We are continuing to see more evidence that the advance that is ahead of us across the precious metals complex will be a worldwide phenomenon, and not a US dollar-primary event as was seen in the bull market of the 1970's.
This week the Bank of England, clearly responding to the continued tumultuous market conditions since the June 24 Brexit decision, voted to lower short-term interest rates for the first time since 2009. This brings the key lending rate to 0.25%, an all-time record low.
We thus have record low interest rates in the United States, in Europe, and now in England.
Recall that in order for central banks to force interest rates to record lows, they must do so by buying the entire short-end of the bond curve in that country. The money they use to buy those bonds is printed out of thin air, or rather created with the digital equivalent thereof.
Not only does this money creation directly devalue the currency in question, but by holding the short-end of the yield curve down, it forces investors to withdraw funds from low-yield savings accounts or short-term certificates of deposit.
Instead, investors desiring yield are funneled into riskier assets to try to achieve any sort of reasonable income from their capital.
It is any wonder then that the London FTSE 100 stock index is approaching all-time highs? Or that British 10-year government bond yields are approaching all-time lows — which means their prices are also at all-time highs?
London FTSE 100 Index since crash of 2008 (See image A)
UK Government 10-year Bond Yields (See image B)
Money “sloshing around” the system
All this freshly-created central bank money is now “sloshing around” the financial and political system, bidding up stock prices, bidding up bonds, bidding up mortgages, funding endless unwinnable wars…
The world has seen several stock-market bubbles over the last 100 years, but has never seen a bond bubble in the way we are now witnessing.
Furthermore, when we study the past we see examples of when certain individual countries have gone down the path of excess money-printing, but we have no examples of a time in which the entire world was engaged in the practice simultaneously.
We are living in an unprecedented time in world history.
What we can conclude based on a study of past asset bubble deflations is that precious metals — the only store of wealth that politicians or central bankers cannot debase — will in some way fit into the solution when the bubbles eventually burst.
It is important for us as investors who sometimes focus on the shorter-term patterns setting up in the metals to not lose sight of the unprecedented bigger picture that is developing.
When only a fraction of stock or bond investors, markets which are much larger in total dollar value than goldand silver combined, decide to move only a fraction of their combined wealth into the precious metals, the upward revaluation will be beyond anything we have witnessed thus far.
It is likely that the 30% surge in gold and the 45% surge in silver seen in the last six months represent those early to jump ship from the aforementioned bubble markets and to move some of their capital into the historic metallic stores of wealth. Yet as we see the bubbles still continuing to inflate, we can deduce that we have not yet seen the critical mass begin to move into gold and silver in a meaningful way.
Update – Gold in Australian Dollars
We continue to monitor gold as priced in Australian dollars (AUD) as a leading indicator for gold in other major world currencies.
(See image C)
The all-time high for gold in AUD was in 2011 at just over $1,850 per ounce. Gold in AUD closed this week at $1,756, less than 6% away from the all-time high.
We have seen 6% surges in gold in one week in the past, so a retest of this level is possible at any time.
When gold decisively breaks to a new all-time high in AUD, it will serve as a signal to the rest of the world that such advances are in store for other major currencies. What was once viewed as a USD-only phenomenon is starting to be recognized in no uncertain terms as worldwide trend in rising gold demand.
Christopher Aaron,
Bullion Exchanges Market Analyst
Christopher Aaron has been trading in the commodity and financial markets since the early 2000’s. He began his career as an intelligence analyst for the Central Intelligence Agency, where he specialized in the creation and interpretation of pattern-of- life mapping in Afghanistan and Iraq.
Technical analysis shares many similarities with mapping: both are based on the observations of repeating and imbedded patterns in human nature.
His strategy of blending behavioral and technical analysis has helped him and his clients to identify both long-term market cycles and short-term opportunities for profit.
This article is provided as a third party analysis and does not necessarily matches views of Bullion Exchanges and should not be considered as financial advice in any way.
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