Gold the protector as democracies move towards totalitarianism
Gold, and perhaps silver, are still in a bull market phase which is likely to continue as governments print money, spin figures, manipulate markets and erode basic liberties.
Posted: Wednesday , 21 Dec 2011
How much is movement in the markets - gold, the dollar, the stock market - for real or illusory, maybe generated by the politicians and bankers trying to put a positive spin on the global economy? As we've pointed out many times before, market movement depends on perception, while government feels it is its duty to make us lemmings feel good about the world so economies don't collapse.
Let's look at the realities. Governments can release trillions of dollars into the markets to try, mostly unsuccessfully so far, to stimulate growth, mitigate unemployment and keep the general population's ‘feel-good' factor short of being suicidal. In this context it is hardly beyond likelihood that the relatively tiny sums (in comparison with all the money being printed under quantitative easing programmes) needed to keep stock markets appearing at least reasonably healthy - on the grounds that a healthy stock market gives the impression that the economy in general remains sound - may be being deployed. Likewise dollar, or other currency, strength - or weakness - is indeed often manipulated by governments as perhaps can be the price of gold (effectively a currency in its own right) where a rising gold price is a flag that all is not well with the mighty dollar or, indeed, with the global economy in general.
One is not necessarily saying that this is actually the case but the possibility is worth considering. Governments have a vested interest in making things look as though they are all hunky dory. They can win elections and stave off economic collapse by so doing. While long term market rigging may actually be beyond them at the moment given the true scale of government and bank debt in the West, the more they can convince the public that things are at least partially under control the better as far as they are concerned.
Organisations such as GATA have been suggesting that gold and silver prices are manipulated by governments and banks - and the way the silver price was hit back in May does certainly suggest that the huge fall in a matter of minutes at a time virtually no-one would have been at work has to be suspicious to say the least. If gold and silver might be subject to external manipulation then it is not beyond the bounds of possibility that stock markets can be too with concerted buying or selling at key moments. Certainly inflation figures are massaged to protect confidence and the suspicion is that many other government statistics are too.
This is, of course, pure conjecture, but with so-called democracies seemingly moving ever further into totalitarian territory as basic liberties are taken away from us, in the name of counter-terrorism or economic necessity, it is difficult to judge to what purpose some of the huge, and ever-growing, debt may be being applied.
For the investor, a benign manipulation of markets through government intervention may seem to be a comfort, but history suggests it is unlikely to be successful, if indeed it is occurring, in the long term. Likewise, the long-held GATA view that the gold price has been suppressed, if that has been happening, is also clearly unable to keep the price down, although GATA would argue that without suppression the price would be far higher.
But what of the gold price in the here and now? In August, pro-gold sentiment among analysts was rife - and the price collapsed. Currently sentiment has been distinctly negative (see Weaker gold prices likely to continue into Q1 2012 - poll) and the price seems to be recovering. Make of that what you will. The writer reiterates his view that all the drivers which have been responsible for gold hitting its highs are still intact and there is likely further upside ahead. However the fall back from the August $1920 peak, in dollar terms at least, will have hurt sentiment so prices may not advance as fast as they did in the summer until the nervousness is taken out of the markets.
Silver is still suffering even more than gold from the even bigger fallout (in percentage terms) in May, and then again in September, which dented investor confidence - and with signs that the global economy is not pulling out of recession, and that any future growth will be strictly limited for years to come as austerity programmes make their impact, silver's industrial demand element may hold back rises. However, overall, we would still expect it to track gold and the thinness of the market could lead to some considerable volatility.
Apparent dollar strength tends to mean weak gold prices in dollar terms, although not necessarily in other currencies. For example the fall in the rupee against the dollar means that gold remains at or near record levels still in the Indian currency which has had a short term adverse effect on gold buying in the world's largest gold market. But bear in mind also that dollar strength is relative - and illusory. It is just doing better on the way down than many other recession hit currencies - notably the Euro. It will inevitably be hit by rising inflation from the printing of all that additional money from QE and other stimulus programmes.
Overall, the writer views gold at the moment in a positive light and as remaining in a bull market phase as the global economy continues to collapse around us. The Eurozone crisis is not played out yet and debt levels within and outside the common currency area, and in the USA, continue to cause major concerns and it is difficult to see any certain way out of the current crisis. Maybe we will muddle through, but living standards are set to fall - drastically in some areas. Gold, and by association silver, have tended to stand the test of time as offering at least some wealth protection. History, which does tend to repeat itself over and over, is on their side.
iPad Version: Picture - Gold and silver bars are pictured at the Austrian Gold and Silver Separating Plant 'Oegussa' in Vienna: REUTERS/Lisi Niesner