The Quick Answer As To Why Gold and Silver Prices Are Falling (for those of us who just want a quick synopsis and don’t have time or care about the details)
For those that want quick answers as to what is going on with the price of gold and especially silver right now, know this; I have zero people calling me and selling. That’s because I have trained my clients to know the real reasons for owning gold and silver is as insurance against government and Fed policy, as well as currency devaluation, and secondarily as a profit/growth vehicle. I have said over and over in my articles that a holder of physical gold and silver care not that it falls 20% or more on its way to 100% or higher in gains. As you can see below, our government virtually guarantees the future price appreciation.
The Long Answer As To Why Gold and Silver Prices Are Falling (for the detail oriented person who naturally needs an explanation before taking action with their hard earned money)
If you have read my articles for awhile, you know I like to get technical with my analysis. I also have a knack for thinking outside the box as I have learned that my education, brought to me by the mainstream economists, advisors and real world experiences, was biased to think one way. Their motto was; “All hail to mutual fund giants; the Fed; and belief that Treasuries and the U.S. Dollar are “risk free” and praise be to our government as they do no wrong and have our best interest at heart.”
Nothing could be further from the truth…
Yes, Osama bin Laden is dead. Yes, the DOW has been trending higher since the financial crisis of 2008/2009. Yes, treasuries have been strong. Yes, interest rates are low. All is well in the world, right?
Gold Is Not As Much A Fear Trade As It Is A Hedge Against Congressional and Fed Policy and Of Course, Currency Devaluation
The media has distracted you with bin Laden mania from the real economic issues that continue to deteriorate. Have any of these economic realities changed? Wasn’t it just a few short weeks ago where congress cut a measly $38 billion from a $2 trillion budget? But what is coming up soon that Congress has to address? What did Secretary Geithner just say a couple weeks ago; “Geithner Says Failure to Raise Debt Limit Would Make Recent Financial Crisis Look “Modest In Comparison””
The May 16th deadline to raise the cap looms. However, Geithner said lawmakers can “stave off default for several more months” and reset the deadline to August 2nd. So it is possible we have some continued decline in gold and silver until then. But does anyone believe that congress will cut anything? Did $38 billion out of $2 trillion really resolve the crisis we are in? Our interest on the debt alone for 2010 averaged $34.41 billion a month. Get real people. Congress can’t and won’t do anything until there is a Constitutional amendment that ties their hands with severe penalties if they don’t live within their means. With no penalties, they simply are taking us citizens to the cleaners. Would you like extra starch with your debt? (the congressman says with a smile)…
But you have to keep one thing in mind. Does adding more debt to debt solve anything? Doesn’t this increase the long term interest burden on taxpayers to finance the increased debt? What will Congress cut from the budget to actually pay for the extra interest that has to be paid? This is a vicious cycle that has no end because Congress and the Fed think an economic recovery is on the horizon and we’ll just get back to business as usual. But to understand what is really going on, one must understand it from an individual/family perspective.
Families In Debt and Their Solutions
If a family is employed and maxed out with their credit cards, what are their choices to continue to make ends meet? In the past, the family could tap into the equity in their home or take out another credit card with a bank that wants to enslave them for years to come. But without an increase in income, the family is increasing their monthly interest they have to pay. At some point, if they can’t pay, it all comes crashing down. A family then has to make the decision to stop paying the credit card companies and mortgage company, just to keep food on the table. If one of the spouses lost their job, things just get worse and possible government assistance is needed.
The American Dream is lost. The happy family is in need of a fresh start. Bankruptcy is their only solution. But after bankruptcy they will be forced to “live within their means.” This is not a bad thing. Happiness can return. Extra money is there to maintain peace of mind. I have mentioned before, that for some folks, the “American Dream” is no longer owning a home, but “self sufficiency.” This is the sad state for some that we have come to.
Personally, I believe there is a blatant hole in our education system when it comes to teaching people about managing money and making financial decisions. I have seen this for 20 plus years as a financial advisor. People are just ignorant of what to do and typically trust the person who is across the table or desk from them. I use the term “ignorant” to mean they “don’t know what they don’t know.” So it becomes a matter of trust. Some of these people sitting across the table did not have the best interest of their client in mind. This brings us to ask the question; does Congress, the government and the Fed have our best interest in mind?
Governments In Debt and Their Solutions
When a government goes into debt, they too can obtain more credit via the Fed. A Treasury Note is issued, and the interest burden is added to the national debt. But unlike the family who has a credit score that precludes them from getting into too much debt versus their income earned, the government has no such score. The U.S. debt has been downgraded to negative by S&P. This is the first time since Pearl Harbor was attacked 70 years ago. The only one’s who know the nations credit score are the one’s buying physical gold and silver.
Let that sink in for a moment. I don’t think congress, let alone most citizens understand what’s going on here. They too are ignorant as to what the big picture tells us. But things can take longer to implode than many think. Remember also, we have only had 40 short years with Federal Reserve Notes ending their relationship with gold (stay tuned for some good videos I am creating on this).
The family can stay in their home for two years without paying before they are foreclosed upon. Congress can keep increasing, as they always have, the debt ceiling. The Fed can keep printing money. Banks can keep playing the derivatives market since they aren’t loaning to anyone. But like the family that will eventually be foreclosed upon, Congress, the Fed and Banks will all succumb to their financial decisions. “Unsustainable” is the word I use quite often in my articles.
What Is Unsustainable? (Many of the following are documented in this article)
- Our Military Industrial Complex is unsustainable.
- Medicare is unsustainable.
- Social Security is unsustainable.
- Our Manufacturing industry can’t compete with the low wages abroad and is unsustainable.
- The FDIC is unsustainable as they are presently $8 billion in debt.
- GM, Ford and Chrysler are building cars in other countries, but their overpriced cars selling here in America are unsustainable and so are their unions. The Fed still has 27% of GM shares to unload.
- The Pension Guaranty Association can’t possibly keep up with the increasing number of defunct defined benefit plans and is unsustainable.
- The sub-investment grade derivatives owned by the nations top 5 banks, now more than at the height of the financial crisis, is unsustainable (I will be writing an article soon expanding on my past articles on this – some very good info to look forward to in helping you understand whether you should be buying in gold and silver now).
- Real Estate prices where prices had risen too fast and still have not returned to earth are unsustainable.
- As the economy deteriorates, employment becomes unsustainable as more people will be laid off.
- U.S. cities and states can not possibly maintain status quo without drastic cuts as their business/financial plans are unsustainable.
- Commercial real estate delinquency rates are rising and future growth unsustainable (for those that own all those REIT’s financial advisors have been selling you the last decade). There is a reason advisors sell those REIT’s…they make 6% to 8% on each sale. But of course they believe in them. But do they really understand the commercial real estate market today?
What Is Sustainable?
- Quantitative Easing. See my article: 4 Reasons There Will Be Future QE And A Higher Price For Gold and Silver
- Idiocy of Congress
- A complicit media to keep you distracted from what is really going on
U.S. Dollar Bounce?
With all of the above going on, the U.S. Dollar is likely to bounce. Why? Because of what it is priced in;
- the Euro has major issues with the PIIGS (Portugal, Ireland, Italy, Greecce, Spain).
- the Yen has catastrophic calamities to deal with and already led the world with the highest debt to GDP ratio.
- the Pound has major austerity issues that are not working despite good intentions.
As the problems escalate in other countries, the U.S. dollar could benefit. This also fits in with my deflationary credit contraction analysis where illusions of wealth (derivatives, real estate, stocks etc.) chase perceived wealth (U.S. treasuries and U.S. dollars) and real wealth, gold and silver. In fact, both treasuries and gold and silver have been strong because of this.
Ask seniors and they still will tell you treasuries are safe. It is the perception they have had for decades. But I can bet you 999 out of 1000 seniors haven’t viewed the Fed’s balance sheet which used to consist of 80% treasuries and now only holds about 20% as they have had to bail out banks, businesses and their other favored sons.
But it’s just the beginning stages for gold and silver. We are still in the second and longest stage where the bull will try and whip the weaker players off it’s back. Things will deteriorate in other countries before hitting the U.S. shores. They will be buying gold and silver too.
While the dollar bounces, and treasuries stay strong, gold and silver are simply going to take a breather. This is the time to dollar cost average into a position and actually “hope” the price falls further so you can obtain a better overall price. As I said in the above quick answer; “our government virtually guarantees the future price appreciation.”
Eventually, treasuries too will lose their luster. When interest rates do rise, the economy comes to a halt, the stock market will crash and people will do all they can to convert that wealth they have to what is appreciating; gold and silver. And it will be those who own gold and silver that at some point will convert their gold and silver to those sectors that have bottomed out; income producing real estate and dividend paying stocks with P/E ratios under 10. We are a long ways away from that. Gold and silver prices falling are nothing to panic about.
As for the U.S. dollar, remember, it is on the same sinking ship as all other currencies, priced in gold. To price it in other failing currencies doesn’t paint the real picture of strength or weakness except against each other. Priced in gold, all currencies show their weakness.
What To Do Now?
You basically have three choices on what to do to protect yourself with an allocation to physical gold and silver.
1. If you haven’t bought gold or silver before and you are not sure what to do, read my book; “Buy Gold and Silver Safely.” I go into further reasons why investors need to be diversified into gold and silver; what gold and silver to buy; and how to avoid getting ripped off.
2. You think gold or silver is too high or too volatile. To think this way is to ignore 10 straight years of higher prices. Any pullbacks are to be considered as buying opportunities. If you haven’t bought yet because you think prices are going to fall, dollar cost average into a position. If the price falls, you get a lower price overall. If the price rises, you are invested. Don’t be the deer in the headlights. Start with an allocation into gold and silver and see how things develop as to whether you will add more on a price dip or at a higher price. Either way, prices are moving much higher because of everything I outlined in this article and more.
3. If you are ready to take advantage of this dip in the price of gold and especially silver, call me at 888-604-6534. My fees are only 1% above wholesale cost as compared to the 10% – 30% or more that most other gold dealers charge. You simply want the most gold and silver for your money, nothing more, so why pay more?
Doug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534
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