3 Reasons You Should Buy Gold Right Now

Should you take advantage of the current pullback to increase your gold holdings?  Our precious metals guru Jeff Clark believe so.  Read on as Jeff puts together some historical price action data...

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Is Now a Good Time to Buy Gold?

By Jeff Clark, Senior Editor, Casey’s Gold & Resource Report

While we’re convinced gold and gold stocks are destined for much higher levels, buying when prices are low can mean the difference between a double or triple and a ten-bagger... a week in Malibu vs. a week in Milan. 

There’s no secret formula to buying low, and we aren’t holding the right hand of Midas, but there are periods when prices tend to be lower than others. And if those tendencies play out, it can give us the opportunity to snag a high-quality asset at a bargain price.

So, how do you get a bargain price? You cheat.

I think the secret to getting a low-cost basis on all your gold and gold stocks is this: only buy on significant price pullbacks.

And this can be done without trading or using technical analysis.

I think there’s a good chance we can cheat this summer. For example, here are the average monthly increases in gold since our bull market began in 2001.

In our current 9-year bull market, June and August have seen the lowest average return for gold, representing one of the best times to buy. 

You’ll see that in the bull market of the 1970s, summer was also a good time to buy gold.

What about gold stocks? Since 2001, June and July have been among the weakest months and thus one of the best times to buy.

Obviously, these are price tendencies and not certainties. There were Junes when gold was up, and some Julys when gold stocks were up. Meaning, we’d avoid using these charts for trading purposes or in anticipation of an immediate gain. Instead, use these “trendencies” to look for possible price weakness. And if it arrives, use the opportunity to add to your holdings and position yourself for the next leg up in the bull market.

What are the odds of a correction in gold and gold stocks this summer? 

►Since 2001, almost every precious metal stock, in every summer, has moved lower from its May high. This includes gold and silver. There’s no guarantee this won’t be the summer of galloping unicorn herds, but the record is hard to argue with.

Here are the buy zones I identified for gold and silver, based on a tally of how far they’ve corrected from their May high to their summer low, in each year of the current bull market.

You’ll see that the average price of all pullbacks in gold, from the May highs to the summer lows, is 8.9%, and would take the price to $1,126.98. That’s not to say this price will be hit, but it tips you off that a fall to that level would not be out of the ordinary – and would also be an invitation to buy. You can also see the smallest summer decline, which we’ve already exceeded. We wouldn’t wait for the largest drop to materialize; there’s a good chance you’d be left empty-handed and chasing the stock higher.

Silver is naturally more volatile, allowing us perhaps a better opportunity to buy low. The average summer decline for silver is 16.6%, which would take the price to $16.39. However, the furthest its fallen so far this summer is $17.36, meaning strictly on a historical price basis, a 10% correction from current levels would be perfectly normal. And again, an invitation to buy.

Whatever price (or prices) you select, I’d only use the charts to add to current positions, not for trading. The currency crisis Casey Research believes is inevitable could strike suddenly again and will eventually hit the U.S. dollar, and the last thing you want is to be left standing on the sidelines if gold and gold stocks surge higher. In our opinion, being completely out of precious metals in the middle of a once-in-a-generation bull market would be a mistake. Instead, keep adding to your savings every month and buy when it feels like you’re cheating.

See you in Milan?

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Want to see the buy zones for all our recommended gold and silver stocks? Our Summer Buying Guide is an invaluable resource for buying low. And check out our just-released July issue, where a respected bullion seller tells you why in the near future you may not be able to buy gold, at ANY price. Try a risk-free subscription for only $39 per year. Details here.

Ed. Note: I am a Casey Research Affiliate, Subscriber, and Phyle coordinator.

3 Reasons You Should Buy Silver Right Now

With sovereign nations around the globe printing money as fast as they can, what should you invest in to protect your savings?  Gold?

What about silver?  Unlike gold, it's actually far below it's all time high - and very cheap when compared with gold right now.

To explore the silver market further, we turn to Jeff Clark, our precious metals expert.  Jeff believes silver is indeed a good play right here - read on to learn why...

The 2010 Silver Buying Guide

By Jeff Clark, Senior Editor, Casey’s Gold & Resource Report

Silver has been sizzling and causing lots of buzz in the industry. Investors are excited.

Part of the hubbub is due to its current run. Since its February 8 low, silver has roared ahead 22.4% (through June 21) and has doubled from its November 2008 low.

This excitement has spilled over into greater investment demand – especially so for coins. The U.S. Mint sold more Silver Eagles in the first quarter of this year – just over nine million – than any prior quarter in its history. The Royal Canadian Mint produced 9.7 million silver maple leafs in 2009, also a record.

Take a look at the jump in U.S. Mint coin sales since 2007.



Silver bullion ETFs are growing, too, experiencing a five-fold increase in metal holdings since 2006.

There’s plenty we could talk about with silver, but our goal is to make money. So let’s focus on answering just two questions: Is today’s price expensive or cheap? And, what are the best silver coins, ETFs, and stocks to own?

We have all the answers straight ahead, including lots of actionable info, so let’s jump right in...

Why Should I Buy Silver?

There are several reasons to own silver in addition to gold.

First, it’s cheaper! Known as the poor man’s gold, those with limited budgets will find it easier to purchase. You might hesitate plunking down $1,200 for an ounce of gold, but you can pick up 32 ounces of silver for half that amount.

Second, silver has wide industrial use and this component can help or hinder its price. As its consumption increases across a growing number of industries, this should help place a floor under demand. And because of its unique properties, new uses continue to be discovered.

Third, silver is money and has served this role more than any other material on earth, save gold. Due to its historical role, silver will always have monetary value and offer similar protection as gold to the ongoing global currency devaluations, and will definitely benefit from the inflation hurricane we see as inevitable.

Silver is more practical as a currency used for everyday purchases. When the time comes, you can sell the requisite number of silver coins to cover a specific need, as opposed to being forced to liquidate a high-dollar-value gold holding. Silver is perfect when smaller amounts of cash are required.

Fourth and last, silver could possibly outperform gold before this bull market is over. The market capitalization of silver (and silver stocks) is much smaller, making its price more susceptible to demand spikes than gold.

In the latter part of the 1970s precious metals bull market, gold gained over 700% – but silver soared over 1,400%. If you’ve got a bit of Gordon Gekko in you, we recommend investing a portion of your dollars in silver.

Caution - Hot!

Like all things, silver has its drawbacks, two in particular.

First, the price is volatile. Over the past 12 months, silver has seen gains of 53.8% and 22.9% and drops of 21.9% and 19.6%, all within a period of months or even weeks.

If you’re going to own silver, you must be prepared for big price gyrations. The best way to do that: buy it and forget about it. And...

►Make price volatility your friend. Big price swings present the opportunity to snag silver at a big discount. We give some guidance on prices below.

Second is the storage issue. As your pile grows, the advantage to storing gold will become self-evident. At $1,200 gold and $18.50 silver, $10,000 will get you eight gold eagles that will fit nicely in the credit card slots of your wallet; however, it will buy 540 silver eagles, weigh nearly 34 pounds, and fill a small bank safe deposit box.

►How to store physical silver. There are several ways to solve the storage dilemma, even if you plan to buy like the Hunt brothers.

1. Spread your holdings around. Not only is it wise to avoid keeping all your physical silver in one place, diversifying your storage arrangements allows you to buy more. Hide some at home in several locations (no cookie jars, though), and obviously tell only one trusted person. Store some in a bank safe deposit box and use more than one bank as your holdings grow.

2. Buy bars. Silver bars take up less space than a pile of coins of the same weight. We wouldn’t start out with nor have all our holdings in bars, because you want the advantage coins offer. But the larger your holdings, the easier it will be to store some of it in bar form.

3. Use pool accounts and unallocated storage. With a pool or unallocated account, you’re essentially getting free storage no matter how big your stash. That’s hard to beat. You’ll pay fabrication and delivery charges if/when you convert your holdings and take delivery, but in the meantime, you save on storage costs. Great value for the large holder.

4. Private storage. Store your silver with a private vaulting company. The advantage is that it’s outside the banking system; the disadvantage is that it’s usually expensive, though it can be cost effective for large holdings. Do your own due diligence if you go this route because we can’t vouch for any facility, but you could start by checking out delawaredepository.com. Keep in mind that using a vaulting facility beyond a reasonable driving distance will mean added shipping/insurance costs and restrict quick access.

Is Now a Good Time to Buy?

With the gains we’ve seen in silver, would we buy right now?

Let’s first look at the big picture. The following chart shows how far silver is below its inflation-adjusted peak reached in 1980.



Another clue some investors watch is the gold/silver ratio (gold price divided by silver price) shown below.



Since our current bull market in precious metals began in 2001, the ratio, while fluctuating wildly, has never gone below 45. And yet look where it went during the precious metals peak in 1980: it bottomed at 17. Even though gold was soaring at the time, silver outran it.

The ratio might show relative strength between gold and silver, but it’s not a good buying indicator. A falling ratio could mean silver is rising faster than gold, like it is currently, or it could mean silver is falling slower. As a result, we’d use the ratio to determine silver’s upside potential but not necessarily when to place an order.

These big-picture signals tell us silver is undervalued and, at the moment, a better bargain than gold. And given the currency crisis we’re convinced is in the cards, we wouldn’t want to be caught without any. If you have a long-term mindset, silver is a buy today.

Would we wait for a better price?

If you do not own any, and plan on holding what you buy until a mania develops, then we wouldn’t wait. The risk of buying silver at current prices is lower than owning none at all.

If you do own some but want to add to your holdings, we’d probably wait for a drop in price, in part because silver could more easily fall when the economy is found to be more fragile than what many believe. And with industrial uses comprising approximately half of silver’s demand, it would be more susceptible to sell-offs than gold if our research is correct about global economies.

Further, summer usually brings pullbacks in prices, and this can be especially true for silver stocks. This is the tendency, though we can’t be sure if this summer will follow past trends. Still, our best guess is to anticipate another leg down this year. If you already own silver, we’d look for a correction to add to your holdings.

In our opinion, owning no silver in this bull market would be a mistake. And your first (and biggest) investment in silver should be in a physical form.

How much physical silver should you have? There’s no right answer and one size will not fit all. But we do recommend holding more gold than silver. Our suggestion for your precious metal holdings is roughly 80% gold and 20% silver.

Like gold, silver comes in different forms. We’d start with the more popular one-ounce coins and then branch out into other types as your holdings grow.

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[The above is an excerpt from the May issue of Casey’s Gold and Resource Report. Find out our top recommended dealers, including special pricing, along with Jeff Clark’s picks for the “best silver ETF” and the “two best silver stocks in the world.” And our June issue is our annual Summer Buying Guide. You can check it all out risk-free, for just $39/year, with a 3-month, 100% money-back guarantee. Get it right here.]

Ed. note: I am a subscriber and affiliate of Casey's Gold and Resource Report.

Should You Invest in Silver Now?

Silver's gotten whacked over the past several weeks.  For silver bulls, the question now is - how much lower can you expect silver to go, if the bear market resumes?

Guest author Jeff Clark looks at the historical price action of silver, the "other" precious metal, to see where appropriate buying points may be had for those who believe that eventual inflation is inevitable...

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How Low Will Silver Go?

-Jeff Clark, Casey’s Gold & Resource Report

We released our 2010 Silver Buying Guide last week and the silver price promptly cratered. So does this change our view of gold’s shiny cousin? Hardly.

While industrial uses comprise about half (53%, according to GFMS) of silver’s demand, making it susceptible to bigger falls than gold in a weak economy, it is equally clear silver also responds well to inflation, as well as serious financial “dislocations” (to put it nicely).

There are many examples of this, perhaps the best being the late 1970s. The economy in the middle of that decade was going nowhere, so some investors dumped their silver holdings because demand would supposedly be weak. A big mistake, as we now know, because silver’s greatest advance occurred at a time industrial demand was, at best, flat. Instead, silver rose due to monetary concerns and rampant inflation, giving investors 500%+ returns in the latter part of that decade, with an easy chance for even higher gains.

So if you’re buying silver to protect yourself against inflation and out-of-control government spending, then – as Doug Casey is fond of saying – sit tight and be right.

Still, it might be useful to contemplate how far silver could fall, particularly if you don’t own enough and are looking to add to your holdings.

The following chart examines all the major corrections in the price of silver in the current bull market (2001 to present). I only included corrections greater than 10%, many of which were big and sudden, much like we’re experiencing now.

You can easily see how volatile silver has been. Yet amidst all that volatility, the price has risen 334% from its 11-21-01 low (as of May 21).

Based on this data, we can make some projections. Our recent high in silver was $19.64. Therefore...

• A correction matching the smallest decline of 10.3% would equal a silver price of $17.61. Silver closed at $17.64 on May 21, a correction of 10.1%.
• The average correction in the chart is 19.7%. You’ll notice this is almost exactly what we experienced earlier this year. An average correction from the May 20 high would give us a silver price of $15.77.
• The two nasty corrections of 33.7% and 34.9%, when averaged together, would give us a price of $12.90.
• The 53.9% cliff drop would take us as low as $9.05.

These projections cast a wide net, to be sure, but there are still some conclusions we can draw:

1) The current correction in silver, as sharp as it is, is not out of the ordinary. Nothing is happening to the silver price right now that hasn’t occurred before.

Diagnosis? Normal.

2) If you agree with our analysis that says inflation is inevitable and that fiat currencies will sooner or later be taken off life support, then scary drops become great buying opportunities. Imagine if you had bought during that waterfall decline in 2008; you could’ve paid less than $9 for an ounce of silver. That would make the current correction less worrisome. By extension, buying during today’s big downdrafts will give you peace of mind tomorrow when we see another correction at higher levels.

Treatment regimen? Buy the big corrections.

3) Adjusted for inflation, silver’s peak in 1980 would exceed $100 today (and that’s based on distorted government CPI numbers).

Prognosis? Excellent.

Since we don’t know where the next bottom is, one effective way to handle purchases is to buy in tranches. You could place limit orders at a couple different levels.

But we might save the Big Purchase for a true fire-sale price, something greater than the average sell-off. There won’t be a big flashing light that says “Buy Now!” when the bottom forms, but the bigger the drop, the easier it will become to ease into the market.

Easy? Yes, if you have lots of cash (we currently recommend in Casey’s Gold & Resource Report that one-third of assets be in cash). That big stash is going to give you the ability to load up on the cheap.

If you don’t have a significant amount of Federal Reserve notes saved, it’s not too late to start. And I’ll bet you a six-pack on a Tahitian beach you’ll feel differently about this sell-off if you have a big pile of cash waiting to deploy.

The big SALE! may very well be on its way. I hope you’re getting ready for it.

What silver investments are we buying on the corrections? Check out our 2010 Silver Buying Guide, which includes a list of the dealers with the cheapest prices on all forms of physical silver, a brand new silver ETF recommendation, and the two best silver stocks in the world. You’ve got nothing to lose – a one-year subscription to Casey’s Gold & Resource Report is only $39, and you can try it risk-free for 3 months here.

Ed. note: I am a Casey Research affiliate and subscriber to their Gold & Resource Report.

Silver Investing Coverage From Peru

Notes From The Peru Prevails

Filed by Louis James, Senior Editor, Casey’s International Speculator

Last month I visited Peru again, penetrating perhaps a bit deeper but certainly higher up in the Andes than I’ve gone before. No nose-bleeds, but I’m not ashamed to admit that scrambling over rocks in search of boiling textures at 5,300 meters (17,400 feet) elevation left me wheezing like Darth Vader.

But I found them, laying atop the gold zone at the silver project of one of the companies I came to Peru to look at. I’ve never seen boiling textures on such a large scale, but everything else at the project is big, so why not?
 

 

Cavities left by exceptionally large calcite crystals in a silicified vein outcropping – just the sort of thing you want to see when looking for veins containing precious metals. That’s my lens cap in the photo. The crystals were inches long, instead of the usual millimeters or centimeters.

What it boils down to is that I like Peru better than ever.

I’m particularly pleased to see weakened support behind leftist firebrand Ollanta Humala in his second bid for the presidency. This was hard to quantify, especially while bouncing along in a jeep over “roads” that are little more than a pair of tire ruts carved into a cliff, while attempting to keep tally of the political signage. But I’m certain there were more campaign signs for candidates other than Humala, even in the rural provinces where he was strongest in the last election.
 

These lines are a typical Peruvian mountain road – I was not joking about the cliffs. The lighter lines are footpaths. Note the discoloration between the lower road and the upper switch-back. That’s actually an old high-grade working.

The impression I gathered from numerous Peruvians I spoke with was that Humala is widely perceived as a negative for the country’s economy, and that the leading candidates are genuinely pro-business (within a Latin American context, of course). Perhaps most important, the majority of the people of native descent I spoke with had only one thing on their minds: jobs.
 

These three gentlemen I came across on another company’s project expressed no concerns about drilling, open pit mines, new roads, chemicals, etc. All they wanted was work. Note the green rocks scattered all around them. Those are copper oxides.

And no wonder, with so many people still living in mud-brick houses with no electricity.
 

These young girls live on the farm you see behind them, with no electricity and a nearby creek for water. When I see such things, I feel proud to be a part of the market’s invisible hand, reaching out to help them with real jobs and training for their parents, not a government handout that keeps them dependent.

It’s also a good sign when village elders smile and wave at passing company vehicles, rather than scowling. There are many more anecdotal positive signs, but they don’t prove anything. My sense, however, is that the typical Peruvian knows the country has always benefitted from mining and wants to see it flourish, so long as it’s done responsibly – and frankly, so long as those who are impacted see what’s in it for them.

That’s good, because the rocks in Peru are often spectacular and have been subjected to less exploration in recent decades than in many other places, leaving lots of potential for new discoveries.
 

Quartz, semi-massive and massive sulfide material, in a zone about 20 meters wide and several hundred meters long, with good grades of gold, silver, copper, lead, and zinc.

That’s it in a nutshell. The economic numbers we reported in our more quantitative analysis last month jive with my personal evaluation on the ground. Along with Colombia and Chile, Peru is one of my favorite mining jurisdictions in South America, and I expect we’ll see more opportunities to speculate on Peru plays in the near future.

Of the three companies Louis visited in Peru, he deemed only one fit for becoming the new silver pick for Casey’s International Speculator at the time… a silver monster that subscribers immediately benefitted from owning, up 23.7% in the first month. Learn more about how Louis’ boots-on-the-ground approach has been yielding amazing stock winners – click here.

Investing in Silver: The Latest Sales Numbers

If you're stocking up on precious metal bullion in preparation for Financial Armageddon, at least you're not alone!

Casey Research's Jeff Clark reports that silver sales are exploring, and he also explores why that may be...

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Why Are Silver Sales Soaring?

Jeff Clark, Senior Editor, Casey’s Gold & Resource Report

The U.S. Mint just reported another record, but this time it wasn’t for gold. The Mint sold more Silver Eagles in March and in the first quarter of the year than ever before. A total of 9,023,500 American Silver Eagles were purchased in Q110, the highest amount since the coin debuted in 1986.

While this is certainly bullish, there’s something potentially more potent developing in the background. Namely, how this matches up with U.S. silver production. Like gold, the U.S. Mint only manufactures Eagles from domestic production. And U.S. mine production for silver is about 40 million ounces. In other words, we just reached the point where virtually all U.S. silver production is going toward the manufacturing of Silver Eagles.

Yikes.

This is especially explosive when you consider that roughly 40% of all silver is used for industrial applications, 30% for jewelry, 20% for photography and other uses, and only 5% or so for coins and medals.

To be sure, mine production is not the only source of silver. In 2009, approximately 52.9 million ounces were recovered from various sources of scrap. Further, the U.S. imported a net of about 112.5 million ounces last year. (Dependence on foreign oil? How about dependence on foreign silver!) So it’s not like there’s a worry there won’t be enough silver to produce the Eagle you want next month.

Still, why so much buying? The silver price ended the quarter up 15.5% from its February 4 low – but it was basically flat for the quarter, up a measly 1.9%. We tend to see buyers clamoring for product when the price takes off, so the jump in demand wasn’t due to screaming headlines about soaring prices.

I have a theory.

For some time, silver has been known as the “poor man’s gold.” Meaning, silver demand tends to increase when gold gets too “expensive.” The gold price has stubbornly stayed above $1,000 for over six months now and spent much of that time above $1,100. You’d be lucky to pay less than $1,200 right now for a one-ounce coin (after premiums), an amount most workers can’t pluck out of their back pocket. But Joe Sixpack just might grab a “twelve-pack” of silver.

What would perhaps lend evidence to my theory is if gold sales were down in the face of these higher silver sales.

The U.S. Mint reported a decline in gold bullion sales of 20.8% this past quarter vs. the same quarter in 2009. Further, other world mints have seen sharp declines in gold bullion coin sales as well: the Austrian Mint reported an 80% drop in sales for the first two months of the year and the Royal British Mint a 50% decline in gold coin production for the first quarter.

What’s even more dramatic is the difference in the dollar value of the sales. Gold Eagle sales in the U.S. dropped $10,263,500 from a year earlier – but silver sales increased by $61,855,290. So, not only did silver sales make up the drop in gold sales, they exceeded them by $51,591,790.

Is the rush into “poor man’s gold” underway?

Why the answer to that question is significant is that a shift toward silver for this reason could signal we’re inching closer to the greater masses getting involved in the precious metals arena. And that – for those of us who’ve been invested for awhile now – would be music to the ears. Because when they start getting involved, the mania will be underway, and from that point forward, it’s game on.

I’m not saying the mania is starting, and I actually think we could see another sell-off before things take off for good. Gold could dip to $1,000 and maybe even $950, with silver going to the $14-$15 range. But as clues like these begin to build up, we’ll know we’re getting closer. (And any drop to those ranges would clearly be a major buying opportunity.)

Everyone talks about gold, myself included, but a meaningful portion of one’s precious metals portfolio should be devoted to silver. The market is tiny, making the price potentially explosive. Remember that in the ‘70s bull market gold advanced over 700%, but silver soared over 1,400%.

Don’t be a “poor man” by ignoring gold’s shiny cousin.

While buying silver is a must, it’s the silver stocks that will truly soar in a mania. And I’m convinced we recommend the two best silver producers in the world. Get their names and our suggested entry points with a risk free trial to Casey’s Gold & Resource Report... click here.

Ed. Note: As many readers know, I am a longtime Casey Research subscriber and affiliate.

Why Silver and Gold "In the Ground" is Tremendously Undervalued Right Now

Regular readers are often looking for ways to play gold and silver...after all, we figure with this historic printing of money, we've at least got a real shot at wild inflation.

The safest way to play gold and silver is to buy the bullion itself. If the world melts down, you'll be the envy of all.

Admittedly I've been too lazy to do this myself...probably shame on me...but honestly I don't have much actual capital lying around to protect anyway...I'm not exactly a rich old dude.

So then I figure - well, how can I get rich off the impending sh*t storm on the horizon? Why not throw some speculative capital at mining stocks, which can do some real moon shots if things take off (and provide plenty of cardiac moments along the way!)

Well now may be as good a time as any to buy some of these junior miners. In my opinion nobody covers juniors like the Casey guys...and in this guest piece, Louis James tells us that the gold and silver these guys have "in the ground" is actually selling for really cheap right now.

And FYI, I subscribe to the International Speculator publication myself, so can vouch for Louis' chops.

Read on to learn more...

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Beware of Zombies Wearing Lipstick
By Louis James, Senior Editor, International Speculator

Before last fall’s crash, our economic views here at Casey Research were regarded by many in the mainstream as being extreme and alarmist. Unfortunately, they were also another thing: correct.

Predictably, having been proven right hasn’t changed anything; Wall Street still pooh-poohs us as being part of the lunatic fringe. But that’s okay; while the Suits are wondering if they can back-date their stock options far enough if the economy doesn’t recover, we are poised to profit whether it does or doesn’t.

Personally, I think the U.S. economy has decayed from dead-man-walking status to that of a zombie in the grave. The jury is still out on whether or not the zombie will rise and stumble on for another year or two. That introduces a lot of uncertainty into the markets now, with everyone unsure of what will happen next.

The reality is, beneath all the bravado, that no one is ever sure of what will happen next. And the fools who proclaim certainty should be treated kindly, not left unsupervised around sharp objects, and never trusted with money.

But there is one thing we’re very confident of: if the zombie rises, it won’t be real life we see.

In other words, there is no credible scenario in which the efforts of the U.S. and other world governments to cure the global economic crisis will succeed, not before the mistakes from the past are liquidated. With increasing doses of the same bad medicine that caused the illness in the first place, how could it? You can’t make bad medicine work better by prescribing more – but if you believe the patient just needs a stronger dose, you’ll keep trying. And there can only be one result: dead zombie.

Before the zombie gives up the ghost, however, it may show signs of rosy life – but it will just be lipstick, not the healthy flow of living blood. Though an imitation of a thriving economy is all it will be, it could be a very impressive likeness.

Abandoning my gruesome metaphor, I’d say we are approaching a fork in the economic road. Both paths before us lead to continued liquidation of decades of bad economic decision-making, differing only in how long it takes to get there. The short path drops sharply downward from here, with the decline perhaps triggered by another round of depressing economic news. This is what happens if the various stimulus and rescue plans simply don’t work, deflating the Obama Rally.

The longer path takes us through a reflationary boom for the record books. In this scenario, the stimuli “work,” a last hurrah for the old economic order. And in the end, the artificially simulated (not stimulated) good times will have created an even more gargantuan level of ill-advised consumption, unnecessary construction, and massive misallocation of capital – all charged to an already maxed-out MasterCard.

What Happens Next?

The near term is the hardest to predict, but there are good reasons to assign additional weight to the probability of an imminent correction.

If the U.S. and global economies take the short path, another market meltdown will hammer everything again, even assets that “should” do well in that context, like gold. Any correction in gold would be temporary and create spectacular buying opportunities.

If it’s the long path, a delayed Shopping Season may set in (normally, it’s “Sell in May and go away”), and with the market so jittery, it could be a vicious one this year. With a lot of money still on the sidelines that “wants” to be reinvested, and people desperate to believe things will get better, the Obama Rally could go on for another month or so, but it seems likely to us that it won’t last much more than that, even if the resulting correction is followed by the longer path’s reflationary boom.

Long path or short path, either seems to lead downward in the near term (if only for a few months, initially, in the case of the longer path). Yet, no one can say that precious metals won’t be surging higher as you read this, or next Monday, or next week… I have no crystal ball with which to read the future – but barring an immediate and major breakout in gold, I’m inclined to expect a short-term weakness in the junior mining sector, followed by continued recovery and growth among the quality companies with solid fundamentals.

Why should anyone continue to own these volatile shares if a short-term correction seems likely? Aside from possibly missing a sudden and decisive jump in gold (and silver) prices, consider that most companies’ assets are selling cheaper.

Take a look at this chart showing the spot price of gold and the dollars per ounce in the ground the market has been willing to pay among junior miners and explorers.

Note that the left and right axes are scaled differently. This magnifies the effect, to better show the widening gap between the two over the last two years, but it’s real.

Here’s the same divergence for silver:

This silver chart supports our bullish call on silver last month. The per-ounce price of gold in the ground has not kept up with spot gold, but it is close to being back to its level before the credit crisis started heating up in 2007. Silver in the ground, on the other hand, is still close to the bottom hit last fall.

Short version: whether or not there’s a correction just ahead, a jittery market has both gold and silver in the ground on sale, and that’s an opportunity.

Owning physical gold and silver is a must in these uncertain times. But the real money-makers are select, high-quality junior mining stocks with sound fundamentals, enough cash on hand, and high-grade deposits that can propel the share price to the moon when the company hits paydirt. We call them “Toronto’s Secret Gold Investments”… click here to take a look.

Silver Caps Biggest Month in 22 Years - Where to Next?

Silver just finishest it's hottest month in the last 22 years - can it go higher from here?

You bet it can.

Silver is like the Little Girl With The Curl - when she's good, she's very, very good. I read the funniest description of silver I've ever seen this morning, courtesy of our good friend Brian Hunt writing for Growth Stock Wire.

If all assets were patients in a mental ward, bonds would be the guy who sits silently in the corner and stares out the window. Stocks would be the guy who wanders the hall and mumbles to himself. Silver would be the guy they keep in the padded room all day...

Silver the metal can be volatile enough, but if you're up for some real heartburn, check out a silver miner in your neighborhood. One of my personal favs, Silver Wheaton (SLW), has taken at least a few months off my life:

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I originally started a position at much higher prices, then rode it all the way down around $3 with my jaw on the floor. Of course I should have used a stop, but I was caught like a deer in headlights. I was fortunate to pull the trigger once again near the lows, and here we sit today.

I agree with Brian that if inflation takes off, these babies could really soar - like gold stocks on cocaine.

Sugar Futures Poised to Climb - Weekly Commodities Report

Sugar is quietly staging an impressive rally off its October lows, when it briefly dipped below the 11-cent mark.  Since then, we can see that sugar prices are clearly moving from the "lower left to the upper right," recently hitting a 5-month high.

Is it time to buy sugar?  I think so.  Fundamentally, there are a number of bullish factors lining up:

• The global sugar deficit is expected to rise this year
• India, the world's 2nd biggest producer of sugar (after Brazil), will have lower output than forecasted, and may need to import sugar this year

What could dampen demand for sugar?  Low crude oil prices could reduce the demand for sugar to be converted into ethanol.  Sugar into ethanol is profitable at about $50 oil.  So while a rally in oil could send sugar prices higher, continued low oil prices may weigh on sugar.

Also important to note that President Obama does not appear to be in favor of sugar based ethanol for our energy needs.  Obama did very well in the Midwest, including his win in Iowa in the primaries, and appears to be set on finding energy solutions that can be harnessed right here in the USA, such as ethanol from switchgrass.

Other potential trades to watch:

• Short the Japanese Yen - looks like the Carry Trade has officially unwound

• Long the Australian Dollar - Aussie and Canadian dollar could rally if commodity prices start ticking up

• Short long dated US Treasury Bonds - sound like a broken record here, but it appears a downtrend may have (finally) started

• Short the Euro - as disastrous as the US dollar is, the Euro appears to be circing the bowl at a faster rate

• Buy and hold gold stocks 

Open positions

Date	Position	Qty	Month/Yr	Contract			Entry Price	Last Price	Profit/Loss
02/26/09	Long	1	MAY 09	Corn			373 1/2	360	($675.00)
02/27/09	Long	1	MAY 09	Sugar #11			13.79	13.73	($67.20)
Net Profit/Loss On Open Positions									($742.20)

Account Balances

Current Cash Balance	$30,648.02
Open Trade Equity	($742.20)
Total Equity	$29,905.82
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$29,905.82

---------------------------------------------

Cashed out: $20,000.00
Total value: $49,905.82
Weekly return: 0.4%
2009 YTD return: -41.3% :(

Prior year's results:
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial stake: $2,000.00

Fiat Currencies are Toast - Weekly Commodities Review

Gold & Silver Up - Everything Else Continues to Circle the Bowl

Gold, silver, and - of course - the US dollar - continued to rally this week. They were about it, as the stock market swooned, commodities got whacked, and every asset class continued to circle the bowl.

Stocks have now gone nowhere in the last 11 years (check out the chart below, courtesy of Agora Financial). I expect they'll go nowhere for at least 5 more. Bear markets in equities typically last 15-20 years. This bear market started in 1999 - just 10 years ago. This bear has got some room to run.

Plus, bear markets rarely start from valuations this high. Although stock prices have been slammed, earnings - or the "E" in P/E, have been falling even faster. In fact, collective stock market earnings are now lower than they were 11 years ago!

Bull markets always start with price-to-earnings ratios below 10 - sometimes closer to 5. We're still north of 15. DOW 3000 anyone?

Meanwhile gold continues to rock and roll, spurred on by a fantastic display of money printing across the world, and a possible end to the fiat currency experiment as we know it.


While everything appears to be lining up in gold's favor, it's important to remember that no asset ever goes straight up. It's very possible that gold could correct from here - quite significantly - and a correction back down towards $700 cannot be ruled out.

However, it's also possible that gold could hit the "mania" phase quite soon, as described in this Financial Times article.

My take is that you should seriously consider having some of your core holdings in gold. In the medium term, today's price should be an attractive entry. However in the short term, you may get a better price to initiate some holdings, and may want to considering keeping some dry powder.

Though if I could time the gold market myself, I'd be drinking a Mai Tai in a hot tub somewhere, instead of blogging from my living room right now.

And don't forget silver - which doesn't typically perform as well as gold in a deflationary environment. In fact, silver often suffers in recessions because of reduced industrial demand. Maybe the recent price action in silver suggests inflation is closer than our wonderful government officials believe.

Silver is historically more volatile than gold - and it could really start to move if the trend of cashing in paper currencies for precious metals continues to accelerate.

Open positions

Date	Position	Qty	Month/Yr	Contract	Entry Price	Last Price	Profit/Loss
01/16/09	Long	1	MAR 09	Corn	374 3/4	355 1/4	($975.00)
01/20/09	Long	1	MAR 09	Corn	397 1/2	355 1/4	($2,112.50)
Net Profit/Loss On Open Positions							($3,087.50)

Account Balances

Current Cash Balance	$32,886.73
Open Trade Equity	($3,087.50)
Total Equity	$29,799.23
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$29,799.23

---------------------------------------------

Cashed out: $20,000.00
Total value: $49,799.23
Weekly return: -5.1% :(
2009 YTD return: -41.3% :(

Prior year's results:
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial stake: $2,000.00

Ah well - easy come, easy go...

3 US Banks Dominate COMEX Short Positions for Gold

Gene Arensberg at Resource Investor writes that three US banks currently account for 66.97% of all the commercial net short positioning on the COMEX for gold futures.

He goes on to mention that the market manipulation is even more egregious for paper silver, as only 2 US banks hold a "sickening" 98.64% of all short positions on the COMEX for silver futures.

Five Easy Ways You Can Diversify Away From The Dollar

Note: This article was also picked up by Seeking Alpha.

I personally fear for what may happen to the dollar over the next several years - I don't see any way these government bailouts will not result in an excessive printing of US dollars.

Faced with this reality, I know that many people who share this concern are also unsure how exactly to diversify away from the dollar. The past 25 years of investing history have been all about stocks and bonds, all denominated in US dollars, for most US residents.

Fortunately today, we have some great investment options available to us that were not around even a few years ago. Here are five easy ways you can diversify out of the dollar:

• Open a savings or CD account with EverBank, denominated in one or more foreign currencies. I personally recommend the Japanese Yen, Swiss Franc, Chinese Renminbi, Singapore Dollar, and Australian Dollar as some of the more solid currencies.

• Buy an ETF - you can do this from the comfort of your brokerage account. A few that look attractive right now: GLD, SLV, UNG

• Buy natural resource stocks. I think gold and silver mining companies, along with natural gas producers, look particularly attractive at current prices.
  

• Buy infrastructure companies. The world's infrastructure is a mess right now - there is a lot of upgrading to do. One example of a company focused in this space, which I own, is Brookfield Infrastructure Partners (BIP).
  

• Short long-dated US Treasuries. It's very unlikely that the rest of the world will continue to lend us money at 3%+ while our government spends it like drunken sailors. Interest rates are going to go up in a big way. There are several ETFs that inversely track interest rates - DXKSX is the one I own, because it provides 2.5x leverage.
  

And a bonus pick - it's not as easy as the suggestions above, but it's not nearly as hard as most people picture. I would highly recommend:

• Start buying actual commodities via a Futures account. It's not as risky as you think, especially if you limit your use of leverage - it's the excessive use of leverage that does people in. I have this account through Farr Financial. Recently, I've opened up a couple other accounts - one with Interactive Brokers, and the other with RMB Group.
  

Hitler Gets a Margin Call

Here's a very funny video for your Friday. You gold/silver bulls will especially enjoy the banter.

A Couple Jim Rogers Interviews

Some good recent hits from Jim Rogers:

• The US dollar is in trouble
• Oracle Rogers sees worse recession ahead
  

Says he's currently long the Swiss Franc, Japanese Yen, and airline stocks (as a contrarian play).

Also thinks coffee, cotton, sugar, silver, and zinc look potentially attractive (this is usually Rogers' code for - these are screaming buys).

Deflation Everywhere You Turn, Get Comfortable

My morning glance at the Futures screens revealed that, well, just about everything is down across the board. Of special note:

• Cotton flirting with the 60-cent handle (wow, that looks cheap)
• Silver getting kicked in the teeth again
• Oil off big again, flirting with $90

Not to mention global stock markets getting slammed across the board.

In fact the lone positions weathering this storm appear to be our old friend, the Japanese Yen, and US Treasuries - both due to this flight to "safety".

Maybe "perceived safety" in the case of Treasuries - is it really safe to lock in a long-term yield that is below the rate of inflation, to a heavy debtor with an awful balance sheet?

I'm playing this mostly from the sidelines. I've got my long Japanese Yen position, which is performing nicely. While adding another contract may be the trade to make, I'd like to see how the rest of the week goes at the very least. I don't like buying the Yen, and the Swiss Franc for that matter, on these spikes, as I've seen them give back these gains before.

Also have my short Soybeans contract - which looks like it wants to bust through that lower level of resistance.

All in all, we may need to hold tight on the commodity front until the global economy gets through this soft spot. My suggestion would be to get comfortable. When the global economy reheats, we will have some fantastic buying opportunities.