By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com
Gold and silver prices have been strong since the end of July, with gold up more than 7% and silver up 17% since then. The next two shocks to the precious metals markets will hit on Wednesday, September 12. My expectation is that the impact will be even higher precious metals prices in the immediate future.
The first event will be a decision from the German Constitutional Court as to whether that nation will acquiesce in last week’s European Central Bank announcement that it would begin bailing out failing European banks. The mechanism of the bailouts occurs through the purchase of the bonds of such banks. This will effectively result in the inflation of the Euro money supply, also known nowadays as quantitative easing.
On the same day, in the early afternoon Eastern time zone, the Federal Open Market Committee will conclude their regularly scheduled meeting with their announcement. Most analysts now anticipate that the Fed will also announce its next quantitative easing program. This expected announcement will likely be blamed on last week’s negative US jobs report. The jobs report showed that even though the number of potentially available workers has increased by more than seven million since January 2009, the number of jobholders in the US has actually declined by five million since then.
With both the Euro zone nations and the United States taking major steps to devalue their currencies, other nations will be forced to do the same in order to keep their exports competitive in global markets. As currency values decline around the world, gold and silver prices are bound to soar.
Governments around the world have boxed themselves into a corner. Previous inflations of the money supplies made the current financial crises inevitable. Now the only so-called solutions for putting out these fires that the politicians are offering is to pour even more fuel onto the flames by engaging in new rounds of quantitative easing.
In the past couple of years, how many times have the Eurozone politicians said they have agreed upon a solution to their financial crises? I think the answer is approaching 40 occasions. Yet they have made absolutely no progress at resolving the problems, despite what they claim.
For all practical purposes, the US economy is in an even more precarious position, where accumulated government and private debt now exceeds the combined wealth of the entire planet.
So, with the governments around announcing that they are destroying the values of their own currencies, why would you want to own them? On the other side, gold and silver have a multi-thousand year track record of holding their value and never failing.
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.
The German decision came today. They approved it with some conditions. The Fed meeting is a two-day affair, but the announcement’s always come on the 2nd today of a Fed meeting, which is Thursday in this case, not Wed., as the author states.
In order to coax silver to re-enter the available supply, sharply higher prices are required, as most above ground silver is highly likely in determined hands. The holders have other means of support and are in no distress condition, and can wait till short sellers combust themselves like a Buddhist monk. Crucially important to industry, especially the chemical industry, large corporations having repetitive interruptions of raw material delivery, will finally become short sale targets themselves, like Kodak! Friends, don’t forget that if you short an equity and the company becomes bankrupt/insolvent, the shares go to zero, you then have no obligation to buy shares to return! These fiends have been feeding off silver miners for generations, their turn to run the gauntlet is nearing. To restate a line from my first public offering at Silver Investor over ten years ago, “Silver’s Mushroom Cloud”—“By the end of the second week of the crisis, many industrial users cannot get delivery of metal, and the unbridled buying panic erupts—the sun catches on fire!” Because you see, monetary demand is building to dwarf industrial demand for this “Silver Surfer” metal with 61 neutrons!
Charles,
Hey! We found something we agree on! So-called “monetary demand”, or what I call “physical hoarding by ‘Weimaraners'”, has LONG been dwarfing industrial demand. The silver industrial demand upturn has been a myth (lie?) since digital photography became mainstream almost 10 years ago.
I don’t see the primacy of so-called “monetary demand” as either sustainable nor bullish longterm. If returns on investment in equities ever recovers, ALL metals will swoon, since they have no yield. For now, the Weimaraners (folks who believe we are on the verge of Weimar style hyperinflation) are pumping. Some day, they’ll be dumping. At THAT time, I’ll be buying. Not now. I don’t DO “buy high, sell low”.
Kurt,
Ideologues are always wrong. Silver’s industrial demand increase is about its antibacterial properties for use in medical and textile (clothing and upholstery) applications, as well as its conductivity properties for use in weapons systems and other electronic applications. Your use of the photography example shows how woefully dated your knowledge is. You are about to be left behind, and we “Weimaraners” will be waving to you from the Fiesta Deck. Auf Wiedersehen!
The antibacterial properties of silver have been known since the late 1800’s, and most uses for that were phased out decades ago, e.g. silver nitrate in newborns’ eyes. It’s all marketing hype. ALL the newer uses; textiles, electronic, ALL OF IT PUT TOGETHER doe snot equal the drop off from photo users Fuji and Kodak alone. And it’s not even close.