12/12/07 -
Public interest in gold: Returning For the next push upward;
AND The Fed's Magic Trick: Poof - Billions appear out of nowhere!
I believe the next
step in gold's rise will be mostly powered by the general public coming back
into the gold market in a big way. Its starting now, the snow ball is
beginning to roll and gather steam. When we hit $850 and gold owns a new
high, media coverage will pick up in a big way. After a more than 300% gain
since 2001, including 22% in 2005, 21% in 2006 and likely at least 25% in
2007, Mr. John Q. Public is starting to catch on that gold just might be a
good investment (Duh! - you think?).
The media, which may be even more dense the good old John Q., is also
starting to figure it out. Cramer and the Motley Fool guys, both popular
talking head pundits with a history of talking down gold investment spoke
positively of gold this week, especially Cramer who had a feature program on
miners, specifically recommending Newmont and Yamana. It also seems to me
like I've been hearing more "Invest in gold" advertisement spots on the
radio in recent weeks as well.
Now here comes the NY Times and they are taking their shot. Check it out -
gold makes it to the NY Times Sunday Financial page headlines:
http://www.nytimes.com/2007/12/08/business/yourmoney/08money.html?_r=1&ref=yourmoney&oref=slogin
More will follow and once we get a close above $850, it will snowball as the
media touts the fact that gold has hit new highs. This media coverage means
a lot and on hearing it, John Q. will be calling his broker for gold stocks
and ETFs and heading down to the coin shop to buy physical metal. As a
result, I expect to see a close above $850 before the end of December and
roughly $1050/oz in late January or February of next year. Its
important to note that high volatility and big daily swings will be a
hallmark of the gold market for the next six months and probably in the
stock market as well (volatility could last longer). Gold price swings of
$30 to $50 in a day will dang near take our breath away, but it think it
will happen, both up and down. When we get the gigantic upward moves we will
be at or near a top and when we get the gigantic downward moves, conversely
we will be at or near a bottom.
One of my favorite indicators of public activity is the Kitco traffic chart.
You can chart the number of folks clicking onto the Kitco website and it
spikes huge when the public gets interested in precious metals. The spike
will start just a few weeks before the top. I use the Alexa website to look
at Kitco's traffic.
Poor old Mr. US Buck has been hammered down in value for the last several
months, but the fundamentals for downward movement have not changed. There
are a lot of reasons to be bearish on the US dollar. Best known is the
interest rate differential – with continuing downward movement of interest
rates by the fed, investors seeking better returns are forced to sell their
dollar assets and but from other countries, forcing the dollar value down. |
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Additionally, with
at least a slowdown in the US economy coming, the stock market will likely
be less than robust. What happens as far as investment is that when the
market is weak, stocks get sold and investors move their money to markets
where they can do better, ie, the BRIC countries, Australia, etc. They sell
their dollars and buy Euros, Australian $, Indian Rupies, Brazilian reals,
etc. So a US stock market that looks to do poorly in the future is bearish
for the dollar, just as a strong market makes international investors want
to buy dollars so they can get in on the US market when things are good. The
flaming hot US stock market of the last couple weeks has probably done much
to support the dollar during that time.
In the short run, the fed is still lowering rates, the market looks to be
flat or down a bit for a while here so why buy dollars???? Clearly, its not
good news for Mr. US buck, and that means fairly good news for gold. Reality
is finally setting in - the fundamentals of the weak USD have not changed.
Its not different this time - everything with the big US financial
institutions is still very screwed up. So How do we fix that?
Part
II: The
Fed’s Magic Act: Poof - Billions appear out of nowhere!
Dec. 12th, the Fed announced it's going to just "lend" billions
of fiat dollars to various large but semi-insolvent banks. Several other
central banks from other countries are going to "help" and supply some of
their "money" as well. No need to bother with a printing press here, just a
wave of a hand and: |
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Poof!
Billions and
billions of dollars just magically appear in the accounts of the worst
creditor banks to keep them afloat.
Dang, I wish I could just wave my hands and make billions appear in my
account! So what does just creating fiat billions upon billions really mean?
Billions more dollars, euros and other money chasing after a limited number
of real goods – this is a real strong boost to worldwide inflation. Think
this might have an effect on GOLD???? (ya think?)
Can we spell: H Y P E R I N F L A T I O N ???
Last night I used firewood to heat my home - a few years from now it may
well be worthless dollar bills burning in my woodstove. I really don’t think
it will be that bad, but the dollar has much farther to drop and there will
be an inflation effect from that.
The sky has not
fallen just yet, and I am not sure it will, but I think gold is going to get
a heck of an upward ride here for the next couple months.
Mining Stock News:
Hey Right now I am big into Kinross. Their stock has been real strong and
doing well for me. I look to stick with Kinross and Goldcorp over the next
couple months – maybe some Newmont as well – we shall see about that. I am
not as strong on Newmont as I am on Kinross and Goldcorp.
Chris |
Feeding The Furnace With Worthless Cash in 1923 Germany. |
