murphy metal monday

Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.
–Sam Ewing

Again, I got the question this week, “Why are gold and silver not moving up with inflation raging higher?” My answer was two-fold, of sorts.

Number one, since today’s economy resembles the 1970’s, it makes sense to learn from the market action back then. For example, inflation started ramping up in the late 60’s, but gold did not start ascending until the early 70’s. Rick Rule of Sprott believes since the US was just coming off over 20 years of a thriving economy and low inflation, it took Wall Street several years to accept that inflation was here to stay. So, it also took Wall Street several years to start investing accordingly, resulting in a gold rally from $35oz to $875oz. As per Rick Rule, the US is coming off another long period of low inflation and Wall Street again is taking its time in acknowledging that high inflation is not going away.

Number two, the Fed must know it is caught between a rock and a hard pan, resulting in an extra effort to manipulate many of the markets, including stocks and bonds. But maybe the biggest manipulation of all is in gold and silver. You see, one of the only saving graces left for the Fed is the appearance of a strong dollar. Since strong gold and silver prices sends off the vibe of a weakening dollar, a handful of bullion banks, like JP Morgan, have been aggressively selling gold and silver on the NY and London Exchanges (therefore keeping the paper metal prices from rising AND making a trading fortune in the process). So, the next obvious question is, “Why buy something that is being held down in price artificially?” Once again, we can look to the 70’s for an answer…

For four decades, the gold price was artificially checked at $35oz. In 1971, the US went off the gold standard, meaning gold was allowed to trade freely. However, it took several years before inflation was fully acknowledged and the supply/demand fundamentals kicked in before gold commenced its epic bull market. As Bill Murphy of has been saying for the last year, it’s only a matter of time before supply inventories becomes so tight and the realization that high inflation is not going anywhere, that the bullion bank paper selling will be overwhelmed by physical demand and prices will sky-rocket.

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Over the weekend, much followed Peter Schiff, economic expert and founder of Euro Pacific Capital, had the following to say, “All the talk you are hearing from the Federal Reserve is simply the Fed “pretending to fight inflation.” Schiff explains, “Everything I predicted with inflation breaking out and the way the Fed would react to it has come true. The next thing is the Fed is now pretending it’s going to fight inflation. I say they are pretending because they have no real intention of doing it because they can’t. If the Fed could fight inflation, it would have started the fight a long time ago. They would have acted preemptively when it was obvious it was a problem . . . I have been warning about this for over a decade. As the Fed was on this course of deliberately creating inflation, I always said this was going to come back and bite the Fed because they were going to let loose a monster that they were not going to be able to fight, like Frankenstein. The Fed used to say we don’t care if we have too much inflation, we know how to solve it. We have the tools, and I pointed out that they may have the tools, but they ain’t going to use them because it was like having a handgun as the tool for a headache.”

Schiff says there is record amount of debt in all sectors. Schiff points out, “Now, the Fed says it’s going to take away all that free money? The Fed is going to normalize interest rates? Everything that was built on that foundation is going to implode. We would have a financial crisis that would make 2008 look like a Sunday school picnic, and there will be no bailout if the Fed is fighting inflation. It wouldn’t be another ‘Great Recession,’ it would be a ‘Greater Depression.’ This is why the Fed can’t do anything. The Fed can’t do what Paul Volker did . . . and raise interest rates to 20%.”

Schiff says the economy is going to tank no matter what the Fed does, and you will see this in the job market soon. Schiff also says, “I see massive layoffs coming. It’s going to be like Covid except without Covid. Instead of the government shutting down the economy, the economy is going to shut itself down. Not because it’s been ordered to, but because the cheap money is gone. . . Fed Head Powell is going to reverse course, and when he does, the bottom is going to drop out of the dollar. Gold is going through the roof. You better be fully positioned in your portfolio when that happens. It’s probably going to happen while you are asleep because the dollar is going to collapse in Asia. That’s where our biggest creditors are, and that’s where the mass exodus is going to start.”

Schiff advises to stock up on tangible assets and commodities. Everything is going up in price. It will never be cheaper, and in the future, you might not be able to get these assets and goods at any price. Of course, it’s normal for the average investor to resist change, especially when so much money has been made over the last dozen years. Also, who wants to read and think about difficult/painful times ahead? The time for making “easy” money is over. The financial asset bubbles of stocks and bonds is popping. The time for preserving wealth is now at hand.

Lastly, below are two charts. The first chart is a 20-year silver price chart. As you can see, silver has a price history of consolidating via “channels” and then breaking sharply to the upside. Not only is silver at the low end of a 2-year channel, but it is also being supported by the previous 6-year channel and its highest price of approximately $20oz. In other words, the scenario is one of high reward and low risk.

20 year silver price

  • Silver at bottom of current channel
  • Also, top of previous 6 year channel is $20

This second chart is a 20-year gold price chart. As you can see, gold had formed a massive 10-year “cup and handle” formation, broke above the handle as expected, and is currently “retracing” the breakout, which is not uncommon as this particularly bullish chart pattern continues to play itself out.

20 year gold price

  • Gold retesting breakout level $1800