I received quite few responses to my article last Thursday, “Could Gold and Silver Go No Offer?” The responses in general were questions pertaining to the “real” movement in gold and silver prices as opposed to the “nominal” or dollar movements. I will get to these questions in a moment but I want to pass along a note that a reader “Bryan” sent me via his group. Very rarely do I pass along writings and try to keep links to a minimum but this piece is special. I say “special” because it comes from a very long term perspective and he “gets it” from start to finish. Pay particular attention to the last paragraph, my comments will follow.
I recommend you read the Holter report. /could-gold-and-silver-go-no-offer. I too am tired of hearing that “gold is going to da moon.” Gold is financial insurance and nothing more. Silver may be a more speculative investment for profit, given its massive undervaluation right now, but no tangible asset should be held with the purpose of making a Dollar profit. Why would anyone do that in the midst of a monetary crisis? Why would anyone want a profit of MORE dollars in a world in which the Dollar may go to ZERO worth??????? Towards the end, nobody will be accepting dollars for gold or silver and in the end, nobody will accept dollars for anything.
Think of purchasing gold as a simple currency exchange. Gold will hold its buying power, while DOLLARS and EVERY OTHER PAPER ASSET DENOMINATED IN DOLLARS will not. Will gold and silver rise in price? Certainly, but that’s not the right question. The correct question is “Will gold and silver rise in price as fast as the dollars lose value?” I think the answer to this question is no, because there is a lag between the excess printing of dollars and the impact of that practice on price inflation. This can be upwards of 6 months or more if the monetary interests clamp down on pricing in the commodity markets. This means that whenever you decide to sell your gold for dollars, you will constantly be selling too early. By the time you realize your folly, gold and silver will no longer be for sale anywhere, and what you sold will be out of reach forever. In my opinion, lack of supply of gold and silver is the real risk in this market, not price. Please read the article. Bill describes the situation well.
Remember, in a world dominated by derivatives, all prices are illusion. If you don’t believe that statement, consider the following. Silver is about $20 per ounce. This is cheaper than the price of silver in all of 1980, over 30 years ago. So, is the world awash in silver? Is silver so abundant that we can pave the streets with it? Is this why silver is so cheap? Nope. Silver is cheap because silver is priced with futures contracts and it is the supply of silver futures contracts that floods the world. Silver is scarcer than gold. Silver is scarcer than it was in 1900 when an ounce of silver was the daily wage of a banker or a lawyer. A daily wage of an ounce of silver in 1900 meant you were rich. A daily wage of an ounce of silver today means you starve to death. So, what is wrong with this picture? Is silver scarce or is it plentiful? The answer is silver is scarcer than it has ever been in the history of the world. So why is silver only $20 per ounce? Then the answer is that $20 silver is an illusion that the monetary interests want to project to maintain the overvaluation of paper currency. Twenty dollars should buy a GRAM of silver, not a full ounce. This artificial buying power of dollars will end, and when it does, you better be holding metal, not paper. Buy silver or gold while you still can. Both metals are silly cheap. That fact alone is a symptom of pending monetary system collapse.
Okay, first off he is 100% correct, gold is not an investment, and rather it is financial insurance. You should not own gold as a “way to make more dollars” but I would say that the majority of “gold bugs” think in just this manner. “Selling gold for a profit” does what exactly? It gives you more dollars … but getting OUT of dollars is the real reason for owning gold in the first place, does this make sense?
A good point made was that gold trades to the creation of excess money with a lag (whether it is 6 months or not is unimportant) and the monetary authorities try to “clamp down” on commodity prices to hide the effects of the excess money. Another great point and one that I had not thought of from his standpoint before; is that in the current system, whenever you sell gold it is always too early. This is a very important point and one which will exist every single day until we get a new currency that is actually backed by something real. Let me add to this by saying, as long as you fully understand the end game being one where the dollar evaporates and ultimately goes to zero then you know that whenever you sell gold …it was too early …every single time!
As Bryan mentioned above, the risk in the long run or end game is that the day will come where there is no gold or silver available to purchase using dollars as payment. The “fair value” of gold (and silver) will either be higher at a later date or not available. This isn’t to say gold and silver won’t have corrections in price because they will. These corrections are “helped” or even instigated by the selling of futures which are not metal and have no metal behind them. This situation however now has a shortened lifespan because the Chinese will have a cash market up and running before year end. We will soon see the “two tier” market I have written of before, one price “manufactured” by the paper COMEX and another “discovered” on the cash market in Shanghai. In other words, we will soon have a “real price determined and discovered solely by real metal trading.
Getting to his last paragraph, this is the gem and puts the current “value” of silver in perspective. He asks, “Is silver plentiful or scarce?” I would remind you to keep in mind that silver is “used.” It is used for solar purposes, medicinal purposes, used in the high tech industry in computers, cell phones etc. These “uses” take away from the above ground supply forever as much of it is never recovered for later use. Only jewelry and silver stored for investment remains. Also, please keep in mind that silver is mined from the ground at a ratio smaller than 15 to 1 in relation to gold yet the “pricing” is currently ratio’d at 63 to one. This doesn’t make any sense but it is what it is because paper futures that have very little metal if any behind them “make” the pricing structure.
The best part of Bryan’s final paragraph goes back to the early 1900’s. Paraphrased, “One silver eagle was the daily wage of a banker or lawyer and it meant you were rich, a daily wage of one silver eagle today means you will starve to death.” This is interesting because an ounce of silver from 1900 is still deliverable as an ounce of silver today yet “valued” at something like 1/10th or less than what it was 100 years ago. For silver to be valued so much less, something must have happened? Either the supply has become plentiful, the demand has collapsed, it is obsolete or …something else?
We know that silver is being mined at less than 15 ounces for every one ounce of gold so the supply has not exploded. We know that global mining supply has already peaked and is now in a slow and probably terminal decline. From the demand side, we know there are now more uses and more demand for silver than any time in history so it not from the lack of demand …which leaves us with “something else.” The something else is the paper derivatives markets which works to “distort” nearly everything and brings me to the main point of Bryan’s writing, “in a world dominated by derivatives, all prices are an illusion.”
Please understand that THIS is the core problem and also the reason why foreigners are moving as fast as they can to distance themselves from the U.S. They KNOW this, they know the U.S. is currently going to any and all lengths to “paint a pretty picture” and using derivatives to do it. Derivatives are used to push stock markets higher, interest rates lower and to control commodity prices… all with one goal in mind. To support the value of and to extend the life and scope of the dollar, period and end of story! The motive you ask? Plain and simple, because dollars are “free” to create and “we” are the only one who can do it. Again, this is why foreigners are running as fast as they can away from doing business with the U.S. Everything financial that we look at, our “belief” system and our day to day life has become an illusion because the pricing structure has been distorted. Reality can be hidden and it is currently but it cannot be hidden forever, the world will look very different once the veil of illusion is lifted.
In answer to the many questions I received regarding the “real” prices of gold and silver, this is what I think. I believe that gold and silver will in fact go “to da’ moon” and beyond in dollar terms. In real terms, I believe that gold will outperform most all “real assets” and thus its purchasing power of real goods will increase. I assume that at some point in time, silver will trade versus gold at a ratio similar to the ratio they are being mined at which currently is less than 15-1. If I am correct in this assumption, then it follows that silver will outperform gold by at least 4-1. Does this mean you should have all of your money in silver? No, but it does mean you should have some. You should have some because it is grossly underpriced versus gold, it is even more grossly underpriced versus other goods and services, it is rare and when the end game comes for the dollar you will not be able to exchange your dollars for silver because no one will take them.
To finish, the obvious question is “when” do I believe the adjustment will happen? I have no idea other than to say “sooner or later” but it is inevitable and could be any morning that you wake up. I do however believe that when the process starts, it could culminate and lock new buyers of metal out in as short as a week or two time. It is possible you may not even have one single business day were any reset to occur over a weekend or the markets close because of someone with an itchy trigger finger. My point is this, silver is a no brainer from current prices and “waiting” to act may end up being the biggest financial mistake of your life.
Bill, i completely agree. After educating myself for several years on precious metals, most people are looking at this backwards. For example, Bo Polny follows cycles, and says that there will be a cycle low yet this summer, but $18.70 will hold. Most people would want to wait to buy. The point is that i have seen human psychology and fear evaporate all available metal at local coin shops within a few days. In the end it will not matter if it was purchased at $19 or $49, but rather whether you have it, or can buy it at any price. True wealth will be measured in ounces acquired, not fiat currency, and What real purchasing power your ounces represent. Dollar cost averaging allows you to obtain more ounces, and ensure that you have it, before the stampede, thanks Jeff
My only regret is that, in hindsight, I couldn’t have gotten more metal with my fiat. I agree 100% with this article, but will add that it is ok to have some low cost debt to be paid off with dollar profits as PMs increase. Specifically in my case, I would rather hold $10,000 in PMs than pay down a 3.375% mortgage that has a 40% loan to value. If I paid it off today, I would reduce my mortgage by $10 k. If I wait until the days of reckoning, I might pay off half of the remaining balance. YES, I do have a core of PM holdings to take to the other side. I am just showing how it could be worthwhile to use PMs to pay off dollar denominated debt as dollar prices take off.
…I meant to say I could have gotten more PMs if I waited until the price fell. While in the end, dollar price does not matter as jeff says above, it does matter in the context of how many ounces you can buy. I am happy knowing I am covered now…
understood, I don’t disagree.
Doug, don’t feel bad about paying a higher price in the past. Your logic was correct, however no one has a crystal ball the manipulation is messing with us. You are one of the lucky 1% who ‘gets’ it. You’ll be the new 1%! Jeff
…and the system could have already blown up and metal gone “no offer” which would have left you holding what exactly?
Yeah, thanks jeff. It’s more of a hindsight being 20-20 type of thing with most of what I have, though I did buy some silver back when it was $10.80 spot. Bill is right, and the system would have blown up if not for extraordinary measures and manipulations. I wouldn’t be able to sleep if I wasn’t covered. The chose the “red pill” and have no regrets, while my family and friends are clueless in the face of danger, like picking up shells when the water recedes before the tsunami. 2016/2017 is my guess but I am ok if it were today.
it’s all about “what if’s” and the biggest “what if” is what if you wait to absolutely bottom tick the metals market and are wrong? Coulda woulda shoulda, all you can do is the best that you can do. Owning silver at $30 is a better position than owning none and going to sleep each night waiting to pull the trigger…because “no offer” is a very realy probability!
You get it, this guy gets it. Why don’t more people get it? I suppose it’s a good thing for those of us that do. The dollar is in a death spiral, I’m still sitting on stacks that I bought at $4/oz and $12/oz, and I’m still buying regularly with no intention to sell until I’m ready to retire…maybe I’ll sell some for bitcoin if it keeps on track, but I wouldn’t sell for dollars unless I had a bill to pay and no other way.
Yep, no thoughts of selling. Buying with both hands. No reason to sell, as eventually silver/gold will be widely recognized as money again, then you just spend it for retirement. People have just forgotten what money is for a while. How great is it to buy an ounce of silver for 5 cents on the dollar now? I hope this continues for a bit. I shudder to think how tough things will be for the other 99 percent, when metals are money again. I probably won’t be as excited as i think i will be…my friends and family still dont get it…i have stopped trying to lay out the mathematical certainty, and save a little for them instead
I shudder to think of how tough it will be for all of us, metal or no metal. Just look at East St. Louis as a precursor.
I am lucky to have known Bryan as a friend and colleague for many years and he has educated me on the illusory state of the financial system, market manipulation, and the true value (or lack of value)of currency. To protect myself and family from the eventual collapse of this financial ‘house of cards’ I have been slowly taking a position in PMs. My goal is to be completely out of the stock market by the end of 2015 except for some key mining stocks. Bryan is not keen on mining stocks (or any stocks for that matter) as he sees these as no different than other paper derivatives controlled by what I refer to as the “powerfull manipulators”.
I have two questions that could use some illumination. I will put them out there for the purpose of discussion and with the hope that someone might help shed some light.
1. Is it better/safer to have cash in the bank or own stocks in a world class producing gold/silver mine ?
2. Clearly he manipulators of the markets are so powerfull they can supress prices of gold/silver to an extrodinary degree. Most intelligent people can appreciate that this cannnot go on indefinetly – which leads to my question. The question is how powerfull are the manipulators and how long can this go on for ? My actions will be very different if the answer is 6 months as opposed to 60 years. Since there does not seem to be a consensus on the timeline even amonst believers, this suggests that little is known about these “powerfull manipulators”. How powerfull are they?
Sammy, the words “safe” and “bank” can no longer be used in the same sentence. The answer to your second question is “when they run out of metal” or when it is known that no more metal will be delivered. I don’t know the answer as to when, I do know that speculating or gambling that YOU do know is a needless and dangerous gamble in my opinion. By the way, “world class gold mines” will be valued like “a gold mine” should any physical confiscation” take place.
I remember back in 2008 when I first started buying gold and silver and had no clue what I was doing. When I received the gold in my hand I was like okay this feels real. That same year silver went to 9 bucks. I got my first 100 ounce bag and it cost me 11.00. I could not find silver anywhere and that bag took 8 weeks to come. I called around to buy more and they were saying 14-16weeks. I will say this to anyone, if you believe the price for silver will go lower, you are a fool, for it does not matter how low the price goes if there is no silver to behold. I learned from that and even now things are hard, for those without, it will be a nightmare. Let them have the American dream, for I would rather be awake in this nightmare!
$2 per lb filet mignon sounds good but there isn’t any to be had.
We had a pool put in a while back. Ran out of $ so I cashed in some gold coins to put the
Fence around it so we could finish. Those gold coins today would have paid for the pool and fence in full today. Ouch! Lesson learned.
this is the opposite of whining “but I could have bought more ounces if I had only waited”. The important thing is to have ounces when the currency changes.
Good article. Two points: one is that silver “demand” may have dropped since a century ago because money is no longer backed by it so this frees up a whack of metal which I presume they have been using to dump into the market. Also, there is your I believe theory that the us went into a deal with china to dump their 300 billion ounces in return for being able to buy up our gold. Not sure if you still believe that.
Point 2: there may be one situation where you sell pm’s for dollars, and that is if you want to use them to pay off debt via hyperinflation. It’s a risky strategy though and if it doesn’t work out then your debt may just be repriced later in a new currency, albeit likely at a significant reduction in real world terms since there is no way the average person could carry their current debt forward, there will have to be some form of debt forgiveness.
yes, I do believe we leased China’s silver and probably paid for it with official gold. Be careful, when currencies change, so do debt contracts so there is a “window” to pay down cheapened debt with metal. Go back and study the after times of Weimar.
I’m all in on metals. If the Rothschilds don’t want the price of PM’s to rise it won’t.
Stack em’ and forget them. Don’t participate in the waiting game. Just live and prep.
but they will have to deliver real metal if they want to keep the price in a box.
Since silver was mostly in the single digits during the 1980’s, is this statement by him based on inflation adjusted prices?
“This is cheaper than the price of silver in all of 1980, over 30 years ago.”
he was talking about the “year” 1980 as it never went under $10 and averaged maybe $20 for the whole year.
Bill, this was a nice follow up to your prior article. I shared your “Could Go No Offer” with quite a few co-workers if anything to stress the sense of urgency and win some credibility back as a finance professional preaching the gospel of PM’s despite the scoffing and jeers.
This made me think of something last night, and that was when exactly will gold and silver reach the “outlandish” price targets of $5,000 and $200 respectively? The answer I figured is when there is none left to go around, it is that simple. And this could actually happen tomorrow as you have alluded in prior commentaries.
I think folks are putting too much weight on technical analysis and missing how tight supply really is. Greed is driving folks second guessing themselves on waiting for that “bottom” when it doesn’t really matter when you buy whether it be $20, $18 or $50. What matters is did you get some when you could? Tomorrow you may actually not.
Here is how I would look at it. Rather than think of silver/gold in dollar terms, which as Bill says, could be meaningless in a dollar dumping panic, you need to think of silver/gold in terms of how much of another tangible asset they could buy and whether there is any stable exchange medium/mechanism to even conduct such a transaction. This will help you determine whether the metal you hold is under valued, fair or overvalued relative to historical ranges. In a way the dollar becomes a meaningless entity in judging value during a panic
If silver rises to a “day’s wage” or rises to 30:1 Dow ratio (implying a 2:1 gold/Dow ratio) or let’s say a 1000 oz’s buys a median priced home, then you might determine it is fairly or even richly valued. This also assumes that there is a viable exchange mechanism to even conduct such transactions during a collapse. With a fiat collapse, bank holidays and intense capital controls, even relative value of different tangible assets can be skewed by a lack of a reliable exchange mechanism……….