What’s Happening With Gold and Silver?

Written November 10, 2019

Lately you may have noticed an up tick in activity in the gold and silver markets. Historically precious metals react to volatility in the world. I think we can agree that we are living in a volatile world.

We are currently witnessing a deterioration in the global-macro economies around the world and tensions are high between the U.S. and the rest of the world as in Europe, China, Japan, Taiwan, Canada, Mexico and elsewhere.

Also concerning is the global geopolitical tensions with Iran and North Korea, to name a few, playing out on the world stage. Here at home we have a divided government with one party focused on the removal of a sitting president, chaos seems to be the flavor of the day.

And President Trump’s pressure on the Fed Chairman Powell to lower interest rates in order to sustain this economy will ultimately lead to a weaker dollar and higher inflation. Meanwhile the Federal Reserve is running out of ammunition should they need to stave off another downturn. Central Banks all over the world are stock piling precious metals as a hedge against a failing reserve currency.

Paper money has no real intrinsic value when governments around the world can simply print more of it adding to an already inflated money supply causing devaluations across the currency board.

Keep in mind that gold was at $35.00 an ounce in 1971 when Nixon abandoned the gold standard and allowed paper dollars to be printed at will. Now unshackled by the backing of gold, as had been the case for a once strong dollar, we see the purchasing power of the dollar in a steady decline while the price of gold has reached as high as $2000.00 an ounce. Recently it has consolidated at between $1450.00 and $1550.00. Such consolidation signifies support at higher lows from a previous low of $1050.00 just 5 years ago. This all points to a probable move higher going forward. And where gold goes silver will follow and could certainly lead should a potential shortage in silver occur. All this seems to be evidence of a strong tail wind at the backs of precious metals.

Of course we are still confronted with price manipulation in the futures markets. To recap, back when the financial markets were melting down JP Morgan inherited massive silver shorts from a failing Bear Sterns with the blessing of the US Treasury. Colluding with HSBC these “too big to fail banks” covered 85% of silver short positions and began winding them down via the silver futures (paper) market through High Frequency trades engineered to knock down the price in order to buy back at discounts.

Paper silver represented 143 times more than actual silver in the markets. That’s what happened in 2011 when silver was as high as $50.00 and knocked down to below $20.00 and JP Morgan was scooping up and hoarding silver at discount prices. Legal? Not really. But the CFTC and CME regulators were no match for the Big Banks. That is until recently when the head of JP Morgans Global Precious Metals Trading Desk along with several other colleagues was hit with RICO charges by Federal Prosecutors applying the same statute used to take down mobsters.

They will have their day in court and we’ll see what happens but the power and financial strength of JPM will most likely play a hand in any outcome.

So where do we go from here? My thought is obviously higher but with the usual consolidations indicative of a strong bull market. When the price of silver snuggled up to $50 an ounce back in May 2011, the silver to gold ratio was at 32:1. That’s when 32 ounces of silver buys 1 ounce of gold. The average ratio recorded between 1988 -2019 was 67:1. Currently, as of this writing, the ratio stands at 87:1.

Such a disparity is out of character for such a widely used and sought after precious metal as silver. What this signifies is that silver, as an investment, has the potential to provide a much greater rate of return then the same dollar amount invested in gold. And, as we’ve learned from our coach, rate of return is what it’s all about.

As previously discussed, owning a real asset, like gold and especially silver, can function as the preservation of wealth and as insurance or a hedge against another financial market melt down like that which occurred in 2007-2008 or worse.

Today there are precious metals dealers, such as Money Metals, who are offering a cash line of credit secured by a holding of gold and/or silver at a Money Metals Depository. Much like a home equity line of credit secured against a home. The minimum loan size is $25,000.00 and they will loan up to 75% against the market value of any precious metals holdings. An interesting way to get cash for your precious metals without having to sell them. This alone emphasizes the intrinsic value of gold and silver as a real and credible asset and a store of value.

According to a recent article found on a JM Boullion web site:

Humans beings have coveted silver and gold consistently for more than 6000 years.

Gold treasures have been found dated back to as early as 4000 BC in a burial site in Varna, Bulgaria (from the ancient Thracian civilization).

By 3600 BC, Egyptian goldsmiths began melting gold ores to separate the metals inside. They used blowpipes made from fire-resistant clay to heat the smelting furnace.

As early as 3100 BC we have evidence of a gold-to-silver value ratio in the code of Menes, the founder of the first Egyptian dynasty. In the Menes code it is stated “one part of gold is equal to two and one half parts of silver in value.”

Think about that for a moment after considering today’s ratio of 87:1….Ah the good old days!

Gold and silver became de facto money around 600 BC when they were struck in Lydian coins as stores of value used for trade. For over 2500 years, silver and gold monies have proven themselves as the ultimate monies. Silver & Gold indeed have the best historic track records as money.

Now of course we can’t say that about fiat currencies that can be manipulated by greedy governments  willing to sell their fiduciary souls for the sake of political and economic advantage. Paper money has proven in the past to not even be worth the paper it’s been printed on.

In this uncertain world we’re in today, one thing is certain…..and that is that gold and silver will always be a representative of real wealth as they have been since the beginning of time.

So although this potential for a new bull market in precious metals is seemingly in it’s early stages, the question may come to mind as to when should someone interested get in? My answer, has been and still is, now! The likelihood of the price of silver or gold falling to Zero is non existent while a higher price in the future may actually be immeasurable.

Good investing,

John

The Real Money Man