The recent pullback in gold has been pretty substantial. Silver also.

Anyone who has been investing in this area for a while has seen this before. Anyone who has not been in this space for any length of time are probably wondering if the bull market is over or if we will recover and move to new highs.

While nobody can know what path we will take there are MANY reasons why I believe that this recent pullback is a gift to anyone who may be interested in getting exposure to this area.

#1 History shows that NO ASSET goes straight up or straight down. During the past few bull runs in the gold market in particular, there have been large pullbacks before moving to new all-time highs. Those “in the know” like our major banks are still calling for a year-end price between $6500.00-$8000.00. While the pullbacks are always concerning and can cause fear those who have patience and conviction have historically come up on top. Of course, there are never guarantees but history is on our side.

#2 Gold and silver do not change. The amount of fiat currencies you need to buy them does. This is because most, if not all, fiat currencies are being “printed” into oblivion and if we look at the numbers there appears to be no end in sight as stopping would cause a near instant collapse of the stock, bond and real estate markets and the economy would likely collapse.

#3 There are MAJOR red flags like private credit blowing up, commercial real estate falling, layoffs, defaults, foreclosures, bankruptcies, repossessions, and past due payments all rising. Massaged numbers may make some feel better, but the facts are that fewer people have jobs today than had jobs last year. Since 64% of US adults live paycheck to paycheck this is an ominous sign. There are less people pulling the economic cart and many more riding in it. Nothing is free and that $2 TRILLION deficit (which does not include MASSIVE off the books spending) has to come from conjured up cash from nowhere with no intrinsic value to back it up. HIGHLY INFLATIONARY. This makes those promises to repay that much more unlikely.

#4 The Fed appears to be in a tough spot. Raise rates and “markets” could collapse. Do not raise rates and inflation could go parabolic. In either case, the “promises to repay” become FAR more onerous. If rates rise, paying debt becomes more expensive and slows down economic activity even more. This could lead to even more layoffs and economic stress. It could also lead to more personal and corporate defaults and push state and local budgets over a cliff. Lowering rates would allow the entities to make payments but the payments you are getting are being gutted out by the currency losing purchasing power even faster than we have been seeing. You may think you will pay monthly bills in the future but may only have purchasing power for a fraction of what you were anticipating. In that case you got the dollars that you were promised but do you feel repaid?

#5 Central banks are still buying gold in record amounts and are selling US Treasuries. The Fed has to buy these bonds being sold in addition to buying the $40 Billion per month that they admit to or the rates would be FAR higher right now. Since there is no magic wand (unless you call currency conjuring magic) they have to create new currency units to buy the bonds to reduce the rates. This is a scenario that is getting worse- not better as other countries’ financial woes along with our weaponization of our dollar and treasuries are causing countries and other central banks to seek alternatives. The demand created by using the dollar in most world trade is what allowed us to live FAR beyond our means for decades. Others produced, we “printed” and actually got something for darned near nothing.

#6 Despite near term noise gold appears to me to have NEVER had a better setup than we are currently seeing. Number one is the destruction of fiat currencies which has been building for years but the exponential growth in debt and “printing” appears to be reaching its terminal phase. Next there is geopolitical turmoil globally. Wars are being fought on just about every continent in one way or another. Confidence, particularly in developed economies and developed nations, is collapsing. Since currencies have no intrinsic VALUE if confidence erodes so does the purchasing power. Remember, even our currency is a unit of debt- not an asset. Finally, even though inflation numbers are MASSIVELY underreported we have negative real interest rates. That is when inflation is higher than interest rates. In the 1970s gold rose from $35.00 per ounce to over $800.00 per ounce at the same time interest rates were raised to 18%. That stopped the rally but on the way up inflation was running higher than the interest being paid. Historically, this leads to higher gold. According to John Williams of Shadow Government Statistics- even though inflation has been somewhat down in the past few years the real inflation rate using unmassaged government numbers is nearly 3 TIMES higher than the reported numbers. Anyone who is living in the real world and not in an ivory tower knows that sounds FAR more believable that the propaganda numbers put out by our “leaders” and are parroted on the financial game and “NEWS” shows.

#7 Silver. It is used in almost all manufacturing. Particularly in AI and renewable energy. It has been in structural deficit (We have been using hundreds of millions more ounces per year than have been produced) for six years running now. In addition, MAJOR players are demanding physical delivery and are draining the remaining stockpiles at COMEX and LBMA. There is evidence that there could be a failure to deliver at some point and could lead to a MASSIVE revaluation higher when it is exposed that there is FAR less silver than the paper trading makes it appear that there is.

Personally, any pullbacks are painful and the larger they are the more angst they cause us all but if we look at history and the state that our global economy is in, I can’t think of a time when it was so clear that hard assets of all types are ready to take the lead from financial (debt-based) assets. It has been a long time coming but I believe we are at the doorstep of massive structural change.

There is a lot of noise that at the end of the day is causing volatility, but I believe patience and planning will ultimately win the day.

Be Prepared!

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