Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
MUST WATCH Before You Waste Money on Buying A New PC Computer System - 27th Nov 20
Gold: Insurance for Prudent Investors, Precious Metals Reduce Risk & Preserve Wealth - 27th Nov 20
How To Spot The End Of An Excess Market Trend Phase - 27th Nov 20
Snow Falling Effect Christmas Lights Outdoor Projector Amazon Review - 27th Nov 20
4 Reasons Why You Shouldn't Put off Your Roof Repairs - 27th Nov 20
Further Clues Reveal Gold’s Weakness - 26th Nov 20
Fun Things to Do this Christmas - 26th Nov 20
Industries that Require Secure Messaging Apps - 26th Nov 20
Dow Stock Market Trend Analysis - 25th Nov 20
Amazon Black Friday Dell 32 Inch S3220DGF VA Curved Screen Gaming Monitor Bargain Deal! - 25th Nov 20
Biden the Silver Bull - 25th Nov 20
Inflation Warning to the Fed: Be Careful What You Wish For - 25th Nov 20
Financial Stocks Sector ETF Shows Unique Island Setup – What Next? - 25th Nov 20
Herd Immunity or Herd Insolvency: Which Will Affect Gold More? - 25th Nov 20
Stock Market SEASONAL TREND and ELECTION CYCLE - 24th Nov 20
Amazon Black Friday - Karcher K7 FC Pressure Washer Assembly and 1st Use - Is it Any Good? - 24th Nov 20
I Dislike Shallow People And Shallow Market Pullbacks - 24th Nov 20
Small Traders vs. Large Traders vs. Commercials: Who Is Right Most Often? - 24th Nov 20
10 Reasons You Should Trade With a Regulated Broker In UK - 24th Nov 20
Stock Market Elliott Wave Analysis - 23rd Nov 20
Evolution of the Fed - 23rd Nov 20
Gold and Silver Now and Then - A Comparison - 23rd Nov 20
Nasdaq NQ Has Stalled Above a 1.382 Fibonacci Expansion Range Three Times - 23rd Nov 20
Learn How To Trade Forex Successfully - 23rd Nov 20
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20
THE STOCK MARKET BIG PICTURE - Video - 19th Nov 20
Reasons why Bitcoin is Treading at it's Highest Level Since 2017 and a Warning - 19th Nov 20
Media Celebrates after Trump’s Pro-Gold Fed Nominee Gets Blocked - 19th Nov 20
DJIA Short-term Stock Market Technical Trend Analysis - 19th Nov 20
Demoncracy Ushers in the Flu World Order How to Survive and Profit From What Is Coming - 19th Nov 20
US Bond Market: "When Investors Should Worry" - 18th Nov 20
Gold Remains the Best Pandemic Insurance - 18th Nov 20
GPU Fan Not Spinning FIX - How to Easily Extend the Life of Your Gaming PC System - 18th Nov 20
Dow Jones E-Mini Futures Tag 30k Twice – Setting Up Stock Market Double Top - 18th Nov 20
Edge Computing Is Leading the Next Great Tech Revolution - 18th Nov 20
This Chart Signals When Gold Stocks Will Explode - 17th Nov 20
Gold Price Momentous ally From 2000 Compared To SPY Stock Market and Nasdaq - 17th Nov 20
Creating Marketing Campaigns Using the Freedom of Information Act - 17th Nov 20
ILLEGITIMATE PRESIDENT - 17th Nov 20
Stock Market Uptrend in Process - 17th Nov 20
How My Friend Made $128,000 Investing in Stocks Without Knowing It - 16th Nov 20
Free-spending Biden and/or continued Fed stimulus will hike Gold prices - 16th Nov 20
Top Cheap Budgie Toys - Every Budgie Owner Should Have These Safe Bird Toys! - 16th Nov 20
Line Up For Your Jab to get your Covaids Freedom Pass and a 5% Work From Home Tax - 16th Nov 20
You May Have Overlooked These “Sleeper” Precious Metals - 16th Nov 20
Demystifying interesting facts about online Casinos - 16th Nov 20
What's Ahead for the Gold Market? - 15th Nov 20
Gold’s Momentous Rally From 2000 Compared To Stock Market SPY & QQQ - 15th Nov 20
Overclockers UK Quality of Custom Gaming System Build - OEM Windows Sticker? - 15th Nov 20
UK GCSE Exams 2021 CANCELLED! Grades Based on Mock Exams and Teacher Assessments - 15th Nov 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Gold and Silver Investors Betting on Deflation May Be a Huge Mistake. Here's Why...

Commodities / Gold and Silver 2016 Jan 05, 2016 - 03:09 AM GMT

By: MoneyMetals

Commodities

Precious metals investors heading into 2016 worry the dollar will continue marching ahead, right over the top of gold and silver prices. The Fed is telegraphing additional rate hikes throughout the year, and commodity prices – led by crude oil – are falling. There have been tremors in the biggest beneficiary markets of all when it comes to the Fed's QE largesse – U.S. equities and real estate. And the possibility of a recession is growing, both in the U.S. and around the world.


There are plenty of reasons we might see even lower official inflation numbers and a stronger dollar in 2016. But don't think for a second that consumer prices or living costs will fall. They haven't, they aren't, and they never will in a sustained way – thanks to the Fed's creation in 1913. This is where the deflationists have it wrong.

The impact of further disinflationary forces or even a deflationary episode on precious metals prices is a bit harder to predict.

The bear case for precious metals is rather simple. Should metals trade like commodities, they are likely to follow other raw materials lower. If we get a liquidity crunch akin to the 2008 financial crisis, just about everything will be sold as investors raise cash to meet margin calls or flee to the dollar as a perceived safe-haven.

There is also the possibility that metals prices will simply be managed lower. Growing numbers of investors realize that Wall Street is not a bulwark of free markets. Major banks have admitted to rigging markets against their own customers, and the Federal Reserve aggressively intervenes in markets in its quest to centrally plan the world economy. Why wouldn't the Fed also be active in trading precious metals? Those dismissing the notion that metals prices are manipulated are naive.

Today's Situation Is Different Than 2008

The bear case assumes history, in particular the experience surrounding 2008, will repeat. Or that there is still plenty of ability for anyone seeking to force metals prices lower in the futures market to actually do so. Or both.

Maybe. But relying on those assumptions could be a tragic mistake.

For starters, the U.S. dollar is already near record highs. Meanwhile, commodities and precious metals have been beaten down mercilessly. This set-up is the complete opposite of what faced investors leading up to the summer of 2008. And even though stocks and commodities got hammered in 2008, gold posted modest gains for the year as a safe haven from the threat of a collapsing economy.

Lower gold and silver prices have already produced an imbalance between bullion supply and demand. Supply deficits in 2016 are likely to make the developing problem with inventory at the COMEX and other exchanges even bigger. Registered stocks of gold all but vanished recently as bargain hunters, particularly in Asia, have been happy to buy and take delivery. Silver inventories aren't in much better shape.

More deliverable bars must come from existing stocks, but holders won't be anxious to sell. Those with “eligible” COMEX bars have certainly been slow to convert them to “registered” of late. By all indications, miners will be unable to provide the needed supply.

With prices below the cost of production, mine output is set to drop significantly this year.

If the metals markets look forward, as markets are supposed to do, they will anticipate the Fed's response to a strengthening dollar and economic malaise. In 2008, investors knew little about the lengths to which the Fed would be willing to go. Today they DO know. The Fed will overwhelm deflation by creating new inflation.

Markets are completely dependent on Fed stimulus, and people simply expect officials to roll out an even bigger initiative whenever the need arises. Anything to prevent the cleansing effect of corrective forces from restoring heath to the economy. In a recent interview, market expert Jim Rickards predicted the Fed will abandon rate increases and actually commence lowering before the year's end.

Metals investors should take heart in the fact that gold and silver prices have shown some resilience in the face of disinflationary forces recently. Both metals outperformed oil and most other commodities last year. Yes, prices declined roughly 11% for both metals. But crude oil fell 36% and copper lost 22%. The precious metals gained purchasing power against many other things.

Bottom line: Don't bet on a meaningful deflation. Fed officials will not allow it. And they can keystroke dollars into existence until the power goes out for good.

By Clint Siegner

MoneyMetals.com

Clint Siegner is a Director at Money Metals Exchange, perhaps the nation's fastest-growing dealer of low-premium precious metals coins, rounds, and bars. Siegner, a graduate of Linfield College in Oregon, puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals' brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

© 2016 Clint Siegner - 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.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules