In this so often ungraceful world of money we are getting the opportunity to witness a coming of age. A story filled with bobs and weaves, peaks and valleys moments of joy and years of sorrow the likes of which are book worthy. An opportunity so grand that simply having a small piece could be enough to invigorate even the most flaccid of portfolios, perhaps even financially prepare us for retirement at an early age. It is to this end, that I once again alert our readers to the story of gold and silver bullion.
The demand for physical gold and silver is exploding all over the world and bullion banks are now experiencing a supply crunch that is absolutely unprecedented. As physical demand continues to rise, the massive Ponzi scheme that the bullion banks have been engaged in, predominately defined by paper trading on the Comex (The primary market for trading metals such as gold, and silver located in New York), is going to become increasingly obvious and at some point the lack of physical gold and silver is going to break the back of the paper markets. If this occurs we would witness the coming of age for gold and silver and see both metals rise to levels that we have never seen before.
The truth is that the central banks of the world, sometimes referred to as the “bullion banks,” have made “paper promises” that vastly exceed the amount of actual physical gold and silver in existence. This kind of scheme works fine if everyone does not come asking for their precious metal at the same time. Unfortunately for the ones running this scheme, people are now starting to ask for delivery of their physical gold and silver and it is causing huge problems.
In gold alone we have witnessed, over the past 2 years, Germany and other countries make an effort to repatriate some 300-500 (depending on the accuracy of the reports) metric tonnes or some 9.6-16 million ounces of gold alone back to their home countries’ central banks; bullion which is supposed to be held at easy to ship from locations, such as the New York Federal Reserve, all of which should have been readily available but has not been up to this point.
In the case of Germany this should not have been a problem for the US government and the Federal Reserve which claims to be flush with Bullion and to hold the world’s largest known stockpile in Fort Knox, but guess what? Instead a number of months after it was revealed that Germany was able to only recover a miserable 5 tons of its gold in all of 2013 (under 10% of the 84 tons it was scheduled to repatriate), Germany appears to have given up entirely in its endeavour to recover gold which simply is not there. Not to mention ending talk of repatriating the world’s second-biggest gold reserves removes a potential irritant in US-German relations and so Germany has decided that the US has done a great job of storing it for this long so why bother? The more likely scenario is that the gold is simply no longer there.
If you know anything about bullion then you will not be surprised to know that alarm bells went off around the world in all kinds of financial circles partly because of the fact that this gold, which was being stored remember, was unable to be returned in a timely manner. Now it seems as we proceed through the third quarter of 2014 all kinds of people, institutions, and whole countries have begun asking for their bullion to be delivered and it is causing serious stress on the bullion banks.
The following is what Hong Kong hedge fund manager William Kaye told King World News … “There are serious strains in the (gold) system. I’ve never witnessed such a serious strain in my lifetime… This suggests that…there are forces at work: One is that there are serious strains in the system- that the bullion banks are struggling to come up with the physical gold for spot delivery that the markets demand.”
Since 2005, I have been penning this newsletter and in all of that period of time have argued, as has everyone at Guildhall and on “The Real Money Show” that this should come as no surprise.
We know that banks like JP Morgan and others have had significant delays in delivering bullion from time to time. We also know that delivery delays are getting longer. If you look at the clients of JP Morgan alone they have withdrawn upwards of 40-60 tonnes since December of 2012 alone. The lesson here is that the writing is on the wall. Investors are beginning to lose trust in banks like JP Morgan and their ability to deliver not to mention the fines that they continue to receive as slaps on the wrist for acting in a duplicitous and deceitful manner.
CFTC Fines J.P. Morgan Securities $650,000 for Inaccurate Reporting
J.P. Morgan Adds $2.6 Billion to Its $25 Billion Plus Tally of Recent Settlements
Fined Billions, JPMorgan Chase Will Give Dimon a Raise
JPMorgan Paid $20 Billion in Fines Last Year—So Its Board Is Giving Jamie Dimon a Raise
And the list goes on and on…
What does this all mean? It is apparent to me that we are witnessing an awakening of the general public to this delinquency. We are beginning to see a shift in temperament towards a new marketplace. A certain “coming of age” which will transform the way we think about investments such as gold and silver.
Our perceptions of wealth are beginning to become more isolated as we struggle to continue plugging in the same equation over and over again only to find the same result on paper and at a cost to our overall portfolio strength. Financial well being, which we discussed in last week’s “Precious Metals Advisor” , is beginning to transcend, in a cyclical, historical manner, (what goes around comes around) our mindset towards what is actually wealth (physical, tangible, hold in your hands) and what is “the promise of wealth” (paper). To this end many are beginning to add bullion to their holdings because they believe in the idea of “real money”.
If I was to listen to a broadcast of “The Real Money Show” from many years ago, say around 2008, what I would have heard were four fundamental reasons why we should be thinking about owning physical bullion in our portfolios.
The first fundamental is predicated on the long term prognosis of the sagging US Dollar. It is atrocious. The Asian and Russian marketplaces have already begun to realize this and are leading the way in terms of bullion buying in the whole world. They are also paying premiums for their Physical Bullion to get no delays in their shipments, almost like they expect a failure to occur.
The Kremlin and the Communist Chinese regime, through their state-controlled “companies,” have been signing major deals with each other that analysts say will contribute to the acceleration of the U.S. dollar losing its status as the global reserve currency. Two agreements in recent weeks deserve special attention: a $400-billion Sino-Russo energy contract, and a separate deal between two of Russia and China’s largest financial institutions to bypass the US dollar in favor of domestic currencies. The geopolitical implications of the quickly-moving trends are colossal — especially for the United States, where the end of dollar supremacy will lead to a potentially unparalleled economic cataclysm.
The second fundamental is the unprecedented money printing and propping up of the US Dollar which has led to a state of permanent quantitative easing (what a horrible phrase-I prefer theft of purchasing power). Since the US Fed started printing money in 2008, the monetary base has quintupled from $800 billion to $4 trillion.
Imagine that what took seemingly hundreds of years to create took only six years to quintuple (We are Guinea pigs in a wicked science experiment). That has spawned an extraordinary amount of money printing around the world which has left most of the G20 countries in terrible debt. Listen to Dr. Paul Craig Roberts on “The Real Money Show” last week talk about money printing and how the rest of the world has joined in. Where does this end? Read what Dr. Jeffrey Lewis had to say about the topic and the end of the US dollar.
The third fundamental is simply known as Geo-political instability. In the past 14 years, and really since 9/11, there has been a terrible escalation in the amount of Geo-Political storms around the globe.
We have spent a great deal of time discussing this and its ramifications on the gold and silver marketplace as whole countries move to protect themselves, insure their foreign reserves, and try to obtain some type of footing in the most turbulent economic period we have ever witnessed. Look no further than our interview with our good friend of “The Real Money Show” Gerald Celente that we conducted just a short while ago.
Currencies mirror the health of the countries issuing them. When a country manages its economy well and offers a good social and political environment, demand for its currency increases and, thus, it appreciates, whereas the opposite happens when the economy and politics of the country are poorly managed. The fiat currency is the image of the country and its value only depends on the trust people have in its economy. When the international monetary system is on the brink of collapse because of an exorbitant global debt, there is a flux taking place toward real assets (land, buildings, jewelry, gold, silver etc.). Gold is real money, contrary to the different countries’ currencies, which are fiat money and can be devalued by monetisation of the debt.
In the current geopolitical framework no country dominates; each one has advantages but also disadvantages and as a result an international supremacy struggle is occurring between the United States, the European Union, Russia and China. In this new “Cold War” uncertainty prevails.
Other countries are playing the role of accelerator, agitator or troublemaker. It is resulting in a war on the price of gold led by western countries ( in the form of manipulation using the paper markets), but there is also a war for gold ownership between all the countries; eastern countries being the ones that wish to exchange their dollar reserves for gold and as fast as possible.
In this new currency war, the role of gold has become central in the international political stratagems of all countries involved. During this period of major risks and uncertainty, and until the return of a new geopolitical, economic and monetary order, gold will shine. Gold is money “in extremis” and is the only real money without any counterparty risk. This is why gold is considered, and rightly so, a geopolitical metal.
The fourth fundamental point as support for the ownership of bullion is simply supply and demand. Now you see it and now you don’t. This is what we truly believe will serve as the trigger for this coming of age of bullion.
People, the general public, will realize that, although on one hand gold is mostly all above ground; on another hand it is valuable in a monetary sense. Gold is being reintroduced around the world as a means of currency stability and as a pillar for good money management as a way to back and maintain confidence in a government’s overall long term economic stability.
Silver, on the other hand, not only holds a monetary tradition but also a newly born industrial revolution of sorts which has taken grasp and added fuel to the fire as an argument for ownership.
We can now can find the shiny bright metal in countless types of applications from electronics to solar power, medical uses to warheads and literally hundreds of applications which have only really come into existence since the turn of the millennium. From water purification to bearings, washing machines to clothing and colloidal silver the list just goes on and on and the best part about this is the fact that it is coming at a time in which arguably our above ground resources are at their lowest. Some say as little as 800 Million ounces in total of which perhaps more than half is already spoken for.
This is truly a unique opportunity for anyone that realizes the potential of bullion right now. At some point all of the paper that has been floating out there in the world will burn. When that happens the price of silver and gold are going to absolutely go through the ceiling.
Yours to the penny,
Darren V. Long