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No Relief in Sight for Gold

Monday, September 21, 2015 7:27
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Our market maven Thomas Beecham says
that in spite of unprecedented money printing,
and debt risks multiplying, the USD will continue
to climb due to deflationary pressures worldwide.

“In short the deflationary forces caused by the debt overhang is just overwhelming any inflationary forces.”

by Thomas Beecham

Two summers ago the USDX left its normal trading range as international demand for dollars began to increase, and as the credit crunch intensifies over the next year or two it should continue to trend higher. 

The dollar may be toast and the patriot radio blasts it. But most international loans are denominated in it, and as the global economy continues to weaken, demand for the USD should increase, especially as other economies underperform and their interest rate differentials vs. the US widen. It is the global currency.

In order for commodity inflation to take place, money getting must reach the end user. This is just not happening. The overcapacity in the commodity sector is just too overwhelming. The large commodity producers bought into that idea of ever-growing BRIC nations. That was a costly mistake, and the alternative media bought into that as well. 

Brazil’s debt is collapsing; Russia is doing worse than their official numbers say. Who even knows what is going on with China? The yuan will never be a reserve currency, because their govt numbers have less credibility and their debt market is too opaque. They are building up for the future war.

With all this occurring, I do not see any inflation. On a personal level, my cost of living has not been going up. I save hundreds of dollars a year in gas, prices in the grocery store (save beef – and that has levelled off) have not been going up as much as some of the doomers say, etc. The real economy is in poor shape, as spending power continues to wane. People just don’t have the money to buy gold – or silver. Note that the gold/silver ratio is down to 74 from 80. 

In short the deflationary forces caused by the debt overhang is just overwhelming any inflationary forces. With all this end-of-the-world stuff the alternative media keeps saying how gold should be taking off. But it is not. It is stuck, as is silver. 

With that said the seasonality of the gold/silver market should provide tailwinds to the price. This time of year going into January is the strong season for metals. We will see what happens.

Eventually, the FED will have to raise rates. I am of the opinion that it should have raised them up to two years ago.  They will have to raise them lest it be blamed for causing the upcoming US domestic stock market bubble. I only vouch for the US stock market.

The irony about QE operations is that they are by definition, deflationary. The resulting cheap and inefficient debt issuance from all sectors is out there, and needs to be serviced, thus the debit side of the economic balance sheet continues to grow. The results of this are the pernicious deflationary forces we are seeing now. Every QE operation brings new waves of deflationary forces to the globe. Look at the overbuilding in the commodity sector – from coffee to copper. It was built on false govt numbers.

Indeed, I am having a difficult time wrapping my mind around the dynamic of the markets, but I just follow the prices and their trends. As the economic malaise deepens worldwide who will want to buy gold? Most sovereigns may have to even sell their gold in order to pay their bills. I believe many desperate debt-slave nations are already doing that. I talked about this a couple years ago. The worse the price of gold becomes the more necessary it will become for gold holders to sell.


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