The Wizards of Finance are Clueless: Sell Your Stocks and Hold Onto Your Gold

By Chris Hunter

The smart money is now selling stocks and holding onto gold. You should do the same.

I know. I know. Stocks have been rallying since November. I am also
aware that the media is full of wringing of hands and gnashing of teeth
over the end of the 13-year secular bull market in gold.

Bloomberg reports that in India, “There has been a rush to buy gold
because now people are getting jewelry 15% cheaper than before. It’s
value for their money.”

And from my sources in the physical gold storage business, it is
clear that the buying of bullion remained steady during the recent
panic.

Below are some statistics from physical gold storage business BullionVault (bullionvault.com).
As CEO Paul Tustain put it in a note to investors recently, “I think
they offer a useful reminder about how markets work.” (Remember also
that for all those people who sold their gold in a panic, someone took
the other side of the trade – and gladly so.)

•Monday and Tuesday were our strongest 48-hour period for new customers this year.

•Since Friday the gross value of customer bullion sales
increased markedly. About 1% of gold we look after was sold back to the
main market. That was characterized by a few large sellers. Holders of
99% of BullionVault inventory were not panicked.

•Those who did sell have mostly not withdrawn their cash from the
BullionVault system. To me that suggests they may be intending to buy
back into gold sooner rather than later.

•We normally have about 230 deposits a day (300 on a Monday) and
about 100 withdrawals a day (120 on a Monday). Mondays are usually
higher because they include weekend activity. On Monday we had 723
deposits versus 284 withdrawals. On Tuesday we had 732 deposits versus
150 withdrawals.

•Monday was a record day for business transacted, beating the previous peak of September 2011.

Meanwhile, US stocks are wobbling. As you can see from the chart
below, as of Friday, the S&P 500 had breached a not-insignificant
trading channel.

View Larger Image

I believe we’re witnessing the start of a correction in the rally in US stocks that began last November.
This correction is being driven by soggy earnings and an even soggier
economic backdrop that remains, from our lens, at least, in a contained
depression rather than in the “recovery” the mainstream media is so fond of talking about.

Just witness the recent downgrading by the IMF of its 2013 growth
forecast for the US from 2.1% to 1.9%. (The Fed, at one point, was
forecasting a 4% expansion. So much for the predictive abilities of the
policy wonks now in charge of resuscitating growth, balancing inflation
at precisely 2% and bringing the jobless rate down to below 6.5%!)

The problem with the bullish case for stocks… and the bearish case
for gold… is that it depends on a fallacy: Nothing can go wrong in the
world now that central banks are doing “whatever it takes” to save the financial system.

Smart investors know that gold is a form of insurance against future
financial disasters (and the blowup in paper assets that goes along with
them). But now there is a growing consensus that the wizards of modern
central banking have the situation.

So now there is a big rush to sell these gold insurance policies and
buy stocks (which can only go to the moon, so the logic goes, as long as
they have the wind of central bank monetary largesse at their backs).

But the reality is that these wizards of finance are clueless. They
are able to print money, all right. But does anyone know how they unwind
their bloated balance sheets? I certainly don’t.

This is no time to be selling your gold. Nor is it wise to buy into a mature bull run in stocks.

It may even soon be time to dip your toe back into the gold market.
The yellow metal is unloved right now. And that makes it very
interesting for independent thinkers and contrarians.