Will a Stock Market Crash Drag Silver and Gold Down?

When you bring up the potential of a market crash occurring, the September to October timeframe is typically when they occur. We have seen crashes in September of 1791 when the First bank of the United States failed. The Panic of 1907 occurred in October. The Wall Street Crash of 1929 was in October. Black Monday was in October of 1987 followed by a mini-crash in October of 1989 and another mini-crash October of 1997. The market got hit in September of 2001 with the 9/11 attacks. October of 2002 saw another market downturn begin. October of 2007 the bear market began lasting till 2009. September of 2018 saw the S&P 500 index fall almost 20% along with a crash in Bitcoin.

We are close to the September/October 2024 timeframe and the question is, will we get another crash? And if we do, will it affect the price of gold and silver at the same time?

Lots of selling has been occurring with insiders the last week as almost all of the trades you see in red are insiders locking in profits. The buys are in green and only a couple. This selling tells me something is up.

The trading system that I will be introducing with the release of my new book has had nothing but selling going on the last 3 weeks, meaning getting out of trades that have been profitable. It was just 2 weeks ago we had the Dow fall 1000 points and the S&P post its worst day since 2022 as global markets sold off. But since that time we have recovered.

Why have the markets recovered?  What will markets do next? What will the effect be on gold and silver? Let’s dive into these questions and see if we can come to some conclusions.

Why have the markets recovered?

One doesn’t have to be a conspiracy theorist to understand that the decline we saw a couple weeks ago was getting blamed on the current administration. The Presidential candidate Donald Trump was calling it the Kamala Crash which was trending on X. There was a threat of an extension of the Israel/Gaza conflict into Iran with a threat of retaliation. But at the same time the Olympics were going on and I had told a few people that I didn’t see anything happening during the Olympics and indeed nothing happened and markets recovered.

The Olympics feel good time for the world has now led to the Democratic Convention in Chicago. Does one think that the market is going to fall leading up to the Thursday speech by Presidential candidate Kamala Harris? No. They will stay propped up. They couldn’t even get any momentum on the small pullback today but might dip overnight and shoot right back up through Thursday and into Friday’s Powell speech.

We have been getting economic data that has helped the market as well, lowering the interest rate cut expectations for September back down to .25 from .50. There is talk that the revisions tomorrow on the non-farm payroll numbers between April 2023 and March 2024 might have an impact on what Fed Chairman Powell is going to say on Friday at the Jackson Hole economic symposium but Fed speak typically is bullish for the markets.

What will markets do next?

What happens every time Powell speaks? The markets move higher. I’ve seen it over and over again. The markets wait for anything out of Powell’s words that it can find a bullish tint to and move higher. So expect a move higher for the markets no matter what small noise comes out of the non-farm payrolls data revision tomorrow. In fact, the market will look at bad news and make it seem like that’s a reason for the Fed to lower rates and thus spur the economy. In other words, bullish. Funny how you add a t to that word bullish and rearrange the letters and you get the word bullshit. That’s how I feel about the strength of this stock market. Remember, the Fed is always reactive to what the economy and sometimes what the stock market is doing.

The Fed doesn’t make panic moves as they didn’t do an emergency rate cut when the Dow fell 1000 points a couple weeks ago. They need bigger reasons to save the market. But remember, the Fed couldn’t do anything to help out the economy when all hell was breaking loose in the early 80’s. When there is a real problem that occurs, they will try and lower rates as much as they can, but in order to fight inflation, they will have to eventually raise rates. And that will signify a bright future for gold and silver even if the dollar rises higher from here. But we are getting ahead of ourselves.

What will the effect be on gold and silver?

Overall the economy is weak. While we haven’t seen it in stock prices yet, the underlying data is pretty bleak at present. The non-farm payroll data has been weak and below the mean three of the last four months.

Credit card balances are up 5.8% year of year and currently a record high of $1.14 trillion outstanding. Home equity lines of credit increased by $4 billion and have had 9 consecutive quarterly increases. Auto loans saw a $10 billion increase and stands at $1.63 trillion, on depreciating assets mind you. Thanks to the government canceling some student loans we saw a decrease there of $10 billion.

If the consumer makes up 70% of the economy or GDP, and the consumer is pretty tapped out, what takes the consumer’s place? The only answer to that is the government, and some running for the head job are talking about providing $25,000 for down payments for first time home buyers and a total of $1.7 trillion in handouts. On the other side of the aisle, there is a proposal for a 10% tariff on most foreign goods. Remember, it doesn’t matter who is in charge, the printing presses will be running 24 hours a day.

The reason you own gold and silver is they represent insurance against the printed out of thin air fiat currency that even past Fed Chairman Ben Bernanke referenced in a 2002 speech that needs further analysis.

What he also wrote about in that 2002 speech was a little story about gold. Pay close attention to the price he was quoting and think long and hard about what has happened since 2002 to our purchasing power of the fiat currency.

Today an ounce of gold sells for $300, more or less. Now suppose that a modern alchemist solves his subject’s oldest problem by finding a way to produce unlimited amounts of new gold at essentially no cost. Moreover, his invention is widely publicized and scientifically verified, and he announces his intention to begin massive production of gold within days. What would happen to the price of gold? Presumably, the potentially unlimited supply of cheap gold would cause the market price of gold to plummet. Indeed, if the market for gold is to any degree efficient, the price of gold would collapse immediately after the announcement of the invention, before the alchemist had produced and marketed a single ounce of yellow metal.

He then goes on to tell us that “like gold, U.S. dollars have value only to the extent that they are strictly limited in supply.” and said the following that needs highlighting.

 

The US government has a technology, called a printing press, that allows it to produce as many dollars as it wishes at essentially no cost.

So what was Bernanke’s conclusion? He said that “of course the U.S. government is not going to print money and distribute it will-nilly.” Isn’t this what they have done? And worse they have added almost $7 trillion to their own balance sheet that I have addressed in prior articles.

Bernanke goes on to say one important thing that needs to be considered by everyone reading this article.

Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, it’s worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt’s 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934.17 The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt’s devaluation.

Let me explain what the government did, to protect themselves, rather than the individual. They confiscated your $20 gold coin, gave you a Federal Reserve note for $20 and then artificially raised the price of gold to $35 an ounce or a 63.32% increase thus devaluing the dollar by 40.94%. They stole the individuals they took the gold from and devalued the dollars they gave them in return, thus helping themselves to a windfall and in Bernanke’s own words, “The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt’s devaluation.” Notice he didn’t say one thing about the fact that the U.S. was in the middle of a great depression that lasted 5 more years. Unemployment during that time was over 15%.

Notice that the stock market crash of 1929 unemployment had started to tick up. Today we have the same thing with the U6 unemployment rate sitting at 7.8%.

While there would be an initial drop in the price of gold and silver during any stock market crash, it would be limited in time and bounce right back up just as silver did 2 weeks ago and gold to a new record high of over $2,500 an ounce. Even during the 2007 – 2009 crisis we saw an immediate move down and quick recovery in the prices of gold and silver. Gold went to a new record high and silver came close to its record high at $50.

If we do get a pullback in the price of gold and silver, it will be short lived. The Federal Reserve can’t win the battle on inflation unless they raise interest rates so look for an initial move down in rates over the next few Fed meetings and then it’s time for them to play catch up, especially if we get a September/October crash or post election crash in the stock markets. They will try to stimulate the economy and stock market and it will unleash the price of gold and silver to the “undreamed of” heights that Richard Russell used to speak of.

Save a little cash for any “flash crashes” that may occur like we had in March of 2020 when silver fell under $12 an ounce. If we did get any move south from this $29 range in silver, don’t fear any purchases at that point. Silver doesn’t go to zero. Silver has always maintained its purchasing power. We might have a push up in the dollar if we get a crash as there will be a rush to safety. But we all know eventually all currencies have the same issues with unsustainable massive spending by the governments of the world. It works till it doesn’t. From the point of when they finally wake up to it not working, prepare for the ones who run things to create a catalyst for war everywhere. Meanwhile, they who own the gold makes the rules and you can sit on your stash of gold and silver and be able to live the life you have worked so hard for while everyone else is screaming “the sky is falling, the sky is falling.”