Commodity Trade Mantra

Unwise to be Short on Gold or Silver as Dollar & Stock Market Crash Loom Large

Unwise to be Short on Gold or Silver as Dollar & Stock Market Crash Loom Large

Gold & Silver and The Coming Collapse

It really should be clear that a major international banking crisis is inevitable, and likely to occur fairly soon. Due to the extreme debt levels, many banks are close to that point of failure.

An event like a stock market crash is likely to push many banks to that point of failure, since the pressure it would create (on cash resources), would expose their inability to fulfill their obligations.

Cash (not bank credits/digits) is still the means by which banks have to settle liabilities and obligations (especially amongst each other). If a bank goes down, it will be due to the lack of cash (not bank credits/digits). It is for this reason that there is a campaign to ban cash (for the general public) or limit the use of it.

The banks are in competition for the available cash resources, and they do not want you to be an obstacle. This is similar to what happened during the Great Depression (1933) when gold was confiscated. Then, banks proved their solvency with gold; therefore, the general public was prevented from competing for the limited amount of gold resources.

It is for this reason that I believe it is very unlikely that gold would be confiscated during this crisis. Today, it is cash that is the cornerstone of the banking system (especially the US dollar), since it is cash that is promised, not gold.

However, gold is still relevant when it comes to warning us of the imminent collapse, and of course, providing some protection against potential financial loss as a result of it.

Previously, I have shown how the gold price relative to the US currency in circulation is possibly warning of a major monetary event. It now appears that we could be either at, or very close to, such a possible event.

Below, is a chart that shows the ratio of the gold price to the St. Louis Adjusted Monetary Base back to 1918. That is the gold price in US dollars divided by the St. Louis Adjusted Monetary Base in billions of US dollars. So, for example, currently the ratio is at 0.34 [$1 346 (current gold price)/ $3 942 (which represents 3 942 billions of US dollars)].

gold-to-monetary-base-ratio-2017-09-10-macrotrends

On the chart, I have indicated the three red points (a) where the Dow/Gold ratio peaked. These all came after a period of credit extension, which effectively put downward pressure on the gold price. Points 2 (green) were placed just to show the similarities of the three patterns.

After the peak in the Dow/Gold ratio and point 2, the Gold/Monetary Base chart made a bottom at point 3 (green) on each pattern. It is at these points that the monetary base could not expand relatively faster than the gold price increased. Today, this could mean the point at which the game is up for those who are short gold.

It appears that we are just past point 3 on the current pattern, so it would be very unwise to be short gold.

In 1933, after point 3 was in, the gold confiscation order was passed (point b). This came about due to the pressure to fulfill gold obligations. This was confirmed later by Roosevelt when he justified Gold Reserve Act 1934 by saying that, “Since there was not enough gold to pay all holders of gold obligations, . . . the federal government should expropriate and keep all of the gold”. Remember, today this could mean cash as it relates to the banking system.

Again in 1971, after the relevant point 3, due to being unable to cover all the foreign holdings of US dollars with the related amount of gold, the US suspended (really ended) the convertibility of the US dollar into gold, on 13 August 1971 (point b). Today, this means a devaluation of the US dollar.

Now, we are possibly at point b (or very close to it), where a major monetary event could happen. Whatever happens, gold and silver are likely to spike much higher over the coming months. – Hubert Moolman

Gold Prices Could Surge 20% as Dollar Retreats

The price of gold could be on the verge of rising by nearly 20 percent to $1,600 per ounce, driven by a strong technical breakout and a dollar that has been weakening considerably. The US dollar has fallen by about 10 percent so far in 2017 and could drop by an additional 13 percent, to 80 from current levels of 92, on the dollar index. A weak dollar, coupled with a technical breakout, should continue to push, gold prices higher.

The Technical Breakout

The chart below shows that after falling by nearly 45 percent from its highs in late 2011, gold first bottomed in late 2015 at around $1,050 per ounce. Since then, gold has mounted a comeback, rising by about 26 percent, to around $1,325. Additionally, the chart shows that the price of gold has now broken above that 2011 downtrend, as noted by the orange line.

Since bottoming in 2015, gold has trended higher, as demonstrated by the green line, which has acted as a technical support level, which gold can continue to rise along in the future. The first test for gold comes around the $1,400 price, where there is a mild technical resistance level. The much bigger test comes at a technical resistance level nearly $200 higher at $1,600.

Inverse Relationship To The Dollar

Gold is already up by almost 15 percent so far in 2017, fueled by the falling dollar, which has an inverse relationship with gold like other commodities. Because gold is priced in dollars, as the value of the dollar declines, it takes more dollars to buy an ounce of gold. The chart below shows the relationship between gold and the US dollar Index, which is used to measure the value of the dollar versus a basket of currency.

The chart shows that over the past five years, gold has fallen by 25 percent, while the dollar has risen by 17 percent. It also indicates that gold and the dollar have traveled in an inverse manner to each other over that time, with the dollar peaking and gold bottoming at roughly the same times.

A Weak Dollar Is Good For Gold

The good news for gold is that should the dollar continue to weaken, it would help to drive the price of gold even higher and possibly toward $1,600. The inverse relationship, as mentioned above, will continue. The more the dollar falls, the more likely it is for gold to rise. – Michael Kramer

 

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