Bill H has it nailed … a fine way to end this commentary:
To all; we have a small breather from the assault on $1,260 gold today. I am sure the bullion banks will try to make a hearty stand here at $1,260 as it is now the 3rd try. They may even try for another “Gold 2008″ or 2006 in natural gas where they sell paper contracts with abandon. Normally it would be disconcerting to me that so many are touting “seasonal strength” in Gold from Sept.-Dec. because when everyone knows something (it ain’t so no mo’). I am not concerned and here is why.
The “paper Gold” market is filled with “commercial shorts” as it usually is/was whenever we approached a smackdown in the past. I believe the commercials have a big problem and have overstayed their “guaranteed money game”. The shorts are already having some problems with supply and apparently are now experiencing some problems in making delivery. While the sale of more paper may have some short term traction, in reality selling more “unbacked” paper now will only create a bigger problem once the longs come to their senses and demand delivery. In other words, more short sales will only add more rocket fuel to the coming deliver defaults!
I know this view may sound self serving but the fact remains that physical supplies are already very tight in relation to “paper sold”, more paper will only exacerbate the situation. Maybe we get down to the $1,240-20 or even $1,200 level, I don’t think it matters now. I believe we will soon have a day where metals “melt up” through resistance levels and don’t look back. Too many longs are “out”, I believe the leverage today in mining shares is nowhere near where it was in 2008 and the Achilles heal of the paper game is starting to show in delivery difficulties.
I had believed we were very close to a strike on Iran which theoretically would have strengthened the Dollar temporarily, this may now be off the table as Citigroup, Goldman Sachs and JPM have all recently announced opening new offices there. IF a strike is truly off the table, the Dollar is toast! A toasted Dollar will only add more upside pressure to Gold, Silver and commodities in general. The biggest problem now for the shorts is that us “loudmouths with tinfoil hats” are finally being heard and are gaining credibility daily, in other words, more people are avoiding the the “paper safety valves” such as GLD and are opting for the real thing. Many others who have unallocated Gold are beginning to stir and ask for their physical. As time goes on, this “physical call” will end up blocking and ultimately destroying the shorts.
I write this today because I believe no matter how much traction the paper onslaught gets, YOU MUST NOT LOSE YOUR POSITIONS! Now is not the time to trade, be a hero or cute, now is the time to hunker down and hold fast. Once we break out to the upside, even the most ardent bulls will have a hard time mentally pulling the trigger to get back in. I can envision a scenario where “no one sells” which will create a vacuum to the upside. What I mean by this is that the mining shares will at some point have no offers. Can you imagine Newmont Mining moving up a full point on a 100 share trade or 3 points on 1,000 shares? I can and I believe this is exactly where we will be in the coming “mania phase”.
I believe what is to come will resemble the internet craze “on steroids”. The internet craze saw “crazy” stock action but “supply” was virtually unlimited and the industry was virtually “free” to enter. In other words anyone could invent a company called “I’m an idiot.com” with little or no capital and watch the market cap soar into the $ Billions! This cannot be done with mining concerns because one of the pre requisites is ownership or control over land where there are at least some prospect of metal in the ground. The cost of entry into this industry is huge and will only become more costly as metals prices increase. This barrier to entry will only become more and more severe as time passes! So hold on to your tickets because this ride is going to become very difficult to gain entry to once it begins. Regards, Bill H.
GATA BE IN IT TO WIN IT!
