Recently, public interest in gold and silver and gold/silver mining stocks has been at multi-year lows. And that is a super bullish contrarian indicator. In fact, a glance at the Gold Miners Bullish Percent Index illustrates that sentiment to start the year was at a three-year low.
At the end of last year, there was a lot of chatter on the internet, due to the end-of-the year slam down effected on gold and silver futures by the global banking cartel, that silver prices were going go collapse to $20 an ounce and gold prices were going to collapse well below $1000 an ounce by the first quarter of 2012. We felt that these discussions and the consequent, induced panic selling out of gold/silver mining stocks and physical gold/silver at the end of 2011 was highly unwarranted and the result of people falling for the global banking cartel price suppression tricks. In fact, we sent Special Alerts to all of our clients at the end of 2011 informing them that the banking cartel often paints charts in gold and silver to fool people and that one cannot make accurate predictive behavior based upon the assessment of technical charts alone.
At SmartKnowledgeU, it has always been our mantra that technical analysts often make huge mistakes in their predictive calls due to their sole reliance on technical charting and therefore often have to flip-flop like a politician on their calls regarding gold and silver, one moment calling for a huge crash and to sell everything gold and silver, the next moment calling for a huge run-up and to buy back everything gold and silver. While nimbleness is a good trait to have given the volatility of gold and silver assets and staying on the sidelines is sometimes necessary, trying to get out of the market on every single weekly downturn in gold and silver will surely drive an investor insane. Thus, sometimes it is necessary to ride out difficult periods of volatility and maintain your eye on the long-term trend instead of short-term banking cartel tricks. We prefer to remain more long-term trends with our calls and to keep our eyes grounded on a more fundamental outlook that incorporates technical analysis with more than a decade of knowledge regarding global banking cartel price suppression schemes. We have stated since day one of launching our company in 2006 that gold/silver technical analysis performed without incorporating the contextual nuances of global banking cartel price suppression schemes will not be accurate, especially since the cartel’s gold and silver price suppression schemes exert the most influence right now over setting the futures and spot prices.
Last year, we informed our clients at the very start of the year in January of 2011 that 2011 would yield massive volatility in gold and silver assets, proclaiming the coming year as “The Year of Volatility”. Before the year started, we knew that 2011 would produce a fierce battle between the global banking cartel and the dynamics of the physical markets for gold and silver as the global monetary crisis deepened. And indeed it did. Though we can mark 2011 as a win for the global banking cartel as they collapsed open interest in gold and silver futures repeatedly throughout the year by raising initial and maintenance margins for gold and silver futures (once raising margins on silver futures a ridiculous five times in just 9 days when silver broached $50 an ounce) and by also using the MF Global bankruptcy to force involuntary client liquidation of gold/silver futures at the end of the year, I am confident that all the banking shenanigans of 2011 has set the stage for a spectacular year ahead for PMs in 2012. If you are interested in my thoughts about how the banking cartel used the despicable MF Global fiasco to collapse gold and silver prices, you can read about it here: Did Bankers Deliberately Crash MF Global to Crash Gold and Silver Prices?
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In 2011, due to the extreme volatility in gold/silver mining stocks, there were periods we opted to cash out and sit on the sidelines preceding banking cartel smash downs of gold and silver prices, and other periods we opted to stay in the market and ride out the extreme volatility due to our belief that the downside volatility would be short-lived. Thus, admittedly we had to sacrifice short-term performance for our mission of a longer-term reward with the gold and silver mining stocks in 2011. As you can see in the chart below, the HUI Gold Bugs Index re-tested lows in the 490-500 range on five separate occasions last year and greatly underperformed the metals themselves. No wonder bullish sentiment regarding gold and silver stocks just recently hit a three-year low!
However, despite the severe underperformance of the mining stocks last year, from the launch of our Crisis Investment Opportunities portfolio [10] in June 2007 to December 31, 2011, even in light of our slight setback of 2011, our cumulative performance of +135.18% during the past four-and-a-half year period has still respectively outperformed the S&P 500, UK FTSE 100, and Australian ASX200 indexes by whopping +153.12%, +152.37% and +169.20% margins. Furthermore, our Crisis Investment Opportunities portfolio has even outperformed our closest comparable index, the Philadelphia Gold/Silver Sector (XAU) index by a whopping +104.75%. Thus we see 2011, as nothing more than a temporary setback in gold/silver mining stocks, and we’ll explain why below.
More than 3 years ago, on October 16, 2008, I wrote an article titled, JS Kim Uncovers Four Parallel Markets for Gold: Asia Futures, NY Futures, Physical Bullion, Physical Coins. [11]In this article, I discussed the complicity of regulatory agencies such as the CFTC in the global banking cartel price suppression scheme executed against gold and silver that was, at the time, creating very significant premiums in the futures and spot prices in Asia over the Western markets, and in physical gold/silver prices over paper gold/ silver prices. Since the time I wrote that article, I have followed up with many more articles that express my belief that the premiums of physical gold/silver will increase, and eventually in exponential fashion, over the prices of bogus global banking cartel-produced paper gold/silver derivative products. Eventually, I believe that the world will ignore these bogus paper gold/silver markets entirely when setting prices for physical gold/silver. Because the global banking cartel expended so many of their bullets in 2011 in keeping the price of gold and silver much lower than their respective free market prices, it is of my opinion that it will be much more difficult for them to contain the price of gold and silver moving forward in 2012.
Today, there are still many reasons to expect a stellar next couple of years from gold and silver performance, including the mining stocks. From a technical standpoint, gold and silver appear to be on the verge of making a very significant run higher. I’m not saying that this will happen tomorrow, but it does look very probable within a short-time period. From a manipulation factor standpoint, gold and silver also look poised for a run higher too. So the two factors I use to assess gold and silver’s direction both appear aligned with one another to move gold and silver higher very soon.
As far as the timeframe? Currently, due to excessive banker meddling in gold and silver futures markets, and the unknown factor of when greater divergence will occur between physical and paper PM prices as public awareness of the paper scam grows, the exact “when” part of the equation is the most difficult to assess, though I still believe that we will see some strong moves higher in gold and silver during the first quarter of 2012. Furthermore, I strongly believe that gold and silver will still both rise multiples higher than their current banker-suppressed price and that 2012 will see periods of explosive growth for gold and silver, more so for silver than gold, and that PM mining stocks, although accompanied by great volatility once again, will perform much better than they did in 2011. I believe that the largest difference between 2012 and 2011 will be, despite some continued large bouts of volatility in the PMs, a much stronger annual trend higher for gold and silver.
The start of 2011 was a phenomenal start for junior mining PM stocks but the latter half of the year was very negative. Still, one could have done very well in 2011 with junior mining stocks by taking profits off the table when they existed and letting one’s remaining capital ride risk-free in the junior mining sector. In addition to using discipline to protect profits when they exist in the junior mining sector, the greatest friend of a gold/silver investor is patience. Sometimes one knows that great moves higher are coming, but one’s timing may be off by a mere six to nine months. Patience will allow one to still reap the bulk of the rewards from these great moves higher as long as one isn’t shaken out of the markets by the banking cartel induced price volatility in gold/silver assets. To this end, I leave you with 10-year charts of gold and silver. Sometimes, it really is necessary to step back and take a deep breath to see the forest from the trees.
About the author: JS Kim is the Chief Investment Strategist and Founder of SmartKnowledgeU, a fiercely independent investment research & consulting firm with a focus on precious metals. For much more detailed commentary about gold and silver, consider the SmartKnowledgeU Crisis Investment Opportunities newsletter [10]. To sign up for our free investment newsletter, please visit SmartKnowledgeU [12] and sign up here.