2012: A Political Year for Gold


"Physical gold and silver will be the outright winners in this era of currency debasement."

This year our screens, radio and the media in general will be dominated by politics as electioneering goes into overdrive in a massive attempt to convince us that their man has all the answers. Alas, the political machinery has long since lost our respect, but that will not deter them and so we must endure this attack on our senses from all directions. The presidential election in the United States is high profile at the moment but there are other very important elections also taking place, a few of which we touch on below:

Greece: Parliamentary elections in April 2012

D-Day for Greece was March 20 when a €14.5 billion (B) bond repayment must be covered—without a bailout a default would have been unavoidable. Greece has agreed to a controversial package of austerity measures, in order to appease the eurocrats and the IMF in return for a €130B ($170B; £110B) bailout. For now Greece remains in the Eurozone, however, this is an agreement between an unelected government and the suits from Brussels. The riots that are taking place in Athens suggest that the people are most definitely opposed to it. The election may produce a government that decides enough is enough and that Greece exits the Eurozone returning to some form of drachma, in order to put an end to the social unrest that is building toward a violent outcome.

Europe's political masters desperately want to keep Greece in the Eurozone in a show of solidarity, otherwise Ireland, Portugal, Italy and Spain could follow Greece and exit this so called financial compact, rendering the future of euro as a currency in some doubt. At the moment it looks as though a bailout, coupled with a crippling austerity program, will have to suffice. More importantly this bailout will pave the way for future bailouts for the other indebted sovereign states such as those mentioned above. The idea that money can be borrowed from indebted states in order to redistribute it to other indebted states is not the solution. New money will be required and the printing presses will go into overdrive, thus further debasing the euro and driving the demand for gold higher.

Russia: Presidential election on March 4, 2012

Vladimir Putin looks set to regain the presidency, so no real changes there.

France: Presidential election on April 22 and May 6, 2012

The incumbent president, Nicolas Sarkozy, is trailing in the polls and has enlisted the support of Angela Merkel to give his campaign a boost. Should he lose, then France will elect either the socialists, led by Francois Hollande, or possibly the National Front, led by Marine Le Pen. Should he win, Francois Hollande has promised to spend €20B on hiring 60,000 extra staff for the police and schools and to create 150,000 state-aided jobs. Where is the cash coming from to sustain such a program? You guessed it, the rich people, big companies, etc. From what we can glean about the fragility of the French banking system, this may not be as easy as it sounds. France could well look to the ECB for assistance and they will have to print more cash.

Mexico: Presidential election on July 1, 2012

Mexicans will go to the polls in order to choose not only a new president, but also new senators and federal deputies. The opinion polls, for what they are worth, suggest that Mexico could have a new governing party. This could be interesting should Mexico ever reconsider the idea of using silver coins as legal currency, as muted by Carlos Slim some time ago.

Venezuela: Presidential election on October 7, 2012

On Feb. 12, Venezuela’s opposition will participate in its own primary elections, whereby it will elect the candidate who will face President Hugo Chávez in October. Until we know who the opposition will be and exactly what their policies are, it's difficult to conclude anything at the moment, but we will need to keep an eye on developments, especially regarding any proposals to do with the mining industry.

China: Party Congress Elections in October 2012

The activists for democracy in China may mount a challenge to the ruling Chinese authorities, however, we doubt that they can become a credible opposition in time for the October elections. Assuming the status quo continues then we already know that China no longer exports gold and is indeed an importer with imports expected to rise. There is also the increasing wealth of the people to consider and their long held trust in gold as a store of wealth. This coupled with encouragement from the authorities to invest in gold, suggests that gold prices will driven higher.

United States: Presidential election on Nov. 6, 2012

The Republican nomination appears to be taking shape, although by no means certain, it looks like Mitt Romney could be the man. Had it been Ron Paul then a return to the gold standard would have been one of his top priorities and gold prices would have gone ballistic. Still, there is a candidate there who has helped to put the spotlight on the issue of dishonest fiat currencies, such as the dollar and its inability to act as a store of wealth.

Incumbent presidents are usually hard to eject and we know that Barack Obama is a formidable campaigner: Should he be reelected then debt ceilings will become a thing of the past and dollars will be printed at whatever rate is necessary, in an attempt to cure all ills.

In conclusion, the political element forms an important part of any investment strategy, but cannot be looked at in isolation as there are many more elements and metrics to consider before forming an opinion. However, when faced with the tough decisions our political masters lean toward the soft options, in the hope that their own popularity will not suffer. Hence reductions in public spending and debt reduction does not provide a winning platform for those who dream of high office. The "spend now and pay later" policies will continue, backed by an ever-increasing amount of cash, and the rainy day will be pushed back once again—or so they think. This short-termism is going to end and quickly. Debt is a hard taskmaster and it will return with a vengeance with devastating consequences for one and all.

We will have to endure wild oscillations and gut-wrenching swings as each news bite sends the herd galloping far and wide in search of a utopian shelter.

All of our financial futures are on the line now, so it is our responsibility to take time out and make provisions for what we see coming down the line. It's ugly and so we must do our best in terms of cushioning ourselves from outrageous fortune, so we wish you well with your survival plans.

For what it is worth, we look to the precious metals sector, totally and solely to act as a safe harbor where we can endure the storm. As we see it, physical gold and silver will be the outright winners in this era of currency debasement. Along with the metals we also retain a core position of the associated mining stocks, although as we have pointed out many times, they are not without their own inherent risks and we have no intention of increasing our exposure at this time as the HUI hasn't convinced us that stocks are worth the risk.

Finally, as opportunities present themselves, we will sally forth with the occasional options trade, as volatility can be rewarding as our record clearly indicates.

The implementation of your survival plan is down to you and you alone, so please don't delay, start today and lay those foundations.

Bob Kirtley, SK Options Trading



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Disclaimer: gold-prices.biz or SK Options Trading makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents our views and replicates trades that we are making but nothing more than that. Always consult your registered adviser to assist you with your investments. We accept no liability for any loss arising from the use of the data contained on this letter. Options contain a high level or risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. Past performance is not a guide nor guarantee of future success.

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