Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Massive Stock Market Price Reversion May Be Days or Weeks Away - 22nd Sep 19
How Russia Seized Control of the Uranium Market - 22nd Sep 19
Dow Stock Market Trend Forecast Update - 21st Sep 19
Is Stock Market Price Revaluation Event About To Happen? - 21st Sep 19
Gold Leads, Will the Rest Follow? - 21st Sep 19
Are Cowboys Really Dreaming of... Electric Trucks? - 21st Sep 19
Gold among Negative-Yielding Bonds - 20th Sep 19
Panicky Fed Flooding Overnight Markets with Cash - 20th Sep 19
Uber Stock Price Will Crash on November 6 - 20th Sep 19
Semiconductor Stocks Sector Market & Economic Leader - 20th Sep 19
Learning Artificial Intelligence - What is a Neural Network? - 20th Sep 19
Precious Metals Setting Up Another Momentum Base/Bottom - 20th Sep 19
Small Marketing Budget? No Problem! - 20th Sep 19
The Many Forex Trading Opportunities the Fed Day Has Dealt Us - 19th Sep 19
Fed Cuts Interest Rates and Gold Drops. Again - 19th Sep 19
Silver Still Cheap Relative to Gold, Trend Forecast Update Video - 19th Sep 19
Baby Boomers Are the Worst Investors in the World - 19th Sep 19
Your $1,229 FREE Tticket to Elliott Market Analysis & Trading Set-ups - 19th Sep 19
Is The Stock Market Other Shoe About To Drop With Fed News? - 19th Sep 19
Bitcoin Price 2019 Trend Current State - 18th Sep 19
No More Realtors… These Start-ups Will Buy Your House in Less than 20 Days - 18th Sep 19
Gold Bugs And Manipulation Theorists Unite – Another “Manipulation” Indictment - 18th Sep 19
Central Bankers' Desperate Grab for Power - 18th Sep 19
Oil Shock! Will War Drums, Inflation Fears Ignite Gold and Silver Markets? - 18th Sep 19
Importance Of Internal Rate Of Return For A Business - 18th Sep 19
Gold Bull Market Ultimate Upside Target - 17th Sep 19
Gold Spikes on the Saudi Oil Attacks: Can It Last? - 17th Sep 19
Stock Market VIX To Begin A New Uptrend and What it Means - 17th Sep 19
Philippines, China and US: Joint Exploration Vs Rearmament and Nuclear Weapons - 17th Sep 19
What Are The Real Upside Targets For Crude Oil Price Post Drone Attack? - 17th Sep 19
Curse of Technology Weapons - 17th Sep 19
Media Hypes Recession Whilst Trump Proposes a Tax on Savings - 17th Sep 19
Understanding Ways To Stretch Your Investments Further - 17th Sep 19
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

What Will Price Gold and Silver Tomorrow

Commodities / Gold and Silver 2012 Oct 24, 2012 - 03:45 AM GMT

By: Julian_DW_Phillips

Commodities

Best Financial Markets Analysis ArticleThe gold and silver price has and will move in tandem with each other, with silver moving higher still when gold prices rise and falling further when gold prices fall. Despite different fundamentals behind the two and a different pattern of mining [silver is a by-product of base metal production usually] the two metals are reflecting their value as a means of saving value and wealth, their monetary value. This won't change as we see the economic currents behind the world's financial system continue to falter. After all, for several millennia, man has not trusted man's promises, but has referred to the precious metals to determine true value. So why should the last forty plus years change that, particularly when the 40-year + experiment with a paper financial system has shown so many structural faults.


Looking at the state of the world's monetary system what do we see today that will dictate the prices of gold and silver tomorrow?

Underlying Currents

Since 2007 the developed world has been caught firstly by surprise at the 'credit crunch' and secondly by it morphing into a Sovereign debt crisis while unable to resolve it. The attempts to date, firstly by central banks have succeeded in staving off a depression but not creating convincing growth. They should have worked in conjunction with their respective governments, but the state of government in the developed world has been one of political gridlock. The gridlock is likely to persist for at least another two years in the U.S. and the national diversities in the Eurozone are likely to continue to defeat economic integration in the future. We see a clash between politics and finance that seems intractable. The only way these structural shapes can be overcome is by changing political structures to ensure unity, but that's not going to happen. In China it works, but the Chinese system of government will not be exported to the West. So we expect these structural pressures to dictate the economic and financial shape we live within to remain as they are now. Solutions, if there are any, must be found within this shape. The day-to-day news items that affect markets will rise out of these underlying influences.

Where do these underlying currents point to in the days ahead? We will not be tempted to state hopes and dreams that "it will all come right in the end", because living happily-ever-after has rarely been a feature of global life. We have to take today's realities and the objectives of the powers-that-be and see what they want to see and what they will do. And we can only judge on past and present performance to gauge that.

Looking at the U.S. we see two more years of political inaction and for 'as-long-as-it-takes' quantitative easing. Yes, there appears to be good signs that the economy is not falling back into recession but the signs are not large enough to convince us that growth is returning, yet. As the I.M.F. pointed out this last week, uncertainty has risen significantly. And this is not just a 'mood' it is in. This is now a well-entrenched uncertainty about the future at consumer and institutional level.

One contributing fundamental factor in the structure of capitalism is that you should target profits. If they are increased by moving manufacturing from the States to Asia then that's what U.S. entrepreneurs will have to do. This will export jobs that will not come back until it is cost effective to do so [i.e. wages rise in China to U.S. levels or U.S. wages fall to Chinese levels]. Likewise, the extraordinary rise in efficiency and fall in employment triggered by information technology is a structural change that has permanently destroyed so many jobs. If employment is to rise to the point that the average consumer will spend again, we must see something as structurally constructive as information technology itself, happen in the labor world.

The main influence on precious metal prices in this area at the moment is the uncertain state of the financial world. Quantitative easing may have led to a vast improvement in the state of the banking industry but not in the state of the credit market. Business has not felt the benefits of healthier banks. The banking industry is to the economy as the main veins and arteries are to the body. The blood that has been transfused through Q.E. remains in those arteries and has not reached out to the muscles and flesh and to feed them. As we said in 2007, until the average consumer feels that his house is growing in value and that his employment is secure the U.S. economy [dependent for 70% of its activity on the consumer] uncertainty and fear of the future will remain. But let's not mislead you, we are not saying that a growing U.S. economy will establish 'certainty', because the main rise in the gold price we have see [when it multiplied four-fold] took place from 2005 to 2007 when the U.S. economy appeared vibrant. The negative underlying current remains in the structure of the international financial system in the developed world. Growth may increase cash flow to the point that debt is serviceable, but it is the concept that continuous borrowing in a slow growing economy is acceptable that must change.

If interest rates began to rise from current levels savers would feel better [after all they put money on deposit for the income and believed they had a solid secure investment], but today these savers are the victims of the deposit system as inflation [even low inflation] eats away at their capital. Should interest rates rise the cost of servicing debt will jump rapidly, taxing an already tenuous cash flow to government and institutions and place them under renewed and possibly unsustainable pressure.

This is the backdrop against which precious metals will perform in the future.

Systemic impact - "No man is an island..."

The sharpest point of impact that the above currents will strike will be the banking system and financial markets. So intertwined is the banking system and financial markets that the shock waves from the point of impact of systemic fracture will flow through to the entire financial world.

Wise money is looking for a place where the shock waves will inflict the least damage and where wealth and value can be retained during and after the following storms. Throughout history gold and silver have proved their ability to do that. We're not just talking about individual investors but investors at the heart of the financial system, the banks. Only one other respected commentator that we know of has emphasized the danger of currency failures and the moves by banks to re-define gold to a Tier 1 asset on the bank's balance sheets and the impact this will have on the gold and [by extension] the silver price.

Apart from there not being enough gold available in the international gold market to meet this potential new demand, the very fact that banks are discussing the issue and are about to enact the re-definition [we are led to believe that this could happen at the beginning of next year] demonstrates that bankers realize that gold may do a great deal of good in shoring up faith in their institutions in times of crisis. And crisis is where we have been since August 2007!

It was the banking system that rejected gold in 1971 [with the backing of government] and it is the banking system that will bring it back. Don't be misled this is not a return to a gold standard. It is the harnessing of a confidence factor that will allow the current financial system to continue, as is. It will, as always, be an academically impure re-integration of gold into the system and only be used to keep the present banking system seemingly healthy.

But if there is not enough gold in the markets now, where will the needed gold come from?

Confiscation

In 1933 the U.S. government confiscated citizen's gold with the intention of rapidly increasing the money supply through its revaluation. In the process the U.S. money supply and the banking system itself was made healthy. The revaluation in 1935 was just long enough for the dust to settle over the confiscation matter.

Could those reasons be the ones gold is confiscated today? We think not, because it purpose then was to increase the money supply. Today, increasing the money supply is done effectively through quantitative easing. So why on earth would the government see fit to confiscate gold today?

We return to the fundamental need in any monetary system for gold to function at all, confidence building! The ability to breed confidence in the financial system has never been as important as it is now. Today while the Eurozone debt crisis festers on from bad to worse, the dollar is falling against the euro. Neither currencies are inspiring confidence, but they are the only acceptable 'means of exchange' around. We have to use them, even while their value falls.

But in the last few years through the Bank of International Settlements, international banks including, we believe, central banks have been using gold as collateral for their own interbank loans and possibly swap arrangements. The presence of gold brought qualities that were rapidly being lost in the monetary system, trust and liquidity. The use of gold was successful in these instances.

As the system continued to decay since then the need for gold to add those qualities to banks dealing has grown considerably. This is more than aptly demonstrated by the continuous large buying of gold by the emerging world's central banks since 2009 when European central banks stopped buying.

As possibly the main factor we see today that will affect gold and silver prices tomorrow central and commercial bank demand for gold, provided it is re-defined as a Tier 1 asset, could exert a dominant force over the gold price. How?

There are three [progressive ways that will follow one after the other] that central and commercial banks can push for the acquisition of gold:

By forcing local producers of gold to sell the gold produced direct to the central bank at market related prices.

Forcing the price of gold up! This can be done by offering a dramatically higher price per ounce [forcing out gold from investor's hands] to the market.

Through the confiscation of their citizen's gold!

Currently, Russia and China [we believe] are buying the local gold production into reserves. Emerging nation central banks are buying gold in the market, but at present [in the absence of commercial banks] feel it unnecessary to chase gold prices up. They are content to wait for the offer of decent quantities of gold from the bullion banks. Once the number of banks in the market place rises, this will not be easy. At that point they will change tactics to trigger greater supplies to the market from current holders.

While confiscation of citizen's gold will be a last ditch measure, we are of the opinion that central banks and governments will not wait for desperate times but will act ahead of them to avoid the desperation. It may even be that when they see free market supplies dry up that they will feel that they have no option but to confiscate their citizen's gold.

That time is closer than you think!

Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. To subscribe, please visit www.GoldForecaster.com

By Julian D. W. Phillips
Gold-Authentic Money

Copyright 2012 Authentic Money. All Rights Reserved.
Julian Phillips - was receiving his qualifications to join the London Stock Exchange. He was already deeply immersed in the currency turmoil engulfing world in 1970 and the Institutional Gold Markets, and writing for magazines such as "Accountancy" and the "International Currency Review" He still writes for the ICR.

What is Gold-Authentic Money all about ? Our business is GOLD! Whether it be trends, charts, reports or other factors that have bearing on the price of gold, our aim is to enable you to understand and profit from the Gold Market.

Disclaimer - This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold-Authentic Money / Julian D. W. Phillips, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold-Authentic Money / Julian D. W. Phillips make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold-Authentic Money / Julian D. W. Phillips only and are subject to change without notice.

Julian DW Phillips Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules