The Money Printing Ritual Goes On

These are certainly days of miracle and wonder. Well, of absurd and extraordinary financial experimentation, at any rate.

Last week, for example, saw the Bank of Japan abandon any last pretence of restraint and topple headfirst into a gigantic pile of monetary cocaine.

The scale of the policy is daunting: the Bank of Japan intends to double the country’s monetary base over two years via the aggressive purchase of long term bonds.

It would be difficult to overstate the drama of this monetary stimulus (although we favour the word ‘debauchery’).

Yet as the Japanese monetary authorities declare a holy war against deflation, it would only be fair to draw attention to the colossal opportunity being presented as the antidote to monetary intemperance, namely gold and gold miners.

There is a clear mismatch between the prices of gold and silver mining shares and spot prices of gold and silver. But as to why the miners are trading so poorly relative to the physical is unclear to us.

It may be because the market expects the price of gold and silver to fall (not a belief to which we subscribe, given current monetary events for example in Japan).

It may be because the rise of gold exchange-traded funds has removed a natural bid for shares of the miners.

And it may be because the market is waiting for goldbug hedge fund manager John Paulson to capitulate on his own holdings of precious metal mining stocks.

Nobody knows. We are merely content to play the long — and rational — game.

As Lee Quaintance and Paul Brodsky of QB Partners point out, ‘the ratio [mining share prices to spot gold] is again at its ten year weekly low. If there is any remaining validity to the merits of investing in financial assets based on historical value, this would be the time to buy miners.’

They go on to add (and we concur),

‘Our strong bias is that prices of bullion will rise significantly. Selling the miners at current absolute and relative valuations would be tantamount to throwing in the towel on the entire concept of value investing, now and in the future.

‘The reality is that we cannot be 100% sure of the outcome from all the monetary mayhem in Europe, Japan and the US, and we do not have a good sense of timing if and when our outcome proves correct. . . All we can do is try to recognize value within the context of current and extrapolate-able events.’

We agree that the temporary weakness of the price of bullion is a buying opportunity in light of Japan’s vast money-printing experiment. And the same likely holds for the price of gold mining companies.

Bear in mind, though, that as the money printing ritual goes on, the prices of everything are being so grievously distorted. Doubt is uncomfortable in this environment. But certainty is absurd.


Tim Price
for Markets and Money

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Publisher’s Note: This article originally appeared in Sovereign Man: Notes From the Field

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4 Comments on "The Money Printing Ritual Goes On"

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slewie the pi-rat

quick! take this down! L0L!!!
good to the very last drop!

this deserves a slewienomics honorable mention in the “predictions” category.
at the very least.

the award is inscribed, on paper:
“Vast fortunes have been made, fading MY predictions!”

truth and integrity
The US $DXY index has dropped 0.5 cents in the last week. The US Fed has managed to keep the value running at the top of its bollinger band. It looks likely the stress will be too much to hold the dollar at the top of it’s long term downward trend and when the momentum of electronic traders in the money market start shorting the dollar we will see it likely drop to the lower long term trend that is near 68 cents (20% drop) or even lower. It drooped from 92c in Dec 2005 to 70c in march 2008… Read more »
slewie the pi-rat
@ t&i: hi. there is more than one way to skin a cat. and cats can predict the future, too! if one designs the experiment well and uses enough cats, some are “correct” about the future. trust me! “time” is not what it appears to be, to some cats? or, they are just freaking lucky? both? neither? ‘seers’ and ‘prophets’ are top cats. in the “financial” experiments, we end up with billion-heirs and their great-great-great-great children (aka: “capitalists”), along with advisers, pundits, and central bankster alpha-cats, in addition to the more mundane seers and prophets. the lawyers are from somewhere… Read more »

Slew the cryptographer?

“But as to why the miners are trading so poorly relative to the physical is unclear to us”
Power shift courtesy of ZIRP and the Corpirates on world tour.

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