I finished my article, “I Really Don’t Understand Gold,” asking the question “What will you do?” Assuming that I am correct that a massive short squeeze in precious metals has started (if you disagree, please point out where my logic is wrong), we should see several events occur. First, we will probably see a week or two (maybe not in succession) where gold trades up $200-$300 bringing us back to the $1,700-$1,900 level. What will you do?
Will you wipe your brow, breathe a sigh of relief and call your broker or coin dealer and sell? Will you be “relieved” that you could get out of your “trade” at break even or “maximum profit?” Will you swear never to do anything as “stupid” as chasing gold and leaving the “safety” of your FDIC “insured” dollar account? Or, will you get out of more dollars for ounces. Or, will you do nothing?
Let’s go another step further, let’s assume (as I do) that this happens and we get news of an exchange failure or default on a Friday afternoon. Monday morning we have chaos and some exchange doesn’t even open. We look at other exchanges and see that gold is $2,500 bid, or $4,000 bid or even higher with little to no volume because there are virtually no offers. What would you do in this situation? Would you call a cash dealer and sell, sell, sell followed by doing a “happy dance” because you “scored” and SCORED BIG? Or would you call this cash dealer to see if he had any morsels available for sale…or would you do nothing?
Again, I believe that this “scenario” is a virtual lock and the only thing in question is “when.” However, the “when” part has recently come into focus with very little “fog” obscuring its arrival as supply has now become a real concern. So, back to “What will you do?” I would tell you that once this happens it will not happen in a vacuum. Market dislocations will be seen everywhere from stock markets to bond markets, banks and real estate closings. In other words, gold going higher will not be a “nirvana” event where the bulls clean up, retire and move to the South of France where waiters keep your pina coladas topped off and your bucket of steamed lobsters full. No, when the paper markets for precious metals default, society itself will be shaken, stirred and dumped upside down. Confidence will break or will be breaking everywhere in every market, every currency and every banking system.
I cannot tell you what to do under this circumstance because I don’t know what you have already done. I can only tell you what I plan to do and hopefully will be able to do. An explosion in the price of gold (in reality an implosion in the value of the dollar) will not get me to do a “happy dance” (except for maybe 5 seconds until I whack myself across the back of the head to get my butt in gear). Hopefully, and God willing, I will calmly go to the gas station with my cars to fill them up. Then it will be off to the grocery store to purchase some fresh items that will maybe last a week or so, I will also top off on whatever dry and canned goods that are needed. In other words, I will be making last minute and final preparations…for a future and unspecified time period of hibernation.
If I had to guess, the length of time it will take to go from the current “normal” to something resembling a sci-fi movie will take two weeks or less. The clearing of checks, use of ATM cards and credit cards will go early in this 2 week time frame. Goods on shelves will probably only last 5 days, 7 at most but it depends on how long it takes for the masses to recognize what is happening. Do you live in a city (not a good idea) or out in the country (better)?
Sorry, I have digressed…but I hope you get the point to my writing this piece. An explosion in the dollar price of gold will not be a “good thing.” On the contrary, it will be the signal that “game over” has arrived and with it many consequences that only so few have even contemplated much less prepared for. It would be a good idea to make a plan now while “normal” exists because making decisions in the midst of chaos will make you prone to mistakes and bad decisions.