By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com
As I explained in my last column, the German Constitutional Court on Wednesday concurred with the legality of the European Central Bank’s plan to engage in quantitative easing of the Euro. The reason I expected this result was that the ECB’s governing documents had a loophole that allowed for inflation of the money supply no matter what the German Court decided.
However, I did mix up my dates of this week’s Federal Open Market Committee (FOMC) meeting. Just about every such meeting is held on Tuesdays into Wednesday, so I didn’t pay attention that this week’s meeting was scheduled for Wednesday and Thursday.
So, my expectation of a double blow to world currencies on Wednesday was not exactly accurate. The German court came through with their expected result, after which gold and silver prices started to rise. However, the US government simply cannot allow such price increases when the FOMC is meeting. For gold and silver to rise would be a market signal of incompetence by US government officials.
Therefore, once again, gold and silver prices were knocked down Wednesday afternoon.
But don’t worry. As I write this Wednesday evening, I anticipate the turn around and a significant price increase on Thursday afternoon after the Feds issue their end-of-meeting announcement.
After suggesting that gold and silver prices will rise after Thursday’s Fed announcement, I have an additional observation to share.
I previously clued you in that gold and silver prices are suppressed just before a major economic speech by the US president, Treasury secretary, or Fed chair or the release of important economic statistics such as the monthly Non-Farm Payrolls report that came out last Friday. What I neglected to say is that the more severe the suppression of prices, the greater would be the rebound.
The greater-than-normal effort by the US government and its trading partners and allies to hold down gold and silver prices rather than letting them rise after the German court announced its decision on Wednesday leads me to expect larger than usual price increases after the FOMC announcement Thursday. Last Friday, the spot price of silver jumped more than a dollar from the previous US close. I would not be surprised for silver to close on the US COMEX Thursday at least a dollar higher than it closed on Wednesday this week. I also expect a similar move in the price of gold.
My local newspaper carried a story in last Sunday’s edition to the effect that the author was just now realizing how extensive the US and world’s financial problems really are. The story was presented as if this was a fresh sudden development. Sorry, I have been discussing the growth of these crises for several years, and I’m not the only one who has done so. While a large percentage of the public still doesn’t realize what is happening, readers of this column should know better by know.
Patrick A. Heller was honored with the American Numismatic Association 2012 Harry J. Forman Numismatic Dealer of the Year Award. He owns Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Numismaster (under “News & Articles) . His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.
“Says Vincent Conway, chief metals analyst at Merrill Lynch, “Silver is there for those who need it, but it’s tough to get. ITS EXISTENCE AND ITS AVAILABILITY ARE TWO DIFFERENT THINGS.” (Emphasis added) February 7, 1979, page 32, Wall Street Journal. After exactly one-third of a century, the below ground and above ground draw-down of silver has left the globe with drastically less silver than before the great 79 to January 80 run-up. Vast amounts of silver were sent to refineries, permanently removing decades of accumulated metal from the supply overhang. Today the high tech uses of silver are of a markedly broader spectrum. But the monetary demand, mostly latent, is awakening—worldwide. Abuse by bankers, governments and silver users will end. Their rampage calls to mind remarks by the scientist in “Forbidden Planet” as he caught the spaceship captain and his assistant poking around in his house—
“You’ll find the household silver in the dining room and my daughter’s jewelry on her dressing table!”
President Jackson in eternity—looking at the scene!
Knowing gold and silver money is our only hope!
We must confront and stop the paper money machine!
Lest we tumble farther down the slippery slope!
Unbacked currency is poisonous monetary dope!
If the authorities have already made the decision to inflate their way out of the odious debt we have all accumulated, then they must not allow inflation to go up too quickly. Their goal will be a slow steady inflation that reduces the debt burden over a period a years. Never mind that they are simply creating more debt as they increase the money supply.
But because the whole world in in the same mess, all currencies must inflate more or less in tandem. When this is done correctly exchange rates remain unchanged, hiding the underlying inflation. The only currency that shows the stealth devaluation is gold. Therefore the price of gold will continue to be managed. If the gold price were to ever take off, it would signal that inflation was out of control. They will want gold to go up, but not precipitously.