We can find nothing – nothing – that has happened over the past two years that invalidates the principal reasons we’ve laid out for owning precious metals. [This article] looks at the key reasons why we originally recommended gold and silver plus, sadly, several new drivers that have developed recently all of which confirm that the bruised precious metal investors out there should still sleep well at night, secure that the foundational rationale for holding gold and silver remains intact.
So writes Adam Taggart (www.peakprosperity.com) in edited excerpts from his original article* entitled Is Gold at a Turning Point?.
[The following article is presented by Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com and www.munKNEE.com and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Taggart goes on to say in further edited excerpts:
…The hard truth for us investors is that secular market trends take time to play out. Nothing moves in a straight line and…[there] are many false signals along the way. There are no sure bets, no risk-free winning options to pick, but the good news is that the laws of physics and rationality always prevail in the end. If you can identify the right endgame and position yourself for it patiently, the messy volatility along the way really won’t mean much in the big picture.
Let’s look at the key reasons why we originally recommended that investors look to the precious metals as a safeguard (You can review these reasons in detail on our foundational report, The Screaming Fundamentals for Owning Gold & Silver):
- Negative real interest rates
- Fiscal deficit spending and unserviceable sovereign debts
- Loose, if not reckless, monetary policies
- The price of newly mined ounces continues to climb higher and higher, due both to reduced ore grades and higher costs for fuel and equipment.
1. Negative real interest rates have always been supportive of gold prices. While admittedly that’s not been the case for the past two years, we now see that historic relationship re-expressing itself. After all, when the return on cash savings is virtually nothing and the money printers are running, inflation eats away at fiat purchasing power. Gold, as money, offers protection from this.
Perhaps things are different this time, but we’re thinking not.
2/3. The degree of fiscal and monetary recklessness has taken us by surprise, both for the intensity of the actions already taken, but also for the fact that financial markets have adjusted to the practices and now treat them as normal, if not desirable. While the U.S. deficit has been declining from its record highs, much of that is due to accounting shenanigans, all while our dangerously high debt-to-GDP ratio (as well as those of most other developed countries) continues to worsen.
4. Mining costs have been on a steady march upwards over the past decade, setting an average “all-in” cost floor now very close to the current price of gold [see chart below].
Even exploration costs have skyrocketed [as can be seen in the chart below], which, importantly, is happening in parallel with a marked decrease in discovery volumes:
…[T]o the above list of original fundamentals, we must sadly add several new drivers:
- MF Global proving that client accounts can be looted and then drawn into a lengthy and unsatisfying bankruptcy/creditor process.
- Cyprus proving that the banking system intends to make depositors pay for its mistakes.
- Politicians openly calling for various wealth taxes to be levied on anybody who has managed (dared? bothered?) to save up funds and one last big one,
- a new secular change in rising interest rates that threatens to create havoc in world economies and financial markets across the world.
After a decade of low and declining interest rates, yields are back on the rise. The low cost of debt that the markets have become used to has created a worldwide bubble in bond prices, about which experts like Bill Gross have been increasingly vocal in issuing dire warnings. A popping of this bubble will increase borrowing rates for governments/business/consumers, depress home prices, make mortgages more expensive, and basically act like kryptonite to any “recovery” in the world economy…
Lastly, there is the wild-card possibility – improbable, but certainly worth considering because of the gains to be had – of gold being re-monetized as a means of balancing and settling international accounts. Should that transpire, gold will be worth many multiples of today’s value.
For all the reasons above, the bruised precious metal investors out there should still sleep well at night, secure that the foundational rationale for holding gold and silver remains intact.
Trying times like these are designed to wear you down and force weaker hands to capitulate before reversing. We remain steadfast in our conviction that:
- the precious metals investment thesis remains healthily intact,
- the real price action in the gold and silver story has yet to be seen and
- there is increasing evidence indicating that the next big upward reversal is near at hand.
Precious metals investors’ heartbreak may soon be over. Stay disciplined.
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
*http://www.peakprosperity.com/blog/82142/gold-turning-point (Copyright © 2013 Whitney Peak Ventures, LLC. All rights reserved; Click here to read Part II of this report – free executive summary, enrollment required for full access)
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