The prospects for gold and silver next year resemble the metals themselves: bright and shiny. From Alasdair Macleod at goldmoney.com:
It has been a disappointing year for profit-seeking precious metal investors, but for those few of us looking to accumulate gold and silver as the ultimate insurance against runaway inflation it has been an unexpected bonus.
After reviewing the current year to gain a perspective for 2022, this article summarises the outlook for the dollar, the euro, and their financial systems. The key issue is the interest rate outlook, and how that will impact financial markets, which are wholly unprepared for the consequences of the massive expansions of currency and credit over the last two years.
We look briefly at geopolitical factors and conclude that Presidents Putin and Xi have assessed President Biden and his administration to be fundamentally weak. Putin is now driving a wedge between the US and the UK on one side and the pusillanimous, disorganised EU nations on the other, using energy supplies and the massing of troops on the Ukrainian border as levers to apply pressure. Either the situation escalates to an invasion of Ukraine (unlikely) or America backs off under pressure from the EU. Meanwhile, China will continue to build its presence in the South China Sea and its global influence through its silk roads. Less appreciated is that China and Russia continue to accumulate gold and are ditching the dollar.
And finally, we look at silver, which is set to become the star performer against fiat currencies, driven by a combination of poor liquidity, ESG-driven industrial demand and investor realisation that its price has much catching up to do compared with lithium, uranium, and copper. The potential for a fiat currency collapse is thrown in for nothing.
2021 — That was the year that was
This year has been disappointing for precious metals investors. Figure 1 shows how gold and silver have performed since 31 December 2020.
Having lost as much as 11.3%, gold is down 6.5%. And silver, which at one stage was down 19.3% is down 15%. Admittedly these returns followed strong gains in 2020, so 2021 could be described as a year of consolidation.
This is a great explanation of money and how money works in an economy, a shredding of Keynesian economics, a clear warning of what’s to come, and a dashing of hopes that cryptocurrencies will be the replacement for failing fiat currencies. Alasdair Macleod is one of the few economists who understands that debt is not money, that money cannot be a liability (see also “Real Money” by Robert Gore, SLL, September 9, 2015). From Macleod at goldmoney.com:
That the post-industrial era of fiat currencies is coming to an end is becoming a real possibility. Major economies are now stalling while price inflation is just beginning to take off, following the excessive currency debasement in all major jurisdictions since the Lehman crisis and accelerated even further by covid.
The dilemma now faced by central banks is whether to raise interest rates sufficiently to tackle price inflation and lend support to their currencies, or to take one last gamble on yet more stimulus in the hope that recessions can be avoided.
Politics and neo-Keynesian economics strongly favour monetary inflation and continued interest rate suppression. But following that course leads to the destruction of currencies. So, how should ordinary people protect themselves from currency risk?
To assist them, this article draws out the distinctions between money, currency, and bank credit. It examines the claims of cryptocurrencies to be replacement money or currencies, explaining why they will be denied either role. An update is given on the uncanny resemblance between current neo-Keynesian monetary inflation and support for financial asset prices, compared with John Law’s proto-Keynesian policies which destroyed the French economy and currency in 1720.
Assuming we continue to follow Law’s playbook, an understanding why money is only physical gold and silver and nothing else will be vital to surviving what appears to be a looming crisis in financial assets and currencies.
With the recent acceleration in the growth of money supply it is readily apparent that government spending is increasingly financed through monetary inflation. Those who hoped it would be a temporary phenomenon are being shown to have been overly optimistic. The excuse that its expansion was only a one-off event limited to supporting businesses and consumers through the covid pandemic is now being extended to seeing them through continuing logistics disruptions along with other unexpected problems. We now face an economic slowdown which will reduce government revenues and, according to policy planners, may require additional monetary stimulation to preclude.
Posted in Banking, Capitalism, Civil Liberties, Currencies, Debt, Governments, History, Money
Tagged central banking, Cryptocurrencies, Gold, John Law, Silver
When interest rates really start to reflect the ongoing monetary inflation, it will blow the prices of most financial assets out of the water. From Alasdair Macleod at goldmoney.com:
here is an established theoretical relationship between bonds and equities which provides a framework for the future performance of financial assets. It would be a mistake to ignore it, ahead of the forthcoming rise in global interest rates.
Price inflation is roaring, and so far, central banks are in denial. But it is increasingly difficult to see how monetary policy planners can extend the suppression of interest rates for much longer. There can only be one outcome: markets, that is to say prices determined by non-state actors, will force central banks to capitulate on interest rates in the summer.
Hardly noticed, China is deliberately putting the brakes on its economy, which will cause an inflationary dollar to collapse, unless the US defends it by putting up interest rates. Deliberate? Almost certainly, as part of its strategy, China is taking the financial war with the US into the foreign exchanges.
Bond yields will rise, with the US Treasury 10-year bond leaving a 2% yield far behind. Equity markets will sense the danger, and it might turn out that the month of May marks a peak in financial asset values — following cryptocurrencies into substantial bear markets.
There is an old stock market adage that you should sell in May and go away. It has already proved its worth in the case of cryptocurrencies, with Bitcoin more than halving at one point, and Ethereum losing 57% between 10—19 May. A sea-change in cryptocurrencies’ market sentiment has taken place.
As for equities, it could also turn out that 10 May, which so far has marked the S&P 500 Index’s high point, will mark the beginning of their decline. But it’s too soon to tell. However, we do know that following the unprecedented dilution of the major currencies’ purchasing power since March 2020 commodity prices have increased substantially, global logistics are fouled up and consumer prices are rapidly rising everywhere, a combination of events which is bound to lead to higher interest rates. But as is usually the case in times like these, central bankers and market bulls are wishing this reality away.
Posted in Banking, Business, Currencies, Debt, Economics, Economy, Financial markets, Governments, Money
Tagged debt, Fiat currencies, Gold, interest rates, Silver
Why we’ll be using gold, silver, and convertible currencies and not cryptocurrencies as the official means of exchange after fiat collapses. From Alasdair Macleod at goldmoney.com:
A reminder why they always will be sound money and why bitcoin cannot fill that role
With bitcoin’s price still rising and expected to rise even more, there has been a growing belief in cryptocurrency circles that it will replace unbacked government currencies when they eventually fail.
The assumptions behind this conclusion are naïve, exposing hardly any knowledge in what qualities are needed for sound money. This article agrees that current events are accelerating the path towards fiat destruction, and that historical precedents point to their eventual replacement with a sounder form of money. But what that money will be is decided when governments lose control over their fiat; and the public, its users, through free markets will set the monetary agenda.
Only then will the general public determine the qualities required, and in the past, it has always opted for metallic money. And because government treasury departments and their central banks coincidently possess only gold in their non-fiat reserves, its monetisation is the only option for governments to survive the collapse of their fiat currencies. That is what will eventually happen, with silver perhaps fulfilling a subsidiary monetary role to gold.
While increasing numbers of the fiat investment community understand that the quantities of government money are being expanded without any sign of limitation, they have also concluded that bitcoin, not gold, is the pure investment play because over the next few years bitcoin will approach its final quantity.
It is almost certain that like the majority of gold and silver bulls hodlers expect to sell bitcoin for profit measured in their governments’ currencies, creating for themselves relative wealth in dollars, euros, yen — whatever their governments impose on their citizens as money. But it is an investor’s, or speculator’s approach, which is accompanied by feverish examination of charts, confirmation bias from “experts” and only a half-understood concept of what is driving the price. So sudden and wonderful has been the unbanked wealth creation in leading cryptocurrencies, that investors commonly proclaim that gold and silver are yesterday’s story and that we oldies should move with the times.
You may be buying and selling with gold- and silver-backed money sooner than you think. From Alasdair Macleod at goldmoney.com:
This article anticipates the end of the fiat currency regime and argues why its replacement can only be gold and silver, most likely in the form of fiat money turned into gold substitutes.
It explains why the current fashion for cryptocurrencies, led by bitcoin, are unsuited as future mediums of exchange, and why unsuppressed bitcoin has responded more immediately to the current situation than gold. Furthermore, the US authorities are likely to suppress the bitcoin movement because it is a threat to the dollar and monetary policy.
This article explains why growth in GDP represents growth in the quantity of money and is not representative of activity in the underlying economy. The authorities’ monetary response to the current economic situation is ill-informed, based on a misunderstanding of what GDP represents.
The common belief in the fund management community that rising interest rates are bad for gold exposes a lack of understanding about the consequences of monetary inflation on relative time preferences. Rising interest rates will be with us shortly, and they will burst the bond bubble with negative consequences for all financial assets and the currencies that have inflated them.
In short, we are sitting on a monetary powder-keg, the danger of which is barely understood by policy makers and which could explode at any time.
We have entered a period the likes of which we have never seen before. The collapse of the dollar and dollar assets is growing increasingly certain by the day. The money-printing of the dollar designed to inflate assets will end up destroying the dollar. We know this thanks to the John Law precedent three hundred years ago. I last wrote about this two weeks ago, here. In 1720, it was just France and Law’s livre. Admittedly, the British had their South Sea bubble at about the same time, but it was the Mississippi bubble which proved that if you print money to puff up asset prices, you end up destroying the currency when the bubble bursts. The Bank of England didn’t make that mistake, but today led by the Fed that is precisely what most central banks are doing. John Law has become global.
Posted in Banking, Business, Collapse, Currencies, Debt, Economics, Economy, Governments, History, Money
Tagged Fiat currencies, Gold, Silver
No one knows who the shorts torturers will go after next, but it might be silver shorts. From Mark E. Jeftovic at bombthrower.com:
WSB’s “Army” plan to target “Silver suppression” next
It’s been mere hours since Charles Hugh Smith, Jesse and I finished off our AxisOfEasy Salon 36: Democratizing Stonk Market Manipulation covering the #WallStreetBets situation and things have already morphed in a direction along one of the lines that we speculated was possible: a generalized revolt against financial repression and asymmetric rulesets (a.k.a “rules are for thee, but not for me”).
This is about more than a bunch of weaponized autists (self-described as such) end-running the Wall St. establishment for fun and profit.
Charles called it a “rebellion” at one point. Once it appeared as the the establishment was trying to step into Robinhood and get the hedgies off the hook, as that line in the old classic The Usual Suspects went…
“Then, the whole thing turned political…”
I was busy most of the day yesterday, but I kept getting email alerts that my various silver positions were up 10%, trading up on excessive volume, etc. When I did check the precious metals I noted that gold was down, not by a lot, while silver was making a sizeable move. Not unheard of for this to happen, but it’s not common.
Almost didn’t notice this comment on the Hackernews thread on my WallStreetBets proves the System is Rigged article:
Then a couple hours ago I saw this:
and that’s when I realized that this thing could get real. A “reverse bear raid” on the $SLV could quite possibly upset more than a few apple carts, and here are the WallStreetBets crew laying out exactly what it entails [archived], and how their self-professed “AoR” could go about it [archived].
Can they do it? Time will tell. Silver up almost 2% on the day and silver stocks are screaming higher.
If you want honest money, you have to get government completely out of the money business. From Jacob G. Hornberger at fff.org:
The U.S. Constitution states:
Article 1, Section 8
1. The Congress shall have Power …
5. To coin Money, regulate the value thereof, and of foreign coin….
6. To provide for the punishment of counterfeiting … current coin of the United States.
Article 1, Section 10
- No state shall … emit Bills of Credit and make any Thing but gold and silver Coin a Tender in Payment of Debts.
The intent of the Framers could not have been clearer. The Constitution clearly and unequivocally brought into existence a monetary system based on gold coins and silver coins being the official money of the United States.
Do the recent rises in the prices of gold and silver signal impending global chaos? From Tom Luongo at tomluongo.me:
After nearly eight years of torment, gold and silver are back. The global political picture is spinning out of control quickly. And the precious metals are here to tell us just how quickly.
Before I get to the charts, however, I think it’s important we review everything that happened this week just to get some context.
Last weekend two gruesome murder sprees were committed in El Paso, Texas and Dayton, Ohio. Both shooters apparently radicalized by the current political climate. The usual suspects used these events to call for gun control, pre-crime prevention straight out of a Philip K. Dick novel while blaming them on the tyranny of white people and Donald Trump’s racism.
Then on Monday morning to the news India revoked Article 370 of their constitution, reorganizing Kashmir & Jammu and putting the entire area on a lockdown so complete many there don’t know what happened.
Protests in Hong Kong continued into their third week as the U.S. is caught openly working with protest organizers and castigates by China.
There are some very good reasons to own gold and silver coins. From Doug Casey at internationalman.com:
It’s well-known that you have to make a declaration if you physically transport $10,000 or more in cash or monetary instruments in or out of the US, or almost any other country; governments collude on these things, often informally.
Gold has always been in something of a twilight zone in that regard. It’s no longer officially considered money. So it’s usually regarded as just a commodity, like copper, lead, or zinc, for these purposes. The one-ounce Canadian Maple Leaf and US Eagle both say they’re worth $50 of currency.
But I’ve had some disturbing experiences over the past couple of years crossing borders with coins. Of course, crossing any national border is potentially disturbing at any time. You might find yourself interrogated, strip searched, or detained for any reason or no reason. But I suspect what happened to me crossing a few borders in recent times could be a straw in the wind.
I’ve gradually accumulated about a dozen one-ounce silver rounds in my briefcase, some souvenirs issued by mining companies, plus others from Canada, Australia, China, and the US. But when I left Chile not long ago, the person monitoring the X-ray machine stopped me and insisted I take them out and show them to her. This had never happened before, but I wrote it off to chance. Then, when I was leaving Argentina a few weeks later, the same thing happened. What was really unusual was that the inspector looked at them, took them back to his supervisor, and then asked if I had any gold coins. I didn’t, he smiled, and I went on.
Gold is honest money. As such, it’s discarded and denigrated by dishonest regimes of all stripes. From Keith Weiner at acting-man.com:
Battles for Civilization
A major theme of my work — and raison d’etre of Monetary Metals — is fighting to prevent collapse. Civilization is under assault on all fronts.
Battling the barbarians at the gate… [PT]
There is the freedom of speech battle, with the forces of darkness advancing all over. For example, in Pakistan, there are killings of journalists. Saudi Arabia apparently had journalist Khashoggi killed. New Zealand now can force travelers to provide the password to their phones so the government can go through all your data, presumably including your gmail, Onedrive, Evernote, and WhatsApp.
China is now developing a “social credit” system, to centrally plan the economy and control citizen behavior. Canada has made it a crime to call someone by the wrong gender pronoun. Even in the US, whose First Amendment has (mostly) stood as a bulwark against censorship now has a president who threatens antitrust action against Amazon, because its CEO Jeff Bezos owns the Washington Post, which prints things he does not like.
On college campuses, professors are harassed if they say one thing that the professional sensitives are sensitive to. If a controversial speaker is invited, he risks an angry mob coming to disrupt his talk (or worse).
Posted in Civil Liberties, Collapse, Currencies, Economics, Economy, Financial markets, Governments, History, Money, Politics
Tagged Gold, Silver