Based on the February 10th, 2012 Premium Update. Visit our archives for more gold & silver analysis.

There is a study published by the Credit Suisse and the London Business School that says that gold prices have been too volatile to play a reliable role as a hedge against inflation over the past 112 years.

While inflation does not reduce gold’s real value, it has no yield or income flow and the precious metal has given a far lower long-term return than equities in the period since 1900, or 120 years, says the study. Generally, the analysis is conducted based on periods when gold was money and where it was not and we believe that these two should not be mixed.

We realize that gold does not give income or interest. People invest in gold is a search for yield through capital appreciation or as a safe haven – or as money. When interest rates are close to zero or negative in real terms, gold begins to glimmer. The US, Europe, the UK, China, India, gold’s biggest markets, all have negative real interest rates. It is true that the past 112 years have not all been good for the yellow metal. Yes, there are bull markets and there are bear markets and we are in the midst of a bull market in gold right now.

In the period since 1900, gold gave a real return of 1.1 percent in sterling terms and its value fluctuated widely, said the study. “Gold is the only asset that does not have its real value reduced by inflation. It has a potential role in the portfolio of a risk-averse investor concerned about inflation,” it said. “However, this asset does not provide an income flow and has generated low real returns over the long term. Gold can fail to provide a positive real return over extended periods.”

True. That’s why we are invested now, while gold is in the midst of a bull market. When it swings into a bear market we’ll consider other options or perhaps evaluate the profitability and risk of trading the downswing – impossible to tell at that point. However, the key issue is that one does not have to be fully invested in the precious metals sector during bear markets – what is the assumption of the study.

Mohamed El-Erian, CEO and co-chief investment officer of bond fund giant PIMCO, said that given the fragile global economy and geopolitical risks, investors should be underweight in equities while favoring “selected commodities” such as gold and oil.

Obama seems to have run into a good streak of luck in his bid to get reelected president. Just in the nick of time, the U.S. economy is improving, at least as evidenced by last Friday’s jobs report. Payrolls numbers are up by 243,000 jobs. Unemployment is down to 8.3 percent.

The Sunshine Profits Team extends our best Valentine’s Day wishes. To see if you’ll fall in love with the precious metals sector again, let’s begin the technical part with the analysis of the yellow metal. We will start with the very long-term chart (charts courtesy by http://stockcharts.com.)

We begin with the chart of gold from a non-USD perspective. Last week there was a weak consolidation from a non-USD perspective and the strong similarities to the trading patterns of mid-2011 are no longer in place. With these developments, it is unlikely that a move to the upside will be as sharp this time. We have seen two consolidations this time and last year there was only one small stop, after which gold’s price immediately shot upward. This chart suggests that a sharp rally is not a likely probability and that further consolidation is quite possible at this time.

In the long-term chart of gold from the perspective of the Japanese yen, we see that the RSI level over 60 and this suggests that the local top may be in or is at least close. In the past, when the RSI held close to the 70 level for some time, local tops have been seen. Such is the case today. Prices are also close to the middle of the trading range but not at it, so a pause appears likely though not yet imminent.

So, will gold decline from here? Most likely yes, but not very far. The additional confirmation of the short-term bearish case comes from the general stock market, as gold has been recently moving in tune with stocks. Consequently a turnaround in stocks could ignite a move lower in gold as well.

The next local top in stocks will probably be close to the level of the 2011 high. The recent trading pattern has been consistent with the period leading up to the local top in 2010-11. In October-November 2010, declining prices were seen for a few weeks but were quickly followed by a continuation of the rally. We may have a similar situation here.

RSI levels should be looked at as well and are also indicating that a rally is likely ahead. It appears that it could last for two to four weeks as the RSI level will then likely be close to 70. This has coincided with local tops in the past.

The short-term (and short-term only) bearish case for gold is further confirmed by the actual recent action in the silver market which has followed what we outlined in our essay (February 10th, 2012) on the likely silver pullback:

Silver’s price has been in a sideways trading pattern during the past two weeks after a strong rally in which the red support-resistance line was pierced and volume levels were significant. With silver now above this line, it seems that a move back to it, a test of the breakout may in fact be seen. The 38.2% Fibonacci retracement level based on the 2002 to 2011 rally is also in play and will likely assist in stopping a decline as well.

(…) the medium and long-term outlook for silver remains bullish but – also based on the analysis of the USD Index – the short term is now more bearish than not.

Summing up, the outlook for gold remains bullish for the medium and long term but is now rather bearish for the short term.

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, we urge you to sign up for our free e-mail list. Gold & Silver Investors should definitely join us today and additionally get free, 7-day access to the Premium Sections on our website, including valuable tools and unique charts. It’s free and you may unsubscribe at any time.

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Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

Sunshine Profits provides professional support for

Gold & Silver Investors and Traders.

Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Gold Charts, Gold Investment Tools and Analysis of Gold & Silver Prices Naturally, you may browse the sample version and easily sign-up for a free weekly trial to see if the Premium Service meets your expectations.

“It was the best of times, it was the worst of times, it was the age of wisdom (for those who invest in gold) , it was the age of (central bank) foolishness, it was the epoch of belief (in Chinese growth) , it was the epoch of incredulity (in fiat money), it was the season of Light, it was the season of Darkness, it was the (Arab) spring of hope, it was the winter of (Syrian) despair.”

With several of our own additions in parenthesis, these are the opening lines of the famous novel “A Tale of Two Cities,” by Charles Dickens whose 200th year birthday was celebrated around the world this week. His words seem just as true and relevant today as in the time in which they were written.

Greece played the Artful Dodger this week and missed another deadline to approve conditions for a second €130bn bail-out on Tuesday night because of last-minute haggling with international lenders over emergency spending cuts. Negotiations to save Greece from a disorderly default are now teetering on the edge.

The delay fueled anxieties that Athens may be forced into a messy default next month and triggered concern over whether Greece remains committed to fiscal reform after two years of failing to implement measures agreed in return for financial support. Greece has already missed two deadlines this week. Finally a deal was  presented for approval at a meeting of eurozone finance ministers Wednesday only to be sent back to Greece as incomplete with a fresh set of demands and an urgent deadline. The eurozone finance ministers dismissed as incomplete a reputed €3.3bn package of Greek budget cuts and sent the country’s finance minister back to Athens with a fresh set of demands and an urgent deadline. They also warned of more intensive involvement in the Greek economy to improve tax collection and accelerate the sale of state-owned assets.

Earlier in the week the Great Expectations that a Greek rescue plan will be completed drove the dollar down sharply against the euro and boosted gold 1.5 per cent on Tuesday.

Gold could face a short-term pullback if Greece strikes a deal, as it may hurt the appeal of safe-haven assets, but on the other hand it will be good for the euro (bearish for USD Index), which might be bullish for gold. In the long run, the lingering euro zone debt crisis is expected to support sentiment in gold.

Charles Dickens said: “Do all the good you can and make as little fuss about it as possible.” To see what good we can do for precious metals investors, let’s begin the technical part with the analysis of the USD Index. We will start with the very long-term chart (charts courtesy by http://stockcharts.com.)

In the very long-term USD Index chart we see no significant changes. Thursday’s closing index level is slightly below that of a week ago, but the recent move back below the long-term resistance line has not yet been confirmed. The index level is now more or less right at this support-resistance line, and the medium/long-term situation is slightly more bearish than not.

In the short-term USD Index chart, we see that the index “somewhat bottomed” at the cyclical turning point. Instead of a rally, a pause has followed with some sideways trading and small moves to the downside although declining at a much slower pace than seen in previous weeks. It seems likely that the index could actually rally in the very short term but the outlook for the medium term is bearish.

The situation for the USD Index appears rather bearish for the medium term but bullish for the short term, which might be a bearish short-term indication for the precious metals sector. It is also consistent with our recent view on the mining stocks part of the precious metals sector published on February 3rd, 2012 in our essay on the likely top in mining stocks:

(…) the medium- and long-term outlook for the gold and silver mining stocks is positive, however a correction is likely to be seen soon – perhaps it will start next week. Long-term investors should consider purchasing junior mining stocks, while short-term traders might want to trade the coming correction.(…) if you’ve been considering trying out our Premium Service, it appears to be a good idea to do so now.

Since the dollar is negatively correlated with the precious metals market, the likelihood of a rally is bearish factor for the precious metals sector – also for silver.

A look at the very long-term chart (if you’re reading this essay at www.sunshineprofits.com, you may click on the above chart to enlarge it) reveals a rather uneventful week. Silver’s price has been in a sideways trading pattern during the past two weeks after a strong rally in which the red support-resistance line was pierced and volume levels were significant. With silver now above this line, it seems that a move back to it, a test of the breakout may in fact be seen. The 38.2% Fibonacci retracement level based on the 2002 to 2011 rally is also in play and will likely assist in stopping a decline as well.

Summing up, the medium and long-term outlook for silver remains bullish but – also based on the analysis of the USD Index – the short term is now more bearish than not.

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, we urge you to sign up for our free e-mail list. Gold & Silver Investors should definitely join us today and additionally get free, 7-day access to the Premium Sections on our website, including valuable tools and unique charts. It’s free and you may unsubscribe at any time.

* * * * *

Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

Sunshine Profits provides professional support for

Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Gold Charts, Gold Investment Tools and Analysis of Gold & Silver Prices Naturally, you may browse the sample version and easily sign-up for a free weekly trial to see if the Premium Service meets your expectations.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. ]]> http://thedailygold.com/gold-gains-alongside-dollar-clear-winner-from-sp-downgrades-is-germany-as-only-bond-haven-left-in-eurozone/feed/ 0 http://thedailygold.com/us-dollar-whale-meets-gold-harpoon/ http://thedailygold.com/us-dollar-whale-meets-gold-harpoon/#comments Fri, 22 Jul 2011 06:12:26 +0000 Stewart Thomson http://thedailygold.com/?p=7190  

1.    You have just watched the “gold punisher” administer an incredible eleven day beating on the US dollar.  From about $1478 to $1610, gold has now risen 11 days in a row.  

2.    Click this gold chart link now to view the beating, and to view the four buy points you need to be prepared to respond to, if price declines to those areas.  In particular, the approx. prices of $1595, $1578, $1560, and $1535 are where you need to be prepared to buy “enhanced” amounts of gold, with US dollars. 

3.     Use horizontal support to decide when to buy, and all other technical analysis to tweak how much you buy.  If you try to use oscillators like RSI & MACD to decide when to buy, you will be financially destroyed over time.  

4.    Will today be a twelfth up day in a row for gold?   I can’t answer that question, but I will say that investors who have tried to “flip trade” their way through this crisis have generally turned their trading accounts into hamburger meat. There will be many more such beatings delivered to the dollar by the gold punisher, yet the mass obsession with calling intermediate rallies in the dollar just won’t die.

5.    Those who sold their gold and gold stocks because of coming  “seasonal doldrums” now looktotally ridiculous.  Can you imagine somebody telling you how they tried to trade the long side of the Dow through the crisis of 1929?  In this even larger dollar crisis, if you buy the dollar against gold in size repeatedly, you stand to be financially exterminated.  It’s only a matter of time before itreally happens.  What does it take for the amateur investor to really learn?  Obviously, the answer is… more pain.

6.    Speaking of pain, those of you who have endured the gold stocks gulag are starting to see some sunlight!  As most of you know, I began adding gold stocks to my anti-dollar weapons stockpile into the 2008 crash, and stepped that up again in the fall of 2009, as the ETF known as GDXJ (gold juniors) was born.

7.    My 2008 buy program almost broke me emotionally, but it was “no cigar” on that front for Mr. US Dollar, and now he is the one who is broken!  Most investors thought they could make big money in gold stocks, then trade that for the safety of bullion.  That was a mistake.

8.    Never go for reward before managing risk.  Start by managing the lowest risk investments first, and then use profits from those lower risk plays to fund higher risk equity speculations.

9.    Click here now to view why I am “amping up” my gold stocks allocation on all price weakness. I believe gold stocks (via GDX) have completed an imperfect head and shoulders bull continuation pattern, and the stocks are now consolidating just above the neckline of that price pattern.

10. What seems to be generally ignored by investors is the depth of this pattern.  It is about $40 deep.  The pattern engulfs the entire $15 to $55 price area!  While the technical target is slightly below $100, I have labelled the target as $100 because that is a significant round number.

11. I believe that price will surge far above $100, but even at that level some individual junior stocks could go “stratospheric”.  A substantially higher gold price could send GDX much higher than anyone anticipates.  The bottom line is that the gold stock prisoners (you) are about to break out of the gulag and lay one serious beating on the dollar bugs!

12. A move above $64 on GDX could cause the banksters to order the hedge funds to reduce their crazed short positions on gold stocks, or face forced liquidation, and that action could send gold stocks upwards with near-vertical price action. No market moves more violently to the upside than gold stocks fuelled by loss-booking on short positions!

13. Click this shorter term GDX launchpad set-up chart now to view your GDX “buy points at hand”. 

14.  Remember that 93% of gold analysts were bearish at the recent lows for gold and GDX.  They were all wrong. Investors who sold gold stocks into the lows and bought the dollar are now in some serious trouble.  The temptation is to try to buy back in, right now, but after this two week surge in price, what could happen is that price then promptly falls, and they (you?) sell at more losses.

15. Don’t let that scenario become one you partake in.  You should have bought into the lows of $51 and now be booking small profits as price moves towards $61.  Those who totally failed to buy anything on the way down from $64 risk being left clutching a roll of US dollar toilet paper while the rest of us drink gold stocks champagne.  Those who sold out for dollars look like beached whales, impaled by massive golden harpoons shot from the punisher’s warship!

16. I’ve personally raised my core position allocation in my gold stocks accounts to an unprecedented 70% level.  In plain English, what that means is that 70% of the risk capital I’ve allocated to buy gold stocks is now invested in them, and will not be traded out regardless of what happens to my stocks on the price grid, in the intermediate term.

17.  Tactically speaking, should gold stocks decline from here, I will only increase that 70% number, while nothing short of something near the $100 GDX number will see me chop it.

18.  A week ago I told the gold community to get with the gold program, and many of you have, but thousands of you unfortunately drank the dollar elixir peddled to you by the banksters.  You tried to counter-trend trade your way to wealth, and that can’t work.  It didn’t work yesterday.  It won’t work today, and it won’t work tomorrow.

19. I mentioned wheat and corn recently taking financial baseball bats to the dollar, following the explicit instructions of the “gold punisher”.  Sir Corn and Sir Wheat are back again this morning, taking turns bashing the dollar.  Click here now to view the three “buy points at hand” for you in the wheat market.  Does anyone really understand just how much more powerful an asset wheat is than the US Dollar?  Try not eating for a month, and you will understand the incredible stupidity of the dollar bugs who call wheat “risky” and their photocopied hero a “safe haven”.

20.  We just tagged two of those points.  One of the reasons I invented my pyramid generator (PGEN) is to manage the price action around HSR (horizontal support/resistance) lines.  In an uptrend, price often doesn’t pull back all the way to the HSR line that sits below current price.

21. The PGEN systematically allocates risk capital into these support areas so that if price turns before hitting the HSR point, you still put some capital to work.  On the other hand, if price blows through a number of HSR levels on the downside, you have not blown all your cash reserves.

22. As many of you have learned the very hard way, price can stay below your price entry point for years, or even decades.  If you can’t be a “player”, you start to break down mentally and emotionally.  Financial destruction quickly follows in most cases, in a frenzy of loss-booking.

23. Over time, you learn that the most wealth is built by buying into price areas that you never believed could or would happen.  If you focus on trading smaller than you “know” is rational most of the time, the rare occasions when price does decline massively will see you allocating your largest amounts of capital, while most investors are liquidating and booking huge losses.  You can’t know predict when those times occur with any consistency, but you can respond to them as aprofessional investor, on the buy.

24. Options players need to be on “gold alert” right now.  I like 70% call options and 30% put options on GDX.  You may have your own favourite gold stocks vehicles.  I’d be looking to go out towards late 2012 (preferably longer) for the calls and late 2011 for the puts.  If price declines from here, cover off some of the puts.  If GDX goes to $100, well, call the wheelbarrow company!

Special Offer For Website Readers: Send me an Email to freereports4@gracelandupdates.comand I’ll rush you my new “Thunder Down Under” free report!  Learn which Australian gold stocks might be poised to rise like rockets if GDX makes its way to my $100 marker!

Thankyou

Cheers

St

Stewart Thomson

Graceland Updates

Written between 4am-7am.  5-6 issues per week.  Emailed at aprox 9am daily.

By Jeb Handwerger
The US dollar has been reacting very bullish to the death of Osama bin Laden, the figurehead of Al Qaeda. Short-term investors have shown a renewed interest in the US dollar (UUP) as near-term resistance and the 50-day moving average have broken to the upside. Word has  spread that this has been a critical blow to the Al Qaeda network, but countries are preparing for retaliatory attacks.

Bin Laden’s demise came at a crucial time as investors were rushing to flee the dollar for protection in silver (SLV) and gold (GLD). His death has certainly affected the foreign exchange markets and given a renewed interest in the US dollar, especially versus the euro (FXE) where debt concerns are resurfacing and where this past week investors left interest rates unchanged. Obviously, the view that geopolitical tensions in the Middle East will ease has caused a renewed interest in the resilience and the image of the US internationally.

We may see continued “short term” weakness in gold and silver and strength in the US dollar as both markets were extremely divergent from the historic mean before this event reaching record levels. The US dollar is beginning to reach key resistance after a bounce.

Before bin Laden’s demise the US dollar was reaching extremely oversold levels. This dead-cat bounce is only temporary. Investors should use this opportunity to position themselves against long term US dollar weakness. There will be great rallies and crashes in this volatile downtrending market. One should use these counter trend moves as an opportunity to enter into gold  and silver. Commodities tend to rebound aggressively from these dips. It has always been prudent to buy the countertrend moves or dips rather than chasing the herd when the sector is overheated. Hopefully, silver and oil (OIL) have taught this lesson to investors getting overly aggressive at overbought conditions.

Precious metals and commodities are going through a healthy technical correction. The recent parabolic move in silver has been followed by a waterfall decline as trailing stop losses have been hit. It was important to take partial short-term profits as technical targets are reached and back when the market was still moving higher before the panic began. Now the situation is reversed. Panic is seizing the silver and gold trading pits, an ideal time to buy for a long-term investor in hard assets.

Although we are seeing a countertrend rally in the US dollar and many are calling a top in gold and silver, sadly, nothing has really changed. We are possessed by the nudging fear that although bin Laden is gone, the malady of radical Islam and potential retaliation lingers on. The specters of our mounting problems such as a runaway budget, sickening unemployment, the victimization of the middle class, enormous entitlement programs are yet unsolved. Interestingly before bin Laden’s demise, Ben Bernanke attempted to assuage our enormous wounds by trotting out the same old, tired tropes. Glibly, he tried to assure us that everything was going to be alright. Many of us were unconvinced. Between Ben and Bin, we are between the rock of retaliatory terrorism and the hard place of fiscal woes.

The US dollar will soon meet major resistance and overbought conditions. Over the past 11 months these dollar rallies have fizzled out very quickly over four weeks. There is no concrete evidence at this juncture to predict a major turning point in commodities or the US dollar.

Editor’s Note: Read more from Jeb Handwerger at Gold Stock Trades.
Positions in Gold, Silver and Mining Stocks

Then there is this sad picture.  Any wonder why they are managing expectations?

There may be one or two dollar bulls out there.  Usually I am one of them at times like this that are ripe for some contrary action, but I can’t make that claim based on this chart and based on the untenable situation policy makers find themselves in; caught between and inflationary rock and a Treasury yield hard place.

Okay, posting to be sparse for a couple days.  Just see this mess for what it is and hopefully we come out okay on the other end.

http://www.biiwii.blogspot.com
http://www.biiwii.com

UUP (US Dollar Proxy) Chart

• The US government has been running some of the largest deficits in history.  You have seen price decline to 76 on the DXY, a 52 week low.  The dollar is headed much lower.  The dollar is going have a serious sell off and my charts suggest it will occur this year.  If the Fed engaged in massive selling of dollars, there could be a total collapse of the currency.  It is unknown how many dollars can be printed before the whole system implodes.

• The great danger for US citizens is the rapidly declining  purchasing power of the dollar.  I don’t think the average citizen has any clue what this means in the years ahead. Sadly, that is exactly the situation that a weak currency creates.  Imagine food and gas at triple the current prices.

Gold and Precious Metals
SGOL (Bullion Proxy) 6 Month Chart

SGOL 6 Month Chart Analysis

• America’s government is broken.  That fact makes gold and silver your premiere investment, for a long, long time.  If a company is broke, its stock declines.  If a government is broke, what declines?  The currency.

• Gold has been consolidating sideways for six months.  In this mother of all gold bull markets, that is classic base building.  This consolidation is strengthening the durability of the next phase higher.
• My gold holdings are now larger than at last summer’s bottom.  We’re not only going higher, but staying higher.  My long term target for gold is $4000, but right now, major league volatility coming to town.  If you know how to handle it, you can make a lot of money.  First and foremost on your tactics list, is the establishment and maintenance of a large core position.  My recommendation is that 65% gold investments must be core position.

• During periods of high volatility, you can make more profits, with less capital at risk!  35% allocated to trading is more than enough action.  Gold stocks will enter a new era of price volatility.  My trading service already produces more buys and sell signals for gold stocks than all other sectors I trade.  To manage the volatility, it’s very important to familiarize yourself with 60 minute charts.

Gold Juniors GDXJ Chart
 

GDXJ Chart Analysis:

• I just issued a profit taking alert on GDXJ via my 60 minute charts.  This quickly reverses the buy from just a week ago.  The GDXJ moved 16.8% in just six trading days!  Use 60 minute chart buy signals not just to trade GDXJ, but to build core positions in your favorite individual juniors!

• Everything in the economy and financial markets that has propelled gold juniors prices higher is still at work.  The government and bank policies that helped to elevate gold and silver are more supportive today than ever before.

• As I issued a powerful buy signal for GDXJ ten days ago at $34.20 of price had entered what I identified as not just support, but critical volume-based support (VBS).  VBS is vitally important, because it determines not just whether price will bounced, but whether the low point it bounced from is likely to hold.  GDXJ powered out of the $34.20 VBS, and that is a very positive sign.

• Long Term: My SFS Gold Stock Ratio indicates a $75 one year price target for GDXJ is realistic.  Beyond that, I’m projected a parabolic rise, to $200 per GDXJ share.

GDX 6 Month Chart

GDX Chart Analysis

• GDX soared 9.58% in six trading days from my last buy signal, and my indicators went to sell on Wednesday and Thursday.   The volatility theme is growing for GDX as it is for bullion and the juniors.  The sell-off of the last few weeks in the broad stock market initially hurt gold stocks, but the stage is set for much higher highs.

• A look back at a year ago shows gold stocks have slightly outperformed the metal, and I expect that outperformance to grow.  I think you will see a sling shot move higher in these stocks before the end of the calendar year. The action you saw Wednesday and Thursday this week will likely be the norm for a day’s trading action by year-end!

• The VBS (volume-based support) for GDX occurs in the same timeframe as it does for GDXJ.  Price touched $55.01 for the move down into March 15th.   I understand that many investors in the gold community have a tendency to panic with gold stocks, but I would urge you to understand that there is great volume-based support in the $55 area.  It is not that easy for price to fall below there.

• Long Term: My SFS Gold Stock Ratio projects a $72 one year price target for GDX.

SIVR (Silver Proxy) 6 Mth Chart

SIVR Chart Analysis

• Owning the physical product is an absolute necessity. As I get fresh buy signals in silver, I put more money in physical silver. My latest buys were at $28. Use my buy signals to buy SIVR, and to add to your physical silver inventory
• I issued a profit taking alert for SIVR at $33.26.  Silver remains in backwardation even though silver is at multi-decade highs!  This demonstrates that the demand for physical silver is not diminishing even with price continuing march higher in price.
• Silver is far more volatile than gold.  If general market volatility is going to increase dramatically, then familiarizing yourself with 60 minute silver charts could open the door to enormous trading profits.  Don’t use any leverage when trading silver and remember to keep a full 65% of your silver market allocation in physical silver!

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The entire world struggles to determine the fallout effects of the Japanese earthquake and tsunami, along with the ensuing problems. The effects are so pervasive, so profound, so critical, that it is no wonder the news networks focus on two things only. They have switched emphasis to the Libyan civil war, a pitched battle to retain a tyrant and his larcenous rule. But the news stories out of Japan focus 98% on their Fukushima nuclear complex, with hardly a peep about the long list of other economic and financial effects. This article will focus on what they leave out, dutifully reporting amidst the purposeful new vacuum in a grand distraction. The Japanese factor in early 2011 will turn out to be the most important factor to influence major global economies and the financial markets since the death of the US banking system in September 2008. Gold investors should not expect a similar commodity price meltdown like in 2008 after the Wall Street death event. Gold & Silver each sold off sharply during the ensuing months after the collapse of the US banking system, as a liquidity drain was joined by a Wall Street attack of hedge funds. This time is totally opposite. Back in 2008 no Quantitative Easing program was in place, as hyper-inflation engines had not been turned on like now. QE will be global next. The central banker pact not only endorses the monetary hyper-inflation by the USFed, it extends it globally with a loud ring. What comes next is a global inflationary recession with gusto and power. The path had already been clearly entered, but now it is fully engaged with a jet assist. Great confusion comes, equal to the harmful momentum from numerous fronts.

The impact is comprehensive and profound as several important triggers have been hit simultaneously. Economic fallout is greatest inside Japan itself. The financial impact is greatest with the United States and Japan. A point to never lose sight of in the last two weeks is that the USGovt manages a monetary nuclear reactor that is also in core meltdown, with USTreasury Bonds as the fuel rods whose radiation has a USDollar odor. The accelerating piles of debt and money have been routinely spread systematically in a grand complicated coordinated reaction, the core of which is the United States. Watch for any interruption to the massive flow of funds into the reactor, which the G-7 central bankers were keenly aware of last week, but without mention. As with all asset bubbles, the required funds grows exponentially to maintain the asset bubble, here the USTreasury Bond. The reactor cannot lose its flow, or else a meltdown occurs. An interruption had begun, was addressed, but they will not be capable of replacing it except with more toxic money, the fiat funds. The pressure on the USFed will be shared across the major central bank offices. The inflation engineers and high priests who preach on asset bubbles will face enormous challenges to avoid a nuclear financial core meltdown. They will not succeed, and Gold & Silver will be the meter for the failed efforts that lead to meltdown. Both precious metals will double in price in the next few years. Nothing is fixed and Mother Nature just kicked the elite bankers in the shins, or a point one meter higher if the truth be told.

The recession will be deeper from the supply chain disruption and higher cost structure. The monetary inflation will be more uniform and with greater volume. The major currencies within the global monetary system will suffer much more debasement, as value erodes badly. At the same time, the boogeyman image of the US Federal Reserve will be mitigated by the full chorus of central bankers eagerly coming to the Yen currency rescue. Witness Global Quantitative Easing with extreme force, the printing presses in high gear straining to produce enough funny money to build seawalls strong enough to withstand the destructive tsunami. Wreckage from previous overwhelmed platforms has begun after three decades of funny money abuse, whose waves of busted bubbles and failed assets have been doling out powerful blows for over three years. Witness the Global QE, as all major nations will help the USFed to print money, wreck currencies, destroy capital, ruin businesses, and cause an easily recognized price inflation. Of course, they will continue to aid the elite bankers who are mostly responsible for ruin. Notice how the USDollar continued to decline, going below the 76 support level for the DX index. Despite the weak futile pathetic rebound, the DX index remains the former support under 76. Three imagines come to mind on the destructive forces: a gattling gun, a daisy chain centrifuge, and overhead office building spray.

The amazing storm will contain a nasty paradox, as the Yen currency will not stop rising. Japan as a nation will lose the ability to purchase foreign assets, a means by which they could keep their currency down. A vicious cycle has begun to take shape. Inflation will originate from the four corners of the earth, come in many forms, and have staggering effect on both the global recession and global price inflation. Assets and incomes will go into worse decline, while commodities including Gold & Silver rise powerful. Actually, Gold & Silver are money, the great anti-bubble. The USTreasury Bond will be under absolute siege for months until a climax conclusion in the near future. Consider the following major effects and forces, presented in an order to reflect their importance, not their flow of domino effects in sequential destruction. For those who grow weary of Jackass comments about destruction and ruin, it is time to wake up to reality as the nightmare persists during the waking hours. Darwin is at work, removing the failures from the gene pool, including those who refuse to acknowledge the unfolding disaster and fail to take proper defensive action. Nature is very busy challenging the managers of the earth. The people must defend and salvage their life savings before it is forfeited to a unique combination of natural asset bubble wreckage forces and syndicate planned duplicity, swindles, and seizures. Beware of false messages.

YEN CARRY TRADE CLIMAX EFFECT

• The trade was to borrow near 0% Japanese Yen and fund USTBonds and US Stocks for many years. Still amazing that many elite analysts have never heard of it. The Japanese situation hastens the fast retreat. The late sellers will be ruined.
• The reversal unwind of the Yen Carry Trade appears to be entering its third and possibly final phase. The unwind has required over 12 years to complete. The YCTrade took 15 to 20 years to build into the largest, most powerful, and significant financial engine of multi-$trillion phony wealth the world has ever witnessed. Japan might next face a liquidation similar to what the United States has suffered.
• The nation of Japan will not recover from the Yen Carry Trade unwind, which will be relentless. Its creation and sustained operation kept the Japanese Industrial Miracle going for three decades. It has finished, and run its course.
• The YCTrade unwind is to be assured by the heavy Japanese selling of USTreasurys by the a wide assortment of Japanese financial entities. Call it a major unintended consequence. The unwind spells major problems for the Japanese export industries, but also for the USTreasury Bond complex.
• The entire world will continue to abandon the USTreasurys except for a few nations that wish to openly protect their export trade.

JAPAN TRIGGERS GLOBAL QE3

• Call it the EMERGENCY G-7 YEN SELLING PACT or coordinated Japanese support, no matter. It will become the biggest, most grandiose coordinated monetary initiative in modern history.
• The emergency meeting of G-7 nations was given a general purpose of dealing with Japan, but it was all about the rapid unwind of the Yen Carry Trade without a single mention of the vast perverse engine. The accord resulted in a global consensus that all nations would help to purchase USTBonds sold by Japan, from the unwind of the YCTrade.
• The G7 Yen weakening accord is a disguised USDollar rescue, since a rising Yen goes with a falling USDollar. Attempts are made to avoid the USFed being isolated as the sole buyer of USTBonds, which is inevitable. They can rescue the Yen, but not the USDollar, the new toilet paper with green embroidery.
• The USFed must monetize all the foreign central bank asset purchases of USTBonds ordered abroad, or face higher US interest rates and threatened USGovt debt default. Huge amounts of money will be handed through the New York Fed window, directly from the Printing Pre$$, a process well underway.
• A USTreasury auction was postponed so as to enable more efficient printing operations. The sales in Brussels, London, and Tokyo will be covered by the USFed. Thus foreign currency exchange rates are rising versus the USDollar still.
• The Yen Selling Pact by the G-7 emergency is better described as a Global QE3. Monetary expansion cannot be concealed, since out in the open, and blessed with global consent. The USFed is somewhat off the hook for its monetary inflation and the associated destructive effects. The major central banks have blessed the inflation as a necessity, with urgency.
• A risk of a global central bank franchise model destruction could be in intermediary stage. The monetary system is at risk of greater and sudden fractures. If sovereign bonds have been on the defensive in the last year or more, watch how central bankers will be on the defensive in upcoming months. They manage an exploit of wealth, control the power centers, oversee failure, and dole out poverty even as they corrupt markets.

EMERGENCY FUNDS FOR SUPPORT

• Tremendous emergency funds have been appropriated and set aside by the Japanese Govt for financial market rescue & support. More funds have been devoted for relief efforts, worker crews, earthquake & tsunami cleanup, body retrieval & searches, and reconstruction. The price will be even larger than reconstruction & relief efforts. A total national meltdown is being averted, or delayed.
• The initial pledge of funds was for $86 billion, to stabilize their financial market, to make regional bank liquidity available, and to fund relief efforts. They reacted to factory shutdowns, a curtailment of distribution channels, and rolling electrical blackouts. The next pledge of funds was for $183 billion, to further stabilize markets and banks. The support continued until the latest total amount is reported to be 55.6 trillion Yen, equal to almost US$700.
• No expense will be spared, as the flood of money will follow the tsunami flood waters. The price tag grows leaps and bounds on a daily basis. The deficit will be large, adding to an already enormous cumulative national debt. Japan must rebuild infrastructure as well as supply delivery systems for basics like food and factory material input.

SALE OF FOREIGN ASSETS

• Given the overloaded saturated debt situation in Japan, many assets must be sold in order to raise cash, mostly foreign. Without sales of existing actual assets, the size of the crisis and its funding aftermath would produce significant and immediate price inflation.
• Japan will sell a large hoard of USTreasury Bonds, USAgency Bonds, and possibly US Corporate Bonds. They will sell EuroBonds and UKGilts. They will sell anything that does not bear a Japan label. If they could, they would sell assets behind the Somali and Yemeni sovereign wealth funds.
• The Japanese insurance companies must also raise cash to pay for claims from the widespread damage, including to businesses. They will sell US$-based bonds and more.
• An unintended consequence is for a pinprick of the USTBond asset bubble, which has been puffed for over two years. Unlimited funds will be made available to offset the USTBond dumps in an emergency setting.

REPATRIATION EFFECT

• Compounding the current situation with flow of funds is the annual migration. The March 31st deadline approaches for the annual Japan Repatriation of cash held in foreign accounts. The requirement will add to the inflow of money into Japan from overseas.
• This annual return migration involves funds held in all foreign lands, and will force the calling home of funds from Europe, England, Asia, and the Persian Gulf.
• The effect will cause the Yen currency to strengthen relative to all fiat currencies, rendering harm to Japan’s export industries. The world annually goes through this required effect, but this year should be more pronounced. Bad timing!

COMMODITY DEMAND EFFECT

• The rush to undertake reconstruction will require a wide array of commodities at a time when the commodity market is afire in price increases. From steel to cement to lumber to fuel products, the major commodities will be in enormous demand. This demand at the margin will have an aggravated effect on price.
• The effect on commodity prices will be sizeable and noticeably attributed to Japan. It will be felt primarily after the landscape settles enough for work crews to begin the massive rebuilding efforts.
• Already, critical supply shortages have been reported. They include industries not in Japan. The demand will be across the board, including food, which has an immediate effect on survival.

FOOD PRICE EFFECT

• The shortage of foodstuffs comes from both disrupted original growing locations and disrupted supply chain in delivery systems. Again, a wide variety of foodstuffs will be in enormous demand, all on a marginal increase basis.
• The region to the north where the nuclear reactor damage occurred is the site of a concentrated food growing farms.
• The price effect on several items within the commodity array will be sizeable and noticeably attributed to Japan. Global relief efforts will only aggravate the price effects.

PRICE INFLATION EFFECT

• Japan stands at risk of a hyper-inflation episode with more punch than what has begun to unfold in the USEconomy. The emergency funding for both reconstruction and financial market support will unleash price inflation from the inevitable spillover, a financial tsunami of funds.
• Also, the rising demand and supply shortage with intensify the price inflation. The tangible response of purchase at the margin will have an intense effect. The shortages are widespread already, also to be aggravated.
• Since the Japanese Debt/GDP ratio is near 200%, they cannot hike interest rates without causing a default on their bonds. The Bank of Japan will monetize the required funds to rebuild their country and later worry about consequences of hyper-inflation. If foreign asset sales are not ordered, and fresh debt monetization occurs, the price inflation will be power packed and doubly significant. So they sell assets.
• When a nation reaches saturation on debt, the new debt is monetized and hits the main street as inflation rapidly. However, it is hard for hyper-inflation to strike a nation with a rising currency. Incredibly strange crosswinds are at work. Japan has rapidly crossed the bridge from deflation to inflation.

EXPORT TRADE EFFECT

• The redemption of US$-based bonds will be staggering and sudden, compounded by the sale of other US$ assets. The effect will be a steady relentless significant rise in the Japanese Yen, a decline in the US$/Yen exchange rate, with a powerful effect on the Japanese export industries.
• A big trade deficit is coming to Japan, a new concept. The system will work to bring the Yen currency down on the tangible side while the financial side actually pushes the Yen up. A big conflict and paradox comes. The industrial factor will be perplexing, powerful, and paradoxical. Most consensus thinking will be wrong.
• As the Japanese trade deficit worsens, and gains publicity, it will result in a Yen that rises to confuse many analysts. The Yen will rise with surprising gusto and power, invited more coordinated global actions. The central bankers will be on the defensive. Diverse Japanese entities will be in a race to sell foreign assets, as the Yen rise intensifies.
• Japan will lose the funds from trade surplus used to purchase foreign assets, useful in keeping the Yen currency down. The suppression tool will vanish!!
• The lost surplus is a direct result of the rise of Chinese industry, aided by Japanese firms in important technology transfer. The newly arriving trade deficit could easily become a permanent fixture, and its funding will render damage side by side to the high government debt burden. Japan will suffer from broad deficits. Industry damage comes.
• The collateral damage to the global economy will be vast supply chain damage, both from interrupted supply and higher cost supply. As Japan slides into an inflationary recession, as industrial suppliers are strained, some will go out of business and shut down unless they receive subsidies. Those subsidies might actually come from foreign companies, who must save their suppliers that cannot be replaced easily or at all.
• Just today a friend from an upscale condominium complex reported that a certain device to maintain water & sewer levels in his complex had broken. Its replacement must come from Japan. The vendor said it will come at an indefinite future time. Ditto for General Motors on parts and thousands of other businesses that are dependent upon the high quality and reliable supply chain from Japanese industries.

GOLD & SILVER EFFECT

• With all the newly created money from Japan in direct inflation, with all the USTBond sales to undermine the USDollar, with the coordinated central bank assistance in USDollar creation, with all the commodity demand in reconstruction, the overall effect on demand for Gold & Silver will be positive and powerful but a little delayed. A giant tsunami lift has begun in precious metals prices.
• One can smell a monster midyear rally in Gold & Silver after some time to gather facts, assess the situation, and detect the positive winds. The rally might have started this week, as the evidence is just too plain and simple to the thinking man. A price breakout is seen in both monetary metals. The distractions from Wall Street and the lapdog US press must be ignored.
• The entire Japan story is huge bullish for Gold and extremely bearish for all paper currencies certain to be debased further. The G-7 Yen Selling Pact is all about coordinated currency dilution. With Japan, the United States, and the EuroZone all printing money, global monetary hyper-inflation cannot be avoided. It will be endorsed and welcomed. Gold & Silver will react.
• Attempts to deal with the economic breakdown and industrial disruptions will contribute to global systemic price inflation, which has already been initiated. Gold & Silver will react.
• Holdouts on expecting the monetary system to recover, and fiat paper currencies to stabilize, and the banking sector to revive, and the housing market to bounce back, they will totally give up and surrender. They will enter into Gold and especially Silver. Better late than never.
• Confirmation has come that mining firms are bypassing the COMEX. They choose to sell Gold & Silver mining output to investment funds like the Sprott Fund. The COMEX will find itself in increasing isolation. Their artificially low price paid for metal has sparked a wide reaction. Unknown is the amount paid in premiums over spot prices by the funds in order to facilitate the purchases. The premium prices indicate the true price, not the nonsensical price discovery at the COMEX under suppression, cash settlement, and other crooked devices.
• A quantum jump, threshold leap, and paradigm shift has taken place. The Japan incident with its staggering financial fallout represents in my opinion the most important and influential factor in global finance since the US banking system death in September 2008, complete with distraction, possibly even cover-up.

BREAKOUT !!!

See the March Gold & Currency reports within the Hat Trick Letter after placing a subscription order. A more full analysis of the rapidly deteriorating Yen Carry Trade is provided in the proprietary Gold report. This carry trade is so critical, so devastating to currency markets, such a grand threat to the USTreasury Bond bubble, that the G-7 Finance Ministers did not address it, cite its unwind, or give it any mention. Their Yen Selling Pact was all about preventing a system blowout at the USDollar nuclear reactor. Their pact was a disguised USDollar rescue doomed to failure. They must have discussed the Yen Carry Trade unwind effect at half the meeting. The Japanese fallout could be the exogenous force that breaks the USTBond bubble. It will take time. At the least they have lit a gigantic bonfire under Gold & Silver markets, where precious little metals exists in the COMEX or LBMA. The global financial crisis is spreading in a horrible contagion. Big powerful price breakouts are to be expected for Gold & Silver in the coming weeks and months. They notice the grand debasement of money, even if for emergency purposes.

The USFed is no longer isolated in the monetary hyper-inflation. However, even as a group central banks cannot stop what comes, the ruin of fiat paper, both the currencies and the sovereign debt that supports the global monetary system. In fact, their group central bank actions intensify the ruin of money itself from prolific debasement. The meter, the measuring device on the wall, is the Gold & Silver price. Today, each metal registered new record high prices for the last couple decades. By year end, look for a Gold price around $1550 to $1600 and a Silver price at least $50. Gains in silver will triple gains in Gold. The quantum jump really means that enormous breath-taking huge upward moves can and should be expected. Do not be surprised if the Gold price rises $50 in a single day, or the Silver price to rise by $2.00 on a single day, in the near future. A systemic breakdown is occurring, in the Weimarization of the USDollar. Last Thursday, the world went Weimar. Gold noticed, and its scout Silver pulls the golden bridle bit.

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For months and months I’ve been warning investors that the dollar was going to come under extreme pressure sometime this year. I expected it to probably happen in the spring. Many people thought I was nuts. They were sure it was the Euro that would collapse, despite the fact that the EU is doing everything they can to protect their currency while Bernanke is doing everything he can to destroy ours.

On Friday the last confirmation occurred to signal the final collapse is now underway. On Friday the November yearly cycle low was violated. Cyclically this event is a major catastrophe.
We are now going to see the dollar get absolutely hammered for the next couple of months. The viability of the dollar as a currency will be questioned. There is a decent chance it may start to lose its status as the world’s reserve currency. (Coincidentally about the time everyone becomes convinced the dollar is going to hyper inflate that will be the point where the three year cycle low will bottom and we will see an explosive rally, along the same lines as what happened in the latter half `08.)

This is what all the top pickers in gold and silver fail to understand. They are all trying to call a top based on charts without any understanding of what is happening to the currency.

In a currency collapse the market will flee into assets that will retain their purchasing power. Four weeks ago we went past the point of the stock market being able to protect one from Ben’s printing press any longer. So buying stocks as protection is no longer a viable solution.

Four weeks ago spiking inflation rose to the point where profit margins are now being hit. Ben will no longer be able to prop up the stock market by further debasing of the currency. Stocks have now decoupled from their inverse correlation with the dollar and will now follow the dollar down.
The more Ben prints and the faster the dollar collapses, the faster the stock market is going to fall…and the quicker the economy is going to roll over into the next recession.

What will happen is that liquidity will rush into the commodity markets as the only true protection against the accelerating currency crisis.

This is why one has to ignore the top pickers and chartists. Overbought oscillators and stretched conditions are meaningless in a currency collapse. This is all about fundamentals. It’s about protecting your purchasing power. You can’t do that by exiting the one sector fundamentally best suited to protect you during this storm, which are the precious metals.

Now isn’t the time to be selling your gold, silver or mining stocks, it’s time to be buying more.

For the next couple of days I am going to run a special on the 6 month subscription at 20% off the normal price.

6 months should be long enough to get investors through the currency crisis, allow you to ride the final parabolic spike in gold and silver (C-wave finale), avoid the inevitable crash (D-wave correction) that always follows a parabolic move, and then get long again at the bottom in preparation for the next major wave up in gold.

Click here to access the premium website, then scroll down and click on the subscribe link. Enter ‘6monthspecial’ in the promotional code box and then click ‘continue’.  You will be linked to a page with the special offer.

Likewise, interest rates are again on the cusp of a major breakout which of course means Treasuries are on the cusp of a breakdown. Rising rates would be bad for the economy, conventional investments and could trigger increasing inflation. The economic recovery has been weak and subpar. It is a pipedream to expect the nations of the west to grow out of their debt burden. If/when rates rise, it will force governments to tighten their belts and central banks to continue to monetize.

If we do get a bounce in the greenback and Treasuries, it could be a tremendous opportunity to get involved or increase positions in Gold, Silver and other Commodities.

If you are looking for more info or specific forecasts, consider a free trial to our premium services: Gold & Silver Premium & Commodities Premium.