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Editor’s Note: The article below by Neland Nobel reflects his expertise and long experience in the precious metals and financial markets. Today’s article is published for general readership but in time such superb information will be reserved for Premium Members. We urge the regular readers of The Prickly Pear to consider a monthly subscription to our Premium Content such as this article. At $4.99 a month, the financial information and the excellent cultural, historical, and political pieces offered to our Premium Content subscribers are not found elsewhere and is an excellent way to support our site, a site that reflects the rise and quality of citizen journalism effectively countering the legacy media’s propaganda and extreme bias.

It seems a long time ago, but just back in February, we were discussing how gold was entering a phase of its bull market characterized by little notice and minimal public participation. At the time, public flows into bullion ETFs were very slow, and it appeared that Western investors were not a significant factor in the market.  The gold market was being driven primarily by investors in the East and Central Bank buying.

Conditions are changing, as flows from Western investors have increased substantially.  Central Bank buying continues at about the same robust rate as it has over the last two years. Still, our contact with those dealers in the physical market suggests that it is still mostly liquidations by the public, rather than new purchases. But gold has risen from $2,800 per ounce when we wrote in February to over $3,800 now.  That is quite a move, considering much of the public is still sitting on their hands.

Later, on June 11th, we suggested silver was entering a new dynamic phase and that, while we saw both metals advancing, we thought silver would start to outperform gold in the short term.

How have gold bullion, silver bullion, and the mining stocks we recommended done so far this year?  We are pleased to report that the markets at least did not make us look foolish for our bullish recommendations. Whew!

As of September 29th, here is the performance year to date:

Gold Bullion is up 47.5%

Silver Bullion is up 61.5%

GDX, the gold mining ETF, is up 125%

SIL, the silver mining ETF, is up 126%

The S&P 500, is up 14.6%.

Bitcoin is up slightly more than 22%

In short, the precious metals and related equities are blowing the doors off the market, and yet, in our view, they still receive little attention.  Remarkably, metals are also outperforming Bitcoin. Perhaps central banks see features in gold that they cannot obtain from electronic money.

The still tepid approach by the public to the metals is likely a positive. That means there is considerable room for more investors to allocate some of their funds toward the metals.

The markets are once again slightly overbought in the short term, and a correction is always possible from such a condition. But one of the real “foolers” this year is that corrections have been brief and shallow, and have not really let investors in at bargain prices.  Those waiting to buy a big dip have been left wanting.

On June 11, we published a special piece on silver for our  VIP subscribers. So special that our sponsor, American Precious Metals (602-840-5500), even offered special discounts on purchases. It appeared that silver had broken significant chart resistance as it was going to kick into high gear, even outperforming gold. Well, how did that work out?

Since June 11, gold bullion has increased by almost 16%, while silver has risen by about 28%. Thus, while both metals have appreciated, silver has outperformed gold, as we had expected.

GDX is up over 48% since that article, and SIL, representing the silver mines, is up 49%.  We are somewhat surprised that the silver mines did not perform better, given the metal’s outperformance, but those are the numbers.

Gold just hit another historic milestone.  It has now eclipsed its high in 1980 in constant (inflation-adjusted) dollars.

We think silver will eventually follow.  While silver is currently under significant nominal resistance at $50 per ounce, once it breaks out above the old nominal high, to achieve a new high in constant dollars would require a price of about $194 per ounce!

The fundamentals for silver are different from those for gold.  Currently, central banks are not significant buyers, but we can’t rule that out.  In any case, once silver breaks historic resistance at $50, we would expect higher prices.

Incidentally, the discount offer from American Precious Metals will still be honored when you call them, but you must use the promotion code “Prickly Pear” to receive it.

While the markets are temporarily overbought, the big macroeconomic fundamentals remain favorable, suggesting even higher prices to come.

Without going into detail, the following positive fundamentals remain:

The US government and all Western Governments are caught in a debt trap caused by poor demographics and illegal immigration, hitting their social entitlement programs. This, plus interest on debt and defense expenditures, is the bulk of government spending.

Indeed, in the US and elsewhere, the lowering of interest rates despite persistent inflation demonstrates that the policy choice is an attempt to “grow our way” out of our debt crisis. The precious metals markets have taken note that governments are now cornered into what Richard Russell used to say was a condition of “inflate or die.”

After initial attempts to placate Putin by Trump, Putin has responded by widening his attacks on Ukraine and solidifying his relationship with the Communist Chinese. Our involvement in the war is likely to widen, and most European governments have vowed to re-arm. The peace dividend from the fall of Communism has long passed, and global rearmament is underway. This will put additional pressure on Western governments’ fiscal finances and challenge supply chains that are so dependent on China.

Central Banks will continue to accumulate gold, according to a recent survey by the World Gold Council. As they state in their report:

This year we set a new benchmark, drawing in 73 responses – the highest since our survey commenced eight years ago. The sample is highly representative of the overall central bank community, both geographically and in terms of gold owned. And the increase in participation is not just a number; it is a powerful signal of engagement with gold amongst the central banking community. These responses add depth to our insights into and understanding of gold’s role within reserve management.

… Respondents overwhelmingly (95%) believe that global central bank gold reserves will increase over the next 12 months.  

…The majority of respondents (73%) see moderate or significantly lower US dollar holdings within global reserves over the next five years.

Flows into popular ETFs, such as GLD, are now quite positive, as opposed to the sluggish flows seen earlier in the year.  Increased bullion buying from the public, coupled with continued central bank buying, puts a strong underpinning to the gold price.

Wall Street has never been fond of gold because gold bug arguments tend to discourage the purchase of its other products.  However, the outstanding performance of the metals is evident, and more and more companies are revising their price targets upward.

One major investment house, Morgan Stanley, even suggested the 60% stock, 40% bond portfolio is dead.  They suggest, instead, a 60% stock, 20% gold, and 20% bond portfolio.

For most of my career as a financial planner, the firm I worked for would have a fit if an advisor suggested more than 3-5% in gold-related investments.

We believe this tectonic shift by Morgan Stanley will have a ripple effect.

The reason:  we have reached the stage of the worldwide budget crisis where it is “inflate or die.” Nobody wants to take a chance on austerity, and no one wants to gamble their political future on cutting popular but poorly funded social entitlement programs. Currency debasement is the only way to reduce the debt burden, by basically defrauding long-term bondholders. Our politics are too divided and unprincipled for the government to undertake a significant change of course.

All Western governments will continue to spend much more than they receive in tax revenue, and that deficit must be financed, likely by a mix of borrowing and currency depreciation.