"Everything you need to know about gold"
Kelsey Williams An All-Asset Price Crash (AAPC) might be the next “Wow! Can you believe it?”
In the meantime, whether it be stocks, bonds, gold, or oil, investors are licking their chops and counting their profits before they are booked. And, they have reason to gloat. Let’s see what all the noise is about.
A current headline says “fears of currency debasement drive gold price higher”. Seems reasonable; and it is. It is also reasonable, however, that a potential end of inflation is near.
Historically, governments have been “debasing” their currencies for centuries. The debasement leads to a loss of purchasing power in the currency in use.
Since gold is original money and has proven itself to be a true store of value, then it should not be unexpected that gold’s higher price over time reflects that currency debasement.
The debasement leads to a loss of purchasing power in the currency in use.
All currencies are substitutes for ‘real money’, i.e., gold; and all governments inflate and destroy their own currencies.
ABOUT MMT AND GOLD
According to MMT (Modern Monetary Theory), there are “four essential requirements that qualify a national currency as sovereign”.
Those four requirements include:
We listed the above requirements and talked about ‘sovereign currencies’ in the article MMT – Variation On A Theme.
But, there is a fifth (important) requirement regarding MMT and a National government which issues a sovereign currency. That requirement is stated quite clearly by L. Randall Wray, who is one of the leading spokespersons in behalf of MMT:
MMT – NOTHING NEW
Overall, and after reading more extensively about it, including arguments both pro and con, I still do not see what is new or ‘modern’ about MMT. Whether it is, or is not, doesn’t matter. What matters is that it is getting a seemingly inordinate amount of attention and is a subject worthy of comment.
GOLD AND RIP VAN WINKLE
The “Rip Van Winkle Caper” was Episode No. 60 in the original Twilight Zone television series. It first aired in April 1961.
The show centered on the actions of four thieves who put themselves into suspended animation for 100 years, with the intention of waking to the prospect of enjoying, without concern, the spoils of their recent criminal actions.
The “spoils” happened to be one million dollars in gold bullion (bars) which they had recently misappropriated, i.e., stolen.
The entire plan was orchestrated by one of the men, who hired the others to perform specific tasks which depended on the execution of their respective and infamous talents. Now, they were in a cave located somewhere in the desert in the southwestern United States.
GOLD MARKET MANIPULATION
Some gold bulls have bought in heavily to the argument that gold price suppression has been an ongoing activity for years, even decades. Supposedly, trading in the gold market is manipulated in ways that depress the market price for gold.
Assertions are made that the manipulation takes place in a shroud of secrecy; and the unexpected lower prices for gold, or prices that don’t meet wildly bullish expectations, are cited as evidence of conspiratorial activity.
The claim is made that the price of gold would be much higher if this manipulative trading activity were exposed, acknowledged, and prohibited. But…
DOES DEMAND FOR GOLD SEND ITS PRICE HIGHER?
Gold is original money. As such, it is the measure of value for everything else.
Gold was money before the US dollar and other paper currencies. All paper currencies are substitutes for gold, i.e., real money.
So, how much is money worth? Money is worth what you can buy with it. In my article A Loaf Of Bread, A Gallon Of Gas, An Ounce Of Gold, I compared the cost to purchase bread and gasoline over the past one hundred years using US dollars vs. gold.
The article illustrates the single reason that separates gold from all other forms of money: gold is a store of value; nothing else is.
GOLD – BULLISH OR BEARISH?
What does it mean to say that one is “bullish” on gold? Or “bearish”? Or, more simply, what is a bull or a bear?
“A bull is an investor who thinks the market, a specific security or an industry is poised to rise. Investors who adopt a bull approach purchase securities under the assumption that they can sell them later at a higher price. Bulls are optimistic investors who are attempting to profit from the upward movement of stocks, with certain strategies suited to that theory. …James Chen, Investopedia
According to the definition, then, being bullish on gold is an indication that an investor can optimistically purchase gold and expect to sell it later at a higher price for a profit.
SILVER’S APPARENT RECOVERY
Some might say “Silver’s performance over the past several weeks has been nothing short of phenomenal.” Others talk and act as if all of their wildly crazy price predictions have already come true.
The chart (source) below is a one-year history of daily prices for SLV (Silver ETF)…
As of this writing, SLV is up forty-eight percent since striking its most recent low of $10.86 two months ago. It would not be excessive to call it an impressive rally of magnitude.
There are, however, some items of note that might dampen one’s enthusiasm if you are looking for an infinite extension of the current rally.
The rally has come immediately on the heels of a nearly forty percent decline in silver over the preceding four weeks. As such, it is, at this point, merely a retracement of previously lost ground.
In addition, silver is still more than two dollars per ounce lower than it was when the price price peaked earlier this year. This means that silver needs to increase by another fourteen percent just to get back to its February price point just before it collapsed.
Let’s remember – when silver was at $18+ three months ago, we were being told it was last call to own silver below $20 per ounce; and the silver bullet train was supposed to be fueled by an impending stock market crash.
The stock market crashed; and silver crashed faster and harder. What will happen to silver prices when stocks crash again?
While you are thinking about that, lets look at two more charts (source) The first is a five-year history of physical silver prices…
As you can see, viewing silver’s recent move within the context of a longer-term time frame, alters our perception. The potential for additional volatility in the silver price is evident. However, the slope of the pattern, along with the overhead line of resistance, seems to indicate that the price of silver is well contained under $20 per ounce.
Finally, viewed within the context of a ten-year time frame, it would appear that silver’s recent rally is just a hiccup in its decade-long price decline since its peak in 2011…
In conclusion, not much has changed; silver’s potential for higher prices is quite limited.
With the winds of deflation howling ominously, it is more likely that the price of silver is headed lower.
As we have said before, it is prudent to own some silver coins (see my article on silver coin premiums) for exchange and barter against the possibility of a breakdown in the financial system and complete repudiation of the US dollar.
Other than that, your best bet for wealth preservation is gold; as long as you are not chasing the price.
(also see: Silver Loses Its Mettle)
Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!
DOWNSIDE POSSIBILITIES FOR GOLD PRICE
There is a correlation of gold’s increasing price relative to the declining value of the US dollar. The chart (source for all charts) below shows this inverse relationship clearly…
Over time, as the US dollar continues to lose value, the price of gold continues to increase. Seemingly, it would be worthwhile to just buy gold and wait for the inevitable decline of the dollar.
It is not that simple. Here is the same chart with a long-term uptrend line added…