GOLD AND SILVER REVIEW
Sunday, April 2nd, 2006
164th Edition
Chris G. Waltzek
MARKET SUMMARY
*Silver Supernova!*
This weeks biggest story was clearly the meteoric rise in the silver market. Silver exploded higher, approaching $12 ending the week at a 22 year high. Silver gained almost a dollar and closed near $11.50. Coming in a close second place, gold gained almost $25 after reaching $589 to close near $580. Gold came within earshot of $600 and recording a new 25 year high. The XAU, gold stocks index, also participated in the precious metals rally. The XAU moved up sharply despite mixed results in the major stock indexes to gain about 7 points closing near 140.
To put this weeks amazing move in precious metals into perspective, just July of last year, silver was trading at $6.69. In less than one year it has moved nearly straight up by almost 100%. Similarly, gold was trading at $420 last year and then rocketed up almost 50% and closed last week at a price not seen since 1981. In fact it is up almost 20 percent in just the first three months of this year, registering the largest quarterly gain in six years.
Gold stocks also performed remarkably well. The XAU traded at 77 last summer and breached 150 a few weeks ago, climbing approximately 100%. Many top analysts are calling for $650 an ounce gold and $12.5 silver by year end. Silver investors were encouraged further by the CEO of the American stock exchange, Neal Wolkoff's announcement that The SEC could allow Barclay's proposed silver ETF to begin trading as early as next week.
The major stock indexes were mixed this week. The Dow Jones Industrials lost about 130 points, to close near 11,150, the SPX lost about 4 points, closing near 1300, but the Nasdaq broke above resistance to close near 2340 up about 25 points its highest point in years. Traders blamed weak stock prices on $70 oil, precious metals at 20+ year highs and the weak dollar.
INTERVIEW:
*Congressman Ron Paul*
On the Saturday April 1st program at www.radio.goldseek.com, Congressman Ron Paul shared his price forecast for precious metals, his views on the weakening dollar and how geopolitical trends will effect the economy. Here are a few highlights from the show:
Congressman Ron Paul thinks that the US government should return to a precious metals coin standard. Gold and silver would protect the people from frivolous monetary policies. When too much paper money is printed, as it is at this time, people could exchange paper dollars for gold and silver coins to protect themselves individually.
Congressman Paul thinks that the Euro's 15% gold convertibility is not valid. Just as no one expects to exchange dollar bills for gold anymore, that the Euro backing is irrelevant. In fact, he thinks that there is allot of gold still in the US government coffers.
He recalled his discussion with the former Fed. Chairman, Alan Greenspan. He mentioned his chat with Alan Greenspan concerning the English government gold reserve sales at dangerously low prices. Just a few years ago the British sold huge amounts of gold near $250 an ounce. Mr. Greenspan said told Mr. Ron Paul that the British knew what they were doing by selling their gold. Since then, Congressman Ron Paul's insight was vindicated as gold has climbed over 100% from that point.
He goes on to say that the US also attempted to fix the price of gold, to manipulate the gold market in the sixties and buoy the dollar, with disastrous results. The government sold large amounts of its gold supply just before the raging bull market in gold and silver began in the seventies. But market forces overwhelmed the government attempts to manipulate the currencies and gold market. Similarly the gold market is fighting a winning battle against the central banks.
Congressman Paul was sincere in his advice to the new Fed. Chairman Ben Bernanke. He insists that he should resign and that the Federal Reserve should be dissolved. The next step to healing the nations ailing economy would be to fix the money supply. By allowing interest rates and the markets to adjust without intervention to the natural rhythms and cycles within the markets, savers would benefit as the interest rate would rise to a natural level and inflation would disappear. However, initially it would be painful to the nation as the inflation of the last 15 years would cause difficulties as it was unwound.
The Congressman thinks that the government will continue to spend excessive amounts on military abroad as well as domestic programs at home. That taxes won't rise appreciable, the deficits will continue to expand, and the fed will be pressured to continue inflating the money supply. As a result, the dollar will continue to go fall sharply in value. Another result will be domestic gasoline prices climbing to 5, 6 or even 7 dollars in the next few years.
However, he agrees with me that if the fed raises rates it will hurt the markets but if they don't it will weaken the dollar. Then things will really begin to deteriorate as the nation spirals out of control into another 1970's style inflation period. Sadly, the result will be much worse because the country has a huge debt problem which was not an issue in the seventies. Add to that fact that the typical American now has a negative savings rate and we are in for a very bumpy ride.
Mr. Ron Paul expects that reforms in government programs and spending will be required to navigate through the difficult times ahead. Also, that it will be very hard to reform the retirement system, social security, Medicare and prescription drug system in the difficult days ahead.
Congressman Paul is convinced that the nation cannot continue indefinitely with worthless paper fiat money in circulation. In fact it is his personal conviction. He points out that eventually the trust is lost in fiat money but that we will not be able to pinpoint the exact time and place that such a loss of confidence will occur. For instance, if the government decided to drop a couple of nuclear bombs on Iran that the dollar would capitulate and that there are people in office that believe that a nuclear solution is the best way to deal with the middle east. Whereas most people understand that such a terrible misjudgment would lead to world war three.
Although he is not a financial advisor, he says that when the value of a nations money is being destroyed as it is now, purchasing power declines. Therefore it would be prudent invest in asset classes that retain value. He personally likes energy and precious metals related investments. Although he thinks there is a bubble in real estate, he says that it will remain a good diversification tool.
He is very concerned about the potential of a global crisis that cuts off the flow of oil to the US and its destructive results on our freedom. He points out that if we used nuclear energy to its maximum capacity, that we could supply almost all of our energy needs. However, due to a lack of understanding and irrational fears, we have abandoned this course. Incidentally, Steve Forbes echoed a similar belief in the need for nuclear energy sources in a past discussion.
Mr. Ron Paul, thinks that we should be pushing alternative fuel methods such as the production of ethanol. Brazil is using ethanol effectively from simple sugar cane. Also, the government should encourage farms in the middle west to produce corn and sugar cane in the south as cheap sources of ethanol. Thus farm land in those areas could be a good investment for forward looking individuals. He notes that the government is headed in the wrong direction by the proposal to spend ten billion dollars on an alternative fuel. But that only the market can decide where it is best to invest capital for energy needs.
Incredibly Congressman Ron Paul points out that gold could theoretically move to infinity if the dollar collapse becomes as dire as he is expecting. However, he expects that the government do everything possible to halt the inevitability. However, he does think that gold will reach thousands of dollars per ounce regardless of the actions taken.
Guru Predictions
*The Golden Guru Award*
Peter Grandich offered his thoughts on gold and silver this week:
"The last area where any real amount of trading took place is in the $650-$675 area. What ever is left of the gold "cartel" (www.gata.org) is likely to make a Custer-like last stand at this level. (Is it just me, or does anyone else see GATA's Bill Murphy with war paint on his face, dressed as a Comanche on a horse, firing an arrow into the heart of a cartel member holding a Goldman Sachs flag?) I do think resistance is likely to be formidable from $650 to $700 but there's nothing on the horizon that even remotely looks like it can stop the runaway gold train. That in itself may be the only real negative."
"Concerning silver, Hi-Ho Silver, away! The talk of silver ETFs (Exchange-Traded Funds) has been the best news for silver since the Hunt brothers tried to corner the silver market 25 years ago. For many moons, silver experts like Dave Morgan www.silver-investor.com have spoken of a serious silver deficit despite prices remaining relative flat. I stated several dollars ago that the very fact that the Silver Usage Association was putting up a big fight to stop the ETF from becoming reality was an extremely bullish factor for higher prices. And, while I ultimately believe $15 or even $20 can be hit, the actual announcement of the American Stock Exchange silver ETF trading could be a "buy the rumor, sell the news"
Ed Bugos's gold forecast: "If we get past Monday I think we will. The market really looks poised to finish this sequence. And in spite of my $633 gold target, I have a feeling this rally is going to continue at this pace until we start asking, how high can it go?
His silver forecast: "Since the November '05 breakout from a 20 month triangular formation on a price chart, silver is up by almost US$4 per ounce, or a little more than 50 percent. As we had noted previously, the implied objective of this particular formation measures to about $12; it could be extended to $13 if we abandon some conservatism. So what's next? My target remains at $12 plus or minus, probably plus ($12.66 seems to stand out in my mind)."
Ned W. Schmidt reiterated his gold forecast: "Gold will be the money to which investors migrate. Canadian $Gold, last chart, rising to a new cyclical high is probably an indication of the market's recognition of these problems. Opportunities for dollar-based investors, both of them, to buy Gold regularly appear, as shown in the graphs below. Do not miss these future opportunities to participate in Gold rising to $1,300+.
John R. Ing's projection for the king of precious metals: "When George W. Bush was inaugurated on January 22, 2001, the price of gold was $265.90 per ounce. Mr. Bush, as described earlier, has been among the biggest spenders and his "guns and butter" policies have caused a devaluation of the US dollar. Gold's rise then should come as no surprise. We continue to believe that gold will hit $700 this year and the historical peak at $850 will be surpassed. This bull is just getting started."
"Gold and gold stocks have climbed the proverbial wall of worry. Despite a recent pullback, the underlying drivers remain intact - an overvalued and declining dollar, chronic US twin deficits, rising interest rates, tight supply, increased protectionism, geopolitical tensions and the lack of faith in currencies."
Bottom Line
The Golden Guru Award of The Week Award, goes to Ned W. Schmidt's for their bold $1,300 gold price projection. The average of the intermediate-term pundit estimates for gold leads to a single price target of, $797 an increase of $49 from last weeks $748 consensus.
($1,300 + $800 + $700 + $700 + $650 + $633) / 6 = $748
My long term outlook for silver and gold remains very bullish. Silver closed at a record high as seen in the chart below:
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