Since the fundamentals still point to gold’s long-term viability… why [are] investors responding by selling gold…? I was always told not to look a gift horse in the mouth… [so] take advantage of the dip. Words: 962
So says Peter Schiff (www.europac.com) in edited excerpts from his original article*.
Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted the article below for the sake of clarity and brevity to ensure a fast and easy read.
Schiff goes on to say:
It’s important to understand the fundamental reasons for owning gold, and those reasons have not changed. The U.S. government embarked on a decades-long spending spree of historic proportions and, to finance the resulting debt, the Federal Reserve is printing money furiously. Because most every central bank governor appears indoctrinated in the Keynesian economic philosophy, foreign central banks are simultaneously printing euros, yen, francs, yuan, and pounds to “keep up.” Of course, this competitive devaluation actually represents countries shooting themselves in the foot.
Don’t expect any abrupt changes [in the abovementioned approach], either. The Fed’s philosophy – a resolute faith in central planning and debasement – has been unchanged since Paul Volcker stepped down as Chairman in 1987. Rather than considering any change of direction, the Federal Reserve Board is likely asking itself: “Should we print $50 billion or $500 billion in our next round of stimulus? Can the ECB bailout Greece now or do we first need to bail out the ECB? Should we call our money-printing ‘liquidity assistance’ or ‘quantitative easing’?” Or perhaps, “Do we have enough ink refills for all those printing presses?” You may think I’m joking, but this is quite serious. While monetary policy was bad under Greenspan, Ben Bernanke has literally instituted a revolutionary devaluation program for the dollar – and gold is the only way to avoid his guillotine.
True-value vs. Spot Price
Let’s remember that it is the fundamental value of an asset which dictates its long-term market price. Yet for some reason, many see this relationship backwards – they use the short-term market price to extrapolate the fundamental value. Consider a car on the dealer’s lot: if the price of the car falls tomorrow, it becomes a better deal. If the price rises tomorrow, the car has becomes less attractive. This principle is equally true in long-term investments. I believe that gold’s fundamental value is far higher than $1,600, and far higher than $2,000. So, while it may be unsettling for some of those who own gold to see steep short-term price declines, remember to focus on the fundamental value of the asset, not the spot price on the market today. Has the fundamental value of gold fallen in these past two weeks? Quite the opposite.
A Debt-laden House of Cards
The Fed is still trying to find ways to manipulate the bond market with…[its] “Operation Twist.” This is yet another plan to suppress yields, encourage spending (as if too little spending was America’s problem), and paper-over the untenable interest payments hanging over Washington. The manipulated US bond market is perhaps the greatest bubble in existence. Further manipulation only makes it more unstable in the long-term, and when that bubble bursts, gold should skyrocket.
Meanwhile, the European debt crisis…[has] spread to Italy…The ECB may be able to keep Greece afloat, but Italy is the eurozone’s third largest member. That’s a load too heavy for the ECB to bear. This is especially true in the wake of Moody’s downgrade of two of the largest French banks – Societe Generale and Credit Agricole. As reported in the Wall Street Journal, “[Moody’s] said its decision to downgrade the banks included the assumption of debt restructuring that would cost investors up to 60% on Greek sovereign debt, 50% on Portuguese and Irish debts, 10% on Spanish debt and 7% on Italy’s debt.”
In other words, the Western financial system is a debt-laden house of cards. This is the root of the current market panic… What’s harder to explain, [however,] is why investors are responding by selling gold and buying dollars and euros. Then again, I was always told not to look a gift horse in the mouth.
Keep Calm and Carry On
Do not get caught in the exuberance or pessimism of short-term movements, even if they’re sharp. Observe the fundamentals:
- the events in Europe,
- the looming budget calamity in the U.S.,
- central bankers’ steadfast strategy of debasement, and
- emerging markets’ continued diversification into precious metals.
These are the main drivers for gold’s long-term appreciation.
To my readers who may have purchased metals just before this pullback, your concern is understandable but I believe this bull market has a long way to run, and the rise up ahead looks even steeper from these levels.
With the present major correction in gold, silver and the mining sector it is important to look at the big picture and see what the charts are saying from a technical fractal relationship with what happened back in 1979 when the last truely major bull run occurred. To date the situation is, frankly, no different than it was back then unfolding just as it should. As a result we can expect MAJOR upward price action in physical gold and silver and in their mining (producers, developers, explorers and royalty streamers alike) in the next few months on their way to their respective parabolic peaks in the years ahead. Read on. Words: 1604
As I see it, worsening financial crises lead initially to lower gold prices which are followed by some form of government intervention to alleviate the crises and that action, in turn, eventually results in renewed appreciation in the price of gold. The basic steps in such a transition are really quite straightforward. Let me explain. Words: 686
The current volatility in the precious metals market doesn’t necessarily indicate a change in secular direction. [In fact,] if today’s gold price was to rise by the same degree over the next 14 months [as it did from the beginning of 1979 into 1980, it would hit $4294/ozt. by Jan 2013! Let me explain.] Words: 420