Everyone Can’t Be On One Side Of The Trade

Whether we are talking about dollar bulls, yen bears, or people believing that gold and silver prices are about to collapse and who find mining stocks positively radioactive, when sentiment reaches extremes, you start to see market moves like what we have had over the past few days. When the crowd agrees on something in a near ubiquitous fashion it rarely works out well. The key to successful speculating rests in at least considering this important dictum.

It remains to be seen what this correction in the Nikkei or the Dow amounts to, but parabolic moves like this, fueled as they often are by nervous longs, margin debt and short covering, tend to retrace most of their parabolic move– at least. Unfortunately, it could really be a long cruel summer for those too attached to the bullish view for equities.

Over the last several years, people should have taken to heart the lesson that the bankers who run the global credit based financial system are bad drunks who lie to their spouses (in this case central banks) about their gambling losses. There is no regulation, there is no real knowledge about the black hole otherwise known as derivatives, and I don’t really believe anyone is in charge.

In this environment, why were so many gold investors (admittedly paper ones) selling metal? Because they were listening to the siren song that happy days are here again.

I beg to differ.

I should also mention that the much maligned, abused, neglected, toxic-waste mining stocks have been staging a stealth rally for a couple of weeks now. For what it is worth, over a short period of time, the miners have been outperforming the precious metals, which has not happened since late 2008 and early 2009. That period represented the beginning– albeit a slow one– to the next phase of the bullion bull market.