Rates are rising. We just hit 3% on the ten years. If rates bust through that and get out of hand, servicing the debt loads at the corporate level is going to get ugly. There’s more than a good reason to think that the stock market could truly roll over.
Probably the most ignored sector in global markets, is indeed, the metals market. That’s not terribly surprising, considering that the two big names, Silver and Gold, have done an awful lot of “nothing” for the past 5+ years.
Oh sure, there’s been pops and drops. There’s been wiggles higher, and elevator drop outs. There’s been “movement” but there hasn’t been anything sustained in a long time. Well, we live in dot com world of instant gratification. Sitting around for years to see something happen, is not popular.
So why would I be bringing up the silly metals? Because I tend to think that too many people have given up on them, at a time when maybe they should be rethinking their ideas.
Last year, an astounding 650 billion dollars poured into the stock market. Mom and pop, Wall street, Pension funds, you name it. The feeling was that markets only go up, and they wanted in on the ride. And guess what? For 2017 it worked. Everyone got to be a genius! Corrections seemed to be a thing of the past, and all you needed to do to make money was buy stocks. Any stocks. It was “easy”.
Then 2018 came around and after the January effect pop to new highs, we had our first 10+% correction. Some of the late comers to the market party got shook, but all in all the narrative was “it’s just another dip, buy it.” And since that plunge in mid January, we’ve been locked in a vicious sideways pattern of wicked chop. 700+ point round trips, etc.
Looking around the world, we see so many things pushing and pulling on us that it’s incredible. Missiles launched against Syria, Daily “leaks” out of the whole Mueller/Trump/Dossier event, Kim Jong meeting with South Korea to end their decades old war, interest rates crossing 3% for the first time in 4 years, and on and on.
One would imagine that in times of uncertainty, Gold and silver would once again shine as the protectant against the evils of the world, Yet they’ve done a lot of nothing. Why is that?
The first reason is the simplest to see. Instead of the physical exchange of the metals setting the price of the metals, the “paper” markets set the prices. Each and every day the futures market trades the equivalent of all the gold mined in the whole world. Think about that for a second. In the whole world, we only mine about 220 tons of gold per month. Thus in a whole year, we refine about 2600 tons of the stuff.
Guess what trades on the paper markets in a single day. North of 3000 tons. If you add up the futures, and the OTC derivatives, etc, each day sees the trading of over 3000 tons of gold. That’s a mind bender right there, but it’s considerably worse than that. See, they’re not really trading “gold” they’re trading paper. Long and short.
If the paper market is determining the physical set price ( it is) and monster sized institutions and bullion banks can toss thousands of ounces of “naked” shorts on the market, it doesn’t take a standing fellow of lucasion mathematics to figure out that they can drive the price of the actual metal down. They can, and they do.
For those that don’t understand “Naked” shorting, it’s like this: In a real world you have say 100 physical ounces of gold. You own the real thing. But you think the price is going to fall, so you sell those ounces on the open market exchange, and if you’re right, you buy them back at the lower price. Thus, you’ve “made money.” But suppose you got it wrong and the price went up? Then, you’d be called out.
Suppose you entered a sell order on your 100 ounces, just “knowing” the price would fall, but instead it went up. Well the guy that bought your paper short will be expecting you to turn over your 100 ounces of gold. You would then have to hand over your gold to him, despite the fact that it is now worth more than you sold at. Too bad, that’s how it works.
But in the paper gold market, they don’t have the gold they’re shorting. That’s why it’s called “naked” shorting, there’s no gold to “cover the nakedness”. Well, hell, if you don’t have to back up your bet with physical gold, then why just sell your 100 ounces? Why not 1000? Or 10,000? And that’s what they do. They flood the market with so many paper contracts, that it pushes the physical metal price down.
So you ask, what do they do if they’ve made all these paper shorts and the price rises? Well the law used to say “too bad, go out and buy all that physical gold and deliver it to the person on the other side of the contract”. That’s when the market was sort of fair and balanced. But that didn’t fit the agenda, so they changed the rules and allowed “cash settlement”. So, while you might be expecting to get physical delivery of the gold, the short seller simply pleas “sorry, we don’t have any real gold, but here’s the “money” that it would represent.
By allowing naked shorting, in volumes that eclipse the entire inventory of the world, they’ve created a very cozy industry of beating the metals into submission when they rise. This is undeniable fact. Now, what isn’t fact, but only my opinion, is that during the 2008/09 market melt down, the demand for real silver eagles by the public was so intense, the mint ran out several times. It’s my opinion that they launched bitcoin during that period, to try and get people away from sucking up the worlds silver, and into a digital “alternative” to silver. Again, my opinion.
Okay, so metals are suppressed by the big players. They can beat them down, cover their shorts, or take delivery of the metal, go long, ride the bounce and then beat them down again. Wash, rinse repeat.
But there’s another angle to gold suppression, that reads like a conspiracy story. In that story, the big Governments themselves have kept gold down, as they all amass the metals to equal degrees. China, and Russia continue to buy gold at a furious pace. Russia bought another 90 metric tons last month. China doesn’t allow a single ounce of their mined gold to leave the country. In the big picture, everyone knows that some form of “monetary reset” is going to come our way, and there’s good evidence to believe gold will play a part in that reset. But to make that happen, the major players have to have somewhat equal amounts of the stuff. Keeping the price contained, allows the players to amass it more cheaply.
Okay, so the bottom line is that gold and silver are manipulated. Why would we consider now a good time to pick some up? Several reasons. Let’s start with supply.
The worlds biggest mines are seeing production drops like we’ve never seen before. Some of these mines are now putting out just 25 and 30% of what they could produce just 10 years ago. There’s not been any truly magnificent finds made in many years and they’re working harder all the time to get the mines they have, to squeak out as many ounces as the can.
When the boom times in gold and silver were happening, like say from 2007 – 2011, major miners went hog wild trying to open new mines. They spent umpteen billions trying to up production to take advantage of the higher metals prices. But by the time the mines got functional, the prices had peaked. Then for the next 7 years, they had all this debt from splurging on new mines, and they got more supply out of the ground, but had to sell it for lower prices.
Lot’s of mines went down. Lots were closed. They refocused on established mines and stopped spending money on researching new areas. If there was a new, sustainable spike in metals prices, the supply would NOT keep up with demand. It can’t.
Okay, so why would there even be a resurgent push for metal demand? There’s lots of reasons. Let’s talk silver for a second. Each and every year, demand for silver has been increasing. Use in such things as solar panels, electronics, and the medical field continue to rise. Yet as I said, supply continues to dwindle. At some point, all the short selling BS in the world will not offset the physical demand for the material. The futures market will get over run, just like they almost did in 2011. I think we were just a couple of months away from a complete meltdown in the COMEX exchange, before they finally turned the tide and got the metals lower.
So, we’ve got ever rising demand from the manufacturing side of the equation, what else can move the needle? Well, depending on if you’re a glass half full or half empty person, we’re seeing some cracks in the overall equities markets. All those years of QE, all the trillions they’ve printed has gotten us to a “level” but now that level needs more stimulus to go higher. The Central banks are starting to get reluctant to do it.
Rates are rising. We just hit 3% on the ten years. If rates bust through that and get out of hand, servicing the debt loads at the corporate level is going to get ugly. There’s more than a good reason to think that the stock market could truly roll over.
If we were to get a sustainable market drop, while at the same time rates were to rise, “some” amount of extra demand would find its way to gold and silver. Add that to the dwindling supply, and you’ve got a case for higher prices. But then there’s one more reason.
Technicals. If you take a really long term chart of silver, you’re seeing a compression that’s been working for the last 5+ years, and which has been amplified since July of 2016. Gold is flirting with what one could call a breakout. It wouldn’t take too much in either asset to see a pretty hefty run emerge.
Finally, just what is the purpose of it? Do we buy gold and/or silver to “make” money? Not really. In a round about way, the metals are an insurance policy against inflation, and fiat currency. I always use the “suit” analogy. In 1920 you could buy a fine handmade mans suit for one ounce of gold. In 2018 you can still buy a finely crafted suit for 1 ounce of gold. It has offset the inflation of the last 90 years. But like all things, we like to buy low, and I’m thinking that we might be seeing the lows in both gold and silver here.
If someone was intent on buying some metal, I’m thinking that over the next month or so, it’s not a bad time to pick some up.
I like physical metal. Silver Eagles, Gold Eagles. While you can always play with the ETF’s such as the SLV for silver and the GLD for gold, that’s speculation plays. For true “insurance” nothing beats having the real thing in your possession.
Now, If I’m right, and we’re about to see the metals move higher, one of the speculation plays that CAN make you money is playing with the miners. How do I know that? Because in the 2010 – 2011 run up, we laid out a plan to take 30K, and ladder it up in the miners. That 30K turned into 1.2 million.
Then in the 2015 – 2016 miner run, we laid out a plan that we showed our members, where we took 19K, and turned that into 244K in literally 7 months. So yes, if you get the timing right, and you play the miners right, you “can” make giant money. But, overstay your welcome and either jump too late or hold too long and those very miners will punish you. Trust me, been there.
It appears to us, that we might be warning up for the metals to make a move higher. I think gold goes first, then silver. The first job is to pick up some physical while it’s still depressed. That gives us the “insurance” value. Then we can play some speculation games and dabble with the ETF’s and the miners later as they make chart patterns. Good luck folks!