Gold, Silver, And The
By Dr. Jeffrey Lewis
The Forex market
may actually be seeing the beginning of the crack up boom where traditional
currencies like silver and gold will naturally reassert themselves just as world
monetary expansion begins to truly accelerate
The big shorts in
the precious metals markets have acted as the governor, preventing the true
expression of the paper currency value of real money for decades.
It seems to be no
coincidence that their market dominance was enabled in large part by the luxury
of interested parties enjoying cheap access to the world’s main reserve
An Overview of
the Recent Timeline
It seems relevant
to review some of the recent historical events and circumstances that have
brought the currency market to its present tenuous state.
The first factor
to consider is the credit bust. For too many years, going back to the 1990’s,
the Fed’s and other major central banks’ policies have incentivized leveraged
speculation. This has fostered a massive inflation in the global pool of
speculative finance that created situation where too much market-based liquidity
or “money” has been chasing too few risk assets.
The second factor
is the massive rise in monetary stimulus programs. One result of these huge
quantitative easing and bailout packages is that unprecedented monetary creation
is largely bypassing real economies on its way to creating bubbles in global
The third factor
is the realty of unbalanced government budgets. The recent U.S. government
budget released showed an increase in spending, as the much-publicized debt
ceiling limit is repeatedly increased and adherence to it postponed.
Nevertheless, that ceiling was an important — albeit probably symbolic — gesture
that telegraphed to the rest of the world there would be some limits to the huge
debt already accumulated by the United States.
recent banking crisis in Cyprus has provided the world with a template for the
first direct bail-in, where bank investors and depositors help pay for its
failure to operate in a commercially viable manner.
announced further radical stimulus measures to help stimulate its flagging
economy. This increasing trend toward boosting the Japanese money supply has
resulted in a sharply weaker Yen, which has declined from a historic high of
75.55 Yen to the Dollar seen in October 2011 to a recent high of 99.94 touched
on April 11th of this year.
event has been the parabolic rise in Bitcoin observed over the last few years,
only to see the electronic currency crash hard in extremely volatile recent
trading. The crash came in the wake of some recent Denial of Service attacks on
Bitcoin’s primary dealing website Mt. Gox that handles roughly 80 percent of its
The prices of gold
and silver have also been hit hard enough to break a key 38.2 percent Fibonacci
retracement level that in turn provoked further technical selling. The sharp
sell-off in the precious metals has conveniently allowed J.P. Morgan Chase to
exit some of its concentrated short positions.
Supply and Money Creation
world's stock of fiat money is not contracting — quite the opposite, in fact.
Japan has just launched its ‘stimulus on steroids plan’, which will see the
developed world's most indebted economy create a proposed $1.4 trillion in Yen
in a bid to break its economy free from depression and the questionable risk of
Nor is money
creation in the West likely to subside, although earlier this month, the FOMC
did hint that it might reduce its asset purchases later this year and that the
committee was divided on the risks of continued super easy monetary policy.
current Bank of Canada governor Mark Carney's departure to head the Bank of
England is expected to result in a trend toward more activist monetary policy in
the UK too.
Triple Forex -
Money Cracking Up as a Reflection of Confidence.
On the world’s
forex market, recent weakness in the commodity currencies like the Australian,
Canadian and New Zealand Dollars has been noted in the wake of the remarkable
sell-off in the precious metals seen over the past week.
moves tend to highlight recent U.S. Dollar strength, more so than being a
reflection of the recent commodity downdraft. Nevertheless, recent events may
actually represent the last gasp of King Dollar, as inflationary U.S. monetary
and budgetary policies continue to chip away at the value foundation of the
world’s primary reserve currency.
now appear to have found good support, with retail physical sales reportedly
booming at the lower prices, despite heavy downward pressure exerted on the
paper futures markets.
The use of barter
also seems to be increasing in popularity as a method of value exchange, as
people turn away from fiat currencies in droves. In addition, the recent out in
Bitcoin prices, has drawn considerable media attention to the use of that
electronic currency as an alternative medium of exchange to fiat currency.
May Accelerate Monetary Expansion
prices are simply another indication of failed policy that could well set the
stage for a further acceleration in monetary expansion.
today encompasses all markets, with big money piled up on both the long and
short sides of the financial markets.
Ultimately, it is
the large shorts who seem to trigger the sell-offs in the commodities like
silver and gold, probably so that they can cover their positions profitably.
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