Were You Patient?

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The Signs were out there, that’s for certain. They glow more balefully–frighteningly, perhaps — by the day.  Soon you will find that their light will transform into warmth, and voila! — you are out of the cold.  This week we saw the $HUI:$Gold ratio approach it’s late 2008 nadir, despite the lack of any similar shade of trouble in the SPY or any other major index for that matter.  For many who have been suffering through this mind searing mini-bear in the miners, it was only one more pencil in the vile jellies.  For me, it was the light at the end of the tunnel.

Adding reassurance were the hairshirt boys and the plungers.  The hairshirt boys talked about “$21 dollar silver” and gold “heading back to $1200” this week.  More music to my ears.  Then the dear plungers.  Those who can always be counted on to ring the bell at the exact wrong time were actually starting to short stocks that had been pummelled for months now, quality be damned.   Again, the scent of ambrosia, the ply of relief. 

Can anyone predict the future?  Only in Tom Hanks movies involving haunted vending machines, my friend.  But there are time tested truths for all markets, and for the precious metal markets especially.   Perhaps the hardest and truest is that both the bulls and the bears will suprise the hell out of you in this space.  Such is the lot of a smaller capitalized, politically sensitive commodity group not exactly known for it’s GE-like management style.  But an ancillary truth resides in the recovery from both a bull and a bear… namely, the harder the band is pulled either up or down, the greater the snap back to the up or downside.

Recently we’ve seen near-unprecedented disintermediation between the price of the miners and their underlying commodity in both gold and silver.  Some of this is a result of input (cost) prices rising while commodity prices are remaining stagnant or falling off.  Some is the result of rational hedging, and some the result of anticipatory momentum trading.  It’s this last that has brought us to our most recent state, where one might say the blood in the streets approaches the door-level on our three-step brownstones.

But make no mistake, things are not going to be “different this time.”  We’ve seen this all before, and the results have been similarly spectacular.   We may have one more final “terrier shake” to throw the last remaining weak hands off the bus, but I have little doubt that the Fidelitys, the Blackrocks and the other large funds are right now gobbling up even more SLW and RGLD and AEM and AUY than they were last quarter.   And AG…. oh my yes, AG.

I expect one more pullback today and perhaps into early next week, but I will initiate buys in AEM at any price under $40, if I am so lucky.  Get yourself a dividend while you enjoy the rebound, why don’t you?  You can always use the extra beer money, no?

As for our friends in the smaller silver market, I would think next week the safer bet, but if we see some pullback today, I wouldn’t gainsay your taking some risk.  After all, for EXK to get back to a mere $7.00 (!!) is an almost 21% move from here.  EXK will be $10 before next Christmas, if my predictions weigh out properly.

Best to you all.  

 

 

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