Russia took some very stern retaliatory steps this past week in response to being sanctioned, sanctioned again, and sanctioned further for good measure. Up until this point, Mr. Putin had remained somewhat restrained and I would say almost stoic in his responses by never trying to “one up” the sanctions, only matching them so far. This may have now changed and unfortunately for the West, Russia’s retaliation is coming at a poor time.
Russia has retaliated by banning all food imports from the U.S. and Europe for 1 year. Previously, they had put a moratorium on doing business with U.S. consulting firms which included high tech and energy.
In dollar terms, the food import ban is not huge and will only “nick” U.S. and European farmers and producers. It could be argued that the import ban will only hurt Russia as they import much of their foodstuffs, I tend to disagree. If nothing else, this is symbolic. I think Russia is saying, “We can survive without the West” and past history agrees. Their people have withstood hard and lean times before, I don’t think this will be any different. Russia announced two oil deals this past week, a $20 billion oil deal with Iran and also a $40 billion deal with India so they have not gone on the defensive. Interesting also that ExxonMobil is beginning an arctic drilling plan with Russian partner Rosneft in direct defiance of U.S. sanctions, will business win out or politics? And if it is business, one must wonder what sort of face saving measure Washington might have with ExxonMobil?
The key here is that Vladimir Putin is putting a wedge between the U.S. and Europe and “time” is on his side. You see, November is only three months away and cold weather will come with it. Russia will without a doubt use the natural gas trump card to force Europe away from the U.S. and leave us standing alone. Even the mainstream press is beginning to understand this as Bloomberg wrote about the danger of sanctions to the dominance of the U.S. dollar. Also last week, Russia and China finalized their currency swap lines which will allow them to trade directly in rubles and Yuan. The newly formed BRICS bank is also not to be forgotten as an alternative trade facilitator that excludes dollars.
I bring this all to your attention because the U.S. is not in any financial shape to withstand more headwinds. Our economy is faltering at the same time “unencumbered” collateral is becoming very hard to find. In fact, the U.S. Treasury has actually had policy discussions that asked the question, “What if we lost access to the capital markets?” Why do you suppose they had this discussion? I can only say, if “loss of access” was an impossibility then the discussion would never have taken place. I don’t want to beat a dead horse with geopolitics but you must understand, these trade issues and sanctions are “war.” No, widespread shots are not being fired yet but financial war is war all the same.
I have mentioned several times before, in my opinion the “final financial shot’ which leads to live financial fire (collapse) will be in either the gold or silver pits of the COMEX… or ultimately both. For example, total COMEX inventories of silver are 175 million ounces, the registered category is only 60 million. At $20 per silver ounce it would take only $1.2 billion to crack that market open like a watermelon. Some will say “big deal” or “who cares?” it is a big deal and YOU should care! Why? Because for a pittance of money in today’s world, “trust” in the entire financial system of the West can be shattered. I have written on this before but it is so important (and I believe likely) that I’ll go over it again.
The entire financial and banking systems of the West are based on “trust” alone. There is “trust” required in everything because the money itself is fiat which means it is not real or “backed” by anything. This is where the phrase “backed by the full faith and credit” comes from. Now, let’s look at the silver market and forget about just the “registered” category, let’s look at the entire inventory of 175 million ounces. This is $3.5 billion. $3.5 billion is roughly equal to the amount of QE that we were printing EACH DAY at the beginning of the year. It is also roughly equal to the amount of fiscal deficit we run EACH DAY, it is only about 2 days’ worth of U.S. trade deficit and only 2+ days’ worth of interest that we pay on our debt. $3.5 billion is a figure that maybe 1,000 individuals worldwide could come up with, China has this “$3.5 billion” ONE THOUSAND times over in U.S. debt and dollars held. My point is this, in today’s world, “$3.5 billion” is almost nothing.
Before getting into the nuts and bolts I want to explain why such a small market like silver is the Achilles heel of the entire financial system. If silver futures suddenly and collectively stood for delivery in one month, the inventory does not exist to deliver. This is simple math as for example, Sept. has 84,000 contracts outstanding which represents 421 million ounces of silver which could not be settled upon with a total inventory of 175 million ounces (of which 115 million are NOT registered as deliverable). What would happen if enough contracts stood for delivery and then refused to accept settlement in cash? This would result in a “default” but that is not the real problem. The real problem is the fact that it would then also spread into the gold market. Word would spread quickly and the “rush” would be on everywhere in “contracts” to get metal delivered, people would also rush to have metal delivered from unallocated accounts. In short, the lie would be exposed and actual holders of real metal would withhold their product and not accept fiat for their physical holdings. In essence, we would live in real time with a worldwide “run on the bank.”
As for the “nuts and bolts” part, this is easy. We know that China is none too happy with the U.S. and are now allied financially, economically and militarily partnered with Russia. Could it be that the near record open interest in COMEX silver is of Chinese origin through proxies? Has the BRICS bank been created because they know the Western banking system is on life support and THEY will be the ones pulling the plug? Personally, I think this is the case. The Chinese/Russian co-op has the motive, the ability and the means to do this. I also believe they have the “desire” which we have given them reason for so many years by abusing our “privilege” of issuing the reserve currency. In case you haven’t noticed, the BRICS have been preparing for “something” now for several years. Don’t be surprised if it turns out that silver is the “target” because it is the easiest target. The silver market is the smallest and probably the “most abused” market in the world. I believe it to be the most likely scenario in a financial attack which is now obviously (to me) just a matter of time. You can argue an “attack” is not imminent but this would be wishful thinking. All you need to do is look at what comes from Washington each day to know we are reacting and trying to put out fires rather than leading as we once did. Watching Washington was once upon a time an adventure in comedy, the upcoming tragedy scares the heck out of me.
If silver is the key to breaking the back of the U.S.(which i believe it is), then by implication, the price is maniacally supressed, as we are witnessing. This means the ‘value’ of silver is not only incredible at the moment in relation to gold, but more incredible than even we realize, in opaque naked paper shorting which ties into Jeffrey Christians ‘slip’ in 2010, where he stated the 100 to 1 naked paper contract to 1 physical ounce ratio, which has no doubt increased. Physical silver is the market call of a lifetime, which is becoming more apparent by the day. I had not dreamed in 2008 when i started purchasing in earnest, that events would transpire to drastically increase silver’s inherant value.
correct Jeff.
If silver is the Achilles Heel, then why would the govt. suppress the price to make it easy for a Comex default? Wouldn’t the govt. instead, allow the price of silver to reach $40 or $60, to discourage such an event?
no because then gold would be running $2,000. Remember, gold and silver are thermometers that must continually read the wrong temperature even if that means ultimately a default.
Bill, In the “art of war” that you spoke of a few days ago you showed how one chapter talks of giving an “out” to your enemy lest they become desperate and go beserk in the process.
If the Comex defaults on silver deliveries that could be the chain reaction to the global collapse. If China was responsible for the Comex default would they want the world pointing at them as the culprit? Would they not want to give the U.S. and “out”? Just asking. Ron
how would we know it was China if they are doing it through proxies? I still believe that we leased and have not paid back Chinese silver but this is just speculation on my part.
Fair enough. Just as we proxied QE thru Belgium I suppose.
Ron, regarding the “out,” remember at the makeshift control center, when Teasel asked Troutman what he would do, and Troutman responded that he should give Rambo an opening so he could slip through and escape escape? Well, Troutman didn’t do it and before long .50 caliber rounds were piercing the air and the whole town was in flames. Rambo rained hell upon him.
LOL. Yes, that was a movie but it illustrates what you do to an enemy to avoid confrontation/desperation.
On the COMEX issue, I wonder if the reason someone hasn’t cornered silver is because of the situation with the Hunt Brothers, that the gubment would invent some reason to take that person down if that’s what it took. Obama could soon thereafter be on TV explaining his PM windfall profit tax, decrying the “evil speculators” in much the same manner as Nixon did. Of course, the windfall profit tax would also be……… temporary.
Shanghai physical inventories down almost 90% in one year.
I do not think that the USA wants to allow China or Russia to cause the crash of the dollar by causing the default of the COMEX.
If this would happen the American people would not blame them for that but it would see the USA government and the bankers who cooperated with it as the culprits who had made the dollar so vulnerable.
So the US government needs to do something to make somebody look really guilty of causing the dollar collapse without revealing the criminal vulnerability.
The current Ukrainian conflict clearly caused by the USA agents could be only a pretext to put Russia in a position of a cornered aggressor who is not above taking down a passenger plane.
If the USA government arranges a terrorist attack similar to 9/11 on its own soil and immediately after that causes the dollar collapse it will have a nice red herring. The more uncertainty the better. Later it would vaguely and without any real proofs suggests Russia as the evildoer. The gullible Americans will swallow the lie hook, line and sinker no doubt.
So I would expect something this simple. It would be well in the USA government stile.
yes, it’s all about perception.
In a financial collapse and worldwide industrial downturn there will be little need for silver in all forms of decreased manufacturing output.
Maybe the markets are indicating this.
Daily,weekly and monthly charts are in downtrends.
Please note that silver is below the 61.8 % fibonacci retracement and is on track to 100% level $8.42.
In spite of some good arguments about the fundamentals I would caution buying at this point.
I am not a buyer till break above $25.11 (at this point in time)
wrongheaded.
Well good on ya Bill. That’s a terrific comment. Cannot have anyone thinking anything different to your opinion can we now?
Actually I am very cautious and 2 things I have learned in 40 yrs of being in markets is this.
1) the trend is your friend
2) do not gamble in the markets.
So I see now that you really are a gambler, betting that the price will go higher from here and you might be correct in that assumption albeit that it is based on a monthly MACD crossover and false notions that there is a scarcity of Silver.
I wish you well with that bet and all the other readers as well.
But I am also way more flexible in my thinking and trading. I am happy to wait till $25.11. ( at this point as stated)
Could happen tomorrow for all I know or care.
But when or if that flexible entry is reached I will at least be buying with obvious momentum and a greater possibility of it continuing.
Yeah and I know that you are in it for the long haul and that it doesn’t matter when you buy so long as you have it when TSHF and goes no offer blah blah blah.
I totally agree that it could go No Offer. I am absolutely certain that Gold will.
But that could be 10 years or more away. Nobody knows. Could be tomorrow.
I doubt that though. Silver is still in downtrend. No sign of backwardation.
Happy Punting.!
BTW patience is a virtue. And no action is an action.
yes, “no offer”, blah blah blah.
When I purchased from MF in Dec 2012 it cost me over $36 per ounce. My spouse derided me on buying then and the market going down to where it is today. But after yesterday’s article I don’t feel like such a chump anymore. I didn’t buy it to get a better return. I will at least have the silver when there is none to be had.
and at some point…there will be none to be had.
You gold and silver people have led us this far. I sure hope all your professing is not just to sell more coins. I do not think it is. If it is you know it. And to me if your talk is just about Bill Holter making a living selling coins I would be very sad. As much as GATA we trust you! I’m sure it is not! Remember every word you and Andy speak holds the financial lives of many. This is getting very very serious.
sincerely,
Frank Jeffries
Frank, I started building positions in gold, silver and mining shares as a retail stockbroker in 1997, the next 3 years were tougher than the last 2 have been. I retired in late 2006 and wrote for GATA for the next 5 years and was not paid a single dime ever for my writings. David and Andy Schectman liked my writings and asked me to write for Miles Franklin so yes, I “do get a paycheck” now for what I write. I challenge you to read anything I wrote for GATA that even slightly differs from what I am writing today. I have the exact same opinions today that I have always had, stronger now however because we have gone further off the rails.
So, I write exactly what I believe and no amount of money from anyone could entice me to write anything which I don’t believe. Does this mean that Bill Holter is always right or correct? No, I am as human as you and can be as wrong as anyone else but I assure you I am not “full of shit” as many are out there who write with an agenda. Actually I take offense to your even suggesting that I am “carnival barking for a paycheck” because for 5 of the 7 years I’ve been writing was for free. Speaking of “free”, I assume that you read my material because it makes sense to you. If this is the case then you are receiving something of value (to you) for FREE. You are entirely free to either not read my missives or to question and debate in the comments section where you believe my logic is flawed. No one forces you to read or to follow or to believe me or anything I say or write, this you decide to do or not to do on your own.
I will leave you with this, you are born into this world with only one thing, your good word. It is up to you and only you whether you exit the world with your word still intact. I can be and probably deserve to be “colored” with many extreme adjectives, “full of shit” is not one of them. I might suggest that you work on your “judge of character skills”.
Funny about the prior comment above, I often wonder if folks like you and Andy aren’t the next targets instead of the metals themselves. I post a lot of things on gold and silver on my linkedin for my own daily blog and there have been a few commentaries I don’t hit the “submit” button on because I do have a fear of being “targeted.” I have thick skin and don’t mind a difference of opinion from time to time, but I mean targeted in the sense of “someone” is watching and documenting because everyone knows anyone supporting a fair monetary system (gold/silver standard) is an enemy of the fiat Fed structure and the powers behind this and other proxies.
everybody has to go sometime, might as well “go” doing something right and trying to make a difference. Besides, “this is America”, it would never happen here, would it?
I’ve read Bill’s words on and off for quite some time, and I began buying gold and silver when it was a quarter of where it is now. I stopped circa 2008 because I felt there was room for a big pull-back.
Was it prescience?
No, I looked at a 40yr old chart and reasoned with some degree of certainty, that the events that led to those price movements, would also lead to the current ones.
I predicted back then (late 2003) ultimately about $8,500 Gold, and $500 (or just shy of it) silver.
The reasons are many so I will give you the main ones.
Demographics – back in the 60s and 70s those born in the run up to the creation of the FED were retiring. (born 1890 – 1910)
Their spending was reducing. They died on average 3yrs after finishing work.
Baby-boomers were just emerging into adulthood, and chasing up house prices in the West.
Vietnam War,
Middle-East Wars (Israeli 6days war-1967/Ramadan War-1973 /Qaddafi takes over Libya in 1969/Saddam Hussein takes over Iraq in 1970 – I think)
Cold War Rhetoric at its height – military spending rampant.
China still isolated, but Mao making a mess of things in China – 1969.
Kosegyn still in charge in USSR and waving his fist.
Italian politics a mess and in 1974 Spain begins changes to democratic government as Brits begin holidaying there.
Greek economy a mess with continued devaluations.
Notice any similarities to today?
The antidote then was more money-printing… just as today. UK Money supply increased 25% in 1973 – inflation in 1974/5 hit 26.9% (Old RPI measure)
1979 – Iranian revolution – UK inflation hit 21% in 1980/1
The 1970s were a mess economically – I lived through them, and studied them extensively when I went to college in 1983.
The last 15-20years have been like the period from 1960 – 1975… but the demographics time-bomb is the same, but larger and over a longer time-frame.
Gold and Silver will be the best return on your investments over the next 10years… BUT it will be mostly in the last 2-4years when the price goes viral, and 100million Americans, 200 million Europeans and about 500 million Chinese go chasing the supply.
BUT the peak will be when middle-eastern oil barons, Chinese & Russian property billionaires, American Banksters and Tech-Stars, and Indian steel-magnates try buying it by the metric tonne that the price will go vertical.
And the FED will do anything to prevent that happening… ANYTHING! (See below)
http://moneymatterstoo.wordpress.com/2014/08/02/hi-ho-silverrrrr-awayyyyy/
W.