Gold and Silver Prices Are Falling: Why The Bull Market Isn’t Over Yet

Key Concepts

• Rational Economic Expectations: The practice of basing investment decisions on statistical probabilities rather than extreme, fear-driven scenarios.
• Hyperinflation: Defined as inflation rates of 50% per month; a phenomenon historically absent in the U.S. since 1900.
• Creative Destruction: An economic theory (supported by Alan Greenspan) suggesting that the failure of inefficient firms is a necessary component of economic progress.
• Non-Farm Payrolls: A key indicator of U.S. job creation, currently showing a concerning plateau.
• Specie/Gold Standard: A monetary system where currency value is directly linked to gold, which historically caused volatility due to fluctuations in gold supply.

---

1. Market Conditions and Precious Metals

Jeffrey Christian provides an update on the precious metals market, noting a sharp decline in gold, silver, platinum, and palladium prices as of early May.

• Gold: Despite a potential short-term dip to $3,500–$4,000, the market remains in a long-term bull trend. Christian debunks the "hype" that central banks are buying gold "hand over fist," noting that in Q1, central banks were net sellers of approximately 3.3 million ounces.
• Silver: Prices remain constructive above $70. While there is downside potential to $50–$60, demand remains strong from investors, even as fabricators reduce usage due to high costs.
• COMEX Deliveries: The May contract delivery was described as a "non-event," with 23.9 million ounces of depository receipts delivered, consistent with historical norms.
• Platinum/Palladium: Prices are expected to remain high compared to the 2001–2017 period, though increased mine and scrap production may cap further gains.

2. The Fallacy of Extremes: Depression and Hyperinflation

Christian argues that investors often miss significant bull markets because they are paralyzed by the fear of a total economic collapse.

• Probabilities vs. Possibilities: While depressions and hyperinflation are possible, they are statistically extreme (five standard deviations from the norm).
• Historical Context: The U.S. has not experienced a depression since the 1930s, nor hyperinflation in the modern era. The 19th-century volatility was largely due to the lack of a national banking system, rampant bank fraud, and the constraints of the gold standard.
• Policy Safeguards: Since the Great Depression, governments and central banks have implemented fiscal and monetary policies specifically designed to prevent these extremes. Christian notes, "Politicians know that their careers, if not their lives, are at risk if they let depressions and hyperinflation emerge."

3. Economic Indicators and Trends

• Real GDP: Since 1947, U.S. economic activity has become significantly more stable. The "Great Recession" (2007–2009) and the COVID-19 recession were managed events compared to the severe, frequent downturns of the late 1800s.
• Employment: A major point of concern is the slowing rate of job creation. While unemployment remains at historically low levels, the plateauing of non-farm payrolls is a "worrisome factor."
• Manufacturing: The U.S. manufacturing sector has seen output rise while employment in the sector has declined, illustrating that the U.S. still produces goods but does so with higher automation and fewer workers.
• Inflation Management: Christian highlights the 1970s as a period of high inflation (peaking at 14%) rather than hyperinflation. He credits Paul Volcker and Jimmy Carter for the "hard choice" of raising interest rates to 21% to kill inflation, a move that cost Carter the election but stabilized the economy.

4. Synthesis and Conclusion

The primary takeaway is that investors should avoid "fear-mongering" and focus on rational economic expectations. The U.S. economy is prone to cycles of recession and inflation, but the institutional framework built over the last century makes the "doomsday" scenarios of total collapse highly unlikely. Investors are advised to buy gold and silver not as a hedge against the end of the world, but as a strategic asset to navigate the "real world in between"—the volatile, yet manageable, economic fluctuations that define the modern era.