Despite current weakness in gold (GLD) around the $1650 area we expect a turnaround in gold with a new leg up to $1800 area and eventual breakout at $2000 in 2013. Taking inflation into account over the past forty years gold may have much further to go. Inflationary forces continue to rise globally on the back of worldwide stimulative moves most notably by the Europeans, Americans and Japanese. This move could reverse the undervaluation of the junior gold and silver miners (SIL) who have not been keeping pace with bullion over the past two years. Increased amounts of participation from funds seeking alternatives may look to the undervalued miners for leverage.
The media reports exaggerate the minority in the Fed who are pushing for a purported exit from quantitative easing. However, the majority of our bankers, politicians and central banks around the world have flooded the markets with fiat currency and quantitative easing.
This may be why Germany is transferring $36 billion worth of gold from Paris and New York to Frankfurt. They want to make sure they have it in their own hands should an downward inflationary spiral intensify.
This may be teaching us get your hands on precious metals and natural resources while you can.
An inflationary rally may be beginning as silver (SLV) and platinum (PTM) begin to outperform gold. For weeks platinum (PPLT) was cheaper than gold. This turned out to be a discount opportunity as platinum is now higher than gold. The recovery in China is supporting the auto industry where GM sells more cars in Asia than in the United States.
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This may be indicating an inflationary rally as platinum is used both as an industrial metal and as a monetary metal. Mine supply is limited as over 90% of current supply comes from unstable jurisdictions such as South Africa and Zimbabwe.
Also keep a close eye on the uranium miners (URA) where we are seeing increased M&A activity and the return of the nuclear renaissance as countries such as China, Japan Russia and India move full speed ahead. The uranium miners closed above the 200 day moving average today which is an indicator that tracks the long term trend. We may be witnessing a major reversal in the beaten down and forgotten nuclear sector (NLR) as major capital is flowing in through acquistions of undervalued assets.
The dollar (UUP) and the yen (FXY) may fall into new lows under record stimulus from central banks placing further inflationary pressures to boost commodities (DBC). Too much paper will begin chasing too few goods. Be prepared as there is a lot of cash on the sidelines to chase the tiny junior mining sector.
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Around the world gold and the miners have outstripped every competitive currency for the past ten years, yet the mainstream media fails to understand the importance of owning gold and the gold miners (GDX). Recently we have been in a sideways basing period in gold where the price has bounced between $1800 and $1550. Gold may now be forming the base for a major breakout at $1800 as the U.S. deals with record deficits and soaring entitlements.
For the past ten years gold and wealth in the earth have been the place to be yet the masses have still not yet participated. This recent consolidation like 2008 may prove to be a great discount opportunity in not only gold but in platinum, silver and the undervalued junior miners. Time to get in before the masses?