Jeff Clark, Senior Precious Metals Analyst, GoldSilver
SEP 21, 2016
There are no guarantees when it comes to investing. But this one comes pretty darn close.
Here’s a fun question to ponder: if you worked at the Federal Reserve with Janet Yellen, or at the central bank of your country, what would you do if everything you’d tried to stimulate your economy hadn’t worked?
Yes, I know we’d do it a lot differently, starting with allowing the free market to work. But these Masters of the Universe (ha) see it as their job to intervenewhen the economy stumbles. So they’re gonna keep trying, especially when the next crisis hits.
The catch is, they’ve already tried…
quantitative easing (QE)
zero interest rates
negative interest rates
… and all that’s happened is a GDP rate that’s roughly half the historical average.
The world is awash in debt. Every single category of debt has at least doubled since the year 2000.
Why in the world has debt gotten so out of control after all the massive and unprecedented interventions from central bankers?
Meanwhile, our elected officials have made the problem worse:
You might look at that chart and say it’s getting better, but it’s expected to worsen this year—and why the heck can’t they balance a budget after all the stimulus and intervention and bond buying and artificially low interest rates?
The Wall Street Journal confirms that budget deficits in other major economies will continue as well, especially in Japan and Britain, and will either be larger this year or larger than originally projected.
Debt and deficits should be going down, and the economy should see rip-roaring growth. That it’s not makes a liar out of anyone who claims the economy is strong.
I ask again… what will central bankers do when the economy inevitably enters the next recession? After all the “solutions” they’ve already tried, what’s left when Mike’s prediction of a massive deflation comes to pass?
This is not difficult to figure out…
We Can See the Bottom of the Central Bankers Toolkit
You’ve probably heard it before, but global central bankers are pretty much out of ammunition when it comes to stimulating their economies.
But they won’t stop trying. That’d go against their entire reason for existing.
So what options do they have left?
The US could initiate negative rates.
The Federal Reserve could print currency again. Lots more.
Europe and Japan could increase the amount of their current printing program.
Distribute helicopter money.
You might have some other ideas, but I guarantee one thing: none of them are inherently good. All would be unhealthy and come with major unintended consequences.
The point is, all of these options—and any other mad scientist creation you can think of—will be drastic in nature. They’ll have to be.
You can guess what any of these actions might do to the gold price. But actually we don’t have to guess…
The last time we had drastic intervention by central bankers was the quantitative easing phenomenon. The first QE was announced on November 25, 2008, and the gold price was $820.50. Then there was QE2 in 2010, then Operation Twist in 2011, then QE3 in 2012, with zero (or close to zero) interest rates all along. The last QE was announced on December 12, 2012—and by then the gold price was $1,716.25. That’s a 109.1% gain over the four-year period central bankers intervened in the economy and markets in a massive way.
Given that the next set of interventions will arguably have to exceed the level of QE they’ve already done, a double in the price of gold seems an entirely credible expectation.
The only assumptions one has to make for this projection to come true are these:
1. Central bankers will intervene in the upcoming crisis
2. Those interventions will match or exceed what we’ve seen so far
3. Gold will do its job.
If you accept these basic assumptions, then you’re buying gold based on awhen question, not an if one. And we’re not exactly going out on a limb with those assumptions.
And unless you count the International Monetary Fund (IMF), central bankers are the world’s economic backstop. There is no entity standing behind them, ready to “fix” the economy. If government leaders don’t effect positive and healthy change, all that’s left is chaos.
I encourage you to consider how central bankers will react as we go through the next set of crises. If you come to the conclusion that their interventions will be inflationary in any way, buy gold and silver now. The doubling in price could start from lower levels—or higher levels, so don’t try to time it. In fact…
If you wait to buy precious metals, you’re essentially betting that 1) gold and silver prices will drop substantially from current levels; 2) the next crisis won’t send them higher, and 3) you can successfully time the market.
Mike and I and others at GoldSilver do not make this bet. We don’t try to time the market. We buy regularly, partly because we like to dollar cost average, and partly because we don’t know when the next crisis will hit. We’ll load up if prices do fall substantially, but the point is, we’re prepared now for upheaval.