Posted on 25 September 2015 with no comments from readers
Investors have no logical reason left not to buy gold and silver. The Federal Reserve is clearly involved in a failing bluff on interest rates that it dare not raise because the global economy is entering a recession.
Meanwhile, gold prices have already bounced $80 off the lows of last month which was the completion of a four-year, 50 per cent retracement of the gold bull market, a classic market pattern before a big price lift-off that even a blind man can see.
Absent interest rate rises there is no logical reason for gold prices to stay at these levels. They only got this low because interest rates were supposed to be going up. Now they are not and so gold prices have a lot of room to increase. The Fed’s bluff is over. Janet Yellen was practically carried off the stage last night.
Thing to buy
Other asset classes are not in this position. Share, bond and real estate prices are already over-extended and ripe for a fall because of the upcoming global recession and its inevitable impact on most asset prices. Just look at how Caterpillar shares got whacked yesterday because it is firing 10,000 staff due to the global business slump.
Indeed, looking forward and what we must have on the horizon is a more accommodative monetary policy, not tightening. Interest rate rises will not happen next year. Far from it, we should be considering the impact of negative rates and some kind of QE4 money printing program.
This is what will follow the inevitable share crash that is coming this autumn as the economic reality of international business becomes only too apparent. Caterpillar is just the first casualty. It will not be the last. In a recession most businesses will shed jobs.
We are also going to see bankruptcies and business failures. Then there is the impact on the banks who have lent them money. What about the many hundreds of billions of dollars that Western banks have lent to Chinese corporates? This is the stuff of a major banking crisis.
Global crisis of confidence
Now where do people put their money when they can’t trust banks or governments? They flee into precious metals. And as they do so the demand for gold and silver rises sharply while the supply is necessarily constrained by limited stockpiles and falling production levels.
So the price will go up. Not by $20 like it did yesterday but $100 in a matter of days, and this will compound to gold and silver prices nobody can even commit to print at the moment. Who would have said the S&P 500 would triple when it hit the bottom in March 2009?
Well gold hit its bottom last month, and now the only way is up. There is no logical reason left not to buy gold and silver.