I have been asked the question why, if money supply, debt ratios and all the rest have gone more pear shaped and on a far larger scale than the 1970’s. Then why have gold and silver not performed as they did back then? The gentleman who asked the question also made the statement “Well I can’t buy the argument that it’s all manipulated and controlled”… to which I would ask why not? I have gone over this so many times but briefly…there is motive for sure. There is ability with sovereign holdings of physical metal and … we have something (several things) now that did not exist back in the 1970’s. We also know that past Fed Chairman Volcker said, “It was a mistake” to have “let” gold get out of a box and out of control back in the 1970’s.
First off, ETF’s did not exist back then. You can say whatever you’d like but my opinion on ETF’s is simple. With gold and silver they were created in the first place as a “pressure valve” to divert demand AWAY from the physical markets. I don’t for a moment believe that they purchased all of the metal that they say they did. In silver particularly, the amounts of metal supposedly purchased was not even known to exist. We also have evidence all over the place that “unallocated” or “pooled” accounts do not have the metal that they represent. This was not the case back in the 1970’s as there was still “adherence to the law.” The law was followed and feared, now it is laughed at openly by those running the show as “laws only apply to us serfs” now.
More importantly, something else did not exist back in the 1970’s…derivatives. Yes, options started to trade back in 1975 or ’76 but they were limited in use. They were truly used to either hedge or speculate, now they are used to control the entire show (and “will lose control of the entire show when they all unwind,” said A. Schectman). OTC derivatives which have no clearing house or “referee” to oversee the game are levered 100 to 1 or more. Do the math on this one, if you can create $1 billion out of thin air (which is done all over the planet every single day by multiples), if you can lever that 100 to 1 you can sell the entire globe’s gold production (on paper) within 48 hours from a mere $1 billion creation!
Is it really gold? Of course not. Does it actually settle like gold? No. But, it is used to at an absolute minimum “affect” price and in reality they have been used to “EFFECT” price. So the answer as to “why” gold and silver have not performed like they did in the 1970’s is really just a simple one word answer…”derivatives.” Derivatives, both regulated and unregulated… derivatives for products that settle and don’t settle, derivatives on derivatives on paper products.
This has worked…and it will work…until it doesn’t. At that point in time a “cash call” will be heard around the world. This cash call will ask for “settlement.” This “cash call” will be accompanied by margin calls…everywhere…and on all products. Margin calls for bond portfolios, stock portfolios, commodities, demand notes and down to the “factors” who supply credit to your Kmart’s, Walmart’s and even grocery stores.
There will be margin calls everywhere and these will also include central banks as they are a part of the hypothecation scheme though slightly different than the shadow banks. I point this out because the Fed as an example took a roughly $200 billion hit on just the Treasury portion of their portfolio (Who knows what the losses were on the “junk” portion?). This is important because they started the year with only $65 billion in equity which means that they have already lost 3 times their capital in just a couple of months. Will they get “actual” margin calls? No…but the markets will come to realize that they are no longer a “good” credit or trading partner. This in effect is the same thing as receiving a margin call and being “sold out” as people dump dollars in reaction.
Just understand that the biggest credit bubble of all time has been blown up by central banks and “derivatives” were used to aid in “making” asset prices. These derivatives don’t have, nor ever did have a chance at performing…or settling. The biggest margin call of all time will collapse. These are as sure as the Sun will rise tomorrow morning!