It’s my last article before Thanksgiving – though I’ll still tape my weekly Kerry Lutz podcast tomorrow morning; and thus, I intend to make it a good one. In which, I’m going to do some actual financial analysis – like I did on Wall Street for 15 years, using my finance degree, Chartered Financial Analyst designation, experience, and logic. Which sadly, is not just a dying art, but long dead – care of the commandeering of financial markets, unleashing of Central bank printing presses, and propaganda from the “evil troika” of Washington, and Wall Street, in an effort to milk a dying monetary regime dry, at the expense of world’s “99%.”
Let’s face it, the post-Trump market manipulations have stair-stepped to a new level of ignominy, to the point that whatever hope of market “credibility” has been permanently destroyed. In other words, economic fundamentals has never been more detached from asset valuations – certainly in the rigged paper markets; as well as a number of physical markets as well, such as crude oil and Precious Metals. Not that $48 oil is so “great,” as entire nations are going bankrupt as a result (hence, creation of the not-so-covert “oil PPT” this year, to try to “save” the hundreds of corporate, municipal, and sovereign institutions desperate for higher prices. Not to mention, tens of thousands of employees working in the high-paying energy industry; and tens of billions of potential tax revenues. Unfortunately, not only are prices way too high relative to fundamentals, but secular changes in the way energy is consumed all but ensure peak demand in the not too distant future, as espoused last month by the CEO of Royal Dutch/Shell himself.
Conversely, Precious Metals production recently peaked, with nowhere to go but down. This, as quantitatively speaking, above ground, available-for-sale resources are at all-time lows; which likely, are much lower than reported, due to the covert dishoarding of Central bank reserves – which is the only way to explain how supply has been available to meet inexorably growing; and likely, heavily unreported; demand from India, China, the Middle East, and countless nations hedging themselves against currency depreciation – often, due to the actions of their own Central banks.
As for demand, it quantifiably is at or near record levels, for both gold and silver. Let alone, Precious Metals’ “secular trends” – like the serial hyper-inflation of all fiat currencies, as history’s largest, most destructive fiat Ponzi scheme rockets through its horrifying terminal stage. Not to mention, the exploding “war on cash” – like Indian’s historic cash ban; Australia considering the same (and the U.S., per “trial balloons” launched this Spring; and Canada’s BMO Nesbitt Burns – one of Canada’s largest banks – as of yesterday, imposing a negative 0.75% interest rate on foreign depositors. And yet, PM prices are suppressed, or attacked, every minute of every day, via the same algorithms, given that low Precious Metal prices are just as important to maintaining the aforementioned dying status quo, as are high oil prices. Fortunately, “Economic Mother Nature” never loses, no matter how much money printing, market manipulation, and propaganda is used to subvert her.
Scanning the “oil universe,” I see nothing but negative news, for as far as the eye can see. Which sadly, extends to essentially all aspects of the global economy (and most commodities), particularly in light of the exploding political revolutions occurring the world round – put into motion by last year’s Greek “Oxi” vote and Catalonian secession referendum, and turbo-charged by this year’s BrExit and Donald Trump victories. Let alone, the Italian referendum and Austrian elections just two weeks from now, and the French Presidential election in April 2017. Throw in parabolically exploding debt everywhere – equally turbo-charged the by dollar’s historic post-Trump surge, to a 13-year high that is literally destroying currencies and their governments’ ability to pay back debt – and you have a recipe for global financial disaster like never before in history. Then, consider the lunacy of the Fed all but pinning themselves into a corner regarding raising rates on December 14th – even if by a pitiful 25 basis points; amidst the biggest bond market crash in three decades; and the strongest dollar in 13 years – NOT due to U.S. strength, but a global rush to liquidity; and we’re talking about some major cataclysmic potential. This, at a time when essentially all Central banks are aggressively easing (read, hyper-inflating); other than those – like Mexico – being forced to tighten due to the actual, real-time hyper-inflation of their currencies.
To use a Highlights reference, here’s a bit of “Goofus and Gallant” comparison of oil’s and Precious Metals’ fundamentals – keeping in mind that it’s the oil market where producers are desperately trying to subvert weak fundamentals with lies and accounting chicanery, amidst the biggest glut in the century-long history of crude oil production. Which, care of the aforementioned “oil PPT,” is equipped with relentless data points to use as manipulative cover – from weekly API and DOE inventories, to monthly IEA reports, to relentless crude oil minister comments. You know, like the Fed speeches, meetings, minutes, and relentlessly rigged economic data utilized to support stocks and attack Precious Metals. As opposed to PM producers, which don’t need to collude to restrict already scare supply, which will only tighten further due to the damage caused by years of price suppression.
As for crude oil production, it for all intents and purposes hit an all-time high last month. Moreover, Saudi Arabia, Russia, Iran, Iraq, Nigeria, and Libya can take production higher; let alone the U.S., which has another million barrels per day of shale-generated spare capacity, which it is rapidly attempting to utilize now that prices have “surged” toward $50/oz. To that end, even if OPEC “cuts” production from the current level of 33.64 million barrels/day to the 32.5-33.0 million barrels per day level “agreed to” two months ago in Algiers – which according to several members, understates the true level of production – it would still be roughly in line with the then all-time high levels of earlier this year.
This, despite a rapidly weakening economy, and hundreds of oil tankers sitting offshore, desperate for ports to offload. Throw in the fact that Iran, Iraq, Nigeria and Libya all insist on exemption from any such agreement, and it becomes crystal clear that Saudi Arabia and Russia – both, desperate for cash – would have to take up nearly all of the slack, making it becomes more and more ridiculous to contemplate a “deal” they can agree on. Let alone, if OPEC’s history is any guide, one that could be enforced. Heck, this morning alone, Finance Ministers from Iraq, Iran, and Indonesia made comments that significantly weaken the case for a workable agreement of any kind – which I assure you, “Economic Mother Nature” is well aware of.
As for gold, Indian citizens are currently paying $2,000-$3,000/oz for it, as capital controls explode and the soon-to-collapse Rupee approaches its all-time low. In China, the Yuan is trading at its lowest-ever peg to the dollar – with far more downside to come; as the Euro sits within 1% of its 13-year low, with the prospects of being annihilated following the December 4th Italian and Austrian elections. Countless dozens of other currencies are at, near, or well-below previous all-time lows, and the weaker the economy gets; the higher the dollar rises – particularly if the Fed is dumb enough to raise rates December 14th; and the higher interest rates surge; the weaker these currencies will get. Which in turn, will catalyze inexorably rising gold and silver demand, amidst an environment of equally inexorably declining production.
Regarding the latter, this article discusses how Bloomberg analysts’ project, due to the lack of discoveries I have noted for years, that global gold production could decline as much as 33% in the coming decade. Which matches exactly what this article from last year suggests; that, according to none other than JP Morgan, the world’s largest gold producer, Barrick, will likely see production plunge by 25% by 2020, and “even lower a few years later.” A predicament I assure you is not the case with copper, zinc, or the fundamentals of any other (recently price-surging) base metal.
As for silver, production unequivocally declined last year – with nowhere to go but down, given the same lack of discoveries, mining industry capital strangulation, and inexorably rising production costs. To that end, the equally mainstream bank Societe General projects 2016 silver production will decline by more than 9%, and another 4% in 2017. This, in a world of inexorably rising demand, and all-time low above ground, available-for-sale inventories; in the COMEX’s case, barely $400 million dollars’ worth. Throw in the multi-year disparity in fraudulent Western paper prices and real Eastern physical prices, per below; and heck, the U.S. Mint announcing yesterday that it is suspending 2016 Silver Eagle sales several weeks earlier than usual; and you can see that at some point soon, reality must return.
And when it does, in a world where the amount, and intensity, of “PM bullish, everything else bearish” headlines is set to parabolically rise, “Economic Mother Nature” will indeed win the day, as she always has. To that end, care of historic manipulations to avert the inevitable collapse of history’s largest, most destructive fiat Ponzi scheme, the risk/reward ratio for Precious Metals is historically bullish; as opposed to the “poster child” of oversupplied industrial commodities, crude oil – which, OPEC “deal” or not, are historically bearish.