Why Gold Sells Off and What Will Happen Next ...
Reuters just published an interesting article that makes the following point: "As the Dow struggled over the past few weeks, gold has confounded market watchers by tracking equities, even as the European debt crisis escalated. U.S. December gold futures fell $3.80 to $1,716.40 an ounce."
This brings up an interesting question. I will try to answer it in this essay. Two weeks ago, the Dow Jones Industrial average was up marginally and so was the price of gold. This past week the Dow lost some 300 points and gold sold off as well. Yes, it would seem that now "gold tracks stocks."
Further, we are informed that there is a "rush to safety" when the stock market runs down. People sell off both equities and gold for the "safe-harbor" of US notes and bonds.
This is a kind of dominant social theme, in my view: Gold is now to be portrayed (by Reuters and other elite-controlled media) as just another investable commodity like IBM or Exxon. But this ignores some important points. I researched them to make sure of my conclusions.
Start at the beginning, then. The powers that be HATE gold. Money Power is derived from the central bank printing press. The idea that people on their own can go out and dig up money out of the earth means that the people STILL have the opportunity to better themselves independently of the power elite.
This is very hard to tolerate if you are trying to set up a regime to rule the world, as the Anglosphere elite apparently wants to do. If people can still get wealthy independently then you don't have TOTAL control. And total control is what Money Power seeks, or so it surely seems.
For this reason, the powers-that-be do everything they can to manipulate and squash the price of gold. This is why fiat money bulls are likely longer by years and decades than precious metals bulls. The elites drag out the fiat bull markets as long as they can.
The last big precious metals bull market was in the 1970s, and it lasted about ten years. Then came the fiat leg that lasted about TWENTY years. Two-to-one. This precious metals bull market started right around 2000. I knew it, too, and so did many others.
Gold has been going up throughout the 2000s. Of course, the stock market has been going up as well, and that has obscured the gold bull market that we are in. Because of this, many in the mainstream media can avoid talking about business cycles and simply talk about gold being "in a bubble."
This is not so. The early 2000s were marked by tremendous monetary stimulation, with more to come. This is what happens when equity markets blow off. To begin with, central banks print money and inflate the stock market until the boom turns to a bust.
But you can't keep doing this. Eventually, the market distortions become too damaging. There is a limit after all, and we have reached it. Right around the turn of the century, the bust was enormous and the resultant stimulation only made it worse. The cycle had turned and gold (and silver) was on its way up.
Because the cycle had turned, the resultant stimulation was bound to fail, and it did. This failure is referred to as the "mortgage crisis" or "housing bust." It began in America but soon spread throughout the world.
People have attributed the housing bust to many things, including deregulation. But when one steps back and looks at the larger picture, the reality becomes evident. The Austrians are correct. In the modern era, economies are driven by central bank inflation. First a boom and then a bust. Had nothing to do with re-regulation or anything. Purely a banking phenomenon at its heart.
Here at the Daily Bell we've explained numerous times that this is likely the "final" bust. The dollar reserve system is probably dead. It died when the Fed had to print at least US$16 trillion to support crony banks and financial firms throughout the world during the height of the 2008 crisis.
The powers-that-be don't want to admit this, of course. Even in this Internet era, they're hiding their manipulations as best they can. Even as they try to replace the current financial system with a world currency, they are struggling to maintain the present system.
To do this, they confuse the issue. They certainly don't want to speak about the golden bull, because then they would have to speak about the business cycle and they don't want to do that, either, because THEN they would have to explain how central banks DRIVE this ruinous and horrible cycle.
So they make up stories. The latest story is that gold is not just another investable asset like a stock and indeed tracks the stock market. These last two weeks are being held up, once more, as proof positive.
Of course, to some degree this is true. Institutions have begun to buy gold and they do buy and sell gold the way they buy and sell stocks. But the idea that the average investor sells his or her gold when the stock market goes down (in order to buy Treasuries) is ludicrous. Doesn't happen.
Gold tracked the Dow in the 1970s, too. I checked. The Dow and gold prices rose and fell together, roughly anyway. That's because the big institutions were likely buying gold then, too.
But in 1979 and 1980 something else happened. The gold market went vertical. Look it up for yourself. The verticality is astonishing. From about US$400 to US$800, and then right back down again. This is what will likely happen during the last phase of THIS golden bull. But we are not there yet. Wait.
People say that the 1980s were anomalous because of the great inflation and because the Hunt Brothers tried to corner the silver market. That's what caused the verticality too. But this is nonsense as well. Because of the central banking business cycle, this golden bull will end the same way as the one in the 1970s, if it is not interrupted. It almost has to.
Why? Because the powers-that-be may keep printing money and keep inflating in support of this horrible fiat money system until the bitter end. They may FORCE a blow-off of the golden bull, just the way they forced one in 1980.
"But the verticality was due to market manipulation," some will object. Of COURSE there was market manipulation. If it hadn't been the Hunt Brothers it would have been something else. Blow-offs FEATURE market manipulations.
Here's my bottom-line point, from an investment standpoint. During the 1970s, people could have been fooled by the way stock markets and gold markets acted. They might have seen the parallelism and simply concluded that gold was just another commodity or that it was acting like stock.
This would prove to be a major miscalculation. Bull markets always come to a head in the modern era, thanks to central banking, which always turns a common cold into pneumonia.
That's how you should think of this market, by the way. The market has a quiet fever right now, but before the power elite is through poisoning this business cycle, that fever will have become a raging, out of control sickness. There is no telling how far the price of gold may travel.
Of course, when prices go so high, people start buying paper gold, which they are already starting to do. This is where the losses come. Ask Gerald Celente, who chose not to simply buy physical gold (in this instance) and was playing the futures market as way to do so. He lost his account, apparently, when MF Global went bust.
And this is another point. This same horrible central bank-inspired business cycle inevitably causes an uptick in "financial fraud." It's inevitable. Then elites and their associates and enablers use the resultant bust to pass MORE laws and MORE regulations, further consolidating state power in support of their damnable central banking racket.
So don't be fooled by all this talk about gold tracking the Dow. It did in the 1970s, too. Right until it went vertical. People who held gold then in many forms – and got out – made fortunes.
Easy enough, then. Just hold gold until it goes to US$5,000 and sell. Not so fast. Today, thanks to what we call the Internet Reformation, too many savvy people understand what I have just explained. And the elites who control central banking know it, too. I have a hard time believing that the powers-that-be will let gold go to US$5,000 (or wherever it would ordinarily end up).
Something else will intervene. A war. A deliberate promotional campaign against Wall Street and "speculators." A terrible, expanding Depression that will cause the confiscation of gold and the creation of a new worldwide money standard. Or perhaps all three at once.
People who own gold and silver will no doubt be rewarded (at least to some degree) before any of this (potentially) takes place. But one needs to be careful now! We are entering another leg of the cycle, in my view. To ignore the possibilities is to be blind to the reality of modern history. The last time this sort of blow-off took place was in the 1930s. Look what happened then.
You remember, don't you? The New York Fed illegally printed money and FDR covered it up with his "bank holidays." The power elite of the day used every promotional trick they could to shift the blame. They pointed fingers at "Wall Street," arrested thousands, destroyed companies, passed Draconian new regulations (that only prolonged the recession and further institutionalized the Fed), confiscated gold and then – finally – when nothing else worked, started a world war.
That's my take on it anyway. Call me a conspiracy theorist. That's OK. To me, it's all directed history and more in tune with reality theory.
And it's happening again ...
Posted by dave jr on 11/19/11 07:51 PM
There are no levels, everyone has abilities that have value to others when applied. Our society and educational system would rather we didn't discover them. They would rather we fit into a pre-defined mold. Too many forget where value comes from.
Posted by finninsweden on 11/19/11 07:50 PM
Thank you,Anthony for a good article. There is one question in my mind,though. If/When one sells his stack of gold,what does one sell it for,the depreciated fiat currency that after all did manage to survive, or does one go into the stock market?
Posted by finninsweden on 11/19/11 07:42 PM
"they" are not leaving...
Posted by dotti on 11/19/11 07:40 PM
I'm learning to garden, and I may get chickens; but I can't approach your level.
But I am developing relationships in the area--these are people who have been close to the land for generations.
You are an inspiration! Thanks.
Posted by finninsweden on 11/19/11 07:39 PM
"they" are NOT leaving...
Posted by dave jr on 11/19/11 07:32 PM
Iron, brass and lead. And tools, chrome vanadium alloy. Copper in generators and welders. Above all, the will and skill to use them.
Posted by dotti on 11/19/11 07:21 PM
Frank, I agree that would be the ideal. I still think you may like to have a few coins for those occasions when your trading partner doesn't want eggs.
There are just so many things that we need to survive. Think toilet paper.
Posted by dotti on 11/19/11 07:14 PM
Zeb, thanks much. I've made note of this information.
Junk silver does have its advantages. I think it would be very useful in barter economies.
Looking at your calculations, the weight of the actual coins must be more, including the weight of the copper.
It is my understanding that some dealers sell on the basis of face value so that you can purchase as little as one silver dime. More people can afford to buy $50 face value than a bag.
Are you suggesting the "know your seller" thing for particular reasons or just the normal--anything special regarding junk silver?
RE: hand gun. Sad, but true.
Posted by Frank on 11/19/11 06:57 PM
"I started out buying junk silver,,,,, then I bought gold. As the future became more clear, I sold gold and bought farmland. Y'all are invited out for a pit barbecue." - Danny B
You are correct. That would be best, with some cows, horses (for plows & transportation), chickens, grains, vegetables & a well. Forget gold/silver/paper money.
Posted by SoCal fellow on 11/19/11 06:46 PM
Mr. Wile, they will try to confiscate, possibly. But, like last time, they will only partially succeed.
Milton Friedman reported that during FDR's confiscation, only 22% of circulating gold coins were turned in:
Click to view link
Civil disobedience worked then, and it will work now.
Posted by zebblanc on 11/19/11 06:36 PM
The weight of $1000 face value of junk silver is 715 ozs give or take a little wear. You pay 715 X spot; ~$24K. I saw one seller shipping free.
It is imperative that you know your seller. Junk silver is valued at the weight of silver, only typical 90%; you are not paid for the copper content.
Have multiple safes. One with papers and a little PM for "give away". Others with your real stuff and perhaps a small hand gun. :-)
Posted by onebornfree on 11/19/11 06:34 PM
Thank you for the question [nice avatar by the way].
I am sorry Mr Batty, but I only give detailed advice about what to do with money a person cannot afford to lose to those who intend to do the exact opposite of what I suggest [ for whatever reason], to those individuals misguided enough to agree to pay me large amounts of money for that advice in the first place, regardless.
Strange as it may seem, the exact same principle applies to those perhaps misguided individuals who claim to want the same type of advice because they intend to slavishly follow my recommendations.
I have a limited amount of deliberately vague, [ but free!], advice on this subject at my website/blog. For example:Click to view link Regards, onebornfree.
Posted by johnblenkins on 11/19/11 06:33 PM
A couple of times this year I have posted that as a 2/3 times a week silver buyer,
Mostly in antique/used, or junk coins, from auctions/markets/private/ebay.
What my street level take was.
Before the September silver take down, the physical scrap price of silver
was by and large being followed by auction prices.
For example a 1 kilo silver salver would typically sell for £500 + 20% commission = £600. The scrap price being very close to £0.60p a gram.
The flow was the same at silvers May high of near $50 to a straight line
drop to $26 or so.Over a Bank Holiday thinly traded far east market .
Hi Dotti, No plunge protection team to be seen in the face of clear
market piracy then. Why? I hear you cry.
As Mr Wile explains: THEY HATE TRUE MONEY.
But I digress, The Sunday 11 September I was as usual prowling my local South London flea market for silver. A couple of regulars came forth with about
200 grams between them for which at the time I paid £0.70p a gram.
Which mirrors the best price I can find on the net- the complications.
Then I set of to Turkey for 2 weeks R&R. A few days later having paid £0.70
a gram for 2 items totalling 806 grams. My Sister texts " silver been smashed
scrap £0.46p" OouChh as I clasped my ass with my hands and ran around as if severely spanked.
Since my return and more markedly toward today, a disconnect is with doubt
happening in the scrap/spot price. Today top price I can find is £0.56p
per gram. The Typical price for run of the mill silver is at least £0.54p
and often above. a defined 10%/15% gap opening .
With junk/scrap coins this has jumped from a 5%/10% premium to 20%/30%.
People are looking at small coin for exactly what Dotti points out
If, sorry when it all goes tits up all those old silver coin can
easily be represented as a value. If a silver dollar ASW actual silver weight
is lets say a $100. A half dollar would be $50 ect ect.
Now a gold coin is by and large still sticking to its bullion price.
Gold is very good but you can every day trade with silver. As before fiat
it was 16/1 so as fiat melts so it shall return .
Don't worry your heads about the silver paper price manipulated
in a distorted market.
If you got it in you hand in solid, They can do all they like.
YOU HOLD TRUE WEALTH.
My Dads 70. We had a chat that went like this.
Dad when was the last time you could by a pint of beer for a shilling.
Many years ago the 50s maybe he replied.
Well a pre 1920 shilling at 92.5% will. 5.7g x£0.56p= £3.19. in London just.
The point is not what fiat its worth so much as its purchasing power.
I accept it is not legal tender. Then again the tender we have can't be legal as its a ponzi instrument .
Posted by dotti on 11/19/11 06:27 PM
Yes. The first time my friend mentioned his "silver certificates", I suggested that he could not redeem them for silver.
The second time he mentioned it, I supplied him with the date of the end of redemption.
Many people still believe in the government's promises.
Posted by dotti on 11/19/11 06:14 PM
That's something I wondered about also.
Corzine could have set up liquidations of gold contracts in return for some type of favorable treatment.
Loki, I'm glad to see someone else consider that idea.
Posted by memewatchers.com on 11/19/11 06:14 PM
Money power loves gold. Money power pushes paper to keep their gold. Money Power hates that others own gold.
Power doesn't come from money it comes from information and if you have it then you lose. This is Information Power. Information Power usually wins big in the market (ex. Rothschilds and Waterloo) but not always cause of a thing called 'Human Action'. Human Action is spontaneous, random and no matter how much information you got it is not gonna predict Human Action. This is why Information Power created Money Power to try to control the unpredictability of the Free Market.
Posted by dotti on 11/19/11 06:10 PM
Dave, you're essentially right, but the concensus seems to be that "they" cannot create more gold. Factually, that is true. However, I think that they have already used some funny business to increase the perceived supply. I'm not so sure how much gold is at Ft. Knox or the NY Fed. It has the same effect as increasing the supply.
Does anybody think that all the sovereigns/centrals have all the gold that they claim to have?
I wonder... .
Posted by Freeman on 11/19/11 06:04 PM
Seems pretty clear to me Mr. Wile, this is what is happing, just as you point out.
Posted by Danny B on 11/19/11 05:36 PM
Just a few comments. Central banks have cut back on U.S. treasury bond buying and increased buying of gold;
Click to view link
So, just as you see a rush for survival in the EU, you see a rush FROM one--world solidarity for the sake of survival. Brown's Bottom was the turning point. GATA says that CBs unloaded 11,000 tons of their [our] gold to drive down the price and FINALLY bury the barbaric relic. The barbaric relic seems to have more lives than Keynesian BS.
The return to buying the relic is an admission that nothing else will do. The Asians gave us great help at snapping up everything that the CBs disbursed. Seems that you just can't push enough gold down their throats to choke them.
The return of the CBs to gold must be very vexing to the PTB. Trust in paper is one of the main cornerstones of their control mechanism.
That was the main reason that LBJ stopped the printing of silver-backed U.S. notes 11 days after JFK was killed. That is also the reason that U.S. GOV sold off the 4 billion ounces of silver stockpiles. I bought silver in '05, 2 weeks after the last of the 4B OZ went away. This stockpile was the reason that silver remained depressed for so long.
There are various claims about silver vs gold. "No CB holds silver",,, etc. It's a good idea to keep in mind that many countries used a silver standard. Germany went off the silver standard when the Comstock lode was discovered in Nevada. China used silver for centuries. Much of silver production is a byproduct of base metal production. Base metals are in oversupply so silver production will drop.
Click to view link
There is endless speculation on the future price of gold. The speculation should center on the value of the dollar, not the price of gold. The speculation should also take into account the value of other commodities. There are many quadrillions of various currency units in circulation. As the collapse continues, many of these so-called "money" units will evaporate. Maybe another $ 15 trillion,,, who knows?
This will cause more investors to move into physical investments. The great danger is that all this "money" will drive the price of commodities way up. This already happened with wheat,,, thanks to Goldman Sucks. That pushed 250 million more people into poverty.
Imagine if the price of rice tripled. If the PTB don't plan to do a big culling of population, they have to keep commodities from rising too far.
Gold is valuable because it is not necessary. If a flight to safety in some physical commodity were to happen, it would be safest if it went into gold. Super price inflation in anything else would freeze-up some market or another. Imagine oil at $ 400 or rice at $ 10.
Apparently the CBs have moved back into gold because they don't see U.S. treasuries as being safe. A widespread flight from U.S. treasuries into commodities would light the world on fire. I suspect, like FOFOA, that paper wealth will be channeled into gold. He expects the price to settle at $ 54,000 an ounce. This is FAR below what the price was in Weimar Germany.
The rating agencies are getting ready to slaughter the U.S. banks.
Click to view link
They are also getting ready to do a comprehensive review of munis. Both of these will cause a flight of capital. The flight from financials has already drained off hundreds of billions. The automatic cuts from the super-congress will cause munis to drop. All of this drives up gold.
Insecurity drives up gold. It appears that Russia may take on NATO and start WW III.
Click to view link
That would be a major bummer.
I started out buying junk silver,,,,, then I bought gold. As the future became more clear, I sold gold and bought farmland. Y'all are invited out for a pit barbecue.
Posted by dave jr on 11/19/11 05:35 PM
There is nothing more predictable than a speculator.