When we look back at the last 9 months (the last 90 days in particular) in hindsight, I believe it will turn out to have been THE biggest “fake out” in the history of history. The operation that has been pulled off has made some of the biggest gold bulls to question their logic and at this point those who “could” be shaken out have been. Investors in the East have looked at the price drops as a gift from heaven while many Westerners got the “deer in the headlights” syndrome and looked on in despair.
It will be obvious in hindsight that gold and silver were THE lifeboats after the currency crisis. “How could anyone have been fooled?” will be the word of the day. “Why in the world would anyone have considered selling anything gold or silver?” “Were they stupid?” Yes, hindsight is 20/20 and with the “result” a known entity it will be easy to look back and wonder “what were they thinking?”
Please understand that all of the reasons to have purchased gold in the first place are not only still firmly in place, they are now more severe. Some purchased gold because it was trading at or below the cost of production; others believed the banking system was going to come down. Is the banking system any better today than it was even in the fear days of 2008? I would tell you that if it wasn’t for the banks’ ability to price nearly any asset at any price of its choosing that systemically they are ALREADY dead. Think about the derivatives market, how is it possible for 2 banks trading with each other, both on opposite sides of the trade to be carrying the trade as a “profit?” In reality this cannot be possible …and lends credence to the thought process that the “winner” will become a loser when the loser fails to nor can “pay up.”
Others bought gold because they were crazy enough to think that the U.S. Treasury would default either through nonpayment or debauching the currency. In retrospect, these “crazies” were right! The Treasury is only “solvent” at this point because the Fed (the buyer of last and now only resort) is buying Treasuries that no one else will. Could the Treasury afford an interest rate structure at the “exorbitant” rate of 5%? Could they go forward paying double the interest that they are paying now? Triple or more?
There were still others who bought gold simply because they believed that the Fed would “inflate,” were these buyers correct? Are the “official” inflation numbers correct? I would like to remind you what exactly “inflation” is…it is the creation, or better said OVER creation of currency. Does $85 billion per month qualify? When looked back upon, “QE” will be synonymous and interchangeable with the word monetization, period.
How about those who feared the breakdown of society and the rule of law? Were they correct? Just look around you, would MF Global ever have been allowed in the past? Or bail ins? What more do you need to know than the FDIC changing the rules and saying that “depositors” are creditors…and apparently unsecured at this point. How about all of the spying? Race baiting? Are these conducive to a society going in the right direction?
I could go on and on but there is no point. The real point is that ALL of the reasons that people bought gold in the first place are still here and now much more severe. “Because” the paper markets were used to crash the price, many have questioned their logic. Many “paper” holders have panicked and fled while physical buyers stepped up to the plate and have been gorging themselves. As mentioned in the title, when all is said and done the current correction will be viewed as one gigantic fake out. I believe that this manufactured correction will go down as one of, if not THE best buying opportunity in the entire bull market. We are in the midst of the greatest transfer of wealth in human history. Just look at the export (from the West) and import (to the East) numbers to see this as true… If you believe that the dollar will “strengthen” while it is being over issued and the gold is fleeing our shores then “fake out” is an excellent description.