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speedybure (< 20)

Last Chance To Get Into The PM Miners : Thank You Mindless Drones..



July 10, 2009 – Comments (0) | RELATED TICKERS: AUY , GLD , SLW

I Find it odd that the gold and silver miners were trading higher in 2007 when gold prices were much lower and cash costs were much higer. I'm not calling today the bottom in these stocks, but I will say there will be lows that we will never see again sometime between now and the end of the summer doldrums. My feeling is earnings season will set these industries apart from the rest of the market. I mean the fed did announce in their minutes released on june 25, that they will in fact replace their original plan of buying 300 Billion in treasuries with an even bigger plan which includes a total purchase of MBS, treasruies and other assets of 1.8 trillion.

The first reaction would be so what? They announced they would purchase 700 billion in MBS back in march. But they already have! Go to the St. Louis Fed website and search for "reserve bank credit - securities held outright - mortgage back securities", you will find 420 billion has already been purcahsed.  So in other words they will be purchasing 2.08 trillion mostly between MBS and Treasuries. My hunch is they will eventually hold 1 T - 1.2 T in MBS and 600- 800 Billion in Treasuries. Why? Well because they are having a hard time controliing the entire yield curve (which they are doing to keep mortage rates down(highly correlated to the 10-year), reduce our interest payments on public deb( 30 years treasuries to reduce foreign debt payments)t and keep the fed funds rate low. So what am I getting at?

The Fed will be able to supress these rates, but as they monetize the debt (gold rallied 75 points when they announced 300 billion), gold and silver will go back to their old highs at the least. But what will push these metals to the moon is the fact that when rates start to rise again (because the fed can only manipulate the mid to long term rates for so long), there will be no turninig back. At that point there go the printing presses once again.  

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