It’s been a long time since I have written specifically about the gold and silver markets. Generally, I like to keep an eye on what is happening economically, politically, socially and geopolitically to try and determine what assets might perform better than others in the future.
Many of my recent articles have documented how the economy has been collapsing for the past two years and I have been seeing more and more evidence that leads me to believe that any thought of a V-shaped recovery is nothing more than a pipe dream.
The real action this year has been in the gold and silver markets where the action has been somewhat stunning. After a pullback in March, along with the major stock averages, the metals have been on a tear. The big question now has to be “can it last”?
It is important to remember that no matter what asset we might be talking about- no matter how bullish or bearish the case may be-no asset travels straight up or straight down. Many times I have seen circumstances that SHOULD have an asset making a large move one way only to have it go in the opposite direction- even if only for a short time.
I also believe it is important to get your information from sources that can be trusted and not a source that has an agenda- like the financial game shows. This is particularly true when it comes to the metals. Look at the ads on the shows. It is ALL about paper assets and there is a clear bias against hard assets- it’s not what they are selling.
It is also important to understand that many who promote gold and silver may have an agenda also and may make statements that may lead us to be more bullish than we should be at times.
Many who have only known me for a while may think I am a gold bug or am always bullish on the metals. Since 2008 I have been extremely bullish on gold for a few reasons. After the breakdown of the financial system in 2008 the lesson that I believe many should have learned (it appears only a few have) is that counterparty risk is a real danger- particularly when you have an obvious problem with both liquidity and solvency on a systemic basis. In 2008, without $16 Trillion to bail out the banks in just months (GAO)- and over $29 Trillion up to September 2019 (Wall Street on Parade) the illiquidity and insolvency problems would have been front and center. The trillions being handed out like candy by central banks should be a serious wake up call right now! All is NOT well.
I personally know a hedge fund manager who made a fortune in 2008 shorting the market but had to wait years to get a percentage of his gains because the loser in the trade (every trade has a winner and a loser) couldn’t pay. The counterparties were bankrupt. I believe this would have been a common story if not for the trillions from nowhere bailouts.
The sad part is that we are now in a similar situation with one difference. Our debts are FAR higher, the leverage is far higher and the stakes may be far higher because it appears the central banks are already all-in and are basically just preventing a collapse at this time. They are not only preventing a collapse in stock and bond markets but also in economies by conjuring up trillions, buying assets and sending checks out to fill the holes created by shutting the economy down.
I really don’t understand what people don’t get about stock valuations being at all-time highs. The idea is to buy low and sell high. Unfortunately, when people invest, they generally do the opposite- they buy when things are expensive and wonder why it never seems to work out. Price is what you pay- value is what you get. Right now, most stocks offer high prices and little in the way of value. I would argue that most bonds are in the same boat. Many call bonds yield-free risk at this point. For at least the over $15 TRILLION of debt globally that has a negative yield I would certainly agree. With the way most central banks are “printing” most developed market bonds would likely fit that description also.
What is the value of a bond (promise to get your money back in the future and earning interest along the way) if the underlying currency is being debased?
Although there are always risks involved, I actually look at gold as a holding that could be more stable than many other assets because it can’t be conjured up in unlimited amounts, has no counterparty risk and has been used as money for over 5000 years.
The reason I am more bullish now than I have been in the last few years is that in addition to gold’s attributes there is a lot more taking place that I believe should be bullish for gold and silver in particular going forward.
First of all, the Fed and most other central banks appear to be in a race to devalue their currencies. This supposedly gives an advantage to the country that has the weakest currency because they can export their goods to others with a price advantage. The bad news for the citizens of these places is that their “money” buys less and less and the value of their labor is reduced- making life harder for all but the very top of society. As the fiat currency loses value it costs more to buy virtually everything. I believe Gold and silver are assets that can help preserve purchasing power over time.
Regardless of the working man’s lot in life the central banks appear to only be interested in propping up their masters at the banks and their buddies at our expense. I believe we are seeing what happens when this type of theft takes place and a large segment of society feels (Likely rightly so) that they have been disenfranchised.
The actions of those that feel disenfranchised are being felt mainly in the inner cities. This is having a devastating effect on the economies of these cities and the damage will likely last far longer than many are anticipating at this time. This likely means more and more trillions of dollars, yen, yuan, euros, etc. to keep the illusion of solvency and liquidity alive. It is an illusion and NOTHING more.
Many people ask “What if the dollar gets stronger- won’t gold go down?” I believe the short answer is no. In watching gold for the past 17 years or so I have seen many instances where gold and the dollar rise together. The reason is that “dollar strength” is being measured against other fiat (backed by nothing) currencies and nothing tangible so dollar “strength” only shows “strength” against assets that only have perceived value and may not even exist outside cyberspace since most “money” isn’t even printed anymore – it is just a computer blip. As an example the Dollar index in mid 2003, mid 2016 and on July 27,2020 was 93.7 in each case. The price of gold was Mid 2003 = $370.00, Mid 2016=$750.00 and on 7-27-2020 = $1931.00. So much for “dollar strength”. (Info from Mike Shedlock on Zerohedge)
Jeffrey Currie of Goldman Sachs is warning that “real concerns around the longevity of the US dollar as a reserve currency have started to emerge”. There is also an article out on Zerohedge that , quietly, China has reduced their dollar usage in cross-border trade by 20%. Supply and demand still influences prices!
It is also being reported on King World News that demand from the traditional major buyers of gold and silver (China and India) have been extremely light. It is theorized that the high price has made gold a lot less affordable for the average citizen to buy. Many times in this situation silver is purchased because many CAN afford that.
With the international tensions rising, world economies virtually wrecked, money “printing” off the charts and with no end in sight it appears to me that we are just in the beginning of a long bull market in the metals. Having said this, it is important to prepare yourselves for major pullbacks at times- particularly if equity and bond markets fall hard because the margin clerk sells what is available to pay off your loan. With leverage being extremely high a “sell everything” event can’t be ruled out. My guess is that if that were to happen it could be a tremendous opportunity for those that have the risk tolerance to pick up bargains.
I really believe that this is the opportunity that I have been expecting for quite some time. It has taken longer than I could have imagined but it appears the time is here to witness the complete re-do of the global financial system. According to the IMF 2021 should be that time. Only time will tell!
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