It’s been a rough couple of weeks for Gold and Silver with some fairly big drops in the price of both since about September 22. Considering the current global situation we have with growing geopolitical tensions, faltering national economies and increased civil unrest it is a bit of a surprise to see the Safe Haven Metals taking a big hit. This is also happening in the context of Global Official Gold Reserves being estimated to have just hit a record high with many Central Banks around the world still buying large amounts of the shiny stuff….so the question is “Why are Metals Tanking?”
One of the prevailing narratives in the mainstream financial media is being referred to as “Higher for Longer” and it’s a reference to the Interest Rates being held high – or raised higher – to continue the fight against Inflation. This narrative is about Inflation coming down with Interest Rates staying high and that results in higher Positive Real Rates (Interest Rates minus Inflation). Changes in Real Rates are historically correlated to the changes in the price of Gold and Silver since the metals don’t yield any dividend it is more attractive for investors to have money in the bank earning interest when Real Rates are high. Thus, investors sell Gold and Silver for Cash and put it in the banks….
The problem with this Narrative is that it relies on a couple of assumptions which I don’t think are particularly wise. The first is that Inflation is coming down. Anyone living in the real world would tell you that Inflation is running HOT. Fuel and Grocery prices are UP substantially and my personal view is that Inflation is being under-reported with a bit of creative accounting because it is politically convenient. Plus with Western governments currently being run by fiscally irresponsible politicians I am very skeptical of the likelihood that Inflation WILL actually come down. My personal view is that We ‘aint seen nothing yet because nothing in our broken financial and political systems has actually been fixed.
The second problem is that there is an assumption that our economies will just absorb higher interest rates with a “Soft Landing” for the economy and that we won’t go into Recession or have a new Financial Crisis. Here we are in October, which is historically the month for crashes to happen and there are a LOT of financial indicators that say we are in deep, deep trouble, perhaps we are even already IN a Recession. We are only going to need to have a bit of a wobble in the financial system and the weak politicians are going to re-open the money spigot to start pouring more freshly printed Stimmy Checks onto the Inflation Bonfire. At this point I think this is a scenario already baked into the cake.
From here I think the absolute BEST Case Scenario is a decent stretch of Stagflation but the likelihood of things going wrong from here with the prevailing Higher for Longer Narrative is substantial. When this little fantasy story that the mainstream financial media is sprouting comes unstuck we are going to see a reversal of this little dip in the metals. That means this is probably a good Buy The Dip moment in time and I think the smart thing to do is to Keep on Stacking.
DISCLAIMER - This is not Financial Advice
