Precious Metals on Sale
Research for Online Investors

by John Dalt

12/08/10

The market is caught in limbo as Democrats fight about the agreement between Oh! Bama and Republicans to extend the Bush era tax cuts.

Politico reports that the democrats were livid in a closed door caucus meeting Tuesday night.  They couldn’t believe the president had given in on higher taxes for those making over $200,000 and couples with incomes over $250,000.

The President had two officials along with two senators and two representatives from each party work out the tax agreement.  Vice-President Joe Biden is meeting with democratic congressmen today.

Representative Van Hollen was the House Democratic negotiator.  He said, “Our guys got taken to the cleaners.”  This was in reference to the estate tax or “death tax” provision.  Estate taxes would go to 35% with a $5 million exemption.  Rep. Gary Ackerman (D-N.Y.) said “I disagree that we didn’t get anything. We got screwed.”

Reuter’s reports that Harry Reid, the Senate Democratic leader, said “It’s further along than most people think, I don’t think there is a great more to be done.”  Reid said the proposal could move quickly in the Senate.

The uncertainty over the tax extensions is giving us a chance to get on board the precious metals train.  If you are like many of us and have watched gold and silver move higher but just couldn’t pull the trigger, IT IS TIME.

We wrote last spring that Silver would be the “Trade of the Year.”  I was convinced then, but the “conservative” side of me wanted to buy at the absolute bottom.  When it started higher, I wanted a pull back.  When it pulled back, I wanted a bigger dip.

We traded AGQ a few times in the summer and made money…but I let the train leave the station when the Fed poured rocket fuel in the precious metals market.  Make no mistake QE2 is rocket fuel for all commodities, especially precious metals.

Back in August, precious metals started their big climb.  AGQ, the silver Ultra ETF was up 179% two days ago!  A crazy thing happened this fall.  Initially the dollar fell after the Fed announced they were going to buy more treasuries.  This was to be expected, because more dollars means they are worth less.

In October and November the eurozone credit crises heated up and the dollar started strengthening.  Normally, this would mean precious metals would go down…but they didn’t.  Gold and silver kept climbing.

Evidently, overseas investors wanted gold and silver if their currencies were going in the trash can.  Then last week, we heard China opened a gold ETF for traders in the middle kingdom.

If you can’t buy the real thing, why not buy an ETF that owns gold, silver, miners, or an etf that owns all three?  I like the idea of this being available to Chinese investors.  We have arrived at a crossroads where precious metals have unhooked from the value of the dollar, the Fed and now European Central Bank are committed to print money and buy dodgy debt.

The current tax extension debate in Washington has knocked down the price of Gold and Silver in the last two days.  Traders are sitting on big gains, and will sell this year if the deal falls apart, because that will mean taxes will be higher on income next year.  Once the tax rates are extended, the selling pressure from this uncertainty will disappear.  How many pullbacks have you missed this year?  They may have a little further to fall, but as soon as the tax deal is approved, look for a move higher.

All are close or below the 23.6% Fibonacci retracement of the climb since the middle of August.  We have been here three times in the last three months.  Every time was an opportunity to load up for the next leg up.

Consider GLD, SLV or AGQ the Ultra long silver ETF.  You may want to open a half position, and average down if there is another leg down.  We can’t predict the political debate, but expect approval to come soon and new record highs.

To the mailbag:
I wish your daughter well.---subscriber C.H.

John’s reply:  She had a small growth in her neck.  Surgery was successful and she is recovering.  Thanks for remembering her.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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