27 Sep 2011

Gold and Silver Bubbles, Panics and Stink Bids

With gold falling more than $300 in the last three weeks from highs over $1,900 to under $1,600 and silver plummeting from over $42 to under $30 in the same time period, the mainstream media was ablaze with talk of popping bubbles. Of course, the fact that mainstream media has never, in its history, called a bubble top correctly - or even recognized a bubble - is besides the point.
Charles Sizemore at Marketwatch.com raced to his keyboard, "Is it Time to Call the (Gold) Top?" he questioned, although it sounded more like a statement. Marketwatch has been dying to call a gold collapse for a while. Remember, Cody Willard's brazen call in June 2009 to "Sell Gold Now - It's Headed Below $500/oz"? Nice call, Cody.
If/when we do reach the end of this gold bull market there is one thing that is certain: it will not be called by the mainstream media. In fact, the nightly newscast will likely lead off with the "news" readers telling you to rush out and buy gold.
For now, gold and silver haven't even entered into a bubble yet. They are still catching up to the price of everything else... and lag dramatically the one true bubble. The bubble in government debt.
US Nominal Price Change Percentage from 1980-2010


The sentiment on the street also does not signal any sort of top in the gold/silver market.
In Phoenix, on Thursday and Friday of last week, after gold and silver had fallen dramatically there was a panic. A buying panic!
According to a good friend and Dollar Vigilante subscriber who lives in Scottsdale, the Coin Gallery (off I-17 in Dunlop) had lines stretching well outside of the store on both Thursday and Friday. Our friend has visited the store on many occasions to purchase gold and silver coins and told us that on any given day there are usually a decent amount of people buying and selling.
But, when he arrived on Thursday he couldn't believe his eyes. The lines were long and every single person was there to buy. By the time he reached the front of the line they were sold out of almost everything except for a few silver bricks. He ended up getting into a pushing match to be able to buy them as the crowd fought over them.
Finally, he prevailed and asked management what was going on. They told him that they had sold over 12,000 ounces of gold and silver in the last 24 hours (note: entrepreneurs, open precious metals coin stores!).
As the crowd began to filter off after hearing that there was nothing left to buy, my friend headed to the parking lot where someone offered to buy his silver at a profit over what he bought in the store.
If gold and silver were going up dramatically in price and we heard of this type of panic buying at physical shops we would be wary. But, the fact that this type of panic buying comes in AFTER a large correction shows the amount of real physical buying power that underpins the metals.
The Coin Gallery says they won't have any new supply until Wednesday or Thursday of this week.
I arrive in Phoenix on Friday night as I am speaking at the Casey/Sprott Summit, "When Money Dies". I am hoping that gold and silver remain at these levels or below until Monday and I will go to the Coin Gallery myself to see if they have any physical left to sell.
It is my belief that this is probably the last chance to buy physical gold and silver at these levels. As the bull market moves on it will become increasingly difficult to buy any physical metals in quantity.


The Canadian junior markets have all kinds of colorful colloquialisms. Dead cat bounce and "stink bids" are typical market-speak around the old Vancouver Stock Exchange (now called the TSX Venture Exchange, or TSX-V).
A "stink bid" is a term for putting in a ridiculously low bid on a stock on the off chance that market illiquidity and a distressed seller (usually on a margin call) makes it so that you get the stock at a truly cheap level.
Times like we have had last week and possibly for the next week or two are prime "stink bid" environments. Friend, and TDV subscriber, Danny Deadlock of the excellent Microcap.com newsletter, recounted how some lucky stink-bidder hit the jackpot last week:
In one of the harshest cleanouts I have seen yet - and it was so aggressive I wonder if it wasn't a margin call and a forced sell - Lignol Energy (LEC.V $0.11) which I was just discussing last night.
The stock has been trading at 0.12 and 0.13 all morning. Mid day someone through QTrade dumped 240,000 shares "at market" - what an idiot !! They collapsed the stock from 0.12 to 0.03 within seconds and someone sitting with a stink bid of 60,000 shares at 0.03 was filled.
It didn't take long for the stock to clean back up 200% with buyers trying to get cheap paper near 0.08 and 0.09 - myself included with no luck. I am leaving the buy order sit there till month end and maybe I will get equally lucky. I am just mad I wasn't the guy sitting at $0.03 who just had someone hand him 60,000 shares.


If prior to last week you hadn't bought your full allotment of gold/silver and precious metals stocks, you've been given a gift. A short term "sale" on those assets.
And for those who follow our newsletter and recommendations, we have been very clear about keeping a 20% cash cushion for exactly times like these. Put in stink bids on any/all of the stocks in our portfolio for the coming days and see if you can take advantage of the imprudence of others who bought on margin - something we NEVER recommend in these markets... they are just too volatile.
A number of the stocks in our portfolio were hit over the last few days so use this time to purchase some more with the 20% of your portfolio that is in cash. As well, in our October 1st Premium issue of The Dollar Vigilante (sign up to receive it), Ed Bugos will be featuring an exciting near-term Canadian gold producer that has also been hit by the recent turbulence.
As Steven Saville of Speculative-Investor.com recently stated, "Buying gold stocks following a multi-month decline into the October-November timeframe is one of the surest ways to make money in the financial markets. At least, it has always worked that way over the past 10 years."


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