A massive financial system crisis is building. Evergrande (OTC:EGRNY) is a small part of the cause but it may have been the “black swan” trigger. The move into the dollar is likely a reflexive flight to safety by professional investors globally and foreign banks. While it’s easy to define Evergrande’s on-balance-sheet debt, there’s no way to know what lurks off-balance-sheet in the form of OTC derivatives and contingent liabilities. Not just for EG but also for the big banks that make wrath of God money underwriting and selling credit default swaps etc.
As evidence that the Fed/Central Banks knew that a financial hurricane was brewing, recall that the Fed quietly announced the establishment of a $500 billion repo facility at the FOMC meeting in July. Why do this when currently the Fed has been keeping over $1 trillion of liquidity circulating in the banking system in a sort of “suspended animation” via the Reverse Repo mechanism?
Gold (and silver) is likely being pummeled by the paper gold price management team in order to disconnect the warning signal of an impending crisis that would be transmitted to the markets if gold continued to move higher in correlation with the USD (remove the canary from the coal mine before it dies).
At some point the demand for the wealth preservation/inflation-shield attributes of physical gold and silver will overwhelm the ability of the banks to cap the price. And the mining stocks are historically undervalued relative to the S&P 500 and to the price of gold. I would argue that the mining stocks represent a generational value investment opportunity.
Bill Powers of Mining Stock Education invited me back on to his podcast to discuss the above issues as well as present a some stock ideas I find particularly compelling: