April 28, 2011

By Kevin Michael Grace

When the great Canadian thinker Marshall McLuhan was asked about his ability to see into the future, he questioned the premise. I do not see into the future, he said, but I can see the present. This distinguishes me from almost everyone else, because they see the past and then extrapolate that into the future. McLuhan thus explained why the great changes in history and society have always shocked almost everyone, especially the “experts.” And this gives us an insight into the controversy regarding the gold and silver “bubbles.”

Peter Koven noted in the April 21 Financial Post, “As gold and silver prices continue to rise, Canaccord Genuity is confident that they are going even higher. Analyst Steven Butler raised his 2011 price deck for both metals, and is now forecasting US$1,525 an ounce for gold and US$42 an ounce for silver. Perhaps more significantly, he hiked his ‘peak’ price scenarios to US$1,600 for gold and a staggering US$47.50 for silver.” Staggering, eh? At press time, one week after Butler’s bold prediction, gold was trading at $1536.40, while silver had blown past $47.50 to arrive at $48.37. Silver has doubled in value since October 2010.

Reuters April 28 attributed the gains to “signs that the Federal Reserve would maintain a loose monetary policy” and our old friend “inflation worries.” Worryingly, it noted that earlier Thursday the price almost reached the all-time high of $50.35 in 1980. This was when the Hunt brothers attempted to corner the market. As we know, they failed, and silver swiftly collapsed to $11.

So is the promise (or threat) of $50 an institutional (or psychological) panic button? Mike Shedlock thinks so. Now, no one has been more eloquent or forceful in his denunciation of loose monetary policy than Shedlock, and he makes clear April 27, “This is not a top call. I have no idea how high silver will go. No one else does either.” And yet, “Today I cashed out of silver, trading it for an equal dollar value of gold.” Why? “One thing I have learned is parabolic moves seldom end well… The advance in gold has been steady and orderly. In contrast, the advance in silver has been anything but orderly.” Shedlock concludes that silver “is highly likely to revisit the low $20s at some point… Except for pure speculation, I see little reason to even hold silver in this spike.”

If history is to be our guide, than Shedlock’s action is the sensible one. But Marc Faber, interviewed on CNBC April 8, suggested that a new chapter has begun. In short, “The system has become dysfunctional.” Faber pointed out that Federal Reserve Vice Chair Janet Yellen had recently admitted that, were it possible, she would institute negative interest rates. So the US government is determined to debauch its currency. This means that cash and bonds are “dangerous” and that the only true sources of worth are “anything that cannot be multiplied at the same rate as money.”

Faber argued that monetary policy was a proxy for class war, since the “wealthy benefit from money printing,” as they can move their assets offshore, while everyone else takes it in the neck. This earned him a frosty and mildly disgusted rebuke from lovely CNBC cohost Becky Quick: “I guess that’s one view.” According to Faber, precious metals are a prophylactic against a worthless dollar. As for the “bubble” argument, he reported that a recent conference of 200 top wealth managers, when asked how many had more than 5% of their own portfolios in gold, not one hand was raised. In other words, precious metals are undersubscribed.

As if to confirm Faber’s thesis, Fed Chairman Ben Bernanke gave a press conference (a first) Wednesday and confirmed that he will likely continue to launch money yachts: QE3, QE4, whatever it takes. Dennis Dale at the American Conservative saw him as Elmer Fudd, singing “Kill-the-Doll-ar…Kill-the-Dolll-ar” to Wagner’s Ride of the Valkyries. “After a few choice words out of Helicopter Ben,” Danny Furman wrote on Seeking Alpha April 28, “silver climbed from $46 to $48 per ounce and closed over 7% up from daily lows.” Just as Eric Parnell noted (on Seeking Alpha April 18), “Silver began exploding higher literally on the same day [August 27, 2010] that Ben Bernanke gave his Jackson Hole speech confirming the delivery of QE2.”

Given that, as noted above, the price of silver has doubled in six months, one might expect handsome appreciations in silver equities. Jonathan Ratner cites four such given speculative buy ratings by Nicholas Campbell of Canaccord Genuity: Alexco Resource Corp (price target $12.25, current price $9.43), Bear Creek Mining Corp ($14, $8.20), Golden Minerals Co ($38.75, $19.60), MAG Silver Corp ($19.25, $12.09).

Over at the Gold Report April 25, Zig Lambo and JT Long interview MineralFields Group Investment Analyst Ron Wortel, who selects five TSX-listed juniors likely to profit by reviving old gold mines: Clifton Star Resources, Trueclaim Exploration, Visible Gold Mines, Golden Hope Mines and Trade Winds Ventures.

And for those who believe gold is going to the moon, Michael Bryant at Seeking Alpha April 26 suggests eight miners best suited for maximum returns: Allied Nevada, Midway Gold, US Gold, Gammon Gold, Kimber Resources, Northern Dynasty Minerals, Richmont Mines and Paramount Gold and Silver.

And finally, could Marshall McLuhan have predicted this week’s big story-that a TV pitchman best known for his orange face, snarling voice, louche morals and the worst combover in creation could browbeat the President of the United States into releasing a document we had been assured did not exist? Quoth the master: “Only puny secrets need protection. Big discoveries are protected by public incredulity.”