LENGTH OF U.S. RECESSIONS

Here are a couple of charts on the ''now ended'' Great Recession.

GOLD & SILVER - NOT PARABOLIC YET ??

I recently came across some gold charts while reading a link I found at kitco.com

Below is an article by Dudley Pierce Baker. He discusses the parabolic moves in precious metals during 1979-1980.

Link: What Happened and Will Happen Again

He does make a valid point. Take a closer look at the above two charts.

Now those were parabolic moves!!

Could gold and silver have a repeat performance of those parabolic moves?

Well all I can say is who knows! Gold has been the top performing asset class of the last decade. The Every bull market has corrections along the way and the precious metals sector is no exception. So expect corrections and panic selling as part of the ongoing gold bullion bull market. The fundamentals are rock solid and long term buy and hold strategy is advised.

Once again I would like to warn investors not to try to time the precious metals market or indulge in leveraged trades when gold prices are rising. Instead look to buy in only after sell offs and corrections rather than chasing rising prices.

The Monetization Equation

Taipan Daily's Justice Litle & John Williams of Shadowstats.com have the following view on the monetization equation and the rally in Gold prices.

This could help explain the rally in gold prices despite the ongoing deflationary environment.

.

As David Rosenberg has been pointing out in recent times, the ''bond market rally'' has resulted in mortgage rates remaining near record lows. As a result, the bond market has helped to cushion the slump in the housing market.

.

This will make it even more difficult for the fed to raise interest rates in the near future.

All in all the aftermath of a bust of a bubble created by cheap credit takes time to sort out and the adjustment can be painful.

.

There is no quick fix, as consumers return to living within their means and go back to age old practices of saving and taking on less debt!

GOLD - IT'S RALLYING AGAIN !

Just about everyone seems to be bullish on gold at the moment.

As bullish momentum takes over, we could be in for higher prices in the days ahead.

Over the last month, silver has soared from levels of $18 -$18.50 to almost $20.80 currently.

Below is a chart by Chris Vermeulen, who acknowledges the currrent bullishness, but wisely takes a step back to take a look at the ''big picture''

Here is Chris Vermeulen's article on kitco.com

Gold Forms Overbought Rising Wedge at Resistance

While I remain both a gold bug & bull, it's worth noting that the equity markets may be overly optimistic about earnings estimates for the second half of 2010.

The USD has been beaten down by the recent lack of risk aversion.

/

If market tremors re emerge, gold could sell off. Just to put things in perspective, a 20% sell off from the current level of $1273 will still mean that gold will continue to trade over $1000.

.

All that I'm saying is that fresh buying may be postponed for the time being, and that its advisable for long only, long term investors to wait for a pull back before jumping in at current prices!

Where are we headed to now ?

Well it's been a while since my last post.

Markets have been bullish across asset classes. Equities, Bonds and precious metals, all rallying at the same time!!
U.S. unemployment numbers as well as the continuing slump in the US housing market continue to be worrying reminders that all may not be well with the global economy.

David Rosenberg recently reminded us that the U.S economic recovery has been largely dependent on government support (think mega bank bailouts, cash for clunkers, food stamps, infrastructure funding packages etc). By this stage of the game and given the extraordinary stimulus packages of the last two years, the economy should have been growing strongly.

Instead it looks like the U.S. economy is unable to survive on its own, given its slumping home prices, high unemployment numbers and high consumer debt levels.
Even Ben Bernanke is looking to cut growth forecasts while remaining silent about the eventual withdrawal of 'fed support' for the economy.

The FED & GSE's continue to support the housing market, even as home prices continue to remain weak.
No government in the western world can risk withdrawing its support for the ongoing ''fragile'' economic recovery. In fact, many are contemplating another round of stimulus packages to head off a slowdown in the second half of 2010.

Here's a quick roundup -

• Gold and Silver are on a surge yet again, after trading confidently throughout this summer. They appear to be overbought in the near term, especially silver which has had an almost vertical rise over the last fortnight.

• US Equity funds continue to see outflows, while US debt funds continue to see further inflows.

• US Equities have been rangebound in the 1030-1130 range on the S&P 500.There have been multiple corrections and rallies and despite regular tremors about the Club Med economies, the Euro and the state of finances of the states like California in the U.S.A --markets have chosen to ignore any worrying news.

• Emerging market equities are rallying again and decoupling theorists are back to claiming that the BRIC economies can thrive and grow despite global headwinds.

• The Indian equity market has been an outperformer in 2010 YTD. The rally is spreading to the mid caps and small caps. Overall the markets appear to be factoring in growth rates that may prove to be a tad unrealistic, especially if we see any turmoil in the ever slowing western economies

Overall, I continue to be wary of the ongoing rally in equity markets that seem to refuse to acknowledge poor economic data as well as the total lack of confidence on main street (especially in the developed world).

Are equity markets adequately factoring in a possible slow down in the second half of 2010? - I think not

Remember, it's better to be realistic that hopelessly optimistic.

I am still bullish on precious metals. We are also entering a 'seasonally strong' period for precious metals. Caveat Emptor - A sell off in equity markets will trigger a sell off in precious metals.

Expect upcoming posts on Gold, Silver and Indian Equities in coming weeks.