What’s going on with the gold and silver markets? A post by Marc Chandler in Seeking Alpha sums it up this way:
“The driver of the capital markets today has a name: Fear. It has overwhelmed nearly every other consideration and is driving the dollar higher against all the major and emerging market currencies.”
Fear is by nature irrational, a knee-jerk primal instinct to get out of harm’s way. In modern times the instinct as often as not leads to bad decisions. People leap from tenth story windows in a burning building while just two floors up a helicopter is plucking others from the rooftop. And people abandon gold and silver and rush back to the dollar like horses returning to the perceived safety of their stalls even though the barn is engulfed in flames.
It’s not that the instinct has lost its purpose. We need some degree of fear to survive. But fear has become so blown out of proportion these days that people have lost sight of where safety has lain for thousands of years – not in fiat money but in gold and silver.
It doesn’t matter how protective the dollar once was, or how comforting a big stash of greenbacks used to be in times of trouble. The fire started in that stall and that’s the last place we should run to for safety. But the first victim of fear is reason.
Household investors have been put through the wringer. Interest rates have been held so low for so long that money in the bank has become a losing venture, thrusting investors into what for them is the uncharted waters of high risk investment. Their fear is palpable, and understandable.
When the perceived risk of traditional assets becomes too great, the fear spreads to gold and silver as well, even though those investments have the proven protection investors so desperately seek. So they cash in everything for dollars, creating the serious market mispricing we see today.
“When this mispricing is inevitably resolved, it is unlikely to be gradual,” says Gold Money. Investors “old fashioned enough” to have bought gold and silver for insurance will be rewarded, while those who flocked back to cash “will learn a very sudden lesson” about the real purpose of gold and silver.