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On 6
May 2010 the DOW dropped a massive 600 points in a mere seven minutes and at
one point was down 998.50 points which is the largest nominal drop ever. One
of the reasons for this increased volatility is the knowledge of all major
market participants that their assets are neither safe nor liquid yet the
greed to engage in speculation. As the true state of the worldwide financial
markets and their fake liquidity increasingly permeates the
zeitgeist more and more individuals will simply withdraw their capital and
store it is the monetary metals.
Those
who have followed RunToGold for a
while have been adequately warned. For example, on 9 October 2009 I was interviewed on BNN and suggested
that gold would reach $1,300 in Q2 2010 as the credit crisis intensifies. Now
gold is within striking distance. On 7 February 2010 I warned of the approaching
Laboon of sovereign debt default and Euro evaporation. Now
it is happening. On 27 July 2009 I warned of the coming market crash. While the
market is crashing when priced in gold it has still remained fairly orderly
and but for
The President’s Working Group On Financial Markets it
would be a lot more chaotic.
VOLATILITY
When
the financial markets experience unusual palpitations then those closely
involved often flee for safety and liquidity. With high frequency trading
powered by computer algorithms the result is a gigantic electronic herd
moving at the speed of light. The result is an explosion in the VIX or CBOE
Market Volatility Index.
click to enlarge
Value and price
are completely discrete
The
higher the VIX the more difficult it is for the entrepreneur, the individual
that creates real wealth by providing the goods and services the economy
desires, because making mental calculations of value becomes more difficult
and therefore decisions to allocate capital become based on more arbitrary
premises. In this current economy, value
and price
are completely discrete.
The
end result is that holders of capital, instead of taking risk and buying an
ice cream machine or building a new factory, buy
gold, silver and platinum while waiting for calmer days.
When the devaluation of intrinsically worthless fiat currencies happens it
will likely be extremely quick.
THE
GREAT CREDIT CONTRACTION
I
really wish this liquidity pyramid could accurately convey all I want but it
gets the main point across. During a credit contraction capital, both real
and fictitious, burrows down the pyramid into safer and more liquid assets.
The illusory capital evaporates.
The riots in
Greece are the prelude not the encore
What
happened on Thursday? Capital burrowed into FRN$ Treasuries and gold. Gold is
now perched atop a near record all-time high around $1,210 per ounce.
As
reported by Bloomberg, the EU’s $645B fund to fend off
the ‘wolfpack’ will be like a decrepit brontosaurus trying to
fend off 100+ hungry velociraptors. Europe is too old, too bureaucratic, too
slow and fighting economic law to be able to mount a sufficient defense. The
little baby velociraptors, hatched with the merger of bank, currency and
state through ignoring Article 1 Section 10 Clause 1 of the United States
Constitution and the establishment of the unconstitutional Federal Reserve,
have now grown up and they have unlimited avarice to feed.
But I
think the real value is to be found in buying platinum which, during the
past week, got cheaper when priced in gold. A likely scenario will be a
summer consolidation or pullback in gold, silver and platinum and then
starting in August the trek towards $1,650 gold with the bulk of the upleg
happening in November.
There
will come a time to buy the S&P 500 and real estate with one’s
monetary metals but that time is still a few years away. In the meantime, the
name of the game is to retain the capital and purchasing power already
accumulated. Keep in mind, the riots in Greece are the prelude not the encore
and will be coming to a city nearby before The Great Credit
Contraction is over.
CONCLUSION
The
entire worldwide financial and economic system are built on an illusion.
Neither I nor other prepared individuals really care if the stock market
crashes 700 points in ten minutes. What is going on is fairly simple economic
law which I discuss in The Great Credit
Contraction. While the time to buy the precious
metals at a good value was earlier there is still incredible reasons to at
least have some material portion of one’s net worth allocated to them.
After
all, whether the fire of inflation or even hyperinflation or the ice of deflation
that freezes the global economy in its tracks a holder of capital will be
protected when ensconced within a golden forcefield. And the monetary metals
can do wonders for reducing blood pressure when watching Iceland, Greece, New
York or LA on television.
Disclosure:
Long
physical gold, silver and platinum with no interest in DOW, S&P 500, the
problematic SLV ETF, gold ETF or the platinum ETFs.
Trace Mayer
RuntoGold.com
Trace Mayer, J.D.,
holds a degree in Accounting from Brigham Young University, a law degree from
California Western School of Law and studies the Austrian school of
economics. He works as an entrepreneur, investor, journalist and monetary
scientist. He is a strong advocate of the freedom of speech, a member of the
Society of Professional Journalists and the San Diego County Bar Association.
He has appeared on ABC, NBC, BNN, many radio shows and presented at many
investment conferences throughout the world.
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