There is one point with regards to the winter season of the K-Wave that should be discussed and is imperative that investors understand.  Although to date the United States as a nation has experienced several deflationary depressions, it has not experienced a “hyperinflationary” depression recently.  What is critical to understand is that the wrong investment decisions made at this point in the cycle could, and in high probability would, result in a devastating financial loses never to be recovered.  This is why it is of extreme importance for investors to understand completely what the difference is between the two types of depressions, and then also to know what are the appropriate steps to take not only to preserve their assets and maintain their financial well being during a most difficult time, but also the steps to take advantage of the new opportunities which will present themselves.

IMO, we are about to witness one of the greatest transfers of accumulated wealth in the history of mankind … those who remain in paper assets IMO will suffer a substantial loss while those invested in tangible (commodities) assets … esp. in the precious metal sector to include both physicals and mining shares … will not only protect their purchasing power / accumulated wealth, but due to a global limited supply will increase their wealth.

Based on historical research and current economic / political conditions, I contend that the precious metal sector has only thus far experienced the first and second waves of three waves total in the current commodity bull market cycle.  A comparison to the last important commodity cycle of the 1970’s shows the similarity in development.

In 1970 the gold price was quoted at $35.00 per ounce.  The first wave increased the price to roughly $197.00 per ounce.  This was an increase of roughly 463 percent from the initial low.  This move marked the first wave of three.

From the high of $197.00 per ounce, the price of gold then fell in value to $103.00 per ounce.  This was a major correction of nearly 48 percent of the first wave advance.  This move marked the second wave of three.

From the low of $103.00 per ounce, the price of gold increased in value to $850.00 per ounce.   This was an increase of roughly 725 percent.  This move marked the third and final wave of three.

Now if one was to take this same percentages and apply them to the current commodity bull market cycle in gold, the following price moves for each wave of three would have been  expected.

Wave one … $255.00 per ounce up to $1,435.00 per ounce

Wave two … $1,435.00 per ounce down to $750.00 per ounce

Wave three … $750.00 per ounce up to $6,193.00 per ounce

* These figures would be a comparison of price based on prior percentages and does not reflect a time factor.

To continue, thus far in this new gold bull market the first wave of three started at $255.00 per ounce.  The conclusion of the first wave of three was $1,030.00 per ounce.  This move resulted in a percentage gain of roughly 304 percent from the initial low.  Comparing actual wave one (1970’s) to the current wave one, the percentage gain of wave one of the current cycle was only .657 the amount of the 1970 wave one advance.  Using this figure of .657 and applying it to the percentage of the wave two decline of the 1970’s cycle, then the adjusted wave two gold value would be roughly $677.00 per ounce.

As one can see in this analysis, wave one and wave two of the 1970’s bull market in gold as compared to the current wave one and two after adjustments have been made, appear to be very similar in intensity of the moves analyzed.

Of special note here is that the market sentiment / consensus at the $103.00 low was not much different than what it is today.  Investors who bought into the first of three waves back in the 1970’s felt as if the bull market cycle had ended and that prices would continue lower.  Therefore many did not view the final lows of the wave two correction as an excellent buying opportunity, and therefore, did not return to the markets for quite some time after the wave two low was set.  Looking back now though it is obvious that those investors who took a contrarian stance and bought were the investors who maximized their gains and increased their wealth substantially as a result of the third wave of three advance to $850.00.

It is never easy to stand alone when the majority view is opposite to yours, and as they say, there is blood in the streets, but historically it has been proven time and again that the “herd” is most often incorrect in their assumptions of future market activity.  Few are those who have studied monetary and market history and look at the bigger picture in order to forecast the probabilities of the future.

Although nobody can say with absolute assurance what the future will be, one can with an understanding of technical analysis in conjunction with political analysis improve their odds of correctly anticipating future market price movements.  The greater the knowledge one has plus their willingness to “stand alone if necessary”, the greater the probability that their market judgement will be correct.  Most notable at this time is the fact the because the economy has now once more entered the winter phase of the K-wave cycle for which an economic depression is extremely likely to occur, a mistake here in judgement could cause serious personal financial harm.

If indeed the economy is headed into a hyperinflationary depression … which I believe to be the case based on my knowledge of past and current economic and political conditions … then maintaining accumulated wealth in paper denominated assets would be the worst position to be in as the purchasing power of all paper assets will be destroyed.  Therefore, during a hyperinflationary depression the investor should have their wealth in precious metal sector investments.

In a future post I will discuss why it is that I believe that the odds / probability going forward strongly favor that a hyperinflationary depression will be the end result and not as many today believe a deflationary depression is the course the economy is now headed toward.  I intend to support my position using both economic data and the current political responses that have already, and will continue in the future to be made, in order to support my view.  Items to be discussed will include but not be limited to the following:

     Expansion of money and credit plus current and future government

     expenditures,

     The existing monetary plans of the global elite who dictate policies,

     Technical analysis of current market investment alternatives with a focus on

     physicals and mining shares - Large Cap vs Small Cap

My hope, because I feel that a robust discussion of this one very important critical issue - hyperinflaionary depressions versa a deflationary depressions - will make the difference in the financial lives of each of us going into the future.  When we are done, we may still not all agree, yet we will have at a minimum presented both sides of the debate so that each can make an informed decision.