We were wholly unfazed by gold's sharp drop last Friday, realizing that in the larger scheme of things, it was just a "storm in a teacup," and if you want a fundamental explanation for it, a very good one was provided by John Rubino in his illuminating article of the eigth entitled Gold Hit With One-Two Punch but the main reason that we are sanguine in the face of such developments is that we know that with the entire world becoming a banana republic gold and silver are — and must be — the go-to assets.
As the biggest money counterfeiters in the history of the world, Central Banks have had it good for many decades. The way the scam works couldn't be simpler. Having bought off politicians to disconnect money from being backed by gold or anything else of intrinsic value, they can create as much of it out of thin air as they want. After gifting vast quantities of this newly created money to themselves and their crony pals, their next priority is to bribe and buy off anyone and anything that can further their interests.
The ultimate manifestation of this now totally corrupt system is what we see all around us — people sleeping on the streets in tents in places like LA and Sacramento in The People's Republic of California while the political class spends hundreds of billions of dollars of taxpayer's money. The point is that this system results in the gross misallocation of capital and, through this profligate money creation, runs up massive debts and destroys the value of currencies. It ends in hyperinflation, which is what we are on the verge of now.
How, therefore, can the value of gold of silver, that are real money, drop in a hyperinflationary environment? The answer is that they can't which means that if you want to preserve your capital you have to own them, or other assets with intrinsic value like copper and platinum but gold and silver are best because they are the most fungible, meaning they are easily exchanged or traded.
If you have followed my reasoning so far, you know what comes next, which is that, in the environment that we are now in, any significant drop by either gold or silver or by better gold or silver stocks, is simply an opportunity to buy or to add to positions.
Having cleared that up, we will now proceed to look briefly at the latest charts for gold, silver, and VanEck Gold Miners ETF (GDX:NYSEARCA) (PM stocks ETF), where we see that Friday's drop was merely a "storm in a teacup" that did no technical damage at all and made the sector even more attractive.
The charts below have annotated commentary and thus require no further explanation. . .
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Clivemaund.com Disclosures
The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maund's opinions are his own, and are not a recommendation or an offer to buy or sell securities. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stock market analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund's opinions on the market and stocks cannot be construed as a recommendation or solicitation to buy and sell securities.
