By Mike McGowan
Near the end of a Bear Market in anything, investors stop investing because they figure they’re just gonna get screwed again. We’ve now had a Bear Market in gold and silver since August of 2011. Most folks can’t even remember what that towel they threw in even looked like. They don’t want to be reminded of their losses, the reasons for their losses, or the belated sympathy from their former broker. But just as time wounds all heels, so does time work on the side of long suffering investors with Bear Markets. As Jim Dines has said, “The cure for cheap prices is…cheap prices.” There are other reasons to believe the end is “nigh,” whatever nigh means.
Top 20 Reasons The Gold Bear Market Will End
With respects to Jim Sinclair, who gave 30 reasons, I’ll list 20. https://www.jsmineset.com/2014/06/21/30-reasons-the-bear-phase-in-gold-ends-this-summer/ [Of course, I’ve edited a tad…]
1. Von Clausewitz has been updated. His definition of “warfare as politics carried on by other means” now implies finance. The “Penalties” against Russia were financial and its implications for the Petrodollar will be profound. This type of warfare encourages people look to gold as a non-dollar asset. Almost anything that hurts the dollar will be gold positive. And Putin understands the stakes. https://www.sott.net/article/281355-Putin-speech-to-Russian-diplomats-The-time-of-US-world-domination-has-ended
2. The Foreign Account Tax Compliance Act (FATCA) has taken effect as of July first, and the long (but dubiously legal) arm of the US government is now attempting to reach out globally to punish Americans, even Americans who moved overseas and have been running businesses in foreign lands for years. This negates the dollar’s future as a contract settlement mechanism internationally. Kicking Iran out of the Society for Worldwide Interbank Telecommunication (SWIFT) a couple of years ago, led other nations to form their own global payments system. And they needn’t use dollars with the new system.
3. The internal EU has split over sanctions, due to the need for Russian gas. This means the old Euro appreciation for gold is returning. France will lead the charge.
4. Egypt is a mess; Arab Spring is over, and the political upheaval in other middle east countries indicate a growing distrust of the U.S. and its dollar.
5. The US relationship with Saudi Arabia is critical, and may be ending. If the Saudis stop taking only dollars for their oil, the dollar does down.
6. Iran is stepping in to assist Iraq over the ISIS mess, indicating the problematic success of “Mission Accomplished.” If the enemy of my enemy is my friend, we’ve actually managed to push Iraq into the arms of their former enemy, Iran.
7. Iraq oil production could be challenged, or even eliminated by ISIS. Higher oil prices have led to nine of the past 10 recessions. Gold represents safety in bad times as well as good, especially to oil producers.
8. BRICS countries are uniting economically and politically, and they are all historically and politically gold buyers. China has been doing bilateral trade deals without dollars with dozens of trading partners.
9. China expands the Yuan/Renminbi as an international dollar replacement currency. Soon, it won’t just be the Euro as a competitor to the dollar. And what if China decides one day to back their currency with gold?
10. A military crisis in the South China Sea with Japan could mean war, always a big push for inflation and gold. And then there’s Abenomics Yen printing in Japan.
11. The distinct scent of inflation, and shrinkflation, is spreading.
12. General dissatisfaction with answers by FED Chair Yellen regarding tapering didn’t help her case. And why does tiny Belgium suddenly have $400B in U.S. Treasuries on their books? And how does the FED get rid of $4 Trillion in debt on its books? Who would buy it?
13. The IMF has reduced its expectations of a US economic recovery. Christine Lagarde has issued warnings of derivative doom, and then taking savers’ money to pay for the losses. https://www.zerohedge.com/news/2014-07-03/expropriation-back-christine-lagarde-most-dangerous-woman-world
14. The US Zombie Banks are very vulnerable because of their leveraged OTC derivatives 30 to 35 times the size of their capital. Global derivatives total over a Quadrillion dollars. How does the U.S. share – $250 Trillion – get paid?
15. The municipal bond market is quaking. The once safe muni market now must deal with cities in California and Michigan going bankrupt.
16. Decline in daily stock volume coincident with the silly rise in shares indicates back stage manipulation, which could end abruptly. John Hussman has pointed out that the Dow Jones Industrial Average has been trading at a higher P/E ratio than in 1929, 2000, and 2007. https://www.hussmanfunds.com/wmc/wmc140616.htm And we know how those former episodes turned out.
17. Totally irrational exuberance is driven by frantic HFT volume. Volume is just mindless paper trading. Liquidity is where somebody stands behind the buying, like a market maker standing on the floor of the NYSE. We don’t have liquidity, but we do have a historical correlation between the S&P and Margin Debt, and Margin Debt has started to go down. Oops.
18. Hyper volume can become hyper inflation if the velocity of money spikes and causes a crisis of confidence of the dollar. Hyperinflation will be a currency avoidance event.
19. And lastly, look at the strength of the utilities group which has historical attachment to tops in equity markets. If bonds aren’t a good idea as low interest rates end, and equities suddenly go away as a means to making money, what will the big hedge funds, mutual funds, and pension funds look for elsewhere?
20. The gold rig is blowing up in London and New York. Millions of ounces are missing from a year ago at the Bank of England. Barclays just got nailed for failing to supervise their gold trader for rigging gold for NINE YEARS. The Germans can’t get their millions of ounces of gold back from the NY FED, undoubtedly because it’s gone. Austria’s request to audit their FED gold has been stalled. The London silver fix is ending on August 14, because the German government forces Deutsche Bank to resign because of its manipulation of those prices. Gee, does anybody notice the smoke billowing out from behind the closed doors of the super secret gold trade? A disintegration of trusted gold trading will upset the supply-demand balance of gold…tipping to the side to DEMAND.
To paraphrase what Lou Raneri said at Salomon Brothers back in the late 1980s about mortgage bonds, “Gold shares are so cheap your teeth hurt.” Quite a few of the juniors are trading below the value of the cash they have in the bank. Gold has never gone down four years in a row…and this is the fourth year. It’s an odds thing. In September of 1979, gold was priced around $400 an ounce, and silver was at $9. By January of 1980, gold peaked at $820, and silver notched $50. Now there were different reasons for the performance of each, but they both went up, and they will both go up this time…rapidly.
It’s time to build positions in or of both. Go with a fund or with companies. I still like the Gabelli closed end fund, GGN, and the Global X silver shares fund, SIL. Or you could take a look at the sample letter of stansberryresearch.com/ and pick a solid producer or developer company from John Doody’s lists.