Bernanke highly accomodative to higher gold and silver prices
Posted on 28 April 2011 with 17 comments from readers
There was nothing in Fed chairman Ben Bernanke’s first-ever press conference yesterday to worry gold and silver investors. Indeed, gold bounced up to a fresh all-time high of $1,530 and silver shrugged off its price collapse earlier this week to hit $48.60 again.
You could say that the Fed boss should just come out an admit that he is a gold and silver bug. For everything about his current policy is likely to sustain rising precious metal prices, whatever their short-term ups and downs.
Low rate promise
The committment to keeping interest rates low says it all: ‘There’s not much the Fed can do about gas prices, per se, at least without derailing the recovery entirely, which is not the right way to go’.
For oil prices you might as well read gold and silver prices. For history shows that precious metal prices continue to advance until interest rates are raised above the inflation rate. We seem to be a very long way from that date with destiny, and so the room for precious metals to increase in value in commensurately long.
At the very least it sounds as though we are talking about the other side of the next US presidential election in late 2012. The US has a democratic system that encourages such behind the scenes deals in Washington, the US capital is the master of compromise.
Perhaps after the next president is elected late next year a few hints of a change of policy stance might emerge, and even then not much would happen until early 2013 if a new president is elected. By then the hope of economists like Ben Bernanke is that the US economy will somehow be strong enough to stand up without super-low interest rates.
This is how Washington would like things to pan-out seeing that an instant self-sustaining recovery has been impossible to conjure out of thin air. But we have to trust that a miracle will happen then and an even more heavily indebted US economy will start to deliver jobs and push up house prices.
Bond market collapse
That assumes the bond markets allow the Fed to continue to operate low interest rates. There is always the fear that a tipping point is reached where the devaluation of the US dollar – as represented by the rising price of gold and silver – becomes too much and bond holders head for the exit door.
A bond market crash is a very real possibility in these circumstances. That would be a systemic failure in the global economy and send investors rushing to turn their dollars into the only true money that nobody can print: gold and silver.
Overall, investment in gold and silver is a win-win whatever the outcome of the US debt and budget crises. That is why the price continues to go up, and has much further to go (click here).
The idea that silver will top out at $50 an ounce this year is pretty unlikely given this outlook (click here). The ArabianMoney newsletter published on Sunday will have some interesting new actionable advice on silver investment (sign-up here).
17 Comments posted by readers:
Since gold and silver investment is, indeed, a win-win investment, as Ed. rightly says, then invest more than 33% in bullion.
I’m taking advantage of Obewon’s current difficulty in posting his responses, but he’ll put me right on this matter before long.
However, in the meantime, get out of bonds because the market might collapse, out of shares for the same reason, out of property since there is no short to medium term future and out of currency since they can’t print gold and silver.
As you invest up to 100% of your investable monies, you will be helping to neutralise JPM and its price-lowering shorting of silver and you will be increasing the demand for g and s along with all the others wise investors.
Ed Note: Let Obewon enlighten you! But all eggs in one basket seldom works unless you have nerves of steel. You see if a 33% allocation drops by half in value you will not be happy but may well stick with it. If you have 100% and have just lost 50% you might panic and sell out – right before another upturn that goes even higher. But we don’t give personal advice on ArabianMoney because we don’t know you personally or your circumstances and so please regard this as illustrative and not intended as a recommendation.
John Mark – The Cincinnati Kid!
Examples of those who defied conventional wisdom and placed all their chips on black:
Mike Maloney: something close to 100% in PM’s mostly silver.
Gerald Celente: 80% in gold.
This is what they said previously, I don’t know the up-to-date status.
Thanks Ed. for your detailed note, and I do appreciate that what you have said is not for me personally.
I don’t think that anyone needs nerves of steel to recognise the truth of what you say in “right before another upturn that goes even higher”.
We are currently in the land of “upturns that go even higher” so that my criticism of the 33% maximum rule is applicable now and since 2000 but not, say, in the 1980s. Indeed, you yourself are predicting something like $350 per ounce before any other form of investment – bonds, shares, property – looks anywhere near as safe as gold and silver.
If someone is willing to invest 33% in gold and silver at this time in our human history, and is willing to hold on to it if, and it’s an unlikely if, price falls by 50%,
so that he or she can go up even higher than before on the next upturn,
I am having difficulty in seeing why such a person cannot do it for, say, 50% or 67% or 75% of their investable wealth.
True, I did say 100% to be provocative, but my challenge is to this 33% maximum that Obewon has presented to us. Why 33%?
I might be perusaded that 100% in bullion at this time in 2011-13 may require nerves of steel, but not 50% – 75%. Surely!
And don’t you need nerves of steel at this time for the bond market or the share market or the property market? In other words, not investing in bullion does not release the investor from requiring nerves of steel when he or she invests elsewhere than bullion.
Furthermore, it is more difficult to get out of bonds, shares and property than it is to sell your gold and silver over the internet at the click of a mouse button.
Another excellent commentary, Peter! Much food for thought herein.
@ John Mark: I’ve made another attempt at posting my detailed remarks to your question in that other ArabianMoney.net commentary; hopefully, it will be posted therein shortly. If it doesn’t show up by this evening (San Diego time), then I’ll re-post that same info into this commentary, because it’s important for readers here to obtain a balanced view, as Peter is trying to do on this blog.
Expect a Meltup in Gold and Silver:
Today in FMX Metals Connect, there was an absolutely excellent analysis of what’s really going on behind the scenes at the COMEX and at their depositories regarding the continued manipulation of precious metals, esp. silver. Other truth-tellers like ZeroHedge, etc. have agreed with the FMX assessment. Go here for info:
http://fmxconnect.com/fmxmetalsconnect/post/2011/04/28/Morning-Gold-Fix-ndash3b-April-28-2011-Silver-Warehouse-Shenanigans-or-the-Real-Deal.aspx
@ John Mark: I strongly suggest that you read all of the FMX commentary. I suspect that after a significant melt-up in silver, then in gold, there will be a very sharp and painful correction (hence, another reason to keep some of your “gun powder” dry).
Whilst I agree with most of the analysis presented here, I do think that there is at least the possibility of an alternative outcome that is not very often discusssed. This outcome would happen if the dollar really started to collapse, and the only way that it is possible for it to survive would then be for a significant rise in interest rates e.g. to between say 5-15%. The US government would then have to default on some of its debt, and precious metals would in all probability collapse, as would other asset classes like real estate and commodities. We would then have a proper recession and many bank failures, but at least we would have fiat currencies which retained their value. The only other alternative is a complete collapse of the dollar and perhaps other fiat currencies and a complete meltdown in the global economy.
Perhaps somebody could explain where I have gone wrong with this analysis, because from where I am sitting I can’t see any easy way out of this situation.
Ed Note: Yes but not for at least 18 months and then what you say happens – the Fed can also see this outcome and will do everything to delay it as we have seen. This is a worst case scenario but an increasingly likely one (although precious metals might still hold value better than many other asset classes). The alternative is that the official policy works but delivers Japan-style stagnation, and precious metals continue to rise steadily. If forced to choose, the first option looks most likely. There is no easy way out, that is why you want gold and silver not paper.
Also good reading on this topic, from Jeremy Grantham . . . we may not always agree with him, but we should ALWAYS give due consideration to his viewpoints, which are almost always “right on target.”
This info is from his recent newsletter (subscription), but has been made available by fortune.com. Go here:
http://finance.fortune.cnn.com/2011/04/28/the-coming-commodity-price-nightmare/
Check this video out. The commentary is absolutely outrageous. (you will draw your own conclusions as to why)
http://www.marketwatch.com/video/popup/index?currentPlayingLocation=15¤tlyPlayingCollection=markets¤tlyPlayingVideoId={4B7D7FBC-76CC-49E8-9A8C-6BB2225FB5EC}
I think there is something actually real going on here, psychologically, with some percentage of people experiencing a negative hallucination. It’s beyond just the media’s gold politics. Some segment of the group really believe with this guy that gold is a commodity like copper. They just don’t get it – at all. They don’t understand that this is a global base currency melt down, and why. None of it.
There’s going to come a day of reckoning when the glass menagerie breaks. When whatever props are holding up this hallucination dissipate. I can only imagine the depth of that denial turning to anger.
Another excellent commentary, Peter; much food for thought herein.
@ John Mark: yesterday, I made 2 additional attempts at posting my detailed remarks to your question in that other ArabianMoney.net commentary; but I noticed this morning that it still doesn’t show. Hmm.
I’ll try posting it again within this commentary, instead.
A Melt-Up in Gold and Silver?
Yesterday in FMX Metals Connect, there was an excellent analysis and commentary on what’s really going on behind the scenes at the COMEX and at their depositories regarding the continued shenanigans there. Other “truth-telling” web sites, like ZeroHedge, etc. have agreed with FMX’s assessment. Go here for info:
http://fmxconnect.com/fmxmetalsconnect/post/2011/04/28/Morning-Gold-Fix-ndash3b-April-28-2011-Silver-Warehouse-Shenanigans-or-the-Real-Deal.aspx
@ John Mark: I strongly suggest that you read the FMX commentary; I suspect that after a significant melt-up in silver, gold will follow, and then there’ll be a big correction . . . hence another reason to keep some of your “powder dry”.
@ obewon
After bird-watching gold and silver in the graphs, especially very closely the last 2 weeks its clear to me that moment by moment, gold is leading silver. That’s what i see. Its demonstrated today when silver ran up against the psychological barrier and gold continued its run. Unless i don’t see the forest for the trees, always possible.
Its just starting to get wild. The tension around gold is incredible. From the Chinese announcing that they are going to be investing in PM while divesting USD, to the fact that oil just keeps marching up in tandem.
There are two thesis, one is of weak economic recovery, the other no economic recovery. My take is that we are that frog in the greatest depression cauldron, and the numbers are fake. Its already a train wreck because RE is not going to recover, period. Rates are going to go up. Unemployment is going up. The dollar is being devalued the printing way. Emerging economy’s are correcting, crashing, global inflation is rampant, we are heading toward higher central bank rates worldwide, and eventually the fed will raise rates. The bond market will collapse, the USD will collapse. Box corner, straight down. The IMF will step in. China will step in. Gold will be at 10,000 in a month, from $5,000.
Its happened before. When sterling caved in, it was the central bank of India that exchanged their treasury reserves for USD and tipped a run on the pound. They will do it again. China will intervene this time perhaps.
There are many scenarios, this one could take 18 to 24 months. Gold ran up $200 in the last 2 months, the dollar is plummeting. Its a countdown to $5,000 from here, the way i see it.
Ed Note: http://www.amazon.com/Dubai-Sabbatical-Road-000-Gold/dp/1450565085/ref=sr_1_10?ie=UTF8&qid=1304144360&sr=8-10
@ Ed.
Well, after 5 attempts at trying to insert some lengthy remarks in your other commentary, I’ve given up, and will re-type it herein. I think your server doesn’t want to accept long remarks that contain a lot of HTML codes; just a guess, on my part. Sorry for the double entry in this commentary thread; my bad, ’cause I pressed the “post your comment” button twice!
OK, no HTML codes embedded herein:
@ James M:
Interesting remarks, much of which I concur with. Gold has been doing better than silver over the past two weeks because it’s far more “resilient” and also because the JPM cartel is scared to death of their massive silver shorts. They’ve been covering those shorts like crazy since early April. Gotta remember that for every $1 dollar silver increase, they have to fork over an additional $1 billion in margin calls. That’s a real “OUCH.”
You mention “gold tension” and it’s certainly true; the US has traditionally been the “consumer” for the world, yet other countries realize that they can’t depend on massive consumption from the US anymore. So do we have a weak recovery, as you stated, or do we have a “let’s pretend” weak recovery? By every economic measure that one wishes to use (e.g. unemployment, manufacturing, production, distribution, electricity generation, labor participation rate, etc.), the US has not recovered at all; I believe we have a “let’s pretend” weak recovery, because government spending is now 24% of the GDP, and that is the “life support” system for the entire economy. Take a hard look at the “labor participation rate” (google it) rather than the unemployment rate. The former shows a significant and continuing decline, while the latter shows “improvement” only because there are many millions who have given up looking for work, so their numbers are not included in the unemployment percentage.
You’re right; the news media doesn’t get it; but the senior management of these media companies are totally influenced and biased towards the government’s position, and so they play “let’s pretend” we’re in a recovery. CNN is an excellent example here; they love to pretend that they are unbiased, but every day when I’m working out, I watch CNN (rather than the trash soaps) and am appalled at how distorted their news and their statistics are. The average working class stiff in the US knows that a continuously rising stock market does not constitute an honest economic yardstick, yet that is the only thing that the FED/Bernanke, the Obama administration, and the news media can point to.
@ John Mark:
I’ll attempt a short response to your question about asset allocation in this thread, since I’ve given up on the other thread.
TV, the perpetual illusion machine. You can’t tell the difference now between a soap and CNN today. I got in the habit of watching CNN living in various countries off the continent. I still watch CNN mainly to follow what Americans are fed and to get a contrasting opinion to our Canadian news (what we are fed). I also watch the BBC. Sadly, if wanting real world news now, I watch RT. Google Aaron Brown to see what day he ’started’ with CNN on the anchor desk; that provides a nice hint as to what CNN is all about. As Stacy points out on Max Keiser this week, agreement with broad perception in the west is now akin to cult membership, like Scientology. America now gets its real news from comedians like Jon Stewart, (and the guy isn’t even funny) it’s all so tragic for those of us weaned on the likes of Walter Cronkite and George Carlin (not to mention music that you could actually listen to).
Speaking of ‘NEWS’ did you read that (4/29/11)Karen Roche interview Doug Casey: Precious Metals vs. the USD ? Casey’s take on the world today made me sit up straight => ” What we’re facing now is something of absolutely historic importance—the biggest thing that’s gone on in the world since the industrial revolution….. It’s going to be the most tumultuous decade for hundreds of years, bigger than what happened in the 1930s and 1940s. ”
I can’t say i disagree.
Ed Note: Strange you would imagine a conspiracy against the West from RT but actually it is the most objective view – they seem to just report news and analyze events properly, and not pretend that things we don’t like are just not happening!
“TV, the perpetual illusion machine.”
Well said, James M.
Doug Casey’s team (caseyresearch.com) does a fantastic job of analyzing the global landscape, identifying key events, laying out the facts and then revealing the not-so-obvious manipulative hands behind the curtains.
Take yesterday, for example. In a total panic state for the last two weeks (because of their extremely high short positions which are costing them billions each week!), the JPM cartel planned a perfect nuclear attack on silver when the markets opened in Australia in very light trading. Silver down over 20% within a few minutes; then the short covering.
Luckily, I happened to check the silver price last evening (San Diego time) and noticed the sharp 20% take-down; upon seeing that, the informed investor here in North America would have entered “buy” orders last night, for execution early this morning at market open. That was a no-brainer!
Over the past week, JPM reduced their net short position by over 50 million oz., but you won’t hear this “news” when CNN is covering global financial stuff today.
@ Ed => ” Ed Note: Strange you would imagine a conspiracy against the West from RT but actually it is the most objective view – they seem to just report news and analyze events properly, and not pretend that things we don’t like are just not happening!”
Huh? I never said that. Pls read again…
=> ” Sadly, if wanting real world news now, I watch RT.”
“India’s big hike surprises
Central bank picks price control over growth”
http://www.marketwatch.com/story/india-hikes-interest-rates-by-50-basis-points-2011-05-03
Is this really a surprise? Is it important?
@ James M.:
Well, it’s important when you consider that most other countries, including China and India, are beginning to tighten more, while the US is not.
Without question, Bernanke has painted himself into a tight corner, and now stands there, practically powerless, as he and the FED hope/pray that his extremely long ZIRP policy will “take hold”. Obviously, he could raise the interest rates by a half a point, but that would quickly drive the US economy into recession again, as there are simply no drivers for growth.
As Peter’s headline for this commentary says: “Bernanke’s latest decision is highly accommodative to gold and silver prices.”
But the Bernank is scared of gold and silver prices; hence, the mandate for the “investment banks” to bring these prices back down . . . but their coordinated moves are like shoveling sand against the on-coming tide.
this site is really well put together