J.P. Morgan: "Gold is Money. Everything Else is Credit."
No, that's not a capitulatory concession by Jamie Dimon, but rather a quote from the company's namesake from the year before the creation of the Federal Reserve. It's as true today as it was then.
With that in mind, I strongly recommend that Fools give John Embry's latest article a careful read. John is chief investment strategist with Sprott Asset Management, the wildly successful hedge fund that has been on the correct side of the gold and silver bull market from the beginning. He states essentially everything I was trying to convey within my recent article "Your Last Chance to Go for the Gold and Silver", only he does so with greater effect.
As Dan Norcini reminds us, these inevitable corrections are essentially an exchange of assets from weak hands to strong. The algorithm-led momentum chasers of the big money world, combined with the least certain and most recently arrived portion of the retail public, has just been washed out of the sector with incredible speed. Enter the stronger hands like you, me, and longer-term oriented big money interests to accept unsavory gift, and we are left with a far stronger base from which to mount the next upward leg.
Again, like Embry, I am less concerned with divining the absolute bottom of this correction than I am with ensuring that I systematically adapt to the condition with continued and accelerating buying activity. If the president's speech about spending freezes has you spooked, then you may not be a strong hand in gold. Projections for this year's deficit alone just ballooned to $1.5 Trillion. The state and municipal debt crisis has yet to explode, and yet its detonation is unfortunately 100% unavoidable. The California pension fund (CALPERS) is being forced to accept 21.4 cents on the dollar for Lehman bonds ... a mere sign of things to come as these funds have yet to absorb their full derivative losses.
We're starting to see a bid come into the pm equities even on weak days for the metals like today. That's a sign of the strong hands coming in. You want to follow the money flows of the strong hands, not the weak ones. Buy into weakness, and raise cash into significant strength. This manufactured sell-off is designed to shake you out of your positions so that wealthy momentum traders can cycle their capital back in for a repeat ride on the end-of-year surge. Invest in gold and silver on your terms, not theirs. Keep some powder dry for $1,280-$1,290 if you consider that a likely critical support, but continue to hunt for anamolous bargains on the way down. The USDX has broken down through 78 yet again, and (absent another acute Euro crisis in the near-term) any disposition to remain below that threshold is likely to signficantly hamper the designs of the gold shorts to extend this correction to $1,280 or deeper.
Long and strong, and getting stronger every day...