Tuesday, September 14, 2010

Gold 2K

Is on its way!  With this morning's definitive breakout above the $1,270 per ounce level combined with Silver's vault above $20 per ounce, we can clearly view the entire precious metals complex as having reached a very low-risk entry point.  The Gold Bugs Index (HUI) now needs to confirm this move by decisively breaking 500. 

Long suffering Gold-philes now have in their lap what should prove to be one of the greatest opportunities of an investment lifetime, especially in the junior miner sector which has notably lagged the metal.  A very reasonable target for Gold itself would be on the order of $2,000 per ounce.  If this is realized, the HUI could see a fairly quick doubling to 1000. 

The HUI has historically traded at around one-half the metal itself.  At our upside "guesstimate" of $2,000, the HUI would be fairly valued at 1000. 

The greatest opportunities, however, are among the quiet junior sector.  Many of these issues, which we will update over the next several days, are likely to be what Peter Lynch used to call "10 baggers", or perhaps, much, much more.

Of course, you can expect the powers that be to attempt to manage the market lower.  This will fail.  You can expect the Jon Nadlers of the world to decry to bubble in the metals and the junior miners.  They will be wrong. Jon, still looking for $800 per ounce?

Bubbles are NEVER supported by fundamentals.  But, we shall see some major earnings delivered by the entire mining sector, and, therefore, we will see some of the most undervalued issues in history.

You can also expect a boom in mergers and acquisitions.  Resource rich but cash poor juniors will be bid up quickly.  With tiny market capitalizations, it will only take a relatively minor amount of capital re-allocation to exert some tremendous leverage. 

The fundamental underpinnings are further supported by prospects for the U.S. Dollar which are rapidly deteriorating after a very sharp bear market rally.  Look for the Dollar to plumb new lows.  Look for virtually all currencies to lose value against tangibles,

As the financial system goes into to meltdown mode, the precious metals market will also be supported by a crisis bid or "flight to quality".  Any sign of military action in the Middle East could cause moves in one day of $100 an ounce or more...OVERNIGHT!

As bullish as the situation is for Gold, the prospects for Silver are even better.  Silver is still leagues below its all time high of $50 per ounce, while Gold has is trading well into new-high territory.  For Silver to become fairly valued on a relative basis, it would have to double TODAY!  If Gold should approach the $2,000 level, Silver ought to reach something on the order of $60 per ounce, a tripling in a few short months.

The fundamental picture gets better.  Production in former powerhouses like South Africa is falling rapidly.  In fact, we appear to be past "Peak Gold".  So, we have the combination of falling supply AND rising demand.

It still gets better.  It appears that significant bottlenecks are now appearing in the physical market as the result of huge short positions by commercial players, such as the banks.  In fact, the very financial meltdown that is likely to occur will be aided by HUGE mark-to-market losses among those financial institutions that have taken it upon themselves to assist the Federal Reserve in silencing the messenger.  Higher precious metals prices tend to act as a thermometer in the mouth of the economic patient.  Can't show a fever, now can we?

Unlike Y2K, Gold 2K will NOT be a bust.  Get your first class seats for the ride of your life!  Your financial survival depends on it.

Marko's Take

1 comment:

  1. Marko,
    I know you follow Clive Maund ,just curious what has been his analysis on gold before today .Was he looking for a correction still or did he see it going up over the $1260 area .I think the problem with people like him is that TA in the short term is near impossible, with so much manipulation of the markets .
    They look at the COT reports, which showed massive short positions ,and their analysis says gold was due for a correction .They fail to take in that the demand for physical metals is so great, that OI on the comex becomes irrelavent.


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