The platinum price dropped as low as $1,410 per troy ounce yesterday morning, but has recovered slightly since. Worries about the euro’s survival are currently weighing on precious metals, with growing rumours about a Greek exit from the euro – which some predict could happen after elections in June. These fears continue to benefit the US dollar, which in recent weeks has been climbing to new highs. But this appreciation in the greenback has been weighing on precious metals prices.  Learn to Trade in Just 7 Minutes a Week Get It Now

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caseyresearch.com / May 25, 2012

Dear Reader,

Sitting here in the wee hours on the fringe of the Memorial Day holiday, first cup of coffee at hand and an excellent live version of Safe from Harm by Massive Attack playing at moderate decibels, I suspect that my contribution to today’s missive will be somewhat shorter than usual. If for no other reason than that the kids have the day off and it’s been one of “those” weeks, so the idea of putting away the tools early is tugging at my sleeve.

To that end, a bit later on I will share the reprint of a controversial article that I have had on my desk for a couple of weeks. It’s long and may evoke all manner of reactions (though hopefully none of them violent), but will also make you think.

Before we get to that, however, some quick comments on gold and other commodities.

The Golden Constant

Glancing at the news most days, it’s hard not to feel like Bill Murphy’s character in Groundhog Day. In the event you are unfamiliar with the movie, in it Murphy’s character becomes trapped in the same day… day after day.

In the current circular condition, we have the powers-that-be assuring us that the next high-level meeting will finally produce a permanent fix to the broken economy, essentially solving the sovereign debt crisis. Then, in no more than a few days, or at most a couple of weeks, the fix is revealed to be flawed and the crisis again sparks into flames. Followed shortly thereafter by yet another high-level meeting – and the cycle begins anew.

While the characters may change – one week it is Greece, the next it is Spain, the next it is France, the next it is the US, the next it is Greece again, etc., etc. ad nauseam – the detached observer who steps back to a distance sufficient to view the larger picture can only come to the conclusion that we are now well outside of the bounds of the normal business cycle.

As we here at Casey Research have written on this topic at great length, I don’t intend to dwell on this topic today, but I did want to loop back in just long enough to comment on the recent price action in commodities, especially gold, in the face of the continuing crisis.

Today, a glance at the screen reveals that gold is trading for $1,565. For comparative purposes, as revelers warmed up their vocal chords to sing in the New Year on the last trading day of 2011, gold exchanged hands at $1,531. And exactly one year ago to the day, gold traded at $1,526 for a one-year gain of a modest 2.6%.

A year ago, the S&P 500 traded at 1,325, while today it trades at 1,318, a small loss. Yet, have you noticed we don’t hear much about the imminent collapse of the US stock market, as we do about gold? This perma-bear sentiment about gold on the part of what some people lump together under the label “Wall Street” is especially apparent in the gold stocks.

Using the GDX ETF as a proxy for the sector, we see that the shares of the more substantial gold producers are off by an unpleasant 24% over the last year. More on the topic of gold shares momentarily, but first let’s round things out by also looking at the price action of a couple of other core components of the global economy.

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For instance, a year ago, a barrel of WTI crude sold for a tick over $100. A couple of weeks ago, it was still selling for $102, though it has slid a bit to $91 today. Even so, that is still considerably higher than where it traded as recently as New Year’s 2008, when it was just $38 per barrel. Since that low, the price of oil has made a steady advance and for the last year and a half has traded right around $100/bbl.

Then there is the matter of base metals. Copper, for example, traded at $8,980 per tonne a year ago, and is today at $8,289, a loss of almost 11%. Likewise, the iron ore price is off by 15% over the last year, and zinc is off by 13%. Even the minor monetary metal with industrial applications, silver, is off 8.39%.

With that “baseline” in place, I would like to now turn to the current outlook for gold, and touch on some of the other commodities as well.

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I’ve read articles from more than one analyst claiming that gold stocks are down on low volume, implying there’s a lack of interest in precious metals. While on the surface that seems like an obvious statement, their point is that most of the recent volume has been coming from sellers and thus exaggerating the recent decline.

I decided to test this hypothesis, because if correct, it has investment implications, starting with the fact that at some point you run out of sellers; and if and when buyers return, the ensuing rise could be spectacular.

I also wanted to compare volume now to the waterfall decline in 2008. If volume is starting to spike now like it did then, it might give us some additional clues about our current environment and what to expect going forward.

So let’s take a look. The following chart shows the average weekly volume of the 10 largest gold producers that trade in North America, along with the daily price movements of GDX, the Gold Miners Index.

(Click on image to enlarge)

While the number of shares trading hands every day fluctuates a great deal, the first thing that jumps out is that the current correction in gold is indeed occurring on relatively low volume. You can see how GDX has sold off since its peak last May, but also that, in the larger scheme of things, volume hasn’t really changed.

This fact indirectly confirms the premise that it’s been mostly sellers providing the recent volume. If there were equal interest from buyers, prices would be flat; or if they were pushing harder, prices would be rising.

The second thing that sticks out is how low the volume is now compared to the selloff in 2008. It’s roughly half what it was then, signaling that equities aren’t being dumped en masse like they were four years ago. This meshes with a recent observation by Doug Casey, that as steep as the current correction is, we’re not seeing the raw panic we saw in 2008.

So what might this mean going forward?

First, at some point the sellers will tire or we’ll run out of them – especially if gold prices hold up at or near current levels. At that point, even without any major changes in our market fundamentals, interest from buyers could swamp out the sellers; this is what is meant by a “consolidation phase” or a “regrouping” before the next surge upward. And if buyers become the dominant player in the market, which could easily occur once gold heads north again, stock prices could push dramatically higher.

Second, regardless of the sellers’ reasons, they’ve managed to make gold equities incredibly cheap. The stocks of the better gold miners have become nearly as undervalued as they were during the worst of the financial crisis – without the same level of crisis and uncertainty. Stock prices are not at the same level they were in 2008, but relative to the price of gold they are. These facts point to an extraordinary opportunity. Unless you think gold has peaked for this cycle and it’s downhill from here, this disconnect cannot and will not last.

Here’s another way of looking at it. Caesar Bryan, portfolio manager of the Gabelli Gold Fund and speaker at the Casey Research Recovery Reality Check Summit last month, recently relayed an interesting point he’d heard from Don Coxe. For a $1,000 investment right now, you can get about 0.6 ounces of gold. However, for the same $1,000, you’d get four ounces of gold by buying shares of Goldcorp… or more than five ounces buying Eldorado Gold.

This represents incredible value if you’re a gold equity investor. These kinds of opportunities only come along rarely in a bull market. The last time was four years ago – with a lot more risk amidst the crash. That didn’t last forever, and neither will this window of opportunity.

When this imbalance between gold and gold stocks corrects itself, the returns will be positively smile-inducing, perhaps life-changing.

Are you hearing the message that volume is sending right now?

[For any investment to pay off, it must keep ahead of the US government's unceasing efforts to rob citizens of their savings. Several traditional vehicles are losing this battle… but gold and gold stocks continue to shine. Now may be the ideal time to get properly positioned in them.]

Note that during the financial crisis of 2008, the real price of gold began rising several months before gold itself. In the chart below we plot gold, gold/commodities, gold/foreign currencies, and gold/stocks. gold/commodities bottomed in June while gold bottomed relative to both currencies and stocks in September. Turning to the present, we see that gold/commodities has maintained an uptrend during a corrective period while gold priced in foreign currencies has rebounded from support and while gold relative to stocks may have just bottomed.

As we’ve written many times, the RPG can be a leading indicator for the miners. Below we show the HUI/gold ratio, the HUI, the gold/oil ratio and gold/industrial metals ratio. Note that significant advances in the gold/oil and gold/metals ratios initiated two strong cyclical bull moves in the gold stocks from 2001-2003 and from 2008 into 2011. If those ratios rise to new highs then it would definitely signal the inception of a new cyclical bull in the gold stocks.

While the RPG surged into the 2011 Euro crisis, it wasn’t sustained as the crisis abated and there was no real threat to the economy. However, at present, the RPG is starting to move higher as the Euro crisis intensifies and as economic data continues to disappoint. If these troubles are only temporary then gold stocks will remain in a cyclical bear market. However, if these troubles persist through the summer and into the fall then they should kick-start the next cyclical bull market in the gold equities and a move in Gold to $2000/oz. The reason is simple. Persistent credit stress and a weakening economy will require more Fed action and action from the ECB.

The former is painful as it creates volatility and liquidation events but it also creates opportunities. We saw it in 2008 and we are seeing it now. With regards to the gold shares, proper stock selection is paramount as select stocks will dramatically outperform GDX and GDXJ, even as they recover. GDX recovered more than 300% in a little more than two years. Sounds fantastic right?

Check out the gains from producers over a two and a half year period. These were producers and not exploration or development companies. Now we are not implying that these numbers will be duplicated from 2012-2014 but it is certainly possible since many stocks will be starting from low levels. Simply put, the growth-oriented producers offer the best risk-reward and we urge you to focus the bulk of your capital on this segment of the market rather than speculating on risky exploration stocks. If you’d be interested in professional guidance in this endeavour, then we invite you to learn more about our service.

Good Luck!

Jordan Roy-Byrne, CMT
Jordan@TheDailyGold.com

Ultimately gold may move lower but the bounce this week has come  from  oversold RSI levels and they have now moved over 30.   Williams has moved over 80  and this became a buy on Thursday. The histogram is still negative slightly and the MACD has not yet crossed over but it may continue to advance at least to the moving averages overhead.

We posts the gold futures chart each morning and it is generally visible on the live page. Here it shows the break over the 30 RSI line almost catching the bounce at the lower channel support and if you missed that the buy on the break of the top channel resistance.

GLD had dropped totally under the lower Bollinger band midweek but closed back above it and increasing volume. A move back inside channel would probably bring even more buying.

We added three gold stocks to the watch list last week, RGLD, NEM and NG. This one did break over that $5.56. resistance to drop slightly back under before the close. It has a decent little base going for it and may this week  get back over the initial buy point.

As we write about and post charts of over 50 stocks per week we found it interesting that NG Tweeted a thank you note on our inclusion of their stock to the watchlist as we have never received such a note from a specific company before.

We had not posted this chart is a long time but did so last week as it is a ratio chart of GDX gold miners versus the price of gold. We thought it may be possible that gold mining shares may start to outperform gold metal but as you see the metal at the moment preceded movement in the stocks.

The gold miners on the 60 min. chart ran slightly above this top down trend line but closed just underneath it on Friday.

Now that our mechanical gold miners ETF has shifted back to buy mode after being short for the last couple of months it would be nice if we have some extended movement in gold stocks and this one were to run up nicely.

The silver weekly chart did drop below its lower Bollinger band and put in a nice hammer candle. In the last two lows after doing this it had a decent rally and may do so again but eventually is likely to at least test this lower trendline.

So far this minor bounce on the silver futures chart came just slightly above the previous low though once again RSI was under 30 and is moving up though still slightly under.

The SLV  60 min. chart gapped over the descending channel. So now if it drops to the top of the line should again become support as should the 20 period  MA.

Our mechanical SLV trade has a one green bar so is not quite triggered long but will do so with out much movement higher.

With some worries of weakening economies and doubts of Europe copper lost 5% this week closing right at its 200 week EMA

Palladium had its loss  in the previous week as this week dropped only five cents.

The Euro futures so far bounced at the support but not yet signs of and upturn from  over sold RSI – would expect to see so this week.

In this piece we are going to look at the equities because they lead the metals at key turning points. This was the case in 2007-2008, the end of 2008 and most recently, in 2011. Predictably, the mining equities will lead the next rebound.

Below we show a weekly chart of GDX. GDX was down 9 of the last 11 weeks and until yesterday, 10 of the last 12. The market has formed a very bullish reversal candlestick at the 50% retracement and on the highest weekly volume.

Next we show GDXJ, the “juniors” though it is comprised of mid-tier producers and larger explorers and developers. GDXJ has declined in 13 of the past 16 weeks. The market plunged at the start of the week but has now reversed most of the losses. The volume has been massive this week. Look at the tail on that candlestick!

Ok Jordan, those charts are great and all, but how do they compare to 2008? First, let’s compare the breadth which is a fancy word for how much of the sector is going up or down. One breadth indicator anyone can use is the bullish percent index (bpi) which shows the percentage of stocks on a Point & Figure buy signal.

In the chart below we compare 2008 and 2012 using the BPI. During the initial respite in August and September of 2008, the BPI (using a 5-day moving average) bottomed at 32%. Presently, the BPI is at 11%. At the ultimate low in 2008, the BPI was at 5%.

Next I want to compare the current price action to the price action in 2008. Presently, the gold stocks put in a great weekly reversal, at the 50% retracement after declining in nine of the past 11 weeks. In the summer of 2008, the gold stocks attempted to rally after declining for five straight weeks. The HUI formed a bullish hammer at the 50% retracement (2000-2008) after declining in seven of the past eight weeks (with one week being a push).

Judging from the technicals and recent sentiment data (presented in our Monday editorial), it is clear that the gold stocks are currently more oversold and much closer to a major bottom relative to the failed recovery in the summer of 2008. Breadth is far more oversold and the market has been in decline for several more weeks. Moreover, in our previous update we noted how sentiment indicators were nearing October 2008 levels. On Wednesday, the daily sentiment index for Gold reached 5% bulls. Assets in the Rydex Fund, which were $350 Million at one point, fell in three days from $103 Million to $91 Million.

We can form a conclusion based on the technicals and sentiment but developing events can can have an unforeseen and unpredictable impact. There are two fundamental forces that will impact the charts. First, we need to consider the ongoing turmoil in Europe and how and when it could negatively impact the market. Second, we have to juxtapose that with the inevitable monetary response which will be very bullish for Gold and gold shares. At the same time, we need to weigh those events with the market’s response. Currently, the gold shares have begun a predictable rebound, and this rebound will go a long way in confirming or not confirming our previous prediction. If you’d be interested in professional guidance along the way, then we invite you to learn more about our service.   

Good Luck!

Jordan Roy-Byrne, CMT
Jordan@TheDailyGold.com

Gold Report Sign Up Below

On Gold:

Gold has now made a bullish reversal on a weekly basis, as price rallied sharply on Thursday and Friday.
Support held, which means Gold could be on the verge of setting a double/tripple bottom around $1,550:

Chart courtesy Prorealtime.com

On a monthly basis, we can see that the Bollinger Bands are narrowing, indicating that volatility has been low over the past couple of months (although it might not have felt like that for some traders). Volatility will not stay this low forever, so Gold is now getting ready for the next BIG MOVE. Notice that I am talking about a MONTHLY chart here, I am not talking about the day-to-day volatility (which has been quite extreme from time to time). This also means that it might take several more months before the next BIG move actually starts. However, keep an eye on the monthly Bollinger Bands, and follow the trend when the next Big Move starts.

Chart courtesy Prorealtime.com

On Silver:

Shorter term, we can see that the Commercials have reduced their Net Short positions in Silver to 15,980 contracts, a level not seen since late 2011, a time when Silver set a bottom at roughly the same price level as where it is trading today:

On Gold Miners:

The chart below illustrates the fact that Sentiment in Gold Mining Stocks is extremely low (illustrated by the Bullish Percent Index, which shows the % of stocks with a Buy signal on the Point & Figure Chart) . The green vertical lines show that almost every time sentiment is depressed, the HUI index is about to turn UP. The only 2 times it didn’t mark a bottom was in late 2008 and more recently, a couple of weeks ago.

Chart courtesy stockcharts.com

Not only is sentiment in Gold stocks depressed, it is also depressed relative to sentiment in the SP500, as illustrated by the chart below, which plots the ratio of $BPGDM by $BPSPX (the % of stocks in the SP500 with a Buy signal on the Point & Figure chart).

We can see that whenever sentiment in Gold miners (lower part) was depressed, it was not just “depressed”, but it was also depressed relative to sentiment in the SP500, and soon sentiment turned up in favor of Gold mining stocks

Chart courtesy stockcharts.com

On Equity markets:

The SP500 has now reached the 61.80% Retracement Level from the bottom in October 2011 to the top in April 2012.
Bollinger Bands are still widening, indicating that the Bottom is still not in sight. We haven’t seen real capitulation yet, although the SP500 was down 11 out of 13 trading days, with a maximum 0.25% rally on May 10th.
Next support comes in at 1,250-1,260 (50% Retracement Level & previous resistance line).

Chart courtesy Prorealtime.com

…

52.40% of the stocks in the SP500 are trading at the lowest level in 50 days, which is 5 standard deviations from the mean, which doesn’t occur that often:

Chart courtesy indexindicators.com

The following chart shows that the best times to buy stocks was in 1949 and 1982, and the best time to sell stocks was in the mid-60′s and in 2000. If history is any guide, then we should wait to buy stocks until this cycle is finished. This means it could take another 8-10 years before the next big Bull market starts:

Chart courtesy thechartstore.com

I then checked out the SP500 Inflation-Adjusted Total Return Index itself. We can clearly see that the index has been in a consolidation phase since 2000, just like from 1929 to 1949 (20 years) and from 1962 to 1982 (20 years). If this cycle (consolidation phase) also lasts 20 years, it means we have to wait until 2020 before the next bull market starts, which is in line with the statement above:

Chart courtesy thechartstore.com

On Bonds:

TLT is trading at 24.98% above its 150 weeks Exponential Moving Average and 29.82% above its 200 weeks Exponential Moving Average, which is quite stretched:

Chart courtesy stockcharts.com

In the original article, we look at Sentiment Charts, Put/Call ratio’s, UP issues Ratios, and more.

The entire article is available for subscribers only.

I have decided to only accept new subscribers until June 30th. From then on, my services will be open to existing subscribers ONLY. To secure your membership now, visit www.profitimes.com and subscribe now!

Gold Report Sign Up Below

[To be a successful speculator, one must be willing to go against the mainstream investment trends, as John is. There's no better way to get a primer on contrarian investing than by sitting in on the recently concluded Casey Research Recovery Reality Check Summit – and you can do that by ordering the Summit Audio Collection today. Every presentation, every chart and graph, and every actionable investment tip can be yours, in either the instantly available MP3 files, or in CD format.]

Louis James: Ladies and gentleman, thanks for tuning in. We’re at the Casey Research Recovery Reality Check Summit. We’re talking with John Hathaway, one of the more successful fund investors – institutional investors – in our precious metals field near and dear to my heart. John, can you give us a quick version of what you talked about here, for those who didn’t make it to the conference?

John Hathaway: Sure, yes. I think we’re at the end of a correction that resulted from the peak last summer. It was overcooked, kind of hyperventilated hysteria over the debt-ceiling talks, the rating downgrade of the US sovereign debt, and I think basically the stocks and the metal had been working off that boiled down to what we now have is a simmer. I think we are at a position where there’s not a lot of downside, and I would not be surprised by revisiting the previous highs of $1,900 and maybe even new highs over $2,000 this year.

What will do that is basically – so much of the narrative has been quantitative easing. When Bernanke announced on the 29^th of February that they were done with quantitative easing (and if you believe that I’ve got a bridge to sell you, but for the time being let’s assume that there won’t be any), I was very impressed that gold did not go to a new low. It printed somewhere below $1,600 at the end of the year, made a couple-of-day swoon, but it didn’t go to a new low. And then when the Fed minutes came out it also did not go to a new low, it kind of reiterated what Bernanke said. So the narrative may be changing. I’m not ruling out quantitative easing as a possibility, but there are things out there that gold might be looking at that the CNBC mentality hasn’t figured out.

Remember that gold rose for many years before we even heard of quantitative easing; it was in a steady uptrend. So what could those things be? What would take gold – what would be the new headlines that might take gold to higher highs? To me, the biggest thing is that the Federal Reserve has purchased something like 61% of all new Treasury debt in the last year; and if they aren’t going to continue that, then what’s going to happen to rates?

Louis: Right.

John: The Chinese – who had been big supporters because they were rigging their currency – have not been generating foreign exchange to anything like the extent they were, so their participation rate in Treasury auctions has gone way down. If you look up the TIC numbers, foreign buying of Treasuries has dropped precipitously, so you have the two biggest pillars of support for keeping rates low in question here, and let’s see what happens on June 30^th. If you don’t have a political buyer, either the Chinese and foreign buyers who are manipulating currency, and the Fed because they said they aren’t going to do it, what are rates going to do?

If you are going to get a risk-free return inflation-adjusted today that’s not politically motivated, it’s got to be somewhere around 4-5% on the short end of the curve. Every hundred basis points adds a huge amount to the budget deficit, so to me we’re in a real trap here, where it’s going to be a game of chicken as to whether the Fed can really live up to what Bernanke said on the 29^th.

Louis: Isn’t that really the bottom line? They can’t allow that interest rate to rise with the debt outstanding –

John: It seems very difficult. The recovery, the alleged recovery that we had, is very… I’ll grant that things are better than they were a year ago or two years ago, but you’d have to call it feeble at best and maybe not sustainable. That’s one thing that I think could affect the gold market.

The second thing, and I think it’s very important too, is that inflation is rising. Even though the economy is soft, the number I look at – and I know we’re going to have John Williams speak at lunch, and we know he has a very good take on it – is the MIT Inflation Index, because that’s real-time pricing of billions of products. You can get to that website just by googling “MIT Inflation Project”; and that does not include services. Most of the services I take are inflating at more than 5%; they are closer to 10%. But goods that could be measured in real time are rising at 5%, so that’s also going to be a factor. That means if rates stay where they are, the Feds are just going to be that much more behind the curve.

So those are two things; and the third thing is that there’s $1.5 trillion of liquidity in the system that should the recovery – and I’m not a macro forecaster, but let’s say the recovery does sustain itself – you’ve got $1.5 trillion of free reserves that could just turn into money supply. Then you really would have a potentially hyperinflationary scenario, and the Fed would be completely powerless to do anything about it. So I think that’s bullish for gold – gold is not backward looking, it basically looks forward. I can go on and on. You’ve got the European unresolved sovereign debt crisis in Europe.

Louis: Let me jump in with a question about this, then. You’ve stood out really from the crowd in that most people agree on the general prognosis for gold. Most people are sort of near-term bearish, you know, the ones –

John: It makes me so happy.

Louis: [Laughs] But, you know, once a bear sentiment sets in, it seems to almost have its own momentum.

John: Yes.

Louis: You’re the only who’s saying “I think we’re near the bottom.” Most people are saying, “Sell in May and go away” –

John: Yes, I heard a couple of things from this session that just made me want to jump up and buy –

Louis: I understand the contrarian reason for that, but can you tell our audience a couple of reasons why you think we might be near the bottom or why you’re ready to buy now and not waiting to see how this summer turns out?

John: Sure. Well, first of all, I’m not a trader. I mean, I’m long, and last summer I thought, “Gee, this is really a little spooky, we’re not at a sustainable level,” but there wasn’t a whole lot I could do about it. And here we are and we have some cash, we have some inflows, so we are able to put money to work. And what is it that makes me think we’re there? Sentiment numbers are extremely negative, historically, when they’ve gotten to these levels. By the way, I put out a quarterly newsletter now that has a lot of this data, which can be found on our website.

Louis: Go ahead and give us the website.

John: It’s the Tocqueville Asset Management website, and it should be fairly easy to find. So sentiment is at levels that have been associated with big rallies. Traders’ commitments, net longs, net spec longs are way, way down there. I look at that a lot just as a way to see where the market is positioned. The guys who can create some volatility are not there, and so if gold starts moving, they won’t want to miss it, and so they’ll come in. And then, we’ve looked at some technical stuff. I’m not a technician but most of what I see from a technical perspective is extremely constructive. So I put those things together.

Sentiment is rock bottom. COMEX traders’ commitments are very, very constructive, and technical things that we look at are very constructive. So I would say all of those things, plus hearing these guys say that they are not going to step in – that’s more anecdotal, but that to me is just very, very positive. So I – frankly I don’t stake my reputation the way that Dennis Gartman does on making trading calls, but just as an experienced observer of this market for some number of years now, I think we’re ready to make a move higher.

Louis: Okay, well, thank you very much. Word to the wise.

John: Thank you.

Around the year 1650 A.D. the word highwaymen entered our language.  It referred to robbery committed on a public road against travelers.  Now we use the phrase “highway robbery” for which we pay the tolls to travel on modern day roads.  The highwaymen alas are among us and we have elected them.  At such times it would not take much more in the destruction of mining equities to make investors feel as if they have been seduced by sweet talk and abandoned to the wolves of Wall Street by latter day highwaymen.

Simply put it has been one in which the elites have shrugged their collective soldiers, leaving the rest of us bewitched, bothered and bewildered.   There are no safe havens unless one reaches for the carrot dangled on a stick in the form of treasuries (TLT) and dollar bills (UUP).

It is as if investors who have played the game fairly are uneasily realizing they have been dealt a series of sucker blows from the elites who in essence have fixed the game.  Investors believe that treasuries and cash will protect their capital.  This may be a conclusion founded on quicksand. 

Many investors could face significant losses should yields rise in the U.S. as it has done in Europe.  Due to the volatility in the global equity markets, investors have maxed out their portfolio holdings in cash and U.S. treasuries.

If bond prices drop resulting in rising yields we could see a mass flight out of bonds into the oversold commodities (DBC) and miners (GDX) which are trading at a record discount to the global equity market.  How can so called experts call a gold bubble (GLD) when gold equities are trading at historically cheap valuations?  Could it be that the real bubble is in the U.S. Treasury market where investors are actually receiving negative returns?

A growing fear of the financial system is increasing similar to 1933 when FDR was elected.  Fears that FDR would devalue the currency caused a bank run where investors withdrew their cash to buy gold.  Could something similar be brewing in Europe with the election of Hollande in France and Greece threatening to leave the Euro?

We learn that our elected U.S. officials have indulged in profiting from insider trading for which we citizens could have done hard time.  Imagine buying VISA for $46 and the next day making a handsome profit at $64 on 5 million shares.  This actually happened and continues to occur as a matter of lifestyle for our elected officials.

Then there is the chutzpah of Freddie Mac and Fannie Mae coming before the public requesting $1.8 million dollars for a Christmas Bonus for non performance and downright destruction of a major mortgage institution.   Then there is the $191 million dollar loss in MF Global trading European Government Bonds.  There is still $1.6 billion of client’s money missing.  Then we have the wife of Switzerland’s central bank chief who went long the U.S. dollar right before he imposed a cap on the Swiss franc.

Similarly we had the $2 billion+ carnage experienced by JP Morgan and Jamie Dimon.  Here we have a team of the best and brightest minds on Wall St. screwing up gloriously trying to time the short term.  This may be a cautionary tale for those who try to play the markets in the short term particularly in the arena of wealth in the earth assets where long term stratagems pay off in hundreds of percentage points.  The MF Global and JP Morgan (JPM) debacle may be adding to the volatility of the sell off in commodities and mining equities as they may have had to cover their bad bets in European Sovereign Debt.

What does this all mean for tax paying investors who are constrained to play according to the rules.  Joe Louis famously said, “You can run, but you can’t hide.”

WIth the market covered with crimson yesterday it might appear that our natural resource selections in gold, silver (SIL) rare earths (REMX) and uranium (URA) miners are a thin blanket for a cold night.  Since when has wealth in the earth not experienced breathtaking corrections as they continue in their upward trajectories?   Remember there may have been selling to satisfy a deluge of margin calls.

It is folly to look at the day to day gyrations of our wealth in the earth selections.  There are those critics who might question the absence of risk management in precious metal selections.  They miss the basic point completely.  Play that game with miners at your own risk.  Just as swiftly as they go down, so is the consequent upside.   Investing in resource stocks is a risky game.  Only the most disciplined market participants can manage to play the swings profitably.  So hold on for what has been this tumultuous ride.  The markets are swept by waves of fear and distrust of the Western Capitalist System.

Delayed until 2012-2013 will avail us little except postponement of the inevitable.  What was really needed was a plan of attack to bring our debt levels down.    One would’ve thought that our well payed solons could have come up with a better solution.  Instead, they will be forced to monetize the debt and pay it off with cheap dollars.  Sooner or later, this is eventually a win-win situation for investors in precious metals and tangible assets.

Do not underestimate the intelligence of the investor.  Are our elected representatives waiting for a Tahir Square to take place on American and European Streets?  It is growing late in the game.

The Iranian situation which we continue to highlight is simmering to a boil.  The United States and its allies Britain and Canada are using the outmoded tactic of gunboat diplomacy to wag warning fingers at an Iran that ignores us and grows stronger everyday.

Is this not an admission by the West that they lack the financial wherewithal to undertake another military expedition?  This is all part in parcel of the disintegrating situation which lack of leadership and American resolve has brought us.

Are we facing the stark reality that the Emperor-America has no clothes?  Hopefully, this is not the case.  But the markets are speaking differently.  Thus the disconnect between mining equities and bullion.  Now the clarion call is “cash is king” as the herd rushes for what seems to be the latest safe haven fad.

Of course the mouse thinks that the cheese will always be there, not realizing that it is the bait in what may be a fiscal trap.   Ergo where do our subscribers go from here?  The answer may be what it has always been from the days of Babylon to the present…wealth in the earth natural resources which are fungible into food and shelter.

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