Gold Predicting House of Cards Collapse

Given the second and third largest bank collapse in US history occurred in the last week it is somewhat surprising stock indexes across the US haven’t tanked. With SVB falling over and its tech heavy weighting, you’d have been forgiven for placing large bets on the Nasdaq to be an awful lot lower than it currently is. Then when you look at the several other large banks that have had recent bailouts, its curious to say the least that the benchmark US stock markets haven’t wobbled a lot more.
 
Make no mistake though – what has happened in the current climate is 100% Federal Reserve designed. Raising interest rates at the pace they have in such a short space of time will break an economy. Banks have been exposed previously to high levels of reckless lending and gambling that caused the collapse of several too big to fail banks in 2008. To counter this, The Bank of International Settlements created the Basel accords and under the Net Stable Funding Ratio lending should be fully substantiated against the sum of liabilities and assets on bank’s balance sheets. This should have changed the way money is lent; however there is always a loophole. Wall Street’s cavalier attitude towards risk has led to a derivatives market estimated to be somewhere in the region of $600 Trillion. Staggering when you consider this is made up of absolutely nothing tangible.
 
Money is placed into all markets based on anticipation of a fundamental event that will change the direction of price. Historically when something as serious as a banking collapse is teetering on the precipice, investors would have pulled money out and markets would be a lot lower than they currently are as fear and panic sets in. Our suspicion is that the reaction of the bailout has caused a very short term feel good factor that and this will only end badly as we see the last two weeks in March get ugly. Absent a statement from Jerome Powell promising QE, we have no doubt the markets are going lower.
 
Contagion is the biggest fear the Fed has. If this turns into a bank run then there is nowhere near enough collateral in the fractional reserve system and the Fed will have no other option than to print. This however is still akin to taking a knife to a gun fight. When Biden addressed the nation and says there’s nothing to worry about, one should take this as contrarian.
 
So where does this leave the best place to invest your hard earned cash? Well if you put money into the S&P 500 in March 2021 you would be breaking even (nay in real terms you’d be down on your investment) Using the same time frame, had you ploughed it into gold, you would be around 15% up.
 
But gold is a barbarous relic of the stone age that doesn’t have any place in modern society, is an archaic lump of metal that is resigned to the history books in today’s digital world. That is the view of the Bitcoin generation that still believe crypto is a no brainer. (It only goes up doesn’t it?!) So let’s take the same timeframe of two years. Had you put your money into Bitcoin, you would be experiencing a 54% loss today.
 
Sure, timeframes can be manipulated to suit any argument for or against. However cryptos don’t have the historic baseline that other financial assets do. You cannot state that Bitcoin is a store of wealth as it just hasn’t been around long enough or held its value through tough times like other safe haven assets have.
 
And it would seem that gold traders are of the same opinion. gold has just had its biggest weekly rally since the Covid collapse of three years ago. gold smells fear, and right now there is an anticipation that the global financial system is dancing on the trapdoor of catastrophic failure. Should we get a massive collapse, gold isn’t immune from short term tanking as margin calls will lead to money being pulled from profitable positions. Should this occur, it should be seen as a buy the dip opportunity.
 
Looking at the weekly chart gold is close to all time highs (It already is in many currencies including the Pound, Euro and Aussie Dollar) It has settled at the second highest weekly close on record.

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When you consider gold’s all time high in 2020 came against the backdrop of the Dollar index in its early 90’s (10% weaker than it is now) and the yield on the 10 year treasury note under 1% (currently 3.43%), no one could argue gold isn’t a lot stronger now than it was back then. When you consider the Fed’s position that rates have to go lower soon, the mess the bond markets are in, and the less than sanguine look on the financial horizon, one should view this as a short term trifecta of fundamentals in gold’s favour.
 
However, there are many including the Fed that do not want to see gold go higher, and the reason for this is very simple. When gold hits $2500/oz (and it will although it’s a fool’s game to offer a timeframe) financial institutions will start paying attention to it, as it will signify a colossal loss of faith in the dollar, and fiat currencies generally. QE is coming again, the Fed knows no other way. They need the debasement of currency and ensuing inflation.
 
The FOMC meeting takes place on 21st and 22nd of March. The markets perhaps haven’t wobbled as much as they should as they are predicting a Fed pivot on monetary tightening. Inflation has been harmfully sticky and there is still pressure on the Fed to raise rates and maintain what small amount of credibility they have left. The banking crisis is nowhere near rear view mirror stuff and this must be taken into account.
 
gold is a number of things, but ultimately for the last 5000 years up to the present day it has been money. It has no favourable tie to any nation’s currency and is universally accepted. gold has spent over a decade building a technical base under $1900/oz after touching it in 2011. When you consider how it has performed and look at the chart patterns we’ve no doubt the last few frustrating years will be looked upon in the future as that time in history when you could have bought gold under $2000/oz. We still believe the clever money is accumulating and has been for some time.
 
One more thing – the gold/Silver ratio is current 1:88. This is totally disproportionate to the fundamentals and historical norm. Keep a very, very close eye on gold’s baby sister as the potential for take off is enormous. gold always leads the way, and Silver when it does catch up goes like a rocket. Physical ownership is a must.