To paraphrase JP Morgan’s (the man) 1912 testimony to Congress: “Gold is money, everything else is credit.”  JP Morgan, 1912

The question you’ll need to answer for yourself is “what alternatives are there for big investments right now?” The stock market, residential real estate market and bond markets have been inflated into bubbles of historic proportions. The Fed has created a financial market Frankenstein of Biblical proportions.

Commodity inflation is raging now, and eventually this will transmit into soaring food, energy and capital/consumer goods price inflation. This dynamic is just getting started. It will soon get worse, as the Treasury earlier this month released its plan to flood the financial system with cash by reducing its balance on its general account at the Fed by $1.229 trillion. This was money printed by the Fed and transferred to the Treasury via “QE.” Yesterday, Fed Chairman Powell reiterated the Fed’s commitment to continue printing money for the foreseeable future.

The Fed is preparing the public for another big round of money printing after the Treasury cash is absorbed into the banking system, where it will be used to service delinquent/defaulted commercial, residential and corporate debt in an effort to prevent a banking system collapse similar to 2008.

The banking system began unraveling again in August 2019 as evidenced by the Fed’s reimplementation of QE/money printing disguised as “term repos.” With the term repos rapidly increasing in size and duration by February 202, the stock market crash and virus crisis gave the Fed the proper cover to attempt a “kill shot” at the problem attacking the Too Big To Fail bank balance sheets.

The recent jump in the size of the Fed’s balance sheet indicates that the “kill shot” didn’t work. And the non-performing loan problem will get worse after Biden just extended the foreclosure/eviction moratoriums – again – and with rising corporate and personal bankruptcy filings. More money will be printed to keep the banks “insulated” from the deteriorating assets on their balance sheet.

The precious metals sector has performed remarkably well over the last 12 months despite the overt and obvious efforts of the Fed, in conjunction with the Treasury’s Working Group on Financial Markets, to hold down the prices of gold and silver. The current effort of the “Plunge Protection Team” to cap the rise of the precious metals is destined to fail.

The Fed’s inability to hold down yields at the long end of the Treasury curve, despite being by far the largest owner of the 10yr bond issue and buying Treasury bonds on a daily basis, signals that the Fed is starting to lose its grip on controlling the markets. Rising yields and a falling dollar will be the double-tipped “pin” that pops the asset bubbles.

As this process unfolds, there will be immense damage inflicted on dollar-based financial assets. Those lucky enough to get out of the door before the herd tries all at once to exit will look to gold and silver as the best alternative to preserve wealth. This will trigger another big bull move in the precious metals sector. Gold and silver currently embody both positive investment potential and wealth preservation. But your motive to buying them should be more heavily weighted on the latter.