bobbyw24
03-04-2009, 06:22 AM
Precious Metals Are Bullish on Pullback
Source: Seeking Alpha, Naufal Sanaullah 03/03/2009
The historic credit crisis the world is facing has halved the value of equities around the world, sliced commodities more than 60% from of their highs. However, gold is nearing all-time highs. The relative strength of gold has been attributed to it historic "flight to safety" aspect, but in a financial environment characterized by deleveraging, defaults, price deflation and commodity collapse, precious metals seem to be inferior to the premier reserve currency, the U.S. dollar.
The Fed has printed and temporarily sequestered trillions of dollars to debt inflate and to use inflation-usurped taxpayer and foreign lender wealth to bail out financials and appropriate economic stimuli. The rest of the world, tied to the $13 trillion Ponzi scheme known as the United States Treasury, is unable to engage in an exodus from its massive dollar and treasury holdings, which funnels much of its wealth to the United States government through debt inflation. Foreign creditor nations must also engage in quantitative easing to spark their domestic economies. China, for example, announced a $586 billion economic stimulus last year, but only a quarter of it is to be financed by government expenditures. Much of the rest will occur through printing, as it cannot finance it entirely by selling its huge treasury holdings without collapsing its own economy.
Eurozone nations face domestic crisis, as well as massive exposure to Eastern European sovereign defaults. Japan's economy contracted more than 30% in the past year, and with exports down more than 20%, it too will have to resort to quantitative easing to get "growing again."
All of this suggests a massive devaluation of fiat currency against hard assets. On top of that, the Fed's and ECB's suppression of gold prices through leasing to support naked COMEX shorts will end, as allowing currency devaluation against gold is the only way to balance central bank balance sheets.
Technically, gold is looking greater than ever. It broke out of its deflationary correction in early February and is now set to continue its bull market. I expect a sharp pullback into mid-March, but from there it should really take off on inflationary concerns and as its "safe haven" rival, long-term U.S. treasuries, face rising yields and falling prices. Massive volume is entering gold ETFs, such as the SPDR Streettracks Gold ETF (GLD), suggesting institutional sponsorship for the yellow metal is quickly and strongly developing. This is highly bullish and suggests the excess Fed-synthesized liquidity that will eventually enter the system will be funneled into precious metals and miner equities.
The most leveraged exposure to a rise in precious metals prices is on the supply side of metals, the miners. A large position in gold bullion and/or coins is essential to any portfolio.
Source: Seeking Alpha, Naufal Sanaullah 03/03/2009
The historic credit crisis the world is facing has halved the value of equities around the world, sliced commodities more than 60% from of their highs. However, gold is nearing all-time highs. The relative strength of gold has been attributed to it historic "flight to safety" aspect, but in a financial environment characterized by deleveraging, defaults, price deflation and commodity collapse, precious metals seem to be inferior to the premier reserve currency, the U.S. dollar.
The Fed has printed and temporarily sequestered trillions of dollars to debt inflate and to use inflation-usurped taxpayer and foreign lender wealth to bail out financials and appropriate economic stimuli. The rest of the world, tied to the $13 trillion Ponzi scheme known as the United States Treasury, is unable to engage in an exodus from its massive dollar and treasury holdings, which funnels much of its wealth to the United States government through debt inflation. Foreign creditor nations must also engage in quantitative easing to spark their domestic economies. China, for example, announced a $586 billion economic stimulus last year, but only a quarter of it is to be financed by government expenditures. Much of the rest will occur through printing, as it cannot finance it entirely by selling its huge treasury holdings without collapsing its own economy.
Eurozone nations face domestic crisis, as well as massive exposure to Eastern European sovereign defaults. Japan's economy contracted more than 30% in the past year, and with exports down more than 20%, it too will have to resort to quantitative easing to get "growing again."
All of this suggests a massive devaluation of fiat currency against hard assets. On top of that, the Fed's and ECB's suppression of gold prices through leasing to support naked COMEX shorts will end, as allowing currency devaluation against gold is the only way to balance central bank balance sheets.
Technically, gold is looking greater than ever. It broke out of its deflationary correction in early February and is now set to continue its bull market. I expect a sharp pullback into mid-March, but from there it should really take off on inflationary concerns and as its "safe haven" rival, long-term U.S. treasuries, face rising yields and falling prices. Massive volume is entering gold ETFs, such as the SPDR Streettracks Gold ETF (GLD), suggesting institutional sponsorship for the yellow metal is quickly and strongly developing. This is highly bullish and suggests the excess Fed-synthesized liquidity that will eventually enter the system will be funneled into precious metals and miner equities.
The most leveraged exposure to a rise in precious metals prices is on the supply side of metals, the miners. A large position in gold bullion and/or coins is essential to any portfolio.