Since it is a fore gone conclusion that the precious metals markets are rigged/manipulated, every other market as well, why wouldn’t we totally ignore charts? How can they be of any value at all? All we are actually seeing is the lagging effect of that manipulation. What value is there in that?
Bill Holter’s Answer:
You are exactly right Bruce; charts will only show you a picture of what “has” already happened. In the old days, markets would follow patterns that would rhyme over time and thus the charts could be somewhat predictive with some statistical probability. As the markets have become more and more “managed” and the charts “painted” they have less predictive ability in my opinion. In the very long term charts since the bigger trends are harder to paint, charts still have some merit but even here the longer term trends have been painted over the last 5 years or so. This is what you get when “money” can be printed for free and then levered up 100-1 to make the world look the way you would like it to. Derivatives have been used to do the leveraged “painting” of markets and charts, they will also be the undoing of it all because they will never be able to perform (or in the case of metals and commodities, “deliver the real goods”).
One additional note, the “painters” know how to read charts quite well which is why we see some markets that are about to break down suddenly and miraculously rally and others about to break out are immediately smashed to negate the breakout and paint the picture. Main stream media acts as a cheerleader to all of this because it’s done for public consumption. Hope this helps.
Everyone says that the price of silver is below the all in cost of production. I would like to know if this is the case, why doesn’t all the majors get together like the oil producers did and set their own price for silver?
Andy Hoffman’s Answer:
This is a very good question, with multiple facets to it. But let’s start with the simplest – it’s illegal. Price fixing Cartels like OPEC are comprised of sovereign nations; while interest rate fixing Central banks such as the Federal Reserve are explicitly government sanctioned; and price fixing “committees” like those administering the London gold fix are sadly, implicitly sanctioned via non-regulation. Conversely, corporations are decidedly not allowed to collude to fix prices in their respective industries, via the Sherman Anti-Trust and other such “anti-oligopoly” laws.
That said corporations are well within their rights to restrict production and/or raise the prices they sell for, provided they don’t breach the (oftentimes onerous) “offload” contracts that to some extent tie their hands. That is, nearly all major miners have long-term agreements in place to sell mined metals to smelters, refiners, trading companies, industrial end users, and even sovereign governments (like the Chinese). These contracts typically mandate a set amount of product for varying periods of time; with prices typically tied to (PAPER) market levels, plus or minus various premiums and/or discounts depending on product quality, transportation costs and other factors.
Such contracts may extend for many years at a time, and in some cases are very difficult to escape from – other than via “force majeure” situations. Some might interpret significant operating losses as a force majeure situation; but for most major miners, low cost mines are not specifically operating at losses – and thus, such a provision is unlikely to be invokable. Unfortunately, however, the business as a whole is operating at a significant loss – when incorporating higher cost mines, overhead costs, and the capital expenditures required to explore for new reserves and maintain current deposits (by expanding their size, locating more profitable mining zones, paying ever-rising taxes, royalties, and permitting costs and developing new cost effective technologies, among other things).
As for the point that “everyone says” silver is trading below its cost of production, this is not a subjective view. It is objective, as the 12 top primary silver miners had an operating breakeven level of nearly $25/oz. in 2013; and with energy prices rising, high quality, “low hanging fruit” reserves depleting (with little hope of reserve replacement, now that the industry has enacted 50%+ capital expenditure reductions), and all manner of tax and royalty rate increases, the breakeven level can only rise in the coming years – likely, in dramatic fashion. Not only that, but the mines not operated by the top miners are far weaker operations, possessing in many cases dramatically higher variable operating costs than $25/oz. Frankly, I believe the “all-in” cost of silver today is far higher than $30/oz. – when incorporating not only the cost of operating a mine, but discovering, developing, and maintaining it.
Q: To invest in the precious metals is the best and only sensible plan. However, what to do when they are either confiscated or taxed at 90%?
TPTB have totally restricted price movement because they could and will continue to have the power to do so. Why do you think this will ever change?
I realize that control will switch to the east in the future, but greed being as it is, do you not think the west will teach the east the art of corruption.
So between TPTB and the government why do you think a natural free progression in the metals will occur?
Great question, or should I say questions. I will address each separately.
David Schectman’s Answer:
I think it is dangerous to assume that precious metals will be confiscated or taxed at a 90% rate. It could happen, but the odds of that occurring are very low. One person’s opinion on the subject that carries a lot of weight is Jim Sinclair’s. He has made it clear that he believes that gold will not be confiscated. I am certain that Richard Russell feels the same way too. Russell wrote:
Will the US government confiscate gold? My answer is NO, they will not. How would confiscation help the US? If the US possessed a huge hoard of gold, an extra few hundred tons of gold might boost confidence in the dollar. But I suspect that the US has sold or loaned all of its gold. If I’m wrong, then let an audit show me that I’m wrong.
–Dow Theory Letters, May 27, 2014
Sinclair and Russell have been actively involved in the precious metals market, directly or indirectly, since the 1970s or even earlier. Their views are as credible as anyone’s on the subject.
It is not a good idea to bunch gold, silver, platinum and palladium together, as you suggest in your question. Gold is monetary money and there is some precedent and logic for punitive action here. It did happen before. The world in 2014 is much different than it was in 1933 when gold was confiscated. Back then, the U.S. dollar was backed by gold and redeemable in gold, so the only way to increase the money supply was for the treasury to increase their gold holdings, which backed the dollar at the rate of one ounce per $20 (approximately, since each Double Eagle only had .9675 ounces of gold per coin, the value was actually $20.67/oz.). In today’s world, money is created by the Federal Reserve with a computer keystroke, without the need for gold or any other metal backing. To confiscate or punitively tax gold (or any precious metal) would be embarrassing unless it happened throughout the world. Can you see it happening in India, China or Russia? We would look foolish and it would send the wrong message to the rest of the world. It would be the signal that the dollar had little value, compared to gold or any precious metal.
Silver, platinum and palladium are industrial metals. I do not see confiscation happening in any of these items. And how could the government punitively tax these items but not the windfall gains in the stock market or real estate? It just doesn’t make much sense.
The powers that be have done quite a good job holding back the price of precious metals to a level much lower than they should be. They utilize two basic mechanisms. First, regulation is nil, and that allows illegal concentrations (especially by JPMorgan) and unlimited short selling without the metals to back the sales. Second, they use paper contracts on Comex to achieve the price levels they desire. Yes it works; but it only works until it doesn’t. As soon as the demand for physical precious metals exceeds the available supply, then the price mechanism changes and the physicals set the price, not the paper contracts on the Comex. A hedge fund may be willing to take a “paper profit” on a contract in lieu of calling for the actual physical metal (and that’s exactly what they do), but industry and investors looking for the real thing will not. They demand physicals, not paper profits. The way Jim Sinclair describes it is that Comex will go to a cash price – no margin. It has already happened – to silver on its run up to $50 in early 1980. You will have to put up 100% of the contract price, not a fraction of it, as is now the case and he believes that is exactly what will happen in the (near) future. The groundwork is already being set with new exchanges popping up in China now that will change the rules of the game.
If Ted Butler is correct, and I believe he is, JPMorgan is extremely LONG physical gold and silver – billions of dollars’ worth, and once the price starts to rapidly move up, they will not stand in the way, as they do now by trying to stop an “unstoppable” force by selling sort. Here is a recent quote from Butler on JPMorgan’s silver holdings:
Please allow me to speculate further. If I am correct that JPMorgan was the big buyer of Silver Eagles (at the margin) over the past three years, the bank could have accumulated 40 to 50 million ounces of Silver Eagles. As you know, I had previously speculated that JPMorgan could have acquired up to 200 million ounces of silver since the deliberate price break of May 2011, so the amount of Silver Eagles I am attributing to JPMorgan is proportionate. To summarize, I’ve held JPMorgan to be the prime silver manipulator all along and its control of the price action of the past three years not only allowed JPMorgan to whittle down its giant COMEX short position, but also accumulate a much larger physical holding in silver.
They hold an even larger position in physical gold as well. I suspect that by later this year, the stock market will start a major leg down (at least 30% maybe up to 50%) and then there will be a lot of hot money looking for a new home. If the stock market is out of favor and interest bearing investments are offering virtually no return, a lot of amount of money will move back into precious metals. Being such a small market, it doesn’t take much, a few billion here or there to set the prices soaring. It always does in these circumstances. I expect to see exactly these types of changes start to happen by the fall or early next year at the outside. John Williams still says it will happen in 2014. The year is almost half over, so we won’t have long to wait to find out.
I don’t think there is anything financial that we can teach the Chinese. They can teach us. They are playing our game but with a different time frame. They are content to see low gold and silver prices for the time being, so they can continue to accumulate record amounts of precious metals at or below production cost, so why put an end to the game? This gives them more time to unload dollars (they have a trillion or two to unload) for precious metals at bargain prices. Who is jobbing whom? When the time is right for them, they will make their move and push the Yuan onto the world stage as a replacement or equal to the dollars as a reserve currency. Even now, they are setting up trade around the globe outside the dollar with their currency. The dollar’s days as the world’s only reserve currency are over. This is the beginning of the end of our dollar supremacy, which has lasted 70 years. They are accumulating massive amounts of gold so they will be able to offer their currency with a gold backing – that may well surpass ours.
As Richard Russell is fond of saying, no force can stop the Primary Trend, not even the Fed or Treasury. The market is too big to control. Once the Primary Trend changes and the stock market starts to head into a Primary Bear Market and gold and silver move into a Primary Bull Market, the trend cannot be stopped. Smart money from around the globe will pile into metals and out of stocks and paper in general. The financial distress that will accompany the moves in gold, silver and leave stocks will also push up interest rates and devastate the bond market and the real estate market. Everything will be upside down and if you are not positioned properly before these events happen, you will be making the mistake of the decade.
If you want to hedge your bets as best as possible, diversify your metals. Split your portfolio up between gold, silver, platinum and palladium. Keep as much as is convenient off shore. You may even wish to own some semi-numismatic gold and silver, which should be exempt from confiscation.
What if none of this works and the government confiscates or over-taxes our metals? Although very unlikely, if it happens we will have to live with smaller profits from our investments and curse the crooks we voted into office. The risk is to our massive profits, not of outright theft of our assets. Remember, in 1933 the government did pay $20/oz. for every ounce of gold that was turned in. The trouble was, once they had the gold they devalued the dollar and its cost rose to $35/oz. A gold confiscation would lead to a confiscation of wealth for everyone –those who lost gold and those who were in dollars. There would be nowhere to hide form a devalued dollar and the rising prices that go hand and hand with it.
Hmmmmm. I don’t buy all this below the cost of production stuff. It’s irrelevant. What cost of production anyway? All in or cash cost? How about all the silver that is produced at zero or technically negative cash cost? All the by-product silver. Cash cost for that is about zero, however you slice it inthe accounts. How much silver is produced in primary silver mines versus as a secondary product from gold mines or base metal mines?
What about Silver Wheaton? All that silver that they get at $4 per ounce every year from various miners and you are saying that silver at $18-20 is below the cost of production?! That is total BS in my opinion. Silver Wheaton’s purchase price for silver is the smoking gun. Get real. A lot of silver is produced FOR NEXT TO NOTHING.
If silver goes to zero, then it will below the cost of production.
Silver a by-product that costs next to nothing? Let’s see – what is it a by-product of? Other metals. Are they produced for next to nothing as well? Something has to have production cost (ever increasing in dollar terms), so buy that – gold, copper, platinum, palladium, whatever.
Stay in dollars and watch it get clipped every year.