Part III: The Three Trends Which Rule The Precious Metals Market (GLD, SLV, AGQ, IAU, PHYS)
Jeff Nielson: At the beginning (Part I) of this series I acknowledged that there was considerable analytical overlap among the three trends I would discuss and explain. In Part II, readers saw how the imminent Flight out of Paper will be a direct consequence of the excessive money-printing we are seeing today, along with maintaining artificial/fraudulent prices on the bankers’ paper currencies. Creating a massive imbalance today will lead to an exodus of capital tomorrow.
Similarly, in Part III we will see how the long-term destruction of the supply chain for the gold and silver markets is also a consequence of excessive money-printing. However, while the Flight out of Paper will be a direct consequence of excessive money-printing, the destruction of the precious metals supply-chain is an indirect consequence of excessive money-printing – along with price suppression.
The dynamic here is as simple as it is irrefutable: low prices cause high prices. What has caused the 10+ year bull-market for gold and silver, where prices have begun to move toward their fair market value? It was the 20-year bear market, where both the price of gold and the price of silver were driven well below the cost of production for approximately 90% of the world’s gold and silver mines.
Obviously the lower prices went, the fewer miners would/could choose to remain in production. So at precisely the same time that extreme/artificially low prices for gold and silver were stimulating more demand, those low prices were also destroying supply. The inevitable result was the collapse of inventories.
In the typical short-sighted manner in which the banking cabal operates, they had an “answer” for the collapse in mine-supply: dump their bullion onto the market. Thus to temporarily shore-up inventories (i.e. the metal immediately available for sale) the central banks emptied out theirstockpiles of bullion, dumping thousands of tons of gold and silver onto the market over those years.
This brings us to the year 2000, and the turning point in the bullion-manipulation game. The supply/demand fundamentals for gold and silver had been warped to such an extreme that the price of gold and silver began rising even while the bankers were continuing to dump 500 tons of gold per year onto the market – the most extreme gold-dumping in all of human history.
Indeed, to illustrate how radical that gold-dumping campaign was we need only look at the media propaganda which accompanied the one-time sale of 400 tons of gold by the IMF in 2009. For a year and a half (as the banksters struggled to have the sale approved) we were subjected to endless media fear-mongering that this one gold-dump of 400 tons would ‘tank’ the whole market.
As informed investors know, the reason why the banking cabal was so desperate to get hold of some of the IMF’s gold is because the gold-dumping by the Western banking cabal screeched to a halt in an incredibly abrupt manner at precisely the same time. One minute these central banks were continuing to dump hundreds of tons per year onto the market, the next minute they were refusing to sell a single ounce.
There are only two possible explanations for this extremely abrupt collapse in the bankers’ gold-dumping. One explanation is that Western central banks have completely exhausted their gold reserves (despite the unaudited reserves these banks claim to hold). Supporting that explanation we have the tireless efforts of GATA in drawing attention to the massive “gold leasing” campaign in which the banksters have simultaneously been engaged.
The central banks love to “lease”gold. Why? Because they can deliver gold into the hands of their minions to be shorted onto the market (and gone forever), while the fraudulent bankers are allowed to pretend they still “own the gold”, even though all they now hold is a (paper) “gold IOU” which could never possibly be redeemed. The central banks are not even required to keep formal records of this leasing activity, so in all the years they were (officially) dumping 500 tons of gold per year onto the market with their sales they could have been dumping even more bullion than that via leasing.
The other explanation is that the central banks decided that their remaining gold was so grossly undervalued (versus their overvalued paper) that these greedy bankers simply refused to part with any more of their gold at the “cheap” price of $1000/oz (at that time). Indeed, if that theory holds then the bankers were also unwilling to sell their gold at $1500 or $1600 or $1700 or $1800 or even $1900/oz – because it was too undervalued versus their own paper.
Why would the bankers be willing to sell their gold for less than $300/oz in 2000, but unwilling to sell their gold at $1900/oz in 2011? Because the extreme/exponential money-printing of the bankers in the 11 years in between has diluted the value of their paper to that extreme. Thus the only two possible conclusions are either that all Western gold reserves have been exhausted, or the bankers themselves believe that the paper they are printing has lost at least 85% of its value in just 11 years.
As noted in the previous installment, today central bank gold-buying has already accelerated to the fastest rate in 50 years, and (at the current rate) will reach the fastest rate of gold-buying in history some time this year. In a span of less than 10 years, we have central banks flip-flopping from dumping their gold for paper at the fastest rate in history to dumping their own paper for gold at the fastest rate in history.
This brings us (at last) to the miners. With the price of gold at $1600/oz and the price of silver near $30/oz, we see the miners in their second (severe) depression in less than 5 years. Again there are only two possible conclusions we can draw from the collapse in the share price of the miners. Either the banking cabal has manipulated the share prices lower through their automated trading algorithms, naked-shorting, and other illegal/illegitimate tactics; or the market is telling us that with gold and silver at such low, low prices that it’s impossible for the miners to survive over the longer term.
Understand that we don’t even need to know which of these two explanations is the true one, since the consequence of both explanations is the same: the collapse in mine-supply at the same time that low prices have stimulated massive buying – in this case buying by the central bankers themselves.
The reason why the miners are struggling to stay afloat at these prices, and the reason why central banks consider the price of gold so “cheap” versus their own paper today is the same: because excessive money-printing has diluted the value of our currencies to such an extreme. Thus, the bankers rate of excessive money-printing is now so extreme that the supply chain can collapse even with (nominal) prices steady.
Globally, mining exploration is now grinding to a halt. These are the “feeder” companies for the entire precious metals market. If they stop finding more gold and silver today, the miners will have nothing to pull out of the ground tomorrow. And so we are presented with the same inevitable, relentless dynamic which we saw in 2000: the collapse in supply causes a massive upward spike in prices.
The difference between 2000 and today is that 12 years ago the banksters still had thousands of tons of bullion to dump onto the market to temporarily fill that supply-gap. Today they havezero. At the same time that the safe-haven appeal of gold and silver is at its highest point in history (due to the rampant insolvency of Western governments), we have the bankers severely worsening the same supply-crisis which had already begun to manifest itself in 2000.
Today, however, with inventories stretched tight and stockpiles gone there is every reason to believe we are poised for an even more massive move in these markets than we saw in the first decade of this bull market. During that time, the price of gold soared by more than a factor of six, while the price of silver (where inventories/stockpiles are even more depleted) exploded by a factor of greater than ten.
I cannot say with certainty that the Depression for the precious metals miners will end tomorrow, or next week, or even next month. What I can say with certainty are the inevitable dynamics of supply and demand: every minute longer that the miners (and the price of gold and silver themselves) continue to be suppressed means that the next explosion for this sector will be that much faster/higher. The more extreme the supply-destruction resulting from the bankers’ excessive money-printing, the bigger the bounce in prices which is necessary to stimulate supply. We’ve all seen this movie once before, and we already know how it ends.
Readers will continue to be bombarded by the media propaganda machine with vacuous “reasons” why they should avoid gold and silver – and especially the companies which produce those metals (and leverage their price-gains). What readers have hopefully gained from reading this series is the knowledge that all that media blather is nothing but “white noise”.
Related: SPDR Gold Trust (NYSEARCA:GLD), iShares Silver Trust (NYSEARCA:SLV), ProShares Ultra Silver ETF (NYSEARCA:AGQ), iShares Gold Trust (NYSEARCA:IAU), Sprott Physical Gold Trust (NYSEARCA:PHYS).
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.