Our friend Chuck Cohen, a gold timer with a proven gift for knowing when to bet against the crowd, phoned the other day with urgent advice. Almost no one sees it coming, he said, but bullion is getting ready to explode. “It’s time to jump in head-first!” Chuck has been wrong before, and we’d all but tuned him out for the last eight months or so, since his bullish drumbeat went against the asphyxiating weight of bullion charts that have shouted “lower” since last October. Now, he says, the winning bet is to be short stocks and long gold and silver. Will he be right? From a technical standpoint, it’s still too early to tell. To be sure, some key vehicles, including gold futures and the Gold Bug’s Index (HUI), have turned higher from levels that coincide with Hidden Pivot correction targets of our own. But the bounce so far, especially in Comex quotes, seems tentative at best. Moreover, this is occurring at a time when the juggernaut of deflation is threatening to overwhelm the central banks’ desperate efforts to thwart the collapse of a quadrillion dollar financial-asset bubble.
All things considered, we’re inclined to give Chuck the benefit of the doubt right now. Here are some persuasive points that he makes:
- Sentiment indicators suggest that gold is the leper of the investment world, with Rydex bulls currently at an astounding 2%.
- Shares of mining companies with real gold and silver in the ground, juniors in particular, have collapsed beyond the point of despair.
- As the price of paper gold has fallen in recent weeks, physical supplies have tightened sharply.
- Mining-share options are trading at giveaway volatilities.
In addition, Chuck notes some troubling signs on Wall Street:
- Bull-mania has been brazenly flouting weaker corporate earnings, stagnant incomes and fizzling retail sales.
- With the Dow in record territory, institutional buyers have turned defensive, focusing on health care, big pharma and consumer staples.
- Ominously, the banking sector has turned weak even though it is by far the biggest beneficiary of a global money blowout.
- With respect to seasonality, the month of May has typically been anything but merry.
- Europe’s deepening recession has become intractable.
- China’s economy is turning down as well.
A Major Turning Point?
All of these factors suggest that stocks, bullion and financial assets could be at a major turning point. If this proves to be the case, and it leads to the epiphany that quantitative easing isn’t working, a stepped-up response by the central banks could be the signal that bullion markets have long awaited.
In the meantime, we’ve been recommending bottom-fishing in gold futures, GDXJ, HUI and some other popular bullion vehicles, since we know how difficult it will be, psychologically speaking, to buy these erstwhile dogs after they’ve exploded for 15%-20% gains in mere days. That is how great bull markets often begin, and the only way to avoid being shut out is to be aboard before they leave the launching pad. This is the lesson we learned when stocks took off in August of 1982 with a burst of ebullience and power such as we had never before witnessed. It’s going to happen in bullion sooner or later; but even if not now, with shares and T-bonds wafting ever higher on a sea of brazen lies, our gut instinct is telling us that this is no time for bullion bulls to throw in the towel.