Economic Outlook Continues to Support Precious Metal Investing

Lazy blogging can continue as the fundamentals have not changed since my last post:

• US deficits continue to explode
• Banking woes mount
• Coming deflation of paper debt
• Consumers' excessive debt levels are nowhere near a change of trend
• Real estate deflates on a global scale
• Central banks create fiat money as never before and promise more of the same
• Inflation in commodities and energy remains at record levels
• After the housing bust the economy will slow further by the corporate credit crunch
• Continuing growth in OTC derivatives which now amount to 13 times of global GDP of $50 trillion

This blog has been favoring gold and silver since 2005. Gold has climbed 112% or $476 and silver did even better, advancing 145% or $10 since the first post. A good performance by simply investing in an inflation-proof currency that has never lost its value in 3,500 years.

Given the main fundamentals above I have no reason to change my view that all paper assets will continue to decline in value relative to gold, as it was always the case after periods of credit excesses. Silver may even perform better as it is one of the very few commodities that do not yet again trade at record levels. Silver had spiked to $50 in the short squeeze in 1980. This is a high that will certainly be taken out once gold/silver end their under performance relative to all other commodities in this millennium's first commodity boom.

Gold used to trade more or less in tandem with platinum till the mid-90s. Well, platinum currently scratches the $2,000 mark and where is gold? This under performance will not last forever and the longer it lasts, the stronger the following break out. While there is always the possibility of a painful correction I forecast gold's trading range between $850 - the old high currently morphs into a massive support - on the downside and $1,500 on the upside for this year.

For silver I see a 2008 trading range between $15 and $25 with maybe even more room to the upside.

It will depend on the strength of the up move and which new fundamental factors - like bankruptcies and defaults - will support the next long up-leg. Gold now also rises against the Euro. The formerly strong inverse correlation of FRN's and gold has become less reliable as investors begin to look for a way out of all unbacked fiat currencies. 3,500 years of history show it clearly. So far Western investors have shunned the physical market which is dominated by Asian savers. This will change too, giving rise to even more real demand as only bullion is not just another kind of obligation.

I notice one more change in attitude: These days all bad news correctly lead to precious metals strength. We will have no shortage in such.

Other than precious metals I have a growing interest in all other commodities, focusing on the food sector. Read some interesting insights from Deutsche Bank research on China's growing demand for higher quality nutrition here.

Comments

[iman]

Good article but there's no such thing as commodity inflation, there is only inflation which by definition is expansion of the money supply, it shows up in commodities. Measure the price of oil in gold and you'll see its all inflation.

[jt]

You got that right, iman. Good article PI, but it really amazes me how disinterested analysts like yourself just seem to blow off the fact that silver and gold are so incredibly cheap and have risen so little compared to other commodities, such as platinum and copper. Or I should say, you seem so disinterested in the WHY??? GATA and those who have followed them understand why...it is b/c they are monetary metals and as such are in direct competition with the fiat currencies that have made central bankers such unbelievable and fraudulent wealth. Their prices have been and continue to be suppressed by them in collusion with their bullion bank lackies, such as GoldmanSuchs and JPMorgain4Elites, and our very own Treasury (with ex-GS CEO Hank "The Hammer" Paulson at the wheel dealing out insider info to his old buddies, who also happen to be a part of the PPT). Gold should be at least what platinum is, esp in view of the fact that the South Africa debacle will affect gold as well.

Come on PI, get curious. Or if you already know about it, at least acknowledge the manipulation of the gold and silver markets that have brought us to this place. Gold should be $5000 just by using the CPI used prior to the Clinton Administration, who gave the present-day fraudulent CPI we use now. Silver should then be at least $100/oz...at a 50:1 ratio...or more likely closer to $200 at a lower ratio. jt

[Silver-Bullet]

About 10 years ago, 10 barrel of oil cost $200, and 1 oz of gold cost about $200.

Today 1 oz of gold buys you about the same amount of oil (10 barrels).

However, 10 barrel of oil cost about $1000 today.

This is the result of US government creating about 16% to 17% more dollars each year (M3 money supply).

Commodities are not getting more expensive.

Fact - The dollar is worth less and less each passing year with the increase in M3 money supply. At some point of this progression, it is going to be WORTHLESS.