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Q: Let me firstly say what an incredible newsletter Miles Franklin puts out week-in week-out. Bill Holter is the best big picture analyst on the planet with his perceptive and eloquent commentary. Andy Hoffman’s comprehensive yet detailed economic analysis likewise puts him at the very forefront of analysts.

Now my question. Ted Butler recently said: –

“I am implying that the price of silver will far exceed its true value at some point before correcting sharply. It is before that collapse point, that God-willing, I intend to sell. I am not deluding myself that I will come close except hoping not to be terribly early or late”.

Assuming his premise is correct, could each of the three authors say what signs, guideposts, events etc. they would be looking at to see when we are approaching that point. I know you don’t have a crystal ball, but when do you feel that time will come, and what sort of number (say in today’s dollars) would silver have risen to.

David Schectman’s Answer:

Thank you for your kind words.  I agree – Bill and Andy are two of the best, if not the best writers in our industry.  We also recognized their talent and that is why I brought them on board here at Miles Franklin.

No need for Andy or Bill to answer this question.  I can answer for all three of us.  You are correct, we do not have a crystal ball and for that matter, neither does Ted Butler and he says as much.  The answers you are hoping for do not exist.  It will only be obvious after a top is reached and the price is rapidly tumbling back down to earth.  Just remember the old saying, “Pigs get fat and hogs get slaughtered.”  It is easier to know when to buy then when to sell.  I have proved that to MYSELF many times.  Most of us succumb to the smugness and optimism that accompanies the parabolic rise at the end of a bull market.  Did I sell my gold at $1900 or silver at $50?  Heck no!  Of course, I am in it for the long run and I can use that as an excuse, but had I known in advance where the metals were headed after the momentary peak, I probably would have sold a large portion of the portfolio.  That’s O.K. I will get another chance.

The rise in silver will be greatly influenced by two factors.  Supply and demand and the U.S. dollar.  If there are physical shortages and investors and industry are worried that they will miss out, then the price will rise to a level I can’t reasonably even imagine.  If the dollar tanks and investors decide to move dollars into silver for safety, and that probably will happen, then that will lead to the shortages I just mentioned and the price will go ballistic.

What is reasonable?  What is the “best-case?” Scenario for the price?  Well, silver has already hit $50 twice.  I expect it to do better the next time.  Let’s say at least $75 to $100 and that is assuming we are still able to buy physical silver and the dollar still has a reasonable, but lower value.  Otherwise, all bets are off.  Take your highest number for gold – let’s say $10,000 and divide it by 35 (or you could use 16 which worked in the past) and you get a silver price of around $300 to $600 per ounce.  Will that make you happy?  Probably not because you won’t hold it that long and life in the U.S. will have turned to crap!  That’s exactly what life will be like here with a collapsing dollar, rampant inflation, riots in the streets and the term Great Depression 2 will not be sufficient to describe what things will be like.  Let’s not be greedy.  How about $100 silver and a normal (by today’s standards) life for our kids and us.

After watching the entire precious metals complex get bombed today, I sent an email to my friend Trader David R.  I said…

David

Either I am a complete idiot, or the traders are, or the markets ARE manipulated for political reasons.  

Where do you see gold and silver going from here?

Funny thing is, our business is great, booming in fact.  This does not cause me hardships but it ticks me off, big time!

Best,

David

Trader David R replied:

David,

The banks are closing down due to Dodd Frank and the Algo’s…… no more risk taking allowed….. too many regulations….. Hedge Funds are leaving Commodities due to regulations and no volatility……. the volumes are drying up so quick now and there is absolutely no interest in the metals market anymore…… The government has destroyed this market…..

This usually ends in tears when people need liquidity there will be none! So eventually we will see Algo’s leave, but regulations keep everyone away…..

Isn’t this what you always wanted???

“Be Careful What You Wish For….. You Just May Get It!”

David R

Trader David R has been trading precious metals since the 90s.  He has headed up the trading departments for several large bullion banks in South Africa and London, including Barclays.  He trades his own account now as a means to make a living.  He knows what is happening in this market because he is involved in it.  Without “liquidity,” the markets will be prone to large unexpected swings.  This is NOT a market to trade!  But it will offer opportunities to buy at very undervalued prices, like today.

In yesterday’s LeMetropole Café they reported, “Our STALKER source (a US gold dealer) just called and said his bigger customers ($50,000/$100,000 and up) are buyers of physical gold. But, the smaller accounts are panicking and selling.” We have noticed the same trend at Miles Franklin.  In the last month, over half of our business came from large sales of over $500,000 each and several well over $1,000,000.  What does this mean?  I guess it means that people with a lot of money to spend must be pretty savvy in order to end up with it in the first place and they are usually well read as well as smart and they understand what a bargain gold and silver are at these prices and they understand how close to the edge the economy and the dollar are.  That’s my take on it.

Q:  Why are foreign investors increasing their treasury holding above 3 Trillion if the dollar is going to crash, why don’t they buy gold if the printing presses are running to infinity, I am aware Europe will crash first but they are certainly aware we will follow, please explain.

Bill Holter’s Answer:

I was asked this very question over the weekend regarding the Chinese increasing their holdings.  First, “Belgium” accumulating Treasuries is dubious to say the least.  This position no doubt is either a Fed or Treasury proxy to make up for the lesser QE purchases.  They are very similar in quantities.  As for China, my best guess is that they are still receiving deliveries of gold for now and thus may not want the boat to sink until it is completely empty?

I think it is very important not to be fooled by these TIC numbers as they may not even be real.  What other reports can you think of that are not real?  Unemployment, inflation, GDP and so on?  The bottom line is that the “rest of the world” is clearly lining up to distance themselves from dollars.  Why else the BRICS bank, foreign metals exchanges, trade deals are excluding dollars and clearing systems without using dollars?  Do not be fooled, the dollar does not have a “long term” future judging by the overt actions of foreigners.

Q:  Regarding the change this month to the “Silver Fix”.  I understand it was changed to do an electronic transition between market closing and opening worldwide rather than an outdated “fix” using people.

My question is: what did anyone gain from this new “Silver Fix”?  It looks like the constant manipulation of the silver price continues as usual.  Why would anyone care about this “Silver Fix” when any changes they made to it appears to have had no noticeable or meaningful effect?

Andy Hoffman’s Answer:

From all my accumulated precious metal experience, I hadn’t even heard of the “silver fix” until learning it would be replaced this summer.  Clearly, it was operated just as the “gold fix” was subject to the same manipulations that recently got Deutsche Bank kicked off the “fix committee.”  Frankly, I never put much energy into analyzing the gold (or silver) fix – other than the fact that “key attack time #1” has always been at 10:00 AM EST, after the conclusion of the PM fix; i.e., the global close of the physical markets.

Gold Intraday Average

The reason, of course, is that the “fix” is just a tiny part of a larger suppression scheme occurring 24 hours a day, seven days a week.  For example, when Michael Lewis’ “Flash Boys” book claimed markets were rigged by HFT algorithms, I responded with this article of how HFT trading is inconsequential compared to the larger manipulation of the Fed printing trillions of dollars and handing it to the PPT and TBTF banks to buy up stocks and bonds.

Re: The silver fix, if you read this article, you’ll realize that the more things change, the more they stay the same when it comes to PM manipulation.  Fortunately, without the physical metal to back up all the naked shorting, it must inevitably fail – likely, sooner rather than later.