The Fiction Finally Cracks And The Silver Price Stabilized

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If the Federal Reserve Ever Really Stops Printing Money, Will Their “End of Easing” Actually Be Bad for Silver and Gold? – Is Safe Haven Buying of the Precious Metals Back as the World Economic Reality Finally Sets In? – Have We Really Managed to Dodge the Hyper-inflationary Bullet?

The Fiction Finally Cracks And The Silver Price StabilizedThis past week turned out to be an interesting one in world markets. The glorious fiction that mainstream financial media propagates began to crack. World economic data releases were weak and pitiful at best. Stock markets around the world actually pulled back in an atypical reconnect to reality. Silver market prices at last stabilized this week after a volatile down week prior to that.

For the spot market week that ended Friday, May 24th, silver opened at $22.30 per ounce, and closed at $22.39 an ounce. This plus nine cents per ounce gain was silver’s first positive week in a month.

Mainstream media did not attack silver as aggressively as usual. Maybe they had bigger fish to fry this time. Still, they did argue that the Fed will stop printing money and kill precious metals, that safe haven buying of precious metals is over, and that we will never see significant inflation in the cards since we have not so far.

If the Federal Reserve Stops Printing Money, Will It Be Bad for Silver and Gold?

The Federal Reserve Chairman Helicopter Ben Bernanke is not usually one to look like a fool. Yet somehow, this week he actually sent two conflicting messages at almost one time. Wednesday he testified to Congress that weakness in the U.S. job market persists. This makes it too early for the Fed to put the brakes on its historically extraordinary stimulus (money printing) programs.

He claimed that there is some economic growth and that the unemployment rate is down to 7.5% (that is a four year low?!). On top of that, Big Ben Bernanke said that the huge spending cuts and higher taxes courtesy of “the sequester” and end of the Bush era tax cuts will slow down the little bit of economic growth that does exist later this year.

The summary of his comments amounted to this: if the Fed lessens its efforts to artificially keep the borrowing rates low, then there is a “substantial risk” that the so called American economic recovery will slow or die completely.

At the same time, Bernanke and several Fed Presidents questioned the need to keep up the bond purchases (money printing) at their present pace of $85 billion per month. Some of them have argued (rightly so) that the extended period of artificially low interest rates and bond purchases could cause inflation to surge.

Alternatively, there could be new asset bubbles inflated. So Ben Bernanke hedged his proverbial bets by also arguing on Wednesday that the central bank could start to wind down its $85 billion per month money printing spree during one of the next few meetings. This assumes that economic data will keep getting better, naturally.

“Helicopter” Ben simply can not have it both ways! Either you will stop printing (and air dropping) money at the next few meetings, or you will keep printing money (or you might print still a greater amount of money, as he has also testified is possible)! You can not do all of them at once.

This crazy confusion in monetary policy frightens the markets. The markets have demonstrated it by careening one day and roaring back the next day. This wild volatility is bad for equities and bond markets, but excellent for the precious metals markets.

Silver and gold thrive on this kind of insane uncertainty. If and when the end of easing does actually ever arrive, the economy will go into a tailspin from the termination of economic life support. At this point, the only comfort to be found will lie in the precious metals complex.

Is Safe Haven Buying of the Precious Metals Back as the World Economic Reality Finally Sets In?

Financial media has been drumming home the theme that the safe haven motivation for silver and gold is now obsolete. They claim with world economies growing again and the financial sovereign debt crisis in Europe laid to rest that there is no longer any reason to own the “barbaric relics” precious metals.

This is one of the main arguments that the talking heads have offered you for why gold (and especially silver) prices have not managed to stage a more impressive comeback since the major sell-off of a few weeks ago.

Now, it is time to come back to the real world! Any growth in the global economy is slight at best. This past week, a cold dose of reality rained down on the happy go lucky politicians and their allies, the members of the elite financial media.

The Japanese stock market plummeted seven percent on Thursday. Chinese manufacturing data released that day showed the Chinese economy in contraction. Their HSBC manufacturing PMI plunged to a level of 49.6, the lowest number in seven months, and below the key 50.0 level that separates economic growth from contraction.

From the European Union, which represents a full quarter of world economic output, the data was similarly grim. The Markit Purchasing Managers Survey that covers the Euro Zone countries turned out to be 47.7. This also indicated contraction below the critical 50.0 level.

Then, ECB governing council member Ewald Nowatny added insult to injury when he observed publically that the EU economy shows no improvement anywhere in sight. This sage (yet still painfully obvious to objective observers) comment follows a full year and a half long slump and contraction in the overall EU economy.

The significance of these economic reports lies in the fact that between the Chinese, Japanese, and European Union economies, you are talking about something like half of the entire world economy! Interestingly enough for the precious metals, gold managed to shrug off the industrial implications of all this negative world wide economic data, and actually rallied as a safe haven metal again.

Silver also held its own ground for the week and even gained a few cents. This is no small feat when about half of silver’s demand comes from industrial use applications. Safe haven demand buying is not at all dead; it has just gained a whole new lease on life…

Have We Really Managed to Dodge the Hyperinflationary Bullet?

More often than not, you are reading economists and analysts say that inflation is not in the cards. They believe this despite the fact that the global central banks have increased the world’s money supply by over $9 trillion US dollars!

The Federal Reserve and Treasury have exploded the U.S. money supply by a staggering over 400% since 2006/2007!

Yet there are even now mainstream pundits out there who will argue that deflation, not inflation, is the imminent threat. You could not make this stuff up if you tried!

So what happened to the much talked about inflation that has so far not officially materialized? We use the world officially because any of you who have taken a trip to the grocery store, McDonalds’, or the gas station lately know all too well how devastating inflation has become since the Financial Crisis erupted in 2007. Yet economists point to the CPI official U.S. inflation indicator and scream “what inflation?

David McAlvany has the answers to these burning questions about inflation and the precious metals prices. He puts the whole central bank money creation effort into an easy to understand perspective for you.

The $9 trillion worldwide money printing bonanza is such an enormous quantity of greenbacks, Euros, Pounds, and Yen (worthless paper bills the lot of them), that you could purchase a new flat screen TV for literally every man, woman, and child on planet earth.

McAlvany is forecasting gold prices of $5,000 by 2016 to 2017.

If that sounds far fetched to you, then consider this. The ingredients for runaway and even hyperinflation are in the world economic stew pot already. The only reason that you have not seen super inflation yet is because the proverbial electric mixer is broken. Inflation is not yet being transmitted through to the real economy, but you are closer to runaway inflation than you can imagine or appreciate.

As far as the widely held theory and argument that equities can still rise along with inflation, there is something serious to consider. Stock market insiders are almost all selling now! In fact, they are cashing out at a record rate.

McAlvany reported that the insiders are playing along with the idea that a bird in the hand is worth more than two in the bush. He warned retail investors to take care here. Professional investors may manage to squeeze maybe five or ten percent more out of this totally detached from economic reality stock market rally. Yet this is already the point where the working man will get crushed like a bug when the correction (okay, let’s call it what it will be – a crash!) arrives.

When this time comes, you had better not have let the evil empires of financial mainstream media fool you. Despite their disdainful attitudes towards the “out of mainstream favor at the moment” precious metals, not one paper currency in history has ever lasted. Not one, period. You had better be long the only real currencies that have stood the historical test of time, for all time. Those hard currencies were, are, and always will be – silver and gold.

The eight thousand year old track record of monetary history is not wrong.

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