The equity markets are soaring
to new highs following the Fiscal Cliff deal reached recently in Washington
which continues to raise the debt and kick the can down the road. It is just
what we expected a
few months ago...a conciliatory deal that will delay the inevitable for
the time being.
Immediately, after the bill
was passed by the House, Obama went back on his multi-million vacation to
Hawaii after signing an executive order to increase pay for Washington
politicians.
The U.S. government is broke,
yet the politicians are living "la dolce vita" on the tab of the
minority of Americans who actually work and pay taxes.
One of the highlights of the
new deal is an extension of the costly unemployment benefits. Maybe if the
extensions were done away with more Americans would actually get back to
work?
The World will begin to wise
up and realize that the gold (GDXJ), silver(SIL), uranium (URA) and critical
metal (REMX) miners may be the safest place to be as the U.S. is rapidly
losing its status as an economic juggernaut.
The dollar (UUP) and
treasuries (TLT) are reversing lower and may hit critical new lows. Investors
are selling the dollar and U.S. bonds for risk on assets such as commodities
and equities.
The long term bond etf (TLT)
is breaking below the 200 day moving average. We called the top this summer.
See article predicting top in treasuries titled, "A
Major Turning Point For Gold, Silver and U.S. Treasuries".
We may be in the beginning of
a hyper-inflationary rally where interest rates could begin soaring and the
dollar could hit new lows. This could cause another decline in the housing
market and put pressure on banks. There is plenty of cash on the sidelines
who may be seeking alternatives in the form of the undervalued commodities (DBC)
and miners (GDX) especially as the dollar is forming a bearish head and
shoulders formation and the Canadian Venture is breaking out above the 50 day
moving average.
The bill to avert the Fiscal
Cliff did not include any meaningful cuts to entitlements, while taxes went
up significantly. This does not sound like ingredients for an economic
recovery. Do not be surprised with rising interest rates if the inflated
housing and financial market turn down with further credit downgrades.
Instead, we would use this
rally to sell overvalued U.S. equities especially U.S. banks (XLF) and
housing (XHB) and diversify into the undervalued miners who appear to be
bottoming and making positive technical reversals.
Gold, silver and the
undervalued miners may be on the verge of a major turnaround higher. The
Venture looks like it may be on the verge of a breakout as it crosses above
the 50 day moving average.
China appears to be in much
stronger economic shape as easy fiat money is flowing into these growing
economies. The Chinese Yuan (CYB) and Equities are soaring these past six
months since QE3 to infinity was announced at Jackson Hole. Chinese exports
are strong despite a strong yuan which means China may be in the early stages
of a powerful rally.
Admittedly the resource
sectors have not performed up to par with gold, silver and general equities
for the past two years. Investors have chosen assets such as U.S. bonds,
housing and financials as purported safe havens while precious metals,
commodities and miners have been beaten down.
We believe this is a counter
trend corrective move in a commodity 20 year uptrend supercycle artificially
manipulated to shakeout investors from hard assets to enter toxic instruments
such as the U.S. dollar, housing and debt.
We may be emerging from a 22
month base. Long term corrections last about 18 months so we are way overdue
for a reversal. This is bargain time for mining investors with long term
horizons such as the Asians.
The time now should be used to
accumulate some of the greatest natural resource assets on discount. Expect
large institutions and funds to continue to enter this small sector as the
dollar turns lower.
Governments all around the
world are flooding the markets with cheap fiat currency to artificially boost
moribund economies. They are not cutting entitlements like they should be
doing. Instead, they are raising taxes and inflating their way out of debt
which may hurt any meaningful long term economic growth.
Precious metals will continue
to grow increasingly valuable over the next few years as Asia has already
begun to diversify away from treasuries and U.S. dollars and increase
purchases of gold.
Central Banks in Asia have
been buying gold and large sovereign funds, billionaires and mining companies
are looking to acquire undervalued mining assets. Stick with the smart money,
rather than following the herd chasing after the latest fads.
Gold and silver may be on the
verge of breaking above the 200 day moving average and starting its next leg
higher. Stay tuned.
Despite current weakness in
gold around the $1650 area we expect a turnaround in gold with a new leg up
to $1800 area and eventual breakout at $2000 in 2013. Despite noises heard in
the Fed minutes of a purported exit from quantitative easing, Central Banks
around the world have flooded the markets with fiat currency.
Around the world gold has
outstripped every competitive currency for the past ten years, yet the
mainstream fail to understand the importance of owning gold and the gold
miners. Recently we have been in a sideways basing period in gold where the
price has bounced between $1800 and $1550. Gold may now be forming the base
for a major breakout at $1800.
For the past ten years gold
has been the place to be yet the masses have still not yet participated. The
recent consolidation like 2008 may prove to be a great discount opportunity.
Disclosure: No positions in
stocks mentioned.
