Gold Climbing the Wall of Worry

Miles Franklin sponsored this article by Gary Christenson, the Deviant Investor.

Gold prices (weekly chart) formed an impressive inverse head and shoulders formation during a five-year base. Gold prices, which bottomed in December 2015, should climb the wall of worry.

WHAT WALL OF WORRY?

Really? You have to ask? Financial, stock market, debt and political worries come to mind:

  1. Global debt is about $250 trillion. The lenders expect to be repaid plus interest. Repayment will occur via more borrowing—increasing already excessive debt. Don’t expect this scam to survive forever. It might last another five—ten years, but why raise your risk? Gold prices might suffer, as they did in 2008, in the initial collapse, but should rocket higher. If debt can’t be repaid from taxes and revenues, default and/or hyper-inflation will come. Both defaults and hyper-inflation will hurt most people.
  2. Stock markets rolled over and fell in late 2018. The NASDAQ 100 was down 23% at its low from its all-time high in October. The Index has since retraced half its loss and is down (Jan. 30) about 11%. Most stocks are down larger percentages. They call it a bear market. Remember the devastation of 2008 when debt was much lower, valuations less extreme, and the U.S. was less politically polarized. The Federal Reserve and politicians will “save” themselves and the political and financial elite. All others… well, good luck…
  3. Read “Stumbling Near the Abyss.” Read Holter: “Is This A Joke?”
  4. Signs of a credit crunch are visible. The economy runs on credit. Another 2008 style collapse is likely. Don’t expect an easy solution.
  5. Fear is replacing greed. Panic is next. People will become desperate to escape the Wall Street casino for something safe. Gold and silver are not a (dodgy) liability of another government, corporation or individual!
  6. Interest rates are rising. The yield on the 10 Year Note bottomed two and one-half years ago. Central banks are raising interest rates and removing currency from circulation. The yield curve is flashing recession warnings—which means larger deficits, more debt, bankruptcies and job losses.
  7. Based on risk and reward, stocks still look dodgy while gold and silver languished for over seven years and are ready to rise. Expect reversals.
  8. Add your own fears—there is no shortage of worries.
But the cheerleaders say “there is nothing to worry about.” The cheerleaders might claim:
  • The Fed will “print” more dollars and support the stock market. Probably, but after how much carnage?
  • The “borrow and spend” scam has worked for over a century and they claim it will survive even if national debt reaches $500 trillion. That Ford F-150 truck that costs $50,000 now will cost far more when debt has gone multiples higher.
  • The U.S. dollar is the world’s reserve currency. We’ll print more, so why worry about gold and silver insurance? Then why are Russia, China, India and others buying so much gold?
  • Fort Knox is full of gold—over 4,500 tons of the stuff—if you trust the pronouncements from politicians, the Fed and Treasury officials. But, the Pentagon spends the equivalent of the Fort Knox gold every few months. Gold is inexpensive and spending is “out of control.” This will correct, consequences will be ugly for most Americans, and gold will rally much higher.
  • Wall Street cheerleaders discourage physical gold ownership. They like paper investments that provide a revenue stream to Wall Street. Those paper investments had a long run, but the cycle has rolled over.

WHAT HAS LESS RISK THAN THE STOCK MARKET IN LATE 2018?

Bitcoin and other cryptocurrencies? Maybe not!

Gold, silver, commodities and crude oil? Commodities have been weak for years and should rise, but a recession or worse will reduce demand. Crude oil has fallen 40% since a short-term high in October. However, gold has risen since August.

Examine the Thomas/Reuters Commodity Index times 10 divided by the S&P 500 Index.

The ratio has fallen to its lowest level in two decades. Longer term charts show similar undervaluation of commodities and over-valuation of the S&P 500 Index. Expect reversals.

Crude oil rises and falls based on supply, demand and politics. Examine the ratio of crude oil to the S&P 500 Index. The ratio has fallen almost to its late 1990s low and has turned upward.

Gold has risen from $255 in 2001 to about $1300 in late January 2019, stronger than the commodity index. Real money—gold—is always desirable. The ratio has risen since the 2008 crisis when Asian investors, governments, and central banks wanted gold more than U.S. debt paper and other commodities.

The gold to silver ratio has reached a multi-decade high. This tells us two pieces of useful information.

  1. Both gold and silver are inexpensive when measured in dollars.
  2. Silver is undervalued compared to gold.

The ratio is a reliable long-term timing indicator. It forecasts higher gold and silver prices ahead.

CONCLUSIONS:

  • Stocks have rolled over. John P. Hussman Ph.D. has the data to support his belief that the S&P 500 Index should eventually fall about 2/3 from its high. Expect more downside.
  • Risk versus reward analysis is important. Stocks are risky. Currencies are debts issued by central banks, not real money. They are legally required and convenient, so we use them, but not because we trust politicians and central bankers. Currencies, issued by insolvent central banks, will decline in purchasing power, as they must. Unbacked paper currencies eventually fail. Gold is always valuable.
  • Silver is under-priced. This is changing in 2019.
  • Gold prices built a long-term base and will ascend the wall of worry.
  • For a five year investment, would you rather own a one ounce gold coin, $1300 in debt notes (cash) issued by the Fed, a certificate of deposit paying squat, or shares of a hyped FAANG stock with a massive debt and a sky-high price to earnings ratio?

I suggest silver and gold coins and bars stored in a non-bank owned vault. You will sleep better as the stock market regresses to its mean (lower) and panic, not profits, becomes the concern for 2019.

Miles Franklin sells silver. Call them at 1-800-822-8080 and tell them you agree with the Deviant Investor about silver.

If you have questions or comments, email me: deviantinvestor “at” gmail.com.

Gary Christenson

6 thoughts on “Gold Climbing the Wall of Worry

  1. I’ve been waiting 18 years for this, well, actually about 7 years, since JP Morgan
    destroyed Gold with a $25 billion gold short, and silver got repeatedly slammed
    with shorts too.

    My biggest concern is equities… there is no way of knowing how many brokerage houses
    are booby trapped with derivatives , and how many street name shares have been secretly
    collateralized…. The DTCC showed exactly how rotten to the core they are during
    hurricane Sandy, by claiming (a janitor) forgot to close the vault door, allowing a gazillion
    tons of mud to destroy $40 trillion in stock / bond certificates…. just like the MERS note debacle,
    there is no way to know what happened during that stage event, and where we stand now…
    LONG LONG ago, before torn $200 jeans and TIDE parties, this following statement
    was made by people in the know – ” When the final melt down occurs, (all) paper assets
    will become worthless… some stocks, like Tesla, with a PE ratio that could double
    for the address of the white house, are all ready there. The only two words of advice
    I have are, get out of debt ! and if you want to know whats happening, figure out what
    isn’t happening , and use algebra.
    whirehouse addrress



    • As I remember, Icarus is quite old, like gold. Much older than fiat currencies that will be inflated into oblivion. I think it is time for a reversal – long gold, short fiat currencies. I understand that gold is hitting new highs in most currencies except for the US dollar. Sign of what is coming.
      The Deviant Investor


      • You might want to take time out from your busy schedule of self-delusion to familiarise yourself with the story of Icarus and it’s tragic ending. You won’t, of course, because it would spoil the meme to which you’re so inextricably bound.



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