Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24
Micro Strategy Bubble Mania - 10th May 24
Biden's Bureau of Labor Statistics is Cooking Jobs Reports - 10th May 24
Bitcoin Price Swings Analysis - 9th May 24
Could Chinese Gold Be the Straw That Breaks the Dollar's Back? - 9th May 24
The Federal Reserve Is Broke! - 9th May 24
The Elliott Wave Crash Course - 9th May 24
Psychologically Prepared for Bitcoin Bull Market Bubble MANIA Rug Pull Corrections 2024 - 8th May 24
Why You Should Pay Attention to This Time-Tested Stock Market Indicator Now - 8th May 24
Copper: The India Factor - 8th May 24
Gold 2008 and 2022 All Over Again? Stocks, USDX - 8th May 24
Holocaust Survivor States Israel is Like Nazi Germany, The Fourth Reich - 8th May 24
Fourth Reich Invades Rafah Concentration Camp To Kill Palestinian Children - 8th May 24
THE GLOBAL WARMING CLIMATE CHANGE MEGA-TREND IS THE INFLATION MEGA-TREND! - 3rd May 24
Banxe Reviews: Revolutionising Financial Transactions with Innovative Solutions - 3rd May 24
MRNA - The beginning of the end of cancer? - 3rd May 24
The Future of Gaming: What's Coming Next? - 3rd May 24
What is A Split Capital Investment Trust? - 3rd May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Load Up On Gold and Silver as Bernanke Dives Off the Deep End

Commodities / Gold and Silver 2011 Oct 06, 2011 - 07:41 AM GMT

By: Money_Morning

Commodities

Best Financial Markets Analysis ArticleMartin Hutchinson writes: I first thought U.S. Federal Reserve Chairman Ben Bernanke was being deceitful when he denied the existence of inflation - but now I'm beginning to think he's simply delusional.

Anyone who watched or listened to Bernanke's Oct. 4 congressional testimony must have reached the same conclusion.


"Persistent factors continue to restrain the pace of recovery," Bernanke said. Then the Fed Chairman promised to consider yet more stimulus "to promote a stronger economic recovery in a context of price stability."

The irony, of course, is that we don't actually have price stability, but Bernanke refuses to believe this - thus the added stimulus. And that says nothing of the fact that the first $2 trillion of "stimulus" did little or nothing for the overall economy.

This is the same kind of delusion that led the Fed Chairman to proclaim in 2007 that the "the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained."

So, with a delusional central bank chairman, an anemic economic recovery, and every indication that prices across the board will continue to soar higher, there's really only one place to put any loose change you have lying around: gold and silver.

Bernanke's Blunder
Back in May, I said gold and commodity investments were attractive for two primary reasons:

•First, global monetary policy was - and still is - very stimulative. Commodities, especially gold, tend to do very well when interest rates are well below inflation.
•Second, rapid growth in emerging markets has created a new wave of middle class consumers. Those new buyers are increasing demand - and therefore prices - for industrial commodities.

Of course, following the market turbulence of the past few months, the picture has changed somewhat. While growth in China and other emerging markets remains quite rapid, it appears to be slowing a bit. That has dented demand for industrial commodities. Prices have dropped as a result. Copper, for example, has fallen to about $6,900 per metric ton, from more than $10,000. However, unless the emerging market economies go into a full-blown recession - and I don't expect they will - I would anticipate some recovery here.

On the other hand, monetary policy has gone in the opposite direction - becoming even more stimulative. Bernanke intends to keep short-term interest rates near zero until mid-2013 and he's undertaken a $400 billion "Operation Twist" program to bring down long-term interest rates. Both of these measures have increased monetary stimulus at a time when inflation is already running close to 4%.

That brings us to this week, when Bernanke decried the progress in the economy and indicated that the Federal Open Market Committee (FOMC) would consider even more monetary stimulus - even though three of the group's members are solidly opposed to the idea.

$5,000 Gold - $150 Silver
So far the only thing the Fed's loose monetary policy has succeeded at doing is pushing gold and silver prices steadily higher.

Gold has risen by more than 30% this year, and silver at one point in April was trading 300% higher than it was a year earlier.

These metals have stumbled lately, but with over-expansive monetary policy still intact, they are likely to experience a strong rebound.

Remember, it's not just Bernanke: The European Central Bank (ECB) also has stopped raising interest rates because of the Eurozone's problems. And the Bank of England (BOE) has indicated that it may well drop rates from their current 0.5% level - even though British inflation remains around 5%.

The undeniable result will be a renewed surge in gold and silver prices, meaning the present pullback is an outstanding buying opportunity.

If gold matches its 1980 peak adjusted for inflation, it will hit $2,500 an ounce. If it matches its 1980 peak adjusted for the world economy's growth since then, it will hit $5,000 an ounce. Similarly, if silver were to match its 1980 peak adjusted for inflation, it could climb as high as $150 an ounce.

These are not unrealistic targets. As in the late 1970s, the world's monetary authorities are determinedly trashing the value of paper money and forcing rational investors to look for an alternative.

Panning for Profit
For investors, the simplest way into the metals remains the two large exchange-traded funds (ETFs): The SPDR Gold Trust (NYSE: GLD) and the iShares Silver Trust (NYSE: SLV).

There is a modest amount of slippage between these ETFs and the metals themselves, so their prices are running about 2% behind the metals, but their convenience and liquidity make them the best choice for retail investors.

However, gold and silver mining companies this year have substantially underperformed the metals. The Market Vectors ETF Trust (NYSE: GDX), which tracks gold miners, is about 15% below its Jan. 1 level even while gold itself is up about 15%.

Indeed, miners currently are very cheap compared to the metals themselves. This is especially true of silver. So, gold and silver investors should make sure a substantial part of their portfolio is devoted to the miners, as well as the precious metals themselves.

As far as gold miners are concerned, I would recommend Barrick Gold Corp. (NYSE: ABX), which is currently selling on a price/earnings (P/E) ratio of 12 and Yamana Gold (NYSE: AUY), with a P/E of about 16.

A good silver miner to look at would be Silvercorp Metals (NYSE: SVM) - a rapidly growing Chinese silver miner that trades at roughly 16-times earnings.

Source : http://moneymorning.com/2011/10/06/load-up-on-gold-and-silver-as-bernanke-dives-off-the-deep-end/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in