It was another action packed
month. The volatility never seems to end, at least that's the way it's been
for many months now... actually, for the past few years.
The markets have essentially
been reacting to the news of the day for what seems like ages. When the news
is good, they rise. When it's bad, or perceived to be bad, the markets get
nervous, they become vulnerable and they decline. And investors simply don't
know what to do. They're still edgy and uncertain. And as long as this
continues, the entire outcome could go either way....
STAY WITH GOLD
So what's an investor to do?
Stay in gold. Despite its recent volatility, it's the one investment that
benefits during times of uncertainty. As you've seen, it does well during
good times and bad. That's been true throughout history, and it still is.
The numbers back this up.
Gold, silver and metals related investments have by far been our top
performing sector since we first recommended them over the past decade. This
year has not been an exception. Again, they've been the top performing group.
So where does that leave us?
We're planning to keep most of our metals related investments for the long
haul. Considering what's happening behind the scenes, we currently don't see
a better alternative. That's especially the case for gold. Why?
There's an old saying that
goes.... watch what they're doing, not what they're saying. So we're not
being blind gold bugs because again, the numbers show what they're doing...
A SAD TALE...
Even though we've talked about
this for years and we don't mean to sound like a broken record, but something
very important is happening that you should be aware of...
This year, for instance, the
U.S. national debt has already reached 87.5% of GDP. It's expected to hit 93%
this year and over 100% of GDP within five years, a far steeper increase than
almost any other country, says the IMF. And the aging baby boom population,
along with their future needs, pretty much guarantees this.
The rule of the thumb is that
over 90% of GDP a country stagnates and it doesn't move ahead. But the U.S.
is not alone.
Italy and Japan are already
over 100% and we know what's happened in Japan over the past couple of decades.
Zimbabwe is an extreme case, at 240% and we know that terrible story too.
Other countries, while still well below the U.S. number, are moving up too.
It's a trend, most prominent in the developed countries.
This tells us that hard times
are coming. If so, then what we've seen in recent years has been an intro to
the years ahead. Yes, there will be ups and downs. There always are but
things will be different. Stagflation, unemployment, inflation, global power
shifts, recessions, higher taxes and lots of other repercussions will be the
likely effects. As our dear friend Harry Schultz notes... Biflation -a
simultaneous inflation and deflation- is yet another possibility.
This doesn't necessarily mean
the end of the world is coming as some are suggesting. And here too, Japan
and Italy provide examples.
Sure they've had serious
problems but they're basically still plugging along, despite their
repercussions. But again, things will be different and those who've been
hoping for a return to the good ol' boom days will be sorely disappointed.
Considering that the U.S. is
issuing new debt this year that's nearly equal to the rest of the world
combined, the picture remains pretty dismal. So we need to be prepared for
what's to come.
For now, central banks are
buying more gold. And even some Wall Street types, who have traditionally
shunned gold, are now starting to take note. This will continue as this new
era, as we call it, intensifies.
HIGHER DEMAND
Gold is showing the world how
it reacts to difficult times. Better said, it's showing how people and
governments react during times of uncertainty.
Russia increased its gold
reserves in May in the biggest one month increase ever, while Saudi Arabia is
now saying they have twice as much gold as last reported.
Central banks were net buyers
of gold in 2009, which is very powerful because it means they do not want to
sell their gold like before.
You may remember the Central
Bank Gold Agreement under which central banks were allowed to sell 400 tonnes
of gold each year. Sales went on, but by 2008 sales were way down. In 2009
central banks were buying more than they were selling and 2010 will surely be
similar, as we've been seeing.
Gold demand is building but
gold fever is nowhere near.
You will recognize it when it comes because there's no fever like gold fever.
Well, maybe the tech fever in
the late 1990s was close. Keep in mind though, the gold market is small
compared to stocks and bonds, which means it could easily spike up once the
fever hits.
The 1970s saw gold rise tenfold.
Today gold has only risen about 400% in nine years. This good solid, steady
and consistent growth provides a very bullish backdrop for a further rise in
gold.
In fact, it's been almost two
years now since we've seen a decent downward correction in gold. The March to
November 2008 decline, when gold lost almost 30%, was the last great buying
opportunity.
Gold's risen nearly 80% since
that November low without more than a 14% decline. This super rise caused the
bull market to move into a stronger phase last September when the gold price
reached the first record high that was well above the $1000+ record highs of
2008-09 (see Chart 1).
GOLD'S BIG PICTURE: VERY BULLISH
As you can see looking at
gold's big picture since 1967, this rise since November 2008 came from a
cyclical eight year low bottom that tends to precede good sized rises in
gold. That's been another big plus in gold's favor, along with so many
others.
The point is, despite normal
ups and downs, gold remains very bullish. So again, stay with it... we
strongly believe you'll be glad that you did.
