There’s a “rally” in the gold market right now, and (to a
lesser extent) in silver. We’re told this by the mainstream media – in
between its salvos of gold-bashing. Sadly, we have also seen this parroted by
numerous Alternative Media commentators. So let’s examine this “rally” yet
again.
The rally started almost precisely on the first day of
the year (nothing suspicious about that). In the 8 ½ months since then, the
price of gold has risen by roughly $250, or a little below $30/month. For
convenience, let’s say that the price has been advancing by about $1 per day.
For the sake of argument, let’s pretend that this is
a real rally, and see how long it would take to reach any rational price
targets. Let’s start with a big target: a fair and rational price for gold
– today . A previous
commentary pegged that fair price at $10,000/oz, calculated in relation
to a fair price for silver, today: $1,000/oz. The 10:1 price ratio between
the two metals (rather than the historic ratio of 15:1) is based upon the
fact that most of the world’s silver
stockpiles have been literally consumed, thus the supply ratio
between gold and silver has not been this low in at least 500 years.
How long would it take the price of gold to get to
$10,000/oz, with the price advancing by $1/day? With the price differential
between the current price ($1325/oz US) and the fair price for gold a little
less than $8,700, it would take a little less than 8,700 days for the market
to reach that price level. The “rally” in the gold market would have to
continue for roughly 25 years, just for the price of gold to reach a
level which it should already be at – today.
Some readers will find this metric unconvincing. They
have been deluged with mainstream media propaganda for so long that they
cannot even conceive of a fair price for gold. So let’s move to a lower
target.
Gold is a
monetary metal . As such its price must precisely reflect changes
in the monetary base. Between 2009 and 2014; the Federal Reserve quintupled
the U.S. monetary base – the infamous Bernanke
Helicopter Drop . At the time the Helicopter Drop began, the price of
gold was at roughly $800/oz. Thus if we ignore all of the other positive
fundamentals of the gold market, and we pretend that the price of gold at the
end of 2008 ($800/oz) was a fair price, the price of gold had to rise to at
least $4,000/oz, by the end of 2014.
Of course the Federal Reserve’s conjuring of mountains of
funny-money is only one of many positive fundamentals for the gold market.
The price of $800/oz at the end of 2008 was not a fair price. It was
absurdly low, due to the serial price-manipulation of which all informed
readers are very familiar. Thus a price for gold of $4,000/oz – at the end of
2014 – would also have been absurdly low.
How long would it take for the price of gold to reach
this low, 2014 price-target, at the pathetic pace of today’s Fake
Rally ? We’re now dealing with a price differential of a little less than
$2,700, meaning a little less than 2,700 days to reach a somewhat fair price
for gold – in 2014. Eight more years. It would take nearly eight more
years of this pseudo-rally for the price of gold to reach an absurdly low
price target, which it should have already hit, in 2014.
This would make the total length of this hypothetical
rally a little over 8 ½ years, with the price advancing from a sub-$1,100/oz
price up to $4,000 – a total move of roughly 370%. Now let’s compare this to
the ten-year bull market from 2001 to 2011. During that period, the price of
gold moved from roughly $300/oz to nearly $2,000/oz. That’s a move of
approximately 670%, and this significant advance in price came despite the
fact that the manipulation of the price of gold was, in some respects, more
extreme during those years than what we see today.
Back then, Western central banks were still pounding the
market with their official gold-dumping: 500 tonnes per year. But
Western central banks have long since run
out of gold to dump, and now central banks in other parts of the world
having been buying gold – at a pace not seen in more than 30 years. The 500
tonnes per year of gold-dumping has nearly
been reversed , a positive differential of nearly 1,000 tonnes per year
in supply/demand fundamentals.
Along with that major shift in supply/demand
fundamentals, we have had the emergence of China
as another mammoth gold market – on par with India – and another gigantic
source of demand: in excess of 1,000 tonnes per year. Those are just the
largest shifts in supply/demand fundamentals, and have resulted in a large,
structural supply-deficit emerging in the gold market.
As already noted, we have also seen Western central banks
since embark upon a new, unprecedented era of money-printing
insanity , another price-driver which did not even exist for most of the
2001 – 11 bull-run. Thus, for numerous reasons, the price of gold would have
to rise at a much, much faster pace during any legitimate rally today than it
did during the previous 10-year bull market. Instead, we see prices advancing
at little more than half that pace. Impossible.
Still, even this analysis, with an extremely modest price
target, will be too great a stretch for the minds of some readers. These
readers have been brainwashed with anti-gold propaganda for so many years
that they can barely even conceive the price of gold reaching a new, nominal
high. Note that in real dollars, the price of gold would have to rise
to well over $3,000/oz – just to equal the 1980-high in the price of gold.
But let’s stick with phony, nominal numbers.
How long would it take the price of gold to merely equal
the 2011 nominal high of just below $2,000/oz? It would take nearly two more
years. This would make it a total “rally” of more than 3 ½ years to take gold
from its sub-$1,100 price level at the end of 2015 to get back to a previous
(and ridiculously low) nominal high.
Understand the context here. With precious metals having
been subjected to decades
of the most-extreme price manipulation in the history of commodity markets,
this translates into precious metals having the “most bullish” fundamentals
of any commodity market in the history of human commerce. The gold market
should be “stronger” today than other commodity market in the history of
human commerce – except for the
silver market .
It doesn’t take such markets 3 ½ years of “rallying” just
to reach a previous, nominal high. Three-and-a-half months would be
more than a sufficient time horizon. If there was even the faintest hint of
legitimacy to this Fake Rally, the price of gold would not have been
advancing at a laughable rate of $1/day. It would be leaping higher at an
average rate of between $10 - $20 per day, if not much more than that.
The fact that rational, even intelligent people could consider
this managed advance in the price of gold to be a “rally” is a credit to the
success of the propaganda from the Corporate media and the bankers
themselves. When we see the propagandists coming up with their own
price-targets for gold, what sort of numbers are we seeing?
Are we seeing predictions of $10,000/oz? Are we seeing
predictions of $4,000/oz? Are we even seeing predictions of a paltry advance
to $2,000/oz? No. The most enthusiastic “gold bulls” among the bankers and
media talking-heads are predicting that the price of gold could – some
day – reach $1,500/oz.
This is one of the key elements in anti-gold and
anti-silver propaganda: never presenting even quasi-realistic numbers as
price-targets for gold and silver. The propagandists pretend that the
maximum, future price for gold (and silver) is only some microscopic fraction
of where the price should be already, today. To be precise, the propaganda
machine almost never publishes any quasi-realistic numbers for the
price of gold.
A recent
commentary focused upon a rare lapse in the propaganda strategy: a
mainstream talking-head asking
the question :
Why Is Gold Not At $2,000/oz?
Why has the price of gold not already equaled (and
surpassed) the ridiculous, nominal, previous high that we saw back in 2011?
As was explained in that commentary, the propagandists have no answer
to this question. The “reasons” which were given were analyzed, one by one,
as being nothing but infantile nonsense. There is no reason why the
price of gold has not already passed the pathetic price threshold of
$2,000/oz (USD).
Yet, today, we are 8 ½ months into a rally where we’re
told that, if everything goes well, the price of gold might eventually rise
to $1,500/oz. A fantasy world. Readers know this world as the
Wonderland Matrix . Supply/demand fundamentals don’t count with respect
to precious metals. Monetary fundamentals don’t count. What does count?
Again we descend into a realm of utter nonsense.
According to the bankers and their media prostitutes, whether or not the
price of gold makes it to the ‘elevated’ level of $1,500/oz is totally
dependent on whether or not the Federal Reserve raises its benchmark
interest rate from 0.25% to 0.50%. Insanity!
Ultra-low interest rates are supposedly rocket fuel for
precious metals, based upon the bankers’ own propaganda. Supposedly, all the
years where the price of gold was languishing at absurd levels, this was
because “gold pays no interest”, while the bankers’ fraudulent paper
currencies did. Now these fraudulent paper currencies pay no interest,
indeed, our criminalized interest rates are now moving into negative
numbers – and still we see the price of gold only creeping higher at the
rate of $1/day.
There is no rally in precious metals. There never was.
Instead, we have the bankers engaged in a (modest) upward price-fixing
operation, setting gold and silver up for a severe take-down, as a part of
the banking Crime
Syndicate’s strategy for “the
Next Crash” .
It is after this manufactured Crash that we will
see a real rally in precious metals, just as we had a real (but abbreviated)
rally after the Crash of ’08. Note the differences in parameters. Precious
metals prices are even more suppressed today than at the end of 2008.
Precious metals fundamentals today are much, much more bullish than at the end
of 2008. The economic carnage which will result from the Next Crash must be
much more severe than the Crash of ’08 – creating much more “safe
haven” demand. A real rally in precious metals would (will) be the
Mother of All Rallies.
Why do so many people consider the current, tiny upward
movement in the price of gold to be a “rally”? Because after years and years
of hard-core brainwashing, these people no longer even know what a real rally
would look like.
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Jeff Nielson is co-founder and managing partner of
Bullion Bulls Canada; a website which provides precious metals commentary,
economic analysis, and mining information to readers and investors. Jeff
originally came to the precious metals sector as an investor around the
middle of last decade, but with a background in economics and law, he soon
decided this was where he wanted to make the focus of his career. His
website is www.bullionbullscanada.com.
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The views and opinions expressed in this material are
those of the author as of the publication date, are subject to change and may
not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does
not guarantee the accuracy, completeness, timeliness and reliability of the
information or any results from its use.
