10/24/2021
Market Thoughts
10/22/2021
It has been a few years since I last laid out my Market Thoughts (Silver Thoughts, March, 2017).
Keeping up with the supply chain constraints in the Precious Metals sector since the beginning of the Pandemic has been quite daunting and has kept me more occupied than I might wish. Please excuse the length of this article, but I’m making up for a great deal of lost time and there’s a lot on my mind!
Before the Pandemic, I had planned to retire at the end of 2021. COVID and the response to it has left me quite contented to be semi-retired and I will probably work well in to 2022. It also means that I haven’t been as engaged as some clients might prefer. Thus, the dearth of Posts and other written articles.
I always get the question, “What’s going on with Metals?” Followed closely by, “Where are the prices going (and why)?” I’ve had these questions without stop since I switched my focus to Precious metals in 2006. Understandably, it’s what I do.
As many of you know, in early 2017 I said that we were overdue for a Black Swan Event. If you aren’t familiar with this term, Wall Street trader Nassim Nicholas Taleb outlined the three defining attributes of a black swan event as:
1. An event that is unpredictable,
2. A black swan event results in severe and widespread consequences,
3. After the occurrence of a black swan event, people will rationalize the event as having been predictable (known as the hindsight bias).
I postulated that this Black Swan Event would result in some way, shape, or form from the following macroeconomic conditions:
1. the 2008 Global Financial Crisis and, in my belief, the resulting Depression;
2. the extreme concentration of wealth in the U.S. and the possibility of resulting economic and/or social unrest;
3. increasing Political division and dysfunction;
4. the Debt to GDP ratio which, by some estimates, exceeded 103%; and
5. the increasing fragility of the Everything Bubble (The Everything Bubble: The Endgame For Central Bank Policy by Graham Summers MBA).
The thing about predicting that something will happen in any given year is that the statistical likelihood of it happening is usually rather small. But if something is only 5% likely to happen this year, it is increasingly likely to happen in the years to come. So, over time, it’s safe to say that we who venture to prognosticate are generally and eventually going to be correct in our prediction(s). (Wow! What a racket! Why don’t I do more of it?) Still, I read voraciously and give a lot of thought to any ideas I share.
Thus, back in 2017 I felt safe in saying that we had seen the bottom in Precious Metals in December of 2015 (with gold at $1045 and silver at $13.60) and the that we were seeing the beginning of an exceptionally long uptrend. Barring any Black Swan Event, which could result in a huge move up in Metals, we would see a very choppy Market and a gradual move towards $3000/oz gold and $30/oz silver in 3-5 years.
By their very nature, Black Swans can come out of left field and blindside you. Which the Pandemic did, indeed! Gold and silver both broke through their 2015 lows! But all other Financial Markets crashed alongside the Metals. I would say that, in large part, this was because the markets had never fully recovered from 2008 and were extremely fragile.
Who could have predicted all of America watching the agonizing footage of George Floyd’s death? But the rioting and protests that followed were inevitable.
Once can argue that a dysfunctional Congress is nothing new, but today we see an extreme. The Democratic Party has been hijacked by the extreme left, and the Green New Deal alongside other socialist agendas that were scoffed at four years ago seem to be the norm today.
If this Administration continues to spend Trillions, Trillions, conservative estimates of Debt to GDP for 2021 are 115% and 122% for Fiscal 2022. Do we see a $2 or $3 Net gain for every $1 spent in Stimulus Packages? Or are we now at 90¢ or 80¢ on the dollar? China and the European Union are in this same spiral, which is particularly important. Other countries also experience this, too, but it is more or less important only in those countries. (I am not saying that we don’t need to repair our roads, bridges, and other infrastructure, just that we won’t receive the same economic results that would have been expected decades ago.)
Based on the above four paragraphs, I was largely correct in my 2017 predictions. At least, I’ll take it largely as a win.
Where are we at today? I see the same macroeconomic conditions prevailing today as in 2017 and some that I did not see four years ago.
I still firmly believe that we have never recovered from the 2008 Financial Crisis but papered it over through extreme government intervention into the economy. It was bad enough between 2009 and 2019, but the Pandemic was the proverbial straw that broke the camel’s back. The World has never seen anything like what we are seeing today! Though there have been similar scenarios, there has never been such a monetary “experiment!”
Modern Monetary Theory (MMT) holds reign in our nation’s capital and most politicians either fully & genuinely believe (or give lip service to) the concept that a nation that can print its own currency can never go broke! Is it any wonder that so many of us feel that something is wrong or broken??!?
We have begun to see cracks in the Financial Markets. Many if not most analysts are predicting a crash in the stock market…or worse, a crash in the bond market. Not if we will have a crash, but when! Will China’s Evergrande Real Estate Group’s liquidity crisis be the first domino to fall??!?
Doug Casey makes an excellent case that we have entered The Greater Depression. If you are interested, you can find it here: https://internationalman.co,/articles/welcome-to-the-greater-depression
There are even more triggers for social and economic unrest today than in 2017. The wealth gap continues to grow as the 1% grow ever richer. The middle class shrinks as many scramble to maintain their status quo. The poor get poorer or join the ever-growing number of people who depend solely on government largesse for their daily bread!
Black Lives Matter! Community Policing needs to rebrand or be Defunded! LGBTQ+ people, though about 5% of the population, ask to be treated the same as the other 95%. Is that unreasonable? The list goes on. I am neither endorsing nor opposing these causes but pointing out that what we see today are more triggers for unrest than four years ago.
Speaking of China, though I entertained the possibility of a shooting war with China in 2017, I didn’t think it merited inclusion in my list of potential Black Swans. Today, it is a very real and present danger! We are often hearing of a Thucydides Trap. (For an interesting take on this, see the article by Hal Brands & Michael Beckley found here: China Is a Declining Power—and That's the Problem (foreignpolicy.com).
Additionally, China is stuck in the Middle-Income Group of $6000-$12000 per year per capita. Though the Communist leaders say they will break out by 2035, this is nearly impossible given everything I know about China and economics. One more reason for China to strike while they are strong and have a possibility to win. Though we’ve often seen Chinese military overflights of Taiwan (as a tool of intimidation), can this now be seen in a different light?
Inflation has variously been said to be: the greatest theft of wealth of all time, legalized theft by government, and the method for dismantling the American middle class. All are true! Will we see hyper-inflation as in Pre-WWII Weimar Germany, in Hungary in 1946, or in Zimbabwe from 2007-2009? Long-term, I can’t say. But probably not.
But what we have seen and been subject to is an increase in price inflation, at least since 2010. My Levi’s® Boot Cut Jeans were $29 in 2010 and I could buy them on sale for $24. Today? $60 and I am lucky (if I can wait) to find them for $49!! To say nothing of all the food products that changed to smaller quantities in the same package at the same price, then later increased those prices! Postage stamps? Beef? Gasoline? The list goes on and on. To add insult to injury, the government massages the statistics and tells us inflation is holding steady at 2%-3% (5% has been another government number, though not often quoted as it doesn’t fit the narrative). Really? We all know better! (Walter “John” Williams Web site, shadowstats.com, shows a more realistic Inflation rate of nearly 10%.)
I think it far more likely that we will continue to see a combination of price inflation and asset deflation that we are only just beginning to experience. Daniel R. Amerman shares his thoughts on this at The Critical Risk Of Simultaneous Inflation & Deflation | GoldSeek.
Price inflation coupled with asset deflation is an especially deadly combination for retirees and those close to retirement. Unfortunately, many people saw their retirement accounts cut in half in 2008-09 and have tried to catch up, or are still trying to catch up, with risky moves in the stock market. While the stock market has been a winner for the last decade by holding index funds, as said earlier we are getting close to another crash. It is almost impossible to call a market top or bottom. Getting close is often the best one can do. But those not prepared or ill-prepared for a crash, will again be devastated!
People often ask me about Cryptocurrencies. In 2017, I said it was possible to make money in Cryptos, but the true winner would be Blockchain (the technological “ledger’ behind Cryptos). If one could find a pure play on block chain technology, they could make a fortune! I likened the relationship between Web sites and the Internet to that of cryptocurrencies and Blockchain; Web sites come and go but the Internet is here to stay. Look for businesses, banks, and the military to all be looking towards Blockchain! It’s here to stay!
The other thing about alternate currencies is that governments are very jealous of their unique privilege to coin money. They give this up only when forced to or when they become part of a larger political division. Let’s be frank, the United States Dollar is backed not by gold or silver but by the full force of government (military)! What army stands behind to defend Bitcoin??!? If a cryptocurrency sufficiently threatens a government, that government will take steps to limit it or shut that currency down. (China Cracks Down Harder on Cryptocurrency With New Ban, NY Times, September 24, 2021.)
With that prelude, what do I think will happen with Precious Metals in the future? I still think that we are at the very beginning of a long ride up in metals. Gold retested its 2011 High in 2020 by pushing through $1900 to $2074. Although it’s broken through the $2000 mark since then, it hasn’t been able to hold $2000 and is at $1812 as of this writing (10/22/2021).
Silver, ever the laggard, has been nowhere near testing its 2011 high of $49.50 and is currently at $24.86/oz.
I think, again barring the very real possibility of another Black Swan (Black Swans?), we will see gold push towards $3000 in 2022. Silver, if not retesting $49, will certainly be headed in that direction and I think $30 is more than possible for 2022. Of course, many possible Black Swans will be very bullish for Metals and those numbers could be far short of the reality.
People often ask me if they are too late to invest in Metals. My answer has always been the same, “You’re still in time!” What are the long-term possibilities? With no other major changes in the world, I would certainly think $5000/oz gold isn’t unreasonable in the next 3-5 years. That’s roughly a threefold increase. I think silver could easily outperform gold, increasing 5-8 times! Crazy numbers? I’ve seen higher, with well-reasoned explanations and from people whose opinions I highly respect. So please don’t think current gold or silver prices are too high!
Gold & silver have been money for at least 6000 years and quite possibly for several thousand years longer. Precious Metals give an investor security and solidity; their value is universal and easily convertible at any time at most major financial centers worldwide, as well as local coin or precious metal dealers. Gold has been proven to hold its purchasing power throughout history. For this reason, private individuals buy and hold metal in the medium/long term with the aim of protecting themselves from devaluations and economic and geopolitical insecurities. Both gold and silver also have industrial functions and these shouldn’t be ignored.
Investing in Metals may be new to you, so I encourage you to ask questions. I am only on Facebook once a week on average, so use my email address: [email protected]. That’s the best way to reach me and gives me plenty of time to answer your questions. As I have for the last 15 years, I’m looking for long term relationships rather than a single sale and want you to be comfortable with any decisions you make before you make them. My prices are comparable to the large Internet sellers for larger quantities or buys and with the more regional sellers for smaller purchases.
Investing in Precious Metals is a fascinating subject and I think, for many, it will be a possible answer to problems they perceive with their current investments.
Thank you everyone for persevering through these last seven pages and over 2300 words! I did warn you!
Randy L. Camper, Professional Numismatist
Life Member American Numismatic Association
Precious Metals Since 2006
Modern Rarities Since 1987
121 W. High Street, Suite 100
Lima, OH 45801
