I have always told my children from a young age that the heart must make the initial choice but that the mind must make the final decision. Emotion and passion of the heart is great, but if left unfiltered by the brain it can lead to one disaster after another.
Well we all remember the brilliant and witty Max Keiser (this is my genuine appraisal of the man) some months ago when he was ranting and raving with his $500 silver campaign. No doubt quite a few souls got excited and enlisted in his crusade.
I, like many others hoped Max would succeed, but shortly after Max had embarked upon his starry eyed crusade, I penned a piece on the 26th November, 2010 titled “Why Silver Will Not Go to $500″.
Unfortunately, Max’s armada sank at the port having barely managed to get to $43.49 on August 22, 2011.
I don’t think Max read that piece nor did he read my earlier piece of February 2010 (How You Can Buy A Real Dollar For 50 Cents) wherein I pointed out the ludicrous situation whereby a paper dollar weighing one gram could buy two grams of silver at that time. Don’t worry Max, most of my friends don’t read my articles either until it’s too late.
When it’s too late for them, I send them the link to my article together with the events in the market that subsequently prove me right. That’s the bastard in me having a little bit of fun.
Last month I had a little more fun because back on November 22, 2009 I made a prediction that gold would increase by a margin of 20-40% in most currencies within 24 months. Why Gold Is Not $2000 An Oz (Yet)). The US price of gold at that time was $1164 per oz and on November 22, 2011 it closed at $1707.40. This was a gain of 46.68%. Not a bad prediction for a retired accountant. It also wasn’t a bad outcome for my small band of friends who DID listen to me and bought Perth Mint gold certificates to avoid theft either by burglars or an unhinged banking system.
We now have Eric Sprott pleading with silver producers to retain a percentage of their production as “currency” and treating it as “cash”
This argument makes sense against a background of fiat currencies that face either devaluation or extinction imminently or over time.
He, like many of you, is frustrated by the paper manipulation of the market, the retreat of silver and the unresponsive price of silver shares. This is where Mr Sprott and the gold and silver bugs go wrong. They become emotional despite having such an acute understanding and knowledge of the market. I warned of this in another piece of mine Why Goldbugs Can’t Beat The Conspirators – back on 23 April 2009.
The frustrated gold and silver bugs need to understand that TBTF does not stand for Too Big To Fail. It stands for Too Big To F____(insert rude four letter word). When it comes to the Comex and their paper games, inside knowledge and too many regulatory bodies stacked with bank cronies you are on anything but a level playing field. To put it another way, the casinos at Las Vegas are not rigged and yet who has managed to close any of them down? No one. Instead we waste too much time whinging and hand wringing. And Sprott, Butler and the others expect these thieves at the Comex and the big banks to repent and amend their ways? Give me a break. They would rather take the ship down than give up the steering wheel.
The only thing that closes casinos down is either a bad economy that deprives them of customers or gamblers who come to their senses and stop gambling.
So how does one send the price of silver and silver mining shares upwards in price?
The answer is simple. Don’t buy any silver shares.
This is not a typo nor have I lost my marbles.
Every dollar spent buying mining shares off other shareholders is a dollar NOT spent buying silver. Whilst one is buying a share of real silver in the ground, the reality is that the effect is virtually the same as buying into one of those dubious paper funds. Demand for physical silver which is the ultimate mover is therefore diluted.
If every intending buyer of silver shares invested the vast majority of their additional investment dollars in silver rather than shares or other paper, the price of silver would in fact rise substantially due to such concentrated buying. This in turn would feed into the price of mining shares as well. Bingo! All silver bugs become happy!
The reasoning here is similar to that which I laid out in the piece Is Jewellery Killing The Price Of Gold? – 03 February 2010. My basic argument was that because gold jewellery is marked up in most western societies by a margin of 200-400% it results in far less gold being bought per dollar being spent.
Since then, investment in gold has increased at a brisker rate than jewellery sales and so has the price of gold. People are getting wiser it seems. Or are they just waking up to what the people in India have always known?
There is much however that amuses me. I hear and read that wealthy individuals and corporations are withdrawing their Euros from Greece, Spain and elsewhere and sending them to Germany and Switzerland as a safeguard or else putting them under their bed.
To me this is the equivalent of people going from one end of the Titanic to the other end as it is sinking. Inevitably the whole ship will go down and the depositors will drown unless they get off their fiat ship and get onto their precious metal and hard asset life boats instead.
It is rumoured that Germany and Switzerland are preparing to place capital controls on such influxes of money because they fear a surge in the Swiss Franc and the German currency should it revert to Deutschmarks.
Let me ask you all a simple question. Would Switzerland, Germany or any other country for that matter need to impose capital controls if it was gold and silver that was being sent to their banks? Of course not. Gold and silver are money in any country at any time past, present or future. The influx of paper however is poison.
This alone highlights the fragility and flammability of fiat currencies and national economies against the enduring and universal value of precious metals. The Euros fleeing to Germany and Switzerland are nothing more than economic refugees that may be sent packing should the Euro collapse.
Do you want to know where the price of Silver and Gold should be?
Before I sign off, I wish to reiterate my long held position in relation to where the price of gold should be. Both gold bugs and gold detractors make much use of that $850 figure that was achieved on ONE SOLITARY DAY back in January 1980. The use of that figure to either support the upward trajectory of gold or to denounce it as a failure is an intellectually dishonest attempt by both sides that serves only passionate arguments and not logical contemplation.
If one scientist used the temperature on the day of a heat wave to support climate warming and another used the temperature on the day of a blizzard to support climate cooling, they would be both laughed off and ridiculed and yet this is what both sides do.
As I said back then in November 2009:
You will note that the average price of gold even in that tumultuous month of January 1980 was only $675 which if adjusted for inflation would be around $1750 today. The average of $612 for the 1980 year as a whole would also only be around $1600 today.
Thus it would appear on the basis of the above that the adjusted price should be somewhere between $1600 and $1750 at the present time.
Thus allowing for the passage of another two years since I wrote those words, the price today would have to be in the range of $US1681 to $1,854 if one uses the U.S. Inflation Calculator. Interestingly enough the $1681 is very close to where gold is at the moment and the $1,854 is very close to the $1895 it reached in September before retreating.
Relative to the amount of useless fiat being printed, gold and silver are quite undervalued according to many commentators. But fiat will be destroyed and it will be only against other REAL assets that gold and silver will be valued. Therefore one should concentrate more so on the “house price”, “oil price” and “food price” for a more accurate assessment of where its value is headed.
The fiat price of precious metals is relevant only where you are faced with paying off fiat debt.
Always keep in mind, that gold and silver were never primarily intended to make you rich other than by accumulating them or using them at the right time to finance a more profitable venture or acquisition. More importantly they have been designed by the laws of nature and a free market to save you from total ruin brought on by fiat quackery.
The future price of gold is anyone’s guess.
If you were boarding a passenger jet and were offered a parachute for $5000 you would refuse the offer on the basis of the airline’s safety record. If however the plane in mid flight started to hurtle towards the ground, you might find yourself willing to pay $5,000 many times over. This could in fact happen to the price of gold depending on your location and your personal circumstances should the world’s economy go into systemic shock.
Perhaps Europe might manage to stave off monetary disintegration but Mrs Merkel needs to explain how austerity can service and pay off insurmountable debt. Perhaps Ben might stop printing as long as Congress realizes that monetary policy alone cannot govern a nation’s finances. Perhaps Wall Street might realize one day that enough is never enough until there’s nothing left. Perhaps the perpetual motion of the war machine might align itself with the heart beat and needs of humanity. All these are distant ifs for as long as people are denied the right to transact their daily commerce with silver and for as long as governments deny the discipline of gold.
There is one thing you can be sure of. The bad days are over…….worse days are on their way.
December 11, 2011