The world is now at tipping point and this coming
autumn we are likely to see the beginning of what I in an 2009 article
described as “The Dark Years Are Here”.
We are not just going to experience another correction,
giving investors yet a chance to buy the dips in a never ending
bullmarket bonanza. No, this time we will see the end of a 100 year
Central Bank money printing and debt extravaganza. And maybe it is the end of
a bigger cycle since the early 18th century or possibly even a 2000 year
cycle.
But it is not important at this point what the magnitude
of the cycle is. Suffice it to say that we will see corrections in markets
and in the world economy, the proportions of which will be totally
devastating for the world. Stock markets will decline by 90% or more bond
markets will totally collapse and world trade will more than halve. World
population could also decline by 2-3 billion. All of this seems unimaginable
today. But if someone had said in 1932 when the Dow was 40 (it is not a
misprint) that it would reach 18,000 83 years later, no one would have
believed that either. Around 1900, world population was around 1 billion. No
one would have believed then that it would be possible to feed another 6
billion people 115 years later. And sadly it isn’t, since many people are
suffering around the world.
What we have seen in the last 100 years is totally
unprecedented in world history. It has only been possible by central banks
creating a money bubble that has expanded far more than anyone would have
thought was possible. In my view this bubble cannot expand any further so
like all bubbles it will burst. It is only a question of if the bubble will
just gradually implode or if it will explode. Hopefully for the world, there
will be an implosion so at least we will have a bit of time to adjust.
No one will be able to escape the economic, financial and
social calamities that will hit the world. War is also a possibility. Living
outside of big cities is clearly an advantage. Having a circle of family and
friends for support is invaluable. For the priviledged few with assets to
protect, the banks will not be a good place to be. An implosion of $ 200
trillion debt and $ 1.5 quadrillion of derivatives will see to that. To hold
physical gold and some silver outside the banking system will be the best way
to protect wealth.
Gold has now corrected for four years from the $ 1,900
peak in 2011. On most criteria gold is now oversold and undervalued. On a real
inflation adjusted basis gold is now as cheap as it was in 2002 when we
bought it for $300. Speculators currently have an all time high short
position in the futures market. And that doesn’t include the interbank market
where the short positions are most likely a lot bigger.
The gold price bears no relationship to the real price of
gold nor to the major and continuous very high demand for physical gold. The
gold price is set in the paper market by the speculators and manipulators.
The buyers of physical gold are very fortunate to be able to buy real gold
today for prices which have nothing to do with the real value of gold.
Especially India and China understand this. Mine production of gold is around
2,500 tons annually. Only China buys 2,000 tons and India 1,000. In the last
few years the demand for physical gold has substantially exceded production.
The sellers have been central banks which clearly only have a fraction of
their stated figures. When China reveals their real holdings and allows an
open audit, no one will believe that the USA has anywhere near 8,000
tons without an independent audit. What we also must remember is that the
world has printed and borrowed another $ 60 trillion since 2008. This massive
credit expansion is not reflected in the gold price. If there was no
paper market in gold, the price today would probably be $ 8,000 since this is
the correct price adjusted for real inflation. All of the factors above are
likely to start unravelling in coming months.
In the autumn of 2015 we are lkely to experience the
beginning of the end to the biggest speculative bubble in world history. All
bubble assets will implode and the financial system will come under massive
pressure. The dollar will fall and so will many other currencies. Money priniting
will follow, fuelling the currency collapse and hyperinflation. As a
consequnce gold and silver prices will surge.
For more details, please read my latest KWN interview.
Egon von Greyerz
Click here to read the KWN blog
