Eric Sepanek
SBC Founder
Eric Sepanek is the founder of Scottsdale Bullion & Coin, established in 2011. With extensive experience in the precious metals industry, he is dedicated to educating Americans on the wealth preservation power of gold and silver.
Many of the market’s leading prognosticators have adopted an unfalteringly optimistic outlook. Their ongoing positioning is that if they can’t see something troubling happening in the world or if the potential consequences of any given event are too extreme to contemplate, they just say there is no way it will come to be. Understanding this perspective can help one make sense of the market’s response to the failed Italian referendum, as well as the string of other recent shocks to the system.
Market Response to National and Global Shocks
In the United States, this positive attitude has repeatedly played out in the second-guessing of the FOMC plans to raise interest rates. It was also the response to the totally unanticipated election of Donald Trump to the presidency.
Globally, the sun rose on a stunned Europe after the Brexit vote. Then, Italy voted against constitutional reforms, an event some are saying could destroy the euro and the entire EU. 1
However, the world did not collapse overnight due to Italy’s failed referendum: the markets opened and adjusted to the results of the vote. The U.S. equities markets are roaring to new highs. The euro is trading lower but it is seemingly surviving. The U.S. dollar is showing renewed strength in global markets. 2
Understanding Near-Term versus Natural Market Forces
Does the fact that the world economic system has survived this string of shocks mean it is secure? Does this seeming market elasticity point to an invulnerable economic structure that simply cannot and will not fail? Can the paper-currency-driven central banks continue to agilely bounce from one crisis to another with no real consequences?
This seems to be the message from those traders, economists, and global governmental officials who simply cannot envision the carnage of yet another financial crisis.
Certainly, this sense of “it can’t happen again” has affected gold prices in the short-term, which has consequently driven some new speculators out of the market.
However, in answering the above questions, the reality is that there is a limit to the shocks the world’s financial system can withstand. Moreover, the very mechanisms that central banks have used to blunt these shocks could compound the structural failure when it comes. This is where short-term perspectives run headlong into natural forces.
The Reality of Market Cycles
Market cycles are a reality, regardless of what central banks have done in trying to contain and control them. The unprecedented level of world debt and ongoing deficit spending continues unabated. 3
Much of this debt has been accrued as one of the primary buffers to minimize the above and previous economic shocks, but there is limited ability to respond to such future problems. It is this long-term perspective that has gold buyers averaging down the cost of their portfolios in this current market climate. 4
Taking the Long View
Nothing has changed for the better in the factors that drove gold’s rise earlier this year, and neither will a short-term period of optimism aid the situation. There is no question of ongoing financial shocks and a coming economic adjustment. The only issue is how severe and when. 5 That is why long-term investors of gold are unconcerned by what they view as temporary dips in gold prices and continue to place confidence in buying gold.