Dave from Denver

Countdown To 2012

How does everyone like reading about Nancy Pelosi taking her vacation at $10,000/night place in Hawaii? She purports to defend the well-being of the poor and needy, but in reality she is a reverse Robin Hood: she uses her power to take from the Taxpayers and give to her family and wealthy supporters. I can't wait until she finally drops dead.

I have a feeling the fears people have about the Mayan calendar prophecies will be unfounded. HOWEVER, everyone should have a lot of fear over what is coming our way economically and politically. The MF Global disaster and all of the fraud, corruption and Government enablement connected with that event should have people scrambling for physical gold and silver and making sure their weapons are well-oiled and easily accessible.

I want to say that gold and silver are setting up for a big move higher in 2012. Again, the reasons underlying this move are the kinds of things that we can actually touch, feel and see - as opposed to the voo doo of the Mayan warnings. One of the big drivers of gold going forward will be the accelerating accumulation by China - it's Central Bank and the population. In fact, just today a senior official of the PBOC (China's Central Bank) made a statement urging the Government to increase its gold holdings on price declines:

The Chinese government should not only be cautious of the imported risk caused by rising global inflation, but also further optimize its foreign-exchange portfolio and purchase gold assets when the gold price shows a favorable fluctuation LINK

There are several other factors that lead me to conclude that the metals are getting ready to move a lot higher. Not the least of which is the fact that the net short position in Comex silver futures of the bullion banks in silver is at a low level not seen since 2001. As those of you who follow the COT report on a weekly basis know, when the big banks cover their shorts and increase their net long positions, it always leads to a big move higher:

In addition, the sentiment levels in silver are a low as they were back in October 2008 at the lows of the last big, painful correction. The sentiment indicator is one of the best indicators I know of in predicting the next move in the metals, especially at points of extreme readings. I also know of some precious metals investors who are new to the game over the last couple of years who are throwing in the towel and moving back into cash. This is something that makes absolutely no sense to me, especially given that we know for a fact that the Fed/Bernanke/Geithner are engaged in devaluing the U.S. dollar on a daily basis. Of course, weaker-handed investors who exit are typically my number one contrarian indicator, COT reports notwithstanding.

One more point of note: the bottom of the last major correction in precious metals - October 2008 - also happened to precede the first massive round of money printing and Government bailouts. I would argue that - given what we know about the financial condition of the Treasury, declining tax revenues, bigger Government expenditures than budgeted just 3 months ago and collapsing bank balance sheets - we are on the cusp of another big round of QE. I don't know exactly when it will come and what form it will take, but it is coming. I would suggest that this is the reason that the big bullion banks are covering up their short positions and Fed is working overtime to keep a lid on the metals.

The last indicator that I wanted to point out - one that is over and above the obvious indicators - is the Austrian True Money Supply graph. This metric measures the true supply of cash that is readily available in the financial system and is subject to less manipulation and more transparency than some of the other usual metrics. You can read about it HERE

This chart is telling me that I should be fearful of inflation in 2012. I will point out that the prime rib I purchased last December for $35 cost me $60 this year (roughly same weight, same store). So the next time Bernanke or Geithner try to tell you there's no inflation in the system you can tell them to shove it up their ass by adding to your physical gold and silver holdings. This chart is not something you will find on CNBC, CNN, Bloomberg, Fox News, Fox Business or in your local newspaper. But this chart tells me that gold and silver are getting ready to make a big move.