The precious metals will offer one of the best safe havens as the world enters into the next paradigm… “The Death of the Business Cycle.” Unfortunately, very few analysts, economists or investors realize the darkness that lies ahead.
While science, technology and specialization allowed mankind to advance to levels thought impossible during the 1800’s, it also destroyed of our ability to perceive the FULL PICTURE. Basically, the left hand knows not what the right hand is doing.
This is a very dangerous situation indeed as analysts and economists continue to provide forecasts based on superficial and incomplete data. This very factor was the inspiration to start my website. My attempt was to provide information and data to help analysts–investors CONNECT THE DOTS.
Unfortunately, my energy articles receive a fraction of the reads my precious metal articles receive. I have found that most energy analysts do not want (or care) to understand the merits of the precious metals, while many of the gold and silver bugs could care less about the ramifications of peak oil.
This strange dichotomy would be simply HILARIOUS if the future wasn’t so bleak.
ENERGY & THE PRECIOUS METALS are tightly interwoven, regardless if analysts or investors fail to make the connection. That is why I made the point in my article, Why Gold’s Base Price Should Be North of $2,000, that the Gold-Oil Ratio is way below its historical norm shown in the table below:
I labeled it as a GOLD BASE VALUE of $2,000 because it doesn’t include any future revaluation (gold backed fiat currencies) as well as the huge amount of leverage in the debt and derivatives markets. What I mean is, the paper price of gold should be north of $2,000 without any of the factors listed above.
Of course, the Central Banks manipulate precious metals LOWER, while the stock and bond markets are pushed HIGHER. Evidence is found in a recent article by Zerohedge, “Cluster of Central Banks Have Secretly Invested $29 Trillion In The Markets”:
To summarize, the global equity market is now one massive Ponzi scheme in which the dumb money are central banks themselves, the same banks who inject the liquidity to begin with.
You see, the current plateau in global oil production forced the Central Banks to prop up the markets as real growth is virtually impossible. So, inflation is now the only tool remaining which gives the illusion of world GDP growth.
Not only will the peak and decline of global oil production kill future world GDP growth, it will also destroy the BUSINESS CYCLE. According to Wikipedia, there are four business cycles:
- the Kitchin inventory cycle of 3 to 5 years (after Joseph Kitchin);
- the Juglar fixed-investment cycle of 7 to 11 years (often identified[by whom?] as “the” business cycle)
- the Kuznets infrastructural investment cycle of 15 to 25 years (after Simon Kuznets – also called “building cycle”)
- the Kondratiev wave or long technological cycle of 45 to 60 years (after the Soviet economist Nikolai Kondratiev).
All of these cycles are based on a growing energy supply. Rome fell victim to the Death of the Business Cycle as it basically ran out of cheap and available energy (Falling EROI – Energy Returned On Invested) to sustain its empire. The decline of the Roman Empire was shown by the debasement of its monetary currency — the silver Denarius:
(courtesy of Martin Armstrong)
The United States took the Roman monetary debasement playbook…. HOOK, LINE & SINKER:
Even though the U.S. Dollar still functions as the world’s reserve currency, the United States (and world) will soon experience the same fate as the Roman Empire. The debasement of the monetary system is due to the FALLING EROI – Energy Returned On Invested of our economic system.
As I mentioned several times before, the EROI of U.S. oil and gas was 100/1 in 1930, declined to 30/1 in 1970 and is currently… 10/1. Shale oil is not an energy solution as its EROI is a lousy 5/1…. lower than the EROI energy carrying capacity of our modern economic system.
Note: an EROI of 100/1 means the energy of a barrel of oil provides 100 barrels for the market.
As the Romans suffered from the EROI decline, their collapse was inevitable and the DARK AGES were the result:
(courtesy of NOBELIEFS.COM)
This chart represents the crash after the Roman Empire and what will occur after Peak Oil. While this chart provides a religious cause in the demise of the West, to me it really doesn’t matter. The Dark Ages had more to do with the decline of the Roman Empire’s EROI than it did with religion.
So, I would imagine many of the Roman economists and analysts during the last days of the empire were offering solutions and forecasts for continued growth and prosperity. Unfortunately, MSM in Ancient Rome fell victim to the same IGNORANCE the modern MSM suffers.
Again… the LEFT HAND knows not what the RIGHT HAND is doing.
The 2014 BP Statistical Review was just released, and let me tell you… the oil production-consumption data doesn’t look pretty. And, it only gets worse from here on out.
Folks, PEAK OIL will destroy the BUSINESS CYCLE:
After much research and a great deal of reflection, I believe the best physical assets to own in a peak oil environment are the PRECIOUS METALS. The world is heavily invested in paper and physical assets that derive their value from a growing energy supply (which is now peaking).
Not only will the world suffer from a peak in global oil production, it also has two other nails in the ENERGY COFFIN:
1) Decline of Net Oil Exports
2) The Falling EROI – Energy Returned On Invested
In my opinion, the world will be a much different place by the end of the decade. Those who believe most Stocks, Bonds, Insurance Funds, Retirement Accounts and Real Estate will be excellent investments in the future (due to the eventual UPSIDE of the business cycle), will experience a rude awakening.
The precious metals are not investments or stores of wealth to trade or relate to the insane valuations in our present markets. Gold and silver are more than insurance…. they will be the wave of the future, and the future is now here.
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