We have been around world financial markets, including gold, for more than 40 years watching the gold price move from $42 per ounce through what we are seeing today. More importantly we’ve seen why the gold price has moved over these decades and fully understand the monetary history and role of gold. The events of the last three years have interrupted the currency experiment that used paper notes not redeemable either in gold or in anything else except more paper notes. Right now we’re watching the most recent experiment. The euro, which is only one decade old, suffers the consequences of sub-par financial management, and it’s taking Europe to the brink of failure. It’s touch-and-go as to whether the Eurozone or the euro will survive the present crises.

The Eurozone bailout package almost doubled in size to cope with Greece, Ireland and Portugal, to over €400 billion. The markets smiled at first, but then sank back into trepidation as the Italian government had to pay the highest interest ever for funds at yesterday’s auction. When markets keep on being disappointed it signals something far more than just a temporary correction. As markets just dip slightly it’s becoming clear that they’re in a sort of denial, waiting for something to trigger what we’re expecting at any time.  

How is this driving gold, which is sitting now around $1,600 after having fallen from a peak of over $1,9oo? Look at the funds that hold physical gold. They’ve fallen by less than 2%, which is hardly significant. Look at the demand from Asia. It’s coming in at the lower levels as it has done in past falls; this fall, however, is far more significant. Look back when speculators and banks drove gold from $300 to $390, then farther back to $326 in 2005 –short-term traders can (under the right market conditions) drive prices a long way. In the more recent, 2008 case, Investor Meltdown created conditions where covering margins triggered ‘stop loss’ protections and the search for liquidity allowed for the precipitous falls. It was just like a threatened body drawing its limited blood supply to its centre, boosting its concentrated central defences but starving its peripheries, which are now in danger of dying off, endangering the entire body. But gold is at the centre and only got a shock.

But was that a change in trend? Have gold and silver market conditions changed, fundamentally?

We’re now at the point where solutions and reformation must take place in the monetary world, far faster then governments are capable of and require a degree of consensus that looks unlikely to be achieved. So, what next?

What the Markets Say?

The last couple of weeks have seen nearly all global markets falling, in concert. Yes, they’re trying to recover, but this is dependent on some good news coming forward before December. It may be that failure to resolve the Eurozone debt crisis precipitates a far more dramatic set of market events as many important nations’ economies confirm deflationary conditions and recessions.

The markets are telling us that bad news is on the way. Far more than just a downturn is being indicated by market behavior. Major structural changes will be forced on the developed world. It’s losing wealth to the emerging world and oil producers. The recovery prospects are more than dim. There’s far too much debt for the developed world to repay, so more debt will cripple it. Inflation to cheapen money is an alternative (and one the Fed prefers to deflation) but accompanied by a liquidity crisis and banking seizure, will more than likely lead to a degree of inflation that is uncontrollable.

We are on the brink of structures failing, spiraling the financial world into such a bleak scene comparable with the 1930’ and the Second World War are valid.   

The markets have not yet discounted that picture. And gold and silver prices pulled back solely in the search for liquidity, not because the safe-haven qualities of gold and silver evaporated. With the U.S. dollar the only standing safe haven in the currency world and one not too far away from its own meltdown, gold and silver have yet to really show their historic qualities. We’re very close to a major financial accident that will cause far deeper problems for the developed world.

Quiet Before the Storm

Many investors have seen the writing on the wall and have seen it since 2008. Now, the writing’s more alarming than in 2008. The 2008 scene was when there was more economic strength than there is now. Now, the warnings come on the back of a developed world economy that is failing to grow, failing to resolve debt crisis, and failing to lead its way back to economic health. Disaster doesn’t give that much warning. When it comes, a tranquil scene suddenly panics, while irreparable damage is done.

Whether this forecast is correct or not, we can all see that we have to be prudent and take precautionary measures to safeguard our wealth. If we don’t, then we’ll lose it. We’re at the point when we need to be ready for the worst and situate ourselves out of harm’s way. If the storm doesn’t come, we can always come out of shelter and carry on. But if it does, when we come out of shelter we’ll be able to do much more. Are you ready?