The TF Metals Report’s Turd Ferguson and GoldMoney’s Alasdair Macleod talk about the end of the “Great Keynesian Experiment”, and how precious metals will serve as your best protection against the adverse outcomes that will result from this paradigm shift.
Ferguson explains that Keynesian ideas have dominated economic policy for over 70 years, and contributed massively to the global explosion of debt levels. The thinking was that debts don’t matter as long as the economy keeps growing. We have reached the end of this road now, because the debts are being recognised as unsustainable and the debt service can only be guaranteed by the production of unlimited amounts of new fiat currency.
They discuss how interest rates have been pushed ever lower in an attempt to keep the system afloat and to escape from the debt trap. They argue that bond prices are clearly in bubble territory, and how they are rising due to a circular logic of rising rates signalling fear, leading to more buying of US Treasuries. Turd also notes that whenever the weakening of the dollar threatens to reach a critical point, all of a sudden we see a slew of bearish news appear out of Europe, causing the dollar to recover.
Talking about the metals, Turd thinks that the price declines in gold and silver have been manufactured to allow bullion banks to reduce their short positions — which threatened them with serious losses during 2011. He points out that the silver short position of bullion banks is down by 80% from its April 2011 level, and that these banks are almost at a 1:1 long/short net ratio. Most of these short positions have been taken over by managed money, which is certainly a very bullish contrarian indicator for future gold and silver prices.
Since May the metals have been in trading ranges from $1,530-$1,630 in gold and $27-$29 in silver. Ferguson expects them to head higher again soon. He doesn’t necessarily advise trading the metals markets though, because short-term volatility can be very dangerous. Rather he encourages people to buy and hold physical gold and silver, as they are the best way to protect yourself from adverse outcomes at the end of the Great Keynesian Experiment.
This podcast was recorded on 2 August 2012.