Gold is in a hurry and is unlikely to wait for investors to acquire it at anywhere near these prices. We could now see a quick move to $1,400 and if gold doesn’t stay too long at that level, the acceleration is likely to continue towards the previous high of $1,900.
Desperate measures by the ECB
The ECB confirmed yesterday that they are extremely concerned about the European economy as well as the fragile banking system. They lowered the negative rate to 0.4% and increased Q.E. or money printing by more than the market expected. I am quite certain that this is still just the beginning of the stimulus required to “save” Europe. But however many trillions that Draghi throws at the bankrupt banks and European economies it will make no difference. It is just not possible to solve a problem by the same means that caused it in the first place. So adding debt to excessive debt will just make the final collapse that much bigger.
But the ECB is not the only bank which will print money. All major central banks, including the Fed, will join the ECB in more Q.E. and more negative rates until the world drowns in worthless money.
Technical picture for gold
There are now many who believe that the technical picture for gold is bearish, especially due to the big net short position of the commercial traders. Conventional wisdom says that the commercials are never wrong. Well, maybe this time it is only conventional without the wisdom because the likelihood is that the commercials will soon have to bail out of their shorts. And if that is the case, gold will surge even faster.
Based on what we see, the fundamental and technical factors for gold are now more bullish than they have been during the whole of this bull market which started in 1999. Since the beginning of the year gold has moved up 20-25% in most currencies. In some of the weaker currencies the move has been even faster like in Argentine Pesos where we have seen a 40% move in 2016 and 9,000% in this century. We are likely to see bigger moves than that also in all western currencies including the dollar. As currencies continue to weaken, gold will accelerate until we reach global money printing on a massive scale and hyperinflation. Desperate governments and central bankers are guaranteed to make a final attempt to save the world by printing unlimited amounts of money. They will of course fail which means that after the hyperinflationary period there will be an implosion of most assets fuelled by the credit bubbles as well as of major parts of the financial system.
Gold Silver ratio bullish for metals
Conventional technical indicators might look slightly overbought for gold and silver short term. But the next move will not be guided by what is normal. It will happen a lot faster than anyone could expect. The Gold/Silver ratio gives us a very clear indication that the real move in gold and especially silver has not started yet. According to our proprietary cycle indicators this ratio peaked in Feb 2016 at around 83.5. This means that the gold price is 83.5 the silver price. With this ratio just having completed a long term cycle top and being very overbought on daily weekly and monthly indicators, it has a long way to go before it is oversold on any time period. The next major stop for the ratio is 30 which is where it was in 2011 when silver was $50. Eventually the ratio should reach down to 15 like in 1980.
What this means is that both gold and silver will soon start a very fast move. Silver will lead and move twice as fast as gold. I would not exclude to see gold at around $2,000 and silver at $50 in 2016. To reach these levels would clearly involve some major geopolitical or financial problems in the world. Anyone who has followed my writings and interviews will know that I see the risks in the financial system as totally unprecedented in history. In a fragile system resting on a foundation of debt, any catalyst can cause irreparable damage and a domino reaction that no central bank can stop.
Gold and Silver as insurance
Physical gold and silver, stored outside the banking system, represent the most unique opportunity to insure your wealth against the total wealth destruction that is coming.
I expect all bubble assets like stocks, bonds and property to go down by at least 75-90% against gold in the next few years. A 10-25% holding in gold and silver would insure such a fall since the precious metals are likely to go up at least 5 times but more likely 10 times in real terms in the next few years.
The beauty of gold and silver as insurance is that, as opposed to conventional insurance, the precious metals have an intrinsic value that never expires like an insurance premium. Gold and silver have been money for thousands of years whilst no fiat or paper currency has ever survived. To buy an insurance that both protects your assets and appreciates in value is clearly an offer which is difficult to refuse.
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Egon Von Greyerz Goldbroker.com Board Member - Founder of MAM
Founder and Managing Partner of Matterhorn Asset Management AG (MAM) and GoldSwitzerland, Egon Von Greyerz joined the board of Goldbroker.com in 2012. Egon von Greyerz started his working life in Geneva as a banker and thereafter spent 17 years as Finance Director and Executive Vice-Chairman of Dixons Group Plc. Since the 1990s EvG has been actively involved with financial investment activities including Mergers and Acquisitions and Asset allocation consultancy for private family funds. This led to the creation of MAM in 1998, an asset management company based on wealth preservation principles. EvG makes regular media appearances (CNBC, BBC...) and speaks at investment conferences around the world. EvG forecasted the current present problems in the world economy well over 10 years ago. In 2002 when gold was $300 per ounce, MAM recommended to its investors to put 50% of their investment assets into physical gold stored outside the banking system.