QE3 Speculators Driving Gold And Silver

Silver (SLV) is breaking out past $30 and the trend is moving higher as the Fed signals it's now ready to pull the trigger and boost the economy, perhaps as early as the next Open Market Meeting in the middle of September. Silver is regaining its 200-day moving average on a breathtaking move. Even though general-equity markets stand at record highs, conditions around the world are not showing evidence of a recovery…yet.

The equity markets (SPY) rallying higher during an economic contraction may be forecasting a reflationary turnaround. Remember, a rising equity and bond market historically precedes an inflationary scenario.

Silver, which was by far the most receptive to QE2, broke out earlier this week and is continuing higher, breaking resistance and downtrends. Learning from the silver price move after QE2, our readers have known for weeks that we believed the $26 area would hold then break to the upside above $30.

Bullish Breakout
This technical breakout has occurred and is very bullish. Now it hits the newswires that Bernanke may discuss a new, large-scale asset-purchase program (QE3). Many who sold their precious metals and mining stocks hoping to get in at lower prices are now scrambling to buy back in at higher prices. Thus we see a parabolic move in precious metals. However, the major miners (GDX) and the small explorers (GDXJ) are just beginning to make a big breakout.

We have maintained the motto of patience and fortitude as other analysts abandoned the precious-metals ship. We witnessed over the past few weeks a major transition of gold, silver and mining stocks from weak to strong hands.

Gold (GLD) is now at a six-month high as the mainstream begins to realize that the Fed intends to announce something big. The folks at the Fed need to bring down unemployment before the election in order to keep their jobs.

As we've been saying for weeks, QE3 is closer than most expected and the Fed has to do whatever it can to devalue the dollar to pay down soaring debt. That's is extremely bullish for our precious-metals and mining-stock selections.

Global Easing Trend
The Fed may follow China and other countries around the globe in making accommodative moves. This summer China began cutting interest rates for the first time in years. Don't forget that at the end of August two years ago , Bernanke announced QE2, flooding the markets with $600 billion. Silver soared from $18 to $50. It seems investors have already prepared for such a move as gold and silver stage technical breakouts, while the miners are just beginning to play catch up.

One gold and silver miner that we believe is a near-term target is Paramount Gold and Silver (PZG). The primary reasons we believe the majors are looking at Paramount is that it has known advanced (NI 43-101) resources of over 100 million ounces of silver and four million ounces of gold at its two properties in Nevada and Mexico.

This week it announced an updated resource estimate showing exceptional growth at PZG's San Miguel Property in Mexico, which borders Coeur’s highest cash flowing mine, Palmarejo. The new estimate shows the investment world that Paramount now has the size and grade to be financed and move toward production. The CEO Chris Crupi noted, “The nearest equivalent property from a geological perspective is the Palmarejo Mine right next door which is owned by Coeur d’Alene Mines. It is worth noting that when the decision was made to capitalize that mine, its resources looked very similar to the San Miguel of today.”

Paramount is breaking through resistance at $2.50 and $2.75 on strong accumulation. We believe Paramount is a takeout target with a price objective of $6.

Disclosure: Long PZG