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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Why Gold and Silver Will Take Off

Commodities / Gold and Silver 2011 Jan 24, 2011 - 07:30 AM GMT

By: Larry_Edelson

Commodities

Best Financial Markets Analysis ArticleGold, silver, oil, and other commodities — are all starting to slide, just as I predicted. Gold down almost $100 from its recent record high. Silver down more than $3.40, nearly 10%. Other commodities are turning down also: Oil, platinum, palladium, and more.

So is this the end of their bull markets?


Hardly! The pullbacks are, as I have been explaining all along, merely healthy cyclical declines to test prior major resistance levels, which should now become support.

These declines will serve to shake out all the weak long positions, so that fresh new buying can come back into the markets.

Mark my words: When gold and silver bottom out in these corrections, they will be truly awesome buys, for what will come thereafter will be their biggest phase yet to the upside.

Right now, however, I strongly recommend refraining from purchasing any new precious metals investments. Either in physical form, or, via ETFs or mining shares. Gold can fall to at least $1,250. Silver to $25, and probably lower to the $23 level.

If you own core gold holdings, whether recommended by me or someone else, I strongly suggest you consider hedging them right now. If you haven’t already, as my Real Wealth members have.

Now is not the time to load up on precious metals.
Now is not the time to load up on precious metals.

Use an investment such as the PowerShares DB Gold Short ETN (DGZ), an exchange traded note that seeks to profit from declining gold prices, and the ProShares UltraShort Silver ETF (ZSL), an inverse ETF designed to move up at roughly twice the pace of silver as it declines.

But be nimble with those investment hedges. Don’t go overboard. And don’t get married to them. Because once gold and silver bottom, you will want to get out of them ASAP, and then buy truckloads of gold and silver investments.

Why Precious Metals Will Take Off

There are numerous reasons why precious metals will take off, yet again, after the correction is over. Chief among them are …

src='../images/arrow_black.gif'  The Federal Reserve is continuing to print money like mad, and will not stop. And with more than 20 U.S. states now edging towards bankruptcy, the Fed is going to have to print trillions more fiat money to bail out many busted states and dozens of big cities.

src='../images/arrow_black.gif'  Naturally, the international value of the U.S. dollar is still very much in question, wickedly trapped in a long-term bear market. Yes, there will be the occasional dollar rally, but almost exclusively against the also sick euro currency.

Meanwhile, the dollar continues to lose purchasing power against most other major currencies, even the Mexican peso, and of course, Asian currencies.

Speaking of Asian currencies, I suggest you look to place some cash, when you can, in currencies such as the Singapore dollar, the Chinese yuan, of course, and even the Thai baht.

Asian currencies could be a good hedge against a falling greenback.
Asian currencies could be a good hedge against a falling greenback.

I’ve personally done extremely well with the Thai baht. Money I placed in Thailand over a year ago now buys me 11% more dollars, if I were to convert it back to the greenback.

But I’m not going to do that. I’m keeping some money in Thailand because I see the dollar losing far more value in the months ahead.

I think that will be even more true going forward precisely because President Hu has already made some big concessions to President Obama at this week’s heads-of-state meeting in Washington.

The two leaders covered a gamut of issues, from human rights, to environmental concerns, to trade. President Hu even authorized a $19 billion order for Boeing aircraft as a show of good faith.

But far more important is what’s not being publicized. President Hu will head home with the message that Beijing must start loosening up its tight grip on the yuan, let it appreciate, and help Washington stoke up some inflation.

All you have to do is read between the lines. This week’s meetings between the two leaders went off far better, were far more friendly than ever before, and stressed cooperation between the #1 and now #2 economies. There were no acrimonious sound bites, no tit for tat. Instead, it was a solid show of new found efforts of cooperation.

Part of this will be to let the yuan gradually strengthen in value, so that China can help quell its accelerating inflation and give its consumers — more buying power.

Conversely, for the U.S. it means an even lower U.S. dollar, so that it can get a dose of badly needed inflation — to help ease the burdens of debts gone wild and to help U.S. consumers come out of the closet and start spending again, and more.

Like it or not, this is what’s going down in Washington, and it has, as I have recently explained in my flash alerts and in this column, vast implications for your wealth.

Is the End of the Financial Crisis in Sight?

Will all this kill off the great financial crisis that is still the affecting the U.S., or even Europe for that matter?

No, it will not. In large part, it will only kick the can down the road until our leaders wake up and realize they can no longer spend other people’s money with reckless abandon.

Until that day comes, and I’m afraid it won’t come for a few more years, and not until it gets so ugly in our country that our leaders have no other choice, we are likely to see some of the most violent, wild market moves ever.

And, we will likely see the end of the dollar as the world’s reserve currency as well.

For now though, you owe it to yourself and your loved ones to recognize and understand what’s happening to both protect your wealth and grow it.

And you need to recognize another force that is one of the biggest ever to hit civilization: The evolution of 84% of the world’s population — some 5.88 billion souls — who now want lifestyles as good as we have in the developed world.

It’s an economic force that will continue to drive emerging economies and natural resources higher for years to come.

Lastly, for today, a thought I’d like to end on: Thank God we don’t live in the 1930s, when there were so few ways for U.S. investors to protect themselves.

Instead, we should all count our blessings that we live in a world where there is such a variety of investments, that you now have full control over how to both protect and grow your wealth. You no longer have to bury it under your mattress or in the back yard.

God bless and best wishes,

Larry

P.S. In this week’s episode of Money and Markets TV, we continued our review of 2010 by looking at some of the year’s hottest investments: Commodities and emerging markets.

If you missed last Thursday’s viewing or would like to see it again, simply go to www.weissmoneynetwork.com and follow the on-screen instructions. Access is free and no registration is required.

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.


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