Thoughts on Markets

Tuesday, August 10, 2010

Real Money vs Monoply Money - Philosophy of Holding Gold & Silver

 This posting will cover a philosophy of investing or preservation of purchasing power in real money. The discussion at the end of this post will cover that in detail. However, let's take a look at the present markets for gold and silver through their respective proxies.

Both are putting out mixed technical signals, but both are similar. Technicals would suggest a topping out in the immediate future. Gold has been holding well above 1100 and for last week flirted with prices above 1200 which is strong. Silver has been in a trading range for July and the early part of August. Coming up is September and the normal higher moves of our precious metals. This does not always hold true, but has given us many examples of this in the past.

Gold may be forming a positive head and shoulders bottom, too. I am somewhat drawn toward silver, because the gold to silver ratio is too far above the historic 16 to 1. Thus, I believe that we will see silver make a very strong move before too long. Therefore, I have FVITF and HL in my core holdings and buy US Silver Eagles or Canadian Maple Leafs when silver dips.


China pushes for gold; India follows suit

Hot on China's heels, India's Central bank is mulling a proposal to allow banks to trade in gold. If cleared, the move will only strengthen the validity of the bull case for the metal. Read it HERE.


Get Ready, Get Set, Gold! - the best months are just ahead

September has been the strongest month of the year for gold and gold stock price advances in seventeen out of the past twenty-one years.


A boat laden with gold needed to ride out the financial storm - Nielson

There are numerous practical reasons why the U.S. won't make moves that will counter the current dire financial situation - gold may protect from the dire consequences. HERE.

From James Turk

Is Silver Ready to Move Higher? 

2010 August 7  This is a good article with great graphs. Read it HERE.


Thomas Sowell
Cheering Immaturity 
A graduating senior at Hunter College High School in New York gave a speech that brought a standing ovation from his teachers and got his picture in the New York Times. I hope it doesn't go to his head, because what he said was so illogical that it was an indictment of the mush that is being taught at even our elite educational institutions. This is an example of the garbage which is instilled in the immature minds as they are taught to achieve mediocrity in government schools. Beware of what is taught and avoid it if you can find any way. Scrimp, save, and forgo spending to be able to afford children a better education. In the long run, education is not the activity to ignore. Any education which is not Biblically based is a waste of time. Read it HERE, and be surprised.


U.S. Stocks Fall on China Economic Data Ahead of Fed Meeting
U.S. stocks dropped, with the Standard & Poor’s 500 Index falling from a 12-week high, as economic data from China signaled weakness in the global recovery before the Federal Reserve’s meeting today.
Freeport-McMoRan Copper & Gold Inc. fell 2.2 percent as metal prices declined after growth in Chinese imports slowed. Exxon Mobil Corp. dropped 1 percent as the price of oil fell. MBIA Inc., the owner of the largest bond insurer, jumped 4.1 percent after profit rose in the second quarter. Novell Inc. slumped 2.2 after lowering its third-quarter sales forecast. Intel Corp. slipped 2.7 percent. It is interesting why China's moderation is seen as collapse by so many people. They just reported a significant increase in their monthly surplus. So here the author of the article sees the drop in US markets as a direct result of China's "severe" economic problems. Maybe he should have checked the unemployment payrolls and the about 44% increase in calls for unemployment taxes which make more valid reasons. However, the markets mostly look ahead to coming economic situations than current news.  Read the article HERE.


Fed Preview - Between the Rock of Deflation and the Hard Place of Hyperinflation

By James G. Rickards

August 9 (King World News) - Here's the best way to understand the dilemma and choices confronting the Fed at the FOMC meetings this week. An interesting, worthwhile article HERE.
Also, from  KingWorldNews.comHear John Hathaway on the economic situation and the resulting markets HERE.
Let's take a look at our precious metals. There is a debate between deflation and inflation which is going on endlessly in the economic news. All are attempting to tell the direction of the precious metals and commodities in regard to the future. Most would agree that there is inflation on the horizon, but it is truly a matter of timing. 
For the immediate future, it seems that deflation/recession/depression is almost here. However, the price of gold and, to an extent, silver is not totally dependent upon the state of the economy. Gold is and has been for Milena a monetary metal. It is a store house of purchasing power through out the time since God created the earth and put men on it. Thus, it is not a commodity; such as, oil, gas, and other such. Thus, we would expect the monetary character of gold and partially silver to give some distance from the other commodities. 
Our precious metals, without intervention, are sought for the preservation of purchasing power and security in times of financial turmoil and threats or actual wars. Many more folks are beginning to recognize the fraud behind all unbacked paper currencies in the world today. As this recognition grows, there will be less and less trust in this monopoly money. 
Recognize that the fear of this is what drives central banks and governments to contain the prices of precious metals to keep their true value from being seen. They must hide the fraudulent character and profit or control they can exercise over citizens as a result of monopoly money. Thus, they regularly intervene in the precious metals markets to maintain the facade of value of paper currencies. 
The amount of liquidity which has been interjected into the reserves of the banks of the Western World will eventually find its way out into the general markets. Then there will result an extreme or hyperinflation which will drive all the commodities higher. Therefore, commodities will be the asset of choice for the long term. 

However, as the mistrust of paper currencies grows, the masses will turn to the precious metals as an alternative. We will see more and more economies resorting in the day to day shopping to using the real money: gold and silver, for purchases. By the way, I believe that we in America are likely to be the last to see this great advantage. We are mostly ignorant on the true nature of real money, as we have been brainwashed for too long on the "advantages" of paper currencies. A mistrust of this monopoly money will create a world wide gold rush for real money regardless of the deflation/inflation debate. 
For us in America, there is the specter of the fact that the dollar one day will not be the reserve currency of the world. When? I do not know, but I do see cracks in it status presently and on the near horizon. This will, particularly for us, force us to seek real money and accelerate the gold rush here.

These are facts that must be weighed. Certainly, it is a matter of timing about which only King Jesus knows as He is in absolute control of every body and every thing whether one acknowledges this or not. However, it is extremely critical that for each individual, family, church, and government at all levels face this and join with Him and His chosen people. Else, each individual is lost and doomed to Hell, both on earth and during the eternal life which follows temporal life. For governments, remember that God crushed His chosen Israel in 70 A.D., because they turned against Him to their own gods and misinterpretation of Scripture. 

I maintain a portion of my portfolios in precious metals and mining stocks to cover these eventualities. You make your own decisions, but consider the facts that I have presented and study to find your investment comfort zone.
Best to each, Doug



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