Peak Insiders

Following several months of remarkable price appreciation, precious metals (PMs) have been experiencing whipsaw volatility over the past 48 hours. Quite understandably, PM investors (and those thinking about becoming ones) are trying to make sense of what’s next for gold, silver, and the miners. Many of you have written in to us with the questions you’re most interested in getting insight into.

This morning, I spoke with three respected experts in the precious metals field. According to their expertise, I put a brief question to each: 

• What’s behind the current downdraft in bullion prices? (Ted Butler)
• Having lagged the increases seen in the metals, are the miners attractive here? (Frank Barbera) 
• For money looking to enter the PM market, is now a good time to enter? (John Doody)

Here is the summary of their responses:

The economic impact of the earthquake, tsunami, and ongoing Fukushima disaster on Japan’s economy, that is.

Of course, that’s not much of a surprise to readers here, but it will definitely be creeping out into the broader markets over time, and should be fully recognized in another two months or so.

The economic minister of Japan, not usually given to anything other than very measured statements, has come out with some rather bold pronouncements, including the idea that Japan may have difficulty financing all of the costs due to an already too-high level of debt.

Here’s the story:

The term “black swan,” as coined by Nassim Taleb, refers to an unusual event that nobody was expecting because such an event had never happened before. Until a black swan has been seen, they simply don’t exist; their probability is zero.

We are now in the midst of exactly what we might predict would happen when a world accustomed to sufficient net energy to drive its processes runs short of that surplus. This is our ultimate black swan.

Trained and raised in a world of ethereal numbers and ideas, today’s economists simply lack the proper framework to understand that all of the ‘rules’ they learned about monetary theory, interest rates, debt accumulation and all the rest, were not actually rules, they were temporary conditions permitted by abundant net free energy.

Brent crude oil at $124/bbl is telling us something. While the unrest in the MENA region is certainly driving some of the price gain, it is important to note that the price of Brent crude has been climbing more or less steadily since July of 2010, when it was at ~$80/bbl.

Saudi Arabia has said many times that it has lots of spare capacity and can easily fill the gap left by Libya’s temporary (or perhaps prolonged) departure. There are two problems with this view.

On Friday, March 11, 2011, at 2:46 p.m. Tokyo time, an earthquake measuring 9.0 on the Richter scale struck, sending shockwaves through the earth’s crust and devastating walls of water into helpless coastal towns less than ten minutes later.

Within hours, it was immediately apparent that a nuclear complex had been mortally stricken, a combination of extremely rare natural circumstances and insufficient design parameters working together to first cripple and then ruin the plants.

For those concerned about the reports of contaminated milk and radioactive rain, the levels are far, far below anything that should be on your personal worry list at this time. Perhaps that could change, but something would have to materially deteriorate at the Fukushima plant complex before I would devote much time to that here in the Americas.