By Goldrunner and Lorimer Wilson
It is fascinating to be living during the greatest PM Bull Market in history – and to be entering its Seasonal Strength as the parabola rushes forward and upward - and I look forward to keeping you informed on a regular basis throughout 2011 as it unfolds.
Value vs. Price
Over the last several years many have pounded on the table about how the Dow would crash down to 1,000, yet the Crash was a silent one based on "value", not "price." I think very few understand the concept of "value versus price" and how aggressively printed paper currencies can so distort "price."
The real PM Stock Bull did not start for the PM stocks until after the equivalent of the Deflation Scare for most of the PM stocks and this fact makes me shudder when I hear so many talk about "taking profits." If the 70's cycle continues to play out, there still appears to be around 90% of the gains in the PM stock universe going forward that are still sitting on the table. Taking profits, now, will lead many to "chase price" as we go. An analogy might be quitting while you are ahead after a few steps in a hundred yard dash.
There is no doubt that the only sure insurance against the ravages of aggressive Dollar inflation is to own physical metals. Will owning PM stocks provide a leveraged insurance in the same way? Nobody really knows, but Jim Sinclair seems to think so. It worked in the 70's Dollar inflation, and I believe it will work again this decade.
Insurance Against Hyper-inflation
The fractal work I do monitors the degree to which we are still on track versus the 70's as a measure of whether the leveraged PM stocks are continuing to serve as "insurance", and it can also work as a gauge of whether hyper-inflation is taking place. I have only seen Weimar Germany mentioned in terms of hyper-inflation yet Weimar Germany might be considered a bit of "black swan" since it faced what it faced in isolation.
Personally, I believe that what would constitute hyper-inflation in the current period would have to be something "more than the inflation of the 70's" as a base definition. I have laid out the basis for this in previous editorials. We should be able to gauge that "defining point" where historical inflation steps up to hyper-inflation by monitoring the fractal work off of the late 70’s using the $Gold chart, along with the Precious Metals surrogate stock chart. As long as these two charts continue to closely track the late 70's I don't think "hyper-inflation" will become a reality. Yet, one never knows what the future will bring.
Nevertheless, we need to find imaginative means of evaluating "risk versus reward" and to that end I would like to suggest that everyone make a New Year's Resolution to have a plan to use some portion of PM stock profits gained over the coming months to buy physical Gold and Silver (held in hand) as financial insurance. Why? Because even if we can track the price of $Gold and the $HUI through the fractal work to an unforeseen "inflation versus hyper-inflation line", once that line is crossed it might be very difficult to find the physical metal necessary for financial protection.
The bottom line is that too many have waited (or will wait) too long to start to see life in terms other than one based on paper derivatives like the US Dollar. The possibility exists that many might find sudden and severe loss in paper Dollar Derivatives much like the holders of "green stamps" did when the company that offered them folded up. Paper money used to be a derivative of Gold back when it was backed by Gold. Today, the paper money derivatives float with absolutely no backing of value, whatsoever. Paper promises don’t seem to be worth much in the current environment, witnessed by the parabolic move in Real Money Gold- the historical “anti-promise” of real stable value.
As long as the PM stock certificates are backed by ownership in PM mining companies, their production, and/ or Precious Metals Reserves in the ground, PM stock ownership will serve as a leveraged type of insurance against the ravages of currency inflation. However, if those stock certificates are not held in hand your ownership is still based on a promise from somebody else that you will have access to those stock certificates as insurance against the continuing aggressive paper currency debasement. Jim Sinclair has written extensively about this issue.
What To Do
Therefore, it is exceedingly important, as we enter what promises to be a most exciting, challenging and financially rewarding New Year of 2011, that we adhere to the principles that my friend, Deadeye, often shares:
1) Have a plan.
2) Know your risk/ reward ratio in everything you do.
3) Choose partners in life who you can trust.
4) Choose partners in life who will promote your intellectual advancement.
5) Know what you love, and love it forever and, above all else.....
6) Know Thyself.