With the world economy mired in recession and central banks already carrying nearly $18 trillion in debt, an amount equal to almost 30 percent of the global GDP, it’s surprising there are still calls for developed nations to inject even more cash into their sluggish economies. At this point, it’s hard to imagine that currency policy could be much more help to gold prices.
Precious metals were basically flat yesterday morning with gold up $1.05 to $1570.57 and silver up $0.08 to $26.78, raising the silver/gold ratio to a record 58.6.
Right now precious metals are caught in the same deflationary pinch as other commodities and we’re experiencing a tug of war between deflation and investors looking for safe harbor investments. Considering the drop in commodities like crude oil and copper, coupled with the steadily strengthening U.S. dollar, the fact that gold has been able to hold steady demonstrates amazing resilience.
Deflation is going to be limited by demand at some point, as even a depressed global economy is still huge. Economic life has to go on, even if developed countries are struggling. New office buildings get built and need to be supported by improvements to infrastructure and roads. New power plants are needed to supply electricity. At a basic level, people still have to eat. Global trade simply can’t just stop.
What we may be experiencing is the end of the era of steady global growth. It makes sense when you think about it; the earth is only so big. It was inevitable when global growth reached a certain point that it would hit a peak and slow down. You’ve heard about peak oil; think about what we’re experiencing now as peak growth.
Currency policy has been on your side as a precious metals investors for the last 40 years, with governments thinking they could grow their way out of debt. Even if industrialized nations got religion on debt and realism about growth tomorrow, $18 trillion that’s already out there is a massive amount of money to work through. With limited options for investors holding all that cash, they turn defensive and look for ways to preserve the wealth they have. That means buying solid things like real estate, precious metals, art and other collectibles that retain some amount of relative value.
If you have the cash now is the time to be adding to your precious metals collection, while we’re still stuck in this deflationary funk. I’m also weighting my buys toward silver, at least as long as the silver/gold ratio stays this favorable. Opportunities like this don’t come along very often.