Now is the Time to go All-In with your Gold and Silver Investments
Yes, now is the time to go All-In with your gold and silver investments. Last week I provided you the four key fundamental reasons for the coming break-out move for precious metals. The gold & silver price action for the first two months of 2012 tells me that this year is going to be a record setting year, and that a substantial rally is coming very soon.
To answer some of our clients concerns of a possible 10% price pullback from current levels, I think the possibility of a major Gold/Silver correction taking the Gold price back to the $1,600 level, or Silver back under $32 per ounce, has about a 5% chance. So, make your purchases now, not when gold and silver make new all-time highs. I believe that within the next six months, today’s gold and silver prices will look like the good old days. With this perfect storm for precious metal investors, gold should set all-time highs above $2,000 per ounce with Silver reaching $50 per ounce this year. Gold is trading at $1,776, up $210 (13.45%) while Silver is at $35.33, up $7.46 (26.75%) since Jan 1st, less than 2 months since the start of 2012.
Last Tuesday, the day after the Presidents’ Day holiday, gold was up $32 per ounce on the highest volume of trading for the month. Tuesday’s rally was fueled by an agreement of the Eurozone finance ministers to settle Greece’s current debt crisis. This agreement provided 130-billion-euros ($172 billion) to the Greek rescue package. Tuesday’s rally caused the gold price to break above the $1,760 resistance level, triggering additional short covering rallies by many chartists and technicians. The Gold rally continued, reaching $1,789.40 on Thursday when we saw some selling.
Physical demand for gold, and the volume of contracts being traded, has increased dramatically. Last Wednesday during Comex trading, with the gold price at $1,758.00, an order for 10,000 contracts (1 Million Ounces of Gold) hit the market. This order sent the gold market up over $10, and caused a short panic in the commodity pit. Speculation was that the buyer was a Middle East financial institution. No surprise, considering the current economic and currency instability in Syria and Iran --- historically major physical gold and silver buyers.
In last week’s Weekly Market Report I commented on how impressed I was that silver had stayed above the $33 support level. When the market opened on Tuesday, after the holiday, it rallied to above $34 per ounce and kept on going, to close the week at $35.33 per ounce on Friday. What a week and year Silver is having, up $2.12 (6.4%) last week, and up $7.46 (26.75%) since the beginning of the year.
At the current pace of price increases that we are seeing with Silver, it should hit the next major resistance level of $40 per ounce in March. Remember, last year Silver was trading at $33 per ounce in late February and hit $49.85 per ounce on April 25th, and now physical demand for silver has increased in India. Officials at the Bombay Bullion Association, the world's largest importer of silver, said that India could easily import 5,000 tonnes this year, compared with about 4,800 tonnes in 2011.
QUANTITATIVE EASING UPDATE
Global Quantitative Easing has gone into overdrive by printing trillions of Euros, Pounds, Yen, and Dollars. The inflation strategy is confirmed, with Eurozone bankers spending 130-billion-euros ($172 billion) to bailout the Greeks with a rescue package, while adding over a half trillion Euros to raise the reserves at major European banks. Now, Eurozone financial ministers need to spend trillions of Euros for sovereign debt relief to bailout Portugal, Spain, and Italy. Last week, China lowered the reserve requirement on banks in order to increase bank lending and stimulate home sales. In addition to all of this, the Bank of England and Japan have openly stated that they are printing hundreds of billions of Pounds and Yen to stimulate their economies. To sum up the extent of this massive quantitative easing let me quote John Paulson, billionaire Gold investor and hedge fund manager, who said on Friday, “Gold is the best hedge against currency debasement as countries inject money into their economies,” and “The metal serves as the best long-term alternative to paper currencies.”
I am seeing an increasing amount of government quantitative easing on the way and I have changed my recommended investment diversification. I am less concerned by deflation, because I realize that global inflation is coming within 18 months to 2 years. Inflation will drive up the value of Silver faster than Gold. With the silver/gold ratio now at 51 to 1, I have increased the silver percentage in my recommended investment diversification to 40% from 30%.
By Barry Stuppler
February 27th 2012
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.