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Gains are lurking beneath the surface for gold and silver

Updated: Mar 20


Our Federal Liberals are close to delivering to the Canadian public their first updated budget in two years. The headlines paint a picture of security and money flow, housing joy and profitability, cheap money and good times ahead, but how? Conservatives are so weak right now with little or no leverage and a so far unpopular leader that the Liberals will undoubtedly call an election very soon and get away with no new budget in almost two years. But this is our Canada now.


The buck stops with the PM. But what would it take to recognize, realize, piss you off enough that you would vote the other way? Do we need to be reminded of the vaccine shortfall, the ill spending, fraudulent behaviour with scandals like WE and others? Perhaps the loss of no less than a handful of disgraced ministers and still it would appear what Canadians like most is a good ole' handout. More money buys more votes, simple.


Regardless of what side of the political spectrum you are on, this is only going to pour fuel on the fire of gold and silver over the next few years.


At some point in the next few days, Chrystia Freeland will divulge a $400 billion shortage with zilch in the way of plans to take the red ink back to the black. By comparison, Canada's national debt in 2015, when the Liberals took over, was about $612 billion. It took 148 years to accumulate that. Now it is almost double that in less than six years.


I understand why. Covid. The Trudeau Liberals spent more money, per capita, on the virus than any other country. CERB, rent subsidy, child welfare, business credits, and payroll cheques flew so thick they blotted the sun. Many people suffered because of the virus, but there is still over $100 billion that landed in personal chequing accounts in the last year.


Savings have exploded. Combined with cheap loans, real estate inflated as never before. Building supplies, way up. Gas, way up. Real estate prices, lol, off the chart. RVs, snowmobiles, boats, convertibles, food, pretty much everything you can think of is higher in price, and yes, it is bubbly to the point that we are now miscalculating the actual rate of inflation at the street level. Your wages will not move anywhere over the next ten years, and you will pay deeply for that without a plan.


Federal and provincial government debt will come close to exceeding $2.0 trillion by the end of March. And yet, there has been little conversation about the immediate and long-term aftereffects for Canadians.


What Next?


The budget is coming soon. I am always optimistic, and it has nothing to do with political affiliation; as our readers may know, I lean right in the spectrum. The Trudeau government wants it delivered as follows:

  1. Spring arrives

  2. The vaccine begins flowing freely (at least shot one)

  3. The economy reopens (and all of this before this summer's federal election, which we know is a shoo-in for the Liberals based on the public lack of warmth for O'Toole)

Erin O'Toole is a nice guy and a capable leader, don't get me wrong. But his selfie game is lacking, as is his full head of hair and loveable historical blackface outings. Unfortunately, he has only served our country in the military, raised a family, been in business and done those boring traditional things the left has come to despise these days. Maybe his "wokeness" is not on point, but I digress.


The question is this: Will the Liberals recognize the debt path they're on leads to damnation? The answer: No, not at all. Not a chance. That is "baby boomer" talk. No one cares anymore, since we have Contemporary Monetary Theory, Central Bank interference and a mass of voters who want to work from home, flip houses and buy Gamestop stock with Bitcoin. Fiscal self-discipline is so 2005.


If the prime minister requires $100s of millions for native fisheries, minority-led businesses, windmills, international maternal health, or women's initiatives, well, he can print it. And he does. So here we are.


But make no mistake, the weight of government debt falls on Canadian families today and on future generations. Like households, governments pay interest on their debt, which Canadians ultimately pay in the form of taxes. Servicing the debt redirects resources away from services such as health care and education. In other words, interest payments create a painful link between the taxes we pay and the actual services we receive.


We may rejoice post-covid and go out spending like drunken sailors, but we have to pay the debt back. Other countries will demand it. Long-term trade partnerships will rely on our ability to stay balanced. But before all of that happens, we have to understand and plan accordingly. It will not be a walk in the park since we do not want to acknowledge the elephant in the room.


This year, Canadians on average will pay more than $500 per person on provincial government debt interest costs alone. The debt liability varies widely across Canada and interest rates may differ from province to province.


Ontario, for example, will spend nearly an estimated $13 billion on government debt interest costs in 2020/21—more than what the province expects to spend on post-secondary education. Provincial debt interest costs will equal about $845 per Ontarian.


The odds are that Freeland's initial budget will keep the taps open. Ottawa has pledged dollars for pharmacare, increased paid sick leave and enhanced child care. There will likely be a lot more given to the provinces for health care also. I would guess money will be spent to revive small businesses and no doubt an airline bailout plan of some sort.


In addition to the above, I suspect money will go to green initiatives. Plus, there's pressure (from NDP) for a universal benefit. Given that the NDP has Trudeau by the boxers, the drift left – more government, more programs, more expenditures – will more than likely continue.


Your children's grandchildren will still be impacted by what happened in 2020 and how politicians dealt with it.


What are the odds?


So this begs the question: what are the odds that all of this money has a positive outcome? We are guinea pigs in a science experiment. Very similar to quantitative easing programs run after the 2008 financial crisis in the U.S., and comparable to the monetary expansion of the '70s. In both examples, the prices of gold and silver went ballistic.


1970-1980


In the 1970s, the monetary base in the U.S. doubled in less than ten years. The gold standard ended, and inflation set in. During that decade, gold rose from $35 to an incredible high in January of 1980 at $850. That was a jump of approximately 2300%, most of which occurred after the midway point of 1976. Silver did almost as well. It moved from roughly $1.50 to its January 1980 high of approximately $52. A move of approximately 3300%, most of which, like gold, came after 1976.


2008-2011


By comparison, silver's low in 2008 was approximately $8.50, while gold was roughly $650. In the 36 months to follow, there were at least four major money creation campaigns. QE1, QE2, ZIRP and Operation Twist. During this time, the price of silver ventured up, within 36 months, to $49. A 475% move, while gold made its stake to the $1900 level up 190% from its 2008 lows.


2020-????


It is now happening again! The printing presses are running amuck and will continue unabated for however long they need them to. It has already moved gold to new all-time historical highs over $2000 and silver riding back up to above the $30 mark. History is repeating itself yet again. NO matter what you have read or which chart you have consulted, these precious metals have antiquity on their sides.


There have been four major bull markets before this one in the last 100 years. Both metals performed the same way under similar conditions. Each time a new science experiment. Against countless new "financial vehicles" spending by governments, boom, bust, recession, crisis, war, growth, these metals react accordingly.


But the best part of all? The most recent bull market in gold and silver has brought the greatest demand we have ever seen in the past 20 years in these markets. It is happening at a moment when only approximately 2-3% of the investing public has exposure. Where will we find the silver and gold if 10% of the people want exposure? What happens to each metal price if, like in the previous four bull markets over the last 100 years, the demand levels jump to 20% or greater?


For me, silver and gold are not a trader's vehicle. Each metal is a long-term asset to be held as insurance. From time to time, both gold and silver will experience major movements due to critical economic changes. I recognized these changes and have spoken about them for over 17 years: currency deprecation, the threat of inflation, geopolitics, and supply and demand.


The rest, for me, is just noise. So while things like alleged paper manipulation, cryptocurrencies backed by metals, and central banks of the world allegedly having a hand in keeping prices low, I am happy to participate. The gold and silver slingshot continues to get pulled back every day now. When it finally lets go, it will send both gold and silver prices much higher into an equilibrium of sorts that will satisfy even the most diehard nonbelievers.


You have witnessed a little taste so far. There is much more where that came from. But don't take my word. Do your due diligence and speak with those you trust. Consult your experts, or at least the ones not brainwashed into paper everything. When the levee breaks, we all stand to lose. I like diversification and honesty. Silver and gold provide both, in my opinion. They can't be printed, and they are finite resources. They can be transported and stored safely, and best of all, they are liquid. By the way, gold and silver are averaging over 10% per year, cumulatively, in both U.S. and CDN dollars, since 2002.


Yours to the penny,


Darren V. Long

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