David's Commentary:
I sent Backwoods Jack an Email today that said, “Nothing’s working, not large or small-cap stocks in the U.S., not international or emerging equities, not Treasuries, investment-grade bonds, commodities or real estate: this is the worst time to make money since 1972.” He replied, “
The market is slowly witnessing the much anticipated 20% correction then onward to 30K DOW to 2020 when Trump will be reelected.”
Old Backwoods has been a close friend since the early 2000s. We fight occasionally, but we have a close bond. He comes from a family that has real wealth. It is several generations old. His friends and children tend to see the world in a different way than I do. I mean their background is so different from mine. These are the people who went to the best East Coast boarding schools and get the best jobs. Heck, Backwoods used to have a personal butler, a mansion on the lake and whose net worth at one time was well over $100,000,000. They love stocks and bonds and real estate but know little about gold – and would never think of owning any. Actually, Backwoods did buy 6 figures worth 15 years ago. He rode it up and then back down again and loves to remind me of how much money I cost him by owning precious metals when he could have bought stocks. He forgets that he bought his gold starting at $300 and his silver at $6. He made a few million on the way up. At the time he knew all the reasons to buy gold and silver. Now he talks about all the reasons to buy stocks and as you can see by his response, above, he will hold onto his stock all the way down, just like he did with his gold and silver. What interests me about his reply is that he takes the “mainstream” view that this stock market correction will (only) be 20%, down to about DOW 21,000. He says that’s the normal correction. If 20% was a magic number, then a “normal” correction for gold would have taken it down to $1,500 - and silver to $40. So much for a “normal” correction. 20% is just a number. When markets turn down after getting “over-stretched,” in a prolonged bull market, the correction will be more than a “normal 20%.” That’s because there is no “normal” when the bottom really falls out. Some say the market will revert to the level that it took off from. No guarantees here either, but in that case the DOW will retest its March 2009 take off point around 6550. Can you even imagine a drop of nearly 20000 points? Whew! But that is the way he, and his friends and family, and a majority of mainstream investors view the stock market. Nothing to worry about, this is just another “normal” correction.
I have stated that gold will really take off when the stock market collapses. I still believe that, but a mere 15% or 20% drop will not be painful enough for most people to give up on stocks and migrate back to gold and silver. The stock market (DOW) hit a high of 26,951.81 on Oct 3, 2018. It’s currently at 24,584, having plunged over 1,200 points in the last two days. I don’t think most people will start to panic, and look for risk-protection, until the DOW has fallen another 3,000 points
minimum
. That’s just human nature, and conditioning. It’s the Normalcy Bias. People tend to think that the way things are now is the way they will be in the future. Tell that to people who paid $50 for silver a few years ago.
What will it take for people to come back to precious metals? The stock market is falling hard now, the real estate market is falling, so are Treasuries and bonds, and there are numerous black swans circling about. That hasn’t helped either. And the manipulation continues to hold back gold and silver. But the manipulation was there before, all during the rise from $300 to $1,900, so that can be overcome. But it would help if investors decided now is a good time to add to their risk-protection portfolio (assuming they have any to begin with).
So, it brings up the question: Why buy gold now? Because I don’t know.
Sovereign Man
By Simon Black
Why Buy Gold Now? Because I Don’t Know
From 2000 through 2012, the price of gold increased every year, rising from around $280 an ounce to nearly $1,700. It was an unprecedented run.
Then, in 2013, gold took a nose dive, losing over 27% of its value.
It was widely reported that the Swiss National Bank, the former bastion of monetary conservatism, lost $10 billion that year just on its gold holdings.
As you probably know, central banks hold a portion of their reserves in gold. The practice goes back to when central banks actually had to have gold on hand to trade in and out of paper money (or even trade for goods and services).
And central banks still hold reserves in gold today, even though they don’t need it to transact like they used to.
So that begs the question, did the Swiss National Bank actually lose $10 billion? It still had every ounce of gold in its vaults. And gold, after all, is money.
Plus, the SNB wasn’t holding gold to speculate…
Today, central banks hold gold as a hedge against fiat money. These are the guys with their fingers on the printing press… so they know exactly the effect they have on money.
And right now, banks are buying up gold hand over fist. Central banks currently hold 20% of all the gold ever mined—33,000 metric tons.
And JPMorgan Chase says they’ll buy another 650 tons this year and next.
Why?
Gold is for the I don’t knows.
And right now, there are a LOT of I don’t knows.
Markets have been going crazy over the past few months.
After a record bull run for stocks, we are now seeing massive volatility with the Dow regularly jumping 500+ points in a single day. Just yesterday, the Dow fell a whopping 800 points.
And there’s plenty of reasons for market to be worried today. For one, we’re 10 years in to a raging bull market… and it’ getting long in the tooth.
Plus, the Fed is raising interest rates. And when the price of money gets more expensive, people get a little tighter with it. That means it’s tougher for businesses and individuals to borrow. All things equal, higher rates mean lower prices.
Before last week, Fed Chairman Powell said rates were “well below” where they should be. And the markets reacted negatively.
Then, last week, after seeing how fragile markets were, Powell said rates are “just below” where they should be.
Just that one word difference sent markets soaring. But the joy was short lived.
There’s also the trade war with China, intensified by the Trump administration tariffs.
And then at the summit in Buenos Aries last week, China and the USA suddenly came to an agreement. They will halt the tariffs for 90 days for a three-month truce in the trade war. That sent markets soaring.
Then people read some tweet from Trump and worried the tariffs might be back on… markets dumped.
If there is one thing markets hate, it is uncertainty. And there’s plenty of uncertainty to go around today.
And while we’re seeing these late-cycle swings in the market, gold is as steady as ever…
While the DOW dips and climbs by hundreds of points, gold is still hanging out just below $1,250 an ounce. And it really hasn’t made any major moves up or down since 2013.
So, while every other asset is still at or near all-time highs, gold is relatively cheap.
Gold has held its ground during all this market volatility.
That is exactly how you want insurance to act. It holds steady in the face of craziness, even selling for a discount when everything else is as expensive as it ever has been.
It makes more sense to buy something cheap, that no one is excited about, while people clamber for exciting but massively overvalued stocks like Tesla and Netflix.
Since 2008 this massive monetary experiment of quantitative easing has sent stocks and assets to dizzying, unsustainable highs.
We think this experiment is coming to an end. The day of reckoning is close.
Stocks are up and down, trade wars are on and off, interest rates could keep soaring, or level off…
What do you do for the I don’t knows?
You get some cheap gold while you still can.
In ancient times, the price ratio between gold and silver was about 15:1, meaning an ounce of gold was worth about 15 ounces of silver.
But over the past decades, this ratio has been closer to 50:1—an ounce of gold sold for 50 times what an ounce of silver sold for.
Today, that ratio is about 85:1.
To be fair, this could mean gold is overvalued, not that silver in undervalued.
But when gold has the same purchasing power as a millennium ago… when it has stayed steady the past seven years and grew every year of the decade before that…
It’s a safe bet that gold goes up, and silver does too, possibly even more than gold.
To your freedom,
Simon Black,
