|
Since topping in May of ’06 and likely ending Phase I of its secular bull trend that began in earnest in 2000, both Gold and Silver have seemed content in consolidating the past years gains. While ’06 was an exceptional year for both precious metals, with Gold returning 23% and Silver capping the year with a spectacular 45% return, investors have watched both metals trend in a sideways pattern since the May highs. Thus, leaving many frustrated to the say the least and questioning whether, “Has the bull market in both metals seen its best days and run its course”? While there’s no doubt that the momentum players, “hot money”, have seemingly moved on and set their sights on new ground elsewhere, more specifically in technology issues, we continue to feel that the secular (multi-year) trend in both metals remains in tact and the action of the past six (6) months is nothing but merely a “pause” before the “refresh”, where we expect to witness much higher prices in the months and years ahead. Why do we feel as we do? First and foremost, since the inception of this bull market, nothing has really changed. From a fundamental standpoint, demand for both metals continues to outstrip supply, where producers remain challenged in replacing existing inventories. Additionally, it’s no surprise that geopolitical tensions around the globe remain in a heightened posture to say the least. And experience has taught us that when such conditions exist as they do today, both metals tend to act as a safe haven, as well as a store of wealth. Secondly, despite the Federal Reserve’s seventeen (17) baby rate hikes spanning a 2-year period from June ’04 to it pause in ’06, as well as central banks worldwide talking tough (Jawboning) with respect to potential inflationary pressures, the Fed and central banks around the globe continue to act in a reckless and shameful manner via credit expansion (inflate money supply) at unprecedented levels never witnessed before in history. Finally, during the past five (5) years, we’ve witnessed the $USD lose better than 30% of its purchasing power, whereby the ‘00 $USD now fetches you roughly .70cts of today’s goods. Expanding on our final point, while US policy makers, economists and Wall St may not find such practices alarming, the rest of the world is and has been, taking notice. During the past year, we’ve read and learned that countries such as, China, Russia, and the UAE, just to name a few, are now talking about diversifying their hoard of $USD reserves. What’s one to make of such developments? For those of you who have been long-time readers of “The Pulse”, we’ve alluded on numerous occasions in the past, that it would only be a matter of time before foreign central bank holders of $USD’s would continue to subsidize the largest debtor nation in the world. We’ve also noted that when and if they decided to pull the plug on the bath water, the tub would drain, thus sinking all boats and ducks. While we’re certainly not suggesting that such scenario is underway in earnest at the moment, it’s quite clear that the recent language and tone from such foreign central banks may surely be the first “shot over the bow”, suggesting that it is time for the US to address its enormous deficits and put its fiscal house in order, thus, unwilling to watch their vast array of reserves evaporate before their very eyes. Furthermore, such talk may be an early indication of perhaps more importance, that being the viability and sustainability of the $USD retaining its stature as the world’s reserve currency. Although such thoughts may be premature or as some might believe, outlandish, nonetheless, it’s become quite evident that the loss of confidence in the $USD is real and present. With that said, we focus your attention back to the heart of the matter, Gold and Silver, and present you with the 3-year weekly charts below. From the untrained eye, one can surmise that the trend in both remain in a favorable position, as both metals continue to trade above their 10 (Blue) and 40 (Red) week moving averages respectively. While both Gold and Silver have remained range- bound for the past six (6) months and appear to be digesting, consolidating the gains from recent years, it’s our belief that another potential “launch pad” is under construction, perhaps setting the stage for “lift-off” of Phase II in their secular bull trend.
While further time may be necessary before we witness the next leg of advance for both Gold and Silver, the current pause may be providing those who have yet to consider such for investment, an opportunity in our opinion. During the course of our days, we speak with many individuals, both in the financial industry, as well as the general public. And to our amazement, when we mention Gold and Silver as potential candidates for investment in one’s portfolio, we continue to receive what we have termed as a “fish mouth and eyes” response, thus confirming that the majority have yet to participate. Although such response comes as somewhat of a surprise to us, it nevertheless reaffirms our position that this bull still has legs. And as long as Wall St., economists and the financial media are able to condition the masses into shying away from such a barbaric investment vehicle, we’re more than happy to continue to run ahead of the heard. As long-time market observers are aware, secular bull and bear markets usually contain three (3) stages with a corrective, consolidation period between Phase I and Phase II and II and III, before resuming their primary trend. At present, it appears that we’ve just completed three (3) innings of a nine (9) inning ball game, with perhaps the best of the fireworks to come. “Got Gold/Silver”?
CONTACT
INFORMATION The opinions of FSU contributors do not necessarily reflect those of Financial Sense. |
