31 Oct Why the stock market is high while silver is low
The world’s financial markets, as well as geopolitical issues, are getting worse every day. This complicates the financial planning of investors considerably.
After some questions from my clients, I want to clarify the relationship between debt, the stock market and precious metals like gold coins and silver bars. It is hugely important and lucrative, that investors understand this complicated relationship.
The fundamental emotions of investors are simple. They are either in a state of greed, or they are in a state of fear. The flow of investment funds, the very thing we should be watching, will depend on what state of mind the investors are in. Fearful investors go to safe haven assets like gold and silver. Greedy investors go to stock markets.
The graph below tells us exactly what emotion investors are in right now.
This chart asks the question …… why are the stock market so high and silver so low?
Here is the answer. You will notice that the Dow Jones index remains flat until Sept 8. Then everything changed. In a matter of weeks, the US Federal Reserve increased the US debt by $595 billion. On October 25, 2017 the Federal Reserve added another $14 billion of debt to the US economy. What it means is that this massive amount of money is given to the banks.
They in turn dish it out to their clients who promptly invest it in the already overvalued stock market, hence the huge bull run we are seeing now. GREED!
We all know a situation like this cannot continue indefinitely. To correct this overvalued market, the markets crash like in 1987 when the Dow Jones Index lost 25% of its value in one day!
It is interesting to note that the US ISM (US Manufacturing Index) has just bridged 60. Do you know when last this happened? I will tell you, in October 1987 just before the market crashed.
The greed in the stock markets are going to turn to fear real soon, and that is when investors are going to start switching into safe-haven investments like gold coins, silver coins and gold and silver bars. The amount of money that will go to safe-haven assets will be staggering.
By the way, I was there in 1987 and was trading the market and I can tell you, it was not pretty!