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Precious metals market is set for an extended and significant period of price
increases
November 28, 2006
Today is going to be an interesting one as we’ve got a lot of macroeconomic
US data coming out this morning (durable goods report, housing data, consumer
confidence data, manufacturing data) as well as the first speech from Fed Chairman
Bernanke on the state of the US economy in quite some time. The durable goods
report has been announced already and was considerably weaker than what had
been expected. Housing data follows mid-AM and Bernanke gives his speech at
11:30 am CT. The markets should be choppy until this afternoon when all the
information is digested, but so far it’s looking like the economy is continuing
to slow considerably. Combining this with an economic growth outlook from the
White House last week that was revised downward for the end of 2006 and all
of 2007, and we’ve got a perfect set up for continued US dollar weakness
which will be a big help for precious metals prices.
There are also continued calls from economists in China for the government
to begin it’s diversification away from massive US dollar exposure before
it becomes too large an issue to ignore. We believe it’s safe to say that
China will begin it’s diversification via Euro, Yen and precious metals
purchases well before anyone in the market is made aware of the change…assuming
it hasn’t already started. China and other countries with large US dollar
exposure such as Japan and South Korea are not going to telegraph to the market
what they are doing before they do it. Once the market is aware of their activity,
that’s when the real damage to the US dollar will begin.
But remember that this isn’t just a dollar story, or just an inflationary
story, or a protection against potential US recession. The precious metals market
is set for an extended and significant period of price increases because there
are a dozen reasons that prices will continue to climb. The supply/demand picture
is very much in the bull’s corner with central bank sales continuing to
fall, mine production flat to falling, and investor demand just beginning to
reawaken around the globe. |
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