Gold's Message To The Market

Let’s put this into perspective. When did anyone in the mainstream media say gold was a great investment? What you are hearing is a huge bias not borne out by the facts. - Robert Wiedemer, "100% Fake Recovery"

Gold has been the best performing asset since the Fed tapering began on December 18th, 2013. Most analysts were, and many still are, calling for gold to hit $875 this year. How they arrived at that conclusion is beyond rational comprehension, given that if gold stayed below $1200 for any length of time most gold mines would be shuttered. Moreover, almost every bearish Wall Street analyst never even considers the enormous amount of gold being accumulated by China. I don't understand how these people can call themselves professionals when they are ignoring two obviously fundamental variables affecting the price of gold.

Bad Faith
As we know, belief without evidence is nothing but faith. It would seem to me that Wall Street is exercising bad faith in their assessment of the gold market.

At any rate, the fact and evidence stands that gold has been outperforming everything since mid-December. One reason for this is that the Fed and the bullion banks have been forced by the sheer size of the demand from Asia to "retreat" from the unprecedented manipulation of the price of gold over the last 2 years. The reason for the "retreat" is to let the price of gold rise in an attempt to slow down the massive demand for physical gold.

Undervalued
But there are several fundamental reasons that investors now perceive gold to be undervalued, especially relative to the U.S. stock market. First, there's no question now that the U.S. economy is rapidly slowing down. Auto, retail and home sales are declining and it's becoming clear that the cold weather/dog ate my homework excuse is not cutting it. Again, when you look at data available that Wall Street and CNBC conveniently overlook, it's pretty obvious that the majority of Americans are cash strapped, have piled on new debt and are living from hand to mouth. I doubt 99%'ers are going to be rushing out this to buy a new Lennar home and a shiny BMW for the driveway this year.

Because of this, it is probable that Janet Yellen will have to reverse the taper and start printing even more money than the $65 billion/month being printed after the first two tapers. Let's not forget, taper or not, the Fed is still printing at a rate of $780 billion per year. In addition, assuming Stanley Fisher is confirmed as Yellen's partner in crime, we can expect to see them implement a negative Fed funds rate policy. Most people are unaware of this, but Fisher is a huge academic proponent of negative interest rates as a means to try and stimulate economic growth (Israeli-born, he was an economics professor at the University of Chicago and at MIT before going on to try and destroy the world with his ideas). Furthermore, Janet Yellen launched her bid to replace Bernanke with a speech in early 2012 advocating negative rates to stimulate employment.

For the record, negative interest rates are gold's rocket fuel.

Finally, I find it curious that very little attention has been paid to the fact that the Government is now operating until March 15, 2015 without any debt-ceiling limit. Quite frankly, there should be outrage from both the media and the public. No one seemed to even notice. But letting the Government go for a year without ANY spending restraints is the equivalent of letting a multi-convicted pedophile operate a daycare center that has a sleepover option for parents who travel a lot.

The Smart Money
In my view, unlike most mainstream investors, the smart money buying gold did happen to take notice of the unlimited credit card that Congress just gave the Obama Government. It actually became obvious last Friday to those few of us who do follow the news that affects our system that Boehner's House would pass a "clean" debt issuance extension. Since last Friday gold is up $57, or 4.5%. The GDXJ junior mining stock index is up 14%. In comparison, the S&P 500 is up 2.6%.

Things are going to start to really unravel in our economic and political system this year. As the underlying conditions deteriorate expect the Orwellian "things are getting better" lies to intensify. Try to enjoy what you can, while can because life will likely become a lot more difficult for most of us this year.