For a couple of years I have been trying to convince my clients to purchase PHYSICAL gold and silver but none of them have listened to me. Of course the clients have been exposed to gold, silver, and gold miners through stocks and ETF’s for quite some time now (about 4.5-5 years, which still isn’t too long ago since gold started moving up in 2001-02), but I wanted clients to have physical possession of their precious metals holdings. I wrote articles on my personal blog (www.chrisgrande.com – which I know my client’s read), I exhorted them personally at my regular client meetings (we do 3 per year, 4 month intervals), and I would tell them on the phone or through emailed article links.
BUT NO ONE WOULD LISTEN
Recently however, things have changed. For some reason, as is the case with all bull markets, people tend not to want the asset until the price has risen
tremendously – case in point, gold. I’ve had two clients ask me about gold in the past 10 days which is two more than the number who asked me over the past five years. A little recent history: Gold and all precious metal prices fell during the correction (crash) of 2008-2009, after prices had risen from the mid 200 range in the early 2000’s. Perhaps people needed liquidity or were scared and wanted to move everything to treasury bills (i.e. cash). Whatever the reason, prices fell and enough people didn’t believe that prices would rise again. However, they did not factor in something that wise economists understood – that there is no end to what technocrats & politicians will do to try to “prop up” the economy.
No sooner had the market started crashing that Ben Bernanke, chairman of the Federal Reserve Board, began lowering interest rates and flooding the system with money – by buying US government bonds and other assets belonging to Lehman Brothers and the like. Note: buying bonds “floods” the system with money due to the fact that buying the bonds with newly “printed” money means that the sellers of those assets need to find something to do with the proceeds and therefore prop up some other asset – e.g. stocks, real estate, and of course, gold and precious metals.
And as we are learning now, to further push up prices of real assets, at any point that the economy even appears to weaken, Uncle Ben and committee are right there pledging more monetary stimulus. As well-known economist Marc Faber has said, if printing money were the way to wealth, then Zimbabwe would be the richest country in the world. of course this is the country whose inflation rate blasted over 11 million percent in one quarter as excessive money printing destroyed their fiat currency and sent citizens in a frenzied race to buy real assets and foreign currency, including our worthless paper, the dollar.
Nonetheless, it appears we are ready to begin what has come to be known as QE2 – “quantitative easing 2” – or ridiculous government economist geek-speak for more money printing. QE1 was of course the initial blast in 2008 with the bailouts. And now the expectations of this new salvo of QE have been sending the dollar down in value vis a vis foreign currencies; and interestingly, some foreign countries have tried to counteract this by trying to devalue their own currencies vis a vis the dollar. What we have is a “race to the bottom” where paper currencies take turns in the lead in the race down and real assets, especially the one money that can not be printed – gold (and silver) – continues to MAINTAIN as a store of value. And please understand that point – gold is not merely rising, you must realize that the dollar is FALLING vs gold – of course worldwide worry over loss of purchasing power is adding even more juice to gold, which by the way, represents a very small percentage of overall global financial assets. In other words, if we were to return to the time when gold backed paper money, we would need gold to price over $8,000 per ounce to back each dollar of paper money under some calculations.
Bottom line – failed hyper-Keynesianism, the inability of those in power to allow the natural corrections to occur in the economy, and to allow the required cleansing of the real estate/cheap money bubble, means MUCH MORE money printing on the way and a continued slide in the dollar. Will it be a straight ride down? NO but it is going down (read great piece on MSN by Bill Fleckenstein HERE – Why You Probably Need More Gold). From a political standpoint, I will be looking to see if clueless politicians blame “speculators” again, when commodity prices go through the roof, instead of blaming the forces that devalue the currency and make oil, copper, steel etc more expensive in dollars – QE by the Fed and Ben Bernanke, and excessive debt accumulation by our government and our elected officials (will these people blame themselves? Likely not if the people reelect them – reelection is really “approval” for the job they’re doing).
One final piece – in the US we also have massive UNFUNDED social liabilities in Medicare, Medicaid, and Social Security. Politicians are hoping and praying for a massive economic recovery to push this problem further down the line – NOT GONNA HAPPEN. The only options are either much higher taxes on our contracted economy, benefits cuts, or massive coordinated monetization of US debt by the Federal Reserve (i.e. government issues debt to pay all the bills and the Fed buys it all with created/printed money). If this last option happens, or even if the US defaults in some way, the dollar will continue to lose value against other currencies and can only be bullish for gold. And interestingly, as people have been bringing it up to me, I get the feel that gold may just be starting its ‘sexy mainstream” stage when more people start buying it. Of course when its price in USD is much higher and everyone is talking about it, we’ll likely sell.
For more on this topic:
My personal site ChrisGrande.com – how you can protect yourself from this debt bubble
My personal site ChrisGrande.com – Amazing What Money Printing Can Do (discusses Mugabe)
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