Gold and More of the Same

January 8, 2009 Gold Stocks, Inflation, Silver Stocks No Comments

Are we seeing witnessing the beginning of “red dawn”? It would appear so as we march down the road to monetization. No good will come of this “red dawn”.

President Elect Obama made what was billed as a “major” economic speech this morning and the market dropped 45 points by the time it was over. As I write this the DOW is down 94 at 8,675, the NAS is down 2.86 at 1,596 and gold is up $12.20 at $854.20. I seems that more of the same has not impressed the markets.

We are rapidly approaching the point where the rubber meets the road. The time for campaign speeches is over. The time has come for specifics. It appears that this plan is TARP II with different recipients on the end of the hand outs. Without any specifics, there is really nothing to comment on other than the amount, $800 billion to 1 trillion dollars. What did TARP 1 do that made TARP 2 so important that it has to be passed before anyone knows what’s in it? I am confused, so I think I’ll leave the dissection to the “experts” when they finally figure out what is in the plan and how more debt will solve the debt crisis.

This Is The Down Elevator: With The exception Of Gold!

Everyone agrees that 2008 was a disaster for investors in almost every area. Doug Hornig, an editor for Casey Reasearch, brings us these numbers to consider.

Consider the statistics (12/31/07 vs. 12/31/08):

Housing down 18% nationally, by the Case Shiller index, and 30% or more in most major metropolitan areas.

Domestic stocks? Nope. The Dow Jones Industrial Average down 33%; Dow Utilities down 30%; Dow Transports down 21%. S&P 500 down 38%. NASDAQ down 40%. And if you were unfortunate enough to have invested in a financial-sector ETF, you lost at least 55%.

Foreign stocks? The Vanguard Emerging Markets Fund, a typical example, came in at minus 55%.

Bonds didn’t fare well, either, with the yield on 10-year Treasuries dropping 42%, and 30-year T-Bonds off 38%.

Energy. Uh-oh. Crude oil down 59%. Natural gas down 37%.

Industrial metals took a whacking, with copper down 55%, nickel 56%, and aluminum 37%.

Food did a little better than most, which isn’t saying a whole lot. Corn down 17%; wheat down 24%; live cattle down 15%.

Enough. You get the idea. Every asset was mired firmly in the red in 2008, right?

Actually, no. The single exception was gold, which was up 5.6%. A modest gain in most times, but a phenomenal performance for a year where everything else tanked.

And if you managed to invest something other than U.S. dollars in the metal, you did even better. Gold rose 12% in euros, 32% in Canadian or Australian dollars, and a whopping 44% in British pounds.

Nor is this an isolated phenomenon. In 2008, gold posted its eighth straight yearly advance. Since the beginning of 2001, it has averaged a better than 16% annual gain vs. the U.S. dollar, 11% vs. the euro, and 17% vs. sterling.

Gold prevailed during what has been called the greatest financial crisis since The Great Depression. That is exactly what gold is supposed to do. Gold retains value while all else circles the drain.

Three important points come to us today in Jim Willie CB’s post Yesterday January 7th, 2009. These are important and their full effect will unfold as we move further into 2009.

“Tide is turning in an important political manner. Loan modification in the form of home loan balance reduction is finally being discussed by the US Congress. Payola takes time to set up. Foreclosures are not improving, nor are home inventory levels. Generosity is so broad in the corrupt dens in Washington DC that even redemption for Madoff victims is being discussed by the SIPC. Some will double their money from fraud twice committed, in a wonderful made-in-America hybrid scam. Move the entire account over there, reinstate that lost account over here, pretty simple. A closer look might reveal that some victims are ringleaders. As the Watergate Deep Throat said in 1973, follow the money, but this time look where it is hiding, with full protection from an extradition-free zone. What few seem to expect, never a surprise to the Hat Trick jackass wannabees, is the next step down for the big banks. Meredith Whitney once again is beating the drums for the Bataan Death March, not yet wrong, hardly revered, but surely respected. What a relief to gaze upon Meredith, rather than Abby Jo!”

LONG-TERM US TREASURY BUBBLE BURSTING

“Don’t look now, but the US Treasury bubble has begun to burst. This should be an ongoing story throughout 2009. The entire sold story of a Flight to Safety is about as moronic and baseless as regarding the US stock and bond markets are regulated. The initial stage was clearly a flight out of non-guaranteed bonds like mortgages and corporates and junk and emerging nations. All but govt bonds were found to be junk! The second stage involves the hangover felt during the morning after, upon realization that the US Govt will fund the $8.5 trillion in pledged programs, bailouts, rescues, and other hidden fraud that are painfully apparent. If they cannot fund via US Treasury issuance, auction, and sale, they will print money and purchase in a process called monetization. Already, repurchases are messed up by low yields. The Untied States will not inflate its debts away, not at all! The US will inflate everything in sight in order to avert a collapse, with greater debts than ever before, so great that by the summer and autumn months, when more rational reckoning usually occurs, the enlightened discussion will center on potential US Treasury defaults. They are assured, but the framework intended to deceive its inevitability will be cleverly or brutally applied. The main issue right now is that the entire world has begun to spend their US Treasurys, starting with China, and soon enough the US Federal Reserve will reduce its own bloated inventory. Translation: the US Treasury Bond bubble will give off endless gas as 2009 proceeds, since the new primary directive is to produce inflation immediately, at all costs, and to toss aside all moral hazard concerns. The artificially high US Dollar harms UST Bond sales.”

GOLD RECOVERY WELL UNDERWAY

“Gold smells inflation, and does so much more accurately than fickle analysts, even those in the gold community itself. No sign of deflation exists in monetary measures, when the financial sector data is incorporated. Money velocity is at light speed in the corrupted failed financial sector, as desperation has set in thoroughly. Credit derivatives lift the speed way past any reasonably agreed upon speed limit. That financial kinetic energy will find its way to the main street roadways as a result of sheer political forces and utter needs. The gold price has begun to price in mammoth global stimulus. All major currencies are at risk of debauchery. This current week has been telling. The truly huge US Treasury security auctions demanded a rally of sorts in either the UST Bond complex or the US Dollar. The Powerz thought they could engineer one in the US, since the guard had dropped. Not so! Notice the bullish hammer this week, as gold refused to go down or stay down. It smells big time monetary inflation from monetization relief for everything under the sun. As the entire globe embarks on substantial stimulus, the US Dollar might stay afloat for a surprisingly long time. Watch for gold to de-couple from the US Dollar, its alter ego. The MACD signaled a bullish crossover a few weeks ago. Next comes the technically significant bullish crossover in the moving averages. See the 20-week MA (in blue) soon to rise above the 50-wk MA (in red). Technicians react to such signals.”

More bailouts on the way, the treasury bubble is beginning to burst and gold smells inflation in a big way. These are key to the future that we are embarking on. Gold stocks are a bargain now and the short term risk is minimal. Now is the time to take positions in well run gold and silver companies as well as in physical gold. As always, do your homework and know the companies and their management well before you invest.

Get ready and protect yourself as we inter “red dawn”.

Till next time, good luck and good trading!