The Forces That Will Drive The Next Bull Market In Gold and Silver

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June 5, 2013 4:05pm NYSE:GLD NYSE:SLV

gold timeLarry Edelson: Almost no one thought gold and silver could ever get hit as hard as they’ve been hit. Not even the likes of big gold investors like George Soros … John Paulson … Rick Rule … Jimmy Rogers, and many others.

The thing is, they don’t really understand the gold market. They thought they did, but they failed miserably.

 They failed to understand that the gold and silver markets are like any other market. What goes up for 11 years straight has a very high probability of pulling back for 1 to 2 years. That’s simple technical analysis, and those high-flying money managers didn’t even get that right.

 They also failed to understand that central bank money-printing is not always bullish for precious metals.

There are times, like we’re going through now, when no amount of money-printing can inflate gold and silver prices, because investors are scared to death to do anything with their money … or they see better opportunities elsewhere, like in stocks.

There are times when no amount of money-printing can inflate gold and silver prices.

I could go on and on about how the bigwigs missed most or all of the correction in gold and silver and how many billions they and others lost.

But there’s no need for that. I got it right, and I helped my readers avoid steep losses, and helped them make pretty big profits to boot.

So instead, I want to turn your attention to what the next bull market will look like for gold and silver — to the forces that will drive metals higher again, once gold and silver finally do bottom.

The bottom isn’t here yet. But by preparing you for the future and for what will drive precious metals higher again once the bottom does come — you will be light years ahead of other investors.

First, and perhaps most importantly, central bank money-printing will not be the major force driving precious metals prices higher in the future.

Let me be perfectly clear: If you’re counting solely or largely on central bank money-printing to drive gold and silver prices through the roof in the next leg up, then you’ll miss the real reasons the metals will go higher.

Money-printing will be a force, but it will not be nearly as strong a force as it was in the metals’ first leg up from 2000 to 2011.

The reason is simple: Between the towering inferno of as much as $150 trillion of global debt with weak underpinnings and derivatives bets that now approach more than $1.2 quadrillion in notional value …

There is simply no way central banks could ever print enough money to stabilize the global monetary system.

So print or not, the next leg up in the precious metals will be driven largely by a breakdown in the global monetary system, not by money-printing.

A breakdown in the global monetary system means there will be big banks and financial institutions going belly up … sovereign nations, especially in Europe going bust … Washington going bust … and sovereign bond markets collapsing to 10 cents on the dollar.

Money-printing will not solve or prevent or even delay those things from happening in the next several years.

Gold and silver, once they bottom, will start rising again because savvy investors are finally beginning to realize that their Emperors really do have no clothes, and all the money-printing in the world won’t be able to cover that up.

Second, inflation will not be a major force either.

Don’t get me wrong. We face higher inflation in the years ahead. But that part of gold and silver’s next leg up is still a ways off and won’t arrive till late 2015 or early 2016.

In fact, we probably face more disinflation in the months ahead. But here’s the catch: Disinflation doesn’t mean gold and silver prices cannot go up.

Indeed, they can. The more deflation we get over the next few months, the more bullish it will become for gold and silver. It will mean investors and consumers are hoarding cash and other valuable assets. Hoarding reduces supply, which raises prices.

Just take a look at what’s happening in the art world, where the super rich are buying up paintings like crazy. Why are they doing that? They want to hold assets that can appreciate in value, but more importantly, will not be confiscated and that can be hidden and are portable.

Or look at the diamond market, which is on fire. Christie’s and Sotheby’s are reporting record sales volume and record prices for diamonds. Martin Rapaport, founder of the world’s largest diamond trading network,, reported that a billionaire client of his recently purchased one million dollars’ worth of diamonds and strung them together on a chain.

The client’s reason for stringing them together: When the monetary system comes crashing down and governments are hunting down every penny of wealth they can find to confiscate or tax, he wants to avoid the metal detectors, board a plane with his wife, and head for the hills.

Hoarding of hard assets such as diamonds and gold, is bullish for prices, regardless of whether there is inflation or deflation in the bigger economy.

Bottom line: Do not count solely on inflation to drive gold and silver prices higher going forward. If you do, you will be completely befuddled when gold and silver prices rise, yet there’s no sign of inflation on the immediate horizon, and instead, deflation may still have the upper hand.

Third, are the War Cycles I’ve been warning you about.

In previous columns, I’ve told you how the impact of the war cycles is already beginning to show in many different geo-political realms.

In Syria, in North Korea, in the Cyprus confiscation of depositor assets, in Russia’s recent military moves in the Mediterranean, in China and Japan’s war of words over the Senkaku Islands, in China’s moves in the South China Sea, and more.

This is going to ultimately be the most important force driving precious metals higher. It will coincide with the first force above, the collapse of the world’s monetary system.

It will be a nasty set of conditions where governments are at war militarily or financially with each other …

And governments are at war with their own citizens — repressing more and more liberties and personal freedoms, chasing down assets to tax and confiscate, and more.

In other words, total upheaval of modern society, coupled with a collapse of the global monetary system.

In a nutshell, those are the real reasons gold and silver prices will soar in their next leg up. Not inflation alone. Not money-printing alone. Not even currency devaluations alone.

Get it right, and you won’t be shaken from your new long positions when interest rates go up, or the dollar rises along with gold, and other unconventional market relationships develop.

Right now I am expecting one more major leg down in the precious metals, before the bottom finally arrives.

So if you’re hedged up in gold and silver or speculating on their downside potential — per my suggestions in the March 4 and April 3 Money and Markets columns to buy the ProShares UltraShort Gold (NYSEARCA:GLL) and the ProShares UltraShort Silver (NYSEARCA:ZSL) — simply hold those positions. As I pen this column, they are up 26.5 percent and 48 percent, respectively.

Also hold the PowerShares DB US Dollar Index Bullish Fund (NYSEARCA:UUP), which I also suggested you consider buying in the aforementioned columns. The dollar is now exploding higher, and this position is up 2 percent since my March 4 column.

Please stay tuned. We are entering a critical period in many markets.

Larry EdelsonWritten By Larry Edelson From Money And Markets

Money and Markets is a free daily investment newsletter published by Weiss Research, Inc. This publication does not provide individual, customized investment or trading advice. All information is based upon data whose accuracy is deemed reliable, but not guaranteed. Performance returns cited are derived from our best estimates, but hypothetical as we do not track actual prices of customer purchases and sales. We cannot guarantee the accuracy of third party advertisements or sponsors, and these ads do not necessarily express the viewpoints of Money and Markets or its editors.

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