Gold up, financials down

Through the market closes on Feb. 8, here are the 2016 year-to-date results for some financial markets:

Gold +13.0%

Silver +11.8%

Platinum +3.9%

Australia S&P/ASX 200 -6.1%

Sao Paulo Bovespa -6.4%

Palladium -7.8%

Dow Jones Industrial Average -8.0%

London FTSE 100 -8.0%

Standard & Poors 500 -9.3%

Dow Jones World (ex-US) -9.3%

Nikkei 225 -10.7%

NASDAQ -14.5%

Russell 2000 -14.6%

Frankfurt DAX -16.4%

Shanghai Composite -21.9%

10-Year Treasury Interest Rate -22.6%

After a multi-year run where the prices of precious metals mostly declined while the stock markets gained, it is fair to ask why markets are different thus far in 2016. There are opinions galore to explain what is happening. Here’s my interpretation.

Since their peaks in 2011, the price of gold sank about 45 percent and silver more than 70 percent to their lowest levels toward the end of last year. The trading patterns circumstantially indicate that prices were artificially suppressed rather than the declines being a result of free market trading. With supplies dropping and demand rising, low price levels just are not sustainable in the long term.

As prices were pushed below market levels, changes in supply and demand invariably created growing pressure for a major reversal. No one could say for sure when the turnaround would occur, but it was almost inevitable that it would eventually happen.

With several rounds of quantitative easing (increasing the money supply) in the United States and other nations, precious metals prices should have been rising before now. The gold and silver price suppression kept investors from detecting just how poorly the world economies were doing.

The truth is that the United States and world economies have been weaker over the past few years than the public was being led to believe. So, it is not that the financial news now is suddenly getting worse. Instead, all of the previously unreported bad news is now coming out in a short time frame with current data.

Deutsche Bank, Germany’s largest bank, is a primary trading partner of the U.S. government. Its assets include $75 trillion of derivatives contracts. As such, it is one of the more important Wall Street insiders. Over the past few weeks, the bank has been complaining that the governmental policies of quantitative easing and zero interest rates to support the financial markets are actually having the opposite impact. For a Wall Street insider to publicly make such statements is a sign that the actual financial and economic news is much worse than we have already heard thus far this year.

For these and other reasons, I expect that the divergence in values from precious metals and paper financial assets to grow wider over the next few months. If you were waiting for the right time to acquire some physical gold and silver, you may not want to wait any longer.

Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He is the owner emeritus and communications officer of Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Coin Week (http://www.coinweek.com). His radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).

More Collecting Resources

• Purchase your copy of The Essential Guide to Investing in Precious Metals today to get started on making all the right investing decisions.

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