Increasing Hyper-Volatility Strengthens Case For Precious Metals

What the world is witnessing is an episode of increasing volatility or “hyper-volatility.” World markets and asset classes have entered into a period of steep appreciation and quick depreciation. This will increase in the years to come, undoubtedly, as central planners the world over stumble over policies which, instead of creating free market conditions for prosperity, put more restrictions on trade and growth.

Many people dislike when their savings of choice, or the assets of their choice, go on sale. For so many individuals who purchased silver, for the first time, in the forties—even as high as $49—the last six months have been a personal test. For many, I am sure, it has been difficult to trust themselves and the rationale which led them to purchase silver in the first place.

But, to be sure, what has happened to the silver market in the short-term, as it sits now in the low thirties, is a great opportunity to own an asset of choice for firesale prices. Same with gold: a metal that has, as recently as this Summer, climbed to around $1920 per oz, sits now in the mid $1600 range.

The way in which individuals make money on stocks, assets and other instruments is by owning them at low prices or by buying the dip. Gold, silver, platinum and palladium are long term holdings that, as fiat currencies the globe over race to the bottom, seem poised to certainly appreciate, whilst enabling people to feel comfortable in times of potential crisis and, most definitely, “hyper-volatility.”

European leaders met this weekend with the intention of rectifying the Euro Crisis. A follow-up meeting will be held on Wednesday of this week, portending possibly big movements in global markets, including gold and silver. Germany and France, the largest economies of Europe, have yet to agree on policy for the continent.

Whilst France insists that the European Central Bank begins printing money in order to bailout Europe, Germany declines the prospect, pointing towards the illegality under their constitution to embark upon such a policy. Berlin, furthermore, is not interested in such a stimulus.

What's likely, nonetheless, is that central planners in the US and Europe will not allow for free-market price discovery to reassert itself in markets, for, were this to happen, currencies like the dollar would depreciate quickly, and commodities, like gold and silver, would appreciate quickly.

Financial “experts” at the European Commission, the European Central Bank and the International Monetary Fund report that the Greek debt is spiraling faster than anticipated, and that, therefore, the Greek economy is shrinking faster than feared. Of course, it has become increasingly clear that Europe's problem is not Greece itself, but the entire Euro System.

The troika report, presented Saturday to the Brussels summit of European leaders and finance ministers, argued that the Greek bailout would cost as much as $611 billion by 2020. Thus, one small country would need all the funds available to the European Financial Stability Facility, leaving other nations like Portugal, Ireland and possibly Spain without funds (for better or worse). In the case of the Euro, it would increasingly be exposed to volatility.

For reasons such as these, many analysts foresee the price of gold, and silver, appreciating monumentally in the long-term. Recently, the gold has hit record highs not only in dollars, but also in sterling, the euro and South African Rand. Almost weekly the case for gold gets stronger; that is, everytime the Federal Reserve issues minutes from an open markets committee or a rating agency downgrades a country's debt to junk.

Not only are EU leaders slow to appear united behind a single agenda, but the Federal Reserve has consistently hinted at the possibility of a third quantitative easing

“Gold will keep rising for the next five years, even if it has some crests and troughs,” according to Michael Widmer, an analyst at Bank of America-Merrill Lynch, who, in this statement, makes a vague hinting at the aforementioned volatility sure to be experienced by world markets in the future. “Those holding gold should hold on to it, while others should probably get their hands on it as it is going to be on an upward trend,” he added.

Although focus in the news has been placed on Europe, and not the US economy, worrying trends still continue for us here domestically. For example, the Obama administration has approved the electric car company Fisker, which received a $529 million federal government loan guarantee, to begin assembling its first line of cars in Finland, for, according to the manufacturer, it could not find a facility in the United States with the capacity for the work.

When Richard Nixon took the US off of the gold standard, he told the nation this was a decision that would protect the US economy from the speculators. He argued that the US economy is the strongest economy in the world, and off the gold standard, this strongest economy in the world could then back the US Dollar. Today, as much of US industry has been outsourced, one would be hardpressed to make an argument for the US economy as a formidable backing to a world reserve currency.

This week Citigroup, Inc. rased its outlook for gold and silver in both 2012 and 2013. According to the bank, there is a “high probability” that the macroeconomic picture which has led to price increases in the metals over the past decade will continue for the next 12 to 18 months. The bank anticipates an average gold price of $1,950 a troy ounce in 2012.

"Increased global risk, US dollar weakness, growing inflationary fears, the US debt downgrade and continuing sovereign debt risks in Europe have increased investor appetite for gold," Citi's Jon H Bergtheil recently commented.

"This has been supported by central banks reversing activities from being sellers for most of the past 15 years to net buyers more recently and is supported by the Fed's stated desire to keep interest rates at super-low levels in the medium term," he reasoned.