"Bull markets climb a wall of worry," the market proverb says, and it's true. Somebody always stands by ready to tell you why this bull market has ended or can go no further. After all, the bull wants to shake off as many riders as possible, & he doesn't play fair.
Lately the discovery glands of newspaper & internet gurus have been squirting overtime, filling their bloodstreams with visions of gold crashing. One reader sent me an article that said gold was in danger of falling to "$450, its cost of production," which only proved that the author knoweth not sic 'em from come here. Industrial demand means very little to a silver & gold bull market, because they are driven entirely by monetary demand, new demand hitting the market at the margin, the demand for silver and gold as money.
One specter the croakers like to conjure up is "deflation," by which they usually incorrectly mean "a fall in prices" rather than the correct meaning, "a decrease in the money supply." While there are strong forces driving prices down -- collapsing real estate bubbles, collapsing debt, collapsing consumer demand -- these are not deflation, and deflation will not occur. Here's a rough outline of what I think will happen.
Economic activity will continue to shrink as more and more bad debt and bad investments made under the influence of the last 100 years' inflation continue to surface. Even governments will default on their debt. Because they are locked into their stupid Keynesian paradigm, when consumers won't spend governments will step up to the plate as "spender of last resort." There is no limit to how much they will spend, but the spending won't work today any better than it worked for Roosevelt in the 1930s. To enable government spending, central banks will create new money, a.k.a., "inflate." They will continue creating money even if that creation causes a hyperinflation, because they are true believers in Keynesian orthodoxy, and because all politics today is built around the idea that government must manage the economy. (You and I know that means "the people who own the government manage the economy for their own benefit.") You see, the "Elite" knows that we hoi polloi can't be left to run our own lives. No telling what we would buy, sell, smoke, drink, or how many children we'd have without their benevolent dictatorship to guide us. Shucks, people might even drink raw milk!
Today's reality is that politics trumps reason, common sense, history, experience, morality, everything. Ergo, all social & political forces are lined up solidly behind forcing silver & gold ever higher, at least for the next five years, maybe ten. Ben Bernanke, Barack Obama, and all their condign ilk in other governments are all laboring mightily for you, silver and gold investor!
Wherefore, when you hear or read jaundiced jeremiads against silver & gold, remember the ancient market proverb, "Bull markets climb a wall of worry."
What launched me upon this meditation? Only that silver & gold took a wound last week, and fell to the ground. Out crawl the croakers from their lurking places to re-state theories old and new that "prove" the silver & gold bull isn't a bull at all, but an nine year, well, well, splutter, merely a nine-year run up. You just have to toughen up your eardrums to these arguments & keep your eyes on the primary trend.
Patrick Heller of Coin Update News, May 25th, 2010:
The fear running through the Greek populace is that the nation’s government may default on some of its debts. Since 1965, the Greek government has imposed restrictions on trading British Sovereign gold coins (gold content .2354 oz). Despite those restrictions, the Bank of Greece reports that it is selling an average of more than 700 coins per day to worried Greeks.
In the first four months of 2010, the Greek central bank sold more than 50,000 sovereigns at its main downtown Athens office. Bank officials estimate that at least 100,000 other coins changed hands on the black market. The Bank of Greece has received as much as $409 per coin, which works out to a price of more than $1,700 per ounce of gold! Prices paid on the black market are reckoned to be even higher. A popular spot for street vendors to sell their coins is near the Athens Stock Exchange. There the traders wait for citizens to bring payments received from unloading their paper assets like stocks and bonds.
The US government and some state governments such as California are in financial straits as bad as or even worse than Greece. How long will it take before American buyers will have to wait in lines to pay outrageous premiums for what are now bullion-priced gold and silver coins? More than one analyst thinks those days will come within a few months or sooner.
Commodity Online:
Gold and silver bullion sales at the United States Mint have reached record levels in May 2010.
Richard Russell of Dow Theory Letters, May 26th, 2010:
The world is rushing into dollars. The world is clearly treating the US dollar as a "safe haven." As my subscribers must know by now, I view all sovereign fiat currency as questionable. As a matter of fact, I base the world disaster we're now going through on the widespread creation of fiat money [dollars, euro, yen, yang, pound, etc.]. Once bankers (the Fed) realized that they could control the money of nations, they realized that they could control nations. In my own mind, I view central banks and fiat money as "against the gods."
Central banks create fiat money, denigrate gold, and try to convince the people that the money they print is wealth. That's the great lie behind fiat money. I see one facet of this bear market [stocks and bonds] as the beginning of the end of fiat money. No man and no organization can create wealth with the click of a computer. That's the great immoral fraud underlying this bear market.
Smart investors, investors who know and understand history, are well aware of the fraud of fiat money. Which is why there is a bull market in intrinsic wealth today. Art dealers are amazed at the prices being paid at auction for top-tier art. Diamond dealers can't believe the prices being paid at auction for top-quality diamonds. No-nothings can't understand why gold is selling at historic highs in terms of various fiat currencies.
I view the developing primary bear market as a great moral drama. It's the market's answer to man's greed and his ability to brain-wash his fellow citizens. The gigantic fiat house of cards is slowly coming undone. Wealth is created by the sweat of man and the brain of man. To create "wealth" by fiat money is fraudulent and against both man and the gods. Great bear markets invariably uncover great crimes. This primary bear market will be of historic proportions and earth-shaking proportions.
Marc Faber is bearish on everything, except "real money", gold and silver: