It’s OK. We can all relax. All is apparently well with the world.
Europes sovereign debt crises are solved and just a mere bad memory. The US economy is powering ahead. The Middle East has found a lasting peace. The worlds central banks are no longer printing money as fast as their presses will run. Inflation will not take hold.
At least that appears to be the story that Gold and Silver have been telling over the last month. Prices in the yellow metal have fallen from their 2011 peak of $1850 per ounce to around $1650 as I write. Silver has fallen back from its 2011 peak of around $45.80 to around $32. The safe haven properties of precious metal are no longer needed, the danger has passed, the panic is over.
You believe that don’t you? No? Why Not?
Well for one, the 130bn Euro bailout approved this month for Greece, was not a solution. It was yet another very expensive sticking plaster on the whole European Debt crisis. So much monetary and political capital has been expended to get even this far with Greece, it is hard to imagine where the resources needed to address the crisies queuing up in the shape of Portugal, Spain, Italy and others will come from. The German public certainly will not be willing or able to keep funding bailouts for its European neighbours, at some point the music will have to stop. When it does the turmoil seen to date will seem like a tea dance. The only way out will be money printing, and plenty of it. The devaluation of the Euro may cause flight to the Dollar and hurt precious metal in the short term, but beyond such events prices will rally.
Secondly, the Middle East continues to be an ever present source of geopolitical uncertainty, and support for precious metals. Iranian nuclear ambitions may yet draw the region into further conflict, and on-going civil war in Syria may boil over into a wider struggle.
The US economy does appear to have recently turned a corner, this has had the effect of boosting the Dollar, and as a result Gold and Silver prices, holding true to their inverse dollar correlation, have fallen. However what most commentators fail to grasp is the huge scale of the stimulus that has had to be applied to generate these signs of life in the worlds biggest economy. Trillions have been created and injected into the system, and that will in time work its way into the wider economy. Inflation seems inevitable.
But still the biggest driver of Gold and Silver prices that does not seem to have been realised by the mainstream media yet, the Elephant in the room, is US debt. According to USDebtClock.org the US national debt is currently running at $15.5 Trillion dollars and rising. This is more debt than the US can meaningfully pay down, a default at some point or further wholesale depreciation of the US dollar would seem to be the only way for America to deal with its debts. When this comes to pass, the effect on Gold and Silver will be spectacular.
So why have Gold and Silver tried to tell such an unconvincing story since 2012? The rise of any market never happens in straight line, precious metals are actually a small market compared to currencies, equities, and bonds, at around 9 trillion dollars for Gold. Markets are seldom liars, it is just the length of their outlook that changes. The effects of speculation entering and exiting the market in reaction to short term drivers will inevitably cause volatility.
So the mantra for Gold and Silver investors in 2012 might be “Keep the big picture in mind and trust your instinct”.
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