Look For Labor Day Break From Jr. Minors

There is an economic malaise all over the world, record unemployment and soaring deficits, yet the general markets are hitting new highs. How can a market rise despite all the negative gloom and doom economic numbers?

Stagflation Threat
We believe the market and intelligent capital is coming to the realization that central banks -- through the use of Quantitative Easing and record negative interest rates -- may start a stagflation, which is when commodity prices rise higher in the midst of poor economic conditions. This occurred in the Ford and Carter administrations as gold, silver and mining stocks soared.

Yields are beginning to rise rapidly since we called the top on treasuries on July 25.

Oil Shock
Supply shocks accelerate stagflation and we may be witnessing that as the crop shortage brought on from the historic drought causes food prices to spiral higher. We may also witness an oil shock as tensions continue to mount in the Middle East, particularly between Iran, Syria and Israel.

Metals Mount Against Currencies
Precious metals, gold and uranium miners are beginning to show strength and early stage junior miners may continue to outperform while moving higher, outperforming gold bullion as a hedge against declining fiat currencies.

We are in the summer goldrums (©Gold Stock Trades), which characteristically brings low volume as many resource investors, especially in Canada, are enjoying the great outdoors rather than their computer screens. While investors await the Fed's Jackson Hole meeting at the end of August, we may see an explosive move in our sectors after Labor Day, although there appears to be buying in anticipation of investors returning to the market. Silver and gold are making constructive flat bases and bollinger bands are converging, which is indicative of a breakout we believe will be to the upside.

The junior gold miners are breaking out ahead of bullion, staging a double-bottom breakout while rising above the 50-DMA. It appears the juniors may have bottomed in mid May as they're beginning to outperform bullion, which may last through the second half of this year.