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Jim Cook

 

RUNAWAY SOCIAL SYMPATHY

Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

 
Best of John Browne
October 3, 2011
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Market Technicals. Given the swift ris of gold and silver during the first half of 2011, precious metals were due for a correction - especially following the parabolic increases that we saw in August. Markets never go up in a straight line, and often the biggest downward movements occur in bull markets. These sharp movements are common in gold, especially during short periods of financial panic. For instance, gold fell more than 25% in the second half of 2008, and almost 15% from February to April 2009. Yet after the dust settled in those earlier corrections, gold resumed its upward march with even more gusto.

The progressive rise in margin requirements is another technical factor that has weighed on gold and silver. In recent months, many of the exchanges that offer margin accounts for metals futures contracts have made it significantly more expensive to hold those positions to maturity. This has caused many forced liquidations, putting downward pressure on prices. Many have even speculated that that these dramatic changes in margin requirements were deliberately planned to undermine confidence in gold as a safe haven asset.       

Recession Risk. Recently, it has become clearer to more people that the economy is not recovering. Just last week, Fed Chairman Bernanke offered his most gloomy economic outlook since 2009. Many people recognize however that the Fed Chairman is sugar coating the truth and that the real economy is actually even worse. Some believe we are headed for a full-blown depression. In such conditions, liquid cash becomes king and, typically, commodities fall. In this respect, silver, which has more industrial use than gold, can be expected to fall faster in the short term.

But even gold can be expected to fall under these circumstances, especially if official inflation reports stay relatively calm. Unfortunately, what the markets have yet to grasp is that this time, recession will likely be accompanied by high inflation and a risk of currency collapse. To investors who understand this logic, precious metals are still highly attractive.

Liquidations. It has been rumored that some major investors, including hedge funds, have liquidated large precious-metal positions in recent weeks. Many of these investors were likely sitting on large gains in gold & silver, but with the broader equities markets taking a tumble, they may have decided to lock in profits to offset losses in other positions.

Recently, as political and banking problems have loomed larger, liquidity has become a primary factor in determining investment decisions. In other words, big investors are just trying to cover their debts instead of investing for the long term.

The Greek Bailout Plan. Many investors seem to have placed great hope in the recently announced Greek bailout plan to solve the sovereign debt crisis, driving down their appetite for gold as a long-term safe haven. This is overly optimistic. An orderly Greek default is not in our future. The German plan is a poor imitation of the Fed's "extend and pretend" policy that was the basis of TARP, also known as the bank bailouts. It is likely that when markets perceive the gaping holes in the plan, fears of a currency crisis will return, and gold will benefit accordingly.

US Dollar Strength. As it has so often in the past, the US dollar has gained strength in the early days of an economic slowdown. This has put downward pressure on the price of precious metals. We believe that dollar strength is a temporary phenomenon, for reasons with which our readers are quite familiar.