Thursday, September 3, 2009

The East is Silver and Gold?

One of the best arguments bears on gold have had is that India has drastically cut its imports of gold. That argument may be undercut by the following report titled China pushes silver and gold investment to the masses:

We are indebted again to Paul Mylchreest's Thunder Road Report for news that will bring big smiles to gold and silver investors everywhere. Apparently China is pushing the idea of buying gold and silver for investment purposes to the general population in the way that Western television sells soap powder. If 1.3 billion Chinese citizens start buying gold and silver, even in tiny quantities, imagine what that will do to the market!

The report notes that China's Central Television, the main state-owned television company, has run a news programme letting the public know how easy it is to buy precious metals as an investment. On silver investment the announcer is quoted as saying " China has introduced its first ever investment opportunity for silver bullion. The bars are available in 500g, 1kg, 2kg and 5kg with a purity of 99.9%. Figures show that gold was fifty times more expensive than silver in 2007, but now that figure has reached over seventy times. Analysts say that silver has been undervalued in recent years. They add that the metal is the right investment for individual investors and could be a good way to cash in."

What appears to have happened in China is a total relaxation of strictures on holding precious metals by the individual with the government pushing gold and silver as an investment option, seemingly at every opportunity. This is a far cry from the situation only a few years ago where the distribution of gold and silver was strictly controlled. Now, the Thunder Road Report notes that every bank will sell gold and silver bullion bars in four different sizes to individuals and gold related investments are said to be soaring in popularity.

If true, the above report could in the short term be more important than future Chinese purchases in inducing people in the rich countries to buy gold and silver in advance of Chinese buying.

Gold's short- and long-term charts are picture perfect. Gold's 150- and 200-day moving averages recently hit all-time highs, even though the price has not done so. If you go to the linked Kitco technical charts on gold, you will see that ever since the Fed pressed on the monetary accelerator in 2001, gold has had periods of 18 months of consolidation following a new high. Psychologically, portents are positive for gold: if tomorrow's unemployment numbers are weak, that will trigger fears of yet more deficit spending; if they are strong, that can trigger fears of the Fed being behind the curve and stimulating too long (as through 2005); either result could therefore be good for those who want to push the price higher.

Silver is not as strong technically on the long-term charts as gold, but will likely outperform if the economy has a sharp snapback.

Governmental credit creation is fueling a "recovery"; the precious metals market has sniffed out that it now takes a huge amount of incremental credit to cause incremental economic activity.

No one's listening to the sane ones who wonder what good it does to destroy good used cars, thereby pushing up the price of used cars, so that a random small number of people can get deals on a new car that they likely would have bought anyway. No one in America or Britain is promoting net savings, so that we can stop with all the manic lending, guaranteeing, transfer payments, etc.

The times call for price decreases. The Government is fighting this tooth and nail. Large-cap stocks with solid and significant dividend payouts and significant free cash flow make sense. Gold is the bulwark right now and is almost certainly under-owned by individuals in the U. S. (who already own lots of stock, though probably too much of the speculative kind). Treasury bonds have had a significant move upward in price (down in yield) since EBR spoke well of them in the past few months. Short-term they are hostage to the perceived speed of recovery from depression; longer-term their bull market is intact for now but this bull market may or may not be its last one for many years.

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