Although deficit funding has been fueling the latest precious metal’s rally, it is not hard to imagine the current CFTC investigation into manipulation in the silver market lasting 20 years, as it effectively acts as a yet another kind of price control.
The macro backdrop to this investigation includes ongoing currency wars, a depressed world economy, no real growth and a negative real interest rate policy.
On the ground, the market is seeing the convergence of many factors, including a loss of confidence in and understanding of equities, as well as a general lack if incentive for the creation of jobs by businesses.
Baby Boomers Retire in Worrying Times
Furthermore, retirement is becoming a notable focus for an increasingly aging population as the huge Baby Boomer generation starts to conclude their working lives. This generation is collectively not well-prepared for retirement, and therefore is inclined to kick the can for as long as possible.
The economic and geopolitical backdrop to this period includes:
(1) Widespread belt tightening
(2) Unattractive investment income given low interest rates
(3) Substantial fuel and food price rises
(4) World unrest, especially in Muslim countries
(5) A widening financial gap between the rich and poor
(6) Fear taking over from greed in the financial markets
Politicians Failure to Rein in Spending Facilitated by Private Central Banks
Underlying all of these factors is the notable lack of political will anywhere in the world to address out of control budget deficits in any meaningful way.
The fact that the major central banks, all of which are privately owned institutions, are directly facilitating the rampant expansion of national debts via money printing to effectively fund these spending deficits. They are also indirectly facilitating debt expansion by maintaining exceedingly low benchmark interest rates that result in negative real interest rates.
All of this means that no major motivation to deal with this overspending now exists. Furthermore, these private central banks will be raking in interest payments on this debt for years to come, so future generations will surely be footing the bill for such currently excessive spending and monetary incontinence.
Lack of Trust in Institutions Growing
As people increasingly turn away in distrust from their financial and governmental institutions, this lack of faith naturally leads to a search for safety, simplicity and real value in an investment.
Holding the precious metals like silver and gold may seem complicated when there are other valuable asset choices that are easier to obtain to store one’s wealth with.
Nevertheless, when those other choices become too complicated, controlled and fundamentally undermined by a country’s loose fiscal and monetary policy, the pure nature of precious metals will surely shine once again as the excellent investments they have always been.