Gold and Silver swept all obstacles aside Monday, pushing already steep rallies into hyperdrive.  Even a firm dollar failed to check the buying spree. At the opening bell, we were looking for Comex February Gold to surge to at least $1425; however, by day’s end it had done even better, rallying $24 to peak intraday at 1429.40.  And although March Silver fell 11 cents shy of our minimum projection of 30.465, there was such power behind the nearly $1.00 rally that the target seems all but guaranteed to be reac

“If you bought a treasury bond five years ago, versus buying gold at $450, you got your money back at a nominal, miniscule yield because it’s ‘safe’ guaranteed investment. The problem is the million dollars you got back it buys one third the amount of gold it could have bought 5 years ago. That in a nutshell is the debasement of the currency at work. It is the lower standard of living at work.”

Ed Note: Michael Campbell calls Greg Weldon – “The One Analyst other Analysts can’t Wait to Read.”

“Gold still has significant upside” – and why…..

Michael Campbell: I’m glad you’re with us. I call Greg Weldon’s research the top research in North America.  He is the guy who does all the work that other analysts and institutions want to have a look at.

In the last two weeks we’ve had the Irish bail out and the United States promised to help buoy up the International Monetary Fund, with another trillion dollars. Are we trying to solve a huge debt problem by taking on more debt? What are the implications of this?

Greg:    Well, I think actually the last time I was on your show Michael we discussed that Greece at the time seemed to be an isolated event and how ludicrous that whole process was. This only intensifies when you think that 25 out of 27 EU nations are in violation of rules on either debts or deficit relative to their GDP. We’ve been saying for a long time that for Europe to to bail out Europe is ridiculous. To think that the US is going to commit a trillion dollars to any bail outs is even more ludicrous. Really the spark in the stock markets around the world was that comment from an unnamed US official.

The European Central Bank has been in a program to buy debt, but they sterilized that money that was in the system, they withdraw at the back end. So they are not even really playing ball to begin with to the degree that the Fed has in the US. To pin your hopes on all of this is highly suspect. But having said that, the European Central Bank is expanding their balance sheet again. The Bank of Japan balance sheet just hit a new interim high. The US bought a lot of bonds and unfortunately they’ve had mortgage roll ups so they haven’t yet in net expanded their balance sheet to new heights, but they’re in the process of doing that. So when you have the three major central banks in the world expanding their balance sheets, that does provide some underpinning in terms of liquidity. To think that that’s a solution to this long term problems is absolutely ludicrous.

Michael: In your view then Greg, it’s not a matter of if we have a day of reckoning, it’s just when?

Greg: There is no way out. This is the cycle that you’re caught in and you can never underestimate the ability of monetary officials around the world to get creative. This is a bubble that goes back to the US removing the dollar from the gold standard. What we’ve entered into is an absolute the day of reckoning. But it’s not here yet because we’re going to keep going through these vacillations where they pump it up and dump until they can’t do it anymore. The second you pull the rag out from under the market in terms of support either fiscally or monetarily, it’s a nightmare waiting to happen.

So they have boxed themselves into a corner where pump it up is the only way out, but inevitably is doomed to fail. And timing that failure is what is just so difficult and becomes  increasingly difficult as these vacillations become more and more extreme. You might liken it to an EKG where you have a nice little pattern of up and down, up and down, up and down and  in ’97, ’98 crisis that pattern became a little more wild, in 2000, 2001 more wild, lastly in 2007, you’re into the heart attack stage.

Michael: How does that manifest? Is it deflation or hyper-inflation?

Greg: It’s both Michael. This is a whole theme to talk about. On the one hand the bail out of Ireland calls for them to accelerate the €15 billion budget adjustments over the next five years. In fact they want it to be more extreme, in other words less spending, higher taxes and at $15 billion adjustment that the parties in power there just put forth. This has created a completely fractured political debate where the Green Party has pulled their support of the government and now they might have to call elections. It could become a referendum to the people who of course are not going to vote for even more extreme austerity.

So it becomes a situation where people are getting hurt, it becomes less easy to wiggle out of it by throwing more paper at it, and you can even liken this to the situation in the US now too where there is this push for austerity. The political will and the will of the people to endure pain to make that happen becomes the balancing act and the fine line. You’re looking at a situation in the US where the second they cut federal support, you have states the municipalities that are in deep, deep trouble; in fact declaring bankruptcy so I think that this issue applies in Europe.We said years ago when we first started talking you, that the housing market and the results in the US banking situation which just happened that it would expand and you wouldn’t see any kind of real potential end of days until you had a European state default and a US state default. This is kind of the trend of where things are going right now.

Michael: There’s huge pension problems that exist in the world today and they are already under funded in the extreme.  When does the media really recognize how severe the problem is?t

Greg: Ireland and the US and New Jersey are the most fiscally problematic places. I’m of Irish heritage, grew up in New Jersey, so it is painful to watch from a personal perspective but it impacts everybody. There are things going on in Asia and in other places in the world which are growth orientated but also problematic from the perspective of sustainability. Even when you mention Canada, by some metrics Vancouver is among the most overpriced real estate in the world. The reality and the math is that Canadians are totally tied into this. So Europe is really bailing out Europe; it’s not about bailing out Ireland, it’s more about making sure that the entire European banking system doesn’t come unglued.

Michael: There needs to be some sorts of restraint on government’s spending but in my experience the only way you can get the popluous to agree is if its someone else who has to cut back. Therefore is politics completely unable to handle it unless you get a a crisis situation?

Greg: Someone’s got to feel the pain and no one wants to feel the pain. It’s much easier to print more money to cover up that pain and ultimately that’s what happens.That’s he human condition, and the business the Fed and other central banks are in now is to do whatever they have to do to circumvent the pain of debt deflation. They feel they can fight an inflation, a hyper-reflation so they want to push for that. And they’ll probably keep pushing until they get it, or if they can’t get it, that’s your nightmare scenario.

Michael: You wrote the Gold Trading Boot Camp in 2006 in which you chronicled the kind of situation financially that we’re finding ourselves in right now and about taking advantage of gold as a protection against these kind of events. Where do you think gold is right now?

Greg: Gold still has significant upside. We actually became a little bit more cautious on precious metals about six weeks ago, when it looked like global interest rates had started to rise. But as we  mentioned before the Bank of Japan’s balance sheet is expanding again, the ECB expanding its balance sheet and the Fed doing the same. As soon as these mortgage roll offs get out of the way the feds balance sheet should explode. So this certainly is positive for Gold. 

More importantly in the bigger picture, when you take a look at gold prices in every currency in the world, it’s not a dollar move. Gold is gaining against every single currency in the world. The flip side of that is that every currency in the world depreciating relative to gold because central banks are debasing money everywhere. That’s the bottom line when talking about gold. That’s what people tend to miss, tend to overlook, that is what is really at the core of this. It’s kind of veiled, it’s kind of hidden, and no matter which way it goes, whether it is a successful hyper-reflation or whether it is a downturn to debt deflation, either scenario incorporates a lower standard of living.

This is what you’re saying when you’re talking about what’s happening in cities in the US and in Ireland where state employees are undergoing wage freezes. The bottom line is more unemployment, more chronically unemployed who can’t find jobs. This is the embedded reality of economics and it means a lower standard of living. For example the debasement of the currency means if you bought a treasury bond five years ago, versus buying gold at $450, you got your money back because it’s ‘safe’ investment and getting your money is guaranteed though at a nominal miniscule yield.

The problem is the million dollars you got back it buys one third the amount of gold it could have bought 5 years ago. That in a nutshell is the debasement of the currency at work. It is the lower standard of living at work. We’ve lived on this credit bubble for so long that he downturn is going to be very difficult to fight because we’ve become reliant on expanding credit.It’s not the right thing to do it’s just because we’ve become so reliant on it now.

Gold is so attractive in the long term because this is a trend that is intensifying. It’s a trend that’s broadening, and the tentacles are reaching throughout the world in places that it has not reached before. You’re not protected in currencies, so for me on the longer term picture gold still looks attractive even at these prices.

Michael: What do you think of the Crude Oil Market?

Greg: I think oil has been a major laggard and we haven’t liked oil until the last month or so. It’s increasingly gotten more powerful this move up in Crude Oil and its clearly breaking out this week. There’s very strong momentum including the energy stocks and the energy ETFs relative to the market as a whole.

And it’s interesting to note too that this is obviously increasingly bullish for commodities just when it look like maybe commodities have had their run and peaked.  A lot of commodities have gotten to historically outrageous levels if you will with Cotton at $1.50, Copper back to $4 and Palladium pushing $800. The list of commodities that are trending in a positively has intensified this week alone. Which gets back to this whole thought process surrounding stock markets and central banks and bail outs and printing more money and balance sheets, so on and so forth.

So to me, the entire commodities complex has looked good, continues to look good, and now you can add the energies to the mix as they begin to play catch up and in fact are taking a leadership role on a short term basis. This creates all kinds of discussions we might have on what this means for inflation down the road because if you recall it was October, November, December of last year that commodities were exceptionally weak. Food like wheat and soy beans and are breaking out again this week too. Food prices could become problematic at some point going forward thanks to the monetary support for economies world wide.

Michael: One of our favorites since May of ’03 has been silver. Is silver outperforming gold?

Greg: Silver is absolutely outperforming gold. It has been a big performer and an upside leader for quite some time in the near term. I have a love for Silver as when I first started the business it was in the Silver pit in New York Cities World Trade Centerback in the hey day of $50 Silver.Talking about the  bigger picture, Silver has a great appeal in that it’s a lower denomination metal, you can hold smaller quantities, exchange it for less value in terms of what you mightexchange Gold in potentially a real worst case scenario down the road. From that perspective I still like Silver. It does continue to outperform gold and I expect that to be sustained.

Michael:  One of the trends you spotted was the huge surplus of gasoline inventories and when you recognized when that had reversed itself, you  got bullish on gasoline. It worked out very well and I thought that was a terrific example of why analysts and institutions read what you’re doing .We’ve seen a rise in gasoline so what do you think is going on in gasoline now?

Greg: With the down turn in the economy there was less demand for gasoline ,we’re producing less and we started importing less. The next thing you know we’re drawing down inventories to meet demand. So if there is any push in the economy as a result of this monetary stimulus that will be bullish. But really it’s more a function the fact that the supply demand fundamentals have shifted. When you look at the calendar spreads, the nearby’s are commanding a price premium. I won’t say that’s abnormal but its very bullish. It indicates that there is not enough supply available for immediate delivery so the market is willing to pay a higher price for the near term contracts to try and draw that supply because it’s needed. We see a pretty dramatic shift in the gasoline markets.

I think it’s also interesting that we haven’t seen gasoline rise. When we start talking about US inflation it is certainly weighted towards energy more than food so gasoline rising will becomes problematic. If labor is not picking up, housing is not picking up, it’s only the asset markets that are inflating because of the monetary push. If gas were to rally significantly that could create a real wild card kind of problem for the Fed in terms of discreetionary spending as it will certainly put pressure on the consumer if it continues. 

Michael: Always fascinating Greg,  I hope you and Aileen have a wonderful Christmas season.

Greg is the guy who does all the work that other analysts and institutions want to have a look at. He gets behind the numbers and obviously has a terrific understanding of what’s going on. You can also subscribe to Greg Weldon’s Newsletter at: www.weldononline.com

A complimentary general admission ticket for a friend or family member (the perfect stocking stuffer)!

Anyone ordering their MoneyTalks VIP pass before December 15 will receive a 2nd ticket at absolutely no charge. Register Today HERE

Just go to  www.moneytalks.net and you can just click on the World Outlook Financial Conference banner to ensure you’ve got tickets.

The Bottom Line
Continue to hold favoured equities and ETFs for additional gains that between now and May next year. Entry points are less attractive than a week ago. Preferred strategy is to enter into new positions and to add to existing positions on any weakness during the next two weeks ago. Equity market indices with favourable seasonality at this time of year include Canada, U.S.A., China, Germany and Japan. Sectors with favourable seasonality at this time of year include technology, consumer discretionary, materials, industrials, lumber and metals & mining.

After the bottom of the 4-year cycle in September the stock market began what has been described, in the words of Samuel J. Kress, “the final cyclical bull market of the post-World War 2 expansionary era.”  The months ahead could well be the last chance for individuals to prepare for the coming “winter” phase of the deflationary 60-year cycle which enters its final “hard down” phase in 2012 and bottoms in 2014.

ood morning! I hope you had a great weekend. First things first. The bounce you’re seeing in gold and silver are not — I repeat, not — the beginning of their next legs up.

So if you’re a short-term trader, don’t get overly aggressive in these markets right now. They’re likely to yo-yo around, with a bias toward the downside and a test of the $1,325 and $1,265 levels in gold as we head into year end, and $18 to $23 in silver.

Having said that, maintain all core long-term metals positions. You do not want to be shaken out of them. Though not expected until next year, if gold closes above its recent record high of $1,428 — a new leg up will be underway.

Now, on to a forecast that I would like to reconfirm in a market that impacts us all quite dramatically: Energy.

Despite the ongoing financial crisis, I expect to see at least $200 oil and $6 a gallon gas sometime in the not-too-distant future.

The first step will be to see the price of oil hold the $68.07 level by the end of this year, which should not be a problem.

Then, once oil closes above the $99.37 level — probably by the middle of next year, watch out: It will be your signal that oil will make new record highs within two years.

Bottom line: Anyone who thinks the oil and gas bull markets are over — should wake up and smell the coffee!

Look, the underlying fundamentals for the energy markets have NOT changed one iota. We face catastrophic shortfalls in oil supplies down the road …

• Oil fields all over the world are now well past peak production. So much so that oil production is likely to peak less than 10 years from now — and a decade earlier than most have previously estimated. There are now also indications from the IEA that production may have already peaked!

Moreover, in a recent survey of 800 oil fields worldwide, fully three-quarters of global reserves have already reached peak production.

Plus …

• Oil production is now declining at nearly twice the pace as calculated just two years ago. The IEA estimates that the decline in oil production in existing fields is now running at 6.7% a year compared to the 3.7% decline it had estimated in 2007.

• Chronic underinvestment by oil-producing countries, made worse by the global financial crisis, dims hopes for new future supplies.

In addition … demand has not fallen much … there’s still a lack of refineries … supply disruptions from weather and terrorism are a constant threat … and more.

Even if demand remained steady, the world would have to find the equivalent of four Saudi Arabias to maintain production.

And to keep up with the expected increase in demand between now and 2030, the world would need to find six Saudi Arabias!

Short of that, and the world could reach a major “oil crunch” within the next five years.

And, there are two more forces which I believe could accelerate the crisis …

Force #1: The weakening U.S. dollar. Oil is priced in dollars. So as the dollar falls in value, the price of oil naturally experiences an upward revaluation in dollar terms.

We’ve already seen the effects of this in the oil market, with all the talk about how oil has become a hedge against a falling dollar, and with speculators now trading oil in true “black gold” fashion — running into oil just like they do with gold, whenever the dollar starts to slide.

But make no mistake about it: The “dollar hedging” aspect of the oil market is not going to change anytime soon because …

A. Despite its recent rally, the dollar is in a long-term downtrend, as I’ve mentioned many times before.

B. Oil will continue to be traded mainly in dollars until a new world reserve currency is established.

Yes, there have been attempts to price oil in other currencies recently, namely the euro. But that won’t do much to eliminate the “dollar-hedge-aspect” of oil to any extent.

Force #2: China is cornering much of the world’s oil supplies. China’s muscle-bound economy eats like a hog — an energy hog. Even though demand has slowed a tad, the insatiable giant consumes more energy than its citizens can produce in their backyard.

So over the last few years, China has gone to the market to shop very aggressively for oil supplies, adding to their reserves. It has invested in the Middle East, Africa, Iran, Venezuela, Brazil, Russia, Mexico and more.

Keep in mind, money is no object for China. Beijing now has nearly $2.7 TRILLION in its piggy-bank. But China still lives hand-to-mouth energy-wise, barely keeping ahead of its appetite.

In fact …

• More than 40% of China’s oil needs must be met through imports. And right now, there are massive energy shortages mounting again in China.

In fact, just six months ago, China had enough fuel on hand to meet more than 36 days of demand. Today, it has only 16 days of reserves on hand!

Plus …

• Based on its latest forecast, China’s oil giant Sinopec stated in its latest forecast that China will consume 286 million tons (2.088 billion barrels) of oil by 2015 and 336 million by 2020 (2.45 billion barrels) — staggering increases of 32% and 55%, respectively, from this year’s total of 216 million (1.577 billion).

The majority of that oil will have to come from imports. Which means profit bonanzas for anyone investing in oil and gas companies.

This is why I believe that virtually all pullbacks in the price of oil are likely to be met with massive buying from the Chinese, effectively putting a new floor under the price of oil at around the $70 level, worst case.

On the upside, given all the forces I just discussed above — I believe we will see over $100 oil in 2011 … and eventually see $200 oil and $6 a gallon gas by late 2012.

My view: If you have long-term capital to commit to the energy sector,
I suggest considering a diversified mix of shares in long-term energy positions. My top-rated picks — from my latest technical and cyclical scans — include the following …

A. Great energy companies such as ExxonMobil (XOM) … China Petroleum & Chemical Corp. (SNP) and … CNOOC (CEO), to name a few.

B. Energy-based ETFs such as Energy Select Sector SPDR ETF (XLE) and iShares S&P Global Energy Sector Index Fund (IXC).

C. Energy royalty investment trusts such as Permian Basin Royalty Trust (PBT) and Enerplus Resources Fund (ERF).

And more!

For specific short- and intermediate-term recommendations, be sure to become a member of my Real Wealth Report, for just $99 a year.

Best wishes,

Larry

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