By John Galt
December 14, 2011 – 07:15 ET
The current European implosion is bringing about a probable once in a lifetime opportunity which sadly might just be the last chance this decade to buy physical gold before capital controls worldwide and within the U.S. make it difficult if not impossible. The history of economic strife and plans by world governments to impose massive restrictions on the flow of funds to prevent internal collapse make gold an attractive target for seizure as political failings along with management of command control economies demand the removal of all instruments which could allow independent transactions by the citizenry.
The central banks of the Western world are already grasping at straws as nations like Greece and Italy have already imposed stealth capital controls and the United States begins implementation of its restrictions after December 31, 2012. This imposition of restrictive monetary policies has made gold an attractive instrument for moving wealth overseas, especially using the electronic or digital gold option via the various instruments like GLD and ownership instruments in foreign vaults as in the Perth mint and elsewhere. The “paper” or digital gold will be the first precious metals seized to impose controls thus making their practicality in an economic collapse scenario such as a disintegration of the European Union. After the first round of seizures using this method however, the state, be it a foreign entity or the U.S. will begin to implement processes to tax the transactions and restrict amounts of physical gold an individual can obtain. That is why the action in the markets in 2008 and 2011 are appearing so similar but of course as the saying goes, “this time it’s different,” because this time, it truly is.
In 2008 during the collapse of the U.S. economic structure, the Federal Reserve inflated the system using various alphabet instruments which created a peak in gold prices over $1000 per ounce, a once unthinkable price target. Just as quickly however, the ineptitude of the academics lead to a short term deflationary collapse in the late summer through the winter of that year leading to a break in prices below first the 50 day moving average then the 150 day moving average (DMA) on a sustained closing basis. The chart below illustrates the August 2008 time period where the gold market indicated that the financial system was about to seize up and fail:
(click to enlarge/reduce chart)
However, the correction lasted only until the spring of 2008 when the Federal Reserve decided to purchase all of the garbage of the domestic and world banking system to counter the deflationary price action and Quantitative Easing was announced, allowing gold to bounce hard to previous price levels:
The 30% correction from the secondary top led to the usual suspects in the “gold is just a barbaric relic” bubblevision community (yes, the same ones who said Washington Mutual was a steal at $15 per share) and provided what turned out to be the last viable buying opportunity for physical gold and silver at bargain basement prices. Since that time period, the markets have not even sniffed that price region and as illustrated in the chart above, created a very long term support area around the $1000 price level which will only be violated if the government imposes price controls for precious metals and re-institutes laws which allow the U.S. Treasury to set the daily gold price.
Fast forward to the action yesterday where gold finally, after one full year, broke the 150 DMA on a closing basis. This puts the 200 DMA in play before year end and indicates not a failure in gold as a safety play, but in fact that once again the world’s central banks are unable to cope with a coming financial crisis which in fact will be worse than the 2007-2009 time period. The financial equities, bond markets, and gold are all indicating another short term deflationary episode is about to impact world economies, this time originating in China and Europe. The resulting break in gold prices should provide a correction to first $1480 as initial support and if there is a 30-35% correction the $1280 price area:
Based on the panic in Europe and the desire for the U.S. government to restrict the movement of its citizens and capital starting in 2012, odds are this truly could be the average person’s last buying opportunity before the final super spike in gold prices due to geopolitical conditions move the yellow metal well over the $5000 mark. Even if an individual buys gold during the price decline period, odds are that the returns will be similar to the 2009 era where the Central Banks of the world will make the prudent investor whole within a period of months as they are down to their last bullet to save the fiat money system and counter systemic deflationary pressures:
My advice in this manner? If you can locate physical gold coins at a reasonable price with an acceptable dealer margin, buying anywhere between $1280 and $1600 could well be the average person’s final chance to purchase the metal and own it this decade. After this financial crisis concludes in the late spring of 2012, too many politicians will demand the soothing of the masses to prevent anything but chaos and deliberate inflationary acts to insure domestic stability. When the election period in the U.S. concludes however, look for the desire to tax and limit ownership of currency alternatives to accelerate as gold equates to freedom and they just can’t allow that to happen any longer as the implementation of the new order begins.