With the stock market selling off again on Monday, the Dow Jones, S&P, and NASDAQ have all declined to near the levels they started the year at.
Which to those who have been following the precious metals markets comes as little surprise. In fact to most who have been following the monetary policy of the Federal Reserve over the past decade, in some ways it’s shocking that it’s taken this long.
Just as the Austrian Economic theory clearly states, while easy cheap money is flowing, the financial asset markets get propped up as the money looks for a home. Yet as the theory also states, when the easy money is removed, the malinvestment and misallocation of capital is exposed.
So now as interest rates have risen, the stock markets are declining. While signs of slowdown in the real estate market are there for anyone who does a simple Google search. Let alone does further research or takes note of the stories that continue to emerge evidencing the stress in the market.
And if Donald Trump thinks the Fed is being too aggressive in raising interest rates up to 2.25% after a decade of near 0% rates and unprecedented quantitative easing, how is he going to feel if the Fed even approaches any sort of normal interest rate?
Which God could only imagine what that would be. Although keep in mind that back in 1980 Paul Volcker raised the Fed’s short-term rate to 20%. And following one year of 1% interest rates, Alan Greenspan raised rates as high as 5.25% before reversing course when the mortgage bubble started to pop. And now both the government debt load and central bank money supply are both substantially larger.
Meanwhile, the banking sector, which owns many of the mortgage and government bonds that are all set to devalue as interest rates continue to rise looks shakier than ever. With the latest news being that Deutsche Bank, which has been rumored to be a trade or to away from real liquidity issues for years is now being implicated in a $150 billion dollar money laundering scheme.
All of which is adding to an already shaky financial infrastructure. That foreign trading partners are increasingly walking away from. And while many see what’s happening, yet are frustrated by stagnant gold and silver prices, these events are also occurring at the same time that an ex-J.P. Morgan Trader plead guilty to manipulating the gold and silver markets. While also stating that it was done with the knowledge of his supervisors, and was widespread practice within the bank.
Which means that for those who invested in precious metals and have had their faith shaken, every single reason you initially invested is not only still intact. But also playing out at this moment exactly as expected.
The markets did get inflated with all of the printed money. And now as that money is being taken away (albeit at an incredibly slow and minuscule pace), the exact problems that the Austrian Economists forecast are manifesting as expected.
And while many have grown tired of hearing about the manipulation and wondering if it was just conspiracy theory, now that has been confirmed as well. So despite that the break-point has not yet occurred, the exact reasons why you invested in gold and silver are now demonstrating their influence on the markets.
I watched The Big Short again this past weekend. Perhaps because during the times when I wonder if there’s something I may have missed, the movie helps remind me about how when markets get out of line, sometimes it just requires time before nature, supply, and demand re-exert their influence.
Could gold and silver trade lower from here? It’s only appropriate for me as an analyst and trader to factor in that anything is possible. And in an environment where investors are panicking and selling, it’s a good idea to expect that any sort of chaotic outcomes can happen.
Yet given how Deutsche Bank, UBS, HSBC, the Bank of Nova Scotia, and J.P. Morgan have now all been caught manipulating gold and silver, verifying that those who have asserted that the prices are being distorted by illegal behavior were indeed correct, it makes a lot more sense to own precious metals that are at their lows instead of stocks that are in a bubble that’s collapsing. And which current conditions indicate have every reason to continue declining further.
Perhaps what The Big Short also points out is that making large gains in chaotic situations requires understanding what’s happening. And also then having the fortitude to stay with your trade. Which is exactly how I see the current market for gold and silver.
I certainly understand this is a challenging time for investors. Which is why if you have any questions about the contents of this article, or buying or selling gold or silver, as always you’re welcome to email me at [email protected].
The last note I’ll mention is that when I was recently at the Silver and Gold Summit, as well as the New Orleans Investment Conference, all of the folks I spoke with like Rick Rule, Doug Casey, and Peter Schiff mentioned how their most successful trades have been by buying assets that are cheap and out of favor. And then having the courage of their convictions to be patient until the inevitable plays out.
That certainly describes the current environment. And if you want to take the advice of the folks who saw the subprime bubble in advance, rather than the banks and Wall Street who completely missed it, just know that they all continue to advocate owning physical gold and silver.
-To buy or sell gold and silver call Miles Franklin today at (1-800-822-8080).
-Or get Miles Franklin’s detailed report on why the price of silver is set to explode.