Hyperinflation and Gold Momentum Investing

Posted on October 22, 2007 , filed under Stocks | Print This Post

I’m expecting to see some major moves in precious metals stocks in the next two weeks. We are building up momentum toward another possible rate cut at the end of October. I’m guessing that we will see a quarter point cut at the end of the month. The USD depreciation is startling. I’ve been telling friends of mine that I expect to see hyperinflation take hold at some point in the next 5 years. As people lose confidence in the USD they will make a move to real assets. This means people may move into physical assets like gold or property. This will inflate the prices of everything.

I expect to see things pan out in this order:

-Negative consumer sentiment creates temporary deflation
-Fed drops rates and prints more money to improve consumer confidence
-US consumers borrow more as money gets cheap
-Prices go up
-Foreign governments increase local currency rates
-People lose confidence in the USD
-Inflation takes hold
-Fed increases rates to fight inflation
-The rates needed to restore confidence in the USD grow to double digit levels
-Hyperinflation takes hold

At the moment gold is hovering at $750-$770 levels and silver is holding at mid $13 levels. The USD Index recently hit low $77′s, a startling level when you consider how hard it was for us to break under $80. I’ve guessed that the next critical support level for the plunge protection team to hold was $75-$76.

Many precious metals stocks are trading at or near 52-week high’s. Stocks I like at current levels, purely as turnaround momentum investments include:

Gold Fields Inc. [[GFI]]
Tanzanian Royalty Exploration [[TRE]]
Silver Wheaton [[SLW]]
Helca Mining [[HL]]
IAMGOLD [[IAG]]
Goldcorp [[GG]]
Yamana Gold [[AUY]]
US Gold Inc. [[UXG]]

Pay special attention to the last two miners. I expect to see shares of Yamana at $18-$20 and US Gold at $7 levels if gold can break $800.

*Disclaimer: The author currently owns shares of Helca Mining and US Gold Inc.

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