One of what I call the "pillars of sand" that are holding up the precious metals is the misguided belief that the Fed "printing all this money out of thin air" will drive gold to the moon or infinity, depending on who you are listening to. I've been trying to debunk that theory in many of my articles, and finally I've been proven right...at least partially. If the theory goes that printing money causes inflation and drives precious metals higher, than the one thing that can not happen is that the precious metals fall to price levels that existed before Ben Bernanke started "printing all this money out of thin air." It makes absolutely no sense to claim printing money will drive gold to the moon or infinity if gold trades below the level it was trading at before all the money got printed. Well, gold has been holding up relatively well, but its close relative silver hasn't been so lucky. Because the precious metals are highly correlated, this may be a bad omen for gold for two reasons. First, like Roger Bannister breaking the 4 minute mile or Chuck Yeager breaking the sound barrier, once the impossible is proven to be possible, the mystique is forever shattered. Silver has broken the pre-QE level, proving that it is possible. Second is that the same forces that drive silver also drive gold, and those forces weren't strong enough to keep silver out of pre-QE levels, and it may only be a matter of time before gold follows silver into pre-QE territory.
Silver and iShares Silver Trust (NYSEARCA:SLV) are currently trading at levels reached prior to any QE. Physical silver peaked at $20.80 on March 6th, 2008. Today it traded as low as $19.38, and is trading below $20.00 as I write this. SLV traded at $20.68 on March 5th, 2008, and currently trades slightly above $19.00. The ETF does have an expense ratio must me considered, but the facts are, some people that purchased silver and SLV prior to the start of QE are now losing money. That is an impossibility if you listen to the gold and silver bugs, whose monetary theory simply does not allow for anything but inflation when money is printed.
In conclusion, while the most important precious metal gold isn't trading below its pre-QE level peak, its close cousin silver is. While this isn't as important as gold reaching that level, it may be an omen of what is to come for gold. Silver reaching a pre-QE price level is at least a chink in the armor of the blame the Fed theory for gold going to the moon and/or infinity. If gold follows silver into pre-QE levels, it will totally debunk the main theory supporting gold. If that were to happen, I would imagine the physiological impact on gold market would be enough to dissolve one of the last pillars of sand supporting gold and other precious metals, and send them toppling to the mat like a boxer past his prime who didn't know when to quit.
Disclaimer: This article is not an investment recommendation. Any analysis presented in this article is illustrative in nature, is based on an incomplete set of information and has limitations to its accuracy, and is not meant to be relied upon for investment decisions. Please consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author's best judgment as of the date of publication, and are subject to change without notice.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.