When Might Gold and Silver Break Out?

One question Atlanta Gold & Coin regularly received from customers at the time of publication was “when will gold and silver break out?” The article said conditions appeared favorable for a breakout, particularly because the Federal Reserve’s balance sheet had expanded nearly tenfold over the prior 15 years, taking the monetary base to levels described as unprecedented.

At the time of original publication, the article described the following: The article characterized the money creation since the financial crisis of 2008 as occurring at hyperinflationary levels. It argued that mass inflation or hyperinflation was not then occurring because banks were holding excess reserves at the Federal Reserve instead of lending those funds to consumers and businesses.

The article identified the Fed’s balance sheet as one concern, while also noting that home ownership stood at a 19-year low, a record number of people had left the workforce in April, and first-quarter GDP for 2014 was an anemic .1%. It said the discussion would further review the economy and outline three potential catalysts that could move gold and silver out of their malaise.

Geopolitical Issues

At the time of publication, the world was described as facing numerous geopolitical concerns. Crimea had recently been annexed by Russia without military conflict, but tensions involving Russia continued as troops remained positioned near the border. Eastern Ukraine had also recently staged a referendum for self-rule and was seeking annexation into the Russian Federation. The article said this could prompt further sanction threats and possible confrontations involving Ukraine’s leaders and Western nations.

At the time of original publication, the article described the following: China and Vietnam were also in conflict at publication over an oil rig China was building in territory claimed by Vietnam. The dispute had generated anti-Chinese reaction in Vietnam, including deaths of Chinese nationals and destruction of their property there. China had begun moving troops toward the Vietnamese border, with clear threats of military action if the anti-Chinese sentiment continued.

Finally, the article reported that Thailand had been taken over through a military coup and placed under martial law, a situation it said could destabilize the entire country. It argued that any of these events, along with other conflicts not mentioned, could have intensified at any moment and triggered a move toward perceived security, with gold and silver among the possible destinations.

Recession/Bear MarketAt the time of original publication, the article described the following:

As noted earlier, first-quarter GDP for 2014 had fallen substantially below expectations. Given the report’s possible margin of error, the article said it was conceivable the economy had already entered the first quarter of a recession. Recessions are commonly defined as two consecutive quarters of negative growth. With earnings reports continuing to disappoint, including slower results from companies such as Wal-Mart, the article suggested the economy could be near a recession and an equity-market selloff. It stated that panicked investors typically moved toward safe-haven assets such as bonds and precious metals.

However, many financial commentators at the time believed the bond market was in a substantial bubble, so this customary safe haven could have been avoided. Adding pressure to the bond market was Russia’s recent decision to sell a third of their U.S. treasury holdings, which the article said had been offset by purchases from Belgium, thought to be a front for central-bank buying. It expected Russia to divest its remaining U.S. Treasuries shortly. The article added that China, like Russia, had been reducing its reliance on U.S. debt and had recently made trade agreements with other nations that did not require the dollar.

Manipulation

The article noted widespread belief that gold and silver markets were manipulated, and said evidence was slowly emerging that the “conspiracy theorists” could be right. It cited broad investigations into market manipulation and reported that firms including Barclay’s had recently been fined for participating in market manipulation.

The article further stated that the London Gold Fix, long regarded by some as an unreliable measure of market prices, was closing after 95 years because of ineffectiveness and potential manipulation. It also noted that Barclays was one of the five London banks involved in setting the London Fix twice each day.

Some observers might have argued at publication that the outcome had long been predetermined, but the article said the “Fix” would arrive within a few months. It suggested that other investment bankers allegedly involved in price manipulation might face greater scrutiny and end questionable conduct. That, it argued, could help gold and silver move beyond their narrow trading ranges and reach what it called their true market prices.

Summary

The article noted that many other possible catalysts could have been discussed, including gold and silver shortages, peak gold, and rising mining costs. It presented the three scenarios above as possible circumstances in which gold and silver might reach their stated potential.

Because gold and silver prices were near production costs at the time of publication, the article suggested that accumulating the metals at those depressed levels could have been worth considering before missing the opportunity. For additional information on gold and silver markets, the economy, and the coin industry, readers were invited at publication to visit Atlanta Gold & Coin regularly through its blog.

When this article was published, readers were invited to call 678-515-5763!