February 20th, 2013
The last couple of weeks have seen stock markets bounce around inexplicably and reach new highs, all in the midst of an economy that is, once again, about to buckle.
Likewise, during this time period we’ve seen the price of gold and silver fluctuate significantly, primarily to the downside.
This has left many holders of these metals, as well as potential investors, quite nervous.
Is this the end of gold’s decade-long run?
Despite media claims to the contrary, there is no gold bubble (yet) and this ancient metal is nowhere close to the levels of value it will achieve as the global economic and geo-political situation worsens.
We once opined that the price of gold would do wildly amazing things throughout the course of the various intense crises facing the world, so much so that those who own the metal will hate it so much they’ll want to spit on it. This is why we’ve recommended that those who buy gold as a hedge against the collapse of pretty much the entire world not lose a wink of sleep over short-term price movements.
Those of us who hold physical assets do so not to make money on leveraged trading accounts. We do it to preserve our wealth over the long-term.
Gold is money, regardless of what Chairman Bernanke wants us to believe.
As we move forward we must keep in mind that not everything that’s happening in the ‘free market’ is as free as we may think.
Adam Taggert of Peak Prosperity suggests that what’s happening right now is that our convictions are being tested and there’s no fundamental reason for us to back down from why we invested in precious metals to begin with (or other collapse-proof hard assets, for that matter):
It’s hard to swallow that these charts are evidence of a free and efficient market. Otherwise, a pattern this predictable would be quickly removed as traders and HFT algos piled in to a “sure” bet.
Instead, this is behavior one would expect to see if powerful interests wanted to suppress the price of gold: hit the price hard and early at the start of the trading week to prevent the price from building upward momentum, as well as to make capital think twice before entering the gold market.
Who is doing this selling at the market open? Is it TBTF (“too big to fail”) banks making profit on large short positions? Is it the Fed, through proxies, keeping the gold price contained so as not to signal how badly QE is devaluing the dollar? Allegations swarm across the Internet that it’s one of these – or both. But we don’t know for certain. The exchanges don’t make that information available to the public.
But while these charts above are not enough evidence to prove that the gold price is being manipulated, they sure exhibit the symptoms one would expect to see if it is.
So, the big question is: if the precious metals market is being manipulated, is it wise to be in it?
From our perspective here at Peak Prosperity, for all of the reasons explored in the Crash Course and discussed here daily, we firmly believe that fundamentals will ultimately matter most. And when they fully express themselves, there will be a tremendous re-pricing of assets – largely higher for tangible assets that require energy to obtain, and markedly lower for paper claims on wealth (stocks, bonds, and their derivatives).
But as we’ve often said, the corrective process may very well take much longer than we ever expected to arrive. Frankly, we’re amazed that the system has held together so well over the past 5 years with all of the thin-air money printing, trillion-dollar deficits, and $100 oil. If you are playing to the fundamentals, as we are, you need to be eyes-wide-open that you may be frustrated for far longer than you’d like to be.
It’s only human to have your confidence shaken when the market acts so completely differently than you think it should for so prolonged a time. Chris and I feel the same pain, both constitutionally as well as in our wallets, as much of our net worth is invested in the PMs.
But every time we go through the exercise of challenging our assumptions, we walk away feeling certain that our charted course is the correct one – and that at some point, fundamentals will prevail.
As for what those fundamentals are, there’s a seminal piece Chris wrote back in 2011 called The Screaming Fundamentals for Owning Gold and Silver that is even more true today. I highly recommend revisiting it.
Chris has mentioned many times that this market feels an awful lot like 2007, when asset prices powered ever higher month after month, even though the underlying data was deteriorating fast. As then, he sees a high and rising potential for a violent correction that will take the market by surprise and vaporize a lot of wealth before players are able to react.
Full Analysis: Gold’s Regular Morning Mugging
The take away is that the moves to suppress precious metals by the powers that be are to be fully expected. You see, while they play paper shuffle with the price of gold and cause confusion in markets on the one hand, guess what’s happening in the other hand?
Central banks and governments are buying tons (literally) of gold and stockpiling their vaults. Others are doing their damnedest to repatriate their international holdings, as recently evidenced by Germany’s move to return all of its 3,400 tons of gold currently held at the U.S. Federal Reserve. And they are not alone; Holland, Venezuela and a host of other countries are doing the same.
For those who are not invested in precious metals for reasons that may include budgetary issues or the notion that one “can’t eat it,” it’s still highly recommend that you watch the precious metals markets, as they provide insights into what investors and governments are doing. Massive capital flows are taking place right now in these markets, which suggests individuals, conglomerate, cartels and governments are positioning themselves for near and long-term events that will have serious implications for the entire world.
Gold, while often cited as a hedge for inflation, is actually much more than that. Throughout history it has been a hedge against instability and uncertainty, and believe it or not, it was at one time actually used as money to exchange for goods and services, and as a way for governments to back the value of their paper currencies.
It is still money.
And when all of the machinations and manipulations taking place today end because of currency destruction and governments collapse in on themselves because of massive debt loads, it will be one of the few investments left standing.
Naturam Expelles Furca, Tamen Usque Recurret
(Horace circa 20 B.C.)
“Nature can be expelled with a pitchfork, but nevertheless always returns”
They may manipulate our markets, our money, and our political processes.
But nature will always correct the imbalance.
And, as we know, nature tends to be quite violent and destructive when that happens.