Gold Market Update: Lessons from Greek Drama

This article was submitted by Addison Quale, SchiffGold Precious Metals Specialist. Any views expressed are his own and do not necessarily reflect the views of Peter Schiff or SchiffGold.

I hope this market update finds you well and enjoying summertime. The markets have certainly not lacked for drama this past week. Along with all the back and forth of the Greek situation, we now have seen a big drop in the price of gold and silver. They broke support and fell to essentially five-year lows.

Of course, one would think that precious metals would be soaring, what with all of Greece’s political tumult and potential financial repercussions. It has, in fact, proved the opposite this week. This seems to be mainly because, with all the uncertainty surrounding the euro, the United States dollar has been bid up mightily as the best safe-haven asset. As many of you know, gold tends to move in the opposite direction of the US dollar, its primary competitor.

It should be noted that this drop in the price of metals was very much driven by the paper futures market and not the physical market. In other words, it was speculators trying to front run the market, betting it would fall, and not metals owners selling their supplies because they no longer believed in the merits of gold and silver. The best proof of this is the fact that within half a day of the drop yesterday, the United States Mint sold out of Silver Eagles, causing premiums to skyrocket across the land.

Despite how metals may have performed this week, the fact of the matter is that this whole Greek and eurozone debacle has turned into one gigantic living and breathing advertisement for owning gold and silver. Think about it – advocates of gold and silver as sound, trustworthy money have been warning about the risks of trusting in a fiat currency system, saying that one day it could collapse and all your savings could vanish in a puff of smoke. This is exactly what Greek citizens are experiencing right now.

Here’s a quick, step-by-step recap.

1. The Greek government made huge promises to its citizens in the form of cushy benefits, guaranteed long vacations, and fat pension plans.

2. The government found itself in a financial hole, unable to really come up with all the cash necessary to cover all these commitments.

3. Time and again the nation’s creditors were pressed to ease up on the schedule of these debt obligations and bailout packages were put together. But these half measures proved to be just tiny band aids on a gaping wound.

4. Rumors of default began to spread, including the idea of capital controls if default did come.

5. Politicians and central bankers moved quickly to assure the populace that in no way would capital controls be put in place.

6. Capital controls were put in place, allowing people to remove only a small amount of physical cash each day from ATMs.

7. With lines stretching for blocks at the ATMS, physical cash is beginning to run out. In the meantime, people rush out to gas stations and grocery stores to buy up and hoard all the physical goods they can before their euro savings is converted into a new worthless currency. Additionally, all the elderly pensioners who had learned to blindly trust the Greek financial system, fight their way through long lines at banks trying to salvage just a smidgeon of their pension entitlements.

8. Now there are rumors depositors may take a “haircut” on their bank accounts. No one knows when banks will actually open again and how much of depositors’ savings will still be there when they do.

After all this, I would venture that these unfortunate Greek citizens wish they’d converted their wealth into physical gold and silver a long time ago. But it’s a bit too late for that now, isn’t it? Let’s face it though: this is simply what happens when you entrust your wealth to a fiat currency system.

Do we really need to be taught again the age-old lesson that politicians and central bankers are liars? This is just what they do. It’s how they “roll.” It is their fiat-currency-based financial system, after all. By definition, it is founded upon a deliberate deception that the money they force society to use is actually trustworthy and valuable.

With its constant back-and-forth, threats of default, apocalyptic deadlines, and grandstanding of politicians to the media, this whole Greek drama may not even be real. It may just be one big show that further inculcates the world’s citizenry into this false idea that there is a big battle going on between the political and economic leaders of Greece and the eurozone.

However, all that really matters is that the sheep (i.e. taxpayers) keep getting milked and shorn. After all, that’s where the real wealth is located. In the end, this dramatic rerun of the game of “bailout” may be just a distraction to keep us from realizing how much politicians and bankers on all sides are really just working together to maintain their power and enrich themselves. This melodrama is nothing more than misdirection. (The author of Confessions of an Economic Hitman certainly agrees.)

In any event, yes, it is frustrating to see metals prices drop after you have already bought. But at the same time, it’s also great to have an opportunity to add to one’s physical holdings at these low, low prices. Indeed, Greece has provided a perfect example of how fiat currencies inevitably do fail and how you most definitely do not want to trust your life savings to them.

Please reach out with any questions or to place an order. By the way, I will be at Freedom Fest in Las Vegas for the next few days. If you are going, let me know!

RELEVANT LINKS:

Greek Crisis – Varoufakis Denies that Capital Controls Are Coming:

Capital controls within a monetary union are a contradiction in terms. The Greek government opposes the very concept.

— Yanis Varoufakis (@yanisvaroufakis) June 28, 2015

Greek Crisis – Banks Run Out of Physical Cash

Greek Crisis – Haircuts On Deposits In Play

Greek Crisis – Pensioners Line Up

Greek Crisis – David Stockman’s Take

The End is Near – Swedish Central Bank Lowers Interest Rates Even Further

Keith Weiner’s Weekly Report on Metals – Silver Very Undervalued

Keith Weiner on Locating the Hyperinflation

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