The Dow rally set to die - where to place your money - I say gold equities

We have long argued that the reason why there is no inflation evident in the Western world is because its being concealed by 'asset inflation'. We are close to a fall in asset prices judging by the Dow Jones Index. Just looking for the Dow to break that 15800 pt level convincingly. I like that the Dow failed to achieve a new high recently. So we have 2 positives:
(i) Gold is the only cheap asset class, unless you can find a dodgy third world economy to invest with 'good fundamentals,
(ii) Asset prices look like falling, so you can expect to see rising 'cost-of-living' inflation.

The appeal of gold or in fact any precious metal equity is that they represent 'cheap asset' when every other asset class is dodgy; that is overpriced at a time when inflationary pressures are building. The inflationary pressures are arising because of the collapse of over-priced assets themselves. Most people think asset prices are just the 'things we consume', but investments are 'products'. When we preferentially spend on securities, and consequently bid up the price of securities, we create one type of inflation, even if there is no blow-out in cost of living inflation, i.e. the price of fuel, vegetables and computers. If the only spending being done is on investments, that's because we are creating non-productive assets, or trading in secondary assets, and not creating new assets to serve as a foundation for the creation of new money. This is why, if money is divested from securities, either new securities need to be created, or debt needs to be liquidated. This derivative trading is netted off, but it leave a very real scar on the 'physical economy' where most spenders live, and this is where we are destined to see the inflation.

You need not buy gold though. In fact whilst gold is trading at $1260/oz, the price of gold equities is very cheap. I have long suggested a company like Gryphon Minerals (GRY.ASX) because it has $62mil in cash and investments useful for financing a gold mine development, as well as 4-5Mil oz of gold to underpin that investment. So we have an asset of $6-7 billion in-situ, that can be mined for say an Net Present Value of $0.5-1 billion, depending on your outlook for gold prices, and this company is trading at an enterprise value of zero as we speak (14c). It just doesn't seem fair. Where is the downside? None is imminent. That's not to say there are not future risks, say of political risk. I've not seen a nationalisation of assets for years now; the closest being Iran and Venezuela. But you might be scared of a gold project in Africa. I'm rather satisfied instead by the low mining costs and the lack of impact of Western largesse on the traditional values of Africans who could probably care less that Western financial markets are going through upheaval. Catch our stock picks on our mining 'SPEC' page, or you can find us on Facebook.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Price price rally due - Are you ready - get your gold stocks!

For the last few months we have been waiting for a base support in gold. In fact a 2nd base after gold fell to $1180/oz in June 2013. This second base after some consolidation, marks a foundation for more upside for gold, at a time when there are strong fundamentals in terms of:
1. High asset inflation - Don't believe the 'cost-of-living' inflation numbers put out by governments because 'assets' are commodities as well. The reality is that the high price of assets makes gold attractive. i.e. The risk of weaker asset values, or more likely rally-bust-rally.
2. Low interest rates make gold more attractive because there is no return on debasing monetary units.

3. Emerging market risks make gold more attractive. Its not so easy to trade in these markets. They are small, illiquid, and there are few securitised plays.

4. Small gold market - By comparison to other markets, the gold market is really small, so it can move with enormous volatility. A $100/oz move in gold prices is not uncommon. 

At some point these high asset prices are simply not going to be sustainable because the yields on assets will be so poor. Governments however will not raise interest rates because that will undermine the debt market, as the real estate collateral is a source of market confidence. They will therefore take measures to keep asset prices high by debasing monetary units. This will effectively 'tax' holders of money/credit. Gold is really the only asset undervalued....simply because it offers no return. In fairness though, you can 'trade' other asset classes, but you will be 'carving' value out of other investors to do so; so in that game of 'financial relativism', you stand a good chance of losing. 

Now looking at the lower chart, you can see that gold is in the midst of a long-term uptrend, and we now see signs of that trend holding. This comes as no surprise to a lot of people, however, at least now, you have some evidence of a trend change. In all fairness, looking at the 'upper 60-day' chart, its not the most convincing of trend reverses, however, any uncertainty will be cleared as days pass. 

This prompts us to ask - what are the best ways to trade gold. Well, we go straight to the emerging gold stocks like GRY.ASX. We have often written about Gryphon Minerals (GRY.ASX) and continue to trade it off weakness, and sell when it is over-bought. Its a good story. We'll keep trading it until the company is acquired in a takeover, or it starts production. 

Asian property markets outperforming Japan Foreclosed Guide Philippines Property Guide
Profit from mining with Global Mining Investing eBook

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Markets set for another correction - Dow going down but less so for ASX

The global market is taking a bit of a hit. Metal prices are collapsing, and this is across the board. Industrial metals are going to take a little time to recover because ultimately the miners of those commodities will need to curtail production, and start undermining their inventories. We can therefore expect 'industrial commodities' like copper, lead and zinc to take some time. I actually expect a broad-based sell off in industrial stocks. You can see from this chart that the Dow Jones had a recovery overnight. I believe this will not stop the market falling. We can see that the market rally settled below its moving average, so I expect it to resume its fall. Gold will unquestionable fall with it over the next few days, but I would expect gold stocks to be the first to recover in the midst of that correction, which could actually be quite fast. Note the nature of the trading action over the last few days. The Dow settled at a support/resistance. Its going down, and I'm expecting a fall back to 14,000 point support in the next month.
I suggest the Australian market has realised the worst of its falls, but will probably find support around 4400 points. One can see a support line from the 6th March 2009.
The best action is to be had in the gold market. The reasons are:
1. Emerging miners are trading at below their cash value. I particularly like GRY.ASX because it has $62mil to find development of a $200mil treatment plant to produce 150,000oz of gold from its 4Moz resource, and  its trading at just $52mil. Crazy market prices.
2. The indebtedness of global markets is ultimately going to result in more tax and currency debasement. There is also growing unrest and distrust in governments, and these are the conditions ripe for gold. Gold is close to support levels. Check out this chart, and note that we are close to the market bottom for gold. I'd actually not be surprised to see gold fall to $1000/oz, but recover to $1100 quickly.
3. So I am expecting to see the Dow and gold fall for the next few days, but for gold to recover whilst the Dow keeps falling. Gold will unquestionably consolidate for a time.

Asian property markets outperforming Japan Foreclosed Guide Philippines Property Guide
Profit from mining with Global Mining Investing eBook

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Summary: Market Outlook 2012-2014

The outlook is for higher food and energy commodity prices, strong NZD, a two-speed economy, with high oil prices, the strong NZD going to undermine economic activity. There is going to be an attack on North Korea and Iran within a year; however they will be short-lived occurrences, but they will hit market confidence, so sell your shares. The high oil prices is what will impact consumer confidence most.

The US and other central banks will then look to offer stimulus, so you can expect a recovery in 2014. Give it a year to turn around, so we are 2 years away still from the resumption of the China 'bull market' story. Clearly the time to get back into equities is a few months after those missile attacks on North Korean and Iranian facilities. In neither case do I expect ground troops.

I think gold prices will certainly do better in this period of 'uncertainty', however not as well as you would expect because there will be broad-based selling pressure. I do however not write-off gold; I think gold will hold up until that stimulus comes through, but expect gold to be sold off thereafter...such that I'd not be surprised to see it under $1000/oz by 2016, so forget about the gold explorers. But in late 2013, we might expect those base metal stocks, including explorers, to look really good, as well as rare earth stocks like Alkane Exploration. Too early now though. Its always best to go for those exotic elements in these times; as they are relatively under-priced. i.e. Vital Metals might have advanced its wolframite (tungsten) project by this time. China produces 80% of the world's tungsten, and this company has the Japanese government as a partner. This is because the Japanese government invests where security of supply constraints are posed. Another appealing exotic company is South Australian based Archer Exploration....not yet though. Wait for the military strikes.

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Andrew Sheldon www.sheldonthinks.com

Market about to recover - Australian market leads

Here is a statistic for you. In the last 5 days some $4.5 trillion was wiped off the value of global equities. That is despite the value of all Italian debt being just $3 trillion. Of course, there is also the debt of the US, which would be another $14 trillion.

Of course a great deal of that debt is actually sensible and sustainable, i.e. Not requiring any bail out. We might then ask whether there is a need for equities to fall further. The answer is a resounding nope. Expect a recovery. The signs are there. The US Dow Jones index closed at its lows. I expect this will be its double-bottom, and the market will gap up tonight.

We might expect gold to fall, so people should shift from gold producers to explorers, as confidence rebuilds. Ready for another rally. Will it require more Fed stimulus? Yes, probably to give it some momentum or sustainability.

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Andrew Sheldon www.sheldonthinks.com

Gold stocks will shine!

Gold stocks are all the rage at the moment, and the Australian market makes a lot of sense for several reasons:

1. High levels of household indebtedness mean there are political reasons for the govt to keep the Overnight Cash Rate low

2. The subdued industrial demand for commodities means the currency is going to be weaker than otherwise would be the case; though not so bad to effect confidence.

3. Gold prices are $1750; probably have downside, but are otherwise going to $2400/oz

The question then is - what to buy?

There are of course high-priced gold producers, but can also look at explorers. Why? Gold explorers need confidence, and with confidence restored by the Fed, there is a good chance for another rally. This is all in accordance with our 5-year plan, i.e. A 'sideways' market, where you have to trade in & out, and otherwise simply hold gold or gold stocks otherwise.

When the Dow approaches previous highs, you sell the explorers, unless they are close to production, i.e. They have finance. You can keep doing that until gold approaches $2400/oz.

We recommend a number of explorers at our specs blog, and we offer a 2nd edition ebook to help you buy the right ones.

These are the perfect conditions for gold; low interest rates, subdued or negative growth and monetary debasement. Low confidence adds to its charm.

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Andrew Sheldon www.sheldonthinks.com

Dow Jones equities heading down

The S&P500 has broken support in the last 2 days....sadly I was not watching the market. Irrespective, I was well cashed up, since a number of stocks I like had announced issues, so it was of no consequence. Remaining in my holdings are some gold stocks. Rest assured however there will be some good trading rallies on the way down. Gold explorers, which I very much like, will come under threat because they are intangible, even at a time of high gold prices.

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Andrew Sheldon www.sheldonthinks.com

Gold outlook looks good

Here is a recent argument highlighting the upside of gold. People often look to gold as an inflation hedge. The reality however is that any tangible asset is a hedge against inflation, because whilst assets have a real value, paper is being debased in order to repay government debt, or private debt which governments are busily assuming.

Many tangible or physical assets have been falling or steady in recent times. These assets will eventually, or are already stabilising. Gold in contrast, has been a laggard because it offers no return on investment. This is why gold producers make a lot of sense. Unfortunately, because they make a lot of sense, they are already priced very high, so this takes off a great deal of the upside. I also don't like to carry the operating risk, as mines can under-perform, and there are other risks such as:

1. Governments adopting a gold tax or a mineral resource rent tax

2. Technical issues, say recoveries are bad, or grades overstated

3. Hedging issues

For these reasons, I actually prefer explorers of gold. A mineral explorer might only be capitalised at $10/oz, but once they prove up their resources, they will be valued closer to $100/oz. Add to that the spectre of takeovers or production, and you have realised a very appealing investment return. I discuss such stocks on my Speculators blog.

One of the big drivers of gold is going to be the current low interest rate environment. Governments are compelled not to raise interest rates because of the high debts, so they will be for years be trying to support property markets. They will be looking to non-rate ways of curtailing debt creation, i.e. Asking banks to only lend to solid investors. This is what happened in Japan. Its essentially fascism, but don't bother you pretty little minds about that...WikiLeaks Julian Assange is the only one who is going to be assassinated; all you common people are just going to be taxed. You will take care of the rest, as you engage in psychological repression in a vain attempt to pretend nothing is wrong. You will clammer after material evidence of your well-being to convince yourself. It is remarkable what humans will do to convince themselves that all is well. After telling my father there was going to be a financial crisis for 10 years, it was like trying to lance a boil, trying to get him to concede that I was right. Not that I needed his validation after 30 years of getting none, just I wanted to understand the nature of human delusion. Sadly, he has resumed the delusion. :)

Gold makes sense because it is a tangible and non-demand store of wealth. You might be scared to touch other precious metals like platinum and palladium because they have a strong demand component, but they have their own merits, i.e. These metals are used in battery and catalysts, so they have strong exposure to conventional petrol and electric cars. Those metals are also used in fuel cells, so the demand for these metals is good. There is no huge inventory of these metals, unlike gold. But that is part of the reason why the gold market is good. It is a large, liquid market. The reality is that the precious metals market is dwarfed by the stock market, the bond market, and the forex market. So rest assured there is going to be a bubble in precious metals. Also expect the currencies of precious metal producers to have an impact. i.e. South African platinum miners will struggle to remain profitable as their mines become uncompetitive as their currency takes off. You ought to be looking for South African producers who have unhedged precious metal positions, but fully hedged currency positions.

The argument is that 'quantitative easing' or printing money might cause inflation. The reality is that there is no question of that. In a recessed economy, such money cannot go into productive capacity because there is little demand; it can only go into assets. So one experiences a bidding way, as excess money pushes up asset prices. When asset prices are fully-priced, that money spills into debt repayment or consumption, and we get inflationary pressures. Only non-demand related assets like gold perform well, as well as property, once it forms a base. People with housing debts can struggle under interest repayments. We are not there yet, but in a few years inflationary pressures will build. It is not yet time to fix interest rates. I do not think we can get away with low interest rates like Japan because Japan had the fortunate position of loyal investors prepared to accept a 0.5% return on their Japanese bonds for years. Westerners would sell their mothers for a higher return, so this is going to bid up bond prices.

The situation is different however for countries like Australia, which are experiencing a commodities boom. The energy-precious metals boom is going to keep capital inflows strong. A strong currency will give the government some flexibility to absorb or retain relatively low interest rates. This will make Australia the flavour of the month. The question is what will happen to the manufacturing sector? Protectionism? By that point we might have a liberal government. Of well, they all sell out, when they ought to be reducing wages. Sadly, we do not have the same wage flexibility as Japan. It is sad because if we had their discretionary bonus system, we would be able to increase savings, but also allow businesses to easily withhold or cancel what is considered a right to a certain wage now. People would not be able to plan, i.e. people would not be able to develop ruinous levels of personal debts. That would be tragic. Commonsense would prevail.

"Adjusted for inflation, prices touched a high of about $2,423.8, according to figures from the World Gold Council".

Interestingly, this is the price that I got when I looked at the historical ratio of gold to the Dow Jones, which is a measure of tangible versus paper money. I am looking for a gold price of around $2,400/oz, so almost double the current price, but it will depend on future currency debasement. We might see even higher prices.

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Andrew Sheldon www.sheldonthinks.com

Where to place your money during this recession

An article in the San Diego Tribune offers some investment advice in these hard times. I have some other advice for you, which you might like to consider after reading this article, which I find only modestly helpful.....mostly for its factual information.

Gold is far from over-valued based on historic measures. Based on the previous three cycles, the dow jones index vs gold price can go to 4, giving a gold price of over $US2,400/oz. Adjusted for inflation, gold is still cheap. In fact, it was only lasy year that it surpassed its old high of $780/oz – set 30 years earlier. But there has since been 30 years of inflation, compounding at 3% per annum.

Gold is not simply a hedge against inflation. It is a hedge against debasement of currencies. In a world where all major governments are debasing their currencies, we are looking at currency relativism. The only strong or 'hard' currencies are the commodity producers like Australia, Canada, NZ, Brazil and South Africa. Because of their cheap labour, resulting from structural liberalisation in the post-communist (liberalised collectivist) era, you can also consider China, India, Brazil as attractive emerging markets.

There is not going to be a collapse in China anytime soon because this is a 'super cycle'. China has plenty of cheap labour, and that will mean Western factories will continue to invest in their country. The softening of the global economy offers reason for China to stimulate domestic demand, as Western countries previously did. So these economies are attractive.

Why is Japan’s currency too strong? The US is simply debasing their currency at a faster rate than Japan. You can rest assured that Japan is going to change that very soon, as it contends with a public debt of over 200% of GDP and diminished export competitiveness. So this is more economic or simply currency relativism.

Bonds offer a poor yield in the USA, so you need to look at short term emerging market or hard (commodity) currency markets like Australia, NZ, South Africa and Canada, however even these markets are pretty volatile, so you have to trade opportunities.

Real Estate in the USA or Japan is ok, but gold stocks is by far the best opportunity.

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Andrew Sheldon www.sheldonthinks.com

Not only gold glitters!

It is easy to become somewhat myopic about gold. I was historically like that a few years ago. I have been following gold since the 1980s, and in this uptrend since 2000. I have made some good profits from the start, with stocks like Gympie Gold, Red 5, etc. These profits were typically made in 1-3 monthly price surges.

At the time I was reading a lot of stories about the US debt. It took some time for me to expand my understanding of economics sufficiently that I was able to challenge some of the assertions made, because falsehoods abound both in support and against gold. In this article, there is some flawed analysis of gold. This article was addressed to NZ readers.

1. Gold is risky? What market traded asset is not. Volatility can actually work very well for you, so don't be too critical of it. Also dropping context, gold is one of the few assets which has an inverse relationship to other asset classes, so its a defensive policy. Did it collapse with housing and equities? No, and its currently at all time highs whilst those assets stagnate.

My favourite exposure are small explorers with exposure to potentially large scale gold mines because of the upside in returns. If you can find an explorer with $5mil in cash, 1-3 good projects, and you are confident in the trend. If you have a few of those stocks, and you apply some level of sound technical judgement by reading technical reports, then you can really make a hell of a lot of money. i.e. 1000% plus. These stocks are of course the subject of my spec blog and Mining Fundamentals eBook (2nd edition).

2. Its unpredictable - there is actually a VERY STRONG correlation between oil & gold prices, and the dow jones, i.e. gold ratio falls to around 4-5 in times of financial crisis, so we are looking at a gold price of at least $2500/oz if the Dow is around 11,000. Just watch the Dow. Hold that ratio in context, there is no paradox. Its not suggesting they are directly correlated, the ratio is changing.

3. Its not the only defense - NZ investors don't have much access to it, but being commodity producers, and with a strong China/India, the AUD and NZD are pretty hard currencies anyway, so NZ'ers don't really need it. NZ does not produce much gold, but food is hardly an invaluable commodity, and its government preserves a fairly disciplined monetary and fiscal policy, so cash is ok.

I don't advise people to buy physical gold. The best exposure is an ETF and gold explorers. Some ETFs are leveraged, so be aware. I don't expect a banking crisis, merely a debasement of currencies because the government (sorry that's you) will be obliged to cover all mistakes (yes 'you') have made. i.e. Trusting governments unconditionally being the most apparent.

I actually don't like gold miners, particularly the large ones because they are already fully-valued, they are priced at a premium, and as we have seen with Rio Tinto-BHP, they can only have their wealth purged by governments. Basically, only bad things can happen. In contrast, the long suffering explorer can only find upside in 'select' cases. A contrarian investment. When asset values have been so discounted, they are priced at cash value. i.e. Their projects have no value. Of course you want some idea of the project's value, whether its commercial gold in drill core, structural geology or geochemical indicators of mineralisation, preliminary ore reserve and production cost estimates.

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Andrew Sheldon www.sheldonthinks.com

Watch the S&P - it might impact gold trend

The S&P is at a fairly critical point at this time. We can see that the market can either fall back to its previous lows, or it can resist such moves and fight another today. The question is - to what extent is the Fed and other central banks going to support this market.

This market has ceased to be a product of supply and demand. Its all about Fed decisions. You can't be a good market analyst in this market; you would need to be Ben Bernacke's psychotherapist.

I suspect it is ultimately the break of that long term downtrend, i.e. a break in the S&P above 1178points, which is ultimately going to stimulate the market, or see the market fall back to its lows. Bernacke has stated that they will support the market. Just how much he does though is up to his arbitrary whim. That is what happens with highly interventionist (statist) market regimes. The idea that you can know the market, and respond to price signals is the rhetoric, but the reality is that, like the stock market, pricing is being determined by some guy with a lever somewhere. General prices that is. You would think the Australian market is strong at the moment. There is a shortage of housing stock...and yet no one is building. Its all a facade. But that is one facade which will not be allowed to collapse because too many of you believe and depend on it. Just as a lot of junkies depend on their daily heroin dosages. Is now the time to question your principles? Probably, as we role through another election of conspicuous stagnation, but at the very least the time to think was in your school years when you debated public policy and economics, and alienated the libertarians among you.

At this point gold is at a support level. There might be some consolidation at this point.

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Andrew Sheldon www.sheldonthinks.com

Escalating signs of economic peril

Taking a look at the EuroZone, I can see why my earlier expectancy of support for the Euro has not been achieved. I do not give a lot of time to this market....not as much time as I should. Consider the following skit by the guys at the 7:30 Report in Australia. Rather amusing actually. I was not aware of the level of ndebtedness if these figures are true. In any respect it highlights that the EuroZone is as negative as the USA, in fact more so. I would however caution people that the most probable response to this problem will be the break up of the EuroZone into two currencies - the current Euro and a new currency for the southern mediterranean countries. This will be necessary to establish new levels of accountability.

The implication of these developments is that gold is going to perform very well in future as these countries struggle for credibility. There will come a time when people will stop flipping between 'relativist' standards of value like currency, and they will abandon growth-based forms of asset value, in favour of precious metals like gold, silver and platinoid metals. i.e. Platinum and palladium, even rhodium.

Such news comes as no surprise as we and others have been warning of such problems as early as 2000. We started blogging about it around 2005. We maintain our belief in gold, and we expect a rally in precious metals in coming months. See our commodities and Speculators blogs.

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Andrew Sheldon www.sheldonthinks.com

Your gold market options

[QUOTE=Scot27;827520]Why buy actual gold? Why not just buy an ETF that tracks the price of Gold? Im not very clued up by precious metals (I have always bought ETFs for them), so was wondering what are the reasons for buying actual coins? [/QUOTE]

Each option has their merits:

1. Exploration shares - if you are a geologist they have more upside, depending on when you buy, very little downside. My best bet on this strategy was 6800% increase on Minotaur Res when they intersected 600m of base metal mineralisation. Porphyry-copper type deposits offer this potential if a small $5mil company is testing the target.

2. Emerging or new producers - less upside, moderate risk. Real potential for cashflow, upside to gold price, but technical risk that reserve grade not as good as expected, or mining costs blow out because of unforeseen issues like poor plant design, strikes, etc. These are really nice if you can get options related to them, i.e. Aquarius Platinum opts - bought at 25c, sold at $8.95 in 2001 I think.

3. Established long life miner - trade at a premium, so harder to find upside, just prospect of increased reserve life, and higher gold price.

4. Standard ETFs - good exposure to gold, only risk is a price risk, no financial risk or technical risk.

5. Leverage ETFs - greater exposure, but its not physical, so if counterparty to ETF fails, you don't get your money back. This is I would suggest a high standard. We don't need to be this careful yet, at least not with all your money. Maybe 10-30% of funds here.

6. Futures - specific closing out date but you can roll over. Leveraged price exposure.

7. Options - time premium which diminished over time, no technical risk, but price risk, leverage upside, limited downside offsets time premium.

8. Contracts for Difference - one of the better ways. They are derivatives so counterparty risk. Many companies use these now, as can trade many products. Don't over-leverage.

9. Physical gold - less appealing because product storage/insurance costs, less upside

10. Jewellery - least appealing as poorer resell value, security issues, less upside.

Gold has broken out into new highs - going to $2400/oz. This is a gold bubble. Why? Govt debt issuance and printing of money is debasing currencies, subdued growth outlook and prospect of low interest rates means negative returns on bonds and money. Where can it go but in emerging property markets and commodities for returns. There is a historic relationship between gold & oil, gold & the Dow Jones, which tells us that gold is going to around $2400/oz. Its not luck, its based on pricing ratios between 1897-present. So when Dow index-gold price ratio gets to around 5, its a good time to sell. The Dow is a measure of excess money in the market relative to real money (i.e. gold). The Dow is priced on equilibration of financial assets, and its the biggest market, so good representation. This is early days still. I have been investing in gold since 1991 at $258/oz low I think, but there is a lot of upside because in real terms, inflation has debased all financial assets since that previous low of $850 in 1986 (I think). So in 30 years, a lot of inflation - and its getting worse.

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Andrew Sheldon www.sheldonthinks.com

Gold close to $1220/oz previous high after $40/oz gain

The gold price has rallied to the $1200 level, very close to the $1220/oz level we anticipated about a week ago. We await the next moved, as the gold price approaches its previous high.

In the wake of the Rudd governments taxation announcement it could be expected that the gold stocks with overseas exposure will perform better than those with local exposure. I would also expect established producers to do better than those companies which are more than a year away from production. We also would like to avoid hedged producers. Most gold producers are actually unhedged.

The reality however is that gold might not yet break out to higher levels, so I would be looking for confirmation of that. I think the Greece financial crisis is not so significant in the grand scheme of things. I think its more significant in highlighting the fact that governments are inept, that they cannot be trusted, that they have a gross conflict of interest; that they have as much integrity as a murderer on death row. No, for those who might err, there are no good politicians. They are dishonest by necessity, otherwise they would not participate in a system which dispenses with integrity, honesty and objectivity. They are unthinking sheep which ought not be listened to. Why do you give them moral standing? Oh that's right, there is a 'metaphorical gun' pointing at your head.

I retain my belief that it will be some action related to Iran which will really get the price of gold moving. That will of course raise fears of inflation. Western governments will of course attribute all the impending ruinous inflation upon the Iranians, just like they blamed the financial crisis on banking CEOs. Makes you wonder why the banking CEOs are not more outspoken. Evidence of collusion? Hmmm...maybe, or maybe they are just scared.

Financial booms and resulting crises in the modern era are created by governments, particularly in the larger markets, where they are destined to have greater impact. Banking CEOs benefit from this, but they also benefit from governments not legislating to prevent 'inflated' profit growth prospects as a basis for remuneration. Of course bankers ought to have their 'sustainable' performance compared to other bankers, just as they compare their salary package to other CEOs. i.e. A CEO ought to get a base salary plus 2 x the % gain of the 200-day moving average of his bank share price relative to a nationwide bank index. If the bank has more than 50% of its business overseas, maybe he ought to be compared to an international index.

For more thoughts on the ethics of 'mixed economies' refer to my politics blog - where I have been very busy of late.

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Andrew Sheldon www.sheldonthinks.com

It appears that governments have grown increasingly confident about their capacity to finance the next wave of the economic cycle. They are throwing caution to the wind and are committing to debt-finance further stimulus. Clearly they are looking at the poor state of unemployment and are concluding that they cannot afford to end the stimulus. This can only increase the inflation rate, though it might just push equity markets higher. I would caution, its probably just likely to prevent a faster fall as the markets will struggle with two issues:
1. The rising unemployment rate
2. The prospects of falling equity markets
3. The prospects of rising inflation

The market in the interim will react positively to good stock news, but rest assured that markets will shake off this good news eventually. In any respect the metals markets are looking good, with gold and other precious metals particularly attractive. In the Asian region, we have seen Philex, one of our favourite stocks double in price to P18.
In Australia, we have seen gold stocks perform well despite the strength in the AUD which reduces the $A denominated receipts from gold sales. There is of course a limit to how high the AUD will rise because of the prospects for a weaker global economy. Meanwhile we are projecting gold to rise from the current $1104/oz to $2400/oz. I'd give the market a maximum of 3 years to reach that level. We first started investing in gold in 2000 when gold was around $280/oz. The stocks then differed from todays. More news at Blue Sky Mines.
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Andrew Sheldon www.sheldonthinks.com

Fed decides direction of the market

The US Federal Reserve has signalled the next move in the market. From herein we are looking at a sustained period of USD weakness, which in the short term will mean a strong gold prices. In fact all precious metals will perform well, particularly silver, and of course commodity based currencies.

The Fed has announced its intention to spend $300 billion on long-term Treasurys.The Fed is of course the bank of all banks, and the fact that it is taking this path of "quantitative easing" shows that it recognises that it cannot hope to pay its debt, so its going to sustain spending by refloating the economy on a sea of paper money. The impact of course is to delute the value of the USD. This is however not just US policy. This is an organised campaign by all central banks around the world in similar straits. We can see a pattern of 'cohorts' supporting each others 'fairytale' monetary policy. This is what evil government does. On the one hand they offer you lower interests, with the other hand they (the banks) restrict your ability to get a loan, no matter how good your credit rating. Banks are no longer in the lending business, they are in the speculating business.
On the one hand they are offering you tax cuts, on the other hand they are increasing the tax rate through inflation. Bracket creep will very quickly see you paying the top marginal tax rate.
This is not just the US Fed Reserve and US government, these policies are supported by a number of foreign central banks. Sorry but Obama is no different. But don't feel bad you really didn't have a choice. They are all bad. The system is rotten.

The "quantitative easing" will increase the volume of dollars in the financial system (i.e. increase money supply), and of course that action will eventually feed into inflationary expectations. You cannot fake reality. So when they pretend to be surprised when inflation shows up in a few months, you can cynical sigh that it 'was meant to be'.

The US Federal Reserve is not the only central bank to take such steps. The British and Japanese central banks have already announced that they would purchase their respective government debts, while the Swiss National Bank is selling its francs to weaken its currency.

Gold responded as we expected - up $17/oz overnight, closing at $US956.95. I might add that gold also found support at the $880/oz level as expected.

There are a number of ways you can gain exposure to gold:
1. Derivatives such as options, Contracts for difference, futures
2. Gold mining stocks
3. Funded emerging gold producers
4. Exchange traded funds (ETFs)


The gold holdings of the world's largest gold-backed ETF, the SPDR Gold Trust, rose to a record 1,084 tons on March 18, up 1.4% in a single day. Silver holdings in the world's biggest silver-backed ETF, iShares Silver Trust, rose 1.3% on Wednesday. People might talk about "an ebb in demand for gold in India", but trust me its not going to be Indian consumers driving gold to $2,000. Its going to be speculative investment in the financial capitals. People like me have been talking about this day for 10 years. This is it - the wave has crest. Don't be shy - your time is here. Jump up on that surf board because the Fed sharks are in the water. Just let them drown in their own paper money.

India gold demand also ebbed on Thursday as traders said prices were too high. Demand should pick up in mid-April to May as the wedding season begins. Other precious metals tracked gold higher, also benefiting from the weaker dollar. Spot silver surged to $13.68 an ounce, its highest since Feb. 26. It was last at $13.45/52 an ounce from $12.88.
For more information on precious metal investments - see our Commodities and Speculative Equities blogs.
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Andrew Sheldon www.sheldonthinks.com

Buy gold - the Bank of England is printing money

There was an important development for gold pundits this week. The British Treasury on the advice of the Chancellor of the Exchequer is to engage in quantitative easing or 'printing money'. Resorting to printing money to finance government expenditure has not been used for decades because of its unsavioury association with inflation. Printing money directly links the government to inflation. The justification for this is of course the fact that the banks cannot lend funds because of their parlous condition, plus the fact that asset prices are still falling. The proceeds will be used to buy company IOUs and other assets held by banks. This will boost the reserves of the banks, and thus allow them to make new loans, which will support asset prices in the economy. But I would suggest not until asset prices find a base. The rationalisation for the move is the threat of deflation. The reality is that they will not stop deflation, but it will eventually cause inflation when asset prices bottom of their own accord. The interest rate is already 1%; but new bank lending capacity is unlikely to finance much except new gold mines given that gold prices are taking off.

The question is - when will other government treasuries show their folly by printing money as well. The reality is that the treasury of many governments has been so decimated by their prior loose monetary policy, that they can no longer debt finance, and they will be forced to print money. Asian and Middle Eastern treasuries might be questioning their prior support for the USD. No doubt they will be buying gold. I would suggest as modest wealth holders - buy gold stocks for better leverage to this emerging speculative boom.

The price of gold has been moving up $US15/oz a day of late, and is close to $US1,000/oz. We are tipping $US2,000/oz by the end of the year. Gold tends to create its own momentum in such times. Check out our gold stock selection tips here.
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Andrew Sheldon www.sheldonthinks.com