We live in an era of fraud in America. Not just in banking, but in government, education, religion, food, even baseball… What bothers me isn’t that fraud is not nice. Or that fraud is mean. For fifteen thousand years, fraud and short sighted thinking have never, ever worked. Not once. Eventually you get caught, things go south. When the hell did we forget all that? I thought we were better than this, I really did.

                                                                                                                         – Mark Baum from the Big Short

The Big Short is turning into the Big Long and that is — being long on precious metals. The movie Big Short was based on a true story outlining two separate groups that understood the mortgage crisis and capitalized on it. How did they do this? They investigated who the banks were approving for subprime mortgages. They went to see the properties, interviewed the homeowners and realized that a bubble was forming. Mark Baum asked, “I don’t get it, why are they confessing?” (referring to the mortgage brokers approving just about anyone for a subprime mortgage). His associate replied, “they’re not confessing, they’re bragging.”

In the same light, there may have been some sort of a bubble in gold and gold stocks in 2010 and investors sold. Just like with the 2008 financial and real estate crisis, it overshot to an oversold position. A base in gold has been forming and a breakout looming. The fundamentals for gold look solid and if it can break the $1200 ounce resistance, we could see higher highs. But what are the banks buying now? Do they know something we do not?

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