It is a glaring disconnect, as Wall Street recovers and generates billions in profits, paying itself millions in bonuses, while around 20% of the American workforce is either unemployed or underemployed. This is Depression-era unemployment with wages declining, foreclosures skyrocketing and working families worried about how to pay the bills. The middle class today is in desperate shape as the gap between the wealthy and everyone else is growing wider.

The Problem – Why Should You Care?

A series of new and significant events have unfolded over the past few weeks that have influenced the precious metals markets and will likely continue to support gold’s price advance. If you are a gold investor, it is important that you understand these events and the impact they are likely to have on your investments.

Rare earth elements or rare earth metals are a collection of seventeen chemical elements in the periodic table, namely scandium, yttrium, and the fifteen lanthanoids. The use of rare earth elements in modern technology has increased dramatically over the past years. For example, dysprosium has gained significant importance for its use in the construction of hybrid car motors. Unfortunately, this new demand has strained supply, and there is growing concern that the world may soon face a shortage of the materials. This is where the investment opportunity unfolds.

Adding to the lithium mania is Washington’s support in the form of $2 Billion in stimulus funding:

Printing and borrowing $800 billion to hand over to the banks with no strings attached never seemed like a good idea. We wrote about it back in October of 2008 in this article. And despite some 80% of Americans being against the bailouts, our elected officials decided to hand over taxpayer money to their banker buddies anyway.

In this extraordinary environment, preserving your personal wealth becomes priority one. Before you make another major financial decision, it is imperative to understand the big picture by recognizing and understanding three critical issues. First, we are in a secular bear market for financial assets (stocks and bonds). Second, the consequences of the global bailouts will likely be highly inflationary. Third, we are at a pivotal point in the long-term investment cycle. Let’s examine each of these three keys in more detail.

Central banks may be justified in increasing their gold holdings to 40-50 percent of their reserves, a senior executive of the industry-funded World Gold Council said on Thursday.

With consumers cash-strapped, plenty of “cash for gold” companies have emerged encouraging people to send in their old, unwanted, unused or damaged jewelry in return for cash. While they are only getting a fraction of the true market value for their gold, unprecedented amounts of jewelry have surfaced and contributed to a 55% increase in scrap supply.

But we are not in normal economic times, so anything goes this season as investors are hungry to regain large losses incurred over the past year. Even with the 38% gain, the S&P 500 is still 40% lower than the start of 2008. That’s the rub - a 40% recovery doesn’t make up for a 40% loss. So I think we will see an unusually active Summer season in the markets.

Cup and handle patterns are one of the most bullish set ups for technical analysts and can signal an explosive move to the upside. As the stock comes up to test the old highs, the stock will incur selling pressure by the people who bought at or near the old high. This selling pressure will make the stock price trade sideways with a tendency towards a downtrend for four days to four weeks… then it takes off.

Investors often sell in May and go away for the Summer. Low volume and sluggish performance so the theory goes. But I think this May will prove a better opportunity to Short in May and Go Away. Just don’t go too far. Our strategy involves quickly limiting losses whenever the market moves against one of our trades.

At least some elements of the left are willing to criticize and call out the Obama administration, rather than toeing party lines and placing blind faith in whatever the Democrats want to do. People are slowly starting to awaken and understand just how bad they are being screwed. The assets are “toxic,” whether you relabel them “legacy” or something else. I’ve said this before and I will say it again, LET THEM FAIL. Apologies for the caps, but it disgusts me that our government is allowing the losses from bad bets and toxic assets to be placed at the heels of the taxpayers and future generations. When the bankers’ bets made them billions of dollars, it was fine. When the irresponsible bets came home to roost and created huge losses, they want to stick the taxpayer. It is wholesale theft and only increases the chances and proximity of hyperinflation. Stay long precious metals and other commodities.

What does it all mean? One reasonable assumption would be that the silver price has some catching up to do in order to return to its equilibrium or more natural price relationship to gold. Using the most conservative of estimates, the price of silver should be fetching around $60 per ounce! Even if you believe the price of gold is overvalued and should be closer to $750, that still gives us a silver price of $50. Any way that you look at it, silver is way undervalued versus gold.

Here are some of my key takeaways from the conference:

But enough of my ranting about the government’s runaway ego and rampant corruption, let’s get down to the key points from Wednesday’s WSJ article. Kudos to Judy Shelton for so bravely and brilliantly penning this piece.

Tuesday’s article seems like a bit of a repeat from an October 2008 MarketWatch article in which unnamed “analysts” at Merrill Lynch also predicted the price of gold would rise to $1,500, although they didn’t provide a time horizon. The original MarketWatch article stated:

But volatile stocks are volatile in both directions and when the gold market corrected, junior miners lost all of those gains and then some. Amateur investors that were patting themselves on the back and recommending investments to their buddies based on their recent success were caught off-guard by the severity of the decline in the junior mining sector and suddenly found that they gave back most or all of their gains. To be sure, some booked profits and got out before the ship sank, but most were caught unsuspecting and unwilling to believe the party could be over so quickly. Many junior miners lost 80% or more of their market cap during the past year or two.

1. The stock market decline will accelerate in 2009, with the Dow Jones Industrial Average dipping below 6,000. Extreme volatility will engulf the markets with plenty of counter-trend rallies that will be fueled by speculators “calling the bottom,” only to find a new bottom the following month.
2. Unemployment will rise dramatically as “official” statistics reach towards 10% and true unemployment rises closer to 20%.
3. Real estate prices will continue to drop as rates reset and foreclosures increase across the country. Commercial real estate will finally follow residential, as price declines accelerate due to foreclosures on shopping malls, retail outlets, office buildings, etc.
4. Bailouts will continue, with more industries lining up for government rescue packages and both the financial and auto industries returning to the trough for more of their fix. This will lead to prediction #5.
5. Deflation will subdue and the first signs of hyperinflation will appear in the back half of 2009 as the trillions in bailout dollars begin to flow into the economy. The price declines that are a result of liquidation and de-leveraging, will give way to skyrocketing prices as politicians continue trying to print and borrow our way out of bad times. This will lead to prediction #6.
6. The dollar will resume its downtrend and make new lows during the first half of 2009. This will continue throughout the year with the dollar reaching into the low 60’s as the world loses confidence in the U.S. currency and the U.S. government’s ability to repay its debt.
7. Oil will rise from current lows and find a “fair price” somewhere in the $75 - $100 range, where it will float for much of the year. This will benefit alternative energy companies, although any gains will be muted by credit contraction and the overall market decline.
8. Agriculture prices will return to an uptrend as declining investment and unpredictable weather patterns lead to supply shortages amidst an ever-expanding population and increase in inflation.
9. Gold will make a new all-time (nominal) high reaching a price of $1,400 or more during 2009. A panicked flight to safety could push gold towards $2,000, although the central banks will dump gold on the market or make other attempts at suppressing the price advance.
10. All of the above will lead to increased crime and civil unrest with protests in the streets, bank runs and an increased police and military presence trying to bring stability to cities.

I wish that my predictions were a bit more uplifting, but we are truly in dire straits with conditions only continuing to worsen. The United States is essentially bankrupt and running on borrowed money and borrowed time. Many Americans will be facing severe financial hardship for the first time in their lives.

Buying physical gold and silver gives the owner definite possession, but comes with high premiums and the necessity to store and protect the metal. This can be done via a bank safe deposit box, but adds to the cost of owning the metal and doesn’t provide total peace of mind for many investors that have lost trust in the banking system. Others might prefer to store the gold on their property, hiding it in the floorboards or purchasing a safe. But this potentially puts you and your family members in harm’s way and again does not offer 100% security.