Great Time to Raise Some Cash
July 25, 2011
– Comments (13)
When the clowns in DC recognize the visceral nature of the impact of their behaviour upon financial markets this week, watch how quickly they will scurry to some sort of settlement on the debt ceiling. Just like that embarrassing budget debacle in April, this game of high-stakes grandstanding has never targeted default; only theater. It makes for dramatic theater when children play with matches inside a fireworks warehouse, and predictably the brokers of an eleventh-hour deal will embrace the ridiculous public impression that they have somehow saved our country from financial ruin by INCREASING our nation's indebtedness further into the black abyss.
Of course, like the kid who fails to recognize that a set of incendiary wicks lies just inches from his frightful game, the scarier scenario for us onlookers is that which the perpetrator has failed to envision. The potential for some form of acute financial backlash exists even before the reported deadline. A foreign creditor fleeing Treasuries could induce some measure of panic within the bond market, and of course one of those inept credit rating agencies could tip a domino with the capacity to send a long string of others into motion.
So, notwithstanding the ever-present risk that acute financial turmoil could be triggered at any time by any number of potential scenarios, I see an elevated risk for a near-term pullback in gold and silver that could present one final buying opportunity before the continuation of this major leg higher. As such, I will be taking the opportunity to take profits in gold and silver stocks as we experience any further strength in gold and silver that appear predicated upon the delayed nature of a debt-ceiling agreement.
But here is the important part! My core position in precious metals always remains untouched throughout the multi-year bull market .... that is because the continuation of the long-term trend is the only forecast in which I remain 100% confident. So, when I speak of profit taking, I speak of rebuilding the modest cash position that I built as the last observable bout of relative strength took form, and which I then redeployed into weakness at substantially more favorable prices.
80% of my precious metals allocation remains safegurded under lock-and-key ... never subject to the sorts of near-term dynamics of which I presently speak. I made some powerful profits this year by raising a 20% cash position on the way up to $50 silver, and then rebuilding those positions on the way down to $32 silver (each time accelerating those activities as the respective bookends were approached). That is the sole portion of my overall pm allocation with which I react to my perception of near-term dynamics. The cash position within my pm allocation presently stands at about 9% (up from a near-zero cash allocation after the last round of buying), but I will likely seek to raise that aggressively toward 15% into any further pre-deal strength this week. There is always a chance I could be wrong in my forecast for a near-term pullback after a deal is reached, but I like my odds of success sufficiently to engage a small portion of my allocation accordingly. Furthermore, the pullback could be both minor and short-lived, so any such engagement of near-term volatility must be conducted with a high degree of maneuverability. I do not have specific target prices in mind for the pullback, but rather will follow my discipline of gradually ramping-up buying activity into weakness just as I have ramped-up my selling activity into recent strength.
In any event, I expect gold and silver to surge powerfully through the second half of 2011, so my bias will remain tipped toward re-gaining exposure, over timing the perfect near-term bottom. Likewise, any number of potential developments over the coming days could alter this near-term outlook in a heartbeat, so Fools are encouraged to remaind very attentive to this market. In the meantime, I happen to view the gold market as susceptible to a near-term sell-off in the wake of a debt-ceiling deal in DC that is perceived as substantial (i.e. with "cuts" of $2T or more). If we get only a stop-gap measure, or one that deemed unsubstantial in the context of our overall debt burden, then Fools may wish to hasten their buying activity accordingly. After all, it won't be long before the onset of QE3 propels gold and silver to brand new chapters in their multi-year ascent.
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