What will happen between 2015 and 2017?
- Since no one knows the future, who can tell someone else what is to come?
- Ecclesiastes 8:7
A good friend recently asked me to share with him my financial and geopolitical predictions for the next two years. I told him that I gave up making predictions a long time ago, because I’m wrong too often.
However, he insisted, saying that it’s just for fun, and that we will file away our individual predictions and only look at them again in June 2017. The one who made the worst predictions has to buy the other a beer.
I reluctantly agreed, even though I realize there is a significant amount of counter party risk associated with this arrangement, since we’re both betting our future ability to afford an extra beer on the accuracy of our predictions.
If you don’t get the joke in the last paragraph, you probably haven’t studied monetary history. If you think you should, don’t do it!! Ignorance is bliss.
So without further adieu, I present to you my predictions for the next two years.
- Increased geopolitical tensions. Hopefully not hot wars.
- Increased crime, social unrest, riots, etc., by increasingly desperate and/or poor people.
- Increased support for more radical political parties by the masses.
- A world-wide economic slowdown, probably the start of a severe global economic depression, stock exchange, property and bond market crashes.
- Greater loss of individual liberties, especially property rights and freedom of speech.
- A shrinking middle class.
The West (mostly Europe and the USA, but also Canada and Australia)
- A shrinking middle class.
- An increased percentage of the population dependent on government support, e.g. social grants, food stamps, etc.
- Increased taxation and restrictions on what small-time investors can do with their savings, mostly focussed on the middle class. I especially suspect an increase in many types of levies and fees that can broadly be categorized as “wealth taxes”.
- More money printing/QE.
- Laws that make it more difficult to get, hold or use physical cash (bank notes) – forcing people to use electronic money – probably passed under the guise of “preventing illegal activities”, e.g. the drug trade.
- Honestly, I am more confused about South Africa than I am about the rest of the world, but I suspect we will also see economic hardships.
- I’m “hoping” for a deflationary depression marked by a fall of prices in all forms of investments including businesses, equities and house prices, that will allow a small window of opportunity for wise – but probably scary – investments to be made.
- I suspect such a deflationary depression can very well be followed by period of high inflation, as the government struggles to fund its budget deficit in the face of increased government spending for political reasons (buying votes), combined with falling tax revenues due to the economic slowdown.
- I expect crime and violence to become more commonplace.
Gold and Silver
The gold and silver prices will depend mostly on the pricing mechanism. If the world is going to continue trusting exchanges like the COMEX to set the price, where future contracts (“paper gold” and “paper silver”) are traded, but very little physical metals actually change hands, then the commodity prices can literally do anything the primary dealers, governments and central bankers wish them to do.
No single investor or even group of investors, no matter how big or deep their pockets, has enough funds to out-buy naked sell contracts that can be created out of thin air at will.
If the spot price of gold and silver future contracts are managed to stay round-about where they are now (GOLD: 1100 USD/ounce), or goes lower, for the next year or two:
- Existing mines will start high-grading, or even moth-balling their operations all-together.
- Development of new mining projects will be suspended.
- Continuing and increasing physical shortages will develop.
- Physical bullion will continue to move from from the West to the East, most notably to China, India, other eastern countries and Russia.
- Increased backwardation will develop (where people are prepared to pay more to get the metals sooner rather than later). A separation can develop between the cost of buying actual physical coins and bars (e.g. directly from someone else) and that of buying paper claims to bullion (GLD, SLV, COMEX futures, etc.), similar to what happened during 2007/2008, where at the peak of the separation, physical silver coins were often trading at a 100% premium to the quoted price of “paper silver”.
- All of the above can likely cumulate in a compressed spring for the bullion prices to go higher, probably one like the world has never seen before.
- The increased popularity of physical metals can likely lead to Western governments using laws that ban the “hoarding” of metals, or even laws that make them illegal to hold altogether, especially if people start using physical metals in everyday trade.
- Along with such measures you can also expect propaganda against the use or holding of physical bullion, e.g. by associating their use with crime, or being unpatriotic.
If the pricing mechanism of the metals changes, e.g. if the price starts to be determined mostly by the physical exchanges based in the East, I suspect the prices will rise rapidly.
What will happen to the gold price depends mostly on the geopolitical influence of governments and central planners (mostly that of the US and China), or a major event like an economic crisis, that causes them to loose control over the prices.