By James West
March 2nd, 2011
The prices of oil, gold and silver are all presently being pushed higher by the expansion of popular protests throughout the middle east. Despite the confident public statements by officials in Washington, Saudi Arabia, and Israel, rest assured that the level of nervousness within those governments are at their highest in decades. In tandem with the elevated discomfort in those administrations, the markets continue to notch higher, with commodities leading the charge.
But if the perfect storm of commodity price influence that is currently just a feint wind blowing continues to strengthen, the prices for these commodities are going to surpass their all-time records in the first half of 2011. That means topping $1,432 an ounce for gold, $49.95 an ounce for silver, and $147 for a barrel of oil.
Those two paragraphs were written yesterday before gold broke that record, and silver set a new 30 year high. Oil is powering higher, and though $147 is almost a 50% increase from here, remember that when the price spiked to that level back in July 2008, on March 4th, only 4 months earlier, it was trading at the $100 range.
From 10,000 feet there’s no surprises. The U.S. Dollar is in the final stages of deterioration, the nation it supports is broke and is essentially in a state of default. The pretext of military intervention facilitates the deployment of armed forces into the world’s oil producing regions. The U.S. dollar propaganda machine, incessantly ballyhooing an economic recovery by pointing to the ersatz evidence of robust equity markets, disingenuously overlooks the fact that the percentage increases in the Dow mimic exactly the percentage increases in bogus dollar production.
The only real surprise is the sheer audacity of the American political establishment and its rapacious capacity for feeding off of its own impoverished public, anesthetized daily by the talking heads and forced to lean harder into the strengthening force of that foul wind. Everyone outside of the U.S., and many within comprehend perfectly that the biggest financial collapse in history is still underway, and accelerating.
Egg-head analysts are increasingly impressed with their needlessly complex models of future resource consumption. These point to a world where we’re running out of everything in terms of basic non-renewable commodities. Those that are agriculturally generated are starting to bump up against the ceiling of maximum possible production, while the land required to produce them is incrementally compromised by diminishing arability.
The final converging front of said storm of perfection is manifested by the inevitable outcome of the information age begun nearly 20 years ago. Despotic leaders, fortified by U.S. dollars and military support, can longer conceal the treasonous relationship that forms their base of power, and coincidentally, net-savvy youths are organizing and sharing information at an unprecedented rate. The result, collective outrage, is expressed in the form of protests morphing into revolutions morphing into toppled authoritarian governments.
The only thing keeping China and Saudi Arabia from the same fate is robust economics and ferocious domestic policing. The moment the scale tips toward poverty and hunger is the moment no amount of internal brutality suppresses what becomes a preference for a noble death over a miserable life. That equation is natural law. And natural law, unlike the self-serving rules foisted on the public sheep and labeled “The Law”, cannot be broken.
The Chinese bubble, involuntarily and feverishly inflating through the simple requirement of nourishment to sustain its unfathomable scale, speeds toward the inevitable pop, which is the sound heard in the not-so-distant future when the return to tribal warfare marks the completion of the ultimate cycle.
All these factors converge to form insatiable demand for tangible value in direct proportion to the inundation with paper anti-value. That gold and silver are the principle recipients of that demand is, as noted, no surprise.
This weekend upcoming will see the beginning of the Prospectors and Developers Association of Canada convention at the Toronto Convention Center. This is the world’s largest mining investment and finance conference in the world, and the expectation this year is for a sell-out crowd. The reason for that is while the prices of the monetary commodities gold, silver, platinum and palladium, and the energy commodities oil, gas, uranium, lithium, coal and rare earths, all power higher, the companies that explore for and ultimately produce these commodities are where the really big money is made.
The PDAC conference is the single most important gathering on the planet to discover investment ideas, listen to presentations by such companies, as well as a wide range of speakers on topics from mining economics to picking stocks.
Its all about leverage. Whereas the price of gold and silver is just about guaranteed to keep rising in view of all the factors cited above, investors with higher risk tolerance who want to leverage their investments to these prices in the desire to realize gains above 100% within two years can do so by investing in TSX and TSX-listed commodity stocks.
Gold will likely pile on another $80 – 100 in the coming year, as it has done for the last 10, which will give it a performance increase over one year of 6.9% . But buying a junior gold explorer for $0.50 a share, and seeing that company drill a major intercept that immediately carries the stock to $5, is a 1,000 % performance, or ten-bagger – the holy grail of resource investment.
So you can keep buying the platitudes of CNBC and the Wall Street Journal and CNN, who want you to think your funds are safer with the major American investment banks who are their sponsors, or you can quit getting fleeced by the U.S. government-backed financial services industry and come join the land of the free up north in Toronto for 4 days and see how it feels to make a pile of dough.
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