Tomorrow observers of the market will focus on Federal Reserve Chairman's Bernanke speech the same day minutes from the June meeting are published. In the past, each time the Professor from Princeton has spoken, he has confused the markets and precious metals have been hammered down. Investors for the past two years have been selling precious metals and hard assets and moving into the U.S. dollar and financial sector which have had a major bounce.In 2011, I warned my readers at the height of the precious metals market about a healthy correction as the precious metals market was attracting the retail public. On Sept 1st, 2011 I wrote "Its been a long run for the beast...it may represent a healthy and necessary correction in what we view as the ongoing highway of the long secular rise. These thoughts should not be regarded as bearish analysis at all. Instead they are being presented as a technical and healthy possibility to eliminate current media hyped precious metals euphoria and avoid buying gold bullion at an interim top."
Many readers followed my writings and took profits as gold and silver hit technical targets. Now, gold is down 40% and silver is down more than 50% off its 2011 highs. It is reaching historic oversold levels and far surpassed our support levels which often happens during volatile shakeouts. However, the emerging markets currencies, the Indian Rupee and Yen are experiencing waterfall declines indicating many global currencies are on the brink of disaster. The Indian Government is even making restrictions of precious metal purchases as the currency collapses. In order to promote stability, the Fed will need to continue to devalue the dollar. Interest rates in the U.S. are rising rapidly. It may be only a matter of time before the U.S. dollar reverses lower and follows the path of all fiat currencies. The U.S. Government does not want soaring interest rates and a strong dollar. They need to pay down their record $17 trillion debt with cheap dollars. They will try their best to promote inflation. Bernanke should probably say something dovish tomorrow as interest rates begin rising rapidly since the last meeting. Tapering talk should probably be mitigated. Rising interest rates with a strong dollar and falling foreign currencies could put major pressure on the so called economic recovery especially the banking and housing sector. Remember a lot of money going in U.S. real estate over the past few years has come from overseas as the U.S. still suffers with high unemployment. A rising dollar hurts overseas investment into the U.S. real estate market. The Fed does not want rising yields and I believe Bernanke will instead focus on the Fed's commitment to continue buying mortgage backed securities and treasuries to the tune of $85 billion a month. At the end of the day The Fed needs low interest rates to pay their soaring debts. Remember it was only a few months ago that Professor Bernanke announced QE to Infinity. After Bernanke spoke about tapering in June, a whole litany of other Fed mouthpieces came out and tried to provide dovish commentary on his statements. Gold looks like it could be making a bullish reversal on the momentum indicators.
As precious metals and commodities have become ignored by the masses, now is a great time to prepare for the coming hard inflationary times ahead by finding quality junior miners that are well managed, in safe jurisdictions and have financial support. These real assets historically have been the best assets to own in a time when governments are printing money like madmen. Look for increased M&A, which we are already beginning to see. The majors look at bankable feasibility studies (BFS).
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