The previous
installment
focused on establishing two of the dominant fundamentals
of the precious metals market:
a) Gold and silver are currently priced below the cost of
production necessary to sustain these industries.
b) The gold and silver markets are both experiencing long
term supply deficits
because these metals are priced below the cost
necessary to sustain these industries. The silver mining industry has been
almost completely destroyed and today (for the first time in history) the world
gets 70% of its mine supply of silver as a byproduct of other mining.
Why are these two fundamentals so important? Let's turn the
question around. Why does the Corporate media (and their banker Masters) go out
of their way to avoid discussing these fundamentals – with real numbers?
Until three years ago, the crooked, quasi-official
bookkeepers in the silver market were pretending that the silver market was in
balance or even in surplus, every year. Only recently have they acknowledged
that supply deficits in the silver market go back
well over a
decade
. Meanwhile, additional evidence already in the public domain
indicates that this supply deficit actually extends to
at least
thirty years
, if not longer.
The bankers (and their record-keepers) pretended that
the silver market was in balance so they could
pretend that the price of
silver was at a fair legitimate level.
The bankers are no longer pretending
that the market was in balance yet they continue to pretend that the
fraudulent/manipulated price of silver over the past 30+ years is legitimate
.
In legitimate markets, the economic mechanism of “price
discovery” always creates balance in markets with deficits. The price continues
to rise until supply meets demand.
There has been no price
discovery
in the silver market for 30 years or more. This is
unprecedented in the history of commodity markets.
This market crime
in the silver market (and to a lesser extent in the gold market) has only been possible
because of the enormous stockpiles of these two precious metals which we have
accumulated over thousands of years.
We have had no price discovery in the
silver market for 30+ years, ipso facto the price of silver over that period of
time has been a fraud
.
The price suppression of the silver market has been even more
extreme than the price suppression of the gold market, therefore the
supply/demand imbalance has also been more extreme. Why? Because (as previously
mentioned) the price of silver was manipulated to a 600-year low (in real
dollars), and continues to be held down near that level to this day.
The enormous expansion of the gold/silver price ratio
quantifies the increased level of perversion with respect to the price of silver.
Historically (for more than 4,000 years), the price ratio between the two
metals gravitated around 15:1, reflecting the natural supply ratio between the
two metals, 17:1.
Over the past century that ratio has been perverted to as
much as 100:1 and today it is close to 80:1. Silver is even more under-priced
than gold therefore the supply/demand imbalance has been even worse.
Anything that is under-priced will be over-consumed. Price
chocolate bars at 10 cents apiece and store shelves would be completely emptied
in a matter of days. Furthermore, with chocolate bars artificially priced below
the cost of production, all of the chocolate bar manufacturers would be
bankrupted and the world would quickly run out of chocolate bars.
The difference is that the world has never had any huge
stockpile of chocolate bars, accumulated over thousands of years. At a price of
10 cents apiece, the chocolate bar market would quickly implode. But price
silver at a similarly absurd level and the imbalance can extend (and has
extended) much longer.
These stockpiles can sustain the silver market longer, but not forever.
To see how unsustainable are current prices for silver, we
need
look no
further than India
. At the end of 2008; the bankers crashed the
price of silver below $10/oz. India responded in 2009 by setting an all-time
record for silver imports of 5,390 tonnes. In 2013; with the price of silver at
double that 2009 price, India smashed that record by importing
6144 tonnes.
In 2014; India smashed that
record by importing 7169 tonnes.
Then in 2015, India smashed its all-time record one more time by importing
8529 tonnes.
In 2016; India’s silver imports dropped off dramatically to a
historically average level. Why? Two reasons. First, the price of silver rose
above $20/oz (temporarily), and Indian precious metals buyers are notoriously
price conscious. Secondly, after importing a total of 21,842 tonnes over the
previous three years (an average of 7,280 tonnes per year), India’s internal
silver inventories had finally risen to average levels. With the price of
silver being once again pushed lower, we can expect India’s silver imports to
quickly spike again in response.
Then we have our national Mints. The Royal Canadian Mint has
been “rationing” the supply of Silver Maples for several years because of
strong demand. The U.S. Mint has simply announced that it has ran out of supply
on several occasions (because of unprecedented demand) despite the Mint having
a statutory obligation to keep the U.S. market “fully supplied” at all times.
Anecdotally, large purchasers in international markets are
reporting long waits to obtain their silver. This is a market which has been
experiencing severe supply/demand stress for 30+ years, with those stresses
seeming to be stronger by the day.
In terms of industrial demand, silver is the world’s
most-versatile metal, with countless metallurgical, electrical, and chemical
applications. In many of these applications, silver is irreplaceable. With many
of these applications being cutting-edge technology, that demand will only
strengthen going forward. Unlike the fantasy buyers in the bankers’ paper
markets, these users require a steady supply of real metal at all times.
The fact that we have not already experienced a supply default
in the silver market does not mean that default will never occur. It means that
this default event is now much, much closer.
In the gold market, the story is the East: China, India, and
Russia. In 2016; China
imported
more than 1,300 tonnes of gold. This is demand in addition to the 455 tonnes
it produced as the world’s leading gold mining nation – gold which never leaves
the country.
Total mine supply is
roughly 3,000 tonnes per year. China
accounts for more than half of that gold by itself
.
India has traditionally been the world’s premier gold market,
despite producing virtually zero gold in its own mines. From 2010 through 2016;
Indian
gold imports
averaged over 900 tonnes per year.
That total dropped off in 2016 because of (you guessed it)
higher prices, but with the price of gold having been pushed steadily lower
since the latter half of 2016, we can expect India’s gold imports to quickly
return to their recent historical average. This means that
by themselves, India and China’s demand accounts for roughly 80% of
annual mine supply
at current prices.
Throw in what Russia mines for itself (and keeps) and what it
buys on the open market, and that accounts for 100% of annual mine supply, just
between these three nations. Where does the Rest of the World get all its gold
each year for jewelry demand, investment demand, and (other) central bank
buying? Out of ever-dwindling stockpiles.
These stockpiles can sustain the gold market longer, but not
forever.
Regular readers have seen these fundamentals explained on
several occasions over the years, yet apart from the
Fake Rally
of 2016, we have seen no sign of bull market conditions since 2011. Why
continue to listen to this message?
Perhaps the wordsof
legendary trader Jesse Livermore will be persuasive.
After spending many years in Wall Street and after making
and losing millions of dollars I want to tell you this: it was never my
thinking that made the big money for me. It was my sitting.
For those readers unsure if this sentiment is truly extolling
the virtues of buy-and-hold, Livermore expressed the same advice again, in even
plainer terms.
Throughout all of my years of investing I’ve found that
the big money was never made in the buying or the selling. The big money was
made in the waiting.
In the realm of physical commodities, the Law of Supply and
Demand is immutable. The bankers have been able to pervert this Law over an
extended period of time because (as explained) we had accumulated large
stockpiles of these two metals.
We hold precious metals in anticipation of an inevitable
upward correction in prices which will dwarf anything seen to date. This is
what the supply/demand fundamentals in these markets tell us.
In the meantime, we hold gold and silver to protect our
wealth from the bankers relentless
theft-by-inflation,
and as insurance against the pending collapse of our paper fiat currencies.
This is how intelligent investors can deploy their wealth with the greatest
degree of efficiency.
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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.
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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.
