Surge in gold and silver just starting
An impressive rebound in the precious metals is set to continue as central bankers have no choice but to support a fitful recovery with new stimulus.
While stocks have paused at resistance near 1,420 on the S&P 500, which represents the 2012 highs, precious metals continue their move higher as ancillary markets still believe, apparently, that central banks -- here at home as well as in Europe and in China -- are poised to unleash additional stimulus.
Friday's action provided a perfect example of this. Gold and silver, along with stocks, launched higher on reports that the European Central Bank is considering a "band yield" to cap Spanish and Italian borrowing costs. Fed chief Ben Bernanke also told members of Congress that there is room for further policy easing.
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I can't say enough about how good the surge in the precious metals is looking. All the pieces are lining up for continued gains: subdued sentiment, aggressive "smart money" futures market positioning, technical strength, fundamental support (central bank easing), and favorable currency trends (dollar weakness).
Policy risk also remains biased to the upside. The Fed is moving closer to taking new action. The People's Bank of China is experimenting with bond repurchase operations as a way of forcing cheap cash into the economy.
And in Europe, German politicians are growing increasingly supportive of the European Central Bank's willingness to cap Spanish and Italian borrowing costs in exchange for fiscal austerity measures -- measures Madrid and Rome were going to have to enact anyway under the Eurozone's new "fiscal pact" that was negotiated late last year.
There are increasing indications that Spain is moving closer to requesting official support. Leaders there are realizing that the budget austerity measures required to receive the benefit of ECB bond purchases and a reduced borrowing cost in the open market are very similar to what the government is already considering. So they might was well do it.
The Spanish deficit-to-GDP target is 5.3% this year and 3% for 2013. Because of increased financing costs and ongoing economic weakness, Madrid is said to be considering additional austerity measures to meet its 2012 target, focusing on a tax increase plan. All of this comes after a previous round of austerity measures bagged €54 billion in budget savings through 2014.
The German central bank, the Bundesbank, remains opposed to these efforts for fear of stoking inflation, but that's like saying the Republicans are pro-life. It's part of the institution's identity to be against it.
What matters is that German leaders, mindful of the costs of allowing Spain and Italy to lose access to the capital markets -- given that they are two of the largest contributors to the Eurozone bailout funds -- are becoming more open to the idea of an aggressive response by the ECB.
The globally coordinated dump of cheap money will send investors, more focused on fear than greed these days, out of fixed-income assets and into stocks and precious metals. I believe the bulk of the flows will be directed at the latter, at least initially, since people seem to have a great hate for equities right now, given fears over the "fiscal cliff" here at home, a slowdown in corporate earnings growth and the specter of a Greek exit from the Eurozone.
It's time to move into the sector. My newsletter subscribers added the VelocityShares 3x Silver (USLV) back on July 24 -- a position that is also in the Edge Letter Sample Portfolio -- and are now enjoying an unrealized gain of 45%. Other highlights include silver miner First Majestic (AG), up 23% since late July, and Market Vectors Junior Gold Miners (GDXJ), up 22.5%.
Disclosure: Anthony has recommended USLV, AG, and GDXJ to his newsletter subscribers.
Check out Anthony's investment advisory service The Edge. A two-week free trial has been extended to MSN Money readers. Click here to sign up. Contact Anthony at email@example.com and follow him on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
I've heard of Gold at $1000, $2000, $2500...for several years now.....
It takes a length of time to push through those plateaus...
Bar a World War of a devastating nature..
We would be very lucky to see $2000 even by June 2013...IMO.
And I have been screwing around with it for over 10 years...But just and opinion.
Specie cannot be printed by the government. That prevents what we have now. It is not gold increasing in value, it the dollar being debased away. If you don't like gold, substitute Farm land. In 1970 an acre of farm land was $600, today is 7500. A new car was 6000 in 1975, today it is 24000. A house was 75,000 in 1980, today even in this depressed market its 300,000.
These things didn't go up in value, the dollar went down. Debtors were rewarded at the expense of savers. More than half of all stock market gains were caused by inflation.
Buy Stocks, Specie and foreign currency (not being debased). Land offers a certain protection too, but can be taxed heavily. Sell Bonds and dump dollars for something that will retain value. The choice of what to hold your savings in is up to you, but history has shown fait paper money is an awful choice. Can you even name 4 currencies to survive 100 years?
Really good question, I'm glad you asked it. So... we are some time in the near future and Europe has fallen apart. The Euro is gone. Here in America, it's only then that we find out Wall Street has sunk $10 Trillion in instruments they cannot recover. Most physical Dollars start disappearing as people panic. Metals been to skyrocket. Gold goes to $2, $3, $8,000 an ounce. Suddenly, you run out of bread and go to a 7/11 with a Krugerrand. "That will be $100, please" and you drop the coin in hand and wait for change. Because I'm explaining this, I can stop your mental picture right here. There is no "change" and likely no bread immediately. When this was the case in France, you had people with gold... they were called targets for people who wanted their gold. You had masses without gold who had worthless issues of Francs for a while but if the media called them fraud or they wouldn't exchange or course through the community, you had nothing. There are some really good books about the French Revolution, bu when you put the story and embellishment aside, you get basic people without a society and economy. The idea of metals exceeding that is hokum. Metals would get purchased and hoarded becoming useless until one day someone said "hey, whatever happened to gold?" It has no value when it has no place in the society. Clean underwear likely would serve as a more viable commodity if you are truly getting down to a post-crash America.
Metals won't make it and I'm not insane by repeating: Close the banks. End the Fed. Get rid of Wall Street. If we aren't 100% invested in job recovery, we won't be here by the New Year. Split America in half, let the half with banks and massive unemployment follow Ben Bernanke. Give me the other half. I would be focusing on massive re-employment because tax revenues will recover functionality across the nation. Not excessive taxes, just fair ones without exceptions. I would be eliminating university campuses in favor of local incubators where virtual learning is blended with actual application so the end-line "degree" has instant validation. I would allow my seniors to actually retire and put them on an allowance and in a community designed to meet their needs. I would make post-retirement manipulation of society a crime. Invest, but if you are playing global economic domination you will be arrested. We have seen so much of what goes wrong and can go bad through the Maturity and Decline arcs of the 20th Century cycle. It's not anyone's "right" to suppress us out of Life, Liberty and the Pursuit of Happiness, so those who are need to stop or be stopped. Banks lobbied themselves into undeniable corruption. Close them, reconcile, regulate having observed the dark side but recognize the enterprise, re-open using the local virtual campus concept. I would recognize WHY we divide and require elected Officials to address it. Two immediate targets... filthy rich and filthy poor because they drag us down in the exact same ways. I would fortify the middle and ensure the gauge that defines it is straight up forever. It would make too much sense to eliminate potential weapons that could undermine us... like text phones and using them in moving vehicles. I would hand every Master Degree a pink slip and say "congrats- now go master some enterprise but stay out of any wage earner role". Come on... there is so much I could say, none directly relative to politics, all of it focused on commonsense economics and logical survival. They are, after all, what we will be chasing when we crash. Argue later, repair the job market immediately.
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