Much of the world works in a pretty regular and well-ordered way. Water freezes at 32 degrees Fahrenheit and boils at 212 degrees. The planets in their orbits are predictable, too.
If everything that is regular started spinning out of control, we would know that it meant trouble. And that is just what is going on in the economic sphere. For example:
- Some politicians have insisted that deficits don’t matter. It seems like the rest of them are acting as if that is true, which is why the U.S. national debt has exploded and is now more than $31 trillion.
- It is hard to characterize the very idea of negative interest rates as anything but a strange and unnatural development. Would you deposit $100,000 with your bank on the promise that it would repay you $95,000 next year? But besides negative interest rate bonds, the Federal Reserve’s policy interest rate at which banks borrow and loan money to one another overnight is some 5% below the inflation rate.
- The very idea of central banks making money out of nothing at all – printing it or just creating it digitally – has become possible because, over time, people have forgotten that paper money was never anything but a claim check or a warehouse receipt for real money – gold or silver – held on their behalf by a bank or the state treasury.
- As alarming as any of the above is the idea of governments buying their own bonds. Governments sell bonds to borrow money. But if the market of willing buyers for those bonds is shrinking, sometimes governments or their central banks step into the breach to buy the bonds. In this way, a government that is already hopelessly in debt loans itself money it doesn’t have. Today the Fed and the government own about 40% of U.S. national debt. It is an open secret that liquidity challenges in the enormous U.S. Treasury market are on the horizon. Treasure Secretary Janet Yellen admits that the Treasury department is “looking at a number of ways to improve resilience,” and the Fed has begun asking dealers of its debt instrument if it needs to buy more bonds.
None of these strange outlooks and practices stand the test of common sense. Taken together, they spell trouble, like a well-ordered universe whose planets have suddenly left their orbits. It means the monetary system itself is headed for a crisis.
In times like these, informed people buy gold to protect themselves, their families, and their wealth.
There is one additional anomaly that is especially significant for our friends and clients. As we have pointed out in prior commentaries, faced with calamitous losses in stocks and bonds, margin calls, and liquidations, Wall Street speculators have been selling “paper gold” or gold substitute investments. Gold and silver have been flowing out of ETFs and other speculative positions for several months. This has led to lower nominal or international benchmark prices of gold and silver. Yet a substantial divergence has developed between the “spot” prices, which are lower, and the real prices for physical gold and silver, supplies of which are growing thin or even disappearing altogether.
This is reflected in the premiums for coin and bullion investment products around the world. At the recent London Bullion Market Conference, attendees were told of a surging flow of precious metals from the West to Asia, including China and India. So great is the demand that premiums on silver in India are five times normal levels.
The Tribune of India reports that China and Turkey are offering high premiums to attract bullion products. “Turkish gold imports soared 543%,” according to the paper. “China’s net gold imports via Hong Kong jumped nearly 40%, to a more than four-year high in August. Gold-supplying banks have cut back shipments to India in favor of China, Turkey, and other markets where better premiums are offered.”
Premiums have risen in the U.S. as well. Mints and wholesalers are facing demands they cannot meet. The United States Mint is under fire for failing to meet demand as required by statute. Many investment items popular in the U.S. are not expected to be restocked until 2023.
In short, physical demand is outpacing supplies far and wide. Even grizzled market veterans don’t remember experiencing anything quite like this.
But one thing is dependable: the laws of supply and demand. When deficits are said to not matter; when central bank machinations produce negative interest rates; or when they create money out of nothing at all; and when governments buy their own bonds, things are amiss. Against that backdrop, the prices of real gold and silver coins and bullion have diverged from the spot prices. Shortages are widespread.
It all suggests a crisis in development and even higher gold and silver prices to come.
If you’re interested in investing in precious metals, let us provide you with a free one-on-one consultation.
The opinions, beliefs, and viewpoints expressed in this article do not necessarily reflect the opinions, beliefs, and viewpoints of Red Rock Secured LLC or the official policies of Red Rock Secured LLC. Red Rock Secured LLC is not a financial advisor, is not licensed to provide investment advice and neither provides investment nor financial advice. Red Rock is a product specialist that can help evaluate your precious metals purchase options.