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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.
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