The conclusion to be drawn is respect for the trend, clearly down. Where we have shown a positive “spin” on the character of price behavior at the current lows, that is still where price is, at the lows. One can not be bullish here by any stretch of the imagination. As to buying physical silver, we are likely looking at a price level that will not be revisited in the next few generations. Price may still go lower, to some degree, but what the Federal Reserve is doing to destroy the fiat currency and the economy makes asking the question of to buy physical or not a superfluous one.
Author Archive: Casey Research
Why is the gold price dropping even though the dollar is losing value?
What’s important to recognize as a potential investor is that the deficit for both metals isn’t letting up, especially for platinum. Overall, platinum demand is expected to be greater than ever before, reaching a record 8.42 million ounces this year. And this while supply continues to decline.
I believe that once the dollar loses its status as the world’s premier reserve, the US will start to implement the destructive measures we frequently discuss: capital controls, people controls, price controls, currency devaluations, confiscations, nationalizing pensions, etc.
Doug Casey: “I think mining stocks have also bottomed at this point, and there are several great speculations available today. All the so-called quantitative easing—money printing—by governments around the world has created a glut of freshly printed money. This glut has yet to work its way through the global economic system. As it does, it will create a bubble in gold and a super-bubble in gold stocks. This remains in the future; what we’ve seen so far is just foreshadowing.”
Mr. Bernanke will get to visit his ideal world of 2% price inflation, but it will only be a whistle stop. The price inflation that lies ahead will be at least as bad as what happened in the 1970s episode, when the annual inflation rate approached 15%. The money that’s already been printed so far may be enough to produce such a 1970s-size problem.
In 1979, inflation was rising, gas prices were soaring, incomes were dropping, and mortgage rates were climbing. The S&P was rising, but not so much in real terms. GDP growth was high, but it was clearly not a rosy time for consumers or workers. The gold price rose 23% in 1977 and 37% in 1978, both of which are considered economic expansion years. But as things worsened in 1979, the price accelerated and went into a mania, ending the year with an incredible 127% return.
With a rising stock market based on cheap credit it’s no wonder that precious metals have taken a hit. Investors move money to where they think they can get the best return. The trouble is that even as stocks are going up and the gold price is hurting, investors and central banks are loading up on gold and silver like never before. There’s a disconnect here. Who is right and who is wrong?
Gold and silver will not only continue to serve in their timeless role as a store of wealth while fiat currencies flail and ultimately fail—right now, market conditions are ripe for a once-in-a-lifetime profit opportunity to take shape. The current gloom in the mining-stock sector has stock prices at astounding lows… but those who know which companies are best positioned to ride out this temporary collapse and have the fortitude to invest in them now can make a fortune. This isn’t exaggeration—this scenario has played out before in the US.
I think our current correction more closely resembles what occurred in 1974-1976 than any of the dips so far this cycle. Gold nearly doubled in the two years from its ’76 low to its ’78 return to former highs. The message here is obvious: add to your inventory at depressed levels. And don’t worry about missing the bottom; investors who waited to buy until gold had retraced 30% of its decline still netted about a 70% gain once it returned to prior highs.
Full market capitulation is underway. Headlines about gold are almost universally negative today, and all about selling. This feeds on itself, and the process may not be over. In this kind of environment, prices will overshoot to the downside. In other words, the bottom may not be in. What if we get more short-term pain?
Today’s ongoing economic and fiscal crises cannot end smoothly or without unpleasant consequences. Since none of the excesses that precipitated the 2008 financial crisis have been fixed, another round of crisis is baked in the cake and will likely inflict even greater damage. When that happens, gold will again be seen as the refuge it is, regardless of current popular opinion.
The Casey Research Metals and Mining team has received a number of worried emails about gold’s recent rollercoaster ride. I’d like to respond to them. This predicament isn’t fun, and there are a limited number of options. However, instead of responding emotionally, let’s look at some facts and consider their implications. The bottom line is that you’ve got to hang in there and let the big-picture forces guide your gold investing.