Precious Metals News 16 th February 2012

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1 Precious Metals News 16 th February 2012 Hello Everyone! There s a lot going on recently which is all good. The Greeks riot on the debt cut, the stock markets are on their last stretch and more and more real news come out. Read here an interesting article that was published in the Moneyweek: A highly recommended must read was published on Jim Sinclaires website here: Please find in this edition the follow-up on last weeks Outlook 2012 and the Article on How to make safe investment decisions. There s also a bit of quirky stuff in the Story section hope you like it. Thank you again for subscribing to the newsletter we hope you find the information helpful. All the best, Stefan Krämer Director CELTICGOLD This week you ll find: Markets: Update on Gold and Silver (Page 1 to 2) Outlook 2012 Second Part (Page 3) Knowledge: How to make safe investment decisions. (Page 8) Story/Tale: The Angry Lady - How politician scare tactics work (Page 15) Markets: Update for the Gold Market As written in the last newsletter gold went up to test the resilience level of 1,770 $/oz level and then fell back to 1,724 $/oz. According to Dan Norcini traders sold gold on little to fear on the inflation front. Meaning people are more likely to sell gold to cash in long-positions that were in the profits. Gold is likely to see a little dip in the next weeks which presents a good buying opportunity as the pressure from short positions is still there. Please keep in mind that there is approximately 3 to 5 times more paper gold traded which moves the price more than the trading of physical gold. The next technical support levels are in at 1,720 and then at1,680 $/oz. If you think of buying wait a bit until gold retreated a bit further down to 1,700 $/oz. Page 1 of 17

2 Please see here Dan Norcini s latest chart: Markets: Update for the Silver Market Although silver has been rising a bit it is currently undervalued compared to gold. Keep buying on small amounts at this level as it needs to stay above 34 $/oz and take out the next resistance at 35 $/oz. A strong buy is generated when silver stays above the 35 $/oz mark. Page 2 of 17

3 Outlook 2012 Second Part In the second part of our Outlook 2012 we look deeper into the precious metals and their likely performance for the next few years. We will also compare this to shares and currency based investments such as a savings accounts. Gold and Silver Gold is in a long term bull market that started in the year 2000 creating a nice and strong upward channel. The setbacks at the end of 2008 and the end of 2011 were healthy and needed. These healthy setbacks always present a good buying opportunity. Technically there are no signs of a turnaround but keep in mind that we said the ride gets a bit more volatile from here on meaning short declines are likely. Jim Sinclaire the most respected trader sees gold in a trading range between 1,700 and 2,100 $/oz for 2012 as said in the last newsletter. With the recent Quantitative Easing and talk about negative interest rates our long term target has moved from 15,000 $/oz to 20,000 $/oz. As long as money printing goes on gold will continue to rise. Page 3 of 17

4 Silver historically linked to gold has a better chance to move sharply higher this year. The fundamental data on silver show a very, very strong physical demand in the metal mints can barely cover the demand for coins. The gold and silver ratio shows silver is undervalued compared to gold this is a supporting technical indicator as shown here: Currently one ounce of gold costs 51.36oz of silver. When silver hit the 50 $/oz mark, the ratio went down to about 31 meaning you needed only 31 ounces of silver to equal 1oz of gold. Page 4 of 17

5 If you look at the chart from the other side, you get 20oz more silver with every ounce of gold right now than last year in May. Over the long term we see the gold/silver ratio moving to around 1:15. That means 1 ounce of gold is worth 15 ounces of silver or vice versa. An increase in value by an additional 340% to the overall performance of gold. But keep in mind that silver is naturally more volatile than gold you need to be invested long term. What about stocks and savings? When looking at stocks and savings one needs to compare the asset with other tangible assets to find out where the trend is going. Remember what we ve said about inflation: Inflation means: How much food do I get for 10 EUR 10 years ago and now? This chart shows the situation for all kinds of paper currency based investments and that means: Savings accounts, Bonds, Certificates, Funds, Pension Plans, etc. This chart shows the Dollar ( this also applies equally to the Euro, Australian Dollars, Yen, Yuan, Pound Sterling, etc.) compared with Agricultural goods. Agricultural goods are stuff that you eat and wear. The index contains orange juice, copper, cotton, sugar, grain, livestock. Looking at the chart shows in 2002 a peak of 0.76 meaning you needed 0.76 of agricultural stuff for one dollar. Now, in 2012 you need only 0.18 an increase by 422%. Or say, all currency based investments, like a safe savings account lost. Page 5 of 17

6 This chart is a bit abstract so let s look at it from the other side. Agricultural products measured in Dollars. That means how many Dollars you have to spend to get one share of the agricultural index. And the agricultural index represents food and clothes. In the year 2002 you needed a bit over one Dollar. Now, in 2012, you need 5.49 US$ to get the same amount of stuff this shows exactly what inflation is. So the money in the bank is not as safe as it looks at all. Let s look at the stock markets: Page 6 of 17

7 This chart shows the Dow Jones measured in gold. Meaning how many ounces of gold does one share of the Dow Jones cost now and compared to the year 2000? At the peak in the year 2000 it was about 40 ounces of gold, now in 2012 it s 7.46 ounces of gold. Compared to gold, the Dow (and so did all other major stock indexes worldwide) tanked by 81%. IMPORTANT NOTICE This analysis doesn t address short term trading opportunities; it addresses the long term fundamental situation. In our view the stock market is at present time still overvalued this shows the price/earning ratio. A price/earning ratio says how many yearly earnings of a company are in the stock price. Here an example: A share of Company XYZ costs 100 US$, the annual Earnings are 5 US$ per share Price/Earnings (P/E) ratio is 100/5 = 20 If you buy that company you need to wait 20 years for your investment to come back. Looking at the P/E ratios of the major stock indexes currently at about 15, tells us there is of lot of room for a major decline. P/E ratios need to come in a range between 5 and 9 for an investor to make a safe stock investment. Shares are too scary for the average investor and the risk is too high for the amount invested but never mind a short term gamble. Savings and bank accounts also are not ideal and safe even if the money is guaranteed. The only thing that is guaranteed is the loss of purchasing power. But obviously one needs some cash at hand and in the bank account to function and coordinate daily life. Real Estate will hit bottom in a few years too early to go back in. And the shining stars are Gold and Silver and tangible assets such as grocery for example. These are the safest bets available in the current markets. Page 7 of 17

8 Knowledge: How to make safe investment decisions In turbulent times safety becomes vital. And safety stretches out on many levels. A safe job, a safe car, a safe home and a safe investment. Safety comes with Understanding. Understanding is that inner Yes, this it how it works and lets one move into the right direction. Understanding comes with knowledge. True knowledge is transported here and the right direction is a sound decision that suits your objective and benefits you. What subjects and themes are you interested in? Please let us know and we provide the information in one of the next newsletters. A beneficial investment is an investment that increases your wealth or stays stable in purchasing power when everything else crashes. The following information is designed as a recipe. The purpose of a recipe is to work every time all the time. Make use of this recipe to check your current investments or double check before you invest in the future. The recipe that makes a good investment an overview: 1. Understand the vehicle: The current monetary system 2. Understand Fundamentals 3. Understand Price and Value 4. Understand Cycles 5. Timing and Exit Strategy How to work with the recipe: 1. Understand the vehicle: The current monetary system Having read our past newsletters and the Goldbook you have a basic understanding How the system works. If you haven t read that information then do so and in addition browse through the internet and learn about fiat-currency, fractional banking and Keynesian economics. You don t need to become a pro; a simple understanding of how things work is enough. Page 8 of 17

9 Your understandings should be: Knowing fractional banking Paper-currency has always failed as money Gold has never failed as money The self-destructive component of interest rates and How inflation works The media and government data scams Sources from where you get real and truthful information 2. Understand Fundamentals Fundamentals are facts about an investment that you look at before investing in something. All of these questions need to show green before investing: What is and was the price and demand of the market? Have there been fluctuations, technological developments? How high is annual production and how high is the inventory? If planning to invest into something tangible: Is the source finite and inventory in a downward trend, meaning is the investment getting rarer? Is it something you understand how it works? Is the company and/or asset financially healthy? Is the target group growing or shrinking? Do the demographic figures of the target group support the investment? 3. Understand Price and Value There is a difference between price and value. Before investing you need to determine this crucial difference. For example the price could show a low number compared to a few years ago you think, that makes a good investment, but the asset is completely overvalued. Always invest when the market you think of is undervalued that s the safest bet. In a paper currency system which we have right now, one always needs to calculate the inflation into the equation. In a world that prints money with no end, you need to ask, why is everything going up? If stocks, bonds, real estate, commodities like oil and gold all go up where does it come from? The only reason the stock markets go up is a massive amount of Dollars, Euros, etc. that flood the system und bolster everything up artificially. So the question is: How much is my investment worth what s the value? Page 9 of 17

10 And that leads you to the view at the investment in terms of purchasing power. To shine light on your investment of choice you need to compare it with other stuff. Let s look at the stock market for example: The Dow Jones was in the year 2000 trading at around points. Today the Dow trades at 12,848 points. A nice 22% gain. The price is higher that compared to 12 years ago. A standard advisor would tell you, this is a good investment and compared to a savings account even with the terrible dip in 2008 they believe long-term this is a good investment and much, much better than a savings account. Oh, wait a minute but what about the value of Dow? Did the value go up or down? These charts reveal the truth: Page 10 of 17

11 You know this chart already from page 6. The two charts above measure the Dow Jones with real commodities Gold and Oil. The last chart shows the No. 1 and most useful commodity that is of value for us humans Oil. One share of the Dow Jones in the year 2000 was worth around 800 barrels of oil. Now, in 2012, it is only worth around 130 barrels. A 83.75% decline in 12 years. Page 11 of 17

12 The chart of the Dow Jones measured in Gold says, if you would have sold your one share of the Dow Jones in the year 2000; you could have bought 40 ounces of gold. Currently you only get 7.46 ounces of gold. You would have lost by investing or staying in shares The charts with the Dow Jones represent shares as an investment in general. This is the difference between price and value. Determine in which trend your preferred asset is is it gaining in value or loosing in value. Invest only if it gains in value which means it is undervalued and that leads us to the next chapter: 4. Understand Cycles Cycles are everywhere; a cycle is a part of nature. We have seasonal cycles like planting and harvest cycles for example. There are economic cycles that are created by the cyclical behavioural patterns of humans. Humans are a part of nature. When you have read the Goldbook, you know that the world economy is in a Winter cycle. Professor Kondratieff researched economies and found repetitive patterns over and over and interestingly divided these patterns into the four seasons Spring, Summer, Fall and Winter. If you are familiar with the Elliott Wave Theory, you know that there are smaller cycles within a grand or super cycle matching Professor Kondratieff s theory. Throughout history humans have moved from one asset to another asset and then moved backed again. This is what gives form to the cycle. Learn more about Elliott Wave: ave_principle The key is to find out when an asset is undervalued or overvalued. Buy when it s undervalued sell when it s overvalued. That s the theory. By now you know, that making a decision based on price alone is a gamble. Deciding on value is safe. The Elliott Wave and Kondratieff cycles give you a good idea where we are and where we are going. In addition to these two methods you can identify the position of your investment by looking at these three more cycles: Page 12 of 17

13 P/E Cycle The fluctuation in stock prices relative to earnings On the peak of the dot.com bubble P/E ratios of tech companies reached levels of 200 and more. Meaning it could take 200 years to get your money back. At the time some clever guy came along and invented a dynamic P/E, titled PEG (Prices/Earnings/Growth) which includes the future growth to indicate a true valuation of the share well the rest is history. Looking at a P/E ratio cycle gives you an idea on the fluctuations of underto overvalued. Looking at the historical S&P500 P/E chart tells us, a P/E ratio of 4.8 to 9.4 indicates undervalued where as P/E Ratios of 24 and above indicate overvalued. The next cycle you can watch is the Tangible and Intangible Cycle. This cycle indicates the fluctuation of the public interest between paper based investments such as stocks and hard investments such as gold. You look at a long term chart such as the Dow Jones in Gold chart that we looked at before to identify where the turning points are. Page 13 of 17

14 The third cycle in addition is the Real Estate Cycle The same wave pattern that exists in the S&P500 chart and Dow Jones in Gold chart happens to exist in the real estates markets. People move in patterns. And it turns out that these three cycles summarized in one chart give a pretty powerful tool. By looking at different assets measured in something tangible gives you an indication where you are. The turning point in this chart is the year 2000 and since the year 2000 gold and silver started their bull market. This is the decade of gold and silver as we ve often said. A changing pattern in the long term cycles is not likely to happen before the year , so enjoy the ride. 5. Timing and Exit Strategy There is a saying in the financial world: You can never go broke by taking profits. Once you don t swim against the tide, things become easy. The trick is now to cash in when the time is right and the next cycle starts. By keeping an eye on the long term cycles helps you make good decisions. See that the current P/E ratio is starting to fall having been at 15 on average. Once they reach 9 look closely what real estate and stock indexes like the Dow are doing and if the they still keep falling and if gold and silver keep rising stay in. When the P/E ratios keep falling and reach 5 confirmed by a drop in gold and silver prices that s your sign to change your gold and silver into a different asset, most likely into real estate.* This point in time will show up the closer we get to the year In the meantime this long term bull market for gold and silver has a long way to go as we have discussed many times. The current situation is one of the greatest opportunities for your wealth swim with the tide. *We don t recommend selling your gold and silver in general. Keep in mind that the paper currency will fail. You need gold and silver in such a phase. If a new paper currency is established one need to cash in and swim with the next tide that most likely real estate. Page 14 of 17

15 Story: The Angry Lady How politician scare tactics work While driving through Ireland I listened to a local radio station. There was an interview going on between the radio host and a female politician. The politician lady was very angry about the drinking behaviour of the Irish. Well the term drinking behaviour includes everyone having a pint in the pub, at a party, a wedding and at home and even people on holiday; meaning a tourist who loves to get pissed listening to Irish music in the pub. She continued to highlight the effects of too much pub costs the Irish taxpayer every year 4 billion Euros. Giving the fact there s only 4.5 million people every year that s a decent amount of money but obviously that doesn t include the tourists. Now, except for the holiday season the costs of a litre of beer ranges between 3.50 and 4.00 Euro in regular times at the Off-licence and supermarkets. You can get cheap German beer at Aldi and Lidl s at 1.79 Euro per litre. As a German, I m naturally familiar with beer prices. A litre of premium beer in Germany costs 1.00 Euro. You can get the cheap stuff around 0.59 Euro per litre at Aldi and Lidl s. After this excursion in the European beer markets, let s continue with the Angry Politician Lady. She continued to tell the radio host that We can t allow supermarkets like Tesco s and Off-licences to sell alcohol on a non-profitable basis. I studied the Irish beer market in depth. Around Christmas time you can get a can of premium lager at 1.00 Euro per can, which means 2.00 Euro per litre. A local Off-license owner told me that 75% of the total cost of a can of beer is taxes. And he couldn t offer me a discount even if I would have bought 5 hectolitres (hectolitres is a beer-insider-term in which beer is measured and calculated. One hectolitre = 100 Litre.). So the Irish supermarkets and Off-Licences sell beer between 2.00 and 4.00 Euro per litre meaning 100 to 400% above the price of German premium beer. So the question I asked myself while listening to the angry Politician: How much more taxes can you milk from the people if you re already 400% above German average? Page 15 of 17

16 The Angry Politician continued: This is an unbearable situation We need to tackle this. Well, on a side note, every time you hear from officials: We need to tackle this run as fast as your legs can carry you. Find shelter in the next pub. Two beers please Thank you. She sounded massively important having a 4 billion Euro issue at hand and therefore felt entitled to speak about these things on the radio. So the bottom line of the question How are WE gonna tackle the situation of the Irish drinking behaviour was: Raise the total prices on alcohol by 40%. That means a pint of Guinness goes from an average of 4 Euro to 5.60 Euro in the pub or a litre of beer goes from 4 Euro to 5.60 Euro in the supermarket bad news for the economy. Given the fact the Irish economy is in pretty bad condition already if you raise taxes on alcohol by 40% that will most probably result in 30% less pubs and more people on the dole. So, who does this possible tax-raise serve? One need to think about these kinds of stories it opens up our perception to the subtle manipulation that s going on. Here s the recipe on How do I scare the shit out of people : 1) There is a big problem usually related to something people love 2) We need to tackle this this situation is unbearable 3) Offer a solution by creating consensus 4) Result: Milk more people of their hard earned money Anger is being used to bring the attention to a certain subject. So the attention goes to The drinking problem ; it is made of impertinence. But the truth is that Pharmaceutical companies push products into the markets that are more expensive and less effective. A study showed that only 15% of the medication that was introduced since 1990 shows better results in the cure. So it s all show - Do you see? We re all manipulated into silently agreeing to tax increase but the problem lies somewhere else. So the learning effect is: Never, ever, ever, react to anger. Anger is being used to seek attention and manipulate you. Offer a smile and walk away. Page 16 of 17

How does the line of the famous song Another Brick in the Wall from Pink Floyd go: Teacher leave them kids alone; we don t need no education. But we say: Lady leave us pub visitors alone.

17 How does the line of the famous song Another Brick in the Wall from Pink Floyd go: Teacher leave them kids alone; we don t need no education. But we say: Lady leave us pub visitors alone. We want to drink as much as we want. Always remember this this radio interview happening reminds me of the deceitful scare tactics of the system. It s so easy to follow along and agree on but it s a trick. Never mind, eh? Who wants to come to the pub and have a drink? Cheers. CELTICGOLD: Our take on the financial markets We at CELTICGOLD believe that a stratospheric rise of gold and silver happens in the next few years. Government bailouts, billions and trillions of dollars and euros of budget deficits at the expense of the taxpayer and massive money printing by central banks will result in a collapse of the major currencies. We at CELTICGOLD believe that one of the few ways to protect your wealth from the coming economic chaos is through physical ownership of the precious metals. We at CELTICGOLD further believe that one can only make sound money decisions with a basic knowledge of how the current monetary system works. We invite everyone to gain knowledge and build a true view in order to make investment decisions. Preview for next newsletter: Knowledge: How the Credit bubble popped - video Story: How Government guarantees work Page 17 of 17

The Hard Lessons of Stock Market History

The Hard Lessons of Stock Market History The Lessons of Stock Market History If you re like most people, you believe there s a great deal of truth in the old adage that history tends to repeats itself