Sooner or later, we all sit down to a banquet of consequences–Robert Louis Stevenson
Although gold has advanced nicely over the last few months, many are asking the question, “Considering the trillions of dollars created over the last few years and the rapid rise in inflation, why is the price of gold (and silver) not exploding higher?” The answer is simple: bullion banks, led by JP Morgan, have made a fortune over the years by regularly shorting gold and silver via the paper markets and this price manipulation has kept the paper prices unnaturally low. The next obvious question is, “What is to stop JP Morgan from continuing to control gold and silver prices for unlimited years to come?” And the answer is strength in the physical market, which is now on the verge of overwhelming the paper price.
You see, in order for JP Morgan to keep the paper price down, a certain amount of physical gold/silver must be available. But because physical demand for gold/silver has exceeded the supply being mined by the miners for multiple years now, the physical market is extremely tight. Of course, the supply chain crisis caused by COVID has exacerbated this tightness, so much so, that premiums for physical gold/silver are rising AND in many cases the waiting time to get delivery is increasing. In addition, as inflation rages on and the purchasing power of the dollar continues to weaken, the physical market will only get tighter. And one can only imagine how dire things will get when the public finally opens its eyes and piles into physical gold/silver. This “moment of awareness” is coming soon and God only knows where the physical supply will come from to meet this demand.
Some are concerned the Fed will continue to raise interest rates to combat rising inflation, but the smart money knows the Fed’s hands are tied. Because the debt is so massive now, any sustained rate hikes will cause the economy and general markets to crater and that’s the last thing the Fed (and politicians and public) wants to see. Ironically enough, the smart money also knows interest rates are going to rise anyway, regardless of what action the Fed ultimately takes, because like the 1970’s, high inflation is not going away for years to come. Like the stagflation years of the 1970’s, interest rates will rise, as will the value of gold and silver.
So, we have reached a turning point, but more so for the reasons I’m about to explain. Most are aware that in the early 1970’s, the Petrodollar was created. Basically, Saudi Arabia agreed to only transact in US dollars when selling their oil. As a result, the US dollar became the world reserve currency, giving the US supreme power in the world of trade. But no doubt, many are aware that over the recent years, countries like China and Russia, have been exploring ways to “pull away” from the US dollar. Thus, they have been reducing their dollar reserves and loading up on physical gold (and in the case of China, hording natural resources of all kinds). Now, because of the Russian invasion into Ukraine, this worldwide financial war has been ramped up another notch.
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In response to the Russian invasion, the US and primarily Western countries imposed tough sanctions on Russia. As explained by London economist Alasdair Macleod, “An event occurred which market historians might describe as pivotal, not just for gold, but everything else. Russia responded to the West’s sanctions by dividing the world into two categories: friends, which include the likes of China and India and anyone not in the US-NATO camp, and unfriendlies, which consist of the US and 26 other countries. The unfriendlies will have to pay for oil and natural gas in rubles and appears will have to pay for all other Russian exports in rubles as well. Undoubtedly, the recent sanctions over Russia will have a catastrophic effect for financialized currencies, possibly leading to the end of 51 years of the dollar regime. Russia and China plan to escape this fate for the ruble and yuan by tying their currencies to commodities and production instead of collapsing financial assets. The only way for those of us in the West to protect ourselves is with physical gold, which over time is tied to commodity and energy prices.”
Separately, Russia made a move to link the ruble to gold. As per economist Ronan Manly, “The Bank of Russia’s move to link the ruble to gold and link commodity payments to the ruble is a paradigm shift that the western media has not really yet been grasped. As the dominos fall, these events could reverberate in different ways. Increased demand for physical gold. Blowups in the paper gold markets. A revalued gold price. A shift away from the US dollar. Increased bilateral trade in commodities among non-Western countries in currencies other than the US dollar.”
I’m well aware that over the years people have accumulated significant wealth via stocks, bonds and real estate. I’m also well aware that change is difficult. But the time is coming when higher interest rates will bring the “system” down. The dollar can only lose value as its purchasing power continues to decline. As history shows us, strong and weak business cycles are natural and constantly in play. However, the ensuing weak economic cycle is going to be extra painful. Why? Because the Fed has done everything to “kick the can down the road” and they are now out of ammunition. The debt is so massive and so much “fake” money has been created, it will take measures of the most drastic kind to ultimately turn the world back to a sane place. Measures that will be most painful and take many, many years to play out.
Yes, JP Morgan and cronies have made billions of dollars by suppressing gold and silver paper prices. But COVID (and the ensuing unprecedented printing of money) and the Russian invasion undoubtedly caught the bullion banks off guard. With Basel 3 regulations kicking in last Jan 1 and inflation booming and supplies of physical gold and silver at bare bones, the bullion banks have no choice but to wind down their price manipulation scheme. Like the “short covering squeezes” we have seen in nickel, oil, copper, uranium, wheat etc …., it’s time for gold and silver to lead the way higher. And not only will gold and silver prices rise dramatically, but the ability to acquire the actual physical metal will become increasingly difficult as well.