Weekly chart of the S&P 500 from September 2008
Do you own mining stocks along with your physical Gold and Silver? If you do and are in the US, you are reliant on the stock market 'health'. In general, we would like the stock market to either remain in a trading range or continue to head higher. If the markets remain 'healthy', the select Gold and Silver stocks should outperform the spot price of both Gold and Silver on an annual basis.
When the financial markets were crashing in 2008, it took every equity down with it. Even with Gold down 30%, some of the junior miners were down 90%. You will want to prevent this from happening to your portfolio should this scenario happen again in the next few years. Even though some Junior miners had a proven and probable reserves of millions ounces of Gold, the margin calls forced mutual funds, hedge funds and individual investors to sell their stocks dropping many of them to penny stocks.
So will the markets hold up with unemployment at 9%? Oil over $100 per barrel? Gasoline over $4 a gallon? An unstable Real Estate market? Rising food prices?
The TARP and QE2 programs have supported the markets since March of 2009. You can see from the S&P500 chart above of when the TARP program ended in May of 2010, the market started to decline. Ben B announced Quantitive Easing 2 program in August of 2010 and proceeded to pump money into the financial markets. But QE2 will be ending in June 2011. What will happen then?
If the markets start a decline after June (or before), maybe Ben B will announce QE3? The municipal bond market is also on unstable ground and some individual states need money soon which will be another justification for QE3.
2012 is also a election year for the president. Do you think that Mr. Obama will get re-elected if the stock markets crash before November 2012? And everyone with a 401k is down 50% again just like in 2008/2009?
Mr Obama mentioned early last week that he will tap the US Oil reserves if the price continues to increase which increases the gasoline price. I'm sure he knows that if gasoline is $5+ a gallon, he will start loosing voter confidence in his direction of America. Some people may think that he is not doing such a good job with out of control inflation at the pump and grocery store.
So Obama's job is to TRY to keep a 'lid' on the Oil price and keep the stock markets from crashing before November 2012. After that, anything can happen.
Based on the above scenario, QE3 looks like a definite possibility.