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Read commentary from industry experts and SWP's feature writers.
Gold closed last week at $1484/oz. A week later, the yellow metal is firmly positioned at $1627/oz, having experienced some of the largest single day movements in its history. Silver fared equally well, rebounding from $12.35/oz to $14.48/oz this week (prices are in USD).
The price action was reflective of continued strong demand, bordering on 'extreme', for the metals. At this point, it's safe to say that most of the required selling of metal positions to cover margin calls and other liquidity requirements has ended. The fundamentals are now setting up nicely moving forward.
In his inaugural address in 1961, new President John Kennedy gave a stirring speech in which he famously stated, “And so, my fellow Americans: Ask not what your country can do for you — ask what you can do for your country. “ He then went on to say, “Finally, whether you are citizens of America or citizens of the world, ask of us the same high standards of strength and sacrifice which we ask of you.” Nonsense.
There is A LOT going on with precious metals at the moment. In fifteen years, I've never experienced a week quite like this one. I'm going to focus my comments today on the most critical points for investors; product availability, product premiums and the price outlook going forward.
Given what’s happening in the markets, it’s time to look at the history of crashes in gold and silver. And just as important, to see what message we can glean about their recoveries. Despite the scary market activity, what’s happening to gold and silver, believe it or not, is not new. There have been many periods in history where they have crashed. The reasons vary, as does the severity and duration.
In 1906, Alfred Henry Lewis stated, “There are only nine meals between mankind and anarchy.” Since then, his observation has been echoed by people as disparate as Robert Heinlein and Leon Trotsky. The key here is that, unlike all other commodities, food is the one essential that cannot be postponed. If there were a shortage of, say, shoes, we could make do for months or even years. A shortage of gasoline would be worse, but we could survive it, through mass transport, or even walking, if necessary.
I don’t generally comment on the markets unless I feel we’ve reached a critical point. My last communication with regards to the state of the market was back in September 2019 when I said that I believed we were entering the early stages of a precious metals bull market. Gold was trading at $1538 at the time. Just last week, we touched a seven year high for gold, and today we’re back to $1530 following a dramatic series of trading sessions, not only for the metals, but also for the global equity markets.
Silver can move 5% or more in a single day. Unfortunately, it cuts both ways. The silver price has been falling. Watching it reminds me of that commercial, “Help, I’ve fallen and I can’t get up.” But silver is not a weak and elderly grandmother. It’s one of mankind’s oldest forms of money… it’s a core industrial element with widespread use in our society... and it is a long-standing monetary asset, a fact that will resurface when monetary issues take center stage.
Most people in the West are familiar with the Biblical story of Moses. In this tale, a spiritual leader, chosen by God, leads his people out of Egypt to the promised land. The Israelites are saved. God provides Moses with a list of commandments that they are to live by – pretty basic stuff: Don’t kill people, don’t steal or lie, don’t cheat on your spouse, etc. But interestingly, the second commandment exhorts the Israelites not to create false gods, nor to bow down to, nor serve them.
The image above is of the Arch of Reunification in North Korea, located just south of Pyongyang. It was constructed in 2001 and features two women wearing traditional chosŏn-ot dresses, representing the two Koreas coming together. The arch spans the highway that connects North and South Korea, except that, as can be seen… there are almost no vehicles on that highway.
So, why build a highway that doesn’t have a use?
Mao Zedong was, by all assessments, not the nicest fellow. In 1964, he first published “Quotations from Chairman Mao,” which came to be known to all and sundry as “Mao’s Little Red Book.” At first, it just went out to the military, but by 1966, it gained far wider distribution. The goal was for "ninety-nine percent (of the population of China) to read Chairman Mao's book."