Even after five years of the Fed’s most aggressive accommodative policy in history, there is still a lack of hoped for quality credit creation in the economy, which could be a sign that the greatest deleveraging of the U.S. economy since the Great Depression is still not complete. The Fed’s unrelenting dovish policy appears to support this concern.
Economics is an ironic science. You can be perfectly correct about various phenomena in general, but offer completely wrong predictions in detail. Nevertheless offering correct predictions is still a significant skill, even if your theories are wrong.
The financial backdrop to the current prices of precious metals like silver and gold is that trillions of dollars and other currencies have been created to reflate stock markets and attempt to create a recovery in the property market.
Any short term price decline in the precious metals seen during a time of massive economic uncertainty would likely result in physical metal simply disappearing from the market. This would blow up physical premiums.
While I believe the Fed's plan will be a disaster for the economy, the silver lining is that it provides investors with a road map. As the policy of the Fed is to debase the currency, those holding dollar based assets may seek alternatives in hard assets and in the currencies.
It was the launch of exchange traded funds that gave the gold price a huge hike in the last decade. Now China is poised to launch its first gold ETFs bringing this easy way to own gold to its population of 1.3 billion.
The short-term outlook for gold and silver remains volatile, reflecting chronic political uncertainty. In the longer term, however, precious metals may be set up to rise in price as the promised recovery fails and recession leads to depression.
With more than 40 years as an economist to his credit and claiming gold as the "biggest position in my life," the Gloom Boom & Doom Report publisher assures us that gold is nowhere near a bubble phase, but cautions that corrections of 40% are not unusual.