The future is an uncertain place, however one thing is absolutely certain. The current economic system can’t function as it is, for a lot longer.
While we wait to see just what the Feds are going to do with rates, ( My guess is a 25 basis point cut, and possible talk about ending QT sooner) let’s take a quick look at one of our favorite metals, silver.
I’ve had a lot of emails asking me if I’m seeing what’s going on in the silver markets. The answer is yes, I follow the miners and the metal pretty closely. If you remember, it was using miners in 2011 where we took 30K and turned it into 1.2 million doing our “Vegas” play. Then it was again in 2016 where we took 19K and turned it into 244K. Again, it was with silver miners, laddering call options.
So yes, I see the action. But, here’s the point. We’ve seen similar action in the past and it dissolved. So while I was indeed happy to see silver move up, we have to guard against the “head fake”
Let’s use the SLV for illustration purposes. Back in February of last year (2018) SLV dropped under 16 bucks and for all of February, March, April, May and into June, it bounced between 15 and 15.50. Then in the middle of June 2018, it fell under 15, and plummeted to the 13 level. It wasn’t until December that it finally got back over 14, peaking at the 15 level in February of this year.
After that flurry, SLV fell again and as recently as June of THIS year, it was still at 13.88. So the move we’ve seen recently has been from mid-June, through now. But guess what. SLV at 15.51, puts it right into that line of resistive snot that it set for almost 5 months last year. Does it really have the oomph to push on through and really start to climb?
Don’t get me wrong. I am a silver stacking bull. I believe it is the single most underpriced asset on earth. I think it’s the most manipulated metal on earth. I think it some day has a date with 70 – 100 dollars an ounce. But I also know the power of the manipulators.
Now, on the “bright side” we have a Fed that’s perfectly happy destroying the value of the Dollar and cutting interest rates. Considering that they haven’t cut rates in about 10 years, that should add some upside pressure to both gold and silver.
So, what about gold, my true favorite metal? I think it has MORE reason to go up than silver does, despite how undervalued silver is. Why? Well, like silver above, it is going to benefit from our criminal Feds destroying our dollars. But more than that, much more, is the incessant buying pressure from sovereigns and central banks around the world.
China is like a hover vacuum. Russia has hit record holdings of the stuff. Indian buying is extremely strong. In fact, in 2018, central banks bought 651 tons of the stuff. Now, why would they do that if it was just some old relic? Because they know the real deal. Japans currency is trash, the US dollar is worth 4 cents. And just recently the rules were changed to allow gold to be a tier one holding.
The future is an uncertain place, however one thing is absolutely certain. The current economic system can’t function as it is, for a lot longer. The debts are too big, the derivatives too entangled. What nation wants a currency that has lost 95% of its purchasing power in 100 years? No one, and the oft mentioned “reset” is coming.
Some believe that the reset will be all digital. I’m not totally in that camp. While I think they love the idea of a blockchain type currency that can be tracked every step of every transaction, the publics reaction to it as “a store of value” isn’t favorable. In my little mind, I tend to see some hybrid of using gold as a percentage backing, OF their crypto currency.
As we’ve discussed in the past, there’s not enough gold on the planet to back something like 30% of the combined nations currency. But that’s only true if gold is 1500 bucks. If they reprice gold to 7000 dollars the ounce, instantly all the major nations could back 25% of their currency with gold. Is that the plan? Some think so, and I’m pretty close to believing that’s the plan. A crypto currency, backed by newly priced gold.
In the silver arena, I need to see the SLV over 16 dollars per share for more than a day. I need it to get over it and stay over it. If it does that, then I’m willing to say that this latest surge higher truly has legs. But until then, I’d be more on the lookout for some sideways chop.
In the gold arena, I think it is destined higher by the things I mentioned above Central bank buying, nation state buying, and currency devaluations. It won’t get there quick or easy, but I do believe that it’s going to be higher a year from now, than it is.
With that in mind, one might consider looking at the better gold miners. Barrick for instance is partners with several mines that are actually profitable even if gold was only 550 the ounce. Imagine the profits at 1500.
We’ve entered a period of continuous currency devaluation. The ECB will be cutting rates and literally buying stocks. The Feds are cutting rates. Japan’s all in on printing money. I don’t know of any better reasons to own the shiny stuff or the companies that pull it out of the ground. Yes, I think the time is right on gold and “could be” in silver. Stay tuned.