Gold and Silver Are Still Bargains

Much discussion has taken place in recent weeks, regarding the possibility that gold and silver might continue to sink to lower levels, as the summer doldrums set in. Investors soon become shell-shocked with negative market analysis that looks at a half-full glass of water and refers to is as ‘half empty.’

They read about a member of the Federal Reserve Board who is quoted as saying that he is worried about inflation, and they interpret this to mean that the dollar is going to rise, and gold might fall, just because of that single comment. If the man was serious about his concerns, he and his pals would be raising rates, not lowering them! Of course we know that their hands are tied, as the Fed cannot raise rates until the economy, especially the housing market, can handle higher rates.

The fact of the matter is that gold and silver are becoming more of a bargain on a daily basis. The reason is very simple: Every day, the central bank money spigots are spewing out at least ten times as much money, as miners are able to produce gold and silver. Until this situation is reversed, the fundamentals will support higher prices. Pull-backs or corrections usually swing too far in the opposite direction to the main trend, thereby providing opportunities for us to ‘buy the bargains.’ This is the situation today.

For some examples of price increases:

Platinum has gone from 400.00 to 2,000.00, an increase of 400%

Copper from 0.75 to 4.00, an increase of 470%

Lead from 0.20c to 1.20, an increase of 500%

Uranium from 0.63 to 63.00, an increase of 530%

Crude oil from 12.00 to 124.00, an increase of 900%

Molybdenum from 2.50 to 32.50, an increase of 1300%

Rhodium from 400.00 to 9,400.00, an increase of 2200%

Many of these commodities are trading at all-time high prices!

By comparison, gold has crawled, from $260.00 to $880.00, for an increase of 338%. Gold is currently trading at 1/3rd of its inflation-adjusted previous high price.

Silver went from $4.00 to $18.00, and has increased by 350%. It is currently trading at 1/8th of its inflation-adjusted previous high price. That’s right, silver has to increase by a factor of 8 times in order to reach $135.00, which is its 1980 price, when adjusted for inflation. And that’s if you use the official CPI numbers. By using actual inflation data, the number is even higher. Gold and silver are still bargains!

Charts courtesy www.stockcharts.com

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Featured is the daily gold chart. The correction that started in mid-March ended at the Fibonacci 50% level. On Thursday, the price broke out above the current downtrend line (blue arrow), and was headed for higher levels. The three supporting indicators are turning positive (green lines). The 50DMA is in positive alignment to the 200DMA (green arrow), the sign of a bull market. THE FUSE IS LIT!

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Featured is the weekly gold chart. The blue arrow points to the bottoming of the 7 – 8 week gold cycle. ‘X’ marks the spot where the cycle missed, due to excessive bullishness. The cycle returned to normal on Friday May 2nd. The green arrow points to confirmation of the cycle. Unless gold closes below the thin purple line on Friday, the upside breakout (green arrow), coming from beneath 8 weeks of resistance, will confirm the cycle bottom. (The thin dashed purple line connects the Friday closing prices). The RSI is beginning to rise up from its support line (black arrow). THE FUSE IS LIT!

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Featured is the index that compares gold to oil. Since the mid 1960’s the historical average has been 15.4 barrels of oil equals an ounce of gold. On Thursday this index touched 7, indicating that 7 barrels will buy an ounce of gold. GOLD IS HALF PRICE COMPARED TO OIL! The blue arrow points to a positive closing price Thursday. This may indicate that the trend is about to change. The index at 7.14 is 26% below the 200DMA, which is extreme. The RSI and MACD are deeply oversold (green lines). THE FUSE IS LIT!

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Featured is the daily silver chart. The correction which began in mid-March ended right at the Fibonacci 50% level. Confirmation will have come at Friday’s close, providing silver closes somewhere near the green arrow, above the thin purple downtrend line, which connects the Friday closing prices for the past nine weeks. The RSI is positive, and rising up from its support line (green line). THE FUSE IS LIT!

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Featured is the CDNX index. The Juniors are ready to join the party! The index had its best day in over a month (green arrow), and is bouncing off a triple bottom (green lines). The three supporting indicators are positive (blue lines). THE FUSE IS LIT!

Summary:

When you read a comment that is negative to a rising gold price, remember Gibson’s Paradox: “When real interest rates (T-bills less CPI) are negative, gold will rise.” This will keep you invested, while the bull rises in saw-tooth manner, ‘up two and down one.’ To quote Richard Russell: “He who buys the dips, and rides the waves, wins in the end.”

DISCLAIMER: Please do your own due diligence. I am NOT responsible for your trading decisions.

Comments

[bluesmoke]

On Friday, Kudlow & Co held a debate on this very topic. As much as I ( (and they) agree with you, the main reason oil has outperformed is because it has true demand. People NEED it. Gold on the other hand, is more subjective based on a perception. Therefore, in the short term oil holds more value. But that's not to say over the long term gold won't appreciate as well.

[j2eeblogger]

Uranium from 0.63 to $63 is a whopping 9900%, not just 530%. China is building 30 nuclear plant simultaneously to support its ever growing demand for electricity.

Regarding the previous comment, I agree that people need oil, but people, need gold too, to preserve their wealth. All those bubble we've seen, is actually the bubble of fiat money. When it bursts, gold/silver is going to shoot the star.

[bearfund]

The price of gold reflects the value of fiat money. The price of oil in gold terms reflects supply and demand for oil. It's silly to say that oil, a finite consumable resource, should always cost the same amount of real money (gold). In fact, because gold is not consumed and oil is, the price of oil relative to gold should be expected to rise in the long run, in theory to infinity.

Suppose that country A uses gold as money and country B uses fiat money. If a major umbrella factory in country A closes due to a fire and the price of umbrellas rises on the supply cut, would you say that gold needs to rise in terms of B's fiat money? Of course not - that makes no sense at all. If anything, it would fall as citizens of A are forced to exchange gold for B's fiat money in order to buy their umbrellas. We don't really have that analogy today because no one is using gold as money, but the point remains.

People "investing" in gold have gotten way too used to the idea that it's "linked" with commodity prices. Gold is money. Commodities are products that can be purchased with money. Each one has its own supply and demand picture and can appreciate or depreciate in absolute (gold) terms. All pricing things in gold does is take the worth of fiat money out of the equation and give a better read on the underlying fundamentals of a particular commodity or other asset. If your claim is that oil is historically expensive and will probably fall in price, say so. But that could happen in many ways: by gold rising relative to fiat money while oil remains at a similar fiat price, by oil falling in fiat terms while gold remains at a similar fiat price, or even by both falling in fiat terms but oil falling more rapidly. That oil is expensive in gold terms says nothing about the future behaviour of gold relative to fiat money. Claiming otherwise does your readers a disservice.

[keo]

"That’s right, silver has to increase by a factor of 8 times in order to reach $135.00, which is its 1980 price, when adjusted for inflation"...

I am bullish on gold & silver, but we have to be fair and mention that the Hunt brothers were needed to reach that top in 1980... I am not sure this will happen again soon.

[Pangaea]

You weaken your own story with the all-caps/exclamations in "the fuse is lit" about five times.

[captbob]

Food has first call on disposable income and food is rising leaving less for everything else, including gold.
As a percentage of income it is rising more in the huge emerging economies of Asia, which will have the greatest impact on gold as an unnecessary commodity. They may "desire" to buy gold but a lot of other things come first, and that's a big demand base which can ignore "guarding wealth".

[ussmls7]

The End Game, GATA.org has released info from ,deepcaster.com. They have great info for you do to disect, for gold,silver you can learn much. After the earth quake today in China, there will be many needs, but rebuilding, will affect all PM;s,base metals will affected, so will rubber, name a commodity, it will be affected. Burma, had been transformed also not counting the USA.
The dollar is standing on a Media talked up false leg, Silver is in more demand and is getting harder to buy, Coin shops, Flea markets, web site, will sell at way above spot, but it's still a bargin.
The Middle East, is building up, as Iran is fighting by proxy, to make thing worse.
We have Green nuts, keeping the U.S. from building refinearys, tapping off shore oil, but China has been off the coast of Florida, with no regulations, against spills, inviormental wach dogs at all. With new drilling knowledge, supplied by the US companys, they can tap into our oil ! Congress has failed again, & the Election is killing our us for time. Why Geothermal, has not come to the top, as a clean Energy resourse, is nuts.
Have the Commodity Markets become a joke? Deepcaster.com thinks so. Hedge funds, Manipulate this, & that, Silverseek.com, has really turned up the heat, about price fixing, as Small Investors, get more organized, there may hell on the Hill!! Thet have got some smart minds, working with them, and they want blood, & a lot of it. The same goes in Gold! As things unfold, I would make sure, that any paper promises, for Silver/Gold ETF's take action to insure, you don't hold a piece of worthless paper. Phyical holdings is important! The Bull sees Red ?

[EE]

KEO is correct about the brothers when plenty of silver was on hand. Now silver is in a shortage and getting tighter in the face of huge concentrated short positions that dwarfs what the Hunts did. Can't wait to read Ted Butler at investmentrarities.com

[GMiki]

We had to wait weeks for our latest silver eagles.

The people who really buy gold in large amounts and will buy more aren't those who need to spend that money on food first.

For sure oil is a real need but so is money--and gold beats oil in terms of a trading system. The dollar, as many have already noticed, is losing value. Today, the media celebrates each small pop up, although these weak rallies aren't sustained.

Someone recently suggested that SLV is today's Hunt Brothers--but I've also heard an argument that it wasn't the Hunt Brothers alone that forced the price up.

Yes, it's Tuesday and we must see what Ted Butler has on his mind--as if we didn't know: the enormous potential of silver and the conspiracy of the shorts--but just wait.