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This Is No Time to Give Up on Gold

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With gold’s gratuitous, 4% plunge on Friday, bullion has once again affirmed its reputation as one of the nastiest, most frustrating assets an investor can own. Its chief enemy is a global network of shamans, thimble-riggers and feather merchants who make their living borrowing bullion from the central banks for practically nothing, then lending it to everyone else for slightly more. They are always looking for excuses to pound quotes so that they can replace what they’ve borrowed at a lower price. Helpful to this goal is a story that, however ridiculous, spooks gold bugs into dumping their holdings. The current story is that the Democrats will somehow be bad for bullion, although no one can say exactly why. To believe such claptrap is to implicitly believe that when Kamala Harris takes over for the mentally failing Biden, she will impose rigorous constraints on spending that will strengthen the dollar. Yeah, sure. But that’s not the point. The balance of power is about to change so radically in Washington that no one really knows what will happen next. For all we know, the Republic might not survive until mid-term elections in 2022.  If such a grave crisis is in fact bearish for gold and silver, then Harris, Schumer and Pelosi are bullish for America and the dollar; Greenspan, Bernanke and Powell were skinflints; John Wayne was a homo, and beer causes cancer.

Biden’s Replacement

The bottom line is that we should tune out bullion’s rigged swoons until the crooks and shysters are ready to let it run. Sometimes it takes courage and conviction to stay the course, and this is one of those times. The chart shows that gold’s correction since August has been moderate and that when it ends, there is potential for further appreciation to at least $2290/oz. That’s a 25% gain from current levels — sufficient to outperform the broad stock averages just as bullion has reliably been doing for years.

There is just one caveat for gold bugs — the possibility market forces will make it impossible for the Federal Reserve to continue doing ‘whatever it takes’ to keep the asset bubble fully pumped. It is one thing to force-feed money into the economy so that consumption does not collapse. But will the central bank be so accommodating when it is a cavernous socialist maw demanding to be fed? Well before then we could see market forces that have been pushing  up Treasury rates recently make further easing impossible.  Tightening is not even remotely on investors’ radar at the moment, but even a small turn of the screw would devastate stocks and bullion. The former would likely be down for the count, while gold and silver might be expected to get second wind once investors figure out that Tesla, bitcoin and junk bonds are poor places to store wealth. Hold onto to your ingots and doubloons in any event, since, in the worst of times, they are certain to retain their purchasing power relative to all other types of investable assets.

Please do not ask trading questions!

  • Arthur January 13, 2021, 5:16 am

    “Well before then we could see market forces that have been pushing up Treasury rates recently make further easing impossible. ”

    No because bond traders know the Federal reserve buy any dip.

    The bond market is rigged : https://www.youtube.com/watch?v=KCK4_NHszWI

    • Rick Ackerman January 13, 2021, 5:43 pm

      Oh really? You need to avoid Schiff and bone up on some experts with better arguments: Lacy Hunt, Jim Grant, Doug Noland, Bob Hoye and Charles Hugh-Smith, to name five.

      • Arthur January 14, 2021, 5:14 am

        Its been years the federal reserve buy treasury ( https://www.cnbc.com/2020/03/13/the-fed-details-moves-to-buy-treasurys-across-all-durations-starting-with-30-year-bond.html ) and this is nothing new. Peter Schiff just explain in 6 minutes thats why i put the link. The United States cannot afford yields to rise, simply because of the debt size.

        Now if the market forces overtakes the Fed, this means the Fed loose control, its simply game over for the United States. Due to the debt size, the United States cannot afford a normal functioning market (true price discovery for yields, stock market and gold), they manage a bankruptcy, they need to rig the market to survive.Its called intervention to stabilise the market, rates artificially low, stock market overbought, gold constantly taken down in New York trading session).

        I just want to add something concerning gold.

        If you only take the % Daily price change from London AM Fix to London PM Fix (London and New york trading session) from 1967 to 2020 you get a wonderful bear market at -4.77% annualised.
        If you avoid New York, so from London PM Fix to the next day London AM Fix you get 13.17% annualised.
        From London PM Fix to London PM Fix (Official Physical price) you get 7.79% annualised beating the Dow Jones at 7.25% annualised. If its not rigged i don’t know what it is.

        &&&&&&

        Unfortunately, Arthur, EVERYTHING is rigged these day — and yes, the stats you’ve cited are compelling on that point. Regarding your statement — and everyone’s deep belief — that the U.S. simply cannot afford for rates to rise, can you see where the extreme measures taken so far to avoid rising rates would make the eventual unwinding of pent-up market forces more or less inevitable?

        As for Schiff, his logic as regards the inflaton vs. deflation conundrum has always been tortured. It would seem to me at least that he has arbitrarily split the difference between the two arguments in accordance with what sells books. Better economists than Schiff — Austrian School theorist Kurt Richebacher comes to mind — have also failed to parse the logic of deflation in the context of a massive credit expansion that has been going on since Reagan, who went on a fiscal bender that he cleverly sold as ‘supply side economics’. RA RA

  • Alfonso January 12, 2021, 9:40 am

    Most cogent comment anywhere on the web. Should be required reading for everyone, even though not everyone will understand it.

  • Ken January 11, 2021, 11:23 am

    I watch their dross being pumped out continuously at will. They’re running scared! “and low on ammo”
    I’d think, just hang-on as much as you can for tumultuous upside in precious & cryptos.


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