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The big question for gold bugs

Commentaries & Views

Let’s step back from the debates raging among resource speculators and consider the big, unanswered question.

I’m not talking about the inflation-deflation argument. Nor whether silver has become an industrial metal (though I think this year’s price action settles that one). Nor if uranium will finally have its day in the sun as well. Nor if copper and other industrial metals are great contrarian plays now.

These and many more questions are important, and getting them right can make us a lot of money. But there’s a deeper, more critical question I think has been pushed aside lately…

Was the global financial system in a bubble before hitting the COVID-19 pin, or not?

I’m sure many experts could offer us reams and reams of arguments for their takes on this. But even the most persuasive arguments would just be guesses. Dressing a guess up in fancy language, charts, and whatnot, doesn’t change the fact that it’s a guess.

Frankly, I don’t presume to know the answer myself.

I admit that it seemed to me last March that the bubble had popped. Now I’m not so sure. It could be popping—but slower than bears like me expected. Or it could be that all the easy money flooding the world is reflating the bubble again. Or that I was wrong about there being a bubble in the first place.

We’ll only know for sure in hindsight.

What to do in the face of this uncertainty?

A while back, I offered the schematic below to The Independent Speculator clients. Rather than tell anyone what will be, it shows what to do to prepare for the possible outcomes. As it turns out, as complicated as the issue is, our choices for courses of action are simple.

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The mainstream answer to the basic question is no. There was no global financial bubble.

This is why most folks on Wall Street and participants in other markets are estimating the recovery rates and pricing that in now.

But for those of us for whom the answer was yes, there’s the second, more difficult question of whether it popped.

If the answer is no, then it’s relatively safe to join the mainstream in estimating recovery rates and investing accordingly.

If the answer is yes… well, batten down the hatches.

More specifically:

  • Don’t join the rally in mainstream equities, as it could go into a dramatic reversal at any time.
  • Raise more cash, wait for the next crash.
  • Add to gold and silver bullion on the pullbacks.
  • Speculate on great gold and silver stocks that aren’t already overpriced—if you can find any.
  • Watch for the next potential meltdown to create spectacular buying opportunities.

As I say, I’m not sure which side I come down on, but, honestly, I’m inclined toward the “yes” side.

If I had to make a projection today, I’d say I expect the global economy to worsen, as overly optimistic post-COVID-19-shutdown hopes fade away. And that’s with or without more lockdowns, just based on the lasting economic damage already done.

This is why I’ve not bought into Tesla, Amazon, or any of the mainstream market darlings, despite their fantastic performance.

If it does play out this way, I think we’ll get another—and possible the last—great buying opportunity before gold and silver really go through the roof.

I don’t pretend to know the future.

I’m not here to tell you what to think.

I’m simply offering my flow chart to help you decide what to do, depending on how you see things. I hope you find it useful.

Caveat emptor,

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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.