FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.

posted on 08 September 2015

Why Gold Will Rise If Stocks Collapse

from the Rick Ackerman, Rick's Picks

After a long hiatus, we heard recently from an old friend, a prominent Seattle business lawyer whose thoughts have been featured here many times before. In his latest dispatch, he explains why a major stock-market selloff is imminent. Although many gold investors fear that this would trigger a liquidation of bullion-based assets, our friend believes otherwise.

I go back many years with Rick. He used to quote me regularly on his site - and I had some prescient timing calls that were perfect. We bot GG and NEM at the lows and rode them all the way to an interim peak; and sold the day before they tanked. Only did that once, but it was fun. I bot most of the physical I own in the 1990's and have never really touched it since. And my views are based primarily on fundamental monetary considerations rather than technical.

That said, the fundamental proposition of the moment is that owners of significant amounts of capital liquidity have some difficulty seeing where to store it. Bank deposits and negotiated bank instruments (purchased from JPM in New York) were not only a fairly safe deposit, they also paid above market interest. But JPM has ceased making those available and has notified everyone who has them open to liquidate them and convert to T-Bills (without much explanation for why). However in the context of new regulations treating bank credits as bank capital under certain circumstances, it is pretty easy to contemplate that in any kind of real estate or general corporate liquidation, many if not most of the major institutions will become insolvent and many bank accounts are going to be subject to bail-in charges.

Stock Market 'Monetized'

The stock market? Whether you buy the argument above or not, a number of factors point to a significant liquidation period over the next 90 days. Fed and Treasury policy has effectively monetized the stock market. In talking to owners of capital in Hong Kong and other Asian location, it becomes clear that US stocks are the only vehicle for any kind of safe storage of liquidity with any hope of a real return, and those investors are all in. Many of them already recognize their exposure to losses in a liquidation - general recognition is developing.

Treasury instruments? That is really where I am at present - in money market funds that invest only in T-bills and notes with maturities in less than 13 weeks. But those credits are initially exposed to a significant political hazard in the immediate future - whether the Planned Parenthood appropriation or the outright Continuing Resolution itself, there is a very good prospect that Democrats will shut down the government.

Looking for Liquidity?

So where does liquid capital go for storage? Seeing this set of conditions develop, I posted here during the spring that the bottom in gold would be seen before Labor Day. I have since had second thoughts, in part because of the technical analysis we have seen in Rick's Picks; and in part because I know that negotiations in D.C. offer the prospect of settlement of the shutdown issues. However, at present I am a little more negative than I was several weeks ago, and I see the current spending situation as a small part of the long-term federal fiscal crisis. The federal government is insolvent. Cash flow at adequate levels continues only so long as federal taxes get paid at something like current levels with interest rates at something like current levels. I don't see much that is likely to prevent a significant liquidation in the stock market, and once that gets established as a firm trend (and I don't see it stopping at a mere 400 S&P points), capital conditions that support continued activity that generates tax revenue are also likely to disappear.

So with all due respect to those of you who see gold as just another imminent general commodity liquidation away from $850 or lower, I think that is not exactly the way it is going to play out. We may see more sell-off coming as current conditions develop; yes, I may still be a little early; but gold still represents the ultimate store of value for liquid capital.

Click here for a free two-week trial subscription to Rick's Picks that will give you access not only to daily trading 'touts', bulletins, updates and impromptu trading sessions, as well as to a 24/7 chat room that draws great traders from around the world.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing

Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.

You can also comment using Facebook directly using he comment block below.

Econintersect Contributors


Print this page or create a PDF file of this page
Print Friendly and PDF

The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.

Take a look at what is going on inside of
Main Home
Analysis Blog
From Money Controlling People to People Controlling Money
Rising Tide Does Not Lift All Ships
News Blog
How The Space Station Avoids Junk In Space
Infographic Of The Day: The Most Popular Jobs In A Decade
Early And Late Cycle Verdicts Are Baseless
The Surprising Divergence Of Employment And Capacity Utilization
The Slump In Undocumented Immigration To The United States
U.S. Productivity Growth Flowing Downstream
Your Light Bulbs Could Be Playing Havoc With Your Health - Here's Why
Mentions Of Trump And Clinton In Hip Hop Lyrics
Salary Is The Most Important Job Criterion
Can Switch Replicate Nintendos Past Success
The Numbers Behind The Zumwalt
Docking A Huge Cruise Ship Is More Complicated Than You Think
New Seasonal Outlook Updates from NOAA and JAMSTEC - Let's Compare Them.
Investing Blog
FinTech Is Taking A Bite Out Of Banks
Options Early Assignment - Should You Worry?
Opinion Blog
The Beer Goggles Stock Market
US 2016 Election: Will US-China Relations Change
Precious Metals Blog
Preparing For Post-Election Social Unrest
Live Markets
21Oct2016 Market Close: Major US Indexes Close Flat On Low Volume, Crude Prices Resume Climb, US Dollar Stabilizes In Mid 98 Handle, Yes, Most Investors Are Worried Which Way This Market Will Go
Amazon Books & More

.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Middle East / Africa
USA Government

Crowdfunding ....



Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved