Bullets are flying in what has become the new warfare. In the old days wars were fought with Pearl Harbor surprises and outright takeovers of territorial assets. Previously the capital markets have been content to don jackboots and military strikes to control economic developments. With the advent of the nuclear deterrent now being possessed by an increasing number of nations, contemporary wars are morphing away from bullets and bombs. The elites have a good thing going. It is to their interest that the nuclear option be avoided at all costs. Ergo bonds, yen (FXY) and francs have become the new bullets. The Keynesian option has never really worked and has resulted in a series of conventional wars that have had questionable results. Now nations can be brought to their knees by skillful currency manipulations.
Witness how Soros became wealthy by his operations in crippling the Malaysian and English Currency. Such a maneuver is a poignant display that economic stimulus based on Lord Keynes socialist/palliative measures are at best doomed to eventually fail. It is sad to see the Swiss being mobilized to put a futile floor under the euro. However, they are being drawn into the swirling vortex of the eurozone currency convulsions.
In reality, we question the sustainability of the German and Swiss interventions. In fact, the markets as we speak have responded with severe volatility in the general equity markets over 2011. A rally has been expected in equities, however, this incredible market rebound since our October 4th buy signal may indicate that investors are getting wise to the efforts of the European and U.S. Central Bankers to prime the pump.
U.S. Dollar And Long Term Treasury Rally
Investors may well be running from the euro (FXE) into the U.S. dollar (UUP) and long-term Treasuries (TLT). It is curious that the euro is not being buoyed by the Swiss intervention. This may be signaling trouble in eurozone survival. The U.S. dollar is undergoing a rise which we believe is a cosmetic response to the weakness in the euro. All short term currency manipulations produce technical gaps which inevitably are filled.
Gold Miners Lead Market Rebound
At the same time, gold miners (GDX) are approaching interim upside targets as the upward breakout in the miners accelerates as they reach new all time record highs. It is now playing catch up to the underlying bullion which we have been predicting for several weeks. There will be a shrinking of the divergence between miners and bullion to the advantage of the miners.
Although we may see some short term profit taking in the miners this extended 12 month base may lead to a more extended long term move. In 2010, we did not see this decoupling of gold miners from equities in such a dramatic fashion. But that fear driving investors away from mining stocks may be reversing as miners regain safe haven status.
What About Silver?
It has become a common occurrence to see general equities down yet the gold (GDX) and silver (SIL) miners are up significantly. This demonstrates investors are beginning to look at gold miners as leaders in a market which is desperately looking for strength. As gold reaches these technical conditions it is important to remind readers of the gold:silver ratio. Silver may go up in a higher percentage terms than gold in this inflationary environment over the long term and has done so over the past three years. In 2011 silver has been in retreat. Nevertheless, we are confident that silver will also gain recognition as a hedge against global financial instability sooner rather than later.
Recent Correction In Precious Metals
Gold and silver went in one of their characteristic declines in the month of September. As a runner settles backward in his starting block in order to propel himself forward so do precious metals as they undergo healthy corrections in order to once again move into new highs in what is their upward secular pattern.
The world is beset by a deluge of multiple macroeconomic problems ranging from the eurozone crisis to the Middle East Cauldron, which the media either mischaracterizes or totally ignores. These issues are long term concerns and will not be solved overnight. Add to this list of woes, rising U.S. unemployment and the malaise in housing and we have the perfect storm for precious metals as a long term haven.
President Obama is slated to present his ideas to hopefully institute corrective measures to extricate the floundering global economies from its quagmire of fiscal quicksand. Bernanke comes to bat again in a few weeks. The 2012 election is right around the corner. This might be an inflationary signal.
Long Term Uptrend Intact
We refuse to be thrown off the bucking bull of precious metals. We share such sentiments as do astute buy and hold investors such as John Paulson, John Hathaway and Ron Paul whose portfolios are represented by a large percentage of gold miners which will be discussed in an upcoming essay.
What about the U.S. dollar? The Swiss National Bank has put a cap on the Swiss franc which had been viewed as a safe haven. This leaves the field up to gold/silver as well as the U.S. dollar. The dollar might move upward as it represents the best of breed in a tepid brew of weak currencies. Remember the U.S. dollar’s status of safe haven is an optical illusion in comparison to a backdrop of tired, old, fading beauties such as the euro. Currency interventions produce gaps which are inevitably filled. Therefore we will continue on our long term path of wealth in the earth assets in the form of miners in gold (GDX), silver (SIL), rare earths (REMX) and uranium (URA).