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Our acquisition programme has been on hold for some time now as gold and silver prices consolidated and the mining sector failed to sparkle. Gold has temporarily been sidelined by the pantomime that is European politics as they stagger from one emergency summit to another. The poorer countries that make up the eurozone have well and truly hit the wall in that they are in grave danger of a major default, if they do not get the next tranche of bailout funds.
All of these difficulties serve only to weaken the euro as its popularity descends into the abyss. The situation in the Eurozone remains dire with bond rates heading higher for countries such as Spain where the 10-year Spanish bond yield hit a EU-era high of 7.27%. The problem of contagion which was muted when Greece fell from grace has arrived casting a long dark shadow over the very existence of the Eurozone and its fiat currency. This downward pressure on the Euro is having an inverse effect on the US dollar, as the dollar is now perceived to be the better of the two. Both are flawed and it is only a matter of time before the dollar takes center stage in what will be a rout, as it to falls from grace. As that time approaches both gold and silver prices will start to rise and once the cat hits the fan these two precious metals will accelerate above and way beyond their previous all time highs.
In the short term the outlook appears to be one of stagnation as the summer doldrums are upon us and the European politicians go on vacation for the month of August. They will no doubt return in September to a larger pile of problems than exists today. At the same time the arrival of Labor Day in the United States, Monday, 3rd September, 2012, usually heralds a period of activity as traders return to their desks full of vim and gusto, as they say.
The last quarter of this year is should be very interesting as the presidential election looms and issues are tabled and discussed. These discussions should help concentrate an investors mind on just where the problems lie and what they should do to protect themselves. We have had our feet firmly planted in the precious metals sector for years as our distrust of paper money grows. The recent debacle over the fixing of the Libor rates only confirmed what we could never prove in that manipulation, regulation and interference continues unabated. This nonsense cant go on forever and sooner or later the penny will drop with the general public that they need to own hard assets. Unfortunately today’s fiat currencies will go the way of all previous fiat currencies, into the history books as financial relics, as the barbarous relic remains unchallenged as serious money, just as it has done for five thousand years or so.
Our defense against such ills is to own physical gold and silver along with a selection of gold and silver mining stocks. That’s our core position, however, in order to gain a little leverage we do venture into the options market where our portfolio gets a bit of a boost. If you can anticipate the movement of the underlying asset and acquire the appropriate options contracts that are tied directly to it, then the returns can be many times that of the gain made by the asset itself. Conversely, if you get it wrong then the loses are also greater, so only allocate what you can afford to lose on any given trade.
This period of stagnation can be used to do all the due diligence necessary for you to feel comfortable with the purchases that you intend to make. Formulate your plan now, execute it as when you are ready and ignore the white noise generated by the naysayers.
Have a good one!