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In my view, Gerald Celente is one of America’s great patriots.  I wrote of this several years back – and to this day, idolize him for the stand he takes against government and corporate injustice.  Not only that, he fully understands that all markets are now manipulated on a 24/7 basis – per this quote from his latest King World News interview…

The European Union is looking at possible rigging of the gold and silver markets.  Of course, the first one they are looking at is Deutsche Bank.  I mean, they are rigging the LIBOR and forex markets.  We know about all of the insider trading, and the rigging of the stock markets.  Of course they are rigging the gold and silver markets.

King World News, December 14, 2013

He then goes on to predict a slowing of the Fed’s current QE program in the near-term.  Not necessarily this week, but by early 2014.  Miles Franklin Blog readers are well aware of our view that material “tapering” is impossible over time – given the “irreversible, global debt addiction” necessitating historically low interest rates; but concede that political pressure may well cause a “token amount” at some point.  Not that this should have any significant impact on PM’s – considering how utterly meaningless such an event would be; let alone, following a two-year, all-out Cartel assault that has pushed gold and silver prices below their respective costs of production, of course.  However, Celente avers that “tapering” would initially have a negative impact on all markets – including Precious Metals.  That is, until it inevitably becomes universally understood that all financial markets are hopelessly addicted to ultra-cheap credit.  In other words, the “a-ha” moment when “QE to Infinity” becomes the new zeitgeist of the economic times; at which point, Celente anticipates gold will trade to $5,000/oz. and above.

This is all fine and good, and everyone’s entitled to their opinion – especially Gerald Celente.  However, such “most likely scenarios” don’t tend to happen as planned; particularly in the case of unprecedented circumstances – like seven billion people hopelessly entangled in history’s largest Ponzi scheme.  That is, the global fiat currency regime that has been parabolically accumulating debt since that fateful day in 1971, when America reneged on the Bretton Woods agreement, to nary a peep of protest.  In other words, every government either directly or indirectly traded a few decades of above average “growth” for countless generations of economic contraction, poverty, and strife.

Moreover, saying that ‘gold and silver may be hit’ – i.e., suggesting COMEX prices may decline – ignores the fact that this is no longer a dollar-centric world; as it’s entirely possible that amidst falling paper prices in the States (due to additional manipulation, of course), we’ll simultaneously witness soaring prices overseas; as is the case currently in India, where premiums have surged above 20%, creating significant physical shortages.  To wit, gold priced in dollars, Euros, and Pounds is roughly 35% below its all-time highs; but in Rupees, it’s just 20% below its high – and in Yen, barely 10%.

In other words, global gold fundamentals are decidedly not focused on a nation with just 5% of the world’s population and demand, no matter how powerful its fraudulent commodity exchanges appear to be.  As it is, the COMEX is nearly “sold out” of registered gold inventory, whilst the Shanghai Exchange has delivered more physical gold in the past four years than is supposedly held at Fort Knox.  In other words, it’s only a matter of time before pricing is dictated in Shanghai, not New York or London.  Moreover, as the below graph depicts, America is but a blip in the scheme of global gold demand; and taking it one step further, this graph utilizes 2010 data – you know, when Chinese gold imports totaled just 110 tonnes, compared to 1,000 in 2013.  And given China’s gold demand passed India’s this year, my guess is “Chindia’s” 2013 percentage was closer to 60% than the 52% registered in 2010 – whilst North America’s was probably no more than 5%.

Global Gold Demand

Furthermore, in a theoretical world where economic “recovery” was taking shape, don’t forget that three-quarters of all silver supply is consumed by industrial demand.  And thus, the case that silver prices – ceteris parabus – would significantly decline seems absurd; as not only is silver the second most widely used commodity on the planet (after crude oil), but its uses are as indispensable and expanding as they are widespread.  Even if the global economy was indeed “recovering” – which it’s decidedly not – the amount of physical silver available for investment is no more than $4 billion annually.  And thus, it appears irrational to suggest a commodity with a flat (at best) supply profile and infinitesimal inventories, bearing significant – likely increasing – industrial demand, could materially decline in price.  Heck, this year’s record U.S. Mint sales of Silver Eagles amounted to more than $1 billion, accounting for 25% of the aforementioned $4 billion – and no more than 5% of global silver investment demand emanates from the States (gee, I wonder why paper prices have fallen so much).

Equally importantly – as I segue into today’s topic – silver’s price is well below its “all in” production cost.  Gold’s is as well, per the following quote from Gold Fields CEO Nick Holland this July; who would know, as Gold Fields is the world’s fourth largest gold miner…

The industry is not sustainable at $1,230 an ounce.  We’re going to need at least $1,500 an ounce to sustain this industry in any reasonable form.

Kitco.com, July 9, 2013

Not to mention, this graph depicting how the entire world’s largest gold miners are cash flow negative at $1,300/oz. gold – let alone today’s $1,250/oz…

Underwater Graph

However, in this article, I will focus principally on silver prices, given that the great Steve St. Angelo put out a comprehensive third quarter earnings review this weekend; in which the so-called break-even price “fell” to $21.39/oz., versus the current paper price of roughly $20/ounce.  Note that I put the word “fell” in quotes; as only when one excludes $96 million of write-offs can one say earnings “broke even.”  This is clearly a “better” outcome than last quarter’s $456 million of write-offs; but either way, the industry hemorrhaged equity at an average realized price of $21.26/oz. – while essentially all silver miners were cash flow negative; capex plunged an astounding 62% year-over-year; and multiple mines are currently being considered for mothballing (or as the industry terms it, “care and maintenance”).

Primary Silver Miners Chart

Again, I cannot emphasize enough how important the concept of a 62% plunge in capital spending is; as in the mining business – not to mention, the outlook for mining stocks – the industry dies without reserve replenishment, much less amidst declining production.  For more than a decade, the Cartel has whittled away at mining companies’ capital – as well as mining investor confidence; to the point that both are essentially dead.  True, confidence can return somewhat if prices rise.  However, after years of losses and false (read: manipulated) starts, it will take much time for such a process to unfold; much less, the more difficult road towards a meaningful resumption in capital spending.  In fact, until Central-bank driven “liquidity” stops pushing equity markets higher, I’d guess mining investment will remain comatose; and even then, it could take years to return – at a time when discoveries are already non-existent, and the time frame from a significant discovery to commercial production borders on a full decade.  In other words, we stand by our view that silver production is set for a dramatic decline in the coming years; and worse so if the global economy continues to weaken, given that roughly 70% of all silver production is the by-product of base metal mines.

While I’m on the topic of the sorry state of the mining industry, please listen to Friday’s Miles Franklin Audio Blog with Dan Ameduri of Future Money Trends, titled “When PM buying goes viral.”  In it, Dan notes that just 61 mining companies attended last month’s San Francisco mining conference – i.e., the nation’s biggest annual mining event – compared to more than 200 last year.  In fact, attendance was so weak, apparently several of the higher profile companies may have been paid to attend.  Remember, last year, more than half the junior miners on the Toronto Venture Exchange had less than $500,000 of cash on hand; and that was last year, when mining capital markets dried up entirely.  This is a horribly ominous development for an industry that has already been in crisis for the past six years; and thus, we continue to anticipate an utterly catastrophic supply decline in the coming years.  Heck, Dan himself did an amazing, potentially viral video on the topic this weekend – which I suggest you email to as many people as possible!

In the case of crude oil back in late 1998 through early 1999, it traded below its cost of production for a mere eight months before the industry nearly collapsed; causing majors like Exxon and Mobil to merge and capital expenditures to be dramatically slashed.  Prices rapidly recovered thereafter, and by the end of 1999, oil was 100% higher; much less nine years later, when it was 1,500% higher.  As for Precious Metals, they have been capital-starved for more than five years; with essentially all majors bleeding red ink and a ruthless, desperate Cartel “pushing the beach ball” further underwater with each naked short.  Both supply and demand fundamentals have never been stronger; and thus, when the question of “how long can a (rigged) market trade below the cost of production”; when it comes to gold and silver, I ask you to ignore opinions, and stick to the facts.

Off topic, gold is up $11 oz. to $1,250/oz. this morning (Monday), as I write at 11:40 AM EST – whilst silver is up $0.55/oz., to $20.25/oz.  Of course, we first had to endure perhaps the 30th straight “Sunday Night Sentiment” attack, and the 135th 2:15 AM EST raid in the past 149 days; as at this point, an utterly desperate Cartel simply cannot afford PM sentiment to get too strong with so little physical supply available, amidst record physical demand and expanding fears of global fiat money printing.

24hr Gold 12-15 12-15

In fact, the weekend’s “news” was entirely “PM-bullish” and “equity bearish” – if one were to use those archaic terms from previous, free-market times (which of course, will return in the future).  For one, it appears the U.S. has already reneged on its supposedly “historic” truce with Iran (why am I not surprised?); whilst China and Japan’s war of words escalated dramatically.  Meanwhile, Japan’s Tankan survey depicted weakening economic expectations; S&P announced that Europe’s banks would need an astounding €110 billion of capital to avoid rating reductions; and heck, the European Union’s top banking regulator suggested it will start monitoring – and likely taxing – Bitcoin transactions.  Throw in the fact that U.S. Empire State Manufacturing and “PMI Market Flash” readings were disappointing – whilst 20% of the COMEX’s registered gold inventory vanished Friday night (with the potential for an additional 70% doing so by year-end), and one would not expect stocks to surge, taking Treasury bonds with them.

Hey, I’m not one for speculation on short-term events – as long-time readers are well aware.  However, if I were a betting man, I’d say the “market” is acting as if another “no taper” is on tap for Wednesday afternoon.  Only time will tell regarding the short-term; but as for the long-term, there is only one possible alternative; i.e., “QE to Infinity.”  And thus, we cannot emphasize how important it is to garner as many ounces as possible, before said ounces are no longer available.