Money & Markets

We believe this possibility of a housing crisis is an important consideration in our prediction of a positive price market for the precious metals this year.

During the past month, two of our favorite sources of fundamental information for the precious metals markets have issued their summary reports looking ahead to the coming year.

As we have repeated quite often, rising inflation—or, more particularly, the expectation of rising inflation—has historically been perhaps the most important ingredient of all in past precious metals bull markets.

Over the past few months we have noted a gradual increase in news relating to inflation—but during the past month this gradual increase has accelerated steadily and has now taken on the appearance of a virtual flood.

Given the astonishing increase in government expenditures of the past two years, one must ask if there is another parade of taxes and levies waiting in the wings, and, directly related to our precious metals, if there is some form of tax rebellion also waiting in the wings.

Seldom, if ever, has this writer seen anything comparable to the level of hostility, disrespect and outright hatred now being demonstrated across America. If anyone thinks this is an erroneous conclusion, please consider the following ongoing events…

From our precious metals point of view, I would note that if the production of these metals fails to meet demand, prices will likely rise, perhaps very smartly, thereby fueling additional increments of future inflation.

First, in order to compensate for the diminishment of purchasing power that usually accompanies rising inflation, investors normally have demanded higher interest rates on their investment assets. This was particularly true in the 1977-81 era when inflation soared to almost 20% and interest rates rose to roughly the same level.

All in all, these spending proposals, combined with those already approved, could bring total spending for the current budget year to around $8 trillion—by far the highest level ever recorded in America’s history.

The great question now is whether the correction that followed was an end to that bull market—or just a lengthy corrective phase prior to another important bullish move. Let’s turn to technical analysis of the chart for a possible answer.