As we discussed a few weeks back, there was a high likelihood for the temporary rally seen in gold and silver prices, following the significant $200 drop in gold and $5 drop in silver, to reverse and send prices further down.
Gold did seem to set a higher low in a triangle pattern, indicating either a sudden move down or up, but quickly broke through downward support earlier this week. For silver the damage was already done – the trend was clearly indicating further downward pressure.
The same applies to the price for silver.
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There is rarely a quick rebound after the kind of action we’ve seen in the markets recently. A long period of prices slowly drifting downwards followed by a sudden drop of significant magnitude, usually means continued weakness – even after a temporary rally.
Even though the technical story is appealing it’s not the only explanation. There are many different factors at play here. One of the main causes is central bank stimulus actions.
Historically low interest rates and excess liquidity is a recipe for risk taking. It doesn’t matter how bad the central banksters wants it, they still won’t be able to control where money eventually will flow. It’s never been possible historically and it won’t be possible in the future. Money will aggregate in pools in various asset classes. Right now, stocks and real estate are seeing an influx of capital – driving prices increasingly higher. You wouldn’t notice this by looking at official inflation numbers though – something which we’ll look closer at in another article.
The graph below illustrates S&P 500 performance since the 2008 financial crisis. It is very clear that the trend has been positive. Even though we’ve seen bad news from time to time – prices have still set higher highs and higher lows.
Source: Yahoo Finance
This is not a sustainable development though. These kinds of monetary experiments have never ended well in the past – and it won’t this time either. Eventually, inflation will reach levels where both bonds and stocks will come crumbling down.
We’re already experiencing evidence of this today with increased volatility in all asset classes. A 10% move in gold is significant and VERY unusual. A 5-10% move in stock indices is not normal either. Inflated asset prices creates “air pockets” where there isn’t any liquidity, which forces prices down considerably. This would not be the case if we had sound money.
So, even though gold and silver may be out of favor today their fundamental prerequisites still apply. We may still see falling prices but there is no way for you to easily time the market for an optimal entrance point. Falling spot prices may coincide with higher premiums and no supply, so the best way of handling the situation is to continuously accumulate gold and silver bullion. Especially since we are seeing precious metals on sale right now. This may prove to be the best time to buy gold and silver bullion in a long time.
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