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Don’t be fooled [by] the majority of investors getting caught up in this manipulated
panic selling [of] their gold and silver mining shares for pennies on the dollar to chase the overbought equities. [You] could be capitulating at exactly the wrong time as this panic cannot continue for much longer.
So writes Jeb Handwerger (http://goldstocktrades.wordpress.com) in edited excerpts from an article* initially posted on seekingalpha.com under the title Don’t Get Caught Up In Panic Selling And Capitulation In Precious Metals.
This post is presented compliments of Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) and the Intelligence Report newsletter. You can also “Follow the munKNEE” daily posts on Twitter or Facebook.
The article may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read.
Please note that these paragraphs must be included in any article re-posting to avoid copyright infringement.
Handwerger goes on to say in further edited excerpts:
Bear market bottoms are marked by frenzied selling after an extended downtrend of 18 months…[so] the record amount of precious metal bears and short sellers getting caught up in this emotional panic may [be forecasting] that the downward trend [of] almost two years in the mining stocks and precious metals may be coming to an end. Capitulation and downward gaps, in technical analysis called “island reversals” or “exhaustion gaps”, many times mark the bottom or end of the previous downward trend.
Short term, the majority of investors may be running to the U.S. dollar and U.S. large caps, but long-term capital will step up to support the precious metals and mining sector at historically low valuations in the midst of a fire sale. Eventually, we could see powerful moves back into the Venture Index and the junior miners as the shorts exit and new buying enters. [In addition, with] fiat currencies being actively debased, Central Banks [likely] are quietly purchasing gold as the price declines…to add to their physical positions.
The Venture Index appears historically mispriced and discounted, indicating it’s buying time for long-term value investors, not selling time. The world will continue to need natural resources, precious and industrial metals. This is definitely not a time to get caught up in the panic in the resource sector and follow the masses.
The Canadian Venture Index (see $CDNX symbol on stockcharts.com) is testing 2008 lows and near 2003 and 2000 gold valuations of below $400 an ounce, $5 silver and $1 copper. The only reason to sell miners is if the market or share price fully reflects the value of the underlying assets. The miners are trading at historic discounts to net asset value and record low P/E levels.
(Click to enlarge)
Be careful of being shaken out of your precious metals and mining shares during a high volume capitulation. The Gold ETF traded record annual volume and has had a series of downward gaps into new 52-week lows on no news. Waterfall declines like parabolic rises usually mark major turning points. The dumb money usually buys into parabolic moves and sell into waterfall declines. Smart investors must try doing the opposite to buy assets at fire sale prices and sell into public bubbles.
In 2008-2011, we saw a similar bear market and shakeout in U.S. housing, where many investors walked away from their homes at the bottom going into foreclosure, destroying their credit and capitulating. Four years later housing and the U.S. equity markets recovered. Investors who panicked during the 2008-2009 decline should’ve stayed the course.
We could witness something similar in housing back in 2008 with the junior miners and precious metals in 2013. Precious metals funds are seeing a record number of redemptions and the majority may be getting fooled as they may be selling out or near a major bear market bottom.
Selling based on negative sentiment, fear and emotions rather than fundamentals is akin to gambling. We may be witnessing classic capitulation in the junior gold miners and precious metals, as investors are selling just because prices are falling not because of negative news or fundamentals. The recent gold and silver decline to new lows on a series of gaps could be a trap as the fundamentals for precious metals are stronger than ever…
Conclusion
Gold and silver and the junior miners may be in the midst of panic selling and capitulation but savvy investors who study market history look for these fire sales to buy deeply discounted and quality assets. Experienced, long term, value investors know how to control their emotions and think with their head, studying the fundamentals and balance sheets during irrational times and buy assets, while others are gripped with fear, inaction and hysteria.
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
*http://goldstocktrades.wordpress.com/2013/04/
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The one thing I would like to know is where can one buy deeply discounted PHYSICAL PM’s?
Brokers dropped their prices a bit but I did not see any deep discounts!
As for PM stocks, I look to China and other Countries with massive amounts of US Dollars to scoop them up at bargain prices.
I hope someone can post an article illustrating who bought all the shares that were sold, was it individuals or the BIG$… If it was the BIG$, then was nothing more than another move to absorb wealth from the small shareholders enabled by market manipulation. If I am right then PM’s stock are much more prone to manipulation than the physical PM’s and investors should remember 4/15/13 as a prime example of why this statement makes real sense (pun intended).