Golden Opportunities Time

“The EFSF is not an adequate safety net to prevent Italian Contagion. Italy may be past the point of no return.”

Barclays, 11/8/11

Chinese gold mine output has finally flattened, with growth estimates for 2012 at only 2.7%.

But Chinese gold imports exploded in September 2011, with September purchases (56.9 tonnes reported via Hong Kong alone) equaling the entire first 6 months of 2011 put together – a dramatic increase even considering the upcoming holiday season. (Hong Kong figures are a proxy for total imports as China does not disclose gold import figures.)

“The September figure is nearly 500% higher than in the same month last year and left total shipment for the first three quarters of 2011 by 128% y/y.”

UBS, 11/9/11

And recently, in reversal of the trend earlier this year, gold shares (per HUI) rose substantially in the three months prior to September 2011. And after a late September-early-October fall, the HUI popped up over 600 again, approaching a record high, before this week’s takedown.

Most significantly, while the shares had underperformed bullion until October 2011, after the October 20 low, their rise since has been nearly double that of bullion.

And while it has been pretty clear to us that The Cartel** has been more successful in suppressing the price of the shares than of bullion (“paper” shares are easier to price-suppress than bullion), the evidence is that this is about to change. Why? Well, for the foregoing reasons, and…

With the price of bullion at record highs all this year, we expect well-managed miners will show record profits for 2011, in January and February 2012.

Moreover, significantly, recent moves up have been in spite of relative U.S. Dollar strength.

Therefore, going into next year it makes sense to be well positioned for those earnings reports, so we just made one miner recommendation this week in our most recent alert (see note 1)* and expect to make several more in the seven weeks remaining in 2011.

And we expect the rest of 2011 will be an excellent time to buy because, very short term, we expect a pull back in the miners’ shares, which should provide somewhat better entry points than we have today.

As for bullion itself, it has been moving up strongly and is bouncing around $1750/oz as we write. And, given the ongoing Eurozone chaos and Chinese buying, we expect it to make another run at $2000/oz beginning in the next few weeks.

Of course, substantial U.S. Dollar strength, such as on this past Monday, tends to hit both precious metal and equities prices hard temporarily. But gold’s move up has been accomplished in spite of U.S. Dollar relative stability/strength. This is a clear indicator that gold is seen as a safe haven. And in Euro terms gold has been even stronger recently.

Those who have not read our recent alert should know that our earlier forecast (correct thus far) remains the same:

“Going forward, most scenarios are Excellent for Gold and Silver Prices. Risk-on Trading, and enlarged Eurozone Bailout Funds, and the prospect of QE 3 in 2012 (see Note 3) all raise the Inflation Specter, and that is Good for the Precious Metals Prices.

“Risk-off” behavior in the markets indicates a likely investor focus on gold as safe haven to the extent that that “risk-off” markets behavior reflects economic weakness. But that is not so good for silver, due to perceived slackened industrial demand.

Nonetheless, an increasingly severe shortage of physical silver will tend to keep prices high for it as well.

In sum, short, medium, and long term we are bullish on both. The only caveat is that The Cartel** will surely continue its price suppressing attacks, so continue to be psychologically prepared to weather great volatility, the big V, and to buy on the dips.

As to specific forecasts, since we see The Fed-led Cartel doing ever more de facto QE (and by whatever euphemism it is called, e.g. Operation Twist) going into 2012 and that is hyperinflationary, and good for p.m. prices and bad for long-term economic health. Short term, like a sugar high, Q.E. tends to temporarily boost an economy, but worsens the economy in the long run.

We expect the next few weeks will provide precious metals investors the opportunity to take advantage of the first half of the old axiom “Buy Low” with excellent prospects for “Selling High” down the increasingly bumpy road.

Best regards,

Deepcaster
November 10, 2011

Note 1: *Investment legend and newsletter writer extraordinaire, Uncle Harry Schultz, said our alert this week -- “U have outdone yourself again. Great job of thinking.”

We appreciate Uncle Harry’s wit and wisdom.

Note 2: **We encourage those who doubt the scope and power of overt and covert interventions by a Fed-led Cartel of key central bankers and favored financial institutions to read Deepcaster’s December, 2009, special alert containing a summary overview of intervention entitled “Forecasts and December, 2009 Special Alert: Profiting From The Cartel’s Dark Interventions - III” and Deepcaster’s July, 2010 Letter entitled "Profit from a Weakening Cartel; Buy Reco; Forecasts: Gold, Silver, Equities, Crude Oil, U.S. Dollar & U.S. T-Notes & T-Bonds" in the ‘Alerts Cache’ and ‘Latest Letter’ Cache at www.deepcaster.com. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org, including testimony before the CFTC, for information on precious metals price manipulation. Virtually all of the evidence for intervention has been gleaned from publicly available records. Deepcaster’s profitable recommendations displayed at www.deepcaster.com have been facilitated by attention to these “Interventionals.” Attention to the interventionals facilitated Deepcaster’s recommending five short positions prior to the Fall, 2008 Market Crash all of which were subsequently liquidated profitably.