Gold and Silver Will Not Save You From a Sell-Off

 |  Includes: GLD, SLV
by: Toro

It is my contention that as the financial system comes under increasing strain - as it will - gold and silver will not save you. It very well may outperform, but if there is a broad based sell-off in financial assets, even if there is a collapse, gold and silver will not go up and will probably fall.

Gold and silver have been beneficiaries of the excess money creation this decade that has lifted the prices of all asset classes higher. As we enter into a period of tighter credit, asset prices will fall, as will gold and silver. The behavior of gold and especially silver over the past month is a testament to this, I believe.

[click to enlarge charts]

The chart of silver is terrible.

I have read arguments that gold is trading in an increasingly narrow but upwardly-biased range, presaging the next leg higher. I have difficulty with this argument when silver looks so awful. If the precious metals are about to move structurally higher, silver should be moving up with gold, not falling over under its own weight.

I am a long-term bull on precious metals but gold and silver will come under pressure as monetary conditions tighten. However, when the Fed eases - as it is beginning to - the financial system will eventually be awash in liquidity. As that happens, gold and silver will rise.

I believe gold and silver will hit new highs. But first we have to go down before we go up.