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.
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,
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
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?