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.
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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.
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…
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.
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There will come a time, and based on current charts no one knows when, that prices for gold and silver will become prohibitive and/or governments will do what they can to inhibit (steal) ownership, maybe even making it criminal to own or use in transactions. [That being the case we advocate that you go “get”] physical gold and silver [while the getting is good], consistently and at any price. The point here is not to “make money,” but to preserve and/or create wealth. [Let me explain.]
Out of this doom and gloom, there are opportunities – major opportunities! Fear has taken over the stocks of the TSX Venture and the last time that happened, it was the greatest buying opportunity of our lifetime. So it is now. If you want to buy low, and later sell high, the bargains are now waiting to be plucked. How jealous everyone would be if you had the foresight to buy when prices were so cheap. So, what are you waiting for?
What happened?! is the question so many are asking about Friday’s waterfall in prices. A better question is, “Why?” Outside of the insiders, no one really knows. Yes, there can be some fairly cogent explanations, lots of glib answers, but no one knows, for sure. What we do know for sure is that the market is always the final arbiter [and this is what the market is saying:]
The paper gold market is being used to shake the bullish tree harder this time than any time before because of what is to come. Fear is the most powerful emotion in markets and it is being used perfectly to enrich the grand names of finance at your expense. We are right in front of that time when the market performs a classic bottom both in shares and physical. From this point gold is going to and through $3500 [so] if you are unable to buy at this time there is one thing you can do – to get into the fight and out of the stands. That act is do nothing, and do not capitulate. Let them play the price game, but give them nothing whatsoever of yours. Words: 758
By its obvious and concerted attack on gold and silver, the U.S. government could not give any clearer warning that trouble is approaching. The values of the dollar and of financial assets denominated in dollars are in doubt. For Americans, financial and economic Armageddon might be close at hand….
David Mcalvany (www.mcalvany.com) covers the reasons behind the major pullback in metals on April 12, and where they may go from here, in this most enlightening and re-assuring 8:14 minute video.
I have no problem with corrections in general, as they are a healthy part of any bull market and provide a platform from the which the next upleg can spring but something is not quite right about the recent price action in precious metals as the markets have become increasingly divorced from reality over the past few months. Let’s look at some of the glaring contradictions and then discuss the implications.
If central banks are preparing for a major change in the value of the dollar, shouldn’t we? The US dollar cannot and will not survive the ongoing abuse heaped upon it by government planners and federal officials. That not only means the gold price will rise, but that many, if not most currencies, will lose a significant amount of purchasing power. This has direct implications for all of us.
Everyone personally holding physical gold and silver, as we have been recommending, has no margin call to meet and no reason to sell. This is a temporary situation, and it will pass. Now is not the time to panic, as that is the intent of the central planners/bankers in forcing gold and silver through strong support levels. Stay the course. To the extent you can, continue buying the physical metal.