U.S. Dollar "Strength" Just a Classic "Dead Cat Bounce": Own Any Gold Stocks Yet?

 

The U.S. dollar is in a classic dead cat bounce as it appears to fight desperately to avoid dropping below the much watched ‘72′ level. We say fight, but the real situation is not a fight at all; it’s a managed decline by the United States to lower the value of its currency and ultimately inflate away the mountain of debt that it realizes is impossible to ever re-pay… [and that will be of major benefit to future gold and silver prices  and even more so to the stock of companies that mine the metals. Let me explain.] Words: 1100

So says Bob Kirtley (www.gold-prices.biz) in an article* which Lorimer Wilson, editor of www.munKNEE.com,  has further edited ([  ]), abridged (…) and reformatted below  for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Kirtley goes on to say:

[Before we go any further with this article let’s define exactly what a “dead cat bounce” actually is. According to Investopedia it is “a  temporary recovery from a prolonged decline or bear market, after which the market continues to fall.”]  The difficulty in getting the value [of the U.S. dollar] down, [however,] is that just about all of the other major currencies are in the same race and are also hoping to inflate away their debts. The penetration of ‘72′ lies just ahead of us and once a meaningful break through has been achieved, then the fall will be calamitous to say the least, as those who are holding dollars will battle to get through the exit with great haste… [go to stockcharts.com and type in $USD for daily updates of the ongoing performance of the USD.] 

It is said that nothing goes down in a straight line and, as…[is the case] with the bounce by the USD, it is also capable of generating small rallies from time to time, which is quite normal…

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The main beneficiaries of weaker currencies are both gold and silver, both of which cannot be printed and therefore the supply is limited by the skills of the mining sector to find and mine these precious metals. Now, as a form of exposure to precious metals the mining sector offers the possibility of leverage to the underlying product.

[Below is a] look at…the HUI which consists of 14 major gold mining companies which mostly do not forward sell their product and, as such, offers exposure to metal prices. [Go to stockcharts .com and type in $HUI for daily updates to watch developments unfold.]

[You can] note [from the above chart] that stock prices have returned to take tea with the 200dma, a correction that we have seen many times before… The technical indicators are still oversold [but] they are on the turn, suggesting higher prices ahead. With gold [around] $1500 per ozt. [see here (1) for the significance of the term “ozt.”] and silver at $35 per ozt., the quality miners are in clover, as evidenced by the results which are headlining with record production, record profits, etc. They are operating in the right sector at the right time and as [future] all time highs are made by both gold and silver we should see this index take off in spectacular fashion [Goldrunner could not agree more as these articles here (2), here (3) and here (4) illustrate.] Why it hasn’t done so already remains a bit of a puzzle, however, there are other distractions for the investment dollar such as the metal itself, the ETFs, futures trading and options trading – and so the tug of war continues.

One day a government with its head screwed on will turn their backs on the fiat currency system and convert to an asset backed currency whereby its paper is exchangeable for some sort of hard asset. It could be a mixture of gold, silver, oil, uranium, etc, the details are anyone’s guess. However, if the currency is big enough, the Chinese yuan for example, then the rush would be on for one and all, to trade in that currency. Implausible! Well cast your mind back to the start of the banking crisis, just when all the European banks were trying to hold the line, Ireland stepped up and guaranteed bank deposits. This action saw billions of Euros emigrate to Irish banks in a matter of hours, forcing the rest of the banks to also guarantee their deposits. A case of the tail wagging the dog and China is longer a small time player, it is getting bigger and stronger by the day and they are capable of going it alone. However, as they hold the thick end of three trillion dollars in their reserves, they will no doubt do everything they can to transfer out of dollars and into the hard assets before contemplating such a move.

Conclusion

For now…we will stick with gold, silver, a few quality producers and some well thought out options trades. We will try hard to avoid the blather and the white noise that accompanies every event regardless of its importance or magnitude.

The year will end with much higher gold and silver prices, so will the year after and the year after that [see here (5) for 128 other analysts who concur with this opinion of which 88 believe gold with achieve and/or exceed $5,000 per ozt. and see here (6) as to the affect such high prices for silver will potentially have on the future price of silver], so get into position and hold on tight [as] it will be a white knuckle ride.

RIP: USD.

Titles and Links to Articles Referenced Above:

1. What’s the Difference Between 1 Gold Karat, 1 Diamond Carat and 1 Troy Ounce? https://munknee.com/2011/03/whats-the-difference-between-1-gold-karat-1-diamond-carat-and-1-troy-ounce/
2. Your Gift For 2011: The HUI Is Going Up 70% In The Next 5 Months! https://munknee.com/2010/12/your-gift-for-2011-the-hui-is-going-up-70-in-the-next-5-months/
3. HUI Stocks About to Kick Up Their Heels! https://munknee.com/2010/12/hui-you-aint-seen-nothin-yet/
4. Goldrunner: Charts Say PM Stocks, Gold and Silver Are About To Rebound: https://munknee.com/2011/01/goldrunner-this-weeks-outlook-for-pm-stocks-gold-and-silver-and-beyond/
5. Take Note: These Analysts Believe Gold Will Go to $5,000 – or More! https://munknee.com/2011/04/take-note-these-analysts-believe-gold-will-go-to-5000-or-more/
6. Why Silver at $398.52 is a Realistic Parabolic Peak Price: https://munknee.com/2011/05/silver/

*http://seekingalpha.com/article/270289-classic-dead-cat-bounce-rip-u-s-dollar

Editor’s Note:

1. The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
2. Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.
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