Great Article!The Golden Phoenix
by Sean Brodrick
Dear Tom,
I'm writing thisfrom Phoenix, as the Cambridge House Resource Investment Conference andSilver Summit winds to a close. The bullishness on gold and silver hassuch a tangible presence that I half-expect to find shiny, yellow hoofprints in the hallways!
Gold and silvertraders who had moped around like beaten dogs just months ago are nowsalivating at the thought of gold taking off like a rocket and silvermaking an even bigger percentage move higher.
Is there still time to get in on the new gold rush?
You bet. And there's always more to learn. That's why I'm sending my Red-Hot Global Small-Caps subscribers a special report on a silver explorer that I got to know a lot better in Phoenix.
Now for the bestpart ... I'd like to send that same report to you! And if you can holdon for a few moments, I'll show you how to claim your copy, absolutely free.
But first, I want to share with you some important insights on the metals markets ...
Gold and Silver —
The OTHER Reserve Currencies
As worried asAmericans are about the insolvency of our big money banks, there arebanks around the world that are in even worse shape!
The debtscarried by these European banks are staggering, especially consideringthe small size of the countries where they're based.
In essence, thereare small countries with very large banks (relatively speaking) thathave gone outside their borders to make loans and have done so atlevels of leverage far in excess of the most leveraged U.S. banks. Andthe ability of the "host" countries to nationalize their banks issimply not there.
This means bigtrouble for the eurozone and probably the Swiss franc and Britishpound, too. And that sends investors scurrying to the dollar.
But it's not justEuropean currencies that are at risk — ALL currencies, the financialsystem of the entire world, are at risk. And while the U.S. dollar isup since the beginning of the year, gold and silver are up much, muchmore!
Take a look at my chart ...
You can see that theU.S. dollar ended last week up 5.64% so far this year — that's lessthan half the 12.48% move that gold made. And silver is running ringsaround everything else, with a 27% move.
At the same time,crude oil is down 15%, and the S&P 500 has dropped 13.76%. Clearly,no one is betting on an economic recovery at this time.
Over a one-yearperiod, the U.S. dollar is still leading the pack. But gold and silverare catching up fast, closing the performance gap enormously duringthese past couple of months.
To me, this clearlyshows that frightened investors are moving out of paper currencies andinto real wealth — the rock-solid value of gold and silver.
We Haven't Seen the
Mania in Gold ... Yet
Even though gold hasrallied for more than seven years, I don't think we're near the top.Sure, investors are scared. But I expect to see at least three otherdevelopments before we get to the mania phase ...
The first development —
Hoarding ...
The Central Bankswill start hoarding their gold as fears of sovereign bankruptcy rise.Collapse of credit bubbles in Ireland, Spain, Greece and Portugal couldlead to those countries defaulting. And Eastern Europe looks even worse.
Eastern Europe hasborrowed $1.7 trillion from abroad, much of it on short-termmaturities. It MUST repay — or roll over — $400 billion this year,equal to a third of the region's GDP. Good luck!
So I expect at leastone European or Eastern European country to go bankrupt in the next 12months, and that will strike fear into the hearts of the Central Banks.Suddenly, they'll want to prove that they have more gold than anybody.And they won't sell.
If Central Banksstop selling, a significant source of supply would be taken off themarket. In fact, sales are already declining: Central Banks sold 260tonnes last year — down 113 tonnes from 2007.
The second development —
Russia goes on
a buying binge ...
Russia, which isbattling to keep its currency from tumbling, is noisily adding to itsgold reserves. First deputy chairman Alexei Ulyukayev recently toldReuters that his country bought $1.5 billion worth of gold in a week.The Russian added, "We are aiming to continue this tendency this year;we are buying gold."
Russia's centralbank says it would like to hold 10% of its reserves in gold, whichcould take its inventory up to around 1,200 tonnes from 495.9 tonnes atthe end of last year.
The third development —
China jumps in
with both feet ...
Finally, one otherdevelopment I expect on the road to mania is that China, like Russia,will start buying gold on the open market for its own reserves. China'sforeign currency reserves increased 27% in the past year to $1.95trillion, about 29% of the world's total. The country already owns$696.2 billion in Treasuries, about 12% of the U.S.'s outstandingmarketable debt.
China holds goldreserves of just 600 tonnes, worth only $18.62 billion. Experts saythat Beijing's reserves could easily go up to 3,000 or 4,000 tonnes.
Would that have a huge impact on the market? Bet on it!
I'm Even More
Bullish on Silver
Two-thirds of theworld's silver production comes from mines that mainly produce basemetals and churn out silver as a byproduct. The demand for base metalsis cratering, so mines are shutting down right and left. This isputting a crimp in silver supply.
Yet even though theindustrial demand for silver is way down, the investment demand issoaring! The iShares Silver Trust (SLV) said its bullion holdingsjumped nearly 3% or 214.7 tonnes on Feb. 18 to a record 7,873.75 tonnes.
Indeed, I like the SLV right here — it's already in my Red-Hot Commodities ETFsportfolio. You might consider adding it here, or on the next dip insilver prices, because while we could get a short-term pullback, Ithink much higher prices are coming.
Now, About that Company
I Discovered in Phoenix ...
Lately I've beenshying away from explorers — companies that don't have producing minesor at least something close to becoming a mine. Due to the creditcrunch, I favor producers, especially those with lots of cash.
But in Phoenix, Ifound a silver explorer that deserves a second look. It has a LOT ofhigh-grade silver resources and plenty of cash in the bank.Furthermore, I expect another company will buy it out within the nextyear.
I've written an exclusive report on this company for my Red-Hot Global Small-Caps subscribers. And you can get it, too, with my compliments when you sign up for our new e-zine, Global Wealth Report.
This free, dailyelectronic newsletter will dish out the latest exciting news andresearch on the natural resource and Asian markets from Larry Edelson,Tony Sagami and me.
The premier edition of Global Wealth Report will go out on Monday, March 2. So, sign up right now, get your free report on the silver explorer I just discovered, and watch your inbox for Global Wealth Report.
Yours for trading profits,
Sean
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D.