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Learning to Prosper in Silver - Jeff Nielson

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Published : February 06th, 2017
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Category : Today's Editorial

We live in the era of the sound-bite. In our televised news, every subject – no matter the complexity – is presented in two minutes or less. Our newspapers are the print equivalent of the sound-bite.

TV programs exist which present longer discussions of important subjects. News magazines exist which provide longer print features. But no depth of understanding is gained from such sources. Instead, we are simply bombarded with an agenda: the agenda of the handful of mega-corporations which control (virtually) everything we see and hear.

For these reasons, most consumers of information have no time to invest in “learning”. Feed them the bottom-line, or stop wasting their time. Unfortunately, such an attitude will not get one very far when investing in silver. Think of silver as a wild bronco. Learn what you’re doing before you climb on, or you’re virtually guaranteed to take a nasty spill.

Why? Why is the silver market a difficult (and dangerous) market for novices to attempt to navigate? In a word, manipulation. The facts speak for themselves.

At the end of the 1980’s; the price of silver was driven to (in real dollars) a 600-year low. While that final crash in price occurred in relatively recent times, as that chart above indicates, the assault on the price of silver began over a century ago.

Prior to that, for over 4,000 years; the gold/silver price ratio averaged 15:1. This is no accident. The supply ratio of silver to gold (in the Earth’s crust) occurs at a natural rate of 17:1. For over 4,000 years; the price ratio has closely paralleled the supply ratio – for these two precious metals.

Then the attack began. Readers wanting to learn about the early era of silver manipulation can learn most from Charles Savoie’s detailed chronology, The Silver Stealers . After 4,000+ years of rational consistency in the price of silver and the gold/silver price ratio, we see that ratio being skewed beyond any rational extreme – at times exceeding 100:1.

In the years between the beginning of the attack on silver and the present day, silver has become steadily more useful to humanity – even more “precious”. What was the effect of dramatically manipulating the price of silver lower in a world that still wanted and needed silver?

Simple economics gives us the answer. At a radical price discount, silver was wildly over-consumed. Meanwhile, as the price went lower and lower, less and less mining companies could afford to mine this metal at a profit. By the time silver was driven to its 600-year low in price, and held there, more than 90% of the world’s silver mining companies had been driven out of business.

Esteemed silver researcher, Ted Butler, estimates that over 90% of the world’s stockpiles of silver – accumulated over 4,000 years – has been (literally) consumed. How can a metal be “consumed”?

Silver is extremely potent in both chemical and metallurgical terms, in the numerous hi- and low-tech commercial and industrial applications in which it is used. In most of these applications, silver is only required in tiny quantities. Because silver has been so extremely under-priced, it has been uneconomical to recycle this silver.

It was “consumed” and then thrown away, in small quantities, in billions of consumer goods, in land fills all over the world. When silver and gold existed at a 17:1 supply ratio, the price ratio was 15:1. Today, the supply ratio is (at most) 5:1. Some respected commentators now insist that there is less silver in the world today (above ground) than gold.

Given such parameters, a 1:1 price ratio is not unreasonable. Yet as of the writing of this article, the current price ratio exceeds 70:1. Many readers may be skeptical that they could/should rationally expect a 7,000% appreciation in the value of silver versus gold. Such readers may become even more skeptical when they are told that the price of gold has also been severely manipulated lower, making the potential upside for silver much greater than 7,000%.

Central banks stand ready to lease gold in increasing quantities should the price rise.

- Testimony of Federal Reserve Chairman Alan Greenspan, July 24 th 1998

This “leasing” of gold was above and beyond the 500 tonnes per year of gold which the same central banks were dumping onto the market every year to depress the price – until they ran out of gold. On a pure supply/demand basis, silver is undervalued versus gold by 7,000%, and gold itself is dramatically undervalued.

However, there is a totally separate metric which investors can use in order to judge when (if) the price of silver should ever be fully valued: mine production. For over 4,000 years; the gold/silver price ratio averaged 15:1. For over 4,000 years; humanity got the vast majority of its silver from silver mines.

This is to be expected. With the exception of extremely rare metals, we have always got the vast majority of all of our metals from primary mines. We get most of our copper from copper mines. We get most of our nickel from nickel mines. We get most of our gold from gold mines – even at the current suppressed price.

We used to get most of our silver from silver mines, until the Silver Stealers began their undeclared war against silver, the Western bankers who are permanently, relentlessly manipulating the price of silver lower. Today, we get roughly ¾ of our supply of silver as a byproduct of other mining, primarily from gold mines, copper mines, and lead/zinc mines.

If the price of silver was even close to any rational level, many of the bankrupted silver mines would be able to re-open their operations, and (eventually) we would once again get most of the world’s silver from silver mines. This is the second sign post which investors can use to gauge the relative price of silver.

As long as the world continues to get most of its silver from byproduct production, it is impossible to argue that silver has reached anything close to a rational/equilibrium price. It must continue to rise to such a level to support a resurrection in primary silver mining.

Why? Because if this does not happen, we will simply run out of silver – and soon. Ted Butler notes that the 90% destruction of silver stockpiles dates back to the 1950’s. Previous commentaries have established that the silver market has had a continuous supply deficit which extends back 30 years , or longer. There can’t be much silver left.

Either the price of silver must rise to a level sufficient to restore some level of health to the silver mining industry, or the silver market will suffer a formal default – and the price will rise much, much higher. However, there is even more that astute investors can deduce from mining dynamics.

Because most of the world’s silver supply comes from other mining, the supply of silver is highly inelastic. Even if the price of silver rises by several multiples, it won’t cause copper miners to mine more copper to obtain additional silver byproducts.

What this means is that even when the price of silver starts to rise rapidly, there will be very little immediate supply response. Here readers need to only review recent history. Even when the price of silver spiked to a high of close to $50/oz (USD) in 2011, the market was still in deficit.

Just as a few, new mines were beginning to come online, the banksters crashed the silver market again, and many of those mines never opened or closed again. Since then, costs have risen substantially. The price of silver would have to rise above $50/oz USD and be sustained at that level for several years before we would begin to see a significant supply response from mining.

How many years? It can take up to 10 years to go from discovering a new ore deposit to constructing and commissioning a mine. Many of the bankrupted silver mines can (eventually) be brought back into production. However, with many of these mines having been abandoned for decades, it can still take 3 – 5 years to bring those back into production.

The supply of silver is highly inelastic. So is the price. As previously noted, most of silver’s industrial/commercial uses require only small quantities of silver. Thus even if the price should increase by several multiples, it would not have a large impact on the final price of silver-based products.

There would be a low substitution-effect as the price of silver rises, meaning very little drop-off in demand, even at much higher prices. This is where substitution is even feasible. In many of the applications for silver, it is considered irreplaceable. The U.S. military is not going to stop using silver in its cruise missile guidance systems – even if the price should spike above $1,000/oz.

Inelastic supply, inelastic price. For investors, it is “the Perfect Storm.”

The price of silver should rise by 7,000% or more, denominated in these (worthless) paper currencies. Given the unique supply/demand parameters of the silver market, it is hard to imagine this market ever returning to balance before the price has risen at least 1,000%.

This leaves one final lesson for investors to learn in order to avoid being “thrown” from this wild bronco as the bankers inflict their price-shocks on this market again and again. Why do they do it? They do it to defend their worthless paper currencies.

U.S. dollars have value only to the extent that they are strictly limited in supply.

B.S. Bernanke said this a mere six years before he quintupled the supply of U.S. dollars as Chairman of the Federal Reserve, removing any/all value in the dollar. Silver and gold, as monetary metals , are our canaries in the coal mine. Their rising prices warn us when corrupt bankers begin to debauch paper currencies to worthlessness.

Kill the canaries, and it becomes possible for the bankers to pawn-off their worthless currencies a little longer…until the silver market defaults. This is the mission of the Western central banks who have confessed to manipulating precious metals markets and Western bullion banks which have been caught manipulating the gold and silver markets.

These banks are all part of a single crime syndicate, known to regular readers as the One Bank . These same banks have already been criminally convicted of manipulating the (worthless) dollar higher – going all the way back to 2008.

The fact that the U.S. dollar is currently perched at a particularly absurd extreme versus other currencies while gold and silver prices are being held down so low would seem to indicate that this crime syndicate has no intention of relenting on this racket until the last ounce of silver has vanished from global warehouses . Suddenly, a 7,000% gain doesn’t sound quite so outlandish.

Jeff Nielson is co-founder and managing partner of Bullion Bulls Canada; a website which provides precious metals commentary, economic analysis, and mining information to readers and investors. Jeff originally came to the precious metals sector as an investor around the middle of last decade, but with a background in economics and law, he soon decided this was where he wanted to make the focus of his career. His website is www.bullionbullscanada.com.


The views and opinions expressed in this material are those of the author as of the publication date, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

 

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How long can this manipulation continue before people figure it out and the market explodes? I've been shocked that it has lasted as long as it has.
Jeff...maybe you can answer this question. Butler never does, and as far as I'm concerned, it's a major failing in his (many) assumptions and hypotheses: Where in the hell_o did JPMorgue get all the physical silver that Butler says they have accumulated?? All I've heard since I started majorly investing in PMs back in the late 90s, is that silver is and has been in a significant deficit situation, mining vs consumption-wise, that industry keeps using it up, that investment demand sucks up a good proportion of the rest. And yet, he claims, JPM somehow or another managed to suck up somewhere around 550 Million oz over the past ?5-6 years?? From where/whom?? Inquiring minds want to know. Both cannot be true, in my view of things--either they do NOT have that amount, physically speaking, or silver has NOT been in a tight deficit for decades, as has been promoted. Of course there is always a third possibility--the existence of another source of silver that we either don't know about or that most won't accept or simply blow off as an "urban legend," which would be something like Yamashita's gold (/silver), or some centuries' old Asian/Chinese source. What say you?
That is THE question that silver "investors" and analysts have been asking for years. Where IS all the silver coming from? I have yet to read any compelling argument that answers that question and I think the reason is that nobody really knows. The most plausible explanation, at least to me, is that when the US government de-monetized silver the official stock-pile on government books was far less than what they really had. Silver is a strategic metal and it is entirely possible that the government had additional stock-piles of silver that they were hiding from public view and that they have been tapping into over the last few decades to plug any physical shortages.
As far as the accumulation of silver by JPM there is no doubt that they are accumulating silver and have been taking physical delivery but it is debatable if they really were able to accumulate half a billion ounces or more. I think the real question is WHY is JPM accumulating physical silver and does that silver really belong to JPM? JPM knows better than anyone that the price would not be at current levels if THEY and other bullion banks were not colluding to suppress the paper prices. So, do they simply see the writing on the wall? Do they know that the secret stock-piles of silver are nearly depleted and that the physical market of silver is about to get overrun by physical demand? Did they maybe stock pile the silver so that they can prolong the price suppression in the paper markets? Also, does the silver actually belong to JPM or does it belong to powerful corporate interests or sovereign entities who are worried about the future supply of silver?
Only JPM knows for sure and I have a feeling that they won't reveal their intentions. One way or another, JPM will somehow benefit from all that physical silver - that is a given.
Latest comment posted for this article
How long can this manipulation continue before people figure it out and the market explodes? I've been shocked that it has lasted as long as it has. Read more
ramasart - 2/8/2017 at 1:47 PM GMT
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