Gold: Déjà Vu 2020 All Over Again?


The upsides for gold and silver are not over. In the past few weeks, a new energy has entered the market. New technology is allowing the little guy to make a dent in the hedge funds' positions. Gold and silver have tremendous shortages. You can't get physical supply without paying a big premium. The physical price is not reflected yet in the paper markets, because the hedge funds and central banks are using the paper markets to sell short up to 10 times more supply annually than is available. Thereby, they have been depressing the price of gold and silver by manipulating the price in the paper market by creating artificial supply that does not exist. You can't manipulate the physical market as much as the paper markets. Traditionally the physical market price has been set based on the futures market price, but that level has been set at a price that suits the short sellers. The Reddit crowd discovered that GameStop was 130% short, they wondered how you could sell more than 100% of the stock short unless you want to manipulate the price. A similar thing was happening in gold and silver. Across several markets, central banks and hedge funds have eliminated price discovery by manipulating the price of stocks and precious metals.

Gold's price does not reflect the fundamentals, which continue to worsen. The economy still requires large stimulus packages. Every time the Fed and government delay, the deeper the economic damage is going to be. With the amount of stimulus that they are discussing coming into the market, it is difficult not to see how it can't cause the US dollar to lose even more value and for inflation to increase significantly. We may be looking at a situation like we saw in the 1970s, with inflation rising and interest rates hitting 14 percent or more. Precious metals are a traditional safe haven during such times. You can convert your fiat currencies into gold and protect its value. If you buy gold, you are in effect selling dollars. Precious metals are volatile, but we recommend having one-third of your net worth in precious metals to give you the protection you need against the coming inflation and devaluation of the US dollar. The value of gold today does not reflect its intrinsic value in relation to all the other markets.

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Disclosure: I am/we are long SILJ.

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