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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Gold and Silver Become Polarizing

Commodities / Gold and Silver 2010 Nov 11, 2010 - 02:30 AM GMT

By: Dr_Jeff_Lewis

Commodities

To many in the banking and investing community, precious metals were the red headed stepchild.  While they were easily accessible and extraordinarily undervalued, no one seemed to pay either gold or silver much attention.   Until recently, when both have forged new highs, the opinions on each grow distant.  The polarization from such “authorities” on the markets is overwhelming.


Bubble Warnings

The Telegraph in the UK has reported that the FSA, the Financial Services Authority, which is very similar to the United States' FINRA, has announced that commodity backed exchange-traded funds may be in a bubble.  While physical buyers might agree that exchange-traded funds do make poor investments, the premise of their argument is absolutely ridiculous.

Perhaps the most telling part of the FSA's complaint is their problem with physical backing of exchange-traded funds.  The FSA worries that if each exchange-traded fund is in fact backed with metals, then prices will skyrocket.  Is there a problem?

Long ago, financial products weren't just digits, paper, and signatures on a contract.  No, investors and speculators had to take delivery.  They had to store, handle and make room for whatever it was they purchased because they were speculating.  You couldn't just put up 2% of your bet and find an opposing party and strike a deal; you had to work within a real, physical economy. 

Today, of course, is the opposite.  We're used to distorting prices downward with additional paper supply, and we're used to having shadow inventory from everything from houses to gold and silver and even down to pork bellies.  Today's markets are as imaginary as they come.

The World Bank

Where rhetoric from the FSA has become standard from the “establishment” in the world of investing and finance, at least one world banking leader is willing to confront a fiat money system.  Robert Zoellick is the President of the World Bank, a body that works like many other international organizations to regulate commerce between nations.

Zoellick, in an essay in the Financial Times, took a very uncharacteristic viewpoint from World Bank Presidents and asserted that the world should look to precious metals to understand inflation and deflation.  This comment, though relatively unimportant, directly contradicts the “price inflation” so many have grown accustomed to tracking.  Price inflation, of course, allows forever expanding money supplies, as long as prices stay relatively stable according to government mandated benchmarks.

The polarization of metals is just beginning, and where precious metals investors had few on their side during the doldrums of the late 1990s and early 2000s, precious metals are attracting both friends and allies alike.  The good news is, though, that even if the newcomers are evenly split, as they appear to be, the market for gold among individuals will grow ten-fold at the very minimum. 

Of course, one shouldn't be so prudent to assume that moves within the establishment are in the world's best interest.  We're sure the World Bank wouldn't mind becoming the new Federal Reserve of the world with new, but not nearly backed, world currency.  Crazier things have happened.

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    Copyright © 2010 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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