We have witnessed an important watershed in world history with the unwinding of QE2. Every citizen, no matter where, has a ready camera eye on the world, carried in his smart phone case. Even more so does the internet provide the anvil for major nations to forge economic strategies. “Swords are being hammered into cybershares.”
We think of wars being fought with soldiers on battlefields, now Cyberspace is the new field of combat. As we have seen with the uprisings in North Africa and the Middle East, the use of the internet is becoming a vital instrument in fighting the wars of the future. Cyber-spying to formulate the economic policies of nation states are an increasingly critical factor. So it has never been thus that even friendly nations may spy on one another in order to formulate their investment timing.
An interesting development that underlies the growing importance of the internet in our daily lives is occurring under our very noses. Recently, an unnamed, nation state cracked into the confidential, super secret network of the International Monetary Fund (IMF). The IMF is an integral component of the global financial system.
It is important to comprehend the significance of this developing story. Indebted nations are strategizing methods, in which they can pay off ever mounting debts with cheaper currency.
China, who is sitting on a hoard of devaluing dollars and bailing out a debt burdened Europe, must exchange them for real assets in the form of precious metals and natural resources in the ground. History presents us with watershed events which are difficult to perceive while we are in the midst of them. This has been no surprise to readers of Gold Stock Trades.
In a series of articles entitled the “Chinamese Twins”, I have identified the attempts on the part of China and America to achieve a kind of symbiosis. It is a pro-quid-pro where deals are being constantly negotiated between the two superpowers.
The recent arrangements consisted of the U.S. paying off rising debts with cheap dollars (UUP), while China increased the value of the Yuan (CYB) in order to combat inflation. At the same time, the higher Yuan might purchase real mineral assets. We are now seeing the outcome of a much weaker dollar, higher commodity prices, and less inflation in China.
This year the Chinese Investment Corporation, who has been given a duty to look for potential North American resource assets by the Government of China, opened its first international branch in Toronto, the North American epicenter of resource companies. It is within conjecture that China may step up its hunt for resources in the second half of 2011.
Egypt has upcoming elections where the Muslim Brotherhood looks to be taking a major role, Democracy-Islamist style. Then we have the imminent Iranian Nuclear developments probably in 3 weeks. Did we forget about the PIIGS and the U.S. debt problems?
There is a whole flotilla of Black Swans straight ahead that could lead investors to the safe havens of precious metals and strategic metals resources.
Overall, there have been "summer doldrums" for mining stocks (GDX), gold (GLD) and silver (SLV) unless some exogenous event swoops down upon us. Although things may taste flat to bitter at this time, the aforementioned additions to the soup can serve to bestir the pot. Important reversals are being monitored as QE2 expires.
The markets will do what they always do: confuse, misdirect and obfuscate. It's important for investors to stay on target and not be swayed by skewed media reports and questionable economic data, which often serve to mislead us as we make our way through the investment jungle.
The long range arc of gold, silver and mining stocks moves on a maze-like path, however it should be noted that the path ascends upward over time. As precious metal investors, we must view temporary corrections with an eagle’s eye, making sure to survey the economic landscape. In doing this, I see a chaotic game-plan unfolding below the headlines.
At times like this, we as investors must avoid the turbulent winds that only serve to divert our course. Precious metals will remain the true compass to guide us on the path toward investment profits.
Our leaders, however, are charting a different course. President Obama’s reelection campaign is already on the road. The current administration seems to be increasingly concentrating on its own interests. This was highlighted by Obama’s move to release 30 million barrels of emergency reserve oil (OIL). This oil is supposed to be used for emergencies, not votes. Why did it come right as QE2 ended? Is this a stimulus in disguise?
We’re told by the politicians that unless the national debt ceiling is raised quickly and unconditionally, the nation will be adversely affected. Standard & Poor's threatened that if the US government fails to raise its borrowing limits, they will give the lowest credit rating possible, forcing interest rates to soar and causing a deflationary nightmare. The US has until August 2 to increase its debt limit. Since 1960, it has been raised over 60 times. Spending, entitlements and deficits will increase, and the long-term upward trend in gold and silver should proceed.
My firm believes that this trend of raising debt limits will continue. It’s an election year, and politicians’ jobs are at stake. The last thing they want is default. A lower credit rating would cause borrowing costs to skyrocket, which would cripple the US in paying back its soaring debts. Don’t forget that the US is the world’s biggest spender. This is the third year that the deficit has exceeded a trillion dollars.
The opposition to such threats is supine and voiceless. The Republicans are accused of “brinksmanship” and plunging us into a fiscal abyss. Instead of viewing this as a major lever in obtaining important concessions from our leaders, only the “voice of the turtle” is heard through the land. Consequently, the US is heading toward a European-style centralized government, which the current administration hopes to effect if they are reelected.
As precious metal investors, we observe a different vista. We sense that the “Summer Goldrums” is creating a base right here in precious metals. It is a short-term pullback in a secular uptrend.
Mining stocks may be affording us with a pivotal turning point from which a profitable new rise may emerge. Miners have currently tested the key $52.50 level successfully, the 2011 low-on-low volume indicating a lack of buying rather than aggressive selling.
I am keeping an eye on what may be a good re-entry point for the commitment of new funds. My firm reiterates its conviction in the long-term upward trend of the mining stocks and precious metals. Gold maintains its strong uptrend, evident on long-term charts, and many who have been calling a finale will realize that this period is just an intermission.
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