Well, the Fed has decided to let the current interest rate stay but continue to talk up the US$. As soon as the news was released, precious metals have a smacked down as the they were shorted, pushing the price of gold by almost US$10 and silver by more than 20 cents. The precious metals recovered by the end of the day and managed to sustain its gain for the day. The mining stocks and related ETFs (precious metals and mining) held firm with some small gains.
Despite being the heavy short selling every time gold or silver moved up in price, it can be seen that it is case of higher lows each time they were shorted heavily. Not too long ago the main resistance were US$1,200 for gold and US$16 for silver. Look where they are now today.
It is frustrating if you are on the side of the precious metals. However it is advisable that you hedge your position by buying the miners and related ETFs.
My favourite pick is still ABX for gold and PAAS for silver. As for ETFs it is GDX for gold and SLV for silver. For some heavy leverage, I also bought AGQ (though it remains a risky bet by all standards)
Despite the recent gains, they are still an attractive buy as they remain severely discounted from their historic high.
Why do I make a reference to the historic price target? This is because things are much worse now than they were in 2008:
1. Despite the NIRP. ZIRP, and QE, the world is seeing extremely low growth. Central banks have pumped in trillion of dollars yet have almost nothing to show for it. The PMI is collapsing, GDP is falling, sales to inventories at its highest levels, consumer and business sentiment is falling, unemployment is farce. Almost 50 million of Americans are on food stamps and almost 100 million of employable age are not working. All these points to a coming crisis much worse than 2008 because since then the world have pumped in trillions of dollars into the economy. In the US, the Fed have pumped in almost 4 trillion dollars (5x the amount in 2008).
Incredulously, central banks are using the stock market as a gauge for a sound economy. And that is the reason why the the Plunge Protection Team continue to boost the US market, The ECB and BOJ continue to buy back corporate bonds (and ETFs in the case of the BOJ), and PBOC, suggesting that NPLs are turned into equity. THEY ARE DESTROYING THE FREE MARKET ECONOMY.
It is almost laughable when Bloomberg reported that the BOJ is the TOP TEN holder of 90% of stocks on the Nikkei.
This market intervention by the central banks are also destroying good corporate governance.
2. Global debt continues to grow. China alone has increased its debt form 282% of GDP in 2014 to 350% this year. Japan's total debt is 517% of its GDP. The US is almost 330% its GDP. How are these debt ever going to be repaid? The world IS facing a debt crisis of epic proportions. The amount of debt required to generate US$1 of GDP is escalating exponentially.
How much was China's debt when it was growing at 10% a year? How much now with 6.5% growth? China and Japan will be the ticking time bombs that will set off a global debt crisis. It's just a case who will be the first to do so.
3. EU is in crisis. The migrant and banking crises will challenge the EU and Euro. This summer we will revisit the same debt crisis in Greece as the ECB and IMF began their tit for tat on what's good for Greece. Italy too is facing a banking crisis. It recently secured a 5B Euro loan to stem its 360B Euro of NPLs. ARE YOU KIDDING ME?!
The emergence of far right parties in the EU will challenge the very foundation of the EU in the coming months. And yeah, throw in a potential BREXIT and we have a series of summer events which could change the face of the EU.
4. Then we have all the countries which are on the brink of severe recession or depression due to the collapse of commodities. Canada, Brazil (the Olympics could be at risk here), South Africa, Nigeria, Ecuador and Venezuela. Even the Middle East is facing tremendous challenge in their budget deficit.
So with so much potential crises at every turn, it will be a series of collapse and this time the world have no major economy superpower to bail it out.
If history is of any guide, we will see a Great Depression similar if not much worse than the one in 1929 - 1939.
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