GOLD & SILVER: The Ultimate Hedge Against Everything That Is Wrong In The Markets

Today we are getting another whiff of what’s wrong in the markets.  Currently, the Dow Jones Index is down over 500 points, and the NASDAQ is off by more than 100 points.  Who knows where the markets will finally end up at the close of trading, but it really doesn’t matter.  Markets aren’t valued in days or weeks; rather it takes months and years.  So, be patient, and you will be rewarded with at least a 50% decline in the Dow Jones Index.

Unfortunately, a lot of traders, even some frustrated precious metals investors, forget about the STAGES OF A FINANCIAL BUBBLE.  It seems like after about ten years, all memory of the 2008 Financial Meltdown has been all but forgotten.  While I can understand the “This time is different” by the Mainstream Media, I have to get a kick reading comments by disenchanted precious metals investors who have been swayed by the rampant insanity in the markets.

So, let me publish the stages of a financial bubble to remind those who have either been brainwashed by the Mainstream Media or who have just forgotten the fundamentals:

If I had to make a reasonable guesstimate, I would imagine we are somewhere going down the Peak slope or close to the Denial Stage.  However, once the Dow Jones Index falls below 20,000, we will know that the markets have entered into the Fear Stage.  During the Fear Stage is when I see the price and demand for precious metals to increase.  As we enter the Capitulation Stage, then we could experience precious metals demand like we have never seen before.

Let’s take a look at the current Dow Jones Index chart.  As I mentioned in several articles and videos, nothing goes down in a straight line, and it will likely take 1-2 years before the Index reaches its lows.  However, this will not be the Dow’s ultimate low.  That will probably take another 10-15+ years.

The Dow Jones Index hasn’t experienced this sort of volatility since 2007.  Even though we had some corrections in 2011 and 2016, this current volatility is even worse because the FINRA margin debt is also near a record high.  But first, before I show the FINRA margin debt table, let’s look at the MACD technical level on the Dow Jones Index going back until 1982:

If we look at the MACD technical reading on the bottom of the chart, we can see a very ominous setup.  The Dow Jones Index high trend-line (upper black dotted line) is about 1,000 on the MACD.  As of trading today, the MACD is at 1,761.  However, when the markets crashed in 2009, the MACD fell to a negative 1,000+ points.  So, as you can see, the Dow Jones Index has a long way to fall before it first gets to the “O” base-line.

Again, if you believe this time is different and you can’t see how over-valued the Dow Index is based upon the MACD technical, then maybe it might be prudent to allow a Doctor to take a Cat-Scan or MRI of the space above you neck.

That being said, I do believe the TOP in the Dow Jones Index was likely 26,600.  While we could see a higher high on the Dow, it’s probably a slim chance.  Regardless, the folks at the NYSE stopped providing investor margin debt information at the end of 2017 because it just wasn’t necessary anymore.  I gather the NYSE assumes that when the markets implode, and along with it, the margin debt, then THE END IS NEAR:

Gosh… this has to be one of my favorite cartoons by Mike Luckovich.  I will be reposting this cartoon on very BIG DOWN market days.

The wonderful folks at FINRA are still doing GOD’s work by providing us this important information on the INVESTOR GREED FACTOR.  Why “greed factor?”  Well, if you are trading on margin and are doing so at the top of the market, unless you have completely lost your marbles, then one must be stupendously greedy.

For those who don’t know what FINRA stands for, it’s the Financial Industry Regulatory Authority.  While the majority of investor margin debt is on the NYSE, the remainder is on other misc markets.  According to the most recent release, FINRA margin debt fell from a peak of $665.7 billion in January (top of the market) to $645 billion in February and March:

While investors were spooked in February, it looks like they are still in the Denial Stage (first chart above).  However, once we start to slide down the Fear Stage, the FINRA margin debt will implode in glorious 3D Technicolor.

To get an idea of where we are with the FINRA long-term margin debt, here is a chart from the folks at Advisers Perspectives:

As we can see, the current FINRA investor margin debt of $645 billion is 30% higher than the peak in 2007 and nearly 50% higher than the top in 1999.  So, it looks like the $645 billion of margin debt has a long way to fall before it gets back to a low of around the low of $200 billion.

Regardless, the markets will continue to be volatile before we head down to the Fear Stage.  However, it’s likely a good idea that individuals consider owning the best HEDGE, Precious Metals, against everything that is wrong in these markets before things get ugly in the markets.  Please understand this is not a recommendation, but just something to consider before the markets become unglued.

IMPORTANT REMINDER:  The Gold & Silver prices will not collapse along with the broader markets because they have been close to their lows for several years now while the markets are near their tops.  I will be publishing an article on Top Two Gold Miners cost of production towards the end of the week.

Lastly, I remain steadfast on my oil price forecast.  While we could see higher oil prices due to the geopolitical and trade war machinations in the markets, the oil price will eventually fall when the markets start to disintegrate.  I see the oil price down in the $30 range when the Dow Jones Index has lost 50+% of its value.

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44 Comments on "GOLD & SILVER: The Ultimate Hedge Against Everything That Is Wrong In The Markets"

  1. Thank you Sir~~~~

  2. Steve,

    Question I have is: Is the reduction in margin debt simply a reflection of the drop in the market or is the market getting more cautious?

    It will be interesting to see what it is in April.

    Thanks,

    SteveW

  3. I am adding more Bitcoin. I’ll thank me later.

    • Jason,

      I will thank you and all of your similarly minded crypto buddies right now. As long as you guys keep pushing cryptos, nobody seems to be paying any attention to silver, so every month I get to buy more at cost.

      Thank You! Keep up the good work.

      SteveW

  4. Believe it or not, it’s still possible for gold and silver to go down in price. Why? If there are margin calls coming in and debtors need to liquidate assets to raise their credit they could liquidate their gold and silver comex positions to do so. We shall see if that happens. If it does, I plan on taking advantage of the situation cause those prices won’t stay there for long at all

    • Scott,

      I am glad you brought up the supposed Gold & Silver Margin calls. While the gold and silver prices could head a bit lower, I don’t see much downside compared to the markets. The only way the Speculators on the COMEX would have to sell due to margin call is if they were EXTREMELY NET LONG. Please take a look at the following COT REPORT on Silver:

      The Large Speculators in Silver would need to hold a HIGH amount of Net Long positions as they were during the same period last year. The Large Speculators (Light Blue Bars) held over 100,000 Net Long positions last year when the silver price was $18.50. Currently, the Large Speculators are NET SHORT. They wouldn’t be selling on the way down if they are net short.

      steve

      • Many times in the past the margins which demanded coverage were on the stock exchanges not the Comex. It would seem even stock mkt players held physical in reserve.

      • Unfortunately backwards information as it was the situation 8 days ago just before the silver spike which allows commercials to increase dramatically their shorts.

    • Scott,

      Your theory is good if you want to end up buying paper PMs. When margin calls force sale of paper PMs the price will go down for a short while but the only thing you will be able to buy is paper PMs. Take advantage of the PPT and the manipulators now while you can buy physical for cost. Don’t wait. You won’t save much and you will buy the real thing – ounces you can hold in your hand. The paper ones won’t be worth the paper they are printed on.

      If you don’t hold it, you don’t own it. Buy for cash and stash.

      SteveW

    • Yes, I agree, when the PM paper charade called CONeX/LBMA goes bust the paper price of paper gold might go to zero, which is the intrinsic value of these unbacked, completely naked short AND long future contracts that set the “price”. If gold should drop hard (stopping out and obliterating all the paper longs in the arena) this may well be the sign for an imminent system-crash or reset – physical gold and silver will be unavailable (in size). I’m still of the opinion that with the leverage of 100+ paper ounces to 1 every physical ounce available (which is probably rehypothicated 100 times) the metals cannot orderly trade up to what their fair value in a honest and transparent fizz-for-cash market. At some point they will cash settle all contract holders / speculators and next time trading will resume (post-reset) many multiples higher from the mentioned paper-settlement-prices (pre-reset). Time will till if this scenario is anything close to what will eventually happen. GLTA and a great thanks to Steve for sharing his insights and work with us on an outstanding blog.

      • chx13, Don’t throw out the baby with the bathwater! In times of major disruptions, history will once again, if not repeat itself come pretty darn close. The physical has done an outstanding job of representing real money during those trying times. The charlatans who have lied all these years about the gold and silver prices will have a very hard go at it to convince anyone to once again follow their lead! Cryptos may also help the physical secede from the make-believe paper after the “reset”.

  5. Carl Richardson | April 24, 2018 at 6:25 pm |

    I am sure the 3 major stock markets have entered the first part of Distribution which looks like a set of stairs as you walk down them . The Distribution is the big money players carefully over a period of time selling and locking in profits from the bubble before it plunges .Also world gold production has declined every year the past ten years . This combined with the panic to get into Gold & Silver when capitulation invades the market will result in Gold and Silver prices going up rapidly to record prices .

  6. Utility has value and cryptos are the best at transmitting value quickly and securely. Gold and Silver have value as a store of value. I doubt Gold and Silver will be money again. Why? I personally value silver very much and will not be willing to exchange it for toilet paper at the local grocery store. I believe silver especially will be come so valuable that TPTB will classify it as a strategic metal. So I hold my cryptos and plan on selling one bitcoin for 100K around Christmas this year.

    “Visions of monster boxes dancing in his head…..”

    • I think with that sort of conviction, you should go ALL-IN crypto. You’re sure to make a killing 😉

      • Personally, I have made a lot of money in cryptos…and will make much more. That doesn’t mean I don’t believe what Steve is saying BUT, Making money is making money. Staying in silver for the last 10 years was not profitable for me, was it for you? Do not underestimate the crypto world, there’s a lot of money to be made there.

        • Touche

          I haven’t been in silver for ten years, nor am I “all in.”

          If I had money to speculate with, I might take a bite at the pie. But I don’t, or rather, there are other speculative instruments I would rather take my chances at.

    • “cryptos are the best at transmitting value quickly” Unfortunately, they can only be converted to FIAT. Nice try, GLP. Let’s see what $100,000 fiat will purchase compared to monster box of silver. No thanks, I play both sides but have been long silver before you were born. Good luck.

      • $100k in fiat will buy 10 monster boxes, you ignorant slut.

        In my home I have many bottles of scotch, wine, and beer. There is no war between them. Bullets, bullion, glint, crypto and cash… what the fuck is your problem?

        • knowshitsurelock | April 25, 2018 at 2:19 am |

          Your post reminds me of this new book just out…”What happened”? Hillary Clinton.

          Both the Question and the answer are on the cover, so need to dig any further.

          Maybe you better stop mixing your own drinks…wink wink

      • PM investors hate towards crypto makes no sense. Crypto offers an alternative to the USD currency. You see PM guys spit more venom about crypto than fiat. Perplexing from a logical perspective, understandable from an emotional human nature perspective. I bought some bitcoin back in 2015 when the same USD price could have netted me a 1/4 oz AGE coin. I traded that bitcoin for 10 ounces of gold in late 2017. So was I stupid for buying the BTC when I could have had a 1/4 oz AGE two years prior? I believe in both bitcoin and gold/silver as alternatives to fiat currency. Sometimes PMs are the superior buy, sometimes it is bitcoin/cyrpto. One thing is for sure, if you can’t handle volatility – stick to PMs.

        I have no problem with legit arguments against crypto, but stating that they can only be converted to fiat is complete hogwash. I’ve bought furniture, gold, silver, local services, airline flights, and next year I will buy a car with bitcoin or ethereum. It’s okay to remain ignorant on cryptos, but don’t spout off like you actually know anything about them in that case.

      • ““cryptos are the best at transmitting value quickly” Unfortunately, they can only be converted to FIAT.”

        WRONG, WRONG, WRONG. I can send Bitcoin to a number of online bullion dealers and get gold and silver in the exchange.

        Some people just don’t want to see the truth…..

    • I would trade silver for toilet paper, if the basis made sense. Come to think of it maybe that’s why I buy rolls of mercury head dimes. Au/Ag are always money, but I think you meant gold/silver won’t be ‘currency’ again. I get that. But the situation could change and make physical necessary as currency. If we look for it, we can use gold/silver as currency right now through various new methods.

      • knowshitsurelock | April 25, 2018 at 2:26 am |

        Toilet paper and hot water are civilization. Gold and Silver are money. fiat currency is toilet paper w/ sliver in in it….OUCH!

    • DisappearingCulture | April 25, 2018 at 12:15 pm |

      “So I hold my cryptos and plan on selling one bitcoin for 100K around Christmas this year”.
      I shouldn’t laugh so hard with my hernia condition.

  7. Arnold Ziffel | April 24, 2018 at 8:54 pm |

    Margin requires that you pay an average interest rate of +7.5% with borrowings limited to 50% of the market value of the value of marginable securities in the account. Talk about pain if the market rolls over. So if you are underwater and can’t honor the margin call what do investors typically do? They pick the flowers (FAANG) and grow the weeds in hopes the market rebounds to avoid losses.

  8. Unlike a lot of folks I got out of the markets about 6 – 7 years ago. I decided to get rid of the stress. I have purchased about 12 – 13 thousand oz. of silver including a bag of ( junk silver ) as people call it. I have paid off all bills including my house and land.
    I own no cryptos because I have failed to keep up on them and not because I don’t care for them. I am now concentrating on collecting bartering items such as ammo, smokes, booze, toilet paper, that kind of stuff. I also collect some different kinds of metal to make things. I also am working on producing my own energy and water supply, growing my food. The way I have approached this coming crises is to collect PMs first which I have, don’t sweat what I don’t understand ( cryptos ) and do what I do understand which is being as self sufficient as possible and making alliances with my neighbors in my small community. This will protect me and my family and after all that is what life is all about. Well; maybe a couple of more things like not to worry and having a good time with said neighbors. So, get after it folks and don’t stress the small things. Keep Stacking.

    • If the crisis is acute enough, bands of zombies will kill you and your family because you will have supplies. It is risible on the part of PMs peddlers to claim that the armaggedon is coming so you have to stack. One cannot eat metals and the only chance of survival an armaggedon is creating closed strongly armed communities which are able to defend themselves against hundreds of hungry bandits.

      • Your quote : “One cannot eat metals . . . ”

        Neither can one eat fiat money. Nor can one eat crypto-style Fiat like BitCOin. Or insured Bank CD-s, or Stock Certs, or T-Bills . . .

        Money, unless it is freeze-dried food, ALL MONEY OR MONEY SUBSTITUTES CANNOT BE EATEN, and thus money exists — IN PART — to transmit value during a mutually-beneficial exchange.

        Saying “One cannot eat metals” is not useful information — in any way — when all of the money-substitutes are comparatively considered.

        SnowieGeorgie

        • SnowieGeorgie, I’ve never heard it put that way. What an excellent definition! It is hilarious how some take offense with silver as money, so they try and come out with every cockamamie excuse to avoid it like the plague! I’m glad to know someone understands the truth about real money! Cheers!

  9. Steve,

    In previous big downturns ,does the price of PM’s drop with the markets during the initial crash. If so, How much, how long etc. etc.

    Keeping my powder dry for now, but think a downturn is coming.

    Thanks

  10. No offence to anyone, but the idea that one cannot eat precious metals is false.

    Yes, I know that this is meant in a figurative way. It’s a tired cliche. Truth is than t most people who have starved to death in history did so not because of lack of food available, but for lack of money.

    Silver are money. I’m sure that very few people with a decent amount of silver and/or gold ever died of starvation.

    • Norman, You bring up a good point. If things overall get that desperate there will be an understanding about physical gold and silver that will revert back to days when it took on the role of true money. There will also be those where food supplies will be available for exchange. Opportunities for all kinds of other things as well will be available. The US is loaded with assets.

  11. Apparently Ed you failed to read all of my post. I said small community, very small. About a 1,000 and remote. A very good friend of mine was in special forces and we already have a perimeter set up and I defy anyone getting thru without us knowing and I have the fire power to back it up and help close by should it be necessary. We grow food and meat and we just pray it will not be necessary to use force. Neighbors are like minded and welcomed.

  12. Billy Lone Bear | April 25, 2018 at 11:31 pm |

    What if stock indices won’t be having a significant crash as they are part of the hyperinflation (that were all waiting for) disguised as a good economy?
    I heard somebody mention that anything below a 10% correction for more than 90 days causes pensions to fail as they’re already nearly failing as is. This isn’t to say that Stocks and Real Estate aren’t fundamentally overvalued just to say that perhaps were already experiencing the hyperinflation with commodities/metals being manipulated to just over their cost of production to as this is what alerts the masses to how bad things really are.

  13. Steve I have a question- I have noticed the price of gold quoted on Kitco is different from the Shanghai Gold Benchmark Price which actually trades physical on deposit gold. Example- 4/26/2018 10:53 AM Kitco Gold Spot-$1316.70 / Shanghai Price in US Dollars- $1336.80. This is a difference of $20.10 or 1.5%, what is going on here? DCW

  14. Amazon hitting after the bell a new all time high with a combined rise 10% with today.
    Stocks are going to explode higher. In a quite short time FANG market cap will rise above 10 trillion.

    • RD,

      Maybe it might behoove you to look at Amazon’s Financials before you make absurd comments. The only individuals who believe Amazon is smashing earnings are those who can’t read financial statements. So, I will provide you a little information so you might understand fundamentals rather than MSM Hype.

      Amazon Revenue = $51.0 billion
      Amazon Net Income = $1.6 billion
      Amazon Profit % = 3%

      Amazon Long-Term Debt = $24 billion

      Amazon has to make a lot of profits to pay back that debt. So, traders who are jumping into Amazon with a PE Ratio of 300+, need to get their head examined.

      RD, it doesn’t surprise me when you come in here and PUMP UP stocks that are overvalued by 50-75%.

      Today, the market is being traded by completely insane fools.

      steve

      • Nobody cares unfortunately ! Indeed if that was indeed the only metrics gold and especially silver stocks should trade at exactly 0.
        In the meantime stellar numbers today as scheduled which followed another huge 7 years treasury auctions.
        Maybe another decade for the petroyuan supporters to wait !

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