Gold and silver have outperformed stocks so far this year and have a lot further to go as equities hit a wall of fast deteriorating geopolitics and weakening economies as we progress into the autumn.
Do you buy high and sell low? No. So why would you buy stocks close to all-time highs when you can still pick up gold and silver at a respective discount of 30 and 60 per cent off their 2011 highs?
Bargain prices
Would you rather not buy low and then be able to sell high later? It’s a fairly simple logic but then markets are no more than scales weighing supply against demand.
What will encourage demand for gold and silver to pick up again? Real assets like precious metals are a safe haven in times of trouble with no third party involved or the central banks. They are money that central banks cannot print, and what do you think they will do if financial markets tumble?
Why should they fall from current near record heights? Apart from gravitational forces you have something called economic fundamentals, i.e. oil prices. We saw what happened when oil hit $147 a barrel in 2008. It brought the whole house of cards down.
Overvalued financial markets and associated assets are in the same position again today. Don’t believe the nonsense about the Islamic State now growing like a cancer inside Iraq. It is not benign. It’s malignant and Baghdad is the next target and then the southern oil fields are a doozy.
Where we go to then is anybody’s guess. The Islamic State could attack Kuwait like Saddam Hussein as another easy target, or it could become embroiled in a second Iraq-Iran War. Eventually the US and its allies will have to put boots back on the ground.
Trade war
Meanwhile, the trade war developing over the Ukraine and a possible imminent invasion by Russian ‘peacekeepers’ is also bad for energy prices and global business. It’s destabilizing and reminiscent of the breakdown of global trade in the 1930s before the Second World War.
Global financial markets have become excessively complacent after such a long run up without a correction. Things have been going so well that they can’t possibly fail can they? Anybody who knows anything about market cycles must recognize such over-confidence as pride coming before a fall.
Buying gold and silver today makes sense because by prices will soar as this geopolitical conflagration plays out and prices are cheap now. Equities will go in the other direction.
