Gold, silver market has room to run

There is a lot of debate about whether it is time to buy or sell precious metals. Those who say it is time to sell point out that gold has gone from $250 per ounce in 2001 to $1,375.00 on Feb. 15. That is a 10-year bull market which is somewhat unprecedented. They also point out that interest rates are rising, which has been historically bad for gold. Gold pays no interest and if interest rates spike then bonds would usually become more attractive.

My take is that this is all noise. Since the Fed has been buying our bonds to keep rates low the rates have already started upwards. What happens in June when this program is supposed to end? My guess is that it won't end. If it does end then rates could spike and become alarmingly high and choke off our supposed recovery. In the past this would be devastating for those holding gold and silver.

This time, however, I believe that the spike in interest rates will be accompanied by a currency panic. If we see Quantitative Easing 3, etc., there will be ongoing questions about the viability of the dollar in the face of all the extra supply of dollars being printed. If the QEs stop then I believe there will be a drastic drop in economic activity and the dollar will come under pressure because of an imploding U.S. economy.

Why do I think this? According to the Federal Reserve, private economic spending is down $1.3 trillion per year since 2007. The slack has been picked up by the Federal government in the form of a $1.65 trillion projected budget deficit for fiscal 2012 and the massive deficits to date. This is only masking the carnage in our private economy.

The numbers are indeed better but they are based upon non-sustainable stimulus. The economy, if deprived of that stimulus, will react like an addict who hasn't gotten his fix. In either case gold will likely increase, as will silver.

Another wild card is the willful debasement of all currencies. All are trying to have cheap currencies so they can export to other countries. Practically all countries are trying to make their currencies cheaper to have a trade advantage.

Up until January 2011, it was illegal for the Euro nation-states to print Euros. According to BusineessInsider.com and other media outlets, because of the economic devastation Ireland has been able to key-stroke 51 billion euros into existence and deposit the Euros into their banks. These Euros were issued without paper to show value. This is blatant counterfeiting! All that is needed now is to let the European Central Bank know what you are up to. Watch out for Greece, Spain, Portugul, et al. as this crisis spreads.

Then there is the Middle East. Is anyone naive enough to think that Egypt is past its crisis or that this spreading discontent is contained there? Gold and silver usually do well in periods of instability.

Sell at your own peril.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

Any opinions are those of Mike Savage, ChFC and not necessarily those of RJFS or Raymond James. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Precious metals are subject to special risks, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated.

(Source: http://www.poconorecord.com/apps/pbcs.dll/article?AID=/20110320/NEWS0290/103200326)