Clearly we are experiencing a bull market in the precious metals complex. The only meaningful question in this regard is, how long and how high will this trend go?

At this writing, the Congress of the United States has announced agreement to pass legislation giving the Treasury Secretary the authority to infuse 700 billion into the rescue of insolvent financial companies by acquiring worthless assets, at tax payer expense, thereby avoiding the consequences of the business failures that would inevitably occur with all the commensurate liquidity crises and their ramifications. Indeed, we have seen, in the last two months, the largest governmental bail out of the financial sector ever recorded in out history. It is truly staggering in its size and scope.

But, where is the money coming from? The simple truth is this, the Treasury Department of the United States will print it! You and I will be the victims of an unknown amount of currency being supplied by our own government to the already ever increasing amount of debt which is to be guaranteed by the full faith and credit of the United States of America.

Welcome to the playing field. Denying this reality will not serve anyone well. Thus, we search for reliable means by which we can survive the tidal wave of inflation which is already being generated in the ocean of madness we call the Congress of the United States.

How many hundreds of billions of dollars that the politicians have already committed to their efforts to manage the economy unfortunately are not the real issue at stake. One has to consider the trillions (yes, trillions) that are really at issue because as history has shown and will show again, the funds being bantered about are really only down payments on the underlying liabilities which they assure us don’t really exist, and the debt really isn’t what any adding machine or calculator can tally. I can only recall the scene in The Wizard of Oz when Toto pulls back the curtain and the Great and Powerful Oz is exposed as he truly is. Oh well.

AIG needed 40 billion one day, the next day they needed 85 billion. (The money is only to keep them at a level of margin, not to pay their obligations in the bond markets.) Yes, the insurance agent sold insurance to holders of debt, oops!

Freddie Mac/Fannie Mae, totally, hopelessly bankrupt and has been nationalized. The government says we might even make money on the deal, oh boy!

Lehman Bros., gone. Merrill Lynch, bought thank God, let’s not forget Bear Stearns. We could go on and on but what’s the point? Obviously, things have changed and also obviously hard assets will be beneficiaries of the painful environment we are now in.

Recommendations

If you don’t already own gold, you better buy some as soon as you can. Buy as much as you can because you can always exchange gold for dollars, or euros, or pesos, or yuan, or gasoline, or food, or guns……you get the point.

$2,500 gold is a completely reasonable prognostication; the only question is, when?

$100 silver, I have no doubt.

If, by some power, you can time the height of the market, you are truly blessed. Most of us hope only to come within 10 or 20% of the depths and heights of markets as they fluctuate. The lows in metals are history, the only legitimate consideration is how high and how long?

History is also full of information that can be utilized in considering how to not only protect one’s wealth in and inflationary system but also how to maximize any profits to be realized along the way as the cycle unfolds.

Diversity Now

Scarcity is the one underlying constant in the history of man’s valuation of precious metals. While it is true that these elements do have their own unique qualities which lend their use to certain tasks and function in society, their value in the marketplace is fundamentally based in the simple fact that gold and silver are scarce commodities and cannot be manufactured at man’s whim. Relative to other items, man has always valued gold and silver highly. This fact is irrefutable and we believe that, no matter what the so-called modern thinking is, this will not change any time soon.

All gold and silver coins are not equal, however. And, to take advantage of this, bears serious consideration. Consider the historical moves in the hard asset marketplace as inflation was either anticipated or manifested. One clear divergence becomes obvious. That is, bullion v. coins. More to the point is the fact that scarcity, once again, seems to be the primary reason that coins have historically outperformed their bullion counterparts. One does not need to go to the rarified atmosphere of ultra-rare numismatics to participate in this either.

In 1989, with gold in the $400 range, the MS66 St. Gaudens $20 gold attained $15,000 in the market. Thus, it took 37 ounces of gold (Krugerrands) to acquire 1 MS66 $20 St. Gaudens. Bullion, being the most common form of gold and Mint State coins being far scarcer, the ratio of bullion gold to collectible gold provided exceptional profits for those who recognized the opportunity and traded some gold bullion into these numismatic specimens before the market prices had moved and the scarcity of high-grade numismatics ran away from the gold values of bullion.

Surprisingly, these opportunities once again present themselves! Today, you can acquire a MS66 St. Gaudens for around $4000. More significant is the fact that only 4 or 5 ounces of gold are required to trade into this coin, not 37 ounces! Those of us who have lived through these cycles in the past, know that history tends to repeat itself and it seems prudent to try our best to take advantage of this knowledge.

In an inflationary environment, scarcity has always outperformed in price appreciation. Not doubt it will again.

Conclusions

The commodity bull cycle is not only here but is being strengthened by the actions of our government. The supply of money will rise, that is clear. The precious metals complex will continue to benefit by this inexorable trend and currency will continue to lose it purchasing power.

Own gold, own silver and the destructive effect of this can be offset and last but not least, don’t put all your eggs in one basket! Diversity your holdings and ride this wave of inflation until it breaks.

-From the Desk of the CEO

Tags: Gold, Gold Market

This entry was posted on Monday, March 16th, 2009 at 8:08 am and is filed under Commentaries. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.