Nothing Has Changed for Gold and Silver
July 19, 2010
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Stay the course, intrepid precious metal longs. If you want to try to get fancy and play this pullback by pulling out some exposure and trying to get back in near the next major support around $1,150, I am not here to argue against that sort of trading ... just accept this friendly reminder that as quickly as the momentum shifted from a bullish springboard in a cup and handle formation a few weeks ago to an unexpected pullback amid tectonic shifts of paired trades in the FOREX market, it can launch higher again with similar ferocity.
In other words, provided you are as confident as I am in the continuation of the longer-term secular bull market for precious metals, and in your assessment that nothing fundamental in the economy has suddenly reversed itself to render precious metals a less attractive vehicle for protection, then one has an important job to do in comparing the theoretical opportunity costs between the two strategies ... staying long and strong while the vioent swongs play out, or trying to get fancy and time a manipulated market.
As I've said before, I've had some uncanny success trading out of maybe 5% or 10% of my pm exposure at strong highs and trading back in where I see key support. This past time, the near-term move caught me off guard, and I have little capacity to play this particular move. Fortunately, I don't perceive any likelihood that this will be a prolonged nor severe slide. Once the longs figure out that much of the selling pressure is coming from trading one paired FOREX strategy for another, they too will go long and strong to insist that such games do not impact the gold price for long.
For a few weeks here, the Euro came out of focus and the incredibly impaired USD came into focus. It is my (speculative) opinion that all the resulting shifting of capital is primarily responsible for this slide ... along with a hefty dose of pile-on heft from the bullion banks who understood just how critical it was for them to hold the line on their short positions when $1,265 crossed the tape amid strong technical indicators. It was one of several key "judgement days" for the bullion banks, of which we will see more. As longs, we are in a long and enduring battle of wills against those leveraged price-suppressing positions of the bullion banks. As longs, we are also in a constant battle against the psychotic mania of enormous hedge fund positions in the gold market. Their disruptive presence in the market shifts mindlessly between long and short biases according to hyper-short-term market flows, such that a single concerted attempt by the bullion banks to hold a key line of resistence can experience a significant pile-on effect. When you toss in a tectonic shift in paired currency trades as I mentioned above, the result can be quite dramatic and leave bullion bank executives sharing celebratory cigars at our expense.
There are only two things that we have in our arsenal, as a popular collective of resolute precious metal longs:
1. Stay long and strong. Weaker hands only make it thst much easier for the professional shorts to trigger their momentum-driven sell-offs. They prey upon those weak longs, and laugh all the way to the bank. I'm not asking anyone to sacrifice their own capital for a cause (as I mentioned, I too trade in and out of positions with a small portion of my pm allocation) ... nothing like that... the fact is that I believe a stronger long position that can't easily be shaken in and out of the market is the strategy for gold and silver that will yield superior returns over the long haul. In my opinion, active trading in this market is best reserved for only a very small portion of one's own pm allocation.
2. Take physical delivery. The entire arsenal of the professional shorts consists of naked short positions backed by nothing but meaningless paper leveraged as much as 100:1 over any realistic capacity to supply physical metal. A stranglehold is maintained around COMEX gold by means of a ponzi scheme, and like anyt ponzi scheme the only thing that can break its grasp is a calling of the bluff. In this case, it just happens to be mother of all ponzi schemes, and it will take a group of dedicated, and preferably deep-pocketed longs to tear the pyramid down.
Look what this poor lady had to go through just to withdraw her own silver bullion in one of the more insane stories of problematic delivery on pm certificates. Don't let this be you:
http://www.theglobeandmail.com/news/national/christie-blatchford/an-unkind-complicatedness/article1643419/
Consider investor Harvey Organ's experience with the very same bank back in 2008:
http://www.fool.com/investing/general/2010/04/13/everybody-out-of-the-gold-pool.aspx
Notice a pattern? They either don't have the bullion on hand, or they are desperate not to part with it. In both cases, it tells a clear tale of systemic impropriety.
Meanwhile:
http://www.reuters.com/article/businessNews/idUSTRE66I05U20100719
(Reuters) - China should cut its holdings of U.S. Treasury securities when market demand is strong, a prominent economist said in remarks published on Monday.
"When demand for U.S. Treasury securities is strong, it's a rare opportunity for us to gradually pull back. That way, it will not have a big impact on prices and China will not suffer too much," he said.
Zhang Monan, a researcher with the State Information Center, a think tank under the powerful National Development and Reform Commission, told the paper that China should invest more of its $2.5 trillion of foreign exchange reserves, the world's largest stockpile, in hard assets such as gold.
Nothing has changed for gold or silver. This dip is merely noise, or a fortuitous trading buying opportunity for any laggards looking to step into position for the next big run-up. Stay long and strong.
Strongman (TMFSinchiruna)
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