Destruction of paper money will lead to higher prices in the precious metals

Published by Egon Von Greyerz | Dec 19, 2012 | Articles

No, nothing new. More QE and gold goes down. In addition, another downpour of economic news that confirms the total inability of central banks and governments to provide any credible solution to what is a guaranteed road to perdition.

Investors worldwide are continuing to buy debt that yields nothing or virtually nothing from bankrupt issuers. The only thing that is guaranteed is that the bond market, which is the most over overvalued market in the world, will default. This is particularly the case with the government bond market where government deficits are increasing so fast that the only buyer remaining will be the issuer of the bonds...

On the other side of the pond, the Fed did what was expected and announced an annual asset purchase program of over $1 trillion. With this money the Fed will buy worthless bonds that will make their balance sheet worth less than zero. Most central banks are doing the same. It is just that the US figures are so much bigger.

The US now has a National Debt of $16.4 trillion and over $225 trillion of Federal entitlement liabilities. With 125 million people on benefits and 22% unemployed the situation is more than serious – it is desperate.

In the last 100 years since the creation of the Fed in 1913, the dollar and most other currencies have fallen 97-99%. So we only have a 1-3% fall left to reach a total collapse of the current monetary system. That is likely to happen in the next few years.

With this desperate economic situation, most people expected a different reaction to the Fed’s money printing announcement on 12.12.12. But we should have learnt by now that markets always do what they should do but not when we expect them to. Gold and silver went up on the Fed announcement but sold off afterwards and continued to be under pressure.  Let us just remember that all we are seeing are little wiggles in a major secular bull market in the metals.

Although gold (and silver) didn’t go up in the last couple of days, it is absolutely guaranteed that the continued destruction of paper money will lead to substantially higher prices in the precious metals. But remember you have to hold physical metals and store them outside the banking system.


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Egon Von Greyerz  Goldbroker.com Board Member - Founder of MAM

   

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