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Wow, it seems like yesterday QE 2 ended. It
was actually a month ago. Already there is talk in currency
markets about another round or quantitative easing, QE3.
I
can’t find fault with the logic of it as it worked so well the first
two times. Just think of how far we have come. Last Friday’s GDP
figures were pathetic. The revised number for the first quarter was 0.04%.
That is barely positive. The ISM numbers on Monday are sure to bring
continued worries about the health of the economy to the center stage. I can
hardly wait for the jobs report on Friday as that promises to be the end of a
perfect week. No hope, no jobs, no growth but at least the corporate earnings
reports were great. That will certainly assure all of the middle class people
that are working three part time jobs, if they are lucky enough to find them.
Today it was reported that HSBC will be laying off 2000 jobs by next year.
Add that tally to the Cisco layoffs and I see a trend.
Dr.
Bernanke said in his last meeting with Congress that interest rates are
likely to stay low for the foreseeable future which means the dollar will
remain weak. A weak dollar means higher prices for everything we use. Add to
this the continued speculation from the media about QE3, which will further
debase the dollar and we will be seeing $6.00 a gallon gasoline, $5.00 a
gallon for milk and a steady diet of franks and beans.
The
sad fact that is that three years after the economy was brought to its knees
by a global financial crisis it hasn’t come close to creating enough
jobs that would sustain an economic recovery and do away with the need for
addition economic stimulus.
The
anemic GDP numbers, the pathetic ISM numbers and what I can only expect will
be very disappointing payroll numbers only exacerbates the U.S.
economy’s risk of a return to a recession. I can only conclude that the
pressure on the authorities to do something will only continue to grow.
At
the afore mentioned meeting of Dr. Bernanke and Congress, Dr. Bernanke warned
that QE3 may become necessary if the economy falters in the second half of
the year.
If
there is a silver lining (forgive the pun) for my readers it is that out of
this terrible suffering of our own people my readers will be the big winners
as they have properly positioned themselves in gold and silver.
Every
thing that could have possibly gone wrong for the economy has seemingly given
an impetus for Gold and Silver’s safe haven appeal. Last Friday’s
anemic GDP numbers sent gold soaring to $1,637 an ounce as the US continued
to add more reason to doubt the stability of the world’s largest
economy.
When
Gold hit the psychologically important level of $1600.00 many investors took
their chips and cashed them in. No one ever got hurt taking a profit. As
worries of debt continued, however there was a psychological shift in the
minds of investors who saw that levels above $1600.00 were sustainable. Buyers
are beginning to adjust their mind set to a much higher gold price.
Through
it all there has been a constant debate on how high gold continue to run up.
My answer is that gold will continue to run up as long as there is continued
global debasement of currencies. I believe that the debt worries in the
United States and Europe alone can push gold to $2,500.00 an ounce and if all
of the stars line up it could run to $5000.00 an ounce. I base this on
studying human nature, which is an essential tool for a market trader. With
all due respect to Dr. Bernanke, I think gold is the “magic
bullet" around which all currencies dance as they are worth less in
times of deflation and more in times of inflation.
Gold is
not subject to the laws of supply and demand as the fears of finding a safe
haven feed the hunger of investors as they scramble to find a safe port in
this economic storm. In this respect gold has no peers.
In
conclusion, silver has not fared as well as gold of late. The reason for this
is that while silver had an amazing parabolic run from February until the
last week of April many investors were burned when in the first week of May
silver collapsed and gave it all back. The investors that were burned will
not soon forget. While Gold has had a steady, healthy run up, silver has been
wildly volatile. For the moment it seems stuck in a range but when it breaks
out it will do so with a vengeance. I see Silver trading at $55.00 to $60.00 by
year’s end.
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