Breaking News: On May 28, 2019 prices for contracts of paper gold and silver closed at $1,277 and $14.32, a multi-decade gold/silver ratio high. The great financial game continues. What game?
1. Low gold prices inspire confidence in central bankers and governments. They also indicate currency strength. The-Powers-That-Be (TPTB) often devalue their currencies too rapidly, do something more stupid than usual, pound the middle class with excessive digital printing of fiat currency units, and expand wars. When people recognize fiscal and monetary disaster ahead, prices for gold and silver rise. Hence TPTB “manage” gold and silver prices on the paper exchanges to support their “everything is great” story.
2. The financial game has worked for decades, with minor exceptions.
3. Silver and gold prices peaked in 2011 and fell thereafter. But prices will adjust to disastrous fiscal and monetary policies, ongoing devaluation of currencies, and the inevitability of hyper-inflation or massive defaults of paper debt. (Probably soon.)
4. Based on anecdotal evidence, many gold and silver investors are tired of waiting and believe prices will never rally. Stock investors believe prices will never drop and new highs are always ahead. Investors in debt-paper believe defaults will never happen. But everything changes, delusions and false beliefs die, and bull markets follow bear markets. Expect reversals in gold, silver, and stocks.
5. Gold has no counter-party risk. However, Deutsche Bank has trillions in counter-party risk. Their stock closed at $6.77 on May 31, down from $50 in January 2014 and over $100 in 2007. Yes, the derivative Godzilla is alive and destructive, as indicated by Deutsche Bank stock prices. Counter-party risk will grow into a monster.
6. Tariffs! Excessive currency creation causes consumer price inflation. Tariffs make the price inflation worse. Expanded war in the middle east is increasing likely, which would spike oil prices higher. Erratic consumer price inflation is inevitable.
7. The sitting President expects to be reelected and will game the economy for his benefit. He wants to delay the recession, and create lower interest rates, more debt, and glowing statistics for business and growth. Lower interest rates and more debt may levitate the stock market (doubtful) beyond November 2020, but they will also boost silver and gold prices.
As of May 28, the gold to silver ratio stood at 89, the highest since 1993. This ratio is not a precise timing indicator, but high ratios have always indicated major bottoms in both metals. While low silver prices anger some investors, the wise are buying.
The stock market since 2009 has rallied based on near-zero interest rates, huge stock buybacks benefitting management, media hype, and trillions of new corporate, government and individual debt. It might rally further, but a risk to reward analysis suggests a high risk and low potential reward for the over-valued stock market in 2019.
Silver is in the opposite position. Prices have fallen for eight years, built a five-year base, and sentiment is weak. Expect higher prices in late 2019 and 2020.
GOLD AND SILVER PRICES – A few reasons they are so low:
- The Federal Reserve does not want runaway gold prices, as occurred in 1979-1980 and to a lesser extent in 2010—2011. Rapidly rising gold prices cast doubt on the Fed’s competence and their supposed management skills.
- JPMorgan amassed over 800,000,000 ounces of silver bullion per Ted Butler. They can buy more real silver when prices are low, which JPMorgan encouraged by shorting silver in the paper silver markets.
- Rising gold and silver prices will distract investors from the ten-year bull market in managed stock prices. The conditions that support higher gold prices suggest lower stock prices. Wall Street insiders will resist that scenario until they have offloaded most of their stocks. Remember the 2008 plan – socialize the losses and privatize the profits. The Fed will bail out the large banks and offer “tough luck” to Main Street USA.
- China, Russia, India, many other countries and central banks buy gold. They want lower prices and more gold bullion. Western banking cartel price suppressions help them.
- Sean Connery starred in the 1964 movie “Goldfinger.” A wealthy Brit named Goldfinger wanted to revalue his personal gold hoard higher by a factor of ten. His plan involved detonating an atomic bomb inside Fort Knox making much of the U.S. gold hoard unavailable. He expected prices would rise over $300 per ounce from the 1964 price of $35.00 per ounce.
- Overprinting fiat dollars did what Goldfinger could not—increased the price of gold.
- At the end of May 2019, (paper) gold sells for $1,300, thirty-seven times higher than the 1964 price.
- At the end of May 2019, the S&P 500 Index sits at 2,750, thirty-five times higher than its 1964 level.
- Dollar devaluation drives asset and consumer prices higher.
- Gold bullion was the basis for confidence in the U.S. dollar in 1964.
- If the gold in Fort Knox was stolen or destroyed, it would weaken the dollar.
- When the supply of gold decreased, the price would rise.
- Gold has lasting value, is real money and true wealth.
AND NOW, IN 2019:
- Gold is true wealth as fiat currencies devalue toward zero. One ounce of gold costs $1,300 instead of $35 as in 1964. Dollars buy less every year. Consumer prices have risen since 1913. The game continues.
- The gold and silver bubble of 1979—1980 shocked TPTB. A powerful leader could have said, “Never again will we allow gold prices to skyrocket higher and make us look incompetent.”
- The “age of paper” and a stock bull market began after the gold bubble peaked in 1980. Stocks and gold rose after the September 11 attack for a decade. After 2011 gold and silver languished while stocks levitated. The game continued.
- The norms since “Goldfinger” in 1964 have been dollar devaluations and higher consumer prices.
When sentiment and confidence reverse, stocks will fall, and gold and silver will rise. We are near that moment when confidence weakens in global credit markets. Fiat currencies must devalue. And years from now it will reverse again.
From John Rubino:
“Here’s how this probably plays out. As low-quality borrowers’ interest costs soak up an ever-larger share of their earnings, they’ll start dropping into junk status. This will lead investors to demand higher yields for the remaining BBB bond issuers. Higher borrowing costs will then push more iffy companies into junk, and so on, until lenders stampede for the exits, shutting off access to capital for all but the top corporate borrowers.
“Credit-starved companies will start dying, spooking the stock market, and that will be that for this expansion.” [Look out below.]
From Schiff Gold quoting billionaire Thomas Kaplan:
“… I do believe gold embarks on the next leg of its bull market and goes past $1,900 and ultimately $3,000 to $5,000, if not a lot higher, depending on macro circumstances…” [such as QE to infinity]
From PIMCO on Bloomberg:
“We have probably the riskiest credit market that we have ever had.”
From Doug Casey:
“As you know, I believe we’re well into what I call The Greater Depression. A lot of people believe we’re in a recovery now; I think, from a long-term point of view, that is total nonsense. We’re just in the eye of the hurricane and will soon be moving into the other side of the storm. But it will be far more severe than what we saw in 2008 and 2009 and will last quite a while – perhaps for many years, depending on how stupidly the government acts.”
- The Federal Reserve did what Goldfinger could not… pushed gold prices higher from $35 to $1,300, with far higher prices yet to come.
- Global (unpayable) debt exceeds $250 trillion. It will be reset with devalued currencies or defaulted. Counter-party risk will devastate many assets and beliefs.
- Gold and silver have no counter-party risk.
- The Treasury Department has not audited Fort Knox gold since before “” What if 80% to 95% of Fort Knox gold disappeared during the last five decades? Would that affect gold prices and further devalue the dollar? Don’t expect an honest audit of remaining gold!
- The global economy is at risk from many threats. Silver and gold will protect savings and an asset portfolio for 2019 – 2025.
James Sinclair said, “The party ends in mid-2019.”
I suggested months ago that fireworks would begin in May and June of 2019.
- The Dow peaked on April 23 and fell in May.
- The NASDAQ peaked on April 29 and fell in May.
- Deutsche Bank (a proxy for the derivative monster) closed below $7.00 in a sequence of lower lows. [Global derivative worries?]
- Gold bottomed May 2.
- Silver bottomed May 28.
- The yield curve inverted out to ten years.
- The U.S. ten-year yield has fallen to late 2016 levels.
- Over $11 trillion in sovereign debt “pays” negative interest rates. Crazy!
- Tariffs! Tariffs! Tariffs!
- Real estate prices and sales volume are lower in major cities.
- Fireworks and price reversals have begun!
Miles Franklin (1-800-822-8080) will recycle digital dollars from an over-valued stock market into silver and gold with no counter-party risk. Use lower prices while you can.
Take a chill,
I need no pill.
Gold and silver
Fill the bill.
The Deviant Investor