Gold took a drubbing last week on comments by Federal Reserve Chairman Ben Bernanke seemingly throwing cold water on the idea of additional quantitative easing. It’s hard to believe that gold hit a low of $1,688.77 before prices rebounded back up to close at $1,711.50 on the week.
When the prices hit the $1,780.00 range I suggested small sales into the rally, but now might not be the best selling time, unless you really need the cash. I expected the selling window to pass, just not this soon.
Last week’s price gyrations would be the influence of speculative investors in the gold market and now you know why I don’t like them coming around. Yet the story underlying gold has not changed significantly. Take out the influence of hedge fund managers and institutional investors, and the factors supporting gold prices are still firmly intact.
The debt economy we lived in from the 80s to the present is now so saturated with debt that it takes a whopping $6 in new debt to generate a $1 of GDP. Compare that to the old days when a $1.50 in borrowing would generate a $1 of GDP. That massive backlog of debt will insure our economy goes nowhere for a long, long time.
While many economists are pointing at the employment numbers, good news to be sure, the hard fact is we have not invested in new manufacturing infrastructure in any significant way since the 90s. The actual number for real investment in new manufacturing since 2000 is just 0.8 percent, which is hardly even measurable. Expecting jobs to just appear is like a foolish farmer expecting a harvest after not sowing any seeds. No investment means no return.
Instead of infrastructure investments, we have a ruling class of modern day money changers who trade money to make money. Far from investing in manufacturing, they sell off what little manufacturing we have, ship those jobs overseas, then pocket the savings. I think we all have a clue by now that it does not trickle down.
The lack of growth and investment does not bode well for either the stock market or housing markets, the traditional big investments for most of what’s left of the middle class and none of that even touches monetary policy and inflation. That leaves precious metals and tillable farmland as some of the few relative value plays left.
Unless you want to plant corn in your back yard, that leaves learning to invest in gold and silver as your best defensive plays. Sad news for the broader economy but it is what it is.