Buy Signals Are Popping Up in Gold and Silver

Buy signals are popping up in many places as a result of Tuesday's positive action in the metal pits. Since I posted my last article, gold has made several ‘higher lows,’ a sign that the bull market is alive and well. Admittedly the Amex Gold BUGS Index (HUI), XAU and Amex Gold Miners (GDM), went lower than I expected. In retrospect I blame the various ETF’s for drawing money away from the gold and silver stocks. The streetTRACKS Gold Shares (GLD) now has over 19,800.000 ounces of gold in back of it. Even during pull-backs in gold, while investors are dumping their gold stocks, fresh money keeps moving into the GLD.

When people see gold and silver shining brightly amidst the battered economic ruins, they will finally realize that the gold bugs were right all along.

We are now at a stage where mining stocks are severely under-priced, especially when compared to the ETF’s. Gold production is in decline. The mining world needs seven new mines to come on-stream every year, in order to reduce the deficit between gold demand and gold supply. In 1980, every gold producer with a listing was trading at 10.00 or higher...

Currencies in a number of countries are being inflated at double-digit rates, while the gold supply can only be increased at about 1.6% per year. All the gold ever mined, piled up, would form a cube of less than 20 meters, growing by 12 cm per year. Most of the gold in this hypothetical cube is in the form of jewelry. The driving force behind the current bull market in gold is the fact that fiat money is being created some twelve times faster than gold. In 1980, when gold topped out at $850.00, the U.S. M3 money supply was $1.8 trillion. Today, gold is pegged at $800.00, but M3 is now $13 trillion (www.nowandfutures.com). A ratio similar to 1980 puts the potential gold price at $5,600.00...

The following are just a few reasons why gold will rise:

The annual deficit between production versus consumption. The Federal Reserve is printing dollars. The American government is running a fiscal deficit. Congress does not worry about deficit spending. U.S. private debt is at a record high. Many large banks are over-exposed to derivatives. The world is at war against militant Islam. Wars cost money, and always last longer than anticipated. Wars are inflationary. The U.S. has gone from a net creditor to a net borrower. The U.S. dollar is in a bear market. ‘Real’ interest rates are negative. Whenever the true rate of price inflation rises to or above interest rates, gold rises. Gold is rising in virtually every currency. Central banks, including the U.S., are overstating their gold reserves (www.gata.org).