As the second quarter came to a close, the physical precious metals again showed why they move the way they do. Global markets have been unsettled and unstable due to the drawn-out Greek and Eurozone debt crisis. Our own domestic debt crisis is also peaking and the equities markets have expressed their concern. They did rally into the end of the quarter but one would be hard pressed to convince me it had anything to do with corporate earnings or P/E ratios. It had everything to do with the end of QE2 and the juicing of the markets for end-of-quarter gaming.
Gold had another strong quarter, finishing up 4.4%. It is acting like a currency which is not surprising considering the lack of trust and stability in any of the world currencies. We could expect there to be a US dollar rally with so many issues with the Euro and global inflation. Our weak dollar policy, however, is resulting in inflation and lack of buyers of US Treasuries. Gold should remain somewhat stable, albeit quiet, for the next month or two as we prepare for some clear direction on the US debt issue. It is, however, the currency of choice right now at any price.
Silver did not mirror gold’s performance this quarter but that is only because of a rule change. Speculators were the target of the ComEx margin requirements change which created profit taking, selling and a 30% drop in the spot price, resulting in a down quarter of -8%. The gold:silver ratio also climbed as a result – from 32:1 to 46:1. We expect that ratio to tighten back down again and see silver stabilize and begin to climb as the summer progresses. Events like that test one’s resolve with owning an asset. Jim Sinclair summarized his feelings on the issue of gold quite succinctly:
1. The type of inflation being discounted by gold requires business activity to be putrid.
2. This type of inflation is hyperinflation, which is a currency event, not an economic demand phenomenon.
3. Rather than a singular currency loss of confidence igniting hyperinflation, it will be all Western currencies moving against each other with intolerable business volatility.
4. All Western governments will practice QE to infinity, as we return to credit market problems.
5. Gold is NOT a commodity.
6. Gold is a currency
7. Gold is the currency of choice.
8. Gold is going to becoming the reserve asset of choice by central banks.
9. Ownership of gold means you are your own central bank.
In summary, we think this is an excellent time to take an increased position in the physical metals. One should not be selling. First, however, we need to have the necessary conversation about the overall portfolio approach. Specifically, our Perspective Triangle needs to be explained and walked through. Call us at your convenience to set up a small block of time in which to do exactly that. In the meantime, keep listening to The Weekly Commentary and educate yourself by listening to both the mainstream and alternative media outlets.
Regards,
Tory and Larry
