made in May of this year that GDX is going to 80 by May of 2013 and I suspect it could go much higher (GDX will likely get to triple digits before silver will).

If you would like some help in navigating these markets with a focus on the PM sector and short term trading tactics to augment core PM positions, I run a low cost subscription service. A one month trial is only $15.

Trade of the Year - Gold Versus Paper

I often harp on the Dow to Gold ratio, as I think it is the easiest way to see the "bigger picture" secular trend of poorly performing common stock markets (i.e. paper) relative to the free market's real money (i.e. Gold). I have been not-so-patiently waiting for a turn in this ratio back to the advantage of the Gold bulls. Well, we have now gotten to the point where I feel comfortable arguing that this ratio now is likely to provide the best trade over the next 12 months. When I say best trade, I mean the best potential reward/return relative to the risk.

I now see the risk as negligible and the potential reward as substantial in this trade. Here's a long-term monthly log scale chart of the "Gold to S&P 500" ($GOLD:$SPX) ratio as a proxy for the "Gold versus paper" trade to show you why I think the risk is low for this trade:

Once a trend was established, and the current trend in Gold outperforming common stocks is very well-entrenched, the 40 month moving average held every time except one in the past 31 or so years. And that includes during the Great Fall Panic of 2008. Pretty good track record, which is why I think the risk for this trade is very low right now and the ability to place a stop loss in case "this time is different" is clear. Scaling in to the weekly chart of this ratio, this time using the $SPX:$GOLD ratio instead of vice versa, shows that the time to start scaling into this trade is during the second half of August (i.e. now):

The easiest way to play this trade in a decrepit paper money system is to go long physical Gold. However, since this is a ratio trade, the “pure” way to play it is by going long Gold while shorting an identical dollar amount of the S&P 500 (or Dow Jones Industrial Average) at the same time. There is a double leveraged FSG ETF designed to profit from upward moves in the $GOLD:$SPX ratio, but it is highly illiquid and thus I cannot recommend this ETF since I am partly interested in mentioning this trade because of its low risk profile.

There is another way to play this ratio that is a derivative trade, and one most Gold bulls are tired of hearing about: going long Gold stocks. This is a higher risk trade, but with potential for higher reward. The under performance of Gold stocks relative to Gold has been rough over the past year. Make no mistake: Gold is safer than Gold stocks and will probably outperform Gold stocks as a sector over the full secular cycle of a declining Dow to Gold ratio. However, I am wildly bullish on Gold stocks right now and think they are set to outperform to start the next cyclical bull market in the precious metals sector. Why is that?

Well, below is a weekly subscriber letter from August 12th that summarizes the reasons why.


Gold Versus Paper August 11 2012 Letter



If this type of analysis interests you, consider a one month trial subscription - it's only $15. Hold onto your Gold and keep it away from Jon Corzine and other depraved banksta-types. Until the Dow to Gold ratio hits 2 (and we may well go below 1 this cycle), Warren Buffet and other traditional Wall Street gods will continue to under perform a shiny piece of metal.

Gold Stocks: Bottom, Re-Test, Launch?

Though I favor physical Gold held outside the banking system that can't get MF Global'd over those paper Gold derivatives known as Gold stocks, there are times when a speculative opportunity presents itself that cannot be ignored (at least not by me). Now is such a time in Gold stocks. In my last post, I welcomed a new cyclical Gold stock bull market. I continue to believe a new cyclical Gold stock bull market has already begun and we are now completing (if we haven't already) the re-test of the mid-May, 2012 lows. What comes next? The launch!

Here's a 6 month daily chart of the GDX ETF thru Friday's close to show you my thoughts:

It is important to understand that fundamental valuations and "bigger picture"/longer term technical analysis both support a bottoming process here. My last post discussed some of these factors. And here is yet another important fundamental piece of data courtesy of the Tocqueville Gold Fund 2nd quarter 2012 investor letter (there are many other great data points at this link and the chart below is apparently courtesy of BMO Capital Markets):

The dark blue line in the chart above demonstrates that the price of senior Gold mining stocks relative to their current year cash flows is at levels last seen at the depths of the 2008 crash and the beginning of the current Gold stock secular bull market at the end of 2000. The Gold stock bears keep screaming about the rising costs of Gold mining. They are right about rising costs, but they neglect to mention the other side of the argument, which is more important: margins are RISING for large cap Gold miners, not falling, because the price of Gold is rising faster than costs are. And we are entering another coordinated global recession (no, there won't be any decoupling this time, either), which means the price of general commodities (like oil)  should fall relative to Gold. This will further improve margins for Gold miners.

We have seen several bottoms in Gold stocks in the past that resemble the current set-up. Here are some examples of the "bottom, re-test, launch" sequence that I believe is repeating right in front of our eyes. First up, the 2004 bottom, using the HUI Mining Index ($HUI):

Next up, late 2008, also using the HUI mining index:

Or even way back in 2000 to start the secular Gold stock bull market using the XAU mining index:

Could this time be different? Sure, anything is possible in markets. But given the low valuations in Gold stocks by multiple measures, recent 40% bear market in Gold stocks (2nd worst of the last 12 years in percentage terms and longer than average duration), and suicidal sentiment in the PM sector, the odds are now heavily favoring the Gold stock bulls here. Here is a chart of the "bullish percent index" for the GDM (the index that backs the GDX ETF) over the past 6 months to also show how beaten up the senior Gold stocks are ($BPGDM):

Gold stocks are a speculation for me while physical Gold is my way of protecting my savings from the ravages of a financial and bureaucratic system out of control. Until the Dow to Gold ratio gets to 2 (and we may well go below 1 this cycle), it is silly to be overly bearish on the precious metals sector. While traders bicker over whether Gold is about to break up or down right now, they miss the "forest": by the time we reach December 31st, Gold is likely to be up in percentage terms for the year, which would mark its 12TH YEAR IN A ROW. Is Gold a bubble or are there just a lot of sour grapes out there from those that have either missed the move so far or are desperately trying to prevent the inevitable "official" return of Gold as the anchor for a new international monetary system?

Hold onto your Gold. This thing is far from over. If you'd like to try speculating in the paper PM sector once you've established a core physical metal position, consider giving my low-cost subscription service a try. A one month trial subscription is only $15.

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.