Updated: Dec 10, 2020
There are many pieces to the investment puzzle. Some we know, but the most important pieces are unknown to the great majority. All one can do is to continually monitor events and adjust accordingly. The best predictor of the future has always been past monetary cycles. For over 3000 years, the most reliable assets for wealth protection have been physical gold and silver bullion. Mainstream news does not usually present this message hence this bit of humour.
From 2002-2011 there were four major rallies and subsequent peaks in both gold and silver. Throughout that time the markets have still managed to yield an overall generous return on investment despite what appears to be manipulation at times in both the gold and silver markets. (See the charts below)
In considering these charts there is little to no evidence to suggest that it will be any different in the coming months or years either as the second cycle of this ongoing secular bull market in precious metals begins.
Four Fundamentals to Drive Silver and Gold Prices Higher
There are no less than four major fundamentals at work that can explain the precious metals markets, and in particular silver the best. Each has had an unequivocal impact on pricing thus far in this secular bull market for precious metals and each fundamental can be argued alone or as part of the group.
#1 US Dollar and World Currency Depreciation
The first fundamental is US long-term fiat dollar depreciation and fiat currency depreciation all over the world. It is happening folks. The purchasing power of the US dollar, both domestically and abroad has dropped ominously since the last century.
Central banks and the world’s largest institutions of power know it. For this reason both gold and silver can act as an insurance policy in the event it gets too overheated in the global economy. Remember the lower the value of the currency the easier the time a country will have paying its debt. Without getting to far into the discussion silver has followed gold’s lead in this area on numerous profitable occasions as the US dollar index has traversed lower in a secular bear market while Gold has risen in the same time frame over 300% and Silver over 275% respectively; did you know this?
#2 Long Term Inflation
The second fundamental is a wave of inflation that I expect to hit markets with a vengeance because of the fiat paper being recklessly printed during this unprecedented phase of currency depreciation. (Please see John Williams of www.Shadowstats.com for more on the subject of inflation and the true rate of inflation at street level). Leading up to an inflationary event bullion has historically performed extremely well. Look back at the 1970’s when each precious metal rose dramatically as the fear of inflation also rose. Gold, during that decade, managed a climb of over 2300 percent while Silver fared slightly less gaining over 2000 percent by January of 1980. There is very little in the way of warning for inflation because of the hidden data and lack of sharing of true figures when calculations of primary economic measurements are being made that must support outcomes predicated on certain agendas, political or otherwise. Based on the last 100 years of data it will take less than 24 months for major inflation to take hold when it comes.
#3 Geo-Political Instability
The third fundamental is a repetitive wave of geo-political instability in the form of regime overthrow, regional instability from economic fallout, instability and sanctions, poorly diversified countries, and yes the horrid reality of war. I suggest repetitive because this particular fundamental rears its ugly head time and time again. Simply think back to the 1970’s Russia and Afghanistan war and the Iran Hostage situation to name a couple. Today we have conflicts over and with countries such as Syria, Iran, the Middle East and North Korea, sanctions against China, and tensions against formerly quiet allies such as Canada and the U.S. as new threats and sanctions against whole countries seemingly growing by the month.
From issues of the failure of repatriation of one’s gold or silver from storage vaults in other countries back to their own vaults to issues of threat and survival, sanctions and war it is easy to understand why central banks around the world have been net buyers of gold since approximately 2009. Look at China, Russia, India, France, Italy, Germany and many others for more insight on the topic of central bank buying and the repatriation of gold by countries. There is a reason they are accumulating gold and silver. They sense what is coming and what that will mean to those countries and people who are not prepared.
#4 Supply and Demand
Some of the greatest writers in the bullion field have already laid the foundation for understanding how much above ground silver there really is or theories of peak gold which all fall under the category of supply and demand. Look no further than Ted Butler or Eric Sprott for insight on these topics. In short, a precious metal such as silver has been used and abused at very low prices prior to the last decade for more than three decades. In the case of Butler his arguments have been so compelling that he makes a case for there actually being less above ground silver than gold at present time.
There were billions of ounces in January of 1980 when silver reached its all-time historical high of $52 per ounce. Fast forward to 2020 and it is said that there is now less than perhaps as little as 1 billion or so above ground ounces available, not just for the thousands of applications and critical industrial uses but for all of the world’s total demand. This alone is a harbinger of sorts as investors consider the merits of silver ownership.
At today’s price of approximately $23.50 per ounce, 1 billion ounces would be valued at about $23.5 billion dollars. One investor alone could literally turn the market on its head. (Store this little tidbit and recall it when you have already purchased bullion and you are trying to convince others to do the same.)
We are in arguably the worst period of economic existence we have seen in our lifetimes. Look around and see the unemployed or underemployed, the droves of foreclosed homes in some countries while the price of some real estate markets, like our own here at home in Canada, continue to forge higher from the copious amount of cheap money and continued artificial buying power that it brings with it. Consider what we have seen in an age of what we have been told is a period of growth and sound economic progression.
Whole bankrupt cities like Detroit, Oakland, Atlantic City, Cleveland, Harrisburg and others as well as the biggest flip-flop of economic fortune in a province like Alberta here in Canada. Look at the people on food stamps in the US and the amount of debt owed by each man, woman and child (Now approaching approximately $109,000 CDN per citizen, yes every man woman and child in the US (which was less than $55K just eight years ago) and $49,500 CDN in Canada at last check).
Meaningful career participation rates continue to drop for those in the US and Canadian job force and the number of those on social assistance is increasing steadily despite the countless trillions spent to change this trend. The sobering conclusion is that things are not rosy. Since 2008 alone the US has increased its monetary base faster than in any other time in history. There will be more “bail-ins”, more lending, failure and white collar crime to come. It is only a matter of time.
When you recognize these facts it quickly becomes overwhelmingly apparent that one should run, not walk, to their nearest bullion dealer to add physical bullion to their portfolio today. Be it for protection or insurance, for gain or simply for speculation all of these reasons will seem so obvious when the fireworks take gold and silver prices higher than ever before.
Yours to the penny,
Darren V. Long