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The precious
metals markets have now been going sideways for around 7 months. No investors
like corrections but in all bull markets there will always be periods when
the price corrects. Some of these moves are bigger like in 2008 when gold in
dollar terms corrected by 34% from $1,032 to $681. Silver which is always
more volatile corrected by 60% in 2008.
The correction,
in dollar terms, is so far 17% in gold and in silver 42% .
In Euros gold is down only 10%. If we look at the long term charts of gold
starting back in 1999, these corrections look like at
little wiggle at the top of the chart. Thus the correction in gold is totally
insignificant in this major bull market and absolutely nothing to be
concerned about.
The physical precious metals market is still very
strong with Swiss refiners working around the clock and central banks around
the world continuing to buy. Chinese imports this year so far are up 6 times
on last year. The selling that we are currently seeing is primarily in the
gold paper market. This is short term speculators in precious metals that are
getting out of their positions. We saw the same in the 2008 correction when
gold came down as many investors liquidated positions in all investment
classes. So the real gold market continues to be very strong and at some
point the paper gold market will be exposed for what it is; worthless paper
with no gold backing.
I can understand that investors who entered the gold
market in the $1,600 to $1,900 range might feel a little bit uncomfortable at
these levels. And even at the current price of $1,585 there might be a
further downside risk of $50-$100 at the very most. But the upside in the
next few years is likely to be in excess of $10,000 as I have been
forecasting for many years and it could be a lot higher depending on how fast
governments will run the printing presses.
As I said in my King World News interview yesterday
all the dominoes are falling as predicted which will necessitate unlimited
money printing. Just in the last few days we have seen Greek and French
voters throwing out austerity programmes and we
have also seen a Spanish bank having to be saved again. All of this is very
bullish for gold and silver in the longer term.
Link to the KWN interview
More importantly, a very big domino fell yesterday
with JP Morgan having lost US$
2 billion on a derivative position that was taken to hedge
their portfolio. JP Morgan do not even know the size
of their exposure but they admit that their losses could be a lot bigger. (No
doubt the rocket science employee who lost this amount in the bank’s
London office has been earning millions in bonuses every year for taking
positions that nobody understood).
I have warned investors for more than a decade that
the current $1 quadrillion plus (the $700 trillion figure is incorrect)
of outstanding derivatives is a timebomb of
colossal magnitude. It is guaranteed that we will see losses in the trillions
in the next few years. That is why wealth preservation is so critical and
investors should not worry about a relatively small correction in the price
of precious metals. The most important investment you can hold today is
physical gold and silver stored outside the banking system. This is the only
investment that protects your wealth against the destruction in value of most
asset including paper money and also avoids
counterparty risk. Investments within the banking system will always involve
major counterparty risk. And with most banks having massive toxic loan books
with nowhere near adequate provisions and derivatives in the trillions with
no provisions, the whole financial system is today extremely fragile. Central
banks and governments are fully aware that without money printing in the
trillions of dollars and more likely in the tens of trillions, the banking
system is unlikely to survive.
So if investors are nervous about this correction in
gold and silver, take my advice; stop looking at the price and go on holiday.
Economically and socially times will soon be a lot worse so enjoy the
“good times” when you still can.
Egon von Greyerz
Mattherhorn Asset Management AG
Matterhorn Asset
Management has set up a separate Gold Division called GoldSwitzerland
(www.goldswitzerland.com) in order for
investors to purchase physical gold at very competitive prices and store it
in their own name in Zurich, Switzerland outside the banking system and with
personal access to their own gold bars.
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