Beating the System
Stocks are breaking out. Gold is breaking out. Silver is breaking out.
If this keeps up, the Dow may test 14000 – especially if it can rise and stay above last year’s highs of 12800, which is the next resistance point. From a technical standpoint, the patterns are extremely bullish – but not bullish enough to pull the trigger on the market as a whole just yet.
Gold and silver continue to climb, slowly but surely. Silver is now nearing its 65-week moving average and looking to climb higher. Both gold and silver stocks are breaking through, with many setting new highs since last month’s lows. I’ve said for a few weeks now that we are in the midst of a major buying opportunity – especially in precious metals and related stocks. It’s all happening right before your eyes.
The recent rally was ignited by the Federal Reserve saying they will be keeping interest rates near zero until at least 2014. This was just another form of money printing via cheap capital which will lead us further into inflation in the future and further devalue the dollar.
So while President Obama presented a sunny view in his State of the Union address, the Fed was forced to tell the truth about the ailing US economy in order to justify the low interest rates. Real inflation is already running north of 3%, but the Fed has once again conveniently come up with their own measure of inflation, which comes in just a tad below the Fed’s arbitrary 2% “acceptable” target.
The outlook is simple.
Stocks will rise with inflation and the printing of more money but the returns may not necessarily beat out the real rate of inflation. That means that while your portfolio may rise, your real rate of return may actually be negative (see Everything Has Changed.)
The strongest countries around the world, especially China, know that their holdings of US currency is losing value. That’s why they’re making smart attempts to beat the US’ reckless spending habits. Countries such as Switzerland have already reaped the rewards of investing to protect against the devaluation of worldwide currencies (see The Central Bank Secrets.)
They’re beating the system. So should you.
History tells us that gold is inversely correlated to real interest rates: Gold goes up when real interest rates are negative.
The announcement by the Fed is a direct insult to anyone who earns, saves, and invests in dollars. It’s no wonder why smart investors, financial institutions, and central banks are turning to gold and silver in ever-increasing numbers.
The last 11 years have shown that gold’s rise is inevitable.
If you haven’t allocated some of your investment capital to gold, I expect current prices to be about as low as they’ll go for 2012 and beyond.
And when you consider the reasons for gold’s rise as I have mentioned over and over again…
- the European debt crisis
- historically low worldwide interest rates
- possible hyperinflation
- devaluation of most currencies
- record gold-buying in China, and other strong countries
- continued requirements of new capital via QE
- highest worldwide debt levels ever
When money can be created from thin air, it’s easy to see why gold prices will be much higher this year, and for every year after. It’s not a matter of will gold go up, it’s a matter of how high.Goldman Sachs just released a report calling gold a low-risk, high-return asset and predicts it will rise to $1940 this year. Morgan Stanley predicts a price of $2,175 a year from now. UBS calls for $2050 within 12 months. And Citigroup is calling for $2400. While these numbers seem don’t seem far off, estimates from big banks have proven many times over to be conservative in past years. I see gold going much higher than $2000 within 12 months and stick with my prediction that gold will make its strongest gains this year (see The Last One Standing.)
While 2011 proved to be a year of gold and silver accumulation, 2012 will prove to be a breakout year. The market is finally beginning to realise that the only real sector of growth and value is in precious metals.
As I said last week, in order for the markets and the economy to continue what appears to be an uptrend, it’s going to need more money. More money means more debt. And more debt means a growing inability to service it.
A debt saturated society cannot grow.
The fed just extended free capital for another few years. Next could be the announcement of more printed money. This will undoubtedly add to the rise in gold.
Precious Metal Stocks
Since last August stocks have outpaced gold. But this is now changing and gold is now starting to act stronger than stocks. This may be the next move up for gold, and thus a new trend for the stocks within the sector.
There are numerous gold and silver stocks that are already breaking out, with many more to follow. In particular, I like a lot of the silver stocks – the space is extremely small with very few strong companies to choose from. There’s a reason why every silver stock we have covered have shown readers possible returns of 100% plus. Right now, I have my eyes set on a silver explorer with one of the richest silver deposits in the world.
Generally, I wouldn’t cover more than six companies per year within the precious metals sector, but this year promises to be one with tremendous potential. I will soon be releasing new reports on companies that I will be buying this year.
Disclosure: I am long gold and silver through ETF’s and bullion, as well as long both major and junior gold and silver companies.
Until next week,
Ivan Lo
Equedia Weekly
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