Today when gold in US dollars is making a new correction
low, the paper shorts are elated. They believe they can win this game of
frightening every gold investor to sell their holding. But this elation is
likely to soon turn to desperation.
Supply tight in gold and silver
As I have discussed many times, the physical market in
gold and silver is very tight. Bullion banks have stocks are low and central
banks have leased or sold a major part of their gold. But since they refuse
to be properly audited they are desperately trying to hide the real position.
China and India are continuing to buy more than the annual production of gold
by the miners. And the supply situation from the refiners is tight with
delivery delays for bigger orders.
Dollar strength is ephemeral
So gold seems very week. But that is only in US dollars.
In virtually every other currency gold is holding well. That includes the
Euro, the Pound, the Canadian dollar, the Aussie dollar, the Yen, even the
Swiss Franc and of course weaker currencies like the Ruble as well as most
others.
The dollar is on its last swansong. The strength could
last a bit longer but the reserve currency of the world is living on borrowed
time.The technical picture for gold is indicating misplaced optimism from the
dollar bulls. And fundamentally the most indebted country in the world will
soon realise that the road to prosperity cannot be built with printed pieces
of paper. No economy that runs budget deficits for over 50 years and current
account deficits for over 40 years can survive. Retail sales are declining
and the major retailers trading is under real pressure. Industrial production
is weak and so is housing. Freight and trade is declining fast and these are
important advance indicators of economic activity.
No rate increase by the Fed
The Fed cannot afford to increase interest rates. Instead
they are likely to start the next money printing cycle which before it ends
will dwarf all QE ever done. And the more that is printed the faster the
dollar will fall. Japan and the Eurozone are already printing and
likely to accelerate their money creation. China is likely to follow suit
soon and that will complete the circle of all major economies trying
frantically to save their skin.
Intrinsic value of paper gold – ZERO
But just like the paper money printing will fail so will
the creation of paper gold. It makes absolutely no sense that unlimited
supply of paper gold should have any value. I don’t believe that we are
far from the point when the paper gold holders will realise that the
intrinsic value of their paper is ZERO.
The geopolitical situation in the world is also looking
very grim. Sadly the war industry is likely to prosper greatly in coming
years.
And investors in the bubble assets of stocks, bonds and
property will see a wealth destruction that they could never have imagined
whilst holders of physical gold and silver (held outside the banking system)
will maintain their purchasing power and preserve wealth.
Please see also my latest King World News interview.
Egon von Greyerz
Matterhorn Asset Management AG
GoldSwitzerland.com
