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Commodity Trade Mantra: This Bull Market in Gold and Silver is not the usual Garden-Variety one, but the BIGGEST Mania in History
Article by Commodity Trade Mantra
Gold and Silver perform best in difficult times. This crisis is powering both towards a historic era. And this Bull Market is already well underway.
Gold is on a tear this year. For the first time in history, it topped $2,000 per ounce and hit an all-time high. So far, it’s risen about 27% this year.
Last week was a tough one for gold and silver investors. Both metals saw significant corrections. This led some people to declare the gold and silver bull market dead. But historically, big corrections have been a normal feature of gold bull runs. Gold and silver got pummeled last Tuesday. The price of gold dropped more than 5%, falling far below the $2,000 level. It was the worst single-day rout in seven years. Gold continued to fall in Asian trading Wednesday morning and briefly dropped below $1,900 before clawing back later in the session. Silver also had a precipitous fall, diving some 13%.
The selloff was the result of a one-two punch that started with the announcement that Russia has developed a successful coronavirus vaccine and accelerated when US producer price data (PPI) came out hotter than expected, charting the biggest increase in over a year-and-a-half.
Peter pointed out that typically in a bull market, the biggest daily moves tend to be down.
What the market is doing is trying to flush out the weaker players. When it comes to a bear market, it’s trying to create some hope and sucker people back into the market by having a really big rally. Well, in a bull market it’s the opposite. The market is trying to instill fear in the weaker hands, so you get these spectacular one-day moves in the opposite direction of the primary trend to shake people out, to get the weaker players out of the market so you can clear away the excess baggage and then continue the trend.”
A lot of people have attributed the rise of gold and silver to coronavirus. They believe gold will crash once a vaccine or an effective treatment comes out. Peter called this “a bunch of nonsense.”
Gold and silver are not up because of COVID. Now, COVID is part of the reason, but it’s not the actual cause. You see, what happened is governments, and in particular central banks, they have responded to COVID by printing a lot of money. Governments are running big deficits and central banks are printing the money to monetize those deficits, especially the Federal Reserve. And so, it is the money printing. It is the inflation that central banks are creating in order to monetize government debt that is a response to COVID — that is helping to drive the gold price higher. So, it is not COVID itself that is bullish for gold. It is the government’s response. It is central bank and Federal Reserve policy in response to COVID that is very bullish for gold.”
The question becomes: can the Federal Reserve normalize policy if COVID is cured. Peter said it’s impossible. The cure for COVID doesn’t cure the debt that’s been run up in response to it.
The Federal Reserve and the government are levering the economy to the hilt before we get the cure. And if we get it, that doesn’t change anything about that debt. So, our financial position has been permanently weakened as a result of our initial response to COVID-19. It doesn’t matter if we get a vaccine or a cure because we can’t undo that damage. We can’t get rid of that debt. That debt is going to exist even if we eradicate COVID.”
There is simply no way the Fed can let interest rates rise or shrink its balance sheet with all of that debt.
To read this article in Commodity Trade Mantra in its entirety, click here.
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