History Shows the End of the Year Great Time to Buy Gold and Silver

“…describes the fact that newly-created money is distributed neither equally nor simultaneously among the population. This means that people handling money partially benefit from inflation and partially suffer from it. Monetary dispersion is never neutral. Market participants who receive the new money early and exchange it for goods benefit in comparison with those who get the newly-created money later. We can see a transfer of assets from late money users to early money users.

Friedrich von Hayek once pictured the cantillon effect with the process of pouring honey into a saucer. The honey dollops in the middle first and only later it spreads out to the periphery. Prices also do not rise evenly. Typically price levels are higher in regions, which directly or indirectly benefit from monetary inflation. If you happen to live in a financial center you may have noticed.”

“The regional election/referendum results in the USA and the UK, respectively, make a clear case for where the honey has been flowing first: generally speaking, urban areas have benefited significantly from the reflation of the money supplies. Subsidised regions have also been among those that have been given access to the honey trough on the back of the fiscal deviation of funds. Rising interest rates could slow down fresh supply and put a sudden end to the trickle-down bubble philosophy of recent years, and they could do so with grave economic consequences.

               
…At the end of the zero interest rate trap: inflation
                       
The US dollar, i.e. the leading global currency, has been locked into a falling inflation and interest rate trend for more than three decades. Within this super-cycle, we can single out the following two observations: intermittently rising interest rates, driven by higher inflation expectations, have almost always
                       
1) either led to a recession in the USA, or
2) triggered crises in excessively leveraged regions, at times with supra-regional implications and feedback effects for the USA.

We can also see that during this period the Fed set its Fed funds rate at lower levels after each cycle, and that overall debt (consisting of government, corporate, and private household debt) has increased exponentially. We do believe that this development is based on a crude, self-enhancing causality, which at its logical completion can only lead to a dead end with exactly one way out. Once an economy is chronically burdened by excessive debt and interest rates have reached the zero lower bound, there is de facto no alternative to “printing until inflation kicks in.”2
                       
During the falling interest rate trend and with constantly rising debt, the process of the cycle looks roughly as follows. The question this time around will be: can the Fed orchestrate a significant hiking cycle without causing severe damage to the economy or the financial markets?
       
From our point of view we will see in the coming year – after the current, highly subdued cycle of interest rate hikes – whether the economy will stall and trend toward stagflation amid its debt cycle, or whether another “ordinary”, deflationary recession is looming at the horizon. We believe that the yield increase in the USA is likely the beginning of further frictions on capital markets, which ultimately may lead to the overdue recession in the USA.”

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“If you are a borrower, you should be aware that changes of this magnitude will probably affect how banks price their fixed rate mortgage offers. By the time you come back from holiday, there is the possibility that fixed mortgage rates could be noticeably higher.”

Source.

• On average, you’ll get a better price on gold now than in 2017.

We ran the same data for silver and here’s what we found.

It’s easy to see silver’s higher volatility. What also sticks out is that historically, silver doesn’t come close to touching the prior year’s price.
 
As with gold, there were certainly years where the silver price fell below where it started. But the historical data says that on average, it rises more often in the following year than it falls.
 
We are thus much better off buying silver now than waiting for a dip in 2017. If you wait, history says you will likely pay a higher price.
 
The conclusions here are obvious. While there are always corrections along the way…

• On average, it is cheaper to buy gold and silver the year before.

Whatever you want for 2017, you will likely be better off making those purchases now than waiting until next year.
 
Combine this data with the current correction and you have the perfect Christmas gift for yourself: gold and silver on sale, with much higher prices coming over the next few years.

Source.

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