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Monday, March 04, 2013
The Ultimate Precious Metals test is here. You believe or be prepared to panic.

The Ultimate Precious Metals test is here. You either believe or be prepared to panic.

March 1, 2013

By: James M. Carrillo

If you own gold and precious metals, you may be about to be tested. You either believe, or you don't. Technically Gold has crossed to a major sell signal on the close of February 28 2013 on my models. Fundamentally NOTHING supports it going lower, in fact this could end up being the opportunity of a lifetime as hedge funds panic sell and short term paper traders especially futures traders get hurt and dominate short term trends.

I personally see gold as a foundation to one's portfolio, it is an asset class that has no debt and no liability unlike paper assets like stocks and bonds that can go to zero.

If you have yet to buy gold or silver or have a very small portion of your assets allocated, your opportunity is coming to change that.

If you believe in gold and have a large portion of your portfolio in it may I suggest you turn off the TV and the financial news for a month or two because they more than likely will short term panic, and we all know what good that does. Our headlines now read: The Dow is back, the Real Estate market is back, but is it? Or is it concocted by money creation? Money created out of thin air backed by a desperate bankrupt government and nothing else.

Lets take a quick look at The Dow Jones Industrials, S&P500 and Real Estate from a purely fundamental standpoint and Precious Metals from both a technical and fundamental view shall we.

The Dow Jones & S&P 500

Has been rising on steadily declining Open Interest. The outflows have been immense, so how can the market be rising? I have my own theories, as do most. I see this as a bank driven recovery, bankers have been given trillions in free money at zero to .25 pct. from the Fed and are floating it in various stocks in order to get yield or a return and possibly by order of the Fed itself to regain investor confidence, which so far judging by open interest appears to be not working. As investors get back in fearful they might be missing something I suspect the bankers will sell into that, so be aware.

Real Estate

Has begun recovery. However, the fundamentals say this will be short lived. Incomes are not rising to support a sustained rally in prices, in fact income is still declining as workers are taking lower paying jobs, many part time jobs and unemployment remains very high, should rates begin to rise, look for prices to fall back from current levels. Foreign Cash buyers and investors have been the driving force in the housing recovery. New bank lending rules have become strict once again, banks are, like in the old days, requiring 20% down, which in many areas locks out new or first time home buyers in the most desirable prime markets like California and New York. It appears to me that we could be setting ourselves up for yet another bubble should rates rise too fast.

Precious Metals

Have broken down on all of the “technical” models that I have used for decades. They indicate we are heading down perhaps sharply as low as $1250.00 in gold and $20.00 in silver. Support levels in the nearer term for Gold are at $1525.00, $1425.00 then $1250.00, perhaps by as early as June as outflows could be rapid due to margin calls on highly leveraged futures market positions, these leveraged positions can create immense volatility.

From a fundamental standpoint, I can NOT see this happening, so I suggest using this as an incredible opportunity to accumulate physical holdings of both gold and silver as the speculator and media panic sell, I will be looking for the extremes to accumulate. The bottom line right now is that this will be purely technical selling with no fundamental basis to support it therefore, it could be a like a trampoline effect to much higher highs, down fast then rebounding to much higher highs. In a previous article I put it like this......

Based on our countries financial condition, I decided to look at this as a two option choice. I looked at the bottom line of the investment and savings options. I simply ask that you take the labels off of these choices and pick one based on these facts. You really do only have two real choices on where to save today when it comes down to it. Forget if it's widgets, digits, companies, CDs, bonds, gold, cash etc. Given just these facts blindly, knowing nothing else, I want you to tell me where you would save or invest.

Your choices:

Company A (GOLD) - Has been established for thousands of years. Has no debt, no liabilities, cannot go bankrupt, was recently funded by over 4 trillion dollars and will be funded by at least 1 trillion a year for the foreseeable future. This is just by one Country, but all others Countries are making similar moves. Its growth has been 10%-25% a year for over a decade. It depends on no one. Its historical track record has consistently spoken for itself. All Countries covet it, but it is consistently being downplayed by Company B. Its stock cannot be diluted or multiplied. It is accepted all over the world.

Company B (US Dollar denominated assets) - Has been around in its current from since 1973 when Company A no longer backed its operations. It is now by all rights bankrupt. Has 16.5 trillion dollars in debt, needs to create 1 trillion dollars in debt every year just to survive. It is also buying back its own debt with money it doesn't have, like using the Mastercard to pay the Visa. Its largest supporters are now questioning its practices, BUT it will guarantee a 1-2% return annually. Or you can put it into other investment areas that depend on its solvency to try to get a higher return. It consistently downplays Company A's success because it needs investors to stick with it in order to survive. Its stock is being diluted and multiplied at the fastest clip in its short history. It is no longer accepted everywhere and many are asking for the solvent company A for payment.

As the old adage goes, don't miss the forest for the trees, nothing has changed opportunity abounds if this event actually takes hold and I still have my doubts that it will. If the market fails to follow through on the technical sell signal this could be nothing more than a wash of the weaker players holding Precious Metals. Should gold rebound above $1660.00 per ounce on a monthly close, gold will head dramatically higher, as I suspect it will anyways over the coming years.

If you don't own precious metals yet, your golden opportunity is nearing, if you do own, your mettle may be about to be tested. Systematic accumulation of Precious Metals works and as Countries debase Currencies I can not think of a better investment opportunity for the coming years. 


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