Good afternoon. It is a pleasure to return to the Empire Club to discuss the outlook for gold and precious metals in 2011. I know this may appear to some to be an enviable job—getting to speak about the one asset class that seems to continually out-perform all others year after year—but it is a double edged sword.
ONIONS! Will the onion shortage in India bring down another government, as was the case in 1998? Onions in India are much like garlic in Italy, an essential part of the good life. In India, onion demand is exceeding the ability of the nation to supply onions. Price of onions has doubled(AFP, 22 December 2010).
History is replete with seemingly unexpected and catastrophic appearance of events that nobody saw coming. In the old days, we have Biblical prophets who sounded clarion alarms. Now we are past the age of prophecy. As in historical watersheds, we suddenly find ourselves congealed in the volcanic ash of a modern Vesuvius eruption, which leads us to scratch our heads of how in the world did we come to this point with rare earth supply fears?
The bear market in bonds will be confirmed globally. While interest rates likely bottomed in 2010, a significant rise in rates during 2011 will confirm a bear market trend for smart money investors. This bear market will continue until the global currency market is restructured.
It is time once again to throw caution and wisdom to the wind and actually make my 11th annual forecast. I have to admit this is the most stressful letter I write each year. I do at least 5-10 times more research and thinking about this issue than any other. On a positive note, this may be one of the more optimistic forecast letters I have done in a long time. But there are some asterisks, as always.
The market looked a little tired as we concluded trading last week. Clearly there was some sector rotation in the market as investors looked for the next winning trades. Also, there was some selling in the metals space as the dollar heated up. Healthcare was strong, led by pharmaceuticals and HMO’s. Railroads were a leadership area as they broke out of a trading range and look poised to continue higher.
2011 is just underway, and already, confusion reigns. My mother fell on her head at Machu Picchu and some kid in Arizona killed some decent folks in Arizona. My dog is in heat and its summer in Lima. See what I mean?
Janet Yellen (Vice-Chair FRB) gave a speech in Denver on Saturday. She did her level best at defending QE. I think she lied to us. This chart was central to her defense of the busted policy.
Last week the 112th Congress was sworn in. I am pleased that I will be chairing the Monetary Policy Subcommittee of the Financial Services Committee, which has oversight of the Federal Reserve.
