Originally Published in Liberty’s Outlook – Volume 17, Issue 9
In the past five weeks, the prices of gold and silver have been extremely volatile. price ranges for both metals have exceeded 14% during that time.
Through today, the price of gold is up 9% from august 3 while silver is down a fraction of 1%.
During such turbulent financial times gold is likely to outperform silver. The reason for that is that gold is almost exclusively a financial asset, where even the bulk of gold jewelry sold around the world is bought on the basis of its intrinsic metal value.
Silver, in contrast, has a significant industrial demand that is generally growing over time. If manufacturers see their sales slump, they will cut production and need fewer raw materials. That will tend to knock down prices of all commodities, including silver, platinum, and palladium.
Overall, I think the extreme volatility reflects a surge of safe haven demand for physical gold and silver which is being vigorously opposed by continuing efforts by the US government, its trading partners, and European allies to keep a lid on prices.
There are so many recent eruptions of bad news that would drive gold and silver prices higher that perhaps the easiest way to grasp the big picture is to discuss some of the highlights in reverse chronological order.
What Is Driving Prices Up And Down?
September 7, 2011 #1: US President Obama is scheduled to give a speech tomorrow night pretending to be a serious attempt to address the need to create jobs in America. Many of the details were revealed today.
In sum, the plan supposedly will take another $300 billion from taxpayers “but not until after the 2012 presidential elections” in order to fund temporary jobs over the next year for people that generally support Democrat candidates.
Part of the funds will come from one more round of inflation of the money supply (disguised by calling it quantitative easing). Little to none of the increase in government expenditures will be offset by decreasing other government outlays.
The planned programs are only slight variations of the previous failed bailouts of the past 32 months of this administration (which has continued the failed policies of previous administrations, only on a grander scale).
Since Obama took office on January 20, 2009, the value of the US dollar has fallen by 53% against gold and by 73% to silver!
The repetition of the same failed policies will quickly drive down the value of the US dollar even further in the coming months.
The announcement tomorrow night won’t have anything to do with trying to create permanent jobs in the US. It will be strictly a political ploy by a US president in great danger of not being re-elected in 2012.
September 7, 2011 #2: Today, Germany’ s Federal Constitutional Court upheld the legality of that nation?s past participation in Eurozone bailout programs.
However, the court also said that the German parliament had the authority to decide how taxpayer money is spent and that no further emergency bailouts could be allowed without first gaining the support of the budget committee of the Bundestag’s lower legislative chamber.
This restriction on future bailouts will slow the process and runs the risk that such bailouts would not be approved.
Many German citizens are incensed at being taxed to support the Euro with bailouts of spendthrift governments in Greece, Ireland, Italy, Spain, and Portugal. These bailouts are seen as endangering Germany’s financial prosperity. There is so much dissension, even among her own party, that there is a possibility that Chancellor Angela Merkel may see her government fall.
Should Merkel be replaced, it is possible that Germany may elect to abandon the use of the Euro. If this happens, a number of major European banks would be at risk of collapse.
September 7, 2011 #3: To reinforce the German court’s announcement, there was a single very large gold sale made with no restrictions on how low of a price at which it might be sold. Within a few minutes, the price of gold dropped about $35.
This is not the trade made by someone interested in receiving the highest possible price for the asset they are selling. When selling large gold lots, prices are maximized by spreading the sale among a number of brokers (each acting without the knowledge of the other brokers’ involvement) around the globe over a period of days. For gold to be sold in the way it was today signifies that it was sold for the express purpose of driving down the price of gold instead of maximizing the return for the seller.
September 7, 2011 #4: In reaction to all of the dismal news, the 10- year Treasury debt interested rate soared by more than 10% today, from 1.979% at the close yesterday to 2.20% at today’s close of trading...
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