Last Wednesday,
the Philadelphia Gold and Silver Index recorded a new five-year closing
high, confirming the breakouts in gold, silver, and the Gold Bugs Index.
The next three months could well be the last opportunity to buy these
stocks and commodities, in this range in our lifetimes.
Nothing
is more tricky than trying to stay aboard a primary gold bull market,
yet if the fundamental gold bull case is understood, it should be more
widely recognized that there have been few times in history that a sector
has had potentially more upside than the current situation in precious
metals. Gold stocks and the precious metals have a history of violent
pullbacks after breaking out, so if one occurs, as could be expected,
don't lose sight of the fundamental picture. We highly recommend the
book, "The Invisible Crash" by James Dines, which traces the
progression of the early stages of the last major bull market from January
1961 to October 1975. By the peak in 1980, gold had climbed more than
24 times.
Among the
most important fundamentals to the bullish case are:
1.)
A worldwide effort to debase currencies against the dollar, to maintain
a competitive advantage in trade by export-dependent nations;
2.)
An unprecedented money-printing campaign by the US itself.
3.)
The dependence of the US on foreigners, (largely the Chinese), to continue
funding our trade and budget deficits;
4.)
A war mentality is rising as nations act in their own interest to flight
deflationary pressures at the expense of others.
The
US Government is under extreme pressure to jump-start the economy ahead
of next year's election. Accelerating war costs, tax cuts, and additional
giveaways in the healthcare area, will continue to be funded by money
printing, through ballooning Government debt offerings that are being
met by decreasing demand as evidenced by the declining cover ratios.
This is causing increasing upward pressure on interest rates and a lower
dollar. The Fed finds itself in the precarious position of juggling
expectations between deflation to generate interest in fixed income,
and a strong recovery to keep the dollar from collapsing under the burden
of increasing financing needs. While many estimate gold production is
likely to decline through at least 2007, the gold bears are missing
the point that in a true gold bull market, jewelry demand will increasingly
be displaced by investment demand as jewelry demand is priced out of
the market.
There
is little doubt ALL investors should now have a position in gold and gold
stocks as an insurance policy due to its negative beta characteristics
in protecting a diversified portfolio.
Richard
J. Greene