It was 100% predictable and it came to pass: the dollar printing press was cranked up in April and May, and the markets loved it. The Federal Reserve’s rescue mission came just in time, catching a falling equity market and sparking a swift “V”-shaped rally irrespective of the state of the real economy.
While mainstream publications were freaking out because stocks were falling, Crush The Street signaled early on that the markets were going to pump up hard as the Fed printed. As far as they’re concerned, mega-corporations are still “too big to fail” and if the middle class suffers because their dollars are worthless, so be it.
We referred to it as an “L”-shaped recovery, where “L” is for liquidity.
Already a major problem before the pandemic, the divide between the have-nots and the have-yachts only grew as the coronavirus spread. The world is more divided than ever as billionaires and hedge funds are getting bailed out and the largest companies in the world are getting even bigger. Meanwhile, small businesses are getting crushed and families are struggling just to survive.
It’s a stark tale of two realities: Jeff Bezos is on his way to becoming a trillionaire right in the midst of the Great Depression of 2020. Unemployment is worse than it was in 2008-2009 and more layoffs are imminent, so you can’t count on your job to provide a path to wealth and security.
You can, however, count on certain assets even when the economy is in shambles and the system is doing everything it can to keep you financially dependent. Sure, the markets might behave like a casino, but we continue to bet in the casino with precious metals as a reliable hedge against inflation.
As you can see, the resilience and upside potential in gold really shine during times of financial crises. At the same time, large-cap stock market indices can take a very long time just to get back to the break-even point, though most retail investors give up and sell before they can recoup their losses.
In the 2008 financial crisis, the stock market went down 50%+ in 7 months but gold was down just 25% in the same period. And with the Fed printing roughly a trillion dollars, it took gold 7 months to return to its previous high, going all the way to $2,000 from $680. By comparison, it took 6 years for stocks to return to their pre-crisis levels.
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That shouldn’t be too surprising given precious metals’ illustrious track record. For 5,000 years, gold and silver worked together as money: gold was for large denominations and silver was for small ones. In the 1800s, we started using gold certificates and there was no need for silver as money, but it has maintained a steady gold-to-silver ratio and silver benefits as a monetary asset in relation to gold.
What’s old is now new again because the tug-of-war of gold and silver versus fiat money is in full effect now – and history shows that fiat always loses because governments will always print and distribute money. After all, that’s how they line their own pockets and those of their ultra-wealthy friends.
Now, we have 7 times the stimulus we had in 2008. The long-term effect on precious metals is evident. In theory, we could say gold will go up 7x more than what we saw in 2011, but conservatively, if it only does the same thing, we could expect gold to go to $5,000 while silver could blast through $100 per ounce.
Keep in mind that we very well could be in the 4th or 5th inning of the gold bull, but more often than not, the parabolic phase will likely happen in the bottom of the 9th with 2 outs. For now, we’re seeing a slow buildup that will, at some point, culminate in a melt-up that will surprise some people while enriching others.
A similar cycle, albeit accelerated, is likely to occur with Bitcoin. In terms of bull cycles, Bitcoin is also early-stage – at today’s price versus where it’s headed, it’s like looking at the potential of a 5-year-old Lebron James.
The biggest gains come to those who can see where the current trends will lead in 1, 2, 5, and 10 years. It’s not hard to do: just watch the money supply, the Fed’s actions (not its words), and the assets that will outperform as fiat inevitably fails.
Chief Editor, CrushTheStreet.com
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