Best of the Week
Most Popular
1.Crude Oil Price Trend Forecast 2016 Update - Nadeem_Walayat
2.Will Deutsche Bank Crash The Global Stock Market? - Clif_Droke
3.Gold Price In Excess Of $8000 While US Dollar Collapses - Hubert_Moolman
4.BrExit UK Economic Collapse Evaporates, GDP Forecasts for 2016 and 2017 - Nadeem_Walayat
5.Gold Stocks Massive Price Correction - Zeal_LLC
6.Stock Market Predicts Donald Trump Victory - Austin_Galt
7.Next Financial Crisis Will be Far Worse than 2008/09 - Chris_Vermeulen
8.The Gold To Housing Ratio As A Valuation Indicator - Dan_Amerman
9.GDXJ Gold Stocks - A Diamond in the Rough - Rambus_Chartology
10.Gold Boom! End Game Nears As Central Banks Buying Up Gold Mining Companies! - Jeff_Berwick
Last 7 days
Why Trump Will Win US General Election 2016 Prediction Forecast - 26th Sept 16
Martial Law Rolls Out Across the US As Jubilee Nears - 26th Sept 16
Stock Market More Correction Likely - 25th Sept 16
US Presidential Election Forecast 2016 - Trump Riding BrExit Wave into the White House - 25th Sept 16
US Economy GDP Growth Estimates in Free-Fall: FRBNY Nowcast 2.26% Q3, 1.22% Q4 - 24th Sept 16
Gold and Gold Stocks Corrective Action Continues Despite Dovish Federal Reserve - 24th Sept 16
Global Bonds: Why Our Analyst Says Things Just Got "Monumental" - 24th Sept 16
Where Did All the Money Go? - 23rd Sept 16
Pension Shortfalls Could Be 4X To 7X Greater Than Reported - 23rd Sept 16
Gold Unleashed by the Fed - 23rd Sept 16
Gold around U.S Presidential Elections - 23rd Sept 16
Here’s Why Eastern Europe Is Doomed - 23rd Sept 16
Nasdaq NDX 100 Big Cap Tech Breakout ? - 23rd Sept 16
The Implications of the Italian Banking Crisis Could Be Disastrous - 22nd Sept 16
TwinLakes Theme Park Summer Super 6 FREE Return Entry for Real? - 21st Sept 16
Has the Silver Bullet Run Out of Fire Power? - 21st Sept 16
Frack Sand: The Unsung Hero Of The OPEC Oil War - 21st Sept 16
What’s Happening With Gold? - 21st Sept 16
Gold vs. Stocks and Commodities, Pre-FOMC - 20th Sept 16
BrExit UK Inflation CPI, RPI Forecast 2016, 2017 - 20th Sept 16
European banks may be more important than the Fed this week - 20th Sept 16
Gold, Silver, Stocks and Bonds Grand Ascension or Great Collapse? - 20th Sept 16
Mass Psychology in Action; Instead of Selling Gilead it is Time to Take a Closer Look - 20th Sept 16
Hillary - Finally Well Deserved Recognition for Deplorables - 20th Sept 16
Fascist Business Model: Reich Economics - 19th Sept 16
Multiweek Correction in Gold and Silver Markets Continues - 19th Sept 16
Stock Market May Turn Ugly This Week - 19th Sept 16
China Is Digging Itself into a Deeper Hole - 19th Sept 16
Yellen’s Footnote 8 Would Put Interest Rates on Autopilot - 19th Sept 16
Central Bank Digital Currencies: A Revolution in Banking? - 19th Sept 16
UK Government Surrenders to China / France to Build Nuclear Fukushima Plant At Hinkley Point C - 19th Sept 16
Stock Market Correction Already Over? - 18th Sept 16
American Economics - 18th Sept 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Power of the Wave Principle

Gold and Silver Investors Betting on Deflation May Be a Huge Mistake. Here's Why...

Commodities / Gold and Silver 2016 Jan 05, 2016 - 03:09 AM GMT

By: MoneyMetals

Commodities

Precious metals investors heading into 2016 worry the dollar will continue marching ahead, right over the top of gold and silver prices. The Fed is telegraphing additional rate hikes throughout the year, and commodity prices – led by crude oil – are falling. There have been tremors in the biggest beneficiary markets of all when it comes to the Fed's QE largesse – U.S. equities and real estate. And the possibility of a recession is growing, both in the U.S. and around the world.


There are plenty of reasons we might see even lower official inflation numbers and a stronger dollar in 2016. But don't think for a second that consumer prices or living costs will fall. They haven't, they aren't, and they never will in a sustained way – thanks to the Fed's creation in 1913. This is where the deflationists have it wrong.

The impact of further disinflationary forces or even a deflationary episode on precious metals prices is a bit harder to predict.

The bear case for precious metals is rather simple. Should metals trade like commodities, they are likely to follow other raw materials lower. If we get a liquidity crunch akin to the 2008 financial crisis, just about everything will be sold as investors raise cash to meet margin calls or flee to the dollar as a perceived safe-haven.

There is also the possibility that metals prices will simply be managed lower. Growing numbers of investors realize that Wall Street is not a bulwark of free markets. Major banks have admitted to rigging markets against their own customers, and the Federal Reserve aggressively intervenes in markets in its quest to centrally plan the world economy. Why wouldn't the Fed also be active in trading precious metals? Those dismissing the notion that metals prices are manipulated are naive.

Today's Situation Is Different Than 2008

The bear case assumes history, in particular the experience surrounding 2008, will repeat. Or that there is still plenty of ability for anyone seeking to force metals prices lower in the futures market to actually do so. Or both.

Maybe. But relying on those assumptions could be a tragic mistake.

For starters, the U.S. dollar is already near record highs. Meanwhile, commodities and precious metals have been beaten down mercilessly. This set-up is the complete opposite of what faced investors leading up to the summer of 2008. And even though stocks and commodities got hammered in 2008, gold posted modest gains for the year as a safe haven from the threat of a collapsing economy.

Lower gold and silver prices have already produced an imbalance between bullion supply and demand. Supply deficits in 2016 are likely to make the developing problem with inventory at the COMEX and other exchanges even bigger. Registered stocks of gold all but vanished recently as bargain hunters, particularly in Asia, have been happy to buy and take delivery. Silver inventories aren't in much better shape.

More deliverable bars must come from existing stocks, but holders won't be anxious to sell. Those with “eligible” COMEX bars have certainly been slow to convert them to “registered” of late. By all indications, miners will be unable to provide the needed supply.

With prices below the cost of production, mine output is set to drop significantly this year.

If the metals markets look forward, as markets are supposed to do, they will anticipate the Fed's response to a strengthening dollar and economic malaise. In 2008, investors knew little about the lengths to which the Fed would be willing to go. Today they DO know. The Fed will overwhelm deflation by creating new inflation.

Markets are completely dependent on Fed stimulus, and people simply expect officials to roll out an even bigger initiative whenever the need arises. Anything to prevent the cleansing effect of corrective forces from restoring heath to the economy. In a recent interview, market expert Jim Rickards predicted the Fed will abandon rate increases and actually commence lowering before the year's end.

Metals investors should take heart in the fact that gold and silver prices have shown some resilience in the face of disinflationary forces recently. Both metals outperformed oil and most other commodities last year. Yes, prices declined roughly 11% for both metals. But crude oil fell 36% and copper lost 22%. The precious metals gained purchasing power against many other things.

Bottom line: Don't bet on a meaningful deflation. Fed officials will not allow it. And they can keystroke dollars into existence until the power goes out for good.

By Clint Siegner

MoneyMetals.com

Clint Siegner is a Director at Money Metals Exchange, perhaps the nation's fastest-growing dealer of low-premium precious metals coins, rounds, and bars. Siegner, a graduate of Linfield College in Oregon, puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals' brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

© 2016 Clint Siegner - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2016 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

Catching a Falling Financial Knife