Gold and Silver Break Through- But How Did We Get Here?
Although we identified the gold and silver bull market early on, now that it is showing its explosive strength, it is impossible for anyone to ignore it.
At the same time, our calls for a breakdown in this highly overvalued stock market are familiar to most of our readers.
Many have taken our advice along the way, and it is clear that many more will. We’re grateful for the confidence you have placed in us.
With gold racing right through $1500 an ounce, it’s highest since 2013, and silver easily topping $17 an ounce, we think that a short review of our recent commentary is the best way to show how we got here and where we are headed.
Let’s Start with the Stock Market.
Our first observation was short and pointed: “Something big is happening. Take advantage of the price break [in gold] while you can.” Our second was that it is “increasingly apparent that the rest of the year will be very painful for stock investors.”
Recently we highlighted the time-tested market wisdom to “buy the rumor, sell the news.” As we approached the long-awaited Federal Reserve Open Market Committee meeting at the end of July, we made the case here and here that “that even if the Fed cuts rates, stocks will take a beating.”
So, we said that selling on the news of the Fed announcement would trigger the next big decline.
And so it happened. The Dow Industrial began the last week of July at 27,300. Then the Fed announced its new policy rate and the Dow fell four straight days. Monday was the steepest stock market plunge of the year. It finished Monday, August 5 at 25,700.
The S&P500 began the week of the Fed announcement at 3020. Then the Fed spoke, resulting in six straight days (so far!) of lower prices. The index finished the following Monday at 2844. That’s a loss of six percent from its all-time high set just last month!
Which brings us to our next topic.
Trade and Currency Wars
The biggest drop in each of those markets – and the worst day in the stock market so far this year – came on Monday when China, reacting to increased US tariffs, stopped supporting its currency, the yuan, letting it fall to the lowest level in 10 years.
President Trump responded, designating China a “currency manipulator.”
Which, of course, it is. As is the United States. And in fact, the Fed’s interest rate cut days ago was nothing other than an act of currency manipulation itself. We said as much, citing the Mises Institute, here, and went on to explain, “The President wants a lower dollar, just like the rest of the world wants to lower their Yen, Yuan, and Euros.”
“That’s what governments do in trade wars.”
In fact, everything the Fed does is currency manipulation including every interest rate manipulation, liquidity operations, paying banks interest on excess reserves, Zero Interest Rate Policy (ZIRP), and both quantitative easing and quantitative tightening.
And that is precisely the problem. Why should anyone put their faith in paper currencies that are mere insubstantial assertions of value, vaporous made-up things, and therefore so easily manipulated?
We have positively been on a tear to warn our friends and clients that the developing trade and currency wars have but one clear outcome: Much higher gold prices. Out of numerous posts on the topic, we will just refer to “Gold Breaks Out Big Ahead of G20 Summit” from late June, which it turn refers to an earlier post:
“There are gathering storm clouds that are being overlooked by most commentators: economic darkness approaches in the form of a developing currency war.
“We have observed that the world – including the US – is headed pell-mell into this off-shoot of the trade war. A currency war is a form of financial madness in which the winners are said to be those that most thoroughly destroy their currencies’ purchasing power.
“We have been warning about the escalation of a global currency war for a long time, but have increased our warnings and sense of alarm recently, warning that gold is always the big winner of currency wars.
“In ‘Trump Calls for Currency War with China,’ we were explicit that the new monetary calamity was hard upon us: ‘A currency war is about to break out.’
“These policies are unreservedly bullish for gold (emphasis added). All paper currencies are discredited as they each fight their way to be the cheapest. Since they can’t all be the cheapest, successive rounds of devaluation can become quite frantic as they all fight their way to the bottom.
“When countries devalue their currencies, they are ultimately devaluing them against gold, the true supra-sovereign global currency
“That means the price of gold goes up!
“The best way to protect yourself from a currency war is to own gold.”
Gold and Silver
If we have warned many times that gold is the big winner in currency wars, it is only because currency wars are conducted everywhere by legal counterfeiters of unbacked digital and paper money. No wonder gold has entered a new bull market. No wonder gold has now hit all-time highs in many of the world’s currencies: the British pound, the Japanese yen, the Canadian and the Australian dollars, the Indian rupee, and the South African rand.
No wonder gold roared right past $1500 today! No wonder silver shot up past $17.00 an ounce today!
How long before gold hits an all-time high in the US dollar?
Just over a month ago we headlined a post “Higher Gold Price Targets: To the Moon!”, pointing to budget-busting new spending, compounding debt, and a field of presidential candidates basing their campaigns on offering voters more free things than their opponents. We wrote, “If financial analysts and portfolio managers around the world are starting to notice these things, at last, the target price for gold can barely be computed.”
Gold is up more than $470 an ounce since its low of $1046 in late 2016.
Last May gold traded at its low for the year of $1267. With today’s close over $1500, gold is up 20 percent from the May low.
Silver had a low last fall of $13.86. It’s 2019 low, like gold’s, also recorded in May, was $14.27. Now, finishing up over $17.00, silver is up 20 percent from its May low.
Those are explosive moves, particularly since both materialized in just a few short weeks.
We will leave you with an observation from our recent piece We Are Headed for Staglflation about the market action we are witnessing:
“Confused central bankers flailing all about, banks dependent on Fed cronyism for their survival, foreign nations moving out of dollars and into gold. The remarkable strength of gold and silver is only an early warning of things to come.”
These powerful moves in gold and silver are not accidents. The world is growing more dangerous by the moment, and central bank authorities, not just at the Federal Reserve, but in Europe and around the world, know no other course but massive credit creation and money printing.
It is a path of dollar destruction. It is a road of no return.
We advise our friends and clients to add aggressively to their precious metal holdings now.