What's Next for Gold and Gold Stocks

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"Get liquid, get patient and get ready to pounce once the dust settles later this year. . ."

I am a big, big fan of Exter's liquidity pyramid. John Exter was a central bankster who worked at the Federal Reserve in the 1940s and 1950s. His concern about a global fiat money system, once it emerged, was that it would eventually blow out in a deflationary implosion rather than an inflationary one. This is not a common thesis, yet I believe it's being proven right before our eyes.

Gold, as the apex of the pyramid, is trying to balance a lot of paper illusions on its shoulders right now. The pyramid is drawn with gold at the apex instead of the base for a reason: there ain't enough gold to go 'round when the base collapses and a substantial increase in the relative gold price is needed to restore confidence in paper assets and "re-liquefy" the system.

At each stage of a deflationary collapse, another "layer" of the pyramid is abandoned and the "herd" trends towards burrowing closer and closer to the apex. The important thing to remember about this pyramid is that, in extremis, it can be considered the same thing as a hyperinflation. Things at each successive layer of the pyramid get sold off from base to apex. Once Federal Reserve notes get sold off near the apex, guess what? We're back to the tin foil hat-wearing hyperinflation crowd scenario!

If Federal Reserve notes are sold off in favor of gold, it's game over. I'm not saying that will happen, but gold holders are protected if it does, while Federal Reserve note holders are betting that this deflation stops short of total chaos as in a typical recession.

This ain't a typical recession. If you don't understand that yet, you need to. This is a secular turn in the credit markets, just like occurred in the 1930s.

I believe late summer and/or fall will present opportunities in the gold mining sector almost as good as last fall. Get liquid, get patient and get ready to pounce once the dust settles later this year if you're willing to take some risk in the gold mining sector. You will know this sector is the one to put money into due to its relative strength. Watch for general stocks to make new lows this year (maybe even this summer), while senior gold stocks refuse to do so.

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