An Overview to the Precious Metals Markets

I’d like to thank my very good friend Steve (The Options Coach) for creating this venue where like minded individuals can access and share information that may help increase and preserve their wealth. I also appreciate him affording me this opportunity to share some insights relating to the important roles that I believe precious metals play in today’s financial world.

I have followed the path of precious metals (specifically Silver and Gold) since 2003.
Back then the spot price of gold was south of $400.00 per ounce and silver was less then $5.00 an ounce. Since then gold has flirted with $2000.00 and silver $50.00 per ounce. That was back in May of 2011. The following chart will show the price movement of silver before and after that date:

Notice the long and arduous trek upward from 1997 to 2011 and then the precipitous fall to about where it is today. Also notice how after the financial crisis of 2008 there was a meteoric rise in price up to 2011. You see, precious metals have historically preserved and in this case potentially increased wealth in such trying times. But thanks to the powers that be, the free markets were not allowed to be free.

Well grasshoppers, to use the moniker that the options coach has coined, there’s an explanation for that. You see Wall Street and the Too Big To Fail Banks along with the Federal Reserve have formed an unholy alliance in order to control the price of gold and especially silver through price manipulation via the Futures Market. The practice of short selling in the Futures (paper) Markets causes an unwarranted price suppression to the underlying assets. In this case silver and gold. This is a very complicated and totally illegitimate activity that has been practiced for years while regulatory agencies have turned a blind eye. One might say that the government has been complicit in this activity as well.

You may ask why? The short answer is profit. But also because the rise of gold and silver prices shed light on the relative weakness in paper (fiat) currencies and especially in the almighty dollar which has been losing purchasing power since the inception of the Federal Reserve back in 1913. Understand that owning real silver and gold is not incumbent to a third party as in the paper market and that such assets are totally under your control. There’s a saying regarding precious metals; “if you can’t hold it, do you really own it”? That’s why most Wall Street brokers will seldom recommend owning physical metals over stocks and bonds of which they can control and earn commission on.

The foremost analyst who has been following this manipulation phenomenon for several decades is Ted Butler. This is what he had to say regarding price manipulation after the financial crisis back in 2008:

Let me stop here for a moment to state the unspoken obvious. Had not the U.S. Treasury Secretary, the Fed chairman, the CFTC, the CME and the head of JPMorgan agreed to bail out Bear Stearns and extend the gold and silver manipulation by preventing a free market resolution for covering Bear Stearns’ short positions, the price of gold and silver would have soared to the heavens. Quite frankly, if the Feds hadn’t bailed out, effectively, all the shorts by having JPMorgan backstop Bear Stearns I can’t see how the price of gold wouldn’t have exceeded $2,000 and silver $100 or more on short covering (of which there was none into the price highs). –Silver Analyst Ted Butler: 12 February 2014

Ted Butler has, for the most part, called out these illicit activities single-handedly without rebuttal regarding the voracity of his accusations. If you are interested in the intrigue surrounding the price manipulation in silver I suggest you check him out.

Now don’t misunderstand me, I am practitioner of a diversified portfolio which includes stocks, bonds, options, real estate and of course real silver and gold. You see all asset classes go through cycles and many believe precious metals are in the early stages of a long term bull market now. Furthermore, the price suppression has in fact created an opportunity to acquire these undervalued real assets at affordable prices.

This is why I believe it is prudent to own some physical silver and gold if for no other reason but to protect and preserve your wealth as it has done many times before. Neither gold nor silver have ever gone to zero in value like numerous company’s that were once Titans on the stock exchange.

Realize that back in 1971 when Tricky Dick Nixon decided to take the US Dollar off the gold standard, which kept in check the printing of our currency, the price of gold was around $40.00 an ounce. Since then the printing presses have been working overtime devaluing the purchasing power of our dollar requiring more currency units to buy the same goods and services we need. On the other hand, now we have the price at around $1300.00 for that same ounce of gold. Very interesting indeed.

Gold and silver are both monetary metals and have been used as money for thousands of years. The distinction and why I favor silver is because silver is a very important industrial metal as well. You will find that there is less silver above ground then gold and silver is being used in many aspects of our daily lives from silver solder to solar panels. Yet gold is about 75 times more expensive then silver when historically the ratio has been closer to 15:1 or less. Much of the silver used industrially is not recoverable. Should a shortage occur, industrial users will ramp up their purchases to maintain production. Prices will soar as the laws of supply and demand kick in regardless of any attempts at price manipulation. This supports the tremendous upside potential that silver provides to investors who take advantage of bargain prices.

I think it prudent to realize, with all the uncertainty in the world today along with currency devaluation by Central Banks worldwide, that historically gold and silver have always proven to be essential in the preservation of wealth. Therefore, I believe there is a rather strong case for owning these precious metals.

There are a variety of ways to invest in gold and silver:
Physical Bullion (gold and silver prior to coining in the form of bars and rounds)
Minted Coins (gold and silver eagles, etc.)
90% silver coins minted prior to 1965 known as Junk Silver. Many of those coins which have passed through our hands as dimes, quarters and half dollars are contained in full bags with a face value of $1000.00. That $1000.00 face value bag of coins currently sells for around $12,500.00 due to the silver content.
Gold and silver mining companies listed on the stock exchange.
Exchange Traded Funds (ETF’s like GLD, SLV, GDX, GDXJ, etc.) also listed on the exchange.
The Futures markets where the Masters of the Universe play their games (not recommended).

Of course keeping with the Main Street Beats Wall Street premise, one can certainly trade options with mining companies as well as with the ETF’s.
Since I believe in the potential of precious metals, I have accumulated premiums over the years especially on the put side of options trading. As explained by our coach, who favors selling calls, puts can also be sold for premiums and should that strike price be breached then the seller of the puts would be obligated to purchase the corresponding shares. This strategy works well if you are happy to own the underlying shares at that price should the shares be put to you. Remember, you keep the premium as well.

I realize that I may be tossing a lot of unfamiliar information out there but thankfully through the wonders of the internet, anyone interested in learning more can access information regarding this subject quite readily. And as “The Grasshopper” would advise, Learn to Learn. Of course I would be happy to address any concerns regarding this topic via this forum provided by Steve’s blog. And as the saga of silver and gold continues I will bring updates to this site as long as interest in this topic prevails.

It is my intention and hope that this overview will give, anyone interested in or unfamiliar with reasons for owning gold and silver, some insight on how to get started.
Knowledge is Power. HiHoSilver

Happy Trading/Investing!

John

The Real Money Man

Upcoming topic: The Relation of Precious Metals to Cryptocurrencies.