As gold prices dip in these first days of the New Year, once again questions arise regarding the strength of the gold bull market. Maybe it's time for a little review to start the year.
For ten years now gold has been outperforming just about every other investment. Beginning in 2001, after the markets underwent a post Y2K crash, the uncertainty level of investors began to rise. So did the gold price. Something just wasn't right and savvy investors knew it. Even as stocks roared to record highs, the smart money became even more suspicious and gold's climb to its own record highs was well underway.
Real estate was also on the rise as low interest rates fueled a speculative real estate bubble that was sure to burst. Once again savvy investors saw it coming and gold prices continued to rise. Based on a seemingly endless supply of liquidity, we spent our way into a sink-hole of debt. We abused low interest rates, easy credit and a myriad of buy-now-pay-later deals on everything from sofas to jet boats. And gold? It continued to rise.
Then the credit crash. Trillions of dollars disappeared in the blink of an eye as no one seemed to escape the havoc wrecked on home equity and savings and retirement accounts. Stocks lost more than half their market cap causing a Wall Street panic effort to restore stock values. Corporate America quickly diverted its attention to the bottom line and began a wholesale elimination of jobs. And gold? Prices began to rise even faster.
As profits rebounded so did stock values. Jobs, however, did not. Today, unemployment and under-employment is as high as ever, despite trillions of dollars of stimulus and printed money. Once again, uncertainty is growing as talk of debt default captures ever more headlines - and not just here but around the globe.
So what's ahead? Will stimulus work? Will the economy recover? Will gold and precious metals reverse trend as prosperity begins to spread as quickly as stimulus dollars can be printed?
These are questions I am asked all the time and frankly, I don't have a crystal ball. I have my opinions but in the end I find myself answering these questions by asking another. Looking ahead, do you see change? When I answer the question myself, I say that I see more of everything that made the markets volatile, real estate values fall, the dollar weak and debt skyrocket over the last ten years.
In an article titled Hyperinflation Will Drive Gold to Unthinkable Heights by Egon von Greyerz of Matterhorn Asset Management, Egon begins the article with this statement that describes his perception of the financial world we now live in . . .
We now live in a world where governments print worthless pieces of paper to buy other worthless pieces of paper that combined with worthless derivatives, finance assets whose values are totally dependent on all these worthless debt instruments. Thus most of these assets are also worth-less.
Like I said, I see more of the same. If by some stroke of genius, printing money is the cure to all economic ills, imagine the inflation that will be created. And, if printing so much money results in wholesale default on debt, foreign and domestic, think what that will do to the dollar, hence price of gold as the dollar and everything it backs becomes worth-less.
Make no mistake, this is the path we are following. There is no reverse and no turning back. We are approaching the fork in the road. The fork on the left is to hyperinflation. To the right is default. Down either path I see nothing that tells me gold prices will fall into the ditch.
What do you see?
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