Predictions for 2011: Gold, Silver and the Economy
By Kenneth J.Gerbino
Jan 14 2011 10:36AM

As a hedge fund manager one lives between the realms of market volatility/mass paranoia and an unending stream of data collection. The main objective of the exercise is to know that no matter how right you may be on your analysis of value and expected future returns you are operating in an arena (investment markets) that can become irrational at any moment.

The future is an unknown. But something that can be known is value. Therefore with value correctly analyzed (especially in the mining sector) one has some assurances of the future worth of an investment even after market drops.

It is also important to have an understanding of basic economic truths which do exist! There are reliable cause and effect relationships that over some period of time eventually determine stock and bond market behavior.

Let’s start with some basic facts that are obvious, easily perceived and known and a few logical assumptions. These facts and assumptions help us form predictions that will hopefully help us with investments.

Facts:

U.S. Budget Deficits will exceed $1 trillion per year for many years. (even if this is off by 20-30% it is still a major factor and disruptive force).


The U.S. money supply has increased by almost $1 trillion in just the last three years, the greatest three year increase of money in the history of the world.


The European money supply increases were $3.7 trillion (2.75 trillion Euros) over the last 10 years. That’s more money created in 10 years than the last 2000 years of Europe’s existence.


The European budget problems and debt levels will continue to be a force for a loose monetary policy – at least for 2-3 years. A default will not be allowed under any circumstances (this is actually an assumption but one that is so strong it becomes almost as good as a “factâ€