Many who read this on a weekly basis know that I have been positive on gold since about 2003.
While that bullishness has served me well since the year 2003 there have been some major bumps along the way- particularly in the past few years. The amazing thing to me is that the price suppression that I witness on the charts virtually every day, and that I have been shouting from the rooftops for years, is now pretty well known and accepted as fact. There have been civil lawsuits where major banks have admitted the rigging but NO criminal charges. There are two sets of rules- you or I would be prosecuted and likely jailed for this activity.
It seems to be a tight little circle where the major banks manipulate the price of the metals (and just about everything else also) by trading paper contracts in the futures market. Since little gold or silver actually change hands the amounts that are traded is staggering. Most of the trading is selling when the market is at its thinnest (few buyers) with market orders to ensure a lower price. If that is not obvious enough right there I don’t know of anything that would be.
Of course, those same banks and the countries that look the other way while this takes place, are loading up on physical metal while the prices are suppressed. Many who are noticing that even central banks are buying gold are starting to do the same thing.
This is similar to my writing for the past 10 years that once you start “printing” money you can’t stop. Hardly anyone believed it then and only a few realize it now.
The Fed’s actions and the actions of other central banks are, to me, an admission that there can be no pulling back and the pedal has to be to the metal- or else! No rate cuts, an end to the plan to reduce central bank holdings and most important in my opinion is the fact that as of last week, after all central bank manipulation the economic reports were so bad (European and US manufacturing, etc.) that bond yields tanked and now over 10 TRILLION DOLLARS of debt trades with NEGATIVE INTEREST RATES.
Do you have any idea how unnatural that is? In 5000 years of recorded history that has never happened. Wonder why? It would be like me saying if you give me $100.00 today I will give you back $95.00 ten years from now. How many times would you take that deal? Anyone who worked and earned that money would say- “NEVER”. But, if you can keystroke any amount of “money” up, anything you buy is worth substantially more than what you started with- which was NOTHING.
There are many reasons that I believe gold and silver are ready to take off in a meaningful manner and below I will list a few.
- Basel III- New central bank rules that make gold a tier 1 asset. This means that 100% of gold’s value counts as collateral for the bank. Previously only 50% could be used in determining reserves. Many have concluded that gold is being re-monetized. While this may not cause a moonshot in price right away it may be the catalyst for a future price spike. The reason is that the banks have an estimated 1-1.5 QUADRILLION in derivative bets. Most of these risks are supposedly managed by counterparties that will pay in the event of a catastrophic loss. Of course, if they all have catastrophic losses there is no one left to pay. If the paper party fails what better way to recapitalize the banks than to just make gold worth 10X or 100X what it is worth today (which maybe it should be already) and the banks are solvent again with no need for bailouts or bail-ins. Could this be why JP Morgan has virtually cornered the silver market and, according to Ted Butler has over 750 million ounces of silver and 20 million ounces of gold for themselves in 2018? Or could this be why Russia bought 200 tons of gold in 2018 and a million ounces in February? Could this be why central banks, countries and major banks are buying hand over fist- even Eastern European countries? Another important note is that paper contracts DO NOT COUNT in this calculation- only physical metal. That is also telling. If enough physical metal is held by these banks it may supercede the action in the paper markets at some point. That could mean the end of the 4AM and 8AM dumps of paper contracts to suppress prices at some point.
- Counterparty Risk- the chance that someone who owes you cannot or will not pay. Gold has No counterparty risk- very important in times of turmoil.
- Political Risks- Uncertainty is difficult for most assets but historically gold rises in times of instability, international tensions and turmoil. In looking at the news I see many flashpoints that could ignite world war 3 if we are not careful. I believe many are feeling that same way.
- Central bank capitulation. It appears that globally “Print and Buy” is alive and well. Even so, the real economy is rolling over and it appears to be accelerating even with dovish actions being taken all over the earth. Negative interest rates, tens of trillions in new debt and currencies created and the economy is still on life support and appears to be dying a slow death. It appears that the magic of the central banks, which was an illusion all along, is now being exposed. People are likely going to be expecting real value for labor and goods in the near future. It is the ONLY reason I can come up with that central banks would buy 650 tons of gold in 2018- they must know something is afoot.
- Scarcity- the manipulation of prices lower has made exploration and mining less attractive and has affected supply. Companies that may be opening new projects at $1500.00 per ounce may not be profitable at a reduced price. Less exploration = Less Mining = Less gold. Physical demand is through the roof. Many find that hard to believe because we have all been taught “supply and demand”. Since prices have been suppressed many believe that demand must be low or there is an oversupply. Neither is true. So why is the price low? As Dr Paul Craig Roberts (Former Asst Treasury Secretary) said- the only way you can have increasing demand, static or lower supply and a falling price is fraud. I agree.
- Negative Interest rates. This may be the biggest force of all. One of the main complaints by investors is that gold has no yield. In a negative interest rate environment that is a plus!
- Virtually all other assets have skyrocketed since central banks started “printing and buying” almost everything in sight. Why would that be? Stocks, bonds, real estate, fine art, vintage autos, etc. all in massive bubbles. Stocks, bonds and real estate have been managed that way and the art, autos and collectibles don’t have a futures market to manipulate prices with. Even bitcoin skyrocketed- UNTIL Wall Street started a futures market and it has been crushed by 75% since that futures market opened. Coincidence? I doubt it!
- The End… at some point all of the consequences of money from nowhere will rear its ugly head. At that point all of the assets that have been artificially propped up will likely fall to fair value and those assets that have been artificially suppressed will likely rise meaningfully. That day may be closer than many believe. Let’s not be the guy who is swimming naked when the tide goes out as Warren Buffet is famous for saying!
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