There is real confusion in the silver market right now. Some say we have entered a bear market and that the economic troubles of Europe will take down the U.S.’s weak economy and precious metals. Others say we???¦??re in a bull market and that the multi-month correction and consolidation are about to reverse dramatically with silver going over $100/ounce in 2012-2013 (see: http://www.kitco.com/ind/Mladjenovic/20120424.html). Others say a ???¦?head and shoulders???¦? pattern has formed in the silver market and that we are now at a low, a buying point. The next phase should be up. Another analyst suggests that as volatility quiets and disinterest enters in we are seeing the calm before the upward trend in silver.
Each of these analysts and pundits make good arguments. For me it is simpler than all the charting, and it always has been. The hundred year secular bull market in precious metals is primarily founded on the debasement of our currency, the dilution of our currency???¦??s value, and the inflation of our currency???¦??s supply. As our country decoupled from the gold/silver standard and ignored its Constitutional mandate it gave in to the Federal Reserve and the redistribution of wealth crowd who believe in a managed economy, an economy where government plays a major roll in picking winners and losers and deciding who should enjoy the wealth produced by those who work in the private sector.
Production efficiencies and oversupply can cause falling prices in some markets. It is important to note, however, that in most commodity markets for over 100 years we have seen a gradual and sometimes rapid increase in prices relative to the dollar and to many other currencies. Why is that? It is simply because as governments deficit spend they must have someone buy that debt. In our nation, one of the biggest buyers of our debt is the Federal Reserve. They buy that debt by causing more Federal Reserve Notes (incorrectly termed ???¦?dollars???¦?–dollars are a measure of a specific amount of silver. But for this article we???¦??ll use the misnomer dollars and call Federal Reserve Notes dollars) to be printed and thereby causing currency inflation, debasement of the currency, and dilution of the currency???¦??s value.
Our federal government has baked in structural deficit issues and entitlement programs that according to the government???¦??s own accounting office guarantee total unfunded liabilities of over $100 trillion! Nobody will lend our country that kind of money for that kind of deficits. Our national government’s credit rating has already been downgraded and it will get worse. I am certain that the politicians will follow what seems like the easy road to them. They will further debase the currency, inflate the money supply and dilute the value of the dollar to nothing in order to give the illusion of paying for these programs and the baked in deficits. They will not default technically on their debts. But they will default on the value of the dollar. It will become worthless. This single fundamental issue of massive deficits has not been eliminated in my lifetime. Nor do I expect it to be resolve in anyway except through massive inflation, higher taxes, more borrowing, and more lies.
Already we are seeing countries back away from the dollar, and for good reason. International trade is also backing away (for instance see: http://www.kitco.com/ind/Lewis/20120420.html). Central banks are afraid of the dollar as a reserve currency. More and more nation states and central banks are buying gold. Why do they buy gold? Because they know what is being done to the dollar and to other currencies. They understand that paper currencies lose value over time and that precious metals are a more reliable store of value.
As the dollar becomes worth less, and less, and less until it is worthless you will want to store your purchasing power in something more reliable, something without counter party risk. That is precious metals. As for me, I like silver better than gold. It has more upside (see why here: https://www.area-info.net/articles/show.php?cty=Salt%20Lake%20City&st=Utah&article_id=735).
When I explain to people that the dollar is going down, they often respond saying, “But you ignore the fact that the dollar is strengthening right now.” Yes, it has its ups and downs. I’m looking at the 100 year trend of debasement. Furthermore, when measuring its value as a store of value I do not find it entirely useful to watch how it performs against other currencies which are also being debased. No, it’s better to watch how it performs against a basket of commodities (and don’t listen to the government’s false figures on this). Go shopping. Do eggs, bread, gasoline, sugar, copper, concrete, steel, milk, wheat, etc. cost less now than they did ten years ago relative to the dollar? Do you expect the cost of those goods to fall in dollar denominated prices in the future? I suggest that the lunch you buy today for $10 was $5 just ten years ago. And, I suggest that it will be $50 ten years from now. That is the effect of inflation. Why else would an 8-oz bottle of water cost $1.50 to $2.00 at a convenience store? Do you really think that store’s profit margins have increased that much over the last ten years? No, it’s the result of dollar debasement. That’s why we have permanently rising prices in the U.S. Expect it to continue. Expect silver at $100 per ounce in a few years or less. Don’t expect your salary to keep up.
By the way, interest rates won’t stay low forever. Expect them to eventually (in a few years) rise rapidly as the public becomes fully aware of the true inflation rate. The bond market and the value of bonds will be heavily impacted by this gargantuan monetary inflation. Eventually, the nation will reap what it has sown. That is too bad and so sad. It could have been avoided, but half of Americans want to believe they can have something for nothing. Not without consequences they can’t.
Investing in real estate, stocks, bonds, and precious metals is risky and could result in losing money. I am offering ideas for your consideration and education. I am not offering financial advice. Please do your own due diligence and study before making any decision to invest. I am not an investment adviser. Precious metals is not for everyone. I am a precious metals broker and sell precious metals. You should do your own due diligence when making investment decisions of any kind. You should consult your own financial advisers before making any investment decision. I make no guarantees that by following any advice or suggestion I make that you will realize any return or that you will not see losses. Beware, all commodity markets and other markets carry risk of loss.