Gold stocks suffered a full-blown panic this past week! This exceedingly-rare magnitude of selloff was triggered by extreme futures shorting intentionally executed to force a flash crash in gold. After gold’s major multi-year support failed in this Machiavellian onslaught, gold stocks plummeted. The levels of fear were so epic that this entire sector was slammed much deeper into fundamentally-absurd price territory.
What if the withering selling pressure devastating gold and silver this summer is artificial? What if the traders dumping the precious metals don’t actually own them in order to sell them? What if 2015’s apparent glut of gold and silver has been mostly borrowed first and then sold? And what if these short sellers used extreme leverage to dump these metals? This scenario radically changes precious metals’ outlook.
A record short-covering frenzy is imminent…
Gold and silver are languishing near major lows, trudging through the barren sentiment wasteland of the summer doldrums.
The major factor behind this weakness is extreme shorting by American futures speculators. But their heavily-bearish bets are actually VERY BULLISH for both precious metals.
Not only do these traders as a herd always bet wrong at price extremes, their shorts are guaranteed near-future buying.
The US stock markets were quick to rally after the Federal Reserve did nothing at its June policy meeting. Traders love the endless dovishness gushing forth from this Yellen Fed. But their complacency is very misplaced. It was epic Fed easing that fueled the stock-market levitation of recent years. So the Fed shifting away from these extraordinary policies is a major downside risk for these Fed-inflated stock markets.
Gold remains deeply out of favor, languishing near major lows. Traders are still convinced gold is going nowhere, and want nothing to do with it. But provocatively that’s par for the course in early June, when gold slumps to its most-important seasonal low.
Gold’s seasonals are now bottoming, just ahead of the usual major surges in global gold demand coming in late summer and autumn. This is a fantastic time to buy.
Gold remains deeply out of favor thanks to global central banks’ extreme money printing. This fueled a global stock-market levitation that has temporarily short-circuited normal market cycles, leaving investors infatuated with stocks to the exclusion of prudent portfolio diversification.
This has left them radically underinvested in gold, which sets the stage for massive mean-reversion buying when they inevitably return.
The great endeavor of investing can be distilled down into four simple words, buy low sell high. They are so basic, so resoundingly clear, that even a child can understand this principle. Yet still the great majority of investors never achieve significant success. Even while full-well knowing the core idea of investing, they end up buying high and selling low. That treacherous struggle of investing must be overcome.
Gold has been fairly volatile so far this year, seeing plenty of big daily surges and selloffs. But with all these largely netting out to the sideways grind of recent months, gold’s price action has been frustrating for bullish and bearish traders alike. Gaming gold in these strange central-bank-distorted times requires closely watching its primary driver, the collective bets of American futures speculators. They portend a rally.
Silver has enjoyed a fantastic week, awakening from its bottoming slumber to surge with gold. And this strong silver investment demand is likely only starting. American stock traders and futures speculators control two of the world’s largest pools of capital active in the silver market.
And the former group still remains woefully underinvested in silver, while the latter still has massive short positions left to cover.
Gold stocks’ reign as the most despised sector in all the stock markets remains unchallenged. They’ve even been abandoned by contrarians. But such universal antipathy and apathy is the breeding ground for major bottoms.
And despite gold’s lackluster performance, gold stocks have actually been rallying on balance for 6 months now. Given their extreme undervaluations relative to gold, this strength is likely to persist.
Mexico has long been a silver juggernaut. The indigenous peoples had been successfully mining this shiny-white metal since well before the Spanish colonials swarmed the shores in the 16th century. Several hundred years of Spanish development globalized Mexico’s silver prowess. And still today in the post-independence era silver mining is still going strong.
The Chinese stock markets have been rocketing higher in a popular speculative mania. New Chinese investors are flocking to their local red-hot markets, borrowing heavily to buy hyper-speculative stocks. Like all past manias, this one is guaranteed to end badly. And when China’s parabolic stock indexes inevitably collapse, the global stock markets face serious risks of getting sucked into that fear-fueled stampede.
In simple-average terms, the elite S&P 500 stocks were trading at a staggering 25.9x earnings!
And in market-cap-weighted-average terms, their collective P/E wasn’t much lower at 24.0x. These levels are dangerously high. 14x is historical fair value for US stocks. 21x is expensive, and twice fair value at 28x is hyper-risky bubble territory.
The Spaniards of centuries past controlled the world’s elite maritime fleet. And this fleet’s colonization of the Americas is well-documented. The Spanish Crown would have told you their primary mission was to convert the indigenous people to Catholicism. But in reality it was trade and a craving for all things exotic that ultimately supported this campaign.
And perhaps the one thing that the Spaniards couldn’t get enough of was silver. In Mexico and Peru in particular they found hoards of this shiny-white metal. And via both conquest and discovery they quickly gained control of the world’s silver trade.
Though Spain no longer controls the trade today, Mexico and Peru are still atop the silver rankings, collectively responsible for about one-third of the world’s mine production. And this allows for fortunes to be made by the mining companies on the ground in these two countries. In Spanish the word fortune is translated as fortuna. And Fortuna Silver Mines is poised to live up to its name as one of Latin America’s premier primary silver producers.
Silver reversed sharply higher over the past week or so, surging dramatically. This was just after it had successfully retested major secular lows, ramping the odds this strong buying is the vanguard of a long-overdue major new upleg. As usual, silver’s coming gains will be fueled by gold’s own advance. As the yellow metal mean reverts higher initially on heavy futures short covering, capital will flock back to silver.
The mighty US dollar has been red-hot in March, rocketing higher on the incredible divergence of major central-bank policies. While the Federal Reserve’s first rate-hike cycle in 9 years looms, the European Central Bank has started aggressively monetizing sovereign debt for the first time ever. The resulting yield differential has catapulted the dollar parabolic, portending a major reversal and fantastic trading opportunity.
The bottom line is the parabolic US dollar is caught up in a popular mania of universal bullishness.
After just enjoying its second biggest and fastest rally on record, the USDX is the most overbought it has been since 2008’s once-in-a-lifetime stock panic.
After all past extreme parabolic surges, the USDX has suffered major corrections that erase most of their gains.
Odds are a similar reversal is imminent today.
The latest record highs in the US stock markets have unleashed astounding complacency.
Traders are utterly convinced that the past couple years’ massive Fed-fueled rally will continue indefinitely. But with today’s lofty stock markets extremely overvalued, wildly overextended, and rampantly euphoric, a serious selloff is looming.
The prudent contrarians preparing for this inevitable major reversal are going to earn fortunes.
Mexico’s massive precious-metals belts are some of the world’s finest.
As global #1 in silver production they are obviously quite well known for the shiny-white metal.
But these belts have also been flexing their gold muscles recently, placing Mexico among the world’s top-10 producers.
The US stock markets’ latest record highs have left traders exceedingly euphoric and complacent. They are utterly convinced this stock bull will power higher for years to come. But their enthusiasm is very misplaced. In real inflation-adjusted terms, the US stock markets only just regained breakeven levels 15 years after the last secular bull peaked. Now the secular stock bear ever since is overdue for a new cyclical bear.
Gold’s sharp early-year surge has fizzled in recent weeks as investment demand faded. The primary reason is the universal belief that the Fed’s upcoming rate hikes are very bearish for gold. Higher rates will make zero-yielding gold relatively less attractive, argues this popular thesis. But history proves just the opposite…
There’s no doubt the gold-mining stocks remain deeply out of favor, collateral damage from the Fed’s gross financial-market distortions of recent years. But sentiment is shifting, with stock traders starting to regain interest in this left-for-dead sector.
Gold-stock trading volume is really growing as capital returns. And since higher volume is an essential precursor to major new uplegs, its growth is a very bullish portent.
It was in 1896 when prospectors stumbled across large quantities of gold in one of the tributaries of the Yukon’s Klondike River. Word of this discovery spread like wildfire. And in no time at all prospectors from far and wide set course to get a piece of the action. The aptly named Klondike Gold Rush ended up being one of legend!