Gold and silver come back

Gold, silver, and oil gained back what they lost yesterday. Even the experts realized that this is not the time to sell.

Today’s action

Gold gained $12.00 and silver $1.32. Oil gained 3 percent and regained its triple-digit level. The dollar gained against the yen but changed little against the euro.

Grains gained more than any other commodity. The reasons are simple: short supply. Flooding and wet weather will ruin America’s corn crop, while drought is parching Europe’s wheat crop.

The weather is a special case. The other prices went up for one reason: inflation. As long as the government prints money and buys its own debt, the prices of things you can hold in your hand (or in a barrel or bushel) will rise. Treasury bills, notes and bonds all lost money today for the same reason.

Why gold?

Several amateur liberal activists have criticized your editor (not to mention Glenn Beck) for telling people to watch for a time to buy gold and silver. This sort of attitude should surprise no one. The last thing—the very last thing—that a liberal, big-government, tax-and-spend activist wants anyone to do is to protect value or to defend himself in any way, shape or form. The independent actor is a threat to an activist government. Franklin D. Roosevelt knew this, and called in gold in his first year in office. (Ayn Rand must have read the text of Executive Order 6102 when drafting her—so far—fictitious Directive 10-289 in Atlas Shrugged).

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The only thing holding up the US dollar, and stopping gold and silver from going up and not looking back, is the petrodollar system. As long as the Arabs sell oil for dollars, and buy US Treasury paper, the dollar is safe. But that’s exactly why the dollar will not be safe forever, and might not be safe for much longer.

The threat

War will soon come to the Middle East. It might come this summer, or it might come this fall, but it will come. Maybe Egypt will break their treaty, stop selling oil to Israel, and go on to blockade the Straits of Tiran again. Or a new leader will arise in Syria, a leader who will try to recapture the Golan Heights.

However it happens, the Arabs will dump their Treasury paper, stop selling oil to America, sell only to countries who pledge “neutrality” in the Middle East, and make those countries pay them in euros, or maybe in gold. And then the dollar will crash like a Compact Fluorescent Lightbulb dropped from a great height onto concrete, and make the same kind of toxic mess.

The gold and silver markets don’t see that coming yet, and that is why gold won’t rise above $1500 an ounce for a while. So the signal is the same: Hold. Those who thought it was time to sell, have learned expensively that it wasn’t. And some day soon will come a time to buy.

Conclusion

Watch the Middle East. The key players are making the same speeches (angry, pretty, and desperate, depending on who’s talking) that their predecessors made in 1948, 1967, and 1973. The pretty speeches didn’t stop any of those wars, and they will not stop this one. When words give way to action, that will be the time to buy.