24 Sep Silver Outperforming Gold
Over the past week we watched the US S&P 500 index move up to 3022 which is just below the all time high of 3028. It seems that the investor appetite for risky assets has no bounds. I have been writing about a stock market correction for quite some time. The Federal Reserve in the US have just dropped the interest rates by 25 basis points which should have made the US markets spike upwards. The markets did not go up by much and this tells me that the days of manipulating the markets with interest rate cuts are over and not working any more. The ridiculous US federal debt burden of $33.5 trillion now has US DEBT to GDP ratio at 105.6%. Yes, this is not a typo ……… the US is broke!!!
There are three main concerns I currently have in terms of the world economy.
The first is that the global economy apart from the US, is in trouble. The Euro Zone has slowed down to a slow crawl and it is getting worse. China is really battling to adapt to the US/China trade war which are cutting their life blood, which is exports. The recently released US Manufacturing data which showed a steep dive is evidence that the US are starting to feel the pinch of the trade war. It will not be long before worsening business figures hit the bottom line of the big US conglomerates.
The second concern are central banks around the world. A new round of quantitative easing has just started in Japan, China and the Euro Zone to prop up sagging economies. In the market crash of 2008, central banks stepped in to bail out failing big business. It is now the central banks who are in trouble. Who will bail them out? The only one I can think of is ET! God help us!! It is also very interesting to know that central banks have been buying record amounts of gold since 2012. One wonders what they know that we don’t. The only explanation I can think of is that the want to diversify away from the US dollar which is steadily loosing value all the time.
The last concern I have is the hugely over priced stock prices. We recently saw ROKU, an IT streaming company, lose 20% of its share value in one day. We will be seeing more big companies start to crash like Thomas Cook in the UK in the last couple of days. The two biggest reasons why stock prices are so high, is quantitative easing by central banks and share buy back schemes. Neither of these activities creates organic growth in a business which should be the true reason a stock price is high. It is simply just not sustainable.
Silver Outperforming Gold
I have long been making the point that silver will outperform gold as it did in the 2008 market correction. Over the period 11/11/2018 to 01/09/2019 gold has gone up by 27.83% and silver went up 41.39%. Gold and silver has since fallen back somewhat as they have a habit of doing. My analysis indicate that gold is heading to $1650.00 and silver should go to at least $21.50 in the short to medium term. Once these levels are broken they will both go up to their previous all time highs of $1900 and $51 respectively. Buying gold and especially silver at these correction levels offers an excellent opportunity to still get these precious metals at good value prices.
The second biggest gold/silver mine in Mexico, The Penasquito mine, has just shut down for the second time. During the last half of the 19th century, one ton of mined ore would yield about 50 oz of silver. Today the average is about 10 oz per ton. These declining ore grades have very serious implications for the future price of silver.
Silver and gold can still be bough at very reasonable prices right now. Once the stock markets start to implode the precious metal prices will rise very rapidly making it extremely difficult to get in. Do not wait too long, you will miss the boat!