We are getting a strong bounce in gold from the $900 level and silver from $12.50 as the equity markets melt under the collective weight of economic doom, hitting new lows a day after China of all places was seen in a moment of panic-enhanced delusion as the savior of the global economy. That idea has quickly been discarded, however, and replaced with the practical if not morose notion that nobody can save themselves, much less anybody else.

Some of the damage to Wall Street’s frail psyche was the result of the auditors over at GM saying the company is uncertain to continue as a going concern. This market reaction is ludicrous considering the auditors appear to be practically the only ones left to doubt GM’s viability. Similarly, it is preposterous that Wall Street would turn more negative on the basis of rating agencies’ much-anticipated downgrades in the financial sector. I’m still trying to understand the idea that any company receiving government bailouts in order to survive should not deserve a junk rating. It should be quite clear that stocks will not reach a final bottom until easily-anticipated bad news no longer shocks.

Be that as it may, gold and silver are now getting boosted by populist and herd-mentality personalities like Jim Cramer. This is only natural considering that most asset classes have already declined so much that the risk of further downside is relatively minor. Unfortunately, the “buy what’s up” strategy is both easy to explain and understand when it comes to the average investor, even though it is one of the best ways to lose money in the long term. Thus, Cramer’s latest recommendation that his throngs should buy silver is sending shivers up my spine. Although such Mad Money advice was probably singlehandedly responsible for the relative strength observed in silver yesterday, my personal hopes for silver’s superior long-term investment status do not rest on people who get their “investment” advice from TV. Either we are very near the end of the world as we know it or this will turn out very bad before the coast is clear.

Importantly, the basis is not telling us that things are very near the end, so today at least I will continue to suspect that the possibility of a near-term disappointment in gold and silver remains greater than the consensus will admit. At the same time, as I’ve noted in replying to some reader questions raised here and at Metal Augmentor, much higher gold and silver prices are virtually assured at some point in the future if and when the whiffs of a confirmed systemic or sovereign default — or alternatively the mature seeds of hyperinflation — are in the winds. Indeed, the fact that the monetary metals would be the best performing assets at either end of the monetary extreme is the quintessential reason to own them. On the other hand, gold and silver may not tolerate in the short term even a temporary de-escalation of the crisis or a semblance of return to normalcy. It turns out there are rest stops even on a one-way road to economic Armageddon.

Getting back to the bounce in gold and silver today, I am tempted to call the price action healthy except that support was found at the exact level I noted a few days ago. What’s the problem with that, you ask? Only that the support was so obvious to market participants that a bounce was almost obligatory. Without assistance from the clobbering on Wall Street today, it would also have been a rather shallow bounce. We need to see some additional market action before conferring a full bill of health on the bounce.

The contango in oil that I mentioned a couple of days ago has shrunk further since then to a level of $8-9 dollars per barrel on an annual basis. My assessment is that oil may still have an optimism premium built into it similar to the hope that is keeping the stock markets from finding a final bottom. It is possible both may evaporate at the same time, forming concurrent bottoms. If so, gold and silver might not be taken down initially because panicked money would likely flow out of general equities into the metal ETFs and the physical market. Instead, the low in oil and stocks may correspond with an interim price peak in gold and perhaps silver. These may or may not be all-time peaks in the case of gold and most likely not in the case of silver.

In any case, I continue to believe that caution is warranted in gold and silver. It is certainly better to buy today than it was near the highs last week but I continue to suggest holding off major purchases, especially the type of “all-in” buying that most so-called “experts” are now advising. At the same time, if you do not have 5-10% of your assets in physical gold and silver already, you need to be buying without concern for the price due to the ever-present risk that “disintegration” might be close at hand. Just please make sure you try to pay the smallest possible premium over spot price. Beyond that it is speculation. If and when the basis and other indicators tell us that the end might truly be close at hand, it will be time for everybody to up that 5-10% allocated and premiums over spot will no longer be very relevant.