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Regardless Of Stocks' Direction, Don’T Forget Gold And Silver

Jan. 28, 2014 11:10 AM ET
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With global equity markets finally showing that they can go down as well as up, it is worth asking what this negative movement in the equity markets has to do with the future of gold and silver prices. I think the idea that the stock market is going to collapse while the precious metals recover all of their losses since 2011 is more than a bit premature. In fact, going back to 2009, I really felt that most investors should be at least agnostic on the future of the conventional stock markets, with central bankers trying to levitate financial asset values for all of the reasons made clear to us with policies like quantitative easing. But, at the same time, by trying to ensure that no one loses money in the conventional markets, I suspect that will also take away any explosive returns from these investments. I'm thinking here of what happened nearly 80 years ago once bank deposits were insured- their real rate of return declined.

Of course, since I haven't actually seen central bankers come out and tell people that stock investments are risk-free, I'm not so convinced that central bankers are not willing to at least start the process whereby some of the exuberance is taken out of the broader stock indices. Might gold and silver catch a bid if people realize that the central bank put under stocks that don't exist?

On the other hand- and looking out longer term- whether or not central bankers are able to control the direction of the markets, it certainly seems as though they are hell-bent on creating inflation- something that we have had very little of recently. Are gold and silver prices reflecting this long term desire for inflation? I don't think so.

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