Gold, Silver and Oil Stocks on Fire
Source: James West, Midas Letter (2/22/11)
"Share prices doubled on the TSX Venture more than 100 times this year alone."
As expected, the success of grassroots protests in replacing oppressive and authoritarian regimes in Tunisia and Egypt has ignited the imagination of the long oppressed in other nations—both within and outside of the Middle East. The latest emerging unrest has now appeared in China, and that has leaders on edge. But more importantly, global markets, still fragile despite the recovery of specific sectors, could be tilted off course if instability spreads.
And it does appear that unrest will grow, at least until a definitive outcome is realized as a result of either the success or failure of protesters' efforts. That the protests are erupting in countries with authoritarian and long-entrenched regimes is no surprise. It is within these countries that the most glaring imbalances exist in economic wellbeing.
Today we're seeing the correct reaction from markets in the face of such widespread insurgency. Oil, gold and silver are exploding to the upside, while stocks are plummeting as investors seek real safety in those commodities and abandon the U.S. dollar for the beat-up piece of spent jet trash that it is.
But not all stocks are plummeting.
The resource-centric TSX and TSX Venture Exchanges are moving up substantially, as the high prices of precious metals and hydrocarbons brings increasing attention to publicly traded exploration and development companies in those sectors.
In the last five days, the S&P TSX Index has risen nearly 100 points. But the TSX Venture Exchange has performed even better, racking up gains of over 71% since July of last year—making it the best performing stock exchange in the world.
There have been more than 100 instances of share prices doubling on the TSX Venture this year alone, and last year that number exceeded 400. The year 2011 is expected to far outperform 2010 based on the prospect that silver prices will reach as high as $55/oz. this year. And gold could go as high as $1,800.
What's going to push the prices of those metals so much higher, you wonder?
Well first of all, this apparently piecemeal revolt leap-frogging from desert country to country is going to start manifesting itself strongly in less tolerant countries. Despite China's swift response to calls for the 'Jasmine Revolution' to get underway there, nothing is likely to breed further attempts at demonstrations than the ongoing success of revolts in Arab countries.
The fact of the matter is that this is going to become a very a broad movement globally to rectify the imbalances among the poor and rich, and, as seen in Wisconsin, where demonstrating union members are fighting for their various rights, Western countries are not immune from demonstrations, though the North American variety is not characterized generally by violence.
There is a risk that the uprisings in the eastern part of the world could have a unifying effect, however, among groups formerly limited in effect thanks to their small numbers. The violent protest in Seattle during the World Economic Forum there is brought to mind. If these essentially anarchy-minded youth were to collaborate on a global scale with protesters demonstrating for greater freedoms and economic equality, the recipe for global destabilization is written.
With so much economic fragility permeating the system, all the counterfeit quantitative easing that Western printing presses can muster will not be sufficient to confound investors into believing that stability and growth has returned.
In Obama's budget, he projects that U.S. GDP will grow by 5% per year for the next 10 years, underscoring the complete departure from reality that his administration’s economists have now embraced. The U.S. economy is not in recovery, quantitative easing, or more aptly, quantitative counterfeiting, notwithstanding. In order to achieve 5% per year GDP growth, the U.S. Federal Reserve and it coconspirator the U.S. Treasury, is going to referring to these quantitative easing events numerically, and just refer to them as 'business as usual.'
At any rate, the last round of CNBC-led "gold is dead" cheerleading has made fools of those parrots once again, and we'll know for certain the gold bull market is over when the mainstream U.S. financial media outlets start proclaiming gold a Buy.
Value is not a tangible object; so, given the current state of human cerebral evolution, it must be expressed in a tangible object. Gold fits the bill and, therefore, is never likely to form a bubble—unless considered in the eonic time sense, in which case human existence itself is just a bubble. It's all relative.
But one thing is certain. The only real winners among investors and savers going forward are going to be investors in precious, base and energy metals explorers who then preserve their winnings in precious metals.