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Gold: Look for the Glitter to Return

05/02/2013 9:45 am EST


Jeb Handwerger


Coming inflation and contrarian signals may be catalysts for gold prices, enough to reverse the recent slide, writes Jeb Handwerger of Gold Stock Trades.

The Japanese yen continues to freefall versus gold and natural gas. This is boosting the Nikkei, as the new Japanese government promotes inflationary targets by adding liquidity.

This currency devaluation could be supporting competitive fiat currencies such as the US dollar and euro short term, but eventually it should boost discounted commodities and mining shares off of multi-year lows. The Japanese devaluation of the yen will eventually boost precious metals and commodities. 

Europe and the US will also continue to fight deflation through currency debasement and punish savers. Look at the speed of the yen devaluation. This could happen with the US dollar and euro as well. That is why I have advised to build a diversified portfolio of precious metals, industrial metals, and energy positions ahead of a possible inflationary storm. It is better to be weeks early than minutes too late. 

New Bank of Japan Governor Kuroda is injecting about $1.4 trillion into the economy. The Nikkei is hitting new highs as a result. This massive injection of liquidity could spark buying in mining stocks and energy positions, which are crucial to the Japanese. Astute Japanese investors have already been diversifying into commodities and precious metals to hedge against this devaluation.

Right now some short-sighted Japanese investors are seeking safety in the US dollar, the US housing market, and US long-term debt. But be careful, as there are cracks in the US economy that are beginning to widen.
We recently witnessed historically volatile price movements in gold and silver. This was the greatest panic in gold in over 30 years, and is evidenced by the recent gap lower. I forecasted a rebound after the capitulation, and right now the mining sector could be presenting some of the greatest value opportunities in one's lifetime. 

Gold has been in a basing pattern since August of 2011, when we witnessed a parabolic move during the US debt crisis. At that time we urged caution, while the same banks who are bearish now forecasted higher targets.

The Central Bankers need to keep down precious metals and commodity prices to boost the weak economy. This manipulated shakeout may be getting rid of the momentum traders who bought gold when it was overbought and made a parabolic move back in 2011.

Savvy investors should use these bank reports and panics to long-term support as a contrarian buy signal for gold, silver, and the junior miners. 

None of the fundamentals warranted this recent gap lower except panic and fear instilled by the same players who helped cause this entire financial mess. This widespread negative pessimism may indicate the consolidation and the panic may be coming to a conclusion.

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