Thursday, March 1, 2012

Gold & Silver Plunge

Gold and silver were completely demolished yesterday afternoon.  At the worst point of the day, gold fell over $100 and silver was down 8%.  The size and scope of the move was extraordinary.

As I have done during every downdraft since this site launched in 2008, I will remind readers to take a deep breath, stay away from mainstream "gold bubble" headlines and just go on with their day.  I have spent the last 20 months telling readers to hold their positions (other than in December 2011 when I was begging and pleading for readers to buy) and this week is no different.

The ECB has injected over $1.4 trillion of new (printed) currency into the financial system in the past 3 months.  Yesterday, they injected over $700 billion in a single day.  A few hours later, Bernanke said that his next injection of printed currency is temporarily on hold and the gold market goes into a panic.

It is similar to someone punching you in the face while another person standing next to you tells you that they will not be punching you in the face this month, so you ignore the person who is currently hitting you and believe that all is well.

The European Union, Japan, the UK, and the United States are currently bankrupt with no possible way of repaying the government debts they have borrowed.  They have two options:

1.  Tell voters and citizens that they will default on their debts.  Social security, medicare, pensions, food stamps, unemployment, and government pay stop or are cut drastically to balance the budget.  Taxes will need to be raised significantly.  Banks will fail, and the world will move into a deflationary depression.

2. Tell voters that they will continue to receive government support and that the worst is behind us.  Print the money to continue making the payments.

Some people strongly believe that the governments will choose the first option.  I believe they will choose the second.  I obviously am not certain of this outcome, and if you think that politicians will choose the option that will bring immediate pain and cost them their own job and source of income, then precious metals are not the investment for you.

Gold and silver are going to get far more volatile as we move forward.  They will experience downdrafts far bigger than what we experienced yesterday and for periods much longer than a few hours.  This will be an opportunity to add to your positions.  I will continue to monitor the sentiment levels and alert you when they reach extreme lows.

4 comments:

  1. Thanks! What are your thoughts in speculating in natural gas? That has been getting hit as well...is this a good opportunity to accumulate some?

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  2. AND ... if the market plunges (as widely expected), do you reco to sell ALL positions and wait in cash to swoop in like a Buffett and feast on the remains? wait! If it all falls apart, there won't be any swooping - there won't be any market. Holy smokes... so best to sell all now and buy physical. Before the screens go black...

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  3. I love natural gas because it is probably the most hated investment on the planet right now. However, it is currently a falling knife. There are dangers of buying the UNG (nat gas ETF) and some companies may struggle if prices stay low for an extended period. I would consult with a specialist before making a purchase.

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  4. Rick, I think it is impossible to time the market. I recommend a slow and steady accumulation strategy. I would keep a healthy pile of cash available for market liquidation periods. The problem with going 100% cash is you may wake up one morning to find out China has just made a huge purchase or a central bank is announcing a new easing strategy.

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