Thoughts on Markets

Thursday, September 11, 2008

The Precious Metals in Dangerous Territory

Gold broke through support at 750 and is now736.70. Silver is at 10.29. Faced with the currently strong US Dollar, precious metals are crashing. While I believe we should hold the physical metals, I am undecided about the mining stocks. The big move now is toward the dollar. This is likely to be temporary as the fundamentals in support of the dollar have changed very little. Temporary can translate into weeks, months, and even years. It seems that America may be on the road to recovery more rapidly than the rest of the world, particularly, Europe. This is a confusing time in the markets. This time, there are differences never before faced at such a magnitude.

America has a debt of such size that it will never be repaid. We are occupying well over 300 military bases (occupation sites) in well over 145 countries of the world. There seems to be no end to government spending. The deficit continues to grow. Financial institutions are in deep trouble (11 banks gone under, so far, and more on the way). Theses are just some of the negatives which are being pushed aside in the rush into the dollar. However, the rush to the dollar is very strong now.

GLD is pressing hard on 74.83 at present showing a great deal of weakness. This is ominous. Our question is how long will this "correction" last? I see no good news on the precious metals horizon at present. All seem to be headed lower, in fact, it could be much lower.

The only positive is the high demand at these prices and the shortage of the smaller bars and coins. We are moving into the fall/winter buying season when prices have normally risen. Prices seem to be headed lower now.

One of the fundamental concepts undergirding the free market is a stable currency. A stable currency enables businesses and individuals to more accurately plan for the future. Historically going back into biblical times gold and silver were the only money. Products and services were paid for in these precious metals by weight. Since the supply was limited, there was little possibility for significant changes in value. On the other hand, with unbacked paper currencies, this is not true.

The paper currencies have as their source of value (1) the coercive power of government to force their use, and (2) the acquiescence or preference of the people for their use. However, the relative value of these paper currencies is a political matter which is decided by the politics of governments and central banks. These are ever changing.

When a nation or a people reject the Law of God, they no longer have a stable standard by which to live. God's Law reflects the character of a God who is the same yesterday, today, and forever. One can depend upon this stable standard equally as well as he can depend upon the word of the God who cannot lie. The opposite of this is man's law.

Man's law is ever changing. Even constitutions, such as ours are politically changed to gain power of the rulers over the citizens. While under God's Law ignorance of the law is now excuse for violation thereof. However, with an ever changing law, ignorance of the law is reason for misunderstanding. The more complex the law, the more reasonable is a defense as ignorance of the law.

When man's politically changing law replaces God's Law, the result is always chaos. That is presently where we find ourselves. Never is this more true than in the investment arena. Folks, it is virtually impossible to forecast the financial future under such conditions.

I am not attempting to make an excuse for not seeing this severe correction in metals and extra strong upward sprint of the dollar. But we must remember that we live in a time of intervention into markets to the extent that none are allowed to work freely.

If I were pinned down, I would say that the current conditions are very likely to continue until after the election. It is very possible that the strong dollar is strong in an attempt to sway the outcome of the election.

I continue peacefully rest on the promises of our Sovereign God, His love for His people, and His merciful care for each of us. Study His word daily, make your plans prayerfully and cautiously, commit them to Him, and depend upon Him for the results.

Each of us must make consider the facts and make our own decisions. Remember, the person most interested in your success in finances or any other area of life is you.

Best, Doug


  • At 10:42 AM, Blogger Vaughn Hathaway said…

    I guess that I have to do this a second time.

    What happened to the old 40::1 ratio re: gold::silver?

    It seems to me that silver ought to be running around $20 if that ratio were still applicable. Has there been a correction or an adjustment to the ratio? Or is silver truly running low?

  • At 12:54 PM, Blogger Doug said…

    We don't have markets any more, only intervention which changes much. This is also why it is so difficult to make valid forecasts.

    Of course, our God knows the future completely. We can only follows trends and never know for certain when they will change.

    Some day, the historical ratios may be valid again when and if things turn to normal.

    Best, Doug


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