Silver Up & S&P Down

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Gary Christenson - Deviant Investor

Silver has had three bad years while the S&P has had five good years. It is time for both markets to reverse.

Examine the following graph of Silver versus the Silver to S&P ratio. It tells me the ratio has returned to levels seen in 2008 and that the ratio follows the price of silver. This is interesting but not that helpful.

Click on image to enlarge.

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Silver, Gold, and What Could Go Wrong

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Gary Christenson - Deviant Investor

Richard Russell is almost 90 years old and has seen it all. He recently stated:

“My advice, as it has been, is to move to the sidelines while holding large positions in physical silver and gold. Regardless of what the markets do, silver and gold represent eternal wealth, and the bid to sleep undisturbed at night. No amount of money is worth the loss of peace of mind. The power of gold opened the American West and populated Alaska. Men have spent their lives searching for gold. You can own gold by the simple action of swapping Federal Reserve notes for the yellow metal. I advise you to do it.” Richard Russell – April 10, 2014

He stated on March 31, 2014:

“Here’s what I did last week. I took some unbacked junk currency called Federal Reserve Notes, and with them bought some constitutional money, known as silver. I consider gold and silver, now being manipulated, as on the bargain table.”

Richard Russell thinks the stock market is currently dangerous and that silver and gold are safe. He understands that gold and silver are eternal wealth with NO counter-party risk. What is counter-party risk? It is the risk that paper wealth is not real, that debts will not be paid, that dollars, yen, and euros will decline in purchasing power, that your employer will declare bankruptcy and your pension will be cut in half, that your brokerage account will be hypothecated by management, that your bank will declare bankruptcy and your deposits in that bank are unsecured liabilities of the bank and may not be paid either timely or in full. In short, there is counter-party risk in almost everything.

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Gold Q&A from Readers

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Gary Christenson - Deviant Investor

Based on questions, opinions, and rants from several websites, these are some typical questions and my answers:

Q: “Gold has been going down since August of 2011. It is clearly in a bear market, so why tell me it will go up?”
A: Yes, gold has fallen about 40% from its high, but why assume that means it will continue falling? It looks to me like a 40% correction in a long-term bull market.

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Q: “If gold were in a bull market, it would be going up but gold is clearly going down, so why do you think gold is in a bull market?”
A: I probably can’t convince you, but these are the facts as I see them:

  • Gold was selling for about $42 in 1971 when the national debt was about $398 Billion, not the $17.5 Trillion ($17,500 Billion) it is now. Gasoline was selling for about $0.36 per gallon and most prices for food, energy, housing, and automobiles were similarly inexpensive compared to today. That looks like a long-term bull market in quantity of debt and a bull market in the prices for food, energy, and gold. It looks like a bear market in the value of the dollar and most other paper currencies. Be happy you don’t have your life savings in Argentinian Pesos.
  • All markets correct. The NASDAQ 100 dropped from about 1,480 in July of 1998 to about 1,060 in three months. However, by early 2000 it had surged to over 4,800. Crude oil prices, T-Bonds, the S&P, and most markets rally, fall, and rally again. Gold will rally and then correct again and again.
  • Gold in 1980 was in a bubble as was the NASDAQ in 2000. The charts, ratios, and timing for gold currently look like a correction, not the aftermath of a bubble.
  • The Federal Reserve and most central banks are monetizing debt or, as it is often called, “printing money.” Do you think they are doing this because our economies, which are drowning in debt, are healthy? Do you think this won’t result in some nasty inflation? When people realize that central banks and governments are NOT supporting their currencies, they will buy even more gold and hard assets as they see their savings being trashed by the “printing” and the inevitable inflation.
  • Do you think printing many $Trillions to support failing banks and bad derivatives is a signal that “all is well” or a sign of desperation? Central banker desperation supports gold prices.

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