Bouncing Back

Some would want you to believe that today’s rebound in gold and silver is nothing more than a dead-cat bounce.

Far from it.

August 12, 2020

Dear Fellow Investor,

For the past few weeks (up until yesterday, that is), a chorus of investors likely numbering in the millions was singing the same lyric: “I’m jumping into gold as soon as we get the next big pull-back.”

They got what they were waiting for yesterday. And as Mencken put it, they got it “good and hard.”

Gold plummeted $121 yesterday, just a shade under a 6% loss for the day. To put this in perspective, and to show how far and fast the rally had come, that $121 decline gave up only two weeks of gains for gold.

Silver, of course, amplifies gold in both directions in a monetarily-based bull market, and yesterday demonstrated the negative side of that equation. The poor man’s gold fell $4.42 — over 15% — dropping from nearly $30 to just $24 and change. The gold stocks were similarly led to slaughter.

As I put it in yesterday’s dispatch to our Gold Newsletter Alert readers,

“…It was one of those rare, stomach-turning, $100+ down days in the gold market, reminiscent of April 2013 and the orchestrated, illegal attacks on gold that marked a continued, years-long price slide.

“But that’s not what’s happening here.”

So what is happening here?

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A Gold Bull Market For The Ages

In investing, whenever anyone dares to say “this time it’s different,” you know they’re just asking the market gods to send a lightning bolt their way.

What’s interesting about today’s situation is that it is different than anything we’ve ever seen before…yet at the same time just a different take on an age-old story.

You see, throughout human history governments have always and inevitably overspent their means. Whether through military campaigns, entitlements or bread and circuses to keep the people happy, there has come a time in every civilization where the debts grew beyond the ability to pay them.

The solution, ever and always, has been to depreciate the currency in which that debt was denominated. This not only made the currency cheaper, it also lowered the value (cost) of the debt.

In ancient times when gold or silver served as both the money and the currency, the way to debase the currency was to lower the amount of precious metal in the coins, or simply make the coins smaller for the same denomination.

The fall of the Roman empire can be clearly traced along the declining path of the Roman denarius’ value, for instance.

In modern times where the currency isn’t based on gold and silver, the solution is simple: Just print the hell out of the currency.

In the U.S., the federal debt has been completely out of control for years. Now, after the pandemic policy responses and stimulus spending, the debt has truly exploded through the ceiling. At the same time, the Federal Reserve and the U.S. Treasury have been working hand-in-hand to dramatically expand the currency supply.

I know what you’re thinking — this is nothing new. OK, here’s what is different this time around. In today’s interconnected world, every nation has built up unmanageable debt loads and every nation is depreciating their currency in response.

So if they’re all depreciating, what are they depreciating against?

Gold. And silver.

This is why it irks me when the talking heads on CNBC sputter on about the weakness in the “Dollar Index.” This measures the dollar’s value only against its trading partner currencies.

The real value of the dollar is measured against gold. And by that measure, it’s getting cheaper by the day…and at an accelerating pace.

Where Now?

After yesterday’s dramatic sell-off, gold and silver are rebounding nicely today. As I write, gold is up about $13 and silver’s up about 65¢. But that’s off their highs from earlier today, with gold peaking at a gain of about $40 and silver’s gain at one time being about double what it is now.

We learned two things from yesterday’s action: 1) Good news on the pandemic front is bad for gold (the sell-off was prompted by reports of a vaccine from Russia), and 2) There was too much froth in the metals after their torrid run of the past few weeks.

Today we learned that some portion of the investing public was indeed waiting for a pull-back to get into the metals, and they jumped in to bid the price higher.

But I don’t think the volatility is behind us. In fact, I’m as certain that we’ll see more of these types of swings as I’m certain that, at the end of it all, gold and silver will be trading at far, far higher levels.

So don’t let these roller-coaster moves shake you out of the market. Sure, take profits along the way. But stay on board.

The ride will be wild, but rewarding.

All the best,

Brien Lundin
Editor, Gold Newsletter
CEO, the New Orleans Investment Conference

P.S. As I noted last week, I unveiled six exciting new junior stock recommendations in our August issue of Gold Newsletter. CLICK HERE to subscribe and get all the details immediately.