Category Archives: Peter’s Commentaries

“Gold’s second quarter price plunge is now the biggest on record, dropping 23% in the last three months to finish a little over $1,200. According to most mainstream analysis, this is just further proof that the yellow metal’s bear market is no fluke. In fact, some commentators insist that this is just the beginning of gold’s price rout and that there is nothing stopping the yellow metal from falling to $800 or lower.

Not only is diminished production likely to halt gold’s downward trajectory, but an imminent supply crunch could also propel gold back to new highs. This likelihood of a strong rebound is supported by both a struggling mining industry, and gold’s historical behavior last time it experienced such dramatic volatility in the middle of a bull market.”

“As usual the Federal Reserve media reaction machine has fallen for a poorly executed head fake. It has fallen for this move many times in the past, and for its efforts, it has tackled nothing but air. Yet right on cue, it took the bait once more. Somehow the takeaway from Wednesday’s release of the June Fed statement and Chairman Ben Bernanke’s press conference was that the central bank is likely to begin scaling back, or “tapering,” its $85 billion per month quantitative easing program sometime later this year, and that the program may be completely wound down by the middle of next year.

“That’s all, folks. One look at the headlines will tell you the gold bull market is officially over: the stock market is booming, a modest recovery of the US economy is underway, and the dollar is dominating the forex. Time to sell your bullion and get back into US stocks!

Does anyone really believe this story at this point? Haven’t we been through this time and again since 2008? Remember ‘green shoots’?

The sad truth is that American investors, accustomed to a world of rising stock and housing prices for several generations, are experiencing short-term memory loss. It’s as if their longing for the ‘good old days’ has made them subconsciously suppress any unpleasant memories.”

“The ‘wealth effect’ from rising home prices combined with the similar influence of rising stock prices creates an aura of recovery. In fact, this week’s revisions to first quarter GDP revealed that consumer confidence and spending are up despite real discretionary per capita incomes plunging at a 9.03% annualized rate. That is worse than the largest plunge during the 2008-2009 crisis (7.52%). Additionally, the household savings rate fell to an abysmal 2.3%, the lowest since the 3rd quarter 2007. Debt-financed consumption supported by inflated asset prices is what led to the financial crisis of 2008. It’s amazing how willing we are to travel down that road again.

Of course rising asset prices are completely dependent on continued Fed support. As we have seen time and again, whenever the Fed even hints at tapering its massive QE programs the stock market sells off. The housing market is even more dependent on that support. Given the risks, it is arguable that no private market for home loans would even exist without government intervention. The bubble that popped in 2008 consisted mainly of government-guaranteed mortgages. This time, the mortgages are not merely government-guaranteed, but government owned.”