12/19/2011 - Important Update on Gold and Silver …

Larry Edelson | December 19, 2011

Gold has plunged through many of the support levels I’ve previously provided you. It’s dropped through the $1,730 level … the $1,610 level … and has thus far reached as low as $1,564.
Once it closes below $1,610 on a Friday, which it will likely have done before you even read this column — the stage will be set for gold to collapse to at least $1,435 and, very possibly, as low as the $1,100 mark.
And silver, precisely as I’ve been warning you, has started to crash again — losing more than $4 last week and shattering support at the $30 level … then the $29.16 level — and is now ready to make a beeline down to $25 and, very possibly, much lower to $22 to $23 an ounce.
As a result, suggestions I made previously to purchase inverse ETFs such as the ProShares UltraShort Gold (GLL) and the ProShares UltraShort Silver (ZSL) are now paying off very nicely. GLL has already soared as much as 29.8%. ZSL, as much as 37.8%.
I’ve taken a lot of flak over the last couple of months for being bearish on commodities, especially because of my forecast for much-lower prices for gold and silver. Some even treated me as if I were some kind of traitor.
But that’s OK. I will never succumb to the crowd that believes markets can go up forever and that bull markets always have blue skies overhead. I’ve been around too long to fall into that trap, which causes nothing but blindness and losses.
And most importantly, I will never, ever tell you anything but what I believe … or what my indicators tell me. I can assure you that I’ll never report on what anyone wants to hear.
There are way too many pundits in this business who tell you what you want to hear, all in the hope of keeping you as a customer or a subscriber. Not me. I refuse to do anything but report on what I see … and what I would do with my own money.


Are the Precious Metals
Really Losing Their Luster?
So why are gold and silver falling? Why could they fall much more? Why are they plunging in the face of a crisis as bad as Europe’s?
This is where you need to separate fact from fiction, and use critical thinking skills to understand markets. And the truth is that most gold (and other metals) bugs don’t have a clue when it comes to what really drives the precious metals.
They figure gold and silver are all about inflation. When inflation is escalating, gold and silver do well. Sounds good, right?
But nothing could be further from the truth! Inflation is a very minor force driving the prices of gold and silver. And at that, inflation isn’t even a force. Rather, it’s a symptom of a much-deeper issue, which is none other than what I call a “crisis in confidence.” That’s the true underlying force behind the precious metals’ behavior.
Simply put, when confidence in government or in fiat currency is falling, precious metals do well regardless of whether inflation is at hand or not!
Once you understand that, then you have a better understanding on what really drives gold and silver.
But that’s not nearly enough either. You have to delve deeper and determine where the crisis in confidence is manifesting itself.
Right now, the crisis in confidence is clearly in Europe. Though the United States certainly has many problems — many of them bigger than those affecting Europe — right now, it’s all about Europe, and it’s making the United States look like an island of safety.
Put another way, plunging confidence in Europe is bolstering the United States and, most importantly, the U.S. dollar. Since the euro is NOT the world’s reserve currency, that means that the capital that’s fleeing Europe right now is heading, guess where?
To the U.S. dollar, for safety and liquidity … which is, by default, bearish for the precious metals.


Should You Get Sold
On Selling Silver, Gold?
So you see, plunging gold and silver prices are not so hard to understand when you delve a little deeper and view the world in international terms and with no biases.
No biases about inflation, one currency or another, what markets can or cannot do. Just pure, simple, logical reasoning — unaffected by emotion. That’s all it takes.
Don’t get me wrong. There will come a time when a massive crisis in confidence hits the United States. The time is coming, and that is when you will see the next leg down in the U.S. dollar and the next big bull market in precious metals. But it is not here yet!
Which is precisely why I continue to recommend that all precious metals investors be very careful now. Gold and silver can fall much further than you think possible.
And odds are they will. Because their next bull market legs higher will likely not form until most gold and silver investors have thrown in the towel, and there are very few left to sell. That’s when the precious metals will violently turn back to the upside, leaving most investors in the dust.
If you’ve acted on my suggestions to hedge your gold holdings, or take outright speculative positions in inverse ETFs like those mentioned earlier, hold those positions. There’s a lot more downside potential in gold and silver right now.
Ditto for most commodities. As Europe continues to go down in flames, capital will pour out of Europe and into the U.S. dollar for cash and liquidity purposes … boosting the dollar higher, and forcing the prices of nearly all commodities lower.

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