In the simplest terms, an inflection point is the point in a timeline where a trend is reversed. The inflection point for the bull market in gold during the last decade occurred on September 7, 2011, after gold touched an intra-day high of $1,924 per ounce. The inflection point for Bernard Madoff came on the day he admitted that “its all a scam”.
Divergence, in the case of this article, references the era from 2002 until 2008, where one could almost bank on the idea that if the Dow and USD were up in daily trading, then gold and silver would most certainly be down. And if world equity indices were down, gold and silver were up. It was probably one of the most profitable and predictable periods for speculators in precious metals and their derivative asset classes. Also in this period, any sign of geopolitical tension was reflected exclusively in precious metals prices as the world’s safe haven asset class – not USD.
But then came the financial crisis, and that divergence trade ceased to be reliable, as the US. response to crisis manifested itself in fabrication from thin air of an unprecedented quantity of U.S. dollar credit and capital, which in turn induced massive distortions in asset prices, and provided the financial grease to lubricate the gold futures and exchange traded fund machines. Futures contracts for gold and silver were routinely settled in cash in lieu of the metals, while exchange traded products could be owned twice: one long interest and one short interest. The result was the influence of a huge amount of short interest in gold and silver that had no ability nor intention to trade in the actual metals. Thus, artificial paper gold in unlimited supply on the short side overwhelmed any legitimate long interest, and caused the price to decline, despite rising demand throughout the period from investors and end users.
With the onset of diminishing the fabrication from thin air of tier 1 assets by the Federal reserve, there is now less available capital and credit to distort the markets for valuable commodities and monetary metals. Don’t forget, through the miracles of fractional banking, removal of $20 billion a month in tier one asset fabrication equates to the removal of at leaf $200 billion per month in coincident capital and credit available to the financial system. Thus, the funds made available to US dollar interests tasked with destabilizing precious metals prices, have not been significantly reduced, which in turn undermines the potential availability of paper gold and silver, resulting in a gold price drifting higher.
