It is time to look at gold & silver with a dose of caution! As we enter the 2nd leg down in this double dip recession physical gold and silver should shine, but gold and silver stocks may get swept away in the panic as they were in 2008. Let’s get into it and see why we need to look at gold and silver with a dose of caution!
The U.S. Dollar is approaching stall speed, with a dramatic reversal in the cards shortly. The key to the last statement is the understanding of the word “shortly”. Whether it occurs next month, next year , or at the latest in 2012, it is still shortly in the bigger picture of currencies and the preservation of wealth.
Just as an airplane runs out of airspeed as it goes straight up, the dollar will be forced to turn down and gain airspeed before it falls out of the sky. People are running away from the Euro into the dollar. Soon they will discover that they ran from one collapsing fiat currency into another.
The dollar has been reaping the rewards of the collapsing Euro, but is it in any better condition than the Euro? If the truth were told, the dollar is in far worse shape than the Euro and it is getting worse everyday due to the actions of the current Marxist/’Socialists that are holding the U.S. public hostage. Hopefully November will bring some adults back into power in the U.S. Government. If not we can all visit a third world country without having to pay for the plane fare!
Change is Here, But it is Not What Was Promised!
We are entering the era of change! By that I don’t mean the phony campaign slogan that the “Community Organizer in Chief’ ran on, but rather, real deep systemic change that occurs when one system collapses and another fills the void and replaces it.
The financial system is in the middle of a collapse. It is not recovering as the government’s propaganda news media would have you believe. We are about to enter the second wave of the double dip recovery. It will not be pretty.
Central banks have a dual role in the system that puts them at odds with themselves. On the one hand, they are the charged with keeping inflation under control and the monetary system sound. On the other hand, they are out to profit from whatever opportunity that presents itself. Those two objectives don’t go together, and in the new financial system they will not be allowed to do both.
Central banks control the fiat currency system, and like our politicians, they claim to be working on our behalf. In reality, both could care less what happens to the public as long as THEY profit from it.
The Eurozone crisis is just the latest in a string of events that will send the U.S. and the world into the 2nd down leg of the double dip recession. Soon U.S. cities and states will make the Eurozone crisis look like a footnote in the story of the global fiat currencies collapse.
We are in the midst of a systemic change in operation of the world’s financial systems. The market check that occurred in May should be an alarm bell for all those who were drinking the government’s “the economy is on the road to recovery” kool-aid!
The lesson that we are learning now, is a simple one. The creation of more debt will not erase problems caused by old debt, or to put it more succinctly, you can’t print your way out of debt!
U.S.’s $13 Trillion Debt Poised to Overtake GDP
By Garfield Reynolds and Wes Goodman
June 4 (Bloomberg) — President Barack Obama is poised to increase the U.S. debt to a level that exceeds the value of the nation’s annual economic output, a step toward what Bill Gross called a “debt super cycle.”
The CHART OF THE DAY tracks U.S. gross domestic product and the government’s total debt, which rose past $13 trillion for the first time this month. The amount owed will surpass GDP in 2012, based on forecasts by the International Monetary Fund. The lower panel shows U.S. annual GDP growth as tracked by the IMF, which projects the world’s largest economy to expand at a slower pace than the 3.2 percent average during the past five decades.
“Over the long term, interest rates on government debt will likely have to rise to attract investors,” said Hiroki Shimazu, a market economist in Tokyo at Nikko Cordial Securities Inc., a unit of Japan’s third-largest publicly traded bank. “That will be a big burden on the government and the people.”
Gross, who runs the world’s largest mutual fund at Pacific Investment Management Co. in Newport Beach, California, said in his June Outlook report that “the debt super cycle trend” suggests U.S. economic growth won’t be enough to support the borrowings “if real interest rates were ever to go up instead of down.”
Dan Fuss, who manages the Loomis Sayles Bond Fund, which beat 94 percent of competitors the past year, said last week that he sold all of his Treasury bonds because of prospects interest rates will rise as the U.S. borrows unprecedented amounts. Obama is borrowing record amounts to fund spending programs to help the economy recover from its longest recession since the 1930s.
“The incremental borrower of funds in the U.S. capital markets is rapidly becoming the U.S. Treasury,” Boston-based Fuss said. “Do you really want to buy the debt of the biggest issuer?”
Now: A Word Of Caution on Gold And Silver
As the next wave of the double dip commences, there will be HUGE volatility in the stock markets. Make no mistake about it, just as in the collapse of 2008, gold and silver stocks will be swept away in the panic. They will recovery long before the general equities do, but they will drop in the short term because just as a rising tide lifts all boats, a falling tide lowers all boats.
It is imperative that stock traders stick to their discipline because this next leg down could start at any time based on the smallest provocation. It could be the next Hungary to announce, or the first U.S. state forced into bankruptcy, or it could be the start of World War III between Israel and Iran.
The specific cause does not really matter, so you have to be prepared for anything. Gold and silver stock profits of 25% to 30% should be taken whenever they occur. Use them as an opportunity to exit stock positions on days of strength. Hold cash from these positions so you can buy back after the worst of the market crash has occurred.
Gold and silver stocks are speculative. Physical gold and silver are real wealth that you should accumulate on any price pull back. Those of you who only have gold and silver stocks should use a portion of your profits from your stock sales, let’s say 25% to 30%, to purchase physical gold and silver coins as you exit your stock positions.
Once the 2nd leg down in this double dip recession is underway, we can reassess and buy stocks back at a fraction of the current cost. I’ll let you know when the right time comes. As for now, I am looking to step out of my stock positions on the big up days and sit in cash for a while. One note on this: I am not going to liquidate my gold funds. I want to have some skin in the game in case the 2nd leg down doesn’t occur as soon as I expect.
Gold and Silver Have Always Been and Will Always Remain Real Wealth!
Gold is the standard bearer for the preservation of wealth, but I think that silver will out perform as this bull market heats up because gold and silver will act as currencies until sanity returns to the paper currency markets. There is minor risk to gold in the short term (mostly due to the volatility that is coming to the markets) and little or no risk in the long term.
Silver starts at a lower price and is more affordable for the average investor that wants to maintain the value of his money. Silver has the added benefit of being the precious metal that will be used for most commerce as the financial institutions struggle to come up with a solution to the dissolution of the dollar. If the hyperinflation scenario unfolds in the U.S., silver will be used as trading commodity for every day consumption. Add the medicinal and technological demands for silver, plus the falling mining out put of the metal and you can see that silver is set to rocket as the financial crisis implodes.
If you approach your investments in gold and silver with a dose of caution you should do well in the trying times ahead.
Till next time, good luck and good trading!
More Gold Market Analysis:
- Silver Versus Gold
- The Silver Christmas Present
- Gold as Currency
- Gold & Silver: The Summer Doldrums
- Gold And Silver Are The Answer!