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September 11, 2012 / Jeb

Gold and Silver Breaking Out of Long, Flat Bases


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.

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