The Calm Before The Precious Metals Storm

The financial hurricane hit the world in 2008 destroying huge swaths of assets, real estate valuations, numerous banks and financial institutions.  As the storm cleared, the Fed and central banks stepped in by flooding the world with money to supposedly assist in dealing with the damage while providing special programs to rid the banks of debris and garbage clogging up their businesses.

After trillions of dollars of so-called monetary assistance, the financial damage appears to be repaired giving the public a false sense of security that the storm has finally passed.  Unfortunately, the world has only dealt with the first part of the storm and is now sitting in the eye of the financial cyclone.

Even though we now have the additional drama from the U.S. Government shutdown, up until recently, the economy has been plugging right along.  However, this was a much different story back in 2008 when the public and investors thought the world was coming to an end.

This can clearly be seen by the huge increased buying of Gold Eagles during 2008 & 2009:

U.S. Gold Eagle Sales Selected Years1

Notice in 2007, total Gold Eagle sales were only 198,500 oz, but after the banking and housing collapse in 2008, buying more than quadrupled to 865,500 oz.  Furthermore, when the broader stock markets continued to tank in 2009, Gold Eagle sales reached 1.4 million oz.

As the Fed and central banks continued to print, prop-up and backstop their respective fiat currencies and broader stock markets, the demand for gold continued to decline.  In 2011, Gold Eagle sales slipped to 1 million oz. and down to only 753,000 oz. in 2012.

This is typical market psychology.  A similar but more volatile trend took place during the millennium.  Americans worried about Y2K purchased record amounts of Gold Eagles in 1998 (1,839,500 oz) and in 1999 (2,055,500 oz), but as the 2000 came and went without any major disruptions, demand nearly dried up to a pathetic 164,500 oz.

After the world escaped the collapse of the financial system with the help of the Fed & Central Bank Global QE, economic conditions in the U.S. started to wane in 2012.  This can be seen by the decline of energy consumption in the country:

U.S. Energy Consumption vs Annual GDP2

Here we can see that as energy consumption fell, so did the GDP.  However, there was a disconnect that started in 2011 and increased significantly in 2012 as energy consumption declined, the GDP increased — nothing like manipulated economic data to give the illusion of growth

This is part of the reason why the Fed announced QE3 in Sept of 2012… it had to add additional stimulus to keep the economy from imploding further.  Unfortunately for the Fed, this huge increase in monetary printing would have had a direct impact on the precious metals pushing their prices to new record highs.

To keep the precious metals from exploding higher, price action was capped at the end of 2012 and then after several huge raids in 2013, market sentiment in gold and silver was severely eroded as demand in the West dried up.

In the chart below, we can see how orchestrated manipulation of the precious metals can impact market psychology.

2013 U.S. Gold Eagle Sales

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