Don't Fold Your Gold or Silver
I'm at Fool HQ this week, and so will likely not have the opportunity to provide the sort of in-depth analysis of this week's developments that I would otherwise post. But I did want to take a moment, given the sheer ferocity of yesterday's price action in pm equities -- and indications of additional pain for today -- to encourage my fellow Fools to remain long and strong those precious metals.
Many of you will recall my prediction that, although gold and silver would follow the broader market lower for a bit when the next bout of indiscriminate liquidation struck, gold and silver could be expected to find their bottom relatively swiftly and convincingly. I think by now it is crystal clear to all that few safe havens remain for risk-averse capital, and in contrast to 2008, this time gold and silver are very much on the radar screen of unnerved investors the world over. Treasuries are not a smart choice, so the smart money will flock to them in ever-smaller numbers with each successive financial shock.
Furthermore, current price levels for gold and silver remain comfortably within the realm of what was considered likely from a techncal perspective. We had a rapid and seemingly tireless run-up for months, and a healthy pullback was long overdue to pave the way for the next leg higher. Gold had gapped up a while back in the $1,660 to $1,680 area, so that range has been on the table as a possible re-test. And if that should fail to hold, we will examine major support levels within the $1500s. In all, we're talking about the move of the past 2 months or so that is being re-tested.
Meanwhile, all these developments spurring the exodus from equities are -- while certainly unfortunate in every respect -- massively bullish for gold and silver. The Eurozone crisis is showing ever-increasing scale and severity, and calls for substantial monetary-policy response are gaining traction ... including calls for the IMF to come to the rescue with SDRs.Three major US banks just received a sobering credit downgrade, Bank of America is beneath the Buffett put and heading lower, and yet few seem ready or willing to concede that the winds of resurgent financial crisis are beginning to blow here on our side of the Atlantic. Operation Twist was bullish for gold, as were the FOMC comments that accompaned it. We have interest rates frozen at zero-bound through at least mid-2013, offering gold investors a virtual guarantee of renewed upside momentum.
Remember, you lose nothing in the midst of this correction unless you sell into weakness. These are the sorts of moments that separate successful pm investors from the pack, and I am here to encourage you to countenance this pullback with resilience and unbroken perspective. The trend is your friend, and there is quite simply no reasonable case to be made that gold's run suddenly ended at $1,922 or whatever it was a few weeks ago. What would the headline read? "Gold's 10-year secular bull market finally broken by a cascading Euro debt crisis, zero-bound interest rates in the US, competitive currency devaluation, accumulating sovereign debts, and eroding economic outlooks. Um... I don't think so!
If you're fortunate enough to have cash on the sidelines here, you have an uncommon opportunity to get long precious metals equities at prices that are more reflective of $1,000 to $1,200 gold prices and $20 to $25 silver prices than they are of the current reality. That's your moat.
The standout bargain in my view is Primero Mining. I was backing up the truck at $3. At $2.60, I'm simply flabbergasted. HL at $6 after the dividend policy just released? Insane.
But the opportunities are not in gold and silver alone. Check out Cardero Resources and Cline Mining. These met coal juniors has been decimated by recent price action in met coal stocks, but ask yourself whether the entirety of Peabody Energy's "global supercycle" could have reasonably been reversed by the recent downward revision of global growth expectations and Asian import demand. Met coal plays remain a compelling story, and the entry levels being offered here are frankly unbelieveable. I've been a big buyer of coal stocks into this weakness, and I thoroughly expect them to perform admirably. Look at the majors: they are ALL incredible bargains. ANR is a megabargain. Same goes for copper. I'd be a confident buyer of copper stocks here, and into any further weakness. Teck and FCX at $30 are looking delicious.
I wish you all could be here at Fool HQ. I wish you all could see first hand what an incredible pool of talent resides at this company.
Hang in there through these dark days on the market, and don't lose hope that you will indeed get through it.