Thursday, January 5, 2012
Gold Silver and Commodities are NOT crisis hedges
Many analysts on Wall Street take Gold, Silver and commodities to be hedges against financial turmoil. The reality is that they are just assets that are sold to generate cash in economic contractions. Additionally, the entire time that Gold and Silver have been in bull markets since 2001, the stock market has held up and, in my view, been in a gigantic topping process. When this topping process ends, and the real financial collapse happens, which I believe is very soon, all of these markets should collapse with it. Gold and Silver will likely initially be viewed as hedges, and will likely be the last markets to top. But in the worst portion of the deflation, they will top out and collapse along with everything else as the 80-year credit bubble comes unwound along with the debt-money system. Dollars are is scarce supply and will be in great demand as the credit system collapses. Here is a great clip by Robert Prechter in which he illustrates how Gold and Silver go DOWN in bad economic times, not up.These markets may have a little more upside left, and the Dollar a little more downside, but 2012 is going to be a MAJOR bottom for the U.S. Dollar. I expect the USD to soar as the financial environment gets worse, as the margin calls come in and the USD shortage takes hold. The key to the end of this bear market rally, and ultimately I believe a decade long topping process, will be the appearance of certain cyclical DNA markers that have occurred at EVERY major top since 1896, discovered by Tim Wood. Once we get this setup, financial hell will break loose, and the U.S. Dollar should launch its greatest bull market of all time.
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Hi Chris,
ReplyDeleteI'm a subscriber for Tim's service. I know that Tim is going to call this top. I've seen him do it too many times in the past to ignore him. There is however one wildcard here which is gold. Sometimes gold rises with the dollar and who knows what gold will do once the sovereings start to tumble. During the worst part of the great depression there was also a big gold rally. Otherwise, I couldn't agree more.
Hi Frank-
ReplyDeleteDuring the depression, we were on a Gold Standard, and of course we no longer are. Now, there are nothing but promises out there. Many argue the Dollar can be "devalued", but that is an incorrect presumption as it cannot be devalued because it is not valued to anything! It is just backed by more promises: debt. There are all these IOU's out there, and not enough cash to cover all of them. This is the Dollar shortage we are facing, naturally the exact opposite of the commodity shortage that most think. It is actually the U.S. Dollar that is in severe shortage. If the Dollar rally becomes as strong as the 1980's, which I fully expect it to, then Gold will have downside pressure.
Cheers!
Hi Chris,
ReplyDeleteI completely understand the Dollar shortage fundamentals. The vast majority of debt worldwide is denominated in USD and once credit really starts deflating there will be enormous demand for the USD. I'm from Belgium. I really think the "Lehman moment" will come from Europe. European banks are leveraged way beyond their eyeballs and in much worse shape compared to the USA. Furthermore Europe hasn't recapitalized their banks yet which puts the banking system in huge risk. Most people I know have no idea what is going on. Even most bank directors have no idea how bad it is. Nobody takes the effort to look at the numbers. Sometime in 2012 they are going to know and there will be a full blown panic in the Eurozone. The question I ask myself is: Are they going to flee to the dollar or to gold? I suspect 2012 to be a bad year for gold, but will it be just a correction or a real crash. I don't recommend selling gold for euros that's for sure.
Frank, Ironically, the Euro and Gold are moving together! Opposite the USD. Its all about liquidity, the driving force behind all of these markets. That is why they are all moving together...Liquidity; what Elliott Wave International Calls "All the same market".
ReplyDeleteI understand Chris. You could be right about the euro and gold moving together but overall gold has risen much in euro terms over the course of the bear market rally. If liquidity disappears gold should fall. But in a liquidity crisis people flee to liquid assets; and liquid assets are T-bills denominated in the reserve currency (usd) but also gold (which is also a very liquid market). But you are right. Once we see a strong and continuous rally of the usd every asset class is at risk of severe correction. That said we must also remember that EWI has done a very very poor job the past 2 years in navigating this market. They've been predicting "imminent collapse" for over 2 years within this bear market rally. Tim Wood however has made some very impressive and correct calls especially in 2011. This guy knows what he's doing that's for sure.
ReplyDeleteHi Frank,
ReplyDeleteAgree, Tim Wood is very reputable. Thank you for your comments.