We have climbed the wall of worry for over twenty
years as wealth in the ground becomes increasingly desirable in a world that
is threatened with the ghosts of depressions past. We observe the doubters
who regale us with such headlines as “The Fed’s Big Move Is No Solution”
or a noted economist writes that he senses the tone of urgency of Fed
Governor Janet Yellen’s remarks that
“the scope remains to provide additional accommodation.” Yellen’s comments are really repetitions of her
boss The Fed Chairman Ben Bernanke.
The world is navigating very troubled waters. For
over four years the top Central Banks orchestrated by the Federal Reserve
Chief injected a flood of trillions of dollars into an ailing financial
system. The result has been extremely volatile upswings as QE1 and QE2 were
introduced and gut wrenching declines after QE2 expired. The Venture Exchange
has been in a decline since the middle of 2011, while banks have been propped
up by an accommodative Fed. This is what they
call an economic recovery?
Gold and silver are building bases, while mining
equities are reflecting valuations priced in for a pandemic meltdown. The
banks and large resource companies are sitting on cash and treasuries as the
media ushers the investment herd from Euros to Dollars. We can look from old
posts from 2009 where the opposite occurred and Europe appeared stronger than
the United States. The reality is that the main problem is not European Debt,
but U.S. debt. A rising trend in value of the U.S. dollar and long term
treasuries has been extremely deflationary, but will not last forever.
Eventually, the U.S. must devalue the dollar in order to pay off soaring
debts. Obamacare is another example of policies
which could severely increase our national debt and cause us to possibly
default like Greece.
Precious metals, uranium and rare earths appear to
be testing key support levels, which should hold. We are forecasting a
reversal of the 2011 downtrend in the second half of 2012-2013. We expect
China to continue to squeeze the West and a renewed interest from investors
and end users to participate in the rare earth sector which will once again
hit the mainstream.
Rio Tinto outbidding Cameco
for Hathor indicates the bargain basement prices
many of Hathor’s uranium peers are currently
being valued. We expect continued excitement in the vital nuclear sector
We may see continued lateral movement due to us
being in the summer doldrums before the markets challenge and breaks through
old highs. We are also witnessing support levels still holding indicating
that despite all the doom and gloom the markets are improving. Listen to what
the markets are telling us, not what the media is reporting.
Now we hear the voices of the Cassandra’s and
the prophets of doom as they inform us that a rally in precious metals and
miners is devoid of lasting power. We disagree. The mining sectors and
natural resources are in a period of rest now preparing for a new launch as
investors realize that the U.S. dollar is far from a safe haven. The
underlying quandary in still in need of repair. For now we are in the quiet
summer doldrums. The economic cancer continues to metastasize albeit out of
sight and out of mind. Come this Fall and Winter our sectors in precious metals,
uranium, rare earths and graphite should shine as wealth in the earth is
realized as a true hedge against hyper-inflation which is preceded by this
current deflation. Remember that during the 1920’s the U.S. dollar rose
against other currencies. After the crash, the dollar still maintained its
value as investors who were on margin had to raise cash. After all of the
de-leveraging was finished and the herd entered the dollar, FDR devalued the
U.S. dollar and raised the gold price from $20 an ounce to $35 practically
overnight. All private ownership of gold became illegal. This history lesson
teaches that rallies in the dollar during deflations are often followed by
gut wrenching hyper-inflationary environments.
Silver is testing 2011 lows and is extremely
oversold with an RSI reading below 30. We believe silver could rebound off of
these extreme oversold levels and possibly break resistance to the upside.
Rising precious metals markets love climbing walls
of worry which are in this case spreading malignantly. We do not enjoy being
a harbinger of sad tidings. However, the Fed and its European acolytes have
failed to address the real issue of the malaise in which the world finds
itself. Specifically, the cancer consists of too much reckless spending and dependance on governments whom one suspects doesn’t
really know what is going on. Watch gold and silver as it finds support at
The elites of the west possess all they need for the
wives, children and grandchildren to live in splendor. They are trying to
solve fiscal malignancies with financial dollars. Our leaders are addressing
the debt problem with financial band-aids. This is
a perilous Keynesian experiment, which has long ago been disproven, but which
arises every time capitalism reaches for a solution and comes up with the old
Over a century ago another failed economist wrote
that a specter is haunting the Western World. In some respects, the French
have a saying that, “the more things change, the more they remain the
Who could’ve dreamt that in 2011, we would see
demonstrations in the Tahir Squares of the World
that would result in Egypt coming under the control of the Islamists.
Perhaps the past is prologue and we are destined to witness the same old
scenes of revolt in other countries as well. The masses are not stupid.
Everyone has a smart phone with plenty of rare earths, lithium and graphite
in it. They all want the good things of life for their families.
In any event, we are reaching a societal point of no return where
entitlements such as Obamacare can no longer be
afforded. They think we can make everything right by monetizing the debt
which is only months away possibly after the election.
In conclusion, what does all this mean? As time goes
by the only true repositories of wealth exists in the natural resource area
as it has since the days of Athens and Rome. Oddly enough after millennia we
have come full circle, the same countries are going broke. History may not
repeat, but it recurs and mimics. Be careful of the coming debasement of the
dollar and hold on to your precious metals and wealth in the earth. Monitor
for a reversal off of these oversold levels at $26 on silver and $1550 gold.