James Turk: Gold And Silver - "This Thing Could Blow"

Investment Reseach Dynamics

What we’ve got now with Central Banks and their financial repression with zero interest rates and destruction of fiat currencies, they’re destroying the inherent nature of capitalism itself:  the inherent nature of the accumulation of capital by the productive middle class – this is all being destroyed...one way or another, the world is going to go back to gold and silver [as the primary form of currency] – it’s just a matter of time.  –  James Turk on the Shadow of Truth

Gold and silver appear to have found their final bottom in the nasty 4-plus year price correction that began in May 2011.   Too be sure, this “correction” was largely a product of Central Bank intervention which was implemented to prevent gold and silver from signalling to the world that Governments globally, especially the U.S. Government, are in the process of destroying middle class wealth through the incessant debasement of paper currencies.

Since late July/early August, gold has moved up over 9% from its bottom ($1085, futures basis) and silver is up 14.5% from its bottom ($14.07, futures basis).  Of course, it remains to be seen if this is going to be more than a dead-cat bounce before the metals head back to re-test their bottom or set new lows, but specific market signals are suggesting that there’s a strong probability that the precious metals have embarked on the the long-awaited resumption of their secular bull market.

One of the primary signals is the persistent price “backwardation” observed in the London gold market since 2013.  As Turk explains in the podcast:

Backwardation shouldn’t happen in the gold market. The arbitrage opportunity should take it away. But we saw it 1999 for a couple of days when gold was its low and we saw in 2008 for a couple of days when gold reached its low then. We’ve seen backwardation more often than not since January 2013 when the Fed’s QE3 program started.

While backwardation occurs when there’s a shortage of physical gold available for immediate delivery on a “wholesale” basis – i.e. very large quantities – it also reflects that fact that investors prefer to hold onto the gold they have in possession rather than lend it to the market in exchange for the market’s promise to re-deliver that gold in the future at a lower cost to the investor.

In addition to backwardation, Mr. Turk discusses some other indicators which are signalling the likelihood of much higher gold/silver prices going forward plus his views on the “re-monetization” of gold – i.e. the market’s push to insert gold into the global financial system as a currency (it’s always been used as an asset).  Or, as Mr. Turk prefers to say, “the re-currencyzation” of gold:

There’s always a higher risk in fiat currency than there is in gold because gold can not be created out of thin air like paper currency can be created out of thin air. – James Turk, Shadow of Truth