Dear Reader
What a week it has been in Gold and Silver price rises! As of writing at 8:00 am today, in the last week, Gold has risen 3.8% (£30.20 an ounce) while Silver has risen 2%. But the figures become even more staggering when we step back a little and take a look at the price in comparison to where it sat both one and three months ago.
- In the last month Gold has risen £96.06 an ounce! That’s 12.3%! Silver has risen 8.3%, both staggering rises.
- In the last three months, Gold has risen £165 an ounce, a massive 23.3%, while Silver has risen 15.6%!
I would say I’m not surprised and if you’ve been followed the Gold and Silver market for any length of time along with me, you won’t be either. These beginnings of a price correction upwards, to match the highly inflated fiat currency system, is long, long overdue. We’ve been writing about it coming for literally years. In effect, the price of Gold and Silver stay fairly level in real terms throughout history, but its price against the prevailing paper currencies shows just how much that paper currency has been over inflated and is moving towards not even being worth the paper on which it is written. I believe this process of price adjustment is just the beginning. By that I mean I believe the price of Gold and Silver will go much higher, not necessarily straight away and not necessarily in a straight line, in fact it may be pushed back a little for a while but I would just see those dips and corrections as further buying opportunities.
Why do I believe this? Because economics is very logical and it follows prescribed patterns throughout historical cycles. And if you have:
- World wide unprecedented national debt,
- An imploding Euro Zone and, contrary to the chronic scare-mongering going on in the last few days since news of our long-overdue referendum, the Euro project appears to be ideologically and economically sinking, with or without the U.K.
- Negative interest rates being implemented in an unprecedented number of world currencies
- A price punishing oil war
- Economic power flowing from West (U.S.) to East (China)
- The resurrection of the Cold War playing out like a chess game, with Syria being the geological chess board and
- The nations of Russia and Iran vs. Saudia Arabia and Turkey being the proxi chess players with
- The chess masters being China and the U.S. respectively,
it is hard to logically conclude anything but an economic collapse will occur in the not too distant future. Today’s blog is about looking at all those chess pieces coming together and what we can try to logically deduce will happen next. Our blogs have always been about preparing our readers as much as we can for future economic events.
The Telegraph’s financial section ran an intriguing short 2 minute video last week called “Five Ways To Spot the Next Financial Collapse.” What made it intriguing was it really came across as; “We can’t tell you this outright but watch out!” That’s because they listed the five ways to spot the next financial collapse, without then concluding if they were happening or not, when a cursory half hour of research will show that they all already are! It reminded me of someone trying to tell you something when circumstances permit them from doing so outright. But they’ll try any way they can to get your attention across the room. Here is their slightly held-back introduction:
“Markets have been in turmoil in 2016 and it’s hard to work out if a fresh crisis is coming. Here are some things to keep an eye on. If the stock market falls by more than 10pc from its previous peak, it’s a correction; if it falls by more than 20pc from its previous peak, it’s said to be in “bear market” territory. This is where global equities – including the UK’s FTSE 100 – are now. When investors are worried about equity prices they usually pull their money out of stocks and invest it in bonds. So, usually bond prices rise when equity prices fall. However, if investors are really worried, they will pull money out of both equities and bonds, and the prices of both assets would fall at the same time. This is not a good sign.”
Can you guess where bond prices are going now? And after talking about the stock market crashing and the bond market, the next pointer the Telegraph’s Financial section gives is, “Is the price of Gold shooting up?” I would say Gold price rises of £96 and £165 in one and three months respectively probably covers that!
In all seriousness, however, these are not normal times. But there is one point that seems to have escaped all the mainstream coverage of the Gold price moves. And that is Silver.
Whenever we read about Gold price rises in the major papers, I would like to encourage our readers to also mentally say the words “and Silver.” Once again, economics follows a pattern and at the beginning of price shifts it is usual for Silver to lag behind Gold in the growth pattern. In addition, it would be remiss of me not to point out that Silver is both an industrial metal as well as a safe haven metal, so its price moves can, at times, be more volatile than Gold’s.
But, please don’t over look it. Why? Because it is currently sitting at only a 80th of the price of Gold! Three years ago it sat up as high as a 31st of the price of Gold. So it is currently, in the opinion of many Precious Metals commentators, extremely “under valued” (read “on sale!) at this present time. Physical Precious Metals investing is at its optimum when we’re one step ahead of the crowd and that is what we try to do here at Bleyer through our newsletters to our readers. And Silver has some core figures on its supply and demand side that logically point to much higher price rises:
“The Silver Institute noted that during 2015 there was a “largely unexpected surge resulted in an unprecedented shortage of current year silver bullion coins among the world’s largest sovereign mints.” Yet, “the Silver Institute projects that silver supply will decline 5% in 2016. This is perhaps a reasonable projection based on current silver mining output. Mining bankruptcies and production cuts, however, may cause silver output to decline greater in 2016 than the Silver Institute’s 2016 estimates. Silver In Deficit: The Silver Institute states that “larger deficit is expected to be driven by a contraction in supply” even though their report says that they also expect demand to rise in 2016. The projected silver deficit in 2016, it would seem, would be driven by both decreased supply and increased demand.”
So, I’d just like to flag those facts. Another area I would like to flag is property. I quote from the Telegraph because it is known as a level-headed news source. It is not given to “shocker” headlines or over-emotionalism. And again, within the last week some quiet warnings have been raised about both the property market and banks, two sectors which affect almost all of us!
“Recession warning: There are other reasons to be cautious. Sebastian Jory, who leads the strategy and stock selection team at broker Liberum, says that the probably of an imminent U.K. recession has almost certainly risen in the last six months.”
Now, just to be clear, this was printed on 19 February, so several days before the news of the U.K.’s E.U. referendum. So he is not blaming that for the probability of a U.K. recession. I think all the eight listed bullet points above can take care of that probability all on their own. Out of interest, one phrase I read over and over again in the 24 hours after the announcement date of the referendum was the phrase, “If we leave the E.U. it is a leap into the unknown.” There is scare-mongering on both sides but to be fair, that has to be one of the most illogical soundbites I’ve heard in years. We know exactly what Britain would be outside the E.U. because we were for centuries! It is being in the E.U. that has been more of a fleeting, recent experiment on the character and economic health of Great Britain. Having said that, markets don’t like uncertainty and that fact alone will almost certainly be used by both sides over the coming weeks. Either view will probably help the rise in the price of Gold and Silver, or at least the mass moves of investors away from the stock market into both safe havens metals.
The Telegraph conclude by recommending investors watch “ultra-cyclical” stocks such as housebuilders, real estate, banks and financial firms. These were the first companies to show signs of weakness in 2008. The structure of the UK economy remains broadly similar now, with finance, consumption and the housing market continuing to play an outsized role. The Liberum analysis of share prices during the 2008 recession has a stark warning. Earnings and share prices in banks and housebuilders collapsed by more than 80pc during the 2008 crash. The market is already pricing in concerns. The shares in housebuilders are down about 18pc, banks are down about 13pc, and construction fell 10pc during the past six months.” (Banks and house builders flash early warning of UK recession) Don’t those figures put Gold and Silver’s upswing percentages even more in perspective! Out of interest, I wrote about the risk of house price falls back on January 27th, for a quick read please click here: “They’ll huff and they’ll puff and they’ll blow your house down.”
But it now appears “first slowly and now quickly, the world is realizing that Alan Greenspan was right after all: “Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency can match it.” (Zerohedge)
In fact, over the coming months I would encourage our readers to look beyond the Euro zone and our immediate urge to focus close to home and instead keep our eyes intermittently on the larger horizon at the same time. A bit like good driving; look close at what’s happening around you but also know what risks and dangers are far ahead and move smoothly into protective position accordingly. That’s because the price of Gold is “running away in the weakest countries first” and these are usually far overseas. From South Africa, to the Ukraine, to Turkey and South America, to name a few, the price of Gold is rising against all their currencies. Take a look at this list of quick glance graphs to see for yourself. As the article concludes, “This is what happens to Gold when citizens lose faith in fiat currency” and poses the rhetorical and highly ironic question, “But it could never happen here, right?”
So, as we have many financial pieces of the puzzle coming together, it is important not to feel overwhelmed but to take logical and thoughtful steps, even in the small investments we can make to help our position.
Up to this point, the slide into this economic position has been slow, in terms of building up from the 2007/2008 crash until now. The next crash is foreseeable but it hasn’t arrived in one go. There has been a long inflationary period, where fiat currencies have been inflated over and over again through quantitative easing. Then historically, comes a shorter period of deflation. Sure enough, bang on cue, late last year many countries around the world entered into Zero Interest Rate territory and more are joining that list each month. I wrote about this too, three weeks ago, in a piece called, “Negative Interest Rates: Are You Storing Up a Gold and Silver Income?” “Imagine a bank that pays negative interest. Depositors are actually charged to keep their money in an account.” (Bloomberg, 29 January 2016) This makes the potential advantages of putting a proportion of our savings into physical Gold and Silver an even more pertinent opportunity to explore.
And next, historically, the most difficult economic phrase of the cycle arrives and usually it spirals rapidly. That phrase is hyper-inflation. It is inevitable if a currency has been devalued as much as so many have. I don’t like to look too long at where we are but at what is coming next. Many journalists are not commentators but reporters; they will tell you where you are and the reasons for it. That is interesting but not anywhere near as helpful as knowing what potentially might be coming. Now, no one can say for certain but if we follow historical cycles and patterns, many people see hyper-inflation as a very real possibility. And remember I said at the outset of this article that, “In affect, the price of Gold and Silver stay fairly level over history, but its price against the prevailing paper currencies shows just how much that paper currency has been over inflated and is moving towards not being worth the paper on which its written. I believe this is just the beginning. ” Well, hyper inflation is just a logical ending place after a period of over-inflated fiat currency policies. Recently, Seeking Alpha wrote a brilliant piece called, “Inflationary Tsunami Early Warning” explaining this is clear detail. I recommend a read but here is a concluding extract to our look this week at all the pieces in the puzzle coming together:
“I have written elsewhere about the need for leaders to face a debt crisis head-on in order to avoid an eventual catastrophe. This is important at present because the entire world has been in a debt crisis since 2007. Many countries are plagued by excessive levels of debt, yet the response of governments around the world has been to solve their debt problems by adding even more debt in vain efforts to boost demand. Indeed, an additional $57 trillion has been added to the global debt pile since Lehman Brothers failed. This has merely acted to slow down global growth, so it seems prudent to consider alternative approaches to the problem. Well-known economist Lacy Hunt, and others, have shown that the historically tested solutions to debt crises include: 1) government austerity plans; 2) massively increased private sector savings; 3) structural economic reforms; 4) currency devaluations and/or hyperinflation; and 5) default.”
Why do I think hyper inflation will come to Western nations in a way that will surprise many? Because it is already arriving with full force in Venezuela, one of the very countries that gave an early warning sign of the price rise of Gold in the graph list. What does hyper inflation look like in real life?
“Recently the fourth of these crisis solutions came to mind again when the Financial Times reported that Venezuelan inflation will reach an astounding 720% this year. To get some perspective on this, let’s compare the price of eggs on January 1, 2016 to what the price would be in three years (2019) at a compound inflation rate like the Venezuelans face, 720% per year. Assuming we are buying organic free-range large eggs, the price for our hypothetical calculation starts at $3.99/dozen. Three years hence the price of eggs would be about $1,489.25/dozen! My guess is that political change will come to Venezuela if the inflation rate stays this high for an extended period of time.” (K. Wilson, Registered Investment Adviser, February 2016)
And how do commentators seen Britain in this jigsaw puzzle? “Unless you count war loan, Britain has never technically defaulted. Instead it has done the next best thing, repeatedly devaluing or promoting vigorous bouts of inflation, both of which erode the value of the debt. In a deflationary world where seemingly everyone is playing the devaluation game, these options are less easily pursued. For most highly indebted countries, it is unfortunately the case that meaningful deleveraging requires either implausibly high levels of real GDP growth, or further, punishingly deep fiscal consolidation. Debt monetisation, or helicopter money, might theoretically provide a third way out, but risks calamitous loss of confidence in the currency and ultimately hyperinflation.” Sadly, this commentator also uses the word “Tsunami” in their title: “Creditors must brace for a tsunami of losses in a world awash with debt.” Not a good sign.
The Bleyer Team have been very busy the last few weeks, as more and more new clients move into owning some of their own Physical Gold and Silver. We offer a wide variety of coins and bars to fit all budgets. As I write this the Gold Price has risen another 2.6% or £22.58 an ounce since the same time yesterday. Silver has risen at about half the pace of 1.67%, a classic lag-behind. We really look forward to hearing from you and welcome both your questions and ways we can help you either take the plunge in owning a little metal or accumulate your personal holdings of Gold and Silver coins and bars further.
PS: As if to emphasize the point I made earlier, within the last half an hour the Silver price daily increase has risen from 1.67% to 2.3%, showing that the price percentage rise in Silver has accelerated today, while Gold’s price rise has accelerated at a slowly trajectory, from 2.6% to 2.87%.. This is exactly the style of moves we’d expect from each metal.
