I hope by now it is obvious that it is not a matter of if the global fiat economy system collapses, but when. I am not convinced it will be a one-day dramatic crash, as we have seen before and again recently. I’m more convinced it will stagger and totter for intermittent days or weeks and then dramatically fall into a long, elongated depression.
So this week’s blog will be in two sections:
1) “What are the facts of the current state of the economy?” A Brief Overview and then
2) “How the stock market interacts with Gold and Silver prices.”
If the first step is to clearly acknowledge the coming storm, the second step is to know which precautions to take. If a tornado is coming, we may be one of the few awake enough to see it coming far enough in advance. But the last thing we want to do is inadvertently run in the wrong direction.
So, firstly, what does our economy really look like?
If I look at the BBC, the headlines today cover a discussion on whether shoppers should pay for plastic bags. Another headline reads “Morrisons follow Lidl on wage increase” and “Sunday trading set to be extended.” Quite literally, “There is nothing to see here, business as usual.”
Exact figures of the U.K.’s Debt to G.D.P. vary but it is suggested that our debt sits somewhere between 83%-90% of GDP. Some charts show that our Debt to G.D.P. is lower than it was immediately after WWII. But that is because the U.K. has not just financed a six year world war. Here, Market Oracle explains the Global Debt problem:
“Global debt is now in the region of $200 trillion. The McKinsey Global Institute recently published a report highlighting the bloated, unsustainable levels of debt that have been accumulated globally and the huge risks when interest rates begin to rise again. McKinsey concluded that total global debt was $199 trillion and the little covered report was released in February – 3 months ago – meaning that the figure is likely over $200 trillion. With a global population of 7.3 billion this works out out at over $27,200 of debt for every man, woman and child alive in the world today. Almost 29% of that debt – $57 trillion – has been accumulated in the relative short period since the financial crisis erupted in 2007 – just 8 years.”
“With regard to household debt the report states that household debt-to-income ratios in some countries exceed those of the crisis countries in the run-up to 2008. In those crisis countries – the report cites the U.S., the U.K., Ireland and Spain – households have managed to pay down some debt. According to the report, in advanced countries – like Australia, Canada, Denmark, Sweden and the Netherlands – but also in Malaysia, South Korea, and Thailand household debt relative to income has exploded. China’s debt has quadrupled since 2007 to $28 trillion. This represents 282% of GDP. The McKinsey Institute expresses concern about China’s financial system thus: “half of all loans are linked, directly or indirectly, to China’s overheated real-estate market; unregulated shadow banking accounts for nearly half of new lending; and the debt of many local governments is probably unsustainable.”
I’ve put this last paragraph in to show how accurate this article was. It was written in May 2015.
According to The Economic Collapse the “The Stock Markets Of The 10 Largest Global Economies Are All Crashing” and yet you wouldn’t guess that from the main stream media headlines. Here are, in brief, some facts and figures from that article:
#1 The United States – The Dow Jones Industrial Average is down more than 2000 points since the peak of the market. Last month we saw stocks decline by more than 500 points on consecutive trading days for the first time ever, and there has not been this much turmoil in U.S. markets since the fall of 2008.
#2 China – The Shanghai Composite Index has plummeted nearly 40 percent since hitting a peak earlier this year. The Chinese economy is steadily slowing down, and we just learned that China’s manufacturing index has hit a 78 month low.
#3 Japan – The Nikkei has experienced extremely violent moves recently, and it is now down more than 3000 points from the peak that was hit earlier in 2015. The Japanese economy and the Japanese financial system are both basket cases at this point, and it isn’t going to take much to push Japan into a full-blown financial collapse.
#4 Germany – Almost one-fourth of the value of German stocks has already been wiped out, and this crash threatens to get much worse. The Volkswagen emissions scandal is making headlines all over the globe, and don’t forget to watch for massive trouble at Germany’s biggest bank.
#5 The United Kingdom – British stocks are down about 16 percent from the peak of the market, and the UK economy is definitely on shaky ground.
#6 France – French stocks have declined nearly 18 percent, and it has become exceedingly apparent that France is on the exact same path that Greece has already gone down.
#7 Brazil – Brazil is the epicenter of the South American financial crisis of 2015. Stocks in Brazil have plunged more than 12,000 points since the peak, and the nation has already officially entered a new recession.
#8 Italy – Watch Italy. Italian stocks are already down 15 percent, and look for the Italian economy to make very big headlines in the months ahead.
#9 India – Stocks in India have now dropped close to 4000 points, and analysts are deeply concerned about this major exporting nation as global trade continues to contract.
#10 Russia – Even though the price of oil has crashed, Russia is actually doing better than almost everyone else on this list. Russian stocks have fallen by about 10 percent so far, and if the price of oil stays this low the Russian financial system will continue to suffer.
The writer concludes: “The truth is that it has never been about looking at any one particular day. Over the past sixty days we have seen absolutely extraordinary things happen all over the planet, and yet some people are not even paying attention because they did not meet their preconceived notions of how events should play out. And this is just the beginning. We haven’t even gotten to the great derivatives crisis that is coming yet. All of these things are going to take time to fully unfold. A lot of people that write about “economic collapse” talk about it like it will be some type of “event” that will happen on a day or a week and then we will recover. Well, that is not what it is going to be like. You need to be ready to endure a very, very long crisis. The suffering that is coming to this nation is beyond what most of us could even imagine.”
It is a well known fact within the history of the financial markets that October is a “feared month”, in which many crashes have occurred. Look a little closer and the catalyst for those crashes often begin in the September, just as has happened so far this year. I am expecting the financial news to get very bumpy from here on into and through 2016.
Now to really focus on the second part of this week’s blog: “How the stock market interacts with Gold and Silver prices.
Usually level-handed, The Telegraph is a good place to spot emerging financial trends, often reported with a respectable amount of British reserve. Such an example happened this month: “As global financial markets faltered, gold miners emerged as the winners of the Federal Reserve’s decision to leave interest rates unchanged. The inaction by the Fed spurred a revival of interest in safe haven precious metal stocks, as buyers anticipated Thursday’s policy update will keep the dollar under pressure and lift gold prices.”
So, what historically does happen to Gold and Silver prices when Stocks tumble? I came across a great piece of research this week in Seeking Alpha, which explores this relationship is clear terms, in which the author asks three important questions:
- Why do we often see a negative correlation between the stocks and the shiny metal?
- Why were the shiny metal and equities rising generally in tandem in the 2000s?
- Is there a stable gold-stock relationship?
“The standard view is that these two markets are negatively linked: when the stocks go up, the yellow metal dives, and vice versa. There is empirical evidence that confirms this common opinion, at least partially.”
Next, Mike Maloney has produced many excellent short videos, which we highly recommend. The first we explored this week is called, “Silver and Gold are an accident waiting to happen.” It’s 10 minutes long, but in summary he explains that the claims on each 1oz of Gold to the actual metal available has now reached 124:1. That is a new record for Gold. This is what he means by this being an accident just waiting to happen. We firmly believe at Bleyer that unless you own the Physical Gold and Silver yourself, either in self storage or allocated storage (not non-allocated – Bleyer only offer allocated storage for our clients) then you don’t really own more than the paper your certificate is written on. Published last month, Mike Maloney goes on to explain the current shortage of Physical Gold and Silver, which has affected their U.S. delivery times for their clients. He also explains that the products which went into short supply in 2008 were the smaller coins and bars. This makes sense as these also continue to be our most popular products.
The second video we recommend is another short 10 minute watch, called “Silver, Gold and Currencies Revalued Overnight” in which he states “there’s going to be a wealth loss for those people who aren’t prepared and a wealth gain for those who are.”
The third short video we would recommend is called, “Silver Could Be Gold Times Ten.” I like that Mike Maloney consistently doesn’t forgot Silver. This video is only 3 minutes long but if you’d like to just hear what he says about silver start at the 1:40 mark. He explains clearly based on figures how Silver has been “out of whack (true value price) for over a century and that if we see Gold pull back to $1000 or even $900, it will be silver that Mike Maloney will be buying. He states that he buys 80% Silver. We believe both metals have unique advantages and that it is wise to include both in any portfolio. But if you are reading and enjoying our blogs but think you do not hold enough spare cash to buy Gold, we recommend buying Silver.
Here are “11 Facts about Silver“. Did you know that “Silver has had double digit gains in 7 of the last 10 years? The bull market in silver is just getting started! Buy silver coins and silver bullion now, don’t miss out!” (NB: please note this article was written in 2012).
Lastly, I would like to explore the possibility that, initially, as stocks fall, we may see the price of Gold and therefore Silver fall also. This maybe because, initially, stock market investors may liquidate their entire portfolios at a touch of a button, and those portfolios may include some Gold and Silver paper stocks. This may be the perfect buying opportunity of the real physical asset. Mike Maloney also explores this. So does Value Walk in a brilliantly clear article published only yesterday:
“The primary function of a marketplace is what’s called ‘price discovery’. This is an incredibly important role where buyers and sellers collectively determine the true value of a product, service, or asset. Think of it like an auction: if you really want to know what that old baseball card is worth, put it on eBay Inc and let the market tell you. The problem is that, these days, markets are so heavily manipulated that the price discovery mechanism has been broken. Consider gold and silver, two obvious long-term stores of value whose prices have been in decline. Bear in mind these are paper prices, i.e. prices set in broken commodities markets, heavily influenced by central banks, and criminally manipulated by investment banks. So is this price really a valid indicator of their worth? Not by a long shot. Think about the ever-widening gulf between the ‘paper’ price of silver and the ‘physical’ price of silver… evidenced by the massive shortage in real, physical silver right now. The paper prices of gold and silver are set (and manipulated) in financial markets through commodities exchanges. It’s not like traders are huddled around bags of coins bidding on which one of them will haul it away. Instead they’re dealing with contracts… pieces of paper (or electrons) passed around by traders and bankers.
In fact, the gold and silver contracts traded in commodities exchanges are designed especially for people who have no intention of ever taking physical possession of the metal. Case in point: the paper price for silver traded in Chicago is based on a contract that is supposed to end with physical silver being delivered to the buyer. But the contract specifications set by the exchange allow up to 10% FEWER ounces of silver to be delivered than what was specified in the contract. And in London, the London Bullion Market Association’s “Good Delivery” rules allow silver bars to be up to 25% less than what was specified in the contract. Amazing. And it certainly raises the question– who would possibly purchase 1,000 ounces of silver if the exchange was only required to deliver 750? Anyone who actually wants to own real gold and silver would rather buy from a local coin dealer. Futures contracts are for bankers and traders. Paper prices are for economists and reporters.”
This last point highlights how important it is for our readers to look beyond the headlines of the main stream media. This is why we at Bleyer believe so firmly in producing regular blogs and articles to keep our readers and clients informed of the bigger picture.
Value Walk continue in conclusion that, “The current shortage of silver, particularly in North America, is a much better reflection of its value than heavily manipulated commodities markets. All these contracts and prices truly reflect is how broken the financial system really is… which is actually precisely why you would want to own more gold and silver. Seriously, how messed up is our financial system when asset prices across the world can be so easily rigged by the very institutions that demand our trust? This system is pure insanity, as are its prices. As such, I don’t let their prices guide my life. It wouldn’t bother me if the price of gold went negative, just like propane in Alberta. After all, I’m not trading paper currency for gold, just to trade it back for more paper currency if the ‘price’ goes up. The idea behind buying gold is to swap paper money for something real. Banks can rig its price all they want; gold’s true value comes from its function as a long-term form of savings and a hedge against a broken financial system. And the more ridiculous the system gets, the more valuable it becomes.”
We hope this blog has helped inspire you towards taking steps of owning your own Physical Gold and Silver. Many of our clients start small; some is better than none. Browse our Gold and Silver coins and bars, visit our Special Offers page and give one of the Bleyer team a ring to chat through which coins and/or bars might be right for you. Some products also offer Tax Advantages, please ring for details on 01769 618618.