The immediate force starting in May 2010 with which our investments may have to reckon may be deflation (lower or stagnant prices) throughout our economy and in asset classes such as the stock market, oil, silver and potentially gold.

The Dow Jones Industrial Average closed at 10136.6 on Friday, May 28, 2010. Gold closed at $1,212.20 per troy ounce and silver closed at $18.43 per ounce on this date. (Editor's note: oil traded at $74.09 when this post was written).

Silver is once again garnering attention as it traded through the $17 per ounce barrier this week.

I am adding detail to my previous post that the case for a sharp increase in the price of silver may now be clearer. At the time I wrote that piece, silver had closed for the trading month of May 2009 at $15.73 per ounce on the futures continuation chart. I stated that the silver price could touch the $17 - $20 range, with the possibility of reaching the old 1980 high range of $32-$42 within one to two years in the form of a blow-off top.

In fact the price rose to a high of $16.25 shortly thereafter before going into a correction. Silver has since rebounded, reaching as high as $17.69 while closing for the week of September 25, 2009 at $16.06 on the futures continuation chart. In view of this action, where might we go from here?

President Obama announced on August 25, 2009 that Federal Reserve Chairman Ben Bernanke would be reappointed to another four year term. Bernanke's appointment, which will likely be confirmed by the Senate, may impact the course of American economic development for many years to come.

Many observers have speculated on what form the Chairman's exit strategy from his policy of monetary ease will take - a policy that saved a select group of failing companies (and their employees' jobs) and potentially prevented a deeper collapse of the stock market and financial system.

Readers of my blog may know that I anticipate rising price levels and higher interest rates in 2010 and beyond. Bear in mind that it takes time, sometimes years, for a strong inflation to embed itself in the economy. I want to talk about ways to protect your portfolio from rising prices and interest rates, but first a bit of history:

While President Nixon was in office, Fed Chairman Arthur Burns responded to pressure from the White House eager to have a strong economy when Presidential ballots were cast in 1972. Burns expanded the money supply to help ensure a growing economy in time for Nixon's reelection. Inflation soared to 12% by 1974. The oil shock in 1973 compounded the economic and inflation situation. The stock market lost almost half its value, and inflation hedge investments such as gold and silver plummeted from their highs when the economy dove into a deep recession in 1973-74. In this case, political expediency led to easy monetary policies and extremely high inflation.

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Could it be possible to think in our current economic times that America may lose complete control over its own economic future? Has an economic and financial process begun that may not easily be undone that could threaten the very core of what is left of our economic, financial and social well-being?

I believe one big problem lies with the pyramiding of debt over decades by our elected officials: the rapid expansion of the United States public debt and our country's expanding yearly budget deficits. The national debt is now $11 trillion. Wikipedia states that under the 2010 Obama budget projections, the debt is projected to reach $20 trillion by 2015, but is expected to increase to nearly 100% of GDP by 2010 and remain at that level. Vice President Joe Biden has now admitted to miscalculating the "strength" of the potential recovery. All bets are off. And that is what I believe the Obama stimulus plan(s) are doing: adding to our debt and betting our future on failing companies and industries.

I bought gold bars and coins in 2003 at $354, $377 and $383.50 per troy ounce, and in 2004 at $431 per troy ounce. I purchased gold coins in 2009 at $1000 per ounce. I also purchased silver bullion this year.

I am continually reevaluating my gold and silver positions to account for changes in the market. The gold market, as I stated in my previous blog entry (see related posts below), emerged from a large flag formation on the weekly chart when the gold price on the August 2009 contract rose from $900 in January of 2009 to a high of $1006 the following month and then retreated. It has since made another run at the February high which is unsuccessful as of this writing (that may change).

The silver market appears to have broken upward through important resistance at $15 per ounce on the weekly and monthly charts, closing at $15.73 per troy ounce for the trading month of May 2009. On both charts, it appears silver could reach as high as the $17-$20 range, with a potential blow-off top potentially reaching the old 1980 high range at $32-$42 per ounce. This may occur in the next one to two years, perhaps much sooner.

The use of price charts and similar analysis has key limitations, and no one can predict with accuracy short-term price movements. Nonetheless, the possibilities here are interesting.

I wrote in my recent article on the outlook for gold: Why Gold May Begin the Last Leg of Its Bull Market Sooner Than You Think, posted February 23, 2009, that I was anticipating a possible acceleration phase or blow-off top in the gold market price (now at $951.10 per ounce).

Gold easily surpassed its 1979 high of $850 in 2007, after a long bear market for the precious metal. I see a possible sharp upward price movement in the next year or two as being similar in form to the blow-off top in gold in 1978-1980. At that time, the gold market price moved from $200 to $850 per ounce. If we look at that particular dynamic price increase more closely, we see that the move from $425 to $850 occurred in the short time span of two months in the first quarter of 1979.

The gold price has recently broken out of a flag formation on the upside on the weekly gold chart in a price move from $900 and trading as high as $1007.70 on February 20, 2009. The gold market is now pulling back down sharply to as low as $905.70 intraday on March 3, 2009. This pullback to the breakout point appears to be normal, and the gold market could resume its powerful uptrend once this retreat is over.