SPDR Gold Trust (NYSE: GLD, Stock Forum) is breaking into new 52-week highs and Ishares Silver Trust (NYSE: SLV, Stock Forum)is at its highest point in more than thirty years as Libya one of the largest oil producers faces a civil war. Libya is not following Tunisia and Egypt with a somewhat moderate transition. This revolt has been extremely violent and bloody. A lot of the fear at the moment is if protests spread to Saudi Arabia. Already there are reports of police opening fire on protestors and banning peaceful protests. This could be a game changer.
Investors are concerned about the rapid rise in IPATH S&P GSCI Crude Oil Total Return (NYSE: OIL, Stock Forum) prices may be the spark that may hurt a questionable global economic recovery as equities (NYSE: SPY, Stock Forum) sell off bringing down some miners to extremely cheap levels considering the high price of gold and silver bullion.
Countries which have created easy monetary policies and who are still struggling with high unemployment are finding it extremely difficult to face soaring gas prices and rising fuel costs. Now Euro-zone debt fears are resurfacing as SPDR S&P 500 (NYSE: EWP, Stock Forum), Portugal, Greece, Italy and Ireland face soaring deficits. Within the United States you have troubled states with government workers demanding their benefits as states face empty treasuries.
Powershares DB US Dollar Index Bullish Fund (NYSE: UUP, Stock Forum) has a hit a new low and is in danger of significantly selling off as precious metals gain safe haven appeal. The one thing that has saved the U.S. dollar this week is Euro-zone debt fears. However, next week we may hear more talk of QE3 as jobless claims remain high and as Euro-zone fears resurface.
Investors have moved back into precious metals, however the Market Vectors Gold Miners (NYSE: GDX, Stock Forum) have not yet confirmed this move due to the weak equity market. All eyes are on the S&P 500 (NYSE: SPY, Stock Forum) and maintaining the 50 day moving average. If equity markets can hold up and reverse here then some of the miners should follow bullion into new highs. There may be pullbacks and occasional selloff days, however the precious metals markets remain one of the strongest multi-year trends in the market and one must be careful of being shaken off a secular bull trend and misinterpret profit taking from institutional selling.
SPDR Gold Trust has a lot of cash on the sidelines from investors who got shaken out in January. This should lead to a measured move to at least the $1550-$1600 area on gold and the $38-40 area for silver. I believe that gold and silver will follow a similar path of its upward moves in August of 2010, March of 2010 and July of 2009. Now we must ride this wave and uptrend in precious metals and we must not forget that there may be occasional sell offs and profit taking. After 5 consecutive weeks higher, it is only natural and healthy to have some profit taking, but it shouldn’t make you lose sight of the big picture and uptrend in precious metals and the danger of currencies backed by governments with soaring deficits.