Gold Busts Through $1600: Antidote for an Overstimulated Financial System

The dizzying heights of the S&P 500 are mind-blowing to say the least.

But can it continue?

Well, on one hand, the S&P 500’s valuation is directly correlated to mass production of money under the guise of “debt”.

This is not, in fact, debt as you and I know it, where somebody approves your creditworthiness based on your ability to pay.

This is the proceeds of fraud against the American people and main street investors everywhere. Money from thin air, never to be repaid, lining the pockets of the banking and government elite, while Americans make do with far less

Many are calling for the end of the bull market in US stocks, now in its 11th straight year – a feat never before achieved.

But since the fuel for the bull market – fake debt – is currently measured in mere trillions, there is no reason to assume the money printing machines will slow down before this debt is measured in quadrillions, or quintillions.


In other words, the fake debt scam perpetrated on all by central banks around the world for the exclusive benefit of the financial elite could even accelerate.

So is there a high probability of a market crash? No.

There is ZERO probability of a market crash. Because the market is no longer even slightly correlated to macro economic events. It is only correlated to the volume of fake debt created through quantitative easing by the governments of the United States, Europe, and China.

China alone pumped $173 billion into its stock market on February 2nd, which is the only reason Shenzen  and Shanghai markets reversed on those days.

But at the same time, there can be little doubt that we are reaching a proverbial inflection point. The runaway multiplier effect of Quantitative Easing/Fractional Banking has caused the departure of rationale from the global financial system.

Historically, when the collapse of a currency has happened, it has always coincided with the collapse  of a national economy. Germany, Zimbabwe, Argentina, Italy, Peru…the list goes on. This time, it’s the globally connected, international single monetary system that is demonstrating pre-critical volatility.

The beneficiary of the stampede out of whatever currency is in distress has traditionally been gold, except in recent times, where the sublime fraud of the US dollar’s projection of a perceived value has caused it to appear as a “safe haven” for frightened investors.

But now, the accelerating hyperinflationary explosion of “debt” is happening in the world’s safe haven currency, and so looking around at the alternatives, gold once again appears to be the safest of safe haven assets.

Here is the interesting thing about the price of gold in the US$1600 range; it’s an absolute steal.

Put aside for one moment your inclination to guffaw at such a statement. No matter what level of faith you have in the ability of markets to reflect the value of assets versus the price of assets, you would have to be brain dead not to observe that the S&P 500’s valuation relative to its constituents’ earnings growth in 2019 (more or less zero) makes no sense.

I mean, it makes no sense from a “fair value” perspective based on fundamentals.

The S&P 500 opened at 2477 on January 2nd and closed on December 31st, 2019 at 3230.8. That’s a gain of 30.4 percent in one year. How is possible that an index whose constituents’ revenue growth totaled zero percent add 30 percent in value in the same time frame.

The answer is this: The price can increase by thirty percent, because at the end of the day, a price is nominal; its what someone is willing to pay and not necessarily what a thing is worth. Cannabis stocks come to mind as a perfect example…

Conversely gold opened at 1282.20 on January 1, 2019, and closed at $1517.18 on December 31, 2019. That means gold increased in price by only 18.3 percent. Which demonstrates clearly that the weighting of investors who still maintain confidence in the S&P 500 is higher than those who favour gold.

A simplistic interpretation, I admit, since there is likely a large ratio of investors who are actively buying gold as a hedge against what increasingly begins to feel like a gathering economic storm of biblical proportions. (sorry I love that term).

Which should increase more on a fundamental value basis: a commodity whose supply is finite and availability is decreasing, or one whose supply is infinite and whose availability is increasing?

Key Takeaway:

While the raging bull of the world’s top performing indices will continue to break records on a weekly basis as long as the government fake debt money printing machines are running at full bore, the higher it goes, the more sever will be the correction when it finally arrives. Gold is insurance against total annihilation in the event of worst case scenario.

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
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