The Coming Market Crash Will Set Off The Biggest Gold Panic Buying In History

by Steve St. Angelo, SRSrocco:

The leverage in the economic system has become so extreme; investors have no idea of the disaster that is going to take place during the next stock market crash.  The collapse of the U.S. Housing and Investment Banking Industry in 2008 and ensuing economic turmoil was a mere WARM-UP for STAGE 2 of the continued disintegration of the global financial and economic system.

While the U.S. and the global economy have seemingly continued business as usual since the Fed and Central Banks stepped in and propped up the collapsing markets in 2008, this was only a one-time GET OUT OF JAIL free card that can’t be used again.  What the Fed and Central Banks did to keep the system from falling off the cliff in 2008 was quite similar to a scene in a science fiction movie where the commander of the spaceship uses the last bit of rocket-fuel propulsion in just the nick of time to get them back to earth on the correct orbit.

Thus, the only way forward, according to the Central banks, was to increase the amount of money printing, leverage, asset values, and debt.  While this policy can work for a while, it doesn’t last forever.  And unfortunately, forever is now, here….or soon to be here.  So, it might be a good time to look around and see how good things are now because the future won’t be pretty.

To give you an idea the amount of leverage in the markets, let’s take a look at a chart posted in the article, A Market Valuation That Defies Comparison.  The article was written by Michael Lebowitz of RealInvestmentAdvice.com.  I like to give credit when credit is due, especially when someone puts out excellent analysis.  In the article, Lebowitz stated the following:

The graph above highlights that valuations using this measure dwarf any prior valuation peak since at least the 1950’s. At over 350% above the mean, stock investors are currently paying significantly more for a unit of economic growth than at any time in the last 70 years. To extend the analysis, we estimated the adjusted CAPE level of 1929, as shown on the graph, and come to the same conclusion.

Most astute investors know that stock valuations are at or near historical highs. Even these investors, however, may be unaware that today’s valuations, when adjusted for the level of economic growth and heightened profit margins, defy comparison with any prior period since the Great Depression. The simple fact is that investors are paying over three times the average and almost twice as much as the prior peak for a dollar of economic growth. Furthermore, it is happening at a time when we are clearly late in the economic cycle and the outlook for growth, even if one is optimistic, is well below that required to justify such a level.

The ratio in the chart comes from companies’ profit margins and the GDP (Gross Domestic Product) adjusting CAPE (cyclical average price to earnings).  The important takeaway in the chart is that this ratio today (3.63) is much higher than in 1999 (1.91) or right before the 1929 Great Depression (2.68).  Thus, the author is suggesting that investors are paying over three times the average for a dollar of economic growth.  While this can continue a bit longer, the higher it goes, the bigger correction and return back to normal levels.

When the markets correct, I believe they will correct violently…. or most likely crash at some point.  Thus, the next market crash will cause the largest panic gold buying in history.

Setting Up The Foundation For Coming Gold Panic Buying Market

To understand the staggering amount of investor gold buying during the next market crash, we need to take a look at past trends in the gold market.  For example, there are three different volumes of global gold investment.  Actually, there is a fourth, Central Bank gold demand, but I am going to exclude it to focus only on private investment.

First, we have total global gold coin and bar demand.  As we can see in the chart below, global gold coin and bar demand increased significantly during the 2008 U.S. Housing and Investment Banking Collapse.  Gold coin and bar demand nearly doubled to 875 mt (mt) in 2008 from 442 mt in 2007:

As the gold price reached a peak of nearly $1,900 in 2011, gold coin and bar demand shot up to 1,498 mt.  However, as the price of gold fell by $500 in the first half of 2013, investors seeing an excellent bargain, purchased a record 1,716 mt of physical gold investment.  But as the gold price continued to fall and remain weak in 2014, 2015 and 2016, gold coin and bar demand stayed flat at a little more than 1,000 mt.

Furthermore, as the stock market took off after the election of President Trump to the Whitehouse and as Bitcoin and the Cryptocurrencies experienced nosebleed percentage gains, demand for physical gold investment fell even lower in 2017.

Even though physical gold investment demand over the past four years is less than during the 2010-2013 period, it is still more than double than what it was in 2007, before STAGE 1 of the Collapse… the infamous Subprime Housing Meltdown.

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