This post was just published on ZYX Buy Change

Serious gold and silver investors would want to take notice of Core Producer Price Index (PPI) released this morning. The reason Core PPI is considered one of the best indications of future inflation is that when producers are experiencing inflation, it ultimately spills into inflation for consumers.

October Core PPI came at -0.2% vs. 0.1% consensus. Last month Core PPI for September came at 0.0% vs. consensus of 0.2%. The point is that two months in a row the most important inflation data is coming lower than expectations.  Further, in October, Core PPI has fallen for the first time since November 2010.

This means that not only there is no inflation at the core of the American economy, there is actual deflation. For thousands of years, deflation has always been bad for gold and silver.  The only exception is the recent period when the momo crowd took control of gold and silver.

The momo crowd acted exactly in the same manner right after the  release of Core PPI which is bad for gold as they did last month on release of PPI data that was also bad for gold.

The bizarre behavior  of the momo crowd is that both times it started buying on the news of low inflation and this time also deflation.  This is contrary to what gold bugs and astute investors do.   Due to the fact that the momo crowd controls gold and silver and the momo crowd consistently engages in bizarre behavior, at this time, the risk in gold and silver is much higher than most investors realize.

In our 30 years of experience, when an asset class is controlled by the momo crowd and behaves in a non traditional manner, it is time to be cautious.  Just remember the technology bubble of  1997 to 1999 and the housing bubble of 2004 to 2007. Our medium-term rating on gold and silver is neutral.

Short-term rating on gold is neutral.  Short-term rating on silver is neutral with a negative bias. However it is important to note that if the Smart Money stops selling to contain the buying by the momo crowd, gold will run over $1800 and silver over $35 in a heart beat.  There is no way to know what the Smart Money will do.  The best course of action is to be vigilant.