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Fundamentals on Precious Metals

"There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt." --John Adams

Contents

Supply and demand

  • Conversion. 1 (metric) tonne = 32,151 troy ounces.
  • Status Report of U.S. Treasury-Owned Gold. As of January 31, 2013, the Federal Reserve Bank NY Vault has a total of 418 tonnes (i.e. 13,452,810 troy ounces), and the U.S. Treasury total is 7,715 tonnes (i.e. 248,046,115 troy ounces).
  • Silver/gold mine production. In 2010, total global mine production of silver was between 713 (22,177 tonnes; see here) and 735 million troy ounces (22,861 tonnes; see here), with Peru and Mexico being the largest producers. Gold mine production is approximately 85.5 million ounces of gold (2,659 tonnes; see here), or a 1 to 8 ratio of gold to silver. The ratio is even smaller when one considers that over half of silver is consumed by industry and most of newly mined gold is not. Discussion on peak gold (see here). The USGS estimates worldwide silver reserves to be 530,000 tons as of 2011 (see here). At an average mining rate of 22,000 tonnes per year, all silver would be mined out in 24 years. However, if you look at the USGS data each year, the amount in reserves doesn't seem to change very much, so I'm not sure how reliable that number is. For the complete series see here.
  • Silver demand. Industrial usage was 55% of demand in 2010 (i.e. electronics, science, cell phones, computers, wiring), jewelry demand was 19%, coin demand 12% and rising, photography 8% and declining, and silverware 6%. Percentages derived from here. Industrial demand for silver continues in 2011 unabated, see here. Electronics is still the largest component of silver demand, accounting for more than 60% of the total industrial demand , see here. For a detail description of silver's various uses see Silver Uses (from The Silver Institute).
  • Gold supply/demand. Approximately 52% is used for jewelry, 18% constitute official holdings of central banks, 16% as investments, 12% for industrial use, and 2% miscellaneous. Jewelry consumption is primarily from India, China, and the United States which collectively consumed 2,059.6 tonnes in 2010 or 87.6675% of the total consumed for jewelry worldwide. In 2010 the gold supply stood at 4108 tonnes (2659 tonnes from mine production, neg. 116 tonnes hedging, 87 tonnes central banks sales and 1653 gold recycling). Demand from industry was 420 tonnes, or 10 per cent. This is 287 tonnes for the electronics industry, 50 tonnes for dentistry, and 83 tonnes for other industrial purposes. In contrast, jewellery demand was 2060 tonnes. (See here)
  • All the World's Gold. The best estimate at the end of 2011 is that around 165,000 tonnes have been mined in all of human history, or about 5.3 billion troy ounces. With gold at $1,600 per troy ounce that's about $8.4878 trillion in total dollar value. In terms of space, it would be a cube 67 feet (or 20 meters) on each side. With the world population at 7 billion, this leaves each person on the planet with 24 grams of gold or less than one troy ounce (0.76 troy ounce).
  • The 3 Big Charts I Watch For Silver. The 3 charts are US House Price / Silver Ratio, The DJIA to Silver Ratio, and the Gold to Silver Ratio.
  • Real Estate Home Appreciation - Last 12 Months. It is useful to In 1980 the average house price to silver ratio was 1:1448 (i.e. $72,400 to $50).
  • $DJX:$SILVER ratio chart.
  • $SILVER:$SPX ratio chart.
  • $GOLD:$SILVER ratio chart. The 1980 ratio high was 1:14, the ratio low was something like 1:100 (?). The current ratio is around 1:45 (Aug 9, 2011). Potential future ratios and price targets here: Future Potential Rates.
  • $GOLD:$WTIC ratio chart. The Gold to Light Crude Oil ratio. Since oil and gold are similarly impacted by physical supply/demand and the expansion of money supply, one can view gold as a real money measure of the value of oil. The more it costs to buy oil in gold terms the more likely oil is overvalued relative to gold, and vice versa. A savvy investor can take advantage of relative mispricing by buying the underpriced asset and selling the other. The lower the ratio value, the cheaper is Gold relative to Oil, so you sell Oil and buy Gold. If you go back to 1998 and look at the gold/oil ratio, we hit 27.5 to 1. The ratio today (2/22/2012) is at 16.5 to 1. Let’s say the ratio of 16.5 stays consistent, but crude moves to the old high of $150, that would mean a gold price of $2,475.
  • $USD:$GOLD ratio chart. The dollar continues to fall against gold.
  • Silver production breakdown. Roughly 25% of silver production comes from copper, and over 35% from lead and zinc. Roughly 10-15% comes from gold (see both CPM Silver Yearbook and GFMS World Silver Survey). Only about 20-30% of silver comes from primary silver production. At least in theory, if base metal prices collapse from a recession, it might be difficult to increase silver mine supply and, therefore, any surge in silver demand will not be met. Among major commodities and metals (besides rare earth elements), silver has the least amount of mineable reserves relative to demand. In other words, if all else remained constant, we would run out of silver before other base metals, oil, or, even, gold. Reference: Peak Silver?
  • Metals of Sun (gold) and Moon (silver). For each cycle of the Sun (1 year), there are 13 cycles of the Moon; thus, a gold/silver price ratio of 13:1. Over the last 4 millenia, the gold/silver ratio has averaged out to a little over 15:1. Modern science tells us that silver is 17 times more plentiful than gold in the Earth's crust, i.e. a 17:1 ratio. While virtually ALL the gold ever mined still exists, most of mined silver is "consumed." Above-ground estimates of the supply ratio range anywhere from 6:1 to 9:1. Given that the current price ratio ranges around 50:1, there is high expectation that silver will ultimately outperform gold.
  • Commercials active on the buy side. When smart money gold players (commercials) have been very active on the buy side, enormous rises in the price tend to follow. See here.
  • Gold climbed inspite of banks selling. Bullion tripled from 1999 through the beginning of 2008 as the banks sold more than 4,000 tons. But since 2009, central banks have been net buyers.
  • Silver in solar panels. About 2/3 Oz per panel. Thus, 48 X 200 watt panels would be 32 Oz of silver. In 2010, use of silver in solar cells was about 64 million ounces, up from 20.9 million in 2009.
  • Silver supply/demand dynamics compared to 1980. When you realize that: (1) There is a lot less above ground silver in the world since 1980 (4 billion ounces versus 1 billion ounces in 2012), (2) There are 50% more people in the world today than in 1980 (4.4 billion versus 6.8 billion), (3) Only 15% of the world's population had an opportunity to buy silver in 1980, and (4) There are a lot more U.S. dollars and other currencies circulating in the world today than in 1980...then the current silver price is too low.
  • How Much Does it Cost to Mine Silver? Posted 5/15/2012. For two of the U.S. silver miners the average "complete" cost in 2011 (includes shareholder dividend cost) is high at $27.75. For the Fresnillo mining company $20.67 and for Hecla $23.88.
  • The Right Time to Buy Gold. Posted 5/29/2012. Excellent article on current supply/demand fundamentals for gold.
  • Global Gold Mines and Deposits Ranking 2012. The data is displayed using visualizations.
  • Infographic Gold Facts. The amount of above ground has been revised here: The Aboveground Gold Stock: Its Importance and Its Size by James Turk October, 2012 (in PDF) to 155,244 tonnes from 171,300 tonnes. See also: Gold - Visualized in Bullion Bars.
  • What Is the 'Spot Price' of Gold and Silver?. Posted 2/26/2012.
  • Rising production costs put a $1,300 floor under the gold price. Posted 11/20/2012. According to the Thomson Reuters GFMS’s Gold Survey 2012, the average cost across the gold mining industry for mining an ounce of gold is $727 per ounce. However there are many other costs aside from those associated with mining and processing ore into gold, including exploration activities (i.e. surveying and drilling), site production preparation, and waste removal. The total all-in cost of mining an ounce of gold across the industry is currently around $1,300 and for some producers it is considerably more. For example, it costs Gold Fields, which is one of the world’s largest producers of gold with annualized production of 3.5 million gold equivalent ounces, $1,788 an ounce.
  • 10 Silver Facts. Interesting facts about silver. Most shiny; second most ductile; most electric conductive; germicidal; most thermal conductive.
  • (YouTube) Silver - The Element of Change. Describes the properties and uses.

Good money

Good money should be effective as (1) a store of value, (2) a medium of exchange as well as (3) a unit of account. In order for money to be effective it has to have the following properties:

  • divisible - should be divisible in smaller units
  • portable - able to carry it around therefore a high value should be able to be contained in a small space and weight.
  • homogenous - one unit should be the same as any other unit
  • durable - should not be able to be easily destroyed or eroded
  • valuable - should have intrinsic value, normally because it is desirable. Should not be able to be created or discovered without reasonable effort. Normally a commodity itself.

Bimetallism is a monetary standard in which the value of the monetary unit is defined as equivalent both to a certain quantity of gold and to a certain quantity of silver. "In 1787 the United States Constitution established gold and silver as the legal tender of the United States at a floating exchange rate. Then in 1792, Alexander proposed fixing the silver to gold exchange rate at 15:1..." The disadvantage of fixed rate of exchange between the two was that silver was exchanged for gold at the U.S. mint and then the gold sold in the open market to in turn buy silver with the profits and repeat the process.

The Coinage Act of 1873 (the fourth coinage act) embraced the gold standard and demonetized silver. Western mining interests and others who wanted silver in circulation years later labeled this measure the "Crime of '73". Gold became the only metallic standard in the United States, hence putting the United States de facto on the gold standard. For a detailed description of the history see The Crime of 1873 by Milton Friedman. A good video describing this history at Silver Update 11/27/11 Silver History Part 2. Also read more in the long article: The Silver Stealers.

Quick summary of why the Federal Reserve was created: Mainstream Reporter Tells The Truth About Audit The Fed And The Creation Of The Federal Reserve. The four-minute embedded video of the FED story is found here: Reality Check: Do We Really Need To Audit The Federal Reserve?

Alan Greenspan on a gold standard (1966)

"Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit.

They have created paper reserves in the form of government bonds which -- through a complex series of steps -- the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of society lose value in terms of goods.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold [in 1933]. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

--Alan Greenspan, 1966

When Greenspan later rose to a position of prominent political power when named Chairman of the Fed, he disavowed his essay about gold. However, that disavowal does not detract from the truth of his written word. His words stand on their own. Also read: 41 Years After The Death Of The Gold Standard, A Look At "How We Ended Up In This Economic Purgatory"

Hedge against

The U.S. government has four basic ways to finance its spending:

  1. Increase income by raising taxes the citizens
  2. Cut spending by reducing benefits
  3. Borrow money through the issuance of government bonds
  4. Print money. However, "By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the price's in dollars of those goods and services." --Bernanke, November 21, 2002, Remarks by Governor Ben S. Bernanke Before the National Economists Club, Washington, D.C.

The first two (i.e. raising taxes and cut spending) can be political suicide, especially in an election year. Borrowing money is a politically convenient option but you can only borrow so much. That leaves the final option of printing money. Printing money requires no immediate sacrifice and no spending cuts. It's a perfect solution for a growing country that wants to avoid making any sacrifices. However, printing more money than is needed leads to inflation. Therefore, if a country can somehow generate a global demand for its currency, it has a "permission slip" to print more money. The U.S. has been able to do this and export inflation.

  • Reckless monetary policies. Since 2009, the U.S. along with the world’s central banks have eased (i.e. printed money out of thin air) more than they ever have in history. This results in inflationary and at times deflationary cycles. See Inflation/Deflation. A loss of faith in the currency results in Hyperinflation.
  • Reckless fiscal policies. The U.S. dollar is about 60% of the world’s reserve currency. Yet the U.S. government runs a deficit over 100% of GDP with no end in sight -- a government that also carries enormous off-balance sheet liabilities (such as Social Security and Medicare) in the tens of trillions of dollars and an effectively broken political machine that assures paralysis for a long time to come.
  • Negative real interest rates. Whenever the price of money set by the Federal Reserve is below the rate of inflation, you have what are called ‘negative real interest rates.’ Such periods of time are historically quite favorable to the price of gold.

Gold remonetarization. There exists the real possibility that the FED will revalue the U.S. dollar against gold. See With the World Waiting for QE3, is The Fed Preparing for Gold Revaluation?

Credit unworthiness of the United States. Would you lend (if you were a bank) to someone with the following financial position?

    Item
    Amount
    Annual income
    $23,160
    Annual spending
    $36,200
    New annual debt
    $13,000
    Outstanding debt
    $151,550
    Recent budget cuts
    $385

The above numbers is the U.S. budget, as of the end of 2011, in tens of billions of dollars. "Annual income" is from U.S. taxes. "New annual debt" is the current U.S. deficit. See the USDebtClock.org for exact numbers. Notice that the U.S. spends about 60% more than it takes in via taxes (i.e. $23K of income versus $36K of spending).

The Three Demand Waves of Silver

Notes based on the YouTube video, The Three Demands of Silver:

  1. Industrial demand. Inelastic price, physical demand, lower prices for value added profits, destroying the world's stockpile of silver.
  2. Investment demand. Paper and physical demand: paper traders, international and individual physical buyers.
  3. Monetary demand. Insatiable demand for silver has a monetary alternative to paper currencies and gold (i.e. silver as a poor man's gold).

The first two are currently playing out. The third, monetary demand, is still future. While industrial demand is steadily depleting silver stockpiles through usage into landfills, investment demand is increasingly accumulating silver as an alternative to gold. Silver as money is currently being considered by some states in the United States and proposed for Mexico by the influential Hugo Salinas (see Mexico Mulls Silver Lining Against Currency Crash).

Inflation/Deflation: An Expansion/Contraction of Counterfeit Credit

The correct definition of inflation is an expansion of counterfeit credit, whereas deflation is a forcible contraction of counterfeit credit. Credit expansion, in and of itself, is not counterfeit or illegitimate or inflationary. At least two factors distinguish legitimate credit from counterfeit credit. First, someone has produced more than he has consumed. Second, this producer knowingly and willingly extends credit. He understands exactly when, and on what terms, with what risks he will be paid in full. He realizes that in the meantime he does not have the use of his money. The third factor is that the borrower has the means and the intent to repay.

Banks create counterfeit credit via duration mismatch. As detailed in Fractional Reserve Banking: The Real Story when a bank takes in a deposit and lends for a longer duration than the deposit, it is creating counterfeit credit. It is a duration mismatch, which is fraud and the source of banking system instability and crashes. If a bank lends deposits only for the same or shorter duration, then the bank is perfectly stable and perfectly honest with its depositors. Such banks can expand credit by lending, (though they cannot expand money), but it is real credit. It is not counterfeit. Unfortunately, this is not what the banks do. Demand deposits (or of fixed duration) are used to lend out for longer durations such as for 15- and 30-year real estate loans. Balance sheets conceal this duration mismatch and give the false sense that everything balances.

When the Federal Reserve creates currency to buy a Treasury bond it is counterfeit credit, by its very nature. (On their books, they create a liability for the currency issued and an asset for the corresponding bond purchase. New money out of thin air.) Every time the Fed expands its balance sheet, it is inflation. It is no exaggeration to say that the very purpose of the Fed is to create inflation. Their goal is to continue to expand credit against the ever-increasing market forces that demand credit contraction.

Social Security is counterfeit credit. When the worker foregoes 16% of his wages to Social Security he is extending credit, by force—i.e. unwillingly. The government promises him that in exchange, they will pay him a monthly stipend after he reaches the age of retirement, plus most of his medical expenses. Anyone who does the math will see that this is a bad deal. The amount the government promises to pay is less than one would expect for lending money for so long. For example, someone working for 40 years contributing $10,000 per year toward Social Security (on a $60,000 per year salary) would net over $3.5 million using a compound interest rate of 5%. Clearly, the government dispenses considerably less than this on average per retiree.

Inflation is only possible by the initiation of the use of physical force or fraud by the government, the central bank, and the privileged banks they enfranchise. Deflation is only possible from, and is indeed the inevitable outcome of, inflation. Whenever credit is extended with no means or ability to repay, that credit is certain to eventually become a deflationary crisis that threatens to harm the creditor.

Further reading: The Writings of Professor Antal E. Fekete and Monetary Economics 101 and 102.

Currencty Wars - The Four Horsemen of the Dollar Apocalypse (Jim Rickards video interview - posted 11/18/2011)

(YouTube) Currency Wars. Jim Rickards details how a global financial crisis would occur through a global currency war.

Jim Rickards outlines the four potential scenarios for world currencies, or the 4 roads to dollar apocalypse:

  1. Multiple Reserve Currencies. Where the U.S. dollar gets a smaller share of the world reserve currency status (currently 60%). Instead of one central bank behaving badly, many world central banks behave badly. Thus, it would spur a "Race to the Bottom". In part, this is what is happening with the U.S. Fed, the European ECB, Japan, and China. They are all steadily devaluing their currencies.
  2. IMF Special Drawing Rights (SDRs). SDRs have been around since 1969. A new world currency set up and managed by the G20 nations via the IMF.
  3. Return to a Gold Standard. Three keys to a Gold Standard: (1) What definition of money will you use (M0, M1, or M2), (2) What percentage of money backed by gold (e.g. 20%, 40%, or 100%), and (3) Is the U.S. acting along (i.e. the gold backing is to U.S. dollars alone) or are the currencies of the other major nations included. The U.S. dollar is implicitly tied to gold at about a 17% backing. A 40% backing would be the most likely. The following is as of April, 2011.
    4. Flexible Gold Standard Factors
    Price per ounce
    U.S. M1 with 40% gold backing
    $2,590
    U.S. M0 with 40% gold backing
    $3,337
    U.S. M1 with 100% gold backing
    $6,475
    U.S., ECB, China M1 with 40% gold backing
    $6,993
    U.S. M0 with 100% gold backing
    $8,342
    U.S. M2 with 40% gold backing
    $12,347
    U.S., ECB, China with 100% gold backing
    $44,552
  4. Chaos. Systemic Collapse + Loss of Faith in Paper Money. Rickards believes Chaos is the most likely scenario to occur, because it is a result of denial, wishful thinking, and "kicking the can down the road". On a U.S. dollar collapse, the President would then have (dictatorial) powers to restore order. Restoring order could mean any number of things, including going back to a Gold Standard.

Punitive sales or capital gains tax

In a high-inflation / hyper-inflation crisis (i.e. an inflationary spike lasting as much as a year), a punitive Sales or Capital Gains Tax on the sale of gold is not likely to happen for the following reasons:

  1. No incentive to sell. Those holding gold are generally wealthy individuals and don't NEED to sell in a crisis. They have plenty of other assets to hold them through. There would be no incentive to liquidate, other than in small quantities out of personal need. Moreover, since few people hold meaningful quantities of gold anyway, such a tax would generate little revenue for the government.
  2. Gold would move out of the country. Why sell gold in a country where most of its value is lost via taxation? The incentive would be to sell the gold in countries with favorable tax policies such as the UK, Europe, Russia, and China. Most of these already have a 0% tax policy on gold. Flight of gold out of the country would be the last thing a government would want when trying to rebuild.
  3. Encourages a black market. The demand for gold would be EXTREME in an economic collapse (or similar situation). In such an environment, a black market for gold would inevitably ensue especially if it is highly taxed.

Understand that gold does not intrinsically produce anything. It is capital which does not deliver capital gains. Governments don't get rich by taxing capital, but rather by the economy activity produced by the capital. To restart a failed economy (as a result of a failed fiat currency) the government will need an infusion of REAL capital. That is what gold provides. To curtail its circulation would be self-defeating.

The taxation of silver may be a bit different than gold during and after an economic collapse, in that silver has such a high industrial demand as compared to gold. Governments would likely tax silver. However, there may be leniency with taxation in order to help reboot the economy.

The leasing of gold and dollar liquidity stress

Gold "lease rate" definition: The "lease rate" (i.e. defined as Libor - GOFO, or Gold Forward Offered Rate) is the net rate of interest a bullion bank like JPMorgan (or HSBC) pays to a central bank like the Fed to borrow gold. The bank then takes the gold and sells it on the LBMA or the Comex. After painting the tape and initiating the beatdown, the bank can then cover the new short position, thereby reclaiming the gold it borrowed for return to the central bank. With one-month lease rates at -0.5% (on 12/14/2011), the bank actually gets paid interest by the lender to borrow the gold. Its a win-win for JPMorgan et al. They make interest (which they like) and prop desk trading profits (which they like even more).

European banks are in immense dollar liquidity stress (as of late 2011). They have leased gold to sellers or sold outright against the dollar POG (Price of Gold) in order to raise dollars.

[The collapse of the lease rate (on 12/14/2011) is indicative of high interest by the lessors of gold, aka holders. Global banks are in the paper-(e)dollar world. That is their god. If you have an account with them and you want to hold physical gold, they do not care. They will lease, rehypothecate, sell what you own, even illegally, to keep themselves alive. Banks and hedge funds, even those physically holding client assets which may be physical gold bars, will sell anything they can for paper liquidity to stay alive. To them, "cash is king" because those accounting figures are the difference between being employed and operating and not.]

For further discussion on this topic see Gold Leasing.

Top Ten Reasons to Buy Silver

  1. Moving into True Money. Would you convert your labor into Depreciating Fiat Paper or into an appreciating tangible asset with intrinsic value? Silver offers the opportunity to move into true money, an actual store of value, with the potential for substantial gains in future years as its current cycle continues. Protect yourself and your family by acquiring silver with intrinsic value and insulate yourself from the wealth destructive policies of central bankers.
  2. The Common Man's Gold. Silve is affordable. The acquisition of silver is much more attainable for global populations compared to gold.
  3. The Ultimate Insurance Policy. Most episodes of printing have been followed by pronounced periods of inflation or even extreme cases of hyper-inflation, either severely destabilizing the nation’s political stability or culminating in warfare, dictatorships, or a political collapse. At the current silver price level, the cost of insurance is tremendously cheap in relation to the wealth it would conserve if history does in fact repeat itself.
  4. Silver: Much more than a Monetary Metal: Industrial & Medical Applications. Unlike gold, silver has hundreds of industrial and medical applications and its usage is on the rise. It is the most electronically conducive, thermally conductive, and reflective. In the last two decades alone, usage has increased substantially to include an array of electronic and digital products, medical appliances due to its anti-microbial properties, and even clothing. Product such as cellphones, cameras, laptops, mirrors, monitors, etc. all contain trace amounts of silver which is never replenished or returned to stockpiles.
  5. A Dwarfed Physical Market & Vanishing Inventories. The steady reduction in above ground inventories had been unique to silver amongst virtually all industrial and precious metals. Above ground supply is merely a fraction of what it was when silver hit its all-time high in 1980.
  6. Uncertainties in Future Supply. The majority of the world’s silver comes from nations marked with political turmoil, labor unrest, and undeveloped economies.
  7. Emerging World Demand. China and India represent two behemoth markets where populations have shown a tremendous appetite for gold and silver. An awakening of emerging market investment demand will contribute to a new demand dynamic for physical silver bullion. Supportive of the monetary aspects are some of the largest untapped markets for consumer electronic and industrial usages. Within the next decades, demand for appliances and technologies which require silver from developing nations is set to rise.
  8. End of Manipulation. Evidence of price manipulation has been shown to occur through the derivative futures contracts traded at the COMEX. This will end at some point. See Gold and Silver Manipulation--"High Frequency Shearing"
  9. The Paper Funds Exposed. ETFs and other paper derivatives have funneled demand away from what would be geared as deliverable silver and into non-redeemable paper in the form of a prospectus or stock certificate.
  10. Gold to Silver Ratio. While this ratio has historically oscillated throughout the last 2000 years, it has always revert back to its historical average of 12 to 1. Consider the tremendous upside potential given the current ratio at $GOLD:$SILVER ratio chart.

Miscellaneous

  • <<Silver in the Bible>>.
  • <<Ellen G. White on savings>>. Includes a sample emergency fund in Tennessee cost of living terms.
  • U.S. national debt doubling every 10 years. We’ve been doubling the national debt in this country every 10 years since 1980. That is, the debt in 2010 is roughly double of that in 2000, and in 2000 it was double of that in 1990, and in 1990 it was double of that in 1980. Can we double it again by 2020? Not likely. The problem is with the interest payments on the debt. By 2020 the interest payment will more than quadruple to over $800 billion from the current $180 billion; and this presumes a 3% interest rate on that debt, which is insanely optimistic. In other words, at some point well before 2020 our debt load will hit the wall and become unserviceable. --Reference
  • President Garfield on the reason behind inflation and depression. "Whoever controls the volume of money in any country is absolute master of all industry and commerce...and when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate." --1881, President James Garfield.
  • U.S. debt burden. Our debt burden is quite substantial, 100% of GDP this month (September). That’s a daunting burden. That doesn’t even count the GSE’s, now backed by the US government, it doesn’t count state and local debt and when you add those in you are at 170% of GDP, which is higher than Greece. If you add in unfunded social security and medicare you are at 460%. If you add in unfunded medicaid you’re north of 600%.
  • A Historical Case for $960 Silver. At what price did Judas betray Jesus? Also found on YouTube: The Historical Case For $960 Silver. A denarius in the Roman Empire at the time of Jesus was worth about one-tenth of an ounce of silver. One ounce of silver would then represent 10 days of labor, and a 1,000-ounce silver bar would be equivalent to 10,000 days or 40 years of labor assuming a 250-day work-year (i.e. 5-day work week X 50 weeks). A denarius was used to pay 1-day's wage or 12 hours of labor. At a minimum wage of $8 per hour, that is equivalent to $96 per day (i.e. $8 an hour X 12 hours). Thus, one ounce of silver in Jesus' day would be worth $960. Since Jesus was betrayed for 30 shekels of silver which is about 15 ounces (i.e. one shekel = half-ounce of silver), then Jesus was betrayed for $14,400.
  • <<Events to Occur in an Economic Collapse>>. Largely excerpted from Market-Ticker.
  • <<Events in a Greece default>>.
  • <<The U.S. goes Ka-Poom in roughly 2013-2014>>. It has parallel features to the Argentina's 2001 Economic Collapse.
  • (YouTube) Chris Martenson's presentation at the Gold & Silver Meeting in Madrid. Posted 11/29/2011. A must-watch, one-hour video. Chris Martenson explains why he thinks the coming 20 years are going to look completely unlike the last 20 years. Martenson explains how exponential growth works and why it is so scary that our economy is based on it. In an example he illustrates how unimaginably fast things speed up towards the end of an exponential curve. He shows that an exponential chart can be found in every one of the three "E's"--i.e. the Economy, Energy (i.e. chiefly oil), and Environment (i.e. natural resources, such as metals and minerals).
  • Failure of the 'New Economics' by Henry Hazlitt. In 1959, Henry Hazlitt wrote a line-by-line commentary and refutation of one of the most destructive, fallacious, and convoluted books of the century. The target here is John Maynard Keynes' General Theory, the book that appeared in 1936 and swept all before it. This “new economics” theory showed up in print in 1936 courtesy of economist John Maynard Keynes. He posited a theory that supports what was accurately described today by Goldman Sachs as “help for the government to run large budget deficits.” The politicians of the day loved it.
  • Deflation and Liberty by Jorg Hulsmann. A shorter essay that gives an exhilarating look at true capitalism in the spirit of both Henry Hazlitt and Michael Maloney.

Other notes

  • (YouTube) What Is a Gold Standard?
  • New gold discoveries declining at accelerating rate. Posted 3/25/2013. According to a study which covers announced gold deposit finds over the past 10 years, this decline (in new global discoveries and in particular in gold grades) has been accelerating over the past four years and if the trend continues, which seems likely as the easier-to-find deposits have perhaps mostly already been discovered, then the future of global mined gold supplies will gradually become affected.
  • Fort Knox, an Impregnable Monument to Security Theater. Roosevelt used the construction of the vault to create an impression of permanence and solidity that his other actions undercut: Fort Knox appeared to protect the nation’s gold precisely at a time when that gold had lost its “redemptive” function. It was a masterful example of politics as theater.
  • (PDF) Human Freedom Rests on Gold Redeemable Money. By Hon. Howard Buffett (the late father of Warren Buffett), U. S. Congressman from Nebraska. Reprinted from The Commercial and Financial Chronicle 5/6/1948.
  • The Solar Silver Thrust. Posted 10/5/2012. The demand for photovoltaic (PV) technology remains high and is expected to increase. PV uses a lot of silver relative to cellphones and laptops, for example. Also, other industrial demand for silver continues unabated. "Based on their research, the Silver Institute forecasts that industrial usage will rise to 665.9 million troy ounces by 2015 and account for more than 60% of total fabrication demand."
  • Do Western Central Banks Have Any Gold Left???. Posted 10/2/2012. Suspicion that the Central Banks (particularly Europe and the U.S.) have negligible gold reserves.
  • Presenting Warren Buffett's "Gold Cube". Posted 9/26/2012. The world's gold stock is about 170,000 metric tons, of which 84,200 tonnes is in jewelry (or 50.5%), 31,000 tonnes is in private investment (or 18.7%), 29,000 tonnes is in the official sector (or 17.4%) , and 22,300 tonnes (or 13.4%) is in other. Below ground stocks is 51,000 tonnes.
  • The Future of Silver Industrial Demand. Posted 3/1/2011. Commissioned by the Silver Institute for the calendar year 2010.
  • BBC’s Global Resources Stock Check Portrays World On The Edge. Posted 8/21/2012. Notably, due to run out just 17 years ( 2029) is the world supply of silver.
  • Forty One Years Of A Soon To Fail Fiat Currency Experiment. Posted 8/14/2012. Forty one years ago, on August 15, 1971, the world's largest fiat currency experiment was launched, effectively converting the dollar and most global currencies into a debt backed fiasco. Debt levels have escalated astronomically. As a result this burden is sure to fall on all who hold fiat currencies, currencies directly reserved and tied to a growing and un-payable debt load.
  • Doug Casey's 10 Tips on Speculation and Life. Posted 8/1/2012. What is the difference between an investor, a speculator, and a gambler?
  • Myths and Realities of Returning to a Gold Standard. Posted 5/31/2012. With a fiat money system, it is easy to deceive the public that you are protecting the money's purchasing power. However, with a gold standard, deception is much more difficult. Creating too much money will lead to redemptions that drain away the official gold stockpile. Everyone can see the inventory shrinking. If it shrinks to zero, then the managers of the system have failed, period. There is no ambiguity about it, and the politicians in charge at the time have little room for denial.
  • (YouTube) A Bad Market is Feeding on Itself Today - Rick Rule. Posted 5/22/2012. A good explanation on why not to invest in junior miners.
  • Critical Factors that will Impact Silver. Posted 4/30/2012. Among them: (1) Increasing diesel consumption with decreasing supply (e.g. Mexico is the classic case), (2) Declining average ore grades and a falling EROI, (3) Future silver mine supply (i.e. Peak Silver), and (4) Nationalization and monetization of precious metals.
  • (YouTube) Fiat money inflation in France. Also see: Fiat money inflation in France - Part 2: Assignats. The fiat monetary role in the French Revolution and the rise of Napoleon. See the book: Fiat Money Inflation In France by Andrew White.
  • Silver Education Hub. Series of videos on how silver is mined and minted.
  • Peak Silver? Posted 9/28/2011. Very thorough discussion of the rarity of silver today.
  • Silver Sales Up As Supply Slips. Posted 1/23/2012. In 2002 both countries produced 87.5 million oz of silver and sold 11 million Silver Eagles and Maple Leaf coins. These coins sales accounted for 12.6% of U.S. and Canadian silver production.In 2011, just nine years later, the U.S. and Canada are estimated to mine only 53.6 million oz of silver combined, while their total Silver Eagle and Maple Leaf coin sales are to surpass approximately 62.5 million. Thus, their coin sales are 16% greater than their total domestic silver mine supplies.
  • The Great Silver Market Myth! Posted 1/16/2012. The saying that "everyone should own a little" silver is a myth. Not everyone can. For example, if everyone in the United States bought 2 ounces of silver or about 700 million ounces, that represents the entire amount of silver mined in the world in one year. But most of the silver mined is already tagged for industrial and other uses, so not everyone can own a little. Also, the United States represents about 5% of the world population. The whole world deciding to buy a little silver would overwhelm the futures markets.
  • The $U.S. Dollar Centric Derivatives Complex: Progenitor of Parasitic, Ponzi Price-Fixing. Posted 1/13/2012. Goes into great detail on derivatives and price-fixing.
  • Mainstream media reporter's ignorance about gold. Posted 10/1/2011. A mainstream media journalist stating on live Canadian television, that gold isn't backed by anything while the U.S. dollar is backed by "the government."
  • Silver Sales Up As Supply Slips: For the first time in history, Silver Eagle & Maple Leaf sales will surpass domestic silver production in the U.S. and Canada in 2011. Posted 1/4/2012. In 2011, the U.S. and Canada are estimated to mine 53.6 million oz of silver combined, while their total Silver Eagle and Maple Leaf coin sales are to surpass approximately 62.5 million. Thus, their coin sales are 16% greater than their total domestic silver mine supplies. While the domestic production of silver has been on a multi-year decline, its demand has been on a multi-year increase.
  • Silver COT Update for end of 2011 (PDF). Posted 12/30/2011. There are decade-long record lows in short positions everywhere expect the top 4. However, the top 4 commercial short concentration did fall to 43.5%, the lowest reading since September 2005.
  • Norway: Embarrassed By Butter Shortage. Posted 12/19/2011. An example of how manias occur. A demand for butter in Norway explodes as a results of a recent low-carb, high-fat diet craze and then a drop in milk production supply because of heavy rains affecting the grazing for cows. The price of butter has gone through the roof. Hawkers have been offering Swedish butter on the Internet for 400 kroner a kilogram ($32 a pound) -- about six times the normal shop price. Also read: Let Them Eat Margarine: Norway Butter Shortage Brings Blue Christmas.
  • Gold and Silver Bull Market - 1970s vs. Today - Mike Maloney. Posted 12/20/2011. There is one hundred times or more the investment potential today.
  • Debt-Free United States Notes Were Once Issued Under JFK And The U.S. Government Still Has The Power To Issue Debt-Free Money. Provides solutions to the U.S. debt-based currency and the current U.S. debt.
  • (VIDEO) Is A Physical Silver Shortage Spike Imminent? That imbalances in the supply and demand of precious metals, particularly silver, could lead to a shortage of physical product in the future should not come as a surprise to many.
  • Start Thinking in Terms of Gold Price. Our entire world is being devalued – from groceries and gas to cars and college. Investments have not kept up with inflation.
  • Let's Make The Clawback Risk REAL. The bankruptcy "reform" law in 2005 placed derivative claims in front of depositors in a business failure - including a bank failure. If a major bank blows up this claim (of preference over holders of cash), supported in existing Bankruptcy Law with the changes signed by George Bush in 2005, will be used to steal the entirety of your bank account, and if you detect the impending blowup shortly before it happens -- say, 90 days before -- you're still exposed to the risk through clawback.
  • European Bank Runs And Underestimated Physical Gold Demand. The Great Credit Contraction has been in relentless advance for years. This is a massively deflationary period as capital, both real and fictitious, burrows down the liquidity pyramid into safer and more liquid assets. The fictitious capital that does not move fast enough evaporates. Poof goes trillions of wealth!
  • With the World Waiting for QE3, is The Fed Preparing for Gold Revaluation?. Gold revaluation is Ben Bernanke's final monetary policy tool to prevent the greatest depression after QE is proven ineffective. Bernanke's 5 Monetary Policy Tools to prevent deflation given by the chairperson at his famous 2002 speech Deflation: Making Sure "It" Doesn't Happen Here as well as present the entire speech for your review.
  • Casey Research: Is Gold Still the Answer for Investors? Posted November 22, 2011. Long report detailing current economic conditions and prospects for gold. Sets possible gold price targets in three different scenarios. In inflation adjusted numbers, using the ShadowStats CPI numbers instead of the flawed government numbers, the 1980 peak of $850 would represent a $7,000 gold price today. Casey is projecting a modest 25% increase in gold to $2,500 by the end of 2012.
  • (VIDEO) Debt Sustainability: Which Countries Are Beyond the Point of Return and Why. Posted November 13, 2011. In this video, Kyle Bass, Managing Partner of Hayman Capital Management LP, is interviewed by Darden Professor Ken Eades. He describes how a dwindling current account surplus in Japan, US welfare economics, and the peripheral-to-core European stressors are all Madoff-like and unsustainable.
  • The Greatest Shortcoming of the Human Race Is Our Inability to Understand the Exponential Function. The most important video you'll ever see. The presenter is Albert Bartlett, a retired Physics prof. at the University of Colorado-Boulder.
  • What's the Difference Between Registered & Eligible COMEX Inventory? Registered silver means that the silver is fully available for delivery to longs who stand for bullion delivery. (One contract represents 5,000 ounces of silver.) Eligible means it is being stored in the COMEX warehouse for a private party, but it is NOT available for delivery to contracts. As of November 15, 2011, the Registered inventory was 33,194,595 ounces and the Eligible inventory was 73,901,153 ounces, for a Total Comex inventory of 107,095,748 ounces.
  • WealthCycles: Lead Us Not Into Temptation. Until individuals win the lotto, they are subject to external controls. They may have wanted to blow all their money on big houses, nice cars, and fancy clothes, but they had to eat. They literally could not afford to spend foolishly. But once they win the lottery, that external control of not having enough money has been removed. Now they have all the money in the world, or so they think. All that is left is internal controls, or in other words, their own will power to control their spending. If they did not have sound money management skills before, those internal controls are most likely nonexistent.
  • A Beginner’s Guide to the European Debt Crisis. Posted November 10, 2011. Excellent beginnner's summary of the debt problem in Europe.
  • Silver price rising on increased investment demand. Posted October 28, 2011. While 667 million ounces of silver were produced in the past year, global demand reached 986 million ounces – a stunning gap of 319 million ounces. Also, silver investments only amounted to a negligible share of 0.007% of worldwide assets held by investors at the end of 2010. However, silver holdings accounted for 0.34% of worldwide assets held by investors in the record year 1980. This is theoretically providing silver with a further upward potential of 48 times from its current price level in order to reach the same figures recorded in 1980.
  • "We Pay Tax for the Privilege to Have Currency". Posted October 24, 2011. Layman's description of the creation of the U.S. money supply.
  • The Five Myths of Silver Investing. Posted October 20, 2011. The five myths are: (1) Silver is an “economically sensitive” metal, (2) Silver coins and bullion are more plentiful than gold, (3) The high price of silver will drive down demand from industry, (4) At the right price, billions of ounces of silver will get recycled, and (5) Retail silver investors are fickle/ there is no plan to remonetize silver.
  • Brad Meltzer's Decoded - Fort Knox. History Channel, posted October 5, 2011. The gold at Fort Knox is protected by some of the tightest security in the world, but what if there's nothing there?
  • Is Your Bank Doomed? Good track record of the Weiss Ratings on potential bank failures in the U.S. You can check to see how your bank rates here. It's free to register. Of the 68 institutions that failed so far in 2011 (as of September, 2011), 66 or 97% were rated E+ or lower (“Very Weak”) by Weiss at the time of failure. See Failed Bank List from the FDIC for banks that have failed since 2000.
  • The Fed Pays a King's Ransom to China. Posted October 5, 2011. The Fed’s recent “Operation Twist” is ultimately designed to swap China's long term U.S. Treasuries for short-term, effectively giving China a huge profit in the process and allowing the eventual sale of short-term Treasuries to not affect interest rates. (Note: Short term treasuries will not go down in price if sold. Indeed, they can only go down if the Fed raises rates, and even then they quickly adjust back to a par price of 100.) At that point, America can dare China to sell the dollar, because pushing the dollar down is our policy. The FED is paving the way to devalue the dollar in the next QE3 and beyond. Just remember the downside of a falling dollar will be higher import prices and higher inflation.
  • Four Biggest Banks in America have Huge Leverage. Four U.S. banks have $235 trillion of OTC derivative leverage: JP Morgan Chase ($78.1 trillion), Citibank ($56.1 trillion), Bank of America ($53.15 trillion), and Goldman Sachs $47.7 trillion). Considering that the total assets of these four banks are a little more than $5 trillion, that's nearly a 50 to 1 leverage.
  • Exportin/Importing European Nations. Germany's exports are roughly equal to that of China ($1.2 trillion) even though Germany's population of 82 million is a mere 6% of China's 1.3 billion. (Germany and China are the world's top exporter nations, while the U.S. trails as a distant third.)
  • Forget Gold—What Matters Is Copper. Posted September 24, 2011 by Gonzalo Lira. Copper fell close to 25% these last 3 weeks and historically can fall roughly 40% during an American recession. The 10% drop of gold is nothing in comparison. As a predictor of future economic performance, the copper price is suggesting a recessionary/deflationary event is just ahead and for the next 9 to 18 months at least. Bernanke will likely be forced (per his own mandate to fight deflation) to introduce another liquidity injection scheme comparable to QE2 or bigger.
  • Is the US Monetary System on the Verge of Collapse? Posted September 20, 2011 by Casey Research. Compares debt to GDP ratios of various countries and gives a brief history of U.S. monetary policy from the Civil War forward.
  • Here’s the Definitive Article on Why Gold is Going Even Higher.
  • (VIDEO) Argentina's Economic Collapse. Where the U.S. will be in 2-3 years. Documentary on the events that led to the economic collapse of Argentina in 2001 which wiped out the middle class and raised the level of poverty to 57.5%. Also read: The Argentina Collapse on survivalist ideas from that experience.
  • The Driver for Gold You’re Not Watching. Fund managers as a group hold roughly 0.30% of their assets in gold. Global pension assets are estimated to be over $30 trillion. If all they did was double their gold asset allocation (i.e. from 0.30% to 0.60%), that would represent a roughly 40% increase in new money to this sector. If these funds allocate 5% of their assets to gold – which would amount to $1.5 trillion – it would overwhelm the system and rocket prices skyward. Also read: Western 'Pension Crisis' Reflects Investment Incompetence.
  • The Secret of Oz. Educational video on the history of the U.S. monetary system. The main thesis: "It's not what backs our money, it's who controls its quantity."
  • U.S. Is Bankrupt and We Don't Even Know It: Laurence Kotlikoff. The author calculates the U.S. fiscal gap at more than 15 times the official debt, or $202 trillion. The gargantuan discrepancy is because Congress over the years has been careful to label most of its liabilities as "unofficial" to keep them off the books and far in the future. For example, our Social Security FICA contributions are called taxes and our future Social Security benefits are called transfer payments. See video interview: Boston University's Kotlikoff on U.S. Deficit, Debt
  • Ron Paul: When Will Bernanke Admit That His Monetary Manipulation Has Failed? Dated April 28, 2011.
  • Dollar drag. The US dollar is at its lowest level in real, trade-weighted terms since it first freely traded in 1973 - even as Federal Reserve chairman Ben Bernanke and US Treasury secretary Tim Geithner said this week they want a strong dollar. Dated April 28, 2011.
  • The Silver Intersection. Posted on 11/3/2006.