The fall in the materials and energy sectors was not matched by the
finance sector. Financial stocks were down, but not nearly as much
as anything commodity related. That’s worth noting. There are at
least some sectors of the market taking note of underlying events in
the real economy.
Energy and materials are not sectors likely to be driven by
enthusiasm for more quantitative easing by the Federal Reserve. In
fact, the fall in commodities and most of the stocks in extractive
industries can be seen as a market repudiation of the healing power
of QE. Bernanke may be pumping up financial stocks and financial
earnings, but he’s doing a whole lot of nothing for the well-being
of the real economy.
It should be noted that all of this price action in gold,
commodities and the stock market happened before two explosions near
the finish line of the Boston Marathon late Monday afternoon.
Markets have become less sensitive to these types of events over the
years. But the explosions in Boston will certainly contribute to a
sense of fear and uncertainty in the markets. In the past decade,
those two sentiments have usually been accompanied by rising gold
prices. But gold is currently in the grip of an epic liquidation.
Who is selling and why? Those are interesting questions. But
ultimately, both are unknowable. It could be leveraged hedge funds
who were long gold or who used gold as collateral to lever up on
stocks. It could be owners of large positions in ETFs. It could be
manipulation. It could be panic.
What are the “fundamentals”? That gold is an asset that is no one
else’s liability, for starters. Beyond that, the last month has
provided you with evidence that in a pinch, the political and
monetary authorities will confiscate your savings. Central banks
across the planet continue to print money and monetize government
debt. These are all facts too.
It tells you that the people who control and profit from the
printing and use of paper money are willing to do just about
anything to retain their rank and privilege. It’s their system, and
it works well for them. They do not like the gold price acting as a
signal of public confidence (or lack thereof) in paper money or
public finances.
But take all the emotion of wild price swings out of it, if you can.
Ask yourself whether you think paper money will gain or lose value
over the next 10 years. And then ask yourself if you would rather
have money in the bank or precious metals in your hands. The answer
to that question will tell you all you need to know.
