Now we know how many gloom traders were parked in gold; the price of the metal went from $1,551 on September 4th, when investors imagined the worst, to $1,459 today – a $92 drop, when they are optimistic. Silver, the more speculative of the two, hit a high of $19.57 and puked out $3, closing on Friday at $16.79.

Now, baked in the cake (or reflected in the price, in professional speak) is the end of the trade war. Optimism is back on the table; Brexit is the next topic, which, if resolved, could lead to another sell-off in the metals.

What isn’t reflected in the price of gold and silver, though, is inflation.

Better said, the current price does not factor in any inflationary expectations, whatsoever.

Who has been buying gold and silver, since they bottomed in late 2015?

Gold bottomed at $1,053 and silver at $13.88 on December 21st, 2015 and since that time, we’ve learned that it has been mostly governments, central banks and some hedge funds, through the paper ETFs instruments, which have bid up the price.

The average person has not been active at all in this bull market.

You can see that best when looking at the gold/silver ratio. Currently, the ratio fluctuates around the 86:1 level, which means that governments and central banks are buying gold, but the retail investor isn’t buying silver.

Courtesy: Zerohedge.com

You can see that the stock market goes up a lot when the world’s central bankers drop rates to zero, because when judging the alternatives, there aren’t many options that one can choose from.

93% Of Investors Generate Annual Returns, Which Barely Beat Inflation.

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    In other words, it creates the world we have today:

    1. Asset prices at the higher realm of historic valuations: The stock market is NOT in a bubble, but it is expensive. The real estate market is not in a bubble, but it is expensive. Bonds are, in some respects, insanely priced, but are likely to remain as such for a long time.

    Put differently, most financial assets are priced high, because of the belief in more economic stimulus packages from central banks and governments.

    If interest rates were to ever go up (the consensus is they won’t), asset prices would go down by 20%-50%, depending on the industry and the region of the world.

    1. Political Clashes, Resulting From The Lack of Equal Distribution of Policy Success: Who gains from monetary policy, such as QE programs and artificially low rates? The wealthy do.

    Your savings, which normally would command a 3%-4% interest rate, so that you wouldn’t have to give your money to Wall Street, are worth nothing today.

    Courtesy: U.S. Global Investors

    The reason that Americans are feeling financially secure is not because the USA is a productive society, generating real wealth, but because it is borrowing from the future (tax cuts, low borrowing costs, record deficits, influx of capital from rest of the world), so that people are living in a temporary state of convenience, before the true costs are revealed to them.

    Gold bugs are upset at gold, but the truth is that governments are about to give investors a gift, wrapped in a bow, because they will NEVER take the path of defaults. As it looks, they will attempt to tax the wealthy, but the impact will be minimal. They will, then, attempt to incentivize the public to spend, but the public will continue to hoard cash, due to distrust in government and insufficient retirement savings. The option that Washington, Europe, Japan and China will resort to is injections of capital and negative tax rates for the poor, effectively putting money in people’s pockets, until 3% or 4% inflation is noticed in everyday items.

    Gold and silver will continue inching higher, for now, but when the governments of the world (probably after the 2020 elections) begin to focus on managing their deficits, the spigots will turn on for precious metals.

    Until then, continue to add to your positions: no more than 5%-10% of your net worth in physical precious metals and no more than 1% in each mining stock you own, with a maximum of 5 to 10 names.

    Best Regards,

    Tom Beck
    Research Partner, PortfolioWealthGlobal.com

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      Legal Notice:

      This work is based on SEC filings, current events, interviews, corporate press releases and what we’ve learned as financial journalists. It may contain errors and you shouldn’t make any investment decision based solely on what you read here. It’s your money and your responsibility. The information herein is not intended to be personal legal or investment advice and may not be appropriate or applicable for all readers. If personal advice is needed, the services of a qualified legal, investment or tax professional should be sought.

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