Before you watch this video I would like to put out a few of my thoughts on this subject. I feel bad that it seems like now the only time I write about precious metals is when they’re experiencing big down moves, but in honest it is pretty much down moves are pretty much the only thing that’s been going on in the last 2 years.
You can search the Gold tag, at the bottom of this post and look back to see that I’ve never been someone to make outlandish calls on precious metals. So many people feel the need to make such claims, as though an honest assessment isn’t good enough, the one that stands out in my mind comes from about a year ago when James Turk was going on and on about silver being in a “bullish flag pattern” and that it would almost immediately shoot to $70 per ounce. These calls are possible and frankly I do expect big up moves in the future, but just be weary of anyone who is trying to sell you something and always be leery of anyone in any market who acts like they can time explosive moves.
People ask me if in the light of this substantial down move if I have lost faith in the PM story or regretted purchasing precious metals. The answer is very much no on both counts. I want to be clear before I’m accused of being a permabull, I do have scenarios which would cause me to consider an exit strategy from PM’s (and commodities in general). Most permabulls in any sector are bullish regardless of any news and any scenario, I do not fit this description. Here are 3 main events that would cause me to consider leaving PM’s.
1) The US Government balances the budget and begins running trillion dollar surpluses.
2) Interest rates rise 10%+
3) Stop all forms of “QE” which is currently 85+ Billion per month
These are the 3 main factors which brought on a precious metals bull market, so until these change, long term I cannot see how the bull market would not continue. Let me address these points
1) The government has run trillion dollar deficits for the last 5 years, nothing within the economy has changed and I can only assume this will continue at least for the remainder of Obama’s term. This is only part of the story of course, since the real troubling fact is the unfunded liabilities which are between 4-6 trillion per year. Major budget deficits are here for the foreseeable future. Our national debt after nearly 230 years was 4 trillion dollars, after only 8 years of Bush II the debt had doubled and now just 4 years of Obama the debt has doubled again. Just to put this spending in perspective.
2) Interest rates are currently set by the evil banking cartel known as the Federal Reserve, a look back in history shows that when Fed Chairman Volcker raised interest rates to nearly 20% it put the brakes on inflation of the 70’s and contributed strongly to collapse of the gold and silver price. The big difference is at the time the national debt was under 1 trillion dollars, so even if all of that debt were subject to 20% per year interest it would only be a measly sum of 200 billion, or roughly 3 months of QE. This is put into perspective when you look at what the interest payments would be today on our 16+ TRILLION dollars of debt, a massive 3.2 TRILLION dollars per year. This exceeds total revenue brought into the federal government by all forms of taxation. This would mark the endgame for the US federal government.
Another reason interest rates will not rise is because it would collapse the fragile housing market. On the typical home loan a 1% rise in interest rates is $100 per month. So if interest rates went back to historical levels of say 8% this would mean an extra $500 on to the typical mortgage, this is to big of a shock to be absorbed, people could no longer afford housing and therefore prices would plummet.
3) This is the most likely of the 3 to happen, although I think the odds are very strong that it will not happen. The federal reserve bankers, armed with a printing press have worked diligently to re capitalize their wall street co workers (conspirators) after billions of bad loans and cascading derivatives exposure. The economy even with the federal government spending biblical amounts of money, and the fed expanding it’s balance sheet at a record pace is on life support. I see literally no signs of an improved economy in my day to day life, the cost of living is prohibitive, decent jobs are almost impossible, housing is still expensive etc. So I cannot see them stopping the presses during such a scenario.
As I’ve briefly outlined I not only think they won’t do these things, they literally can not do them. Doing them would lead to a total US stock, bond and housing market collapse. I can not envision a scenario where these events do not unfold, if you do please email me email@example.com
To touch on another subject which I find fascinating is market psychology. Not just PM’s but any and all markets. I’m always amazed how people change as price changes, take bitcoin as another recent example. It had been treading along at 4 dollars pretty much since it’s inception, a few big players moved in and it went to 30, then 100, then 200, then 250 and when it hit 150 on the way up the buzz I heard online was deafening. EVERYONE was talking about bitcoins, most of whom had known about it for years, but suddenly they wanted a slice of the pie. It is the same thing I’ve heard from coin dealers, at $40+ everyone and their brother wanted silver, below 30 now though nobody wants it. Silver is still silver, nothing has changed regarding mine supply, money creation or industrial demand yet now it is more than 50% of of it’s 2011 peak and the silence is deafening. So don’t let the markets rule you, I think Warren Buffet is a douche but his “be fearful when others are greedy and greedy when others are fearful” comment is right on the mark. It goes hand in hand with this chart
The way to make money in any market is to notice something and act before the crowd does, long or short it doesn’t matter. But these are times when you can use the MSM brainwashing to your financial advantage, you can see things down the road that others simply cannot. So I would wait for the bloodshed to show some signs of letting up and I would treat this opportunity like I treated oil at $35 per barrel in 2007. The miners have been slaughtered and barring absolutely catastrophic events (major bankruptcies etc) I think they’re presenting long term several hundred percent moves pretty much across the board.