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
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
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
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
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
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.
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.