Forget Technicals for Precious Metals

Includes: GLD, SLV, UDN, UUP
by: Kevin McElroy
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It’s always an education to look at the other side of the argument.

In a July 10th article on Seeking Alpha, I found what can only be called a complicated chart which is supposed to illuminate the technical reasons why silver is due for a fall in the near-term.

Here’s the chart, for the masochists in my readership:

Even after reading (and re-reading) the accompanied paragraph for this chart, I still have no idea what I’m supposed to be seeing. Will silver prices break down for technical reasons? The author seems pretty certain. But I’m hesitant to rely on technical indicators as a reason to modify my precious metals investment thesis.

My advice: forget technicals for precious metals, because technicals are always right until they're astoundingly wrong - and they're brainless when it comes to big events - which can render irrelevant even the strongest candle-technique, monkey-style, volume-judo that Techie T Techerson can unearth.

Chartists focus on patterns in the tea leaves, and admittedly, they can do some very fancy analysis with those tea leaves in the short term. I’ve seen Wyatt Research analyst Jason Cimpl make regular, solid gains in one week to one month holding periods with stocks. (to the right you can see a list of Jason’s recently closed positions from his paid service Trademaster Daily Stock Alerts)

But for precious metal investors who are in it for the long term, it doesn’t make much sense to pay attention to tea leaves when any gust of wind (big event) can blow those tea leaves clear out of the cup.

What's the big event that will derail any technical chartist's master-level thesis on silver?

It's sewn into Ben Bernanke's underpants: "Thou Shall not Allow Deflation."

The Federal Reserve and our Federal Government itself are kabuki players in a Keynesian drama. Standard bearer and Nobel-Laureate economist Paul Krugman is still urging lawmakers to spend yet more - because, as he says, the only problem with the economy right now is that the Feds aren’t spending enough. At this point, the Fed, the Congress and the President have entered into a Keynesian suicide pact and Krugman is loading the gun.

Do you think they'll all of a sudden switch horses and pursue fiscal and monetary austerity - or do you think they'll print $trillions more in order to "solve all our problems"?

If the technicals on silver (or gold, oil, natural gas, coal, sugar, wheat, rice, etc. etc.) breakdown and give us another chance to load up on all of them at a discount to today's prices... that’s good news - but it doesn’t change the fact that our Fed Chairman says that he will avoid deflation at every cost, and that silver and gold (et al) are due for much higher dollar denominations.

I’ve been recommending that you buy these commodities on any price weakness, with the understanding that these dips are times to gobble up more of the pie - and to further hedge yourself AWAY from holding cash, which is now a political tool just as much as a currency, and INTO real assets and the appropriate securities.

To back up for one second, I should note that even the temporarily bearish author of the aforementioned Seeking Alpha article ends it with this sentence:

Please note that this is not the end of the bull market for silver.”

Okay. So it would seem that my recommendation would be to continue to look for weakness in commodity prices as an opportunity to buy more.

If I sound like a broken-record it’s because the situation for the dollar is only getting worse. The only people minding the store are steadfastly in the “dollar devaluation” camp - so there’s little alternative but to protect your wealth with precious metals.

p.s. I mentioned Jason Cimpl’s paid product Trademaster Daily Stock Alerts - (which is worth every penny) but if you just want to test-drive Jason’s research, he recently launched a new free daily letter which comes out every weekday after the market close. He calls this service Trademaster Market Forecast, and you can sign up by clicking here now.

Disclosure: Long gold, silver

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