-- Published: Monday, 11 August 2014 | Print | Disqus
By Bill Holter
I received quite few responses to my article last Thursday, "Could gold and silver go no offer?". The responses in general were questions pertaining to the "real" movement in gold and silver prices as opposed to the "nominal" or dollar movements. I will get to these questions in a moment but I want to pass along a note that a reader "Bryan" sent me via his group. Very rarely do I pass along writings and try to keep links to a minimum but this piece is special. I say "special" because it comes from a very long term perspective and he "get's it" from start to finish. Pay particular attention to the last paragraph, my comments will follow.
Hello all:
I recommend you read the Holter report. http://blog.milesfranklin.com/could-gold-and-silver-go-no-offer . I too am tired of hearing that “gold is going to da moon.” Gold is financial insurance and nothing more. Silver may be a more speculative investment for profit, given it’s massive undervaluation right now, but no tangible asset should be held with the purpose of making a Dollar profit. Why would anyone do that in the midst of a monetary crisis? Why would anyone want a profit of MORE dollars in a world in which the Dollar may go to ZERO worth??????? Towards the end, nobody will be accepting dollars for gold or silver and in the end, nobody will accept dollars for anything.
Think of purchasing gold as a simple currency exchange. Gold will hold its buying power, while DOLLARS and EVERY OTHER PAPER ASSET DENOMINATED IN DOLLARS will not. Will gold and silver rise in price? Certainly, but that’s not the right question. The correct question is “Will gold and silver rise in price as fast as the dollars lose value?” I think the answer to this question is no, because there is a lag between the excess printing of dollars and the impact of that practice on price inflation. This can be upwards of 6 months or more if the monetary interests clamp down on pricing in the commodity markets. This means that when ever you decide to sell your gold for dollars, you will constantly be selling too early. By the time you realize your folly, gold and silver will no longer be for sale anywhere, and what you sold will be out of reach forever. In my opinion, lack of supply of gold and silver is the real risk in this market, not price. Please read the article. Bill describes the situation well.
Remember, in a world dominated by derivatives, all prices are illusion. If you don’t believe that statement, consider the following. Silver is about $20 per ounce. This is cheaper than the price of silver in all of 1980, over 30 years ago. So, is the world awash in silver? Is silver so abundant that we can pave the streets with it? Is this why silver is so cheap? Nope. Silver is cheap because silver is priced with futures contracts and it is the supply of silver futures contracts that floods the world. Silver is scarcer than gold. Silver is scarcer than it was in 1900 when an ounce of silver was the daily wage of a banker or a lawyer. A daily wage of an ounce of silver in 1900 meant you were rich. A daily wage of an ounce of silver today means you starve to death. So, what is wrong with this picture? Is silver scarce or is it plentiful? The answer is silver is scarcer than it has ever been in the history of the world So why is silver only $20 per ounce? Then the answer is that $20 silver is an illusion that the monetary interests want to project to maintain the overvaluation of paper currency. Twenty dollars should buy a GRAM of silver, not a full ounce. This artificial buying power of dollars will end, and when it does, you better be holding metal, not paper. Buy silver or gold while you still can. Both metals are silly cheap. That fact alone is a symptom of pending monetary system collapse.
Regards, Bryan
OK, first off he is 100% correct, gold is not an investment, rather it is financial insurance. You should not own gold as a "way to make more dollars" but I would say that the majority of "gold bugs" think in just this manner. "Selling gold for a profit" does what exactly? It gives you more dollars ... but getting OUT of dollars is the real reason for owning gold in the first place, does this make sense?
A good point made was that gold trades to the creation of excess money with a lag (whether it is 6 months or not is unimportant) and the monetary authorities try to "clamp down" on commodity prices to hide the effects of the excess money. Another great point and one that I had not thought of from his standpoint before is that in the current system, whenever you sell gold it is always too early. This is a very important point and one which will exist every single day until we get a new currency that is actually backed by something real. Let me add to this by saying, as long as you fully understand the end game being one where the dollar evaporates and ultimately goes to zero then you know that whenever you sell gold ...it was too early ...every single time!
As Bryan mentioned, the risk in the long run or end game is that the day will come where there is no gold or silver available to purchase using dollars as payment. The "fair value" of gold (and silver) will either be higher at a later date or, not available. This isn't to say gold and silver won't have corrections in price because they will. These corrections are "helped" or even instigated by the selling of futures which are not metal and have no metal behind them. This situation however now has a shortened lifespan because the Chinese will have a cash market up and running before year end. We will soon see the "two tier" market I have written of before, one price "manufactured" by the paper COMEX and another "discovered" on the cash market in Shanghai. In other words, we will soon have a "real price determined and discovered solely by real metal trading.
Getting to his last paragraph, this is the gem and puts the current "value" of silver in perspective. He asks, "is silver plentiful or scarce?". I would remind you to keep in mind that silver is "used". It is used for solar purposes, medicinal purposes, used in the high tech industry in computers, cell phones etc.. These "uses" take away from the above ground supply forever as much of it is never recovered for later use. Only jewelry and silver stored for investment remains. Also, please keep in mind that silver is mined from the ground at a ratio smaller than 15 to 1 in relation to gold yet the "pricing" is currently ratio'd at 63 to one. This doesn't make any sense but it is what it is because paper futures that have very little metal if any behind them "make" the pricing structure.
The best part of Bryan's final paragraph goes back to the early 1900's. Paraphrased, "One silver eagle was the daily wage of a banker or lawyer and it meant you were rich, a daily wage of one silver eagle today means you will starve to death". This is interesting because an ounce of silver from 1900 is still deliverable as an ounce of silver today yet "valued" at something like 1/10th or less than what it was 100 years ago. For silver to be valued so much less, something must have happened? Either the supply has become plentiful, the demand has collapsed, it is obsolete, or ...something else?
We know that silver is being mined at less than 15 ounces for every one ounce of gold so the supply has not exploded. We know that global mining supply has already peaked and is now in a slow and probably terminal decline. From the demand side, we know there are now more uses and more demand for silver than any time in history so it not from the lack of demand ...which leaves us with "something else". The something else is the paper derivatives markets which works to "distort" nearly everything and brings me to the main point of Bryan's writing, "in a world dominated by derivatives, all prices are an illusion".
Please understand that THIS is the core problem and also the reason why foreigners are moving as fast as they can to distance themselves from the U.S.. They KNOW this, they know the U.S. is currently going to any and all lengths to "paint a pretty picture" and using derivatives to do it. Derivatives are used to push stock markets higher, interest rates lower and to control commodity prices... all with one goal in mind. To support the value of and to extend the life and scope of the dollar, period and end of story! The motive you ask? Plain and simple, because dollars are "free" to create and "we" are the only one who can do it. Again, this is why foreigners are running as fast as they can away from doing business with the U.S.. Everything financial that we look at, our "belief" system and our day to day life has become an illusion because the pricing structure has been distorted. Reality can be hidden and it is currently but it cannot be hidden forever, the world will look very different once the veil of illusion is lifted.
In answer to the many questions I received regarding the "real" prices of gold and silver, this is what I think. I believe that gold and silver will in fact go "to da' moon" and beyond in dollar terms. In real terms, I believe that gold will outperform most all "real assets" and thus its purchasing power of real goods will increase. I assume that at some point in time, silver will trade versus gold at a ratio similar to the ratio they are being mined at which currently is less than 15-1. If I am correct in this assumption, then it follows that silver will outperform gold by at least 4-1. Does this mean you should have all of your money in silver? No, but it does mean you should have some. You should have some because it is grossly underpriced versus gold, it is even more grossly underpriced versus other goods and services, it is rare and when the end game comes for the dollar you will not be able to exchange your dollars for silver because no one will take them.
To finish, the obvious question is "when" do I believe the adjustment will happen? I have no idea other than to say "sooner or later" but it is inevitable and could be any morning that you wake up. I do however believe that when the process starts, it could culminate and lock new buyers of metal out in as short as a week or two time. It is possible you may not even have one single business day were any reset to occur over a weekend or the markets close because of someone with an itchy trigger finger. My point is this, silver is a no brainer from current prices and "waiting" to act may end up being the biggest financial mistake of your life.
Regards, Bill Holter
http://blog.milesfranklin.com/
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-- Published: Monday, 11 August 2014 | E-Mail | Print | Source: GoldSeek.com
