Fiat Currencies are Toast – Weekly Commodities Review

Fiat Currencies are Toast – Weekly Commodities Review

Gold & Silver Up – Everything Else Continues to Circle the Bowl

Gold, silver, and – of course – the US dollar – continued to rally this week. They were about it, as the stock market swooned, commodities got whacked, and every asset class continued to circle the bowl.

Stocks have now gone nowhere in the last 11 years (check out the chart below, courtesy of Agora Financial). I expect they’ll go nowhere for at least 5 more. Bear markets in equities typically last 15-20 years. This bear market started in 1999 – just 10 years ago. This bear has got some room to run.

Plus, bear markets rarely start from valuations this high. Although stock prices have been slammed, earnings – or the “E” in P/E, have been falling even faster. In fact, collective stock market earnings are now lower than they were 11 years ago!

Bull markets always start with price-to-earnings ratios below 10 – sometimes closer to 5. We’re still north of 15. DOW 3000 anyone?

Meanwhile gold continues to rock and roll, spurred on by a fantastic display of money printing across the world, and a possible end to the fiat currency experiment as we know it.

While everything appears to be lining up in gold’s favor, it’s important to remember that no asset ever goes straight up. It’s very possible that gold could correct from here – quite significantly – and a correction back down towards $700 cannot be ruled out.

However, it’s also possible that gold could hit the “mania” phase quite soon, as described in this Financial Times article.

My take is that you should seriously consider having some of your core holdings in gold. In the medium term, today’s price should be an attractive entry. However in the short term, you may get a better price to initiate some holdings, and may want to considering keeping some dry powder.

Though if I could time the gold market myself, I’d be drinking a Mai Tai in a hot tub somewhere, instead of blogging from my living room right now.

And don’t forget silver – which doesn’t typically perform as well as gold in a deflationary environment. In fact, silver often suffers in recessions because of reduced industrial demand. Maybe the recent price action in silver suggests inflation is closer than our wonderful government officials believe.

Silver is historically more volatile than gold – and it could really start to move if the trend of cashing in paper currencies for precious metals continues to accelerate.

Open positions

Date Position Qty Month/Yr Contract Entry Price Last Price Profit/Loss
01/16/09 Long 1 MAR 09 Corn 374 3/4 355 1/4 ($975.00)
01/20/09 Long 1 MAR 09 Corn 397 1/2 355 1/4 ($2,112.50)
Net Profit/Loss On Open Positions ($3,087.50)

Account Balances

Current Cash Balance $32,886.73
Open Trade Equity ($3,087.50)
Total Equity $29,799.23
Long Option Value $0.00
Short Option Value $0.00
Net Liquidating Value $29,799.23


Cashed out: $20,000.00
Total value: $49,799.23
Weekly return: -5.1% 🙁
2009 YTD return: -41.3% 🙁

Prior year’s results:
2008: -8%
2007: 175%
2006: 60%
2005: 805%

Initial stake: $2,000.00

Ah well – easy come, easy go…