Silver Breaks Out – Over-Bought Territory

Miles Franklin sponsored this article by Gary Christenson. The opinions are his and are not investment advice.

Breaking News:

• Silver prices on the COMEX closed up $3.08 at $22.85 for the week. For perspective, prices dropped below $12 on March 20 of this year.

• Gold prices closed up $87.50 to close the week at $1,897.50, near an all-time high.

• The NASDAQ closed down 140 at 10,363. The price peak, so far, occurred on July 21.

Silver and gold prices had a banner week during which silver rose by 15%. Why did silver prices rise so much since March 20? Answers that come to mind are:

a) QE4ever is devaluing existing dollars. The process has not reached WARP speed, but investors have noticed. Prediction: QE4ever will continue devaluing the dollar.

b) Short covering by bullion banks and others. Selling short, driving prices down, and buying back at lower prices has been profitable for years. Perhaps short sales failed during our “shutdown” economy.

c) Silver miners closed operations because of COVID-19. Supply diminished.

d) Demand is strong. Do you want your savings in guaranteed to devalue dollars/euros/pounds that pay next to zero interest, or something real like silver? Premiums on silver coins are high. Demand increased.

e) Depression era unemployment numbers and never-to-reopen businesses worry people that a financial panic is coming. Experience shows that an early panic into silver and gold is preferable to a later “get me out at any price” panic out of paper assets.

f) Has the Fed lost control? The Fed can print dollars, but can’t create jobs, wealth, reopen businesses, supply gold, mine silver, or ease fears that disastrous consequences lie ahead. Worry and fear encourage gold and silver prices.

g) The price of silver and gold is, by some estimates, the inverse of confidence that central banks will manage the economy and our “shutdown” crisis. Central banks will make a mess of it.

h) Election year promises. What if the wacky promises by both parties are implemented? Prediction: More debt, promises, economic nonsense, and higher silver prices.

I) A Wealth Tax: Instead of managing spending, governments may implement a wealth tax. Will enough loopholes be written into the law to protect the top 1%? When will a wealth tax extend to the middle class? Individuals worried about a wealth tax may be converting paper assets into less visible gold and silver.

j) Political party XXX will increase debt, social programs, wars, and economic nonsense. The dollar will adjust lower. Silver and gold will protect savings and retirements.

k) Political party YYY will increase debt, social programs, wars, and economic nonsense. The dollar will adjust lower and boost the prices for gold and silver.

l) A banking crisis might occur as banks discover unemployed workers can’t pay their bills. Add bankruptcies in shale oil companies and failing commercial real estate investments. Top with the collapse of “brick and mortar” retail sales and multiple bankruptcies. Stir a derivative crisis into this “witches brew” of economic disasters. The banks may be healthy (I doubt it), but serious risk lurks under the surface. Think 2007-08.

m) The Fed can “print” to save the stock and bond markets but will collapse the dollar. Are the euro and pound stronger?

n) Will the government subsidize cities, states, and their pension plans? What about corporate pension plans that are insolvent? Bailouts will be expensive.

o) Add your favorite concerns.

From John Mauldin:

“The world is getting ready to be repriced. Everything is going to seek a new value. Real estate, stocks, commodities, food, medical costs, college costs, government, entertainment, sporting events, clothes… Everything.”

REVIEW:

• Dollars are issued as debts of the Federal Reserve. The days when dollars were real money or backed by gold or silver are long gone.

• The banking cartel borrows into existence new dollars and expands debt more rapidly than the economy grows. Dollars are thereby devalued, and prices rise.

• The Fed “prints” via QE4ever and other programs. New dollars are created, not from production, but from Fed “printing.” Those new dollars devalue existing dollars and prices rise.

• Global central banks have “printed” $25 trillion in “fake money” and levitated global bond and stock markets. The consequences of “fake money” are coming. Prediction: We’ll see stagflation, higher consumer prices, much higher silver prices, and negative growth. Neither the Fed nor our government nor economists will accept responsibility for the stagflation they created. Prediction: They will look for and find scapegoats and diversions.

• Devalued dollars buy less, and consumer prices rise. Prediction: Commodity prices are low compared to prices for paper assets. Commodity prices will rise faster in coming years.

• Silver and gold prices rise as the banking cartel devalues dollars. A short-term correction may occur, but much higher prices for precious metals are coming.

OVER 100 YEARS AGO:

The Fed was legislated into existence in 1913 to make the banking establishment more profitable. In 1913 we paid less for necessities:

New truck $600 then, $50,000 – $80,000 now.

Potatoes $0.016 then, $2.50 now.

Cigarettes $0.10 then, $6.00 – $10.00 now.

Bread $0.05 then, $3.00 – $6.00 now.

Creating trillions in fake money makes everything more expensive.

WHY DO WE ACCEPT THIS DEVALUATION PROCESS?

a) We feel wealthier when income and assets appear larger. It’s a comforting delusion. How many loaves of bread will our current income purchase? Probably less than in 1971.

b) We have (delusional) faith that the Fed will manage the economy and the value of the dollar. We don’t believe “the piper must be paid.”

c) Name three congresspersons who want to manage expenditures and debt. Prediction: The U.S. government will spend more every year until something drastic occurs.

d) The politicians and the Fed are in charge. The rest of us ride along and must accept what they create.

As debt increases, dollars buy less and silver costs more. Look at five decades of Total Credit Market Debt Outstanding per the St. Louis Fed and compare to (five period moving average) quarterly silver prices.

It’s the same story with the S&P 500 Index.

But the ratio of silver to the S&P is important. That ratio shows, even after its rise since March, silver is undervalued compared to the S&P.

Prediction: Silver will correct from its current “over-bought” condition, maybe this week or next month, but it will correct and then rally far higher through 2025.

The last two runups in silver occurred in 1979-1980 and 2010—2011. In both cases, silver prices stopped at about $50 before they were forced lower. In 1980, people stood in long lines outside of coin dealers to exchange devaluing paper dollars for real silver.

In 2011, silver prices almost reached $50 before crashing again. The subsequent low was $13.61 in December 2015.

Crashes are not new. Remember the “nifty 50” decades ago, gold in 1980, stocks in 1987, the Nikkei in 1990, the NASDAQ in 2000, real estate in 2007, and Tesla in 2020—oops that crash hasn’t happened yet.

Read and Listen:  Bill Holter: “All Roads Lead to Gold in a Credit Implosion.”

CONCLUSIONS:

• The Fed can’t create wealth, prosperity, jobs, economic strength, or necessary commodities. They can “print” trillions in digital dollars, so expect them to print, print, print. Dollars will devalue and prices will rise.

• Stagflation, which is rising prices during a sluggish economy, is a reasonable expectation.

• Failed economic policies, excessive debt, too much spending, Fed actions, corruption, and greed would have crashed the economy, eventually. Instead, insiders used the COVID-19, pandemic, and the “shutdown” to torpedo the economy, destroy businesses, increase bankruptcies, create fear, and generate anxiety. And it happened in an election year. What a surprise!

• Total Credit Market Debt increases every year. Silver prices rise (erratically) along with debt.

• The S&P will rise along with debt.

• In July 2020, even after it has nearly doubled in four months, silver remains undervalued compared to the S&P 500 Index.

• Silver at $50, and then much higher, is coming. Most “crystal balls” are cloudy, but within one to five years is reasonable.

• Government and The Fed will not voluntarily relinquish power, control, and insider wealth. Expect the dollar to devalue further and commodity prices to rise much higher.

Miles Franklin sells silver and gold—real money the Fed can’t manufacture with computer strokes. Precious metals have no counter-party risk, which will become important as bankruptcy fever strikes the economy. Call them at 1-800-822-8080.

Gary Christenson