Nothing says systemic risk in the global financial system and the breakdown of US-Russia relations over Syria like a massive bear raid in the precious metals. The paper prices of both gold and silver got absolutely ransacked from the second the Comex opened for business this morning. Check out the candles for the day in the context of the price action thus far in 2016:
Both metals took out their support and dropped off steeply underneath the 100 day moving average (aka the yellow line). Any way you slice it the price action was ugly – wedges, channels, and pennants of all varieties getting broken to the downside. I’m of the mindset that we shouldn’t put much emphasis on technical analysis given the level of manipulation in these benchmark prices. Regardless, it is incumbent upon me, as someone who steers focus to the precious metals and advocates for their use as part of every investor’s portfolio, to address the price action today and provide concrete thoughts.
Is this surprising?
It would be if we weren’t aware of the current fraudulent structure of how this price is determined. Unlimited selling pressure can materialize upon a whim of the banking cartel and deep state. This is not a real physical market. Paper contracts can be created and dumped ad nauseum. I don’t blame precious metals investors for feeling a bit of nausea today even if this pattern is nothing new.
Is the bull market over?
What should I do?
You should do what you do whenever something you want goes on sale: buy. Nothing about the investment thesis for gold and silver has changed. Even if risk parity funds are forced to unload low volatility and countercyclical assets in order to compensate for leverage in other asset classes creating a bizarre scenario where risk off doesn’t mean what it usually does, the case for precious metals due to global risks is only growing stronger. In other words, don’t get shook out because of some algorithm driven asset reallocation breakdown that has absolutely nothing to do with the bigger picture. If this makes you want to sell, then you should check your conviction in the original thesis. Don’t get flushed. The weak hands always get forced out before the real move can begin.
What about the dollar?
The dollar strengthened today, but keep in mind that dollar strength is being measured against other fiat currencies. Fiat currencies all go to zero, and that’s where the dollar is eventually going. People also now think that the Federal Reserve is not more likely to raise rates in December than not. The only way I see that happening is if the Fed wants to bring down the house around Trump when he wins the election.
What happens next?
One option is that the flush will continue at least for the rest of the week. Keep in mind that this is a Golden Week in China and the markets are closed, thus no arbitrage opportunities are possible with the Shanghai Gold Exchange and the Comex has a more open hand than usual to force meaningless paper contracts and derivatives down everyone’s throats. Another option is that strong buyers will come in and the flush will be short lived. The latter is more in line with what we’ve seen in 2016, but the former is on the table right now for a specific reason: desperation. Gold and silver prices usually get forced down prior to events that are positive for the metals in order to keep the price action from getting out of hand.
Take a breath. Examine the context. Ask yourself if the reasons to own precious metals have changed. Continue to exchange paper with no intrinsic value for hard assets that have preserved their purchasing power for all of human history. Look at Venezuela. Take advantage of the sale prices. Keep your eyes open. When you’re playing the long game against the most corrupt systems in history, you can’t get shook up when you take one on the chin. It isn’t fun and it doesn’t feel good; that’s for sure. But if you know what must win in the end and have prepared and allocated accordingly, all you have to do is chuckle at the obvious corruption and keep on accumulating real wealth. The inevitable is still inevitable.