Part II: The Three Trends Which Rule The Precious Metals Market (GLD, SLV, AGQ, SGOL, GDX, ZSL)
Jeff Nielson: In Part I, readers were presented with a list of the three trends which overwhelm all other factors and fundamentals in the gold and silver markets. The first and most dominant trend – the grossly excessive printing of (worthless) paper currencies – was explained to readers in detail.
Through elementary logic, we established that no rational investor would choose to hold these worthless paper currencies, rather than opt for humanity’s 5,000-year old safe havens: gold and silver. Specifically, with all our governments explicitly engaged in the monetary policy known as “competitive devaluation”, only an idiot would hold an asset where the producers of that asset are trying to drive its value to zero as rapidly as possible.
As I discussed in the first installment, the other two dominant trends are directly and/or indirectly derived from the first trend: the gross misallocation of capital, and the long-term destruction of the supply chain. I will focus on the second of these trends in Part II.
Here it is important that readers are aware that we are discussing two separate-and-opposite dimensions to this misallocation of capital. On the one hand, Western investors currently hold only roughly 1/10th the amount of gold and silver that they have normally held on an historical basis. In other words, at the point in time where Western investors should be choosing to holdmore gold and silver than at any time in history they are instead holding less gold and silver than at any time in history.
Then there is the second and opposite misallocation. These zombie investors are not only loaded up with $trillions of our (worthless) paper currencies; they are also holding $10’s of trillions in bonds, issued by hopelessly insolvent Western debtors – and denominated in those same, dying fiat currencies. Here clueless paper-holders must step back and take a look at history.
In the 1,000 years since China began humanity’s experiments with these worthless, paper (“fiat”) currencies; the paper has a perfect record: it always goes to zero. Meanwhile, we are equally well-advanced along the road to another regular, economic event in our collective history: what I call a “bond-burning party” – where insolvent debtor governments simply erase all of those bond debts, leaving bond-holders with a big, fat nothing.
These bond-burning parties have more commonly been known throughout history as “debt jubilees”: one or more governments collectively or unilaterally decreeing that their bond debts no longer exist, and thus the “bonds” themselves become nothing but an inferior brand of toilet paper. They are regular events in history, but naturally most Western readers are totally unfamiliar with this common (and inevitable) historical trend.
Our paper-pushing bankers have made sure that their servants in government and the media never let the Sheep know that both the bankers’ paper currencies and the bankers’ paper bonds always end up as worthless paper. In fact, “debt jubilee” is a concept which literally dates back to Biblical times. Back then they didn’t wait for the bankers to officially bankrupt nations before declaring a debt-jubilee. Rather, they were scheduled events – every 25 or 50 years.
So we have our bankers telling us that both their paper bonds and paper currencies are “safe havens”. Meanwhile, 1,000+ years of our own history tells us that both forms of paper are certain to end up totally worthless. Obviously treating $10’s of trillions in worthless (Western) banker-paper as a “safe haven” represents a misallocation of capital on a scale at least an order of magnitude greater than anything else in our history.
For those deluded paper-holders who scoff at the idea of their precious paper becoming worthless “during their lifetime”: open your eyes. In little more than 40 years since the gold standard was abolished and our currencies fully became “fiat currencies” they have already lost more than 75% of their value. With “competitive devaluation” now our official monetary policy, that rate of dilution/destruction is increasing exponentially.
As for these equally worthless Western bonds, Debt Jubilee has already started. What do readers think just happened in Greece? One minute there was a stack of paper with a (nominal) value of $400 billion. The next minute the stack of paper was worthless. What happened in between? Debt Jubilee.
Understand that Debt Jubilee is now a mathematical certainty in the West. Nearly three years of Europe’s “austerity” has shown that none of these debtors is even capable of reducing the size of their deficits – let alone ever approaching a balanced budget. Absolute, empirical evidence that all of these Deadbeat Debtors are past the point of no return.
Across the Atlantic, it is common knowledge that the U.S. is even more fundamentally insolventthan Europe’s debtors. Meanwhile Canada’s new Conservative government has now made this nation even less solvent than we were when the last Conservative government mismanaged the economy into an official “debt crisis”.
Indeed, Canada is the perfect Illustration of both the level of Western insolvency and the degree of denial concerning that insolvency. As Canada again plummets toward insolvency, instead of being castigated for being in another debt-crisis, it is hailed by the duplicitous Western media as a paragon of fiscal prudence.
The day after (or maybe the same day?) our governments and media finally acknowledge that the entire Western bloc is effectively bankrupt we will have Debt Jubilee. By then it will be much, much too late for investors to rid themselves of all their $trillions in officially worthless bonds.
As for our paper currencies, if they haven’t already been rendered worthless by the excessive money-printing of our governments when Debt Jubilee occurs then the destruction of the bond market will complete that process. At that point, deluded paper-holders will finally realize the intrinsic value of ink on paper, just as the Dutch painfully came to the realization that the tulip was merely a flower – at the end of Tulipmania over 400 years ago. Today we are all “Dutch”.
The financial stampede out of the bankers’ two equally worthless paper instruments will mark an exodus of capital totally unprecedented in our history, assuming that our governments don’t simply decree all that paper to be worthless before the stampede even begins. Just as the money-printing of the bankers dwarfs all economic fundamentals today, the Flight out of Paper will dwarf all other fundamentals tomorrow.
Then there are the tiny, grossly under-owned financial Lifeboats in which our species has sought refuge in times of crisis for nearly 5,000 years: gold and silver. On an average historical basis, investors have held between 5% and 10% of their financial assets in gold or silver, with that ratio tending to rise dramatically in times of crisis.
Yet today, as the clueless paper-lemmings charge toward the looming financial chasm ahead; gold and silver represent only about 1% of the average (lemming) portfolio. What happens on the day when even the lowly lemming realizes that their precious paper is worthless – and only gold and silver remain as “safe havens”? Picture a million elephants trying to squeeze through the eye of a needle, simultaneously.
The creators of all this worthless paper (our central banks) aren’t waiting for that stampede to begin. They are already dumping their worthless paper for gold at the fastest rate in 50 years, and by the end of this year that will likely have escalated to the fastest rate in history, as the gold-buying by central banks continues to accelerate.
We have our governments, the official owners of these paper currencies openly stating that they are trying to drive their value to zero as quickly as possible. We have the creators of that paper, the central banks, swapping paper for gold as fast as they can (without spooking the herd into a premature stampede).
Then we have the Corporate Media duping the hordes of lemmings into continuing to hold this worthless, obsolete paper – so that the bankers can buy their gold first (and cheaper). Indeed, the malevolent media propaganda machine has gone much further. It has fraudulently referred to gold and silver as “bubbles”, despite never being so under-owned by Western investors in all of history.
The only evidence offered by the media to justify this lie are the (nominal) prices of gold and silver – priced in relation to worthless paper. If I was under the delusion that sand was a “currency”, and I tried to buy some gold or silver with a truck-load of sand then using the media’s logic I would have even more “evidence” of a gold bubble.
Apart from shattering the lies of the media about a gold bubble with simple and obvious logic, the behavior of our central banks is an irrefutable rebuttal to the media’s propaganda. It is this same media which hails these central bankers as the ultimate sages of our financial system, and their message is clear: dump your paper and buy gold (or silver).
In Part III, we will explore the third dominant trend, and the reason why there is so little gold and silver available to global investors: the long-term destruction of the supply chain.
Related: ETFs Gold Trust (NYSEARCA:SGOL), SPDR Gold Trust (NYSEARCA:GLD), iShares Silver Trust (NYSEARCA:SLV), Market Vectors Gold Miners ETF (NYSEARCA:GDX), ProShares Ultra Silver ETF (NYSEARCA:AGQ), ProShares UltraShort Silver (NYSEARCA:ZSL).
Jeff Nielson is from Canada and is a writer/editor for Bullion Bulls Canada www.bullionbullscanada.com. He has a personal background in law and economics. Bullion Bulls Canada provides general macro-economic and political commentary, since the precious metals markets are among the most complex (and misunderstood) in the world.
Bullion Bulls Canada also provides basic coverage of Canadian precious metals mining companies. Canada is the global leader in mining exploration, and Canadian-listed mining companies (on the Toronto Stock Exchange and Venture Exchange) are responsible for the majority of the world’s most-promising discoveries.