Podcast

Eric Sprott: Is the West Dishoarding Its Sovereign Treasure?

And if so, what will happen once it's done?
Saturday, February 23, 2013, 10:10 AM

We are well into the financial crisis. Everyone’s trying to keep it together, even though it would appear from the reading of the economy things are not going well at all here. And everyone's ignoring things.

But I think, in their hearts, the Central Bankers must know what they’re doing is totally irresponsible. And the tell of that irresponsibility which is the debasing of the currencies is the fact that real things will go up in value. This should be reflected in the price of gold and silver.

So expresses Eric Sprott, CEO and founder of Sprott Asset Management, and one of the most experienced and vocal advocates for owning precious metals.

The past decade has validated Eric's thesis, as gold has risen considerably against all world fiat currencies. But what vexes him is that in recent years, when currency debasement has accelerated to extreme levels, precious metals prices have been clearly suppressed, particularly versus the U.S. dollar.

As the topic of price manipulation is nothing new, Eric finds his focus increasingly drawn to where the precious metals are going at these bargain prices - who is accumulating and who is dishoarding:

I’ve done a lot of work on the flow of metals. I come up with a net change of 2,300 tons a year in new buying in gold when the supply of gold hasn’t even gone up in the last twelve years. And you keep wondering: Well, where’s all this gold coming from?

His findings support the growing meme that there is a massive bullion transfer from West to East. This should particularly concern those in the U.S., EU and Canada as his suspicion is that, increasingly, it's monetary gold that is being sold.

There are several key questions to ask here (not that the data publicly exists to answer them):

  • How much of our sovereign monetary bullion reserves have been sold to date?
  • How much will be sold in the future? (Are we willing to sell all of it? or is there a limit we refuse to let go of?)
  • What will happen to the price of gold & silver when central banks stop selling to another? (Answer: shoot the moon)
  • What will be the fate of those economies that dishorded their treasure? (Answer: lamentable)

When I see China buying 95 tons of gold in December and I read that India bought 100 tons in the month of January, when we all collectively know there’s only about 200 tons a month available –  you have to conclude that G6 Central Banks continue to sell their gold in a very non-transparent fashion.

One of the things we saw in December was that the U.S. Department of Commerce reported that U.S. exports of gold were $4 billion. We exported 2.5 million ounces of gold. And where it comes from, [only] God knows; the country only produces 8.8 million a nd most of that’s used internally. So I don’t know how you just come up with 2.5 million ounces that you’re able to export. So I believe that even though it’s described as non-monetary gold, my guess is that it is monetary gold.

There’s lots afoot here in central banking to try to keep it organized. And I think one of those things is to keep the price suppressed.

But the non-G6 nations have been huge buyers of gold, and I think the more anybody looks at the system from outside looking in, they realize they have to have gold and silver, notwithstanding the nonsense that goes on in COMEX and the LBMA (London Bullion Market Association).

When I got involved in the gold market, it was assumed that the central banks had something like 36,000 tons of gold. And there was a great study done by Frank Veneroso where he suggests 18,000 those tons didn’t even exist anymore. 

The [global] central banks are sellers of 400 tons in an overt fashion. Now we see buying of over 500 tons. That, just in itself, is a 900-ton change in a 4000-ton market, if I’m including recyclables here. And yet there’s been no increase in supply.

So I have to assume that these central banks are running low, and the question in my mind is, do they just go down to zero and then give up?

Or do they look in the cupboards one day and say look, this is just not going to work because the intensity of buying by people, like China in particular, has just gone absolutely bonkers. And it looks like India, notwithstanding putting a surtax or excise tax on gold, the demand seems to be very firm. And as you mentioned, mint sales have been amazingly strong here.

So I think there’s enough element of the world who get it that the pressure’s going to continue to be on the price of gold going higher. And yes, there’s nothing we can do in terms of what’s going on in the COMEX and the LBMA, but we keep seeing more and more people asking for delivery, even in the COMEX. So I think that the day can’t be far off. We can’t predict when it’s going to be, but the natural stage should be that the price of gold is going up, and we’re in such a tremendous financial crisis that it hasn’t been allowed to manifest itself because they’re putting out fires all the time.

For precious metals holders licking their wounds from the carnage of the past several months, this podcast offers both new insights and sound reminders of the long-term reasons for owning gold and silver. Those on the sidellines considering entering into the precious metals, perhaps for the first time, should consider reading our guide to Buying Gold & Silver after listening to this podcast. 

[Update: interested readers may also want to view this infographic visualizing the world's silver supply. Compared to the US debt, it really hits home how the precious metals are a much more confidence-inspiring store of value than fiat currency.]

Click the play button below to listen to Chris' interview with Eric Sprott (34m:40s):

Transcript: 

Chris Martenson: Welcome to another Peak Prosperity podcast. I am your host, of course – Chris Martenson, and today we welcome back Eric Sprott to the program.

Eric is chief executive officer and founder of Sprott Asset Management, where he also serves as chief investment officer and senior portfolio manager. Eric is one of the best-known experts on precious metals and has not been shy in his encouragement that the average investor should have a healthy amount of their portfolio allocated to gold, silver, and other hard assets.

Given the gut-wrenching recent turbulence in the precious metals, he is a very timely guest to have today. We’re going to talk about gold, silver, and what’s likely in store for stock and bond markets. Eric, hey, it’s a real pleasure to be talking with you again. I’ve really been looking forward to this.

Eric Sprott: Chris, I’m happy to be here, and I’m sure the views will be interesting. It’s been a very tough time, but most of the things that we tend to talk about have tended to play out here. And the market – both the precious metal market and the stock market – generally don’t seem to be conforming with what we see happening on the ground.

Chris Martenson: Indeed not. So let’s start here with some of those things on the ground. I see $85 billion a month in U.S. thin-air money printing. I see that Japan is promising to do whatever it takes to debase the yen. And G7 officials saying they’re okay with that. Francoise Hollande of France openly talking about the need to bring the euro down. Southern European banks in big trouble needing more in the way of bailouts, seemingly every day. U.S. Mint sales of silver breaking records, and open stories of industrial shortages of silver in China and maybe some hoarding in Germany by a car manufacturer.

And yet, gold and silver took a beating throughout all of this, and continue to take a beating even as we’re speaking right now – especially, I might note, during off-hour moments where quite obvious contract dumping is being used to push the price down. That’s how I interpret it. CFTC, of course – nowhere to be found. Eric, help us make sense of all this. What is going on here?

Eric Sprott: Sure. I think what’s going on is, we are so well into the financial crisis, there’s not a week that goes by that’s there’s not some event that comes up, whether it was three weeks ago, Banco de Monte Paschi [Belgio], and two weeks ago the third largest bank in the Netherlands gets taken over, over the weekend. And last week the ECB lending money to Peugeot, which seemed totally ridiculous. And I think everyone’s trying to keep it together, even though it would appear from the reading of the economy that things are not going well at all here. And everyone’s ignoring things.

But I think in their hearts the Central Bankers must know what they’re doing is totally irresponsible. And the tell of that irresponsibility, which would be the debasing of the currencies, is the fact that real things will go up in value. Do you know it would start with the price of gold and silver? As you know, Chris, I’ve done a lot of work on the flow of metals. I come up with a net change of 2300 tons a year in new buying in gold when the supply of gold hasn’t even gone up in the last twelve years. And you keep wondering, where’s all this gold coming from?

And when I see China buying 95 tons of gold in December and I read that India bought 100 tons in the month of January, when we all collectively know there’s only about 200 tons a month available – one of the things we saw in December was that the U.S. Department of Commerce reported that U.S. exports of gold were $4 billion dollars. We exported 2.5 million ounces of gold. And where it comes from, [only] God knows. The country only produces 8.8 million. And most of that’s used internally. So I don’t know how you just come up with 2.5 million ounces that you’re able to export.

So I believe that even though it’s described as non-monetary gold, my guess is that it is monetary gold. So there’s lots of foot here in central banking to try to keep it organized. And I think one of those things is to keep the price suppressed. But the non-G6 nations have been huge buyers of gold, and I think the more anybody looks at the system from outside looking in, they realize they have to have gold and silver, notwithstanding the nonsense that goes on in COMEX and the LBMA (London Bullion Market Association).

Chris Martenson: There has to be certainly some tension building in the system. I understand that the desire by the central banks that are under the Fed’s aegis that everybody is controlled or influenced by the U.S. position in this. I understand their desire to keep the barometers of monetary recklessness tuned down. But the more they do that – if you treat any commodity this way, price and demand are functions of each other. Demand has just skyrocketed in the East, collectively China, India, but also other places.

So shouldn’t there be some tension building here where gold is now flowing pretty strongly? You’re mentioning a couple hundred tons a month is huge flowing from West to East. There has to be a breaking point for that. There has to be a moment when price has to be allowed to prevent, maybe even reverse, that flow.

Eric Sprott: Right. You know, usually when I got involved in the gold market, it was assumed that the central banks had something like 36,000 tons of gold. And there was a great study done by Frank Veneroso where he suggests 18,000 those tons didn’t even exist anymore. And as I said, Chris, I look at what’s going on in the last year, and we didn’t even have ETF (exchange-traded funds) ten years ago. The central banks are sellers of 400 tons in an overt fashion. Now we see buying of over 500 tons. That, just in itself, is a 900-ton change in a 4000-ton market, if I’m including recyclables here. And yet there’s been no increase in supply.

So I have to assume that these central banks are running low, and the question in my mind is, do they just go down to zero and then give up? Or, do they look in the cupboards one day and say look, this is just not going to work because the intensity of buying by people, like China in particular, has just gone absolutely bonkers. And it looks like India, notwithstanding putting a surtax or excise tax on gold, the demand seems to be very firm. And as you mentioned, mint sales have been amazingly strong here. So I think there’s enough element of the world who get it that the pressure’s going to continue to be on the price of gold going higher.

And yes, there’s nothing we can do in terms of what’s going on in the COMEX and the LBMA, but we keep seeing more and more people asking for delivery, even in the COMEX. So I think that the day can’t be far off. We can’t predict when it’s going to be, but the natural stage should be that the price of gold is going up, and we’re in such a tremendous financial crisis that it hasn’t been allowed to manifest itself because they’re putting out fires all the time.

Chris Martenson: It was interesting; I think it was just the day before yesterday, I read, the report where they had audited the United States’ gold was the headline, but, of course, what they did was they audited some of the Treasury’s gold that was found in the Federal Reserve’s vault, New York Fed in particular. They were glad to announce that it was all there. The article was very misleadingly written. It implied that that 99.8% of the gold was audited and accounted for. But in fact, it represents less than 5% of the United States’ official supported gold holdings.

What do you make of audits like that? Do they really prove anything? Here’s my frustration: I’ve been reading for years, trying to get a handle on where’s gold, who’s got it, which of it is encumbered, which it’s been leased out, how much of it has been hypothecated. And it’s proven to be some of the most difficult information to get access to at this point. How do you read it?

Eric Sprott: Obviously the situation is totally ridiculous that the Central Bank could put on one line of their balance sheet “gold and gold receivables,” because receivables are gold that you don’t have. In fact, it’s been used to suppress the price of gold by selling it in the physical market. And even the Austrian –I think it was – finance minister said, well, we only have thirteen percent of our gold, but we’ve earned considerable interest over the last ten years, which of course assumes it’s been leased. As anybody who’s a student of the gold market knows, when it’s been leased, it’s been purchased by someone, and it’s not going to return.

So the central banks can go to their counterparty and say we’d like our gold back [but] they know full well they’re not going to get it back, just as we see the problem manifesting in Germany where – I forget what the number is, but they get 700 tons over eight years, which is totally ridiculous. When you think of 100 tons went into India in the last month and 95 tons went into China the previous month, and yet it takes them ten years to get 700 tons back in Germany, and it’s just because the central banks know what their situation is. They know they can’t get the gold back, so they have to come up with some lame statement that they’re going to get it back over seven years, which they won’t be able to do.

Chris Martenson: That did catch my eye as well, the idea that it would take seven years and they mentioned how tricky it was. I think that with a few trucks and a few airplanes, you could do it by next Tuesday if you were serious about it. So there’s something going on there.

Now gold is an interesting story. Obviously it’s a monetary metal. But silver’s really caught my attention lately. It is a non-substitutable industrial metal. I believe there’s 0.1 grams in every watt of solar power being produced – in the panels. And we’re looking at industrial demand being quite strong. And the silver story is really an interesting one to me.

And yet when I see what’s going on in the paper markets, its clear that something is going on here, where it looks like manipulation to me. I see thousands of contracts dumped in odd moments, which is clearly a price-suppressive behavior. And the thing that’s been surprising to me in the past few weeks, I was expecting open interest to be falling. That’s something we would expect if we were seeing somebody dumping and then covering an attempt to clear out a position. But open interest has been climbing.

What are you seeing in the silver market? How do we make sense of that?

Eric Sprott: I wrote an article about three months ago asking the question why are people buying fifty times more silver than gold physically? And of course, the data points are quite visible, and the data points they use are at the U.S. Mint, where we sold something like 7.5 million ounces of silver in the month of January and we sold something like a 150,000 ounces of gold. So people bought fifty times more in silver than gold.

And the other proxy I use – I have two other proxies. One is, when we’ve done the tranches of our silver trust and our gold trust, we basically raise the same amount of money, which means we buy fifty times more silver than gold. And of course, these are people making their own independent decisions to buy these things. But silver on a gross basis is only available in a ratio with the gold of 11:1 in physical terms.

And as you pointed out, Chris, a lot of the silver is used for industrial purposes, which gold isn’t. By my calculations, only about three ounces of silver are available for investment versus every ounce of gold. So how long could people keep buying them at 50:1?

And the third proxy I use is when I talk to bullion dealers and I always ask them, what percent of your business is in silver and dollars, and what percent of your business is gold? And pretty well to a man they always say its 50:50, which again means people are buying fifty times more silver than gold.

So one thing I know is, that trend cannot persist before there will be a problem. We already saw a problem in essence manifest itself in the middle of January. The U.S. Mint suspended sales. We probably only even had two weeks of sales in January. So I think that the interest in silver is building. You can feel it in India; you can feel it in China; you can certainly see it here in North America. And some day there will be a failure to deliver.

I’m always happy to see now that there’s a lot more COMEX deliveries being forced on silver every day. Quite often we get additions to the current month, which means in the media delivery in silver, which we never saw before. So I suspect that much, as we’re all hearing anecdotally that there might be some shortages. I think we’ll see it manifested in people buying silver contracts, for example, in the February contract just to nominate for delivery.

So it’s only a question of when? None of us know that answer, but I think the day is getting a lot closer at hand.

Chris Martenson: This is something that has me concerned as well, because I’ve seen recently how in this crisis, all the rules have been chucked out the window. It’s proven to be useful for the Federal Reserve or Washington D.C. that a lot of very serious rules have been bent and bent hard. We just found out on Sunday that the Federal Reserve intervened in a suit between AIG and Bank of America over fraudulent loans that Bank of America had bundled and sold. And the Fed stepped in and said AIG? No, you can’t sue them. They’ve protected Bank of America to the tune of ten billion for reasons that make absolutely no sense beyond their protecting the bank.

Flip it over to a “failure to deliver” that might happen in COMEX, and what’s your sense of how that might play out? And my real question is, is there any concern on your behalf that the CFTC or an associated body will just simply step in, break all the rules, and protect the people who got caught on the wrong side of that?

Eric Sprott: History’s proven, particularly in the silver market, that you step in and protect the dealers before you protect the public. And I would imagine that’s what’s going to happen. They’ll say you can settle these things for cash and it’ll just go away in that sense. But when that day comes, those people might not incur the losses that they should rightfully incur.

When that happens, it’ll be the firing shot for people to own gold and silver. And I think we’d be off to the races. But those people who think they’re going to own gold and silver by owning a paper contract from COMEX, I think they’re totally misguided here.

Chris Martenson: Oh, absolutely! I would agree with that. So you’ve railed against the leverage in the global banking system, claiming it’s resulted in artificial liquidity and it’s powered asset prices higher. If this is unsustainable, which it seems both you and I would believe it is, Eric, what’s going to be the trigger that pops this most recent asset bubble?

Eric Sprott: There’s so many things wrong with the world. I just – I’m almost in shock when I read some of the data points. And to me, the biggest data point, and the elephant in the room these days, is when the U.S. Treasury Department reported a gap, the budget deficit for 2012 here on September 30th, the number was $6.9 trillion in an economy that is a $16 trillion dollar economy. And that was up from something in the $5 trillions last year, and it’ll go higher again this year.

And we’re all pretending that we don’t have a problem, but we have all these unfunded obligations. To me that’s by far the biggest problem out there, that we’re going to have to face a time when Social Security payments aren’t getting made, Medicare payments aren’t going to be made, perhaps we’ll have civil servants who think they have these life pension plans but will find out that the funds aren’t there for paying out. And we just dig ourselves in a deeper and deeper hole, and we sit here and fight a sequester thing of, like, a hundred billion dollars or something. And meanwhile we’re racking up deficits of $6.9 trillion a year. It’s almost insane that we focus on the small items which can’t even be resolved, by the way and we forget the big items.

I wrote an article probably two and a half years now ago and I said in it you know, dead government’s walking, and these governments are not going to be able to honor their commitments. And that leads you right back to gold and silver. Some day when we all find out the truth, and the truth is there to be seen, everyone will realize that gold and silver were the investments. Even though it doesn’t work out in the short term, you know it has to work out in the long term. So the problems are enormous.

The economic statistics don’t support a recovery. To think that we started 2012 saying, oh, it’s going to be a great year! We’re going to have 39% GDP. And here we end the year with a negative GDP printed. As I look at some of the data coming out here in January, it’s just atrocious, including the comment from the Wal-Mart emails that it’s the worst start to February ever. Where are the customers, where is their money? We’re not in an economic recovery. That I have no doubt in saying.

We’re all going to pay the price for this sooner or later. If GDP doesn’t grow, how do you grow earnings? Unless it’s just in the banking system because the Fed keeps printing money. But it’s going to be very difficult for companies serving the public to have their profits go up this year. In fact, the expectation on my part would be that they have to go down, because people don’t have any money to spend. They just got a 2% tax increase. Gasoline prices are the highest ever. We have all kinds of issues that this stock market hasn’t even done, to think about.

Chris Martenson: It seems to me that the Fed is all in on this move. So there were some moments in history, but we’d have to probably go back ten years or more to where I think we could have popped the larger credit bubble in a gentle way. And we got addicted to this idea – and particularly our financial system, bloated as it is, got addicted to this idea – that what we have to do is grow nominal credit at roughly two, sometimes as high as three times, as fast as nominal GDP. And that’s what we got used to. Budgets and expectations were all set around that.

That clearly burst in 2007 and 2008 very hard. And instead of recognizing that the Fed – and its associated member banks, which would be the Bank of England, Japan, and also the ECB – they’re all going all in on this. And help me, help us, understand. What are the outcomes?

I’m having what I would call an “imagination failure,” because I can’t understand how you can continually just push more and more credit and money into a system that is fundamentally unable to grow, for whatever sets of reasons. Debt is one of those reasons for me, but high-energy cost is another reason. There are a variety of factors impinging on growth, and yet you have “pedal to the metal” behavior. How does that not end with some kind of a currency accident?

Eric Sprott: Well Chris, there’s no question about that. It will go on until it can’t go on. And we are in an age where we’re using the most extreme measures to try to hold things together. You know the gold bowl going back to 2000, I probably never could have dreamed that we would have money printing. I never could have dreamed that we have bank loans that we experienced over the last two years. All these things say you should own gold. I never would have imagined we would get the currency debasement that we have.

I think it’s instructive to think of just what happened in Venezuela, where they had a 46% devaluation. And everyone who would have had their money in gold and silver would not have lost any purchasing power. And the Japanese, had they owned gold, would not have lost purchasing power. I just don’t understand how people don’t get this, that it’s the most incredibly safe asset you can have. It’s appreciating against every currency for the last twelve years. I grant you that it hasn’t done much in twenty-two months, but as you pointed out, we see these strange goings-on in the paper market, and I think it’s because of the desperation of Central Banks. It’s the “all in” that you mentioned.

And speaking of “all in,” I would imagine if I were those guys trying to keep it together and I was printing $4 trillion I’d make sure the stock market went up even if the fundamentals don’t suggest that it should. And sooner or later, the fundamentals are going to win out here; we’re going to find that this promised recovery is not a recovery.

I’m a great believer in weakness begets weakness. If somebody announces a layoff, somebody else loses their job, and only two things can stop it: Fiscal policy; which we have no room. The fact that we have to sequester it gets worse here in the U.S. And monetary policy; how much more monetary policy can you have other than zero interest rates? Or are we going to print as much money as it takes? There’s nothing else to help us once the weakness just creates more weakness.

So I think the key thing for investors who are particularly long stocks just watch this data come out here. And you better be wary about believing that we’re in any kind of recovery, because I don’t think for one second that we are.

Chris Martenson: And the primary reason for not being in a recovery is that from the way I look at it, you mentioned the Wal-Mart information; it’s clear that also from food stamp participation, from falling real incomes at a median level, that all of the benefits of this money printing very predictably don’t tend to flow to the masses. Which of course whereas you’re going to get an organic self-sustaining recovery, they tend to flow very preferentially to very narrow channels, that they’ve great skimming operations at these big banks, the hedge funds, and other private equity places. They’re very, very good at taking advantage of that liquidity. And at the same time, my main critique is that that’s hoping the tail is going to wag the dog. If we can just get the stock market to go up, that’ll create the right appearance and then people will spend. But that’s not what we’re seeing, is it?

Eric Sprott: No. I think most people look at the stock market as some forecaster of the future. And Walmart stocks are up; therefore things must be good. So you think things are well. But you know in reality that the average person has to know it’s not well. We just took tax increase; jobs are tough to find, and well-paying jobs are tougher to find. So the broad majority of workers are not having an easy time with it.

And it’s going to be reflected in Wal-Mart sales, in J.C. Penney sales, and you know anybody appealing to the consumer is going to have a tough time. Maybe by repackaging everything and making things smaller at the same price, maybe the companies can survive for a while. But you know what the impact on the consumer is. He’s the guy paying the same price for the box of cereal that has 20% less than it used to have. And that’s inflation; it’s not defined in inflation under the CPI (Consumer Price Index) calculations, but that’s what it is.

And I think the inflation’s way beyond what people think it is. People are falling more and more behind. The savers are getting sacrificed here. I just can’t be optimistic for one second about one resolution to this problem.

Chris Martenson: You’re on record as saying that we’ve just entered the decade of silver. Is there anything to the silver story that we haven’t covered here? Because a lot of my expectation around silver is that we are going to enter a recovery at some point; the demand for silver industrially is going to be maintained. And that silver provides some hedging against currency madness and other things like that. But really, my main rationale for silver and my passion for it is just what a wonderful substance it is, and that it gets consumed pretty regularly and lost, if you will, through industrial processes.

What are you looking at when you say this is the decade of silver?

Eric Sprott: I look at it as, where’s the big marginal change. And yes, industrial consumption can go up 5% a year. I think where the big change happens is when you see people buying silver as an investment. I don’t have the data in front of me, but I’d be willing to bet that the amount of silver coins sold by the U.S. Mint in 2000 versus today has probably gone up by a thousand percent.

Why has it gone up by a thousand percent? It’s the same coin it was twelve years ago. Because people see what’s going on in the economy. And they realize they have to have some means of protecting themselves. And I think it’s that the savings get directed to silver and gold. And the margin, of course – there’s not much silver. It’s hard to put a lot of money into silver.

And we’ve seen lots of experts say you should have ten percent of your money in precious metals. That’s the biggest joke of all time. It’s impossible for people to have ten percent of their money in precious metals, because precious metals only represent one percent of all the paper ever issued. And you can’t just have everyone buy ten percent, because the physical supply of gold, as an example, only goes up by one and half percent a year. So we’re all at one percent, at the end of this year it will be 101.5 and then end of next 103; there’s no way can people eat it, the ten percent.

And yet, there seems to be that groundswell of interest in precious metals even more so today than ever. I just find it stunning, the numbers of tons that people are buying of these metals. So it has to work out in due course, notwithstanding the fight that we have against the powers that want us all to think that everything’s perfectly fine when most of them say we look at it and it’s not fine at all.

Chris Martenson: All right, let’s play the price prediction game, if you will. Here we are in 2013. I was certainly expecting this monetary madness to have reflected itself through a lot of commodity prices. QE (quantitative easing) has always been very strong for commodities across the board. I’ll grudgingly lump gold into the commodity thing, but I treat it as money. Silver’s still a commodity for me. So as we look into the commodity complex entirely, but also for precious metals, do you think this QE is going to bleed into commodity prices this year?

Eric Sprott: I would think so, and I look at it more as an alternate investment. That’s what I think people will do, that they’re looking for an alternate investment and the alternate investment is gold and silver. And of course, that marginal buying will make a substantive difference.

And I’ve always thought that the price of silver, for example, would hit a new high this year. I still believe that, based on the physicalness of what’s going on. It can be delayed temporarily by some guy who’s adding on short positions and keeping the price a surprise. But sooner or later, the physical is going to win the day here.

And the more they keep printing, the more there’s abuse of the financial system. So for example, it was pointed out that the Fed in January increased the loans to European banks by $237 billion. Where does that come from? Obviously it was a huge banking problem in Europe. And these guys work together to keep it under the radar screen; as long as enough people know it, enough people will react, and we’ll see the performance in the physical markets.

Chris Martenson: All right, without holding ourselves to a sense of timing, I’m interested in fair value then. So silver is – wow, it’s at $29.40 right now, but where do you think a normal market clearing price would be once we got rid of the shenanigans that are at play here?

Eric Sprott: Well, Chris, I’ve always believed that the silver should trade at a 16:1 ratio to gold, which is where it’s always been historically. That seems totally logical to me. I still expect the gold price to move up sharply here. You start trading at 16:1, that would imply a price today of silver at $100. If you have gold moving up here, you could get a substantial increase in the gold price, and therefore even that expectation would go higher.

I think we’ll go there someday. You can’t keep these things suppressed forever. It’s only available 11:1. Even saying 16:1is hardly pushing it, and in terms of the gold – many people have done this work; I’m not one of them. But with all the money that’s outstanding, getting to $10,000 prices is not a very difficult thing to do. So it’s a lot higher here. I think that’s probably the best way of putting it.

Chris Martenson: I know you’ve got a very interesting conference coming up, and there’ll be an opportunity there for people to learn more about gold, silver, and other resources. Do you have any interest in telling us something about that conference?

Eric Sprott: We have the Prospectors’ convention coming up in Toranto. It’s held every year. It’s quite largely attended, there’s a huge interest in it, and I will be speaking there. I think one of my other partners, Rick Rule, is speaking there. What I find is that most of the people who are involved in precious metals and have been involved in precious metals for a long time are all of the people who’ve seen all these problems coming well ahead of time. The housing bubble was no surprise to us. The whole printing of money was no surprise to us. The whole market decline in 2000 wasn’t even a surprise to us. The decline in 2008 wasn’t, and the banking thing was no surprise. It’s so obvious that we just keep connecting the dots. So for the most part, those speakers tend to be the few that really can assess the reality of the situation correctly. And that’s why it makes for a very interesting and a good learning session for people who are there.

Chris Martenson: Fantastic! When’s that one going to be?

Eric Sprott: That’s in early March. I know I got to go to Mines and Metals conference in Hong Kong in, I think, the third week of March. So the same thing; I’m going to be interested in going over to China and just try to get some sense of it, because obviously they’re the dominant buyer by far of metal. And it makes all the sense in the world that they should be. If I was in the treasury department in China, I’d be moving out the T-bills and moving in the gold as fast as I can. And it looks, quite frankly, like they’re doing it, if you look at the data points, because their [gold] imports have probably gone up 1000% from two years ago.

Chris Martenson: Yeah, and those are just the published numbers. I’m wondering if there might not be also some unpublished numbers, because I know China values secrecy in these matters as well. I’d be really fascinated to hear.

Eric Sprott: The thing I find interesting, the only reason we get a data point, is it comes from Hong Kong. They’re used to providing this data. We have no idea how much gold and silver’s going from Geneva to Beijing or London to Beijing. This is only what goes from Hong Kong into the mainland. So I suspect it’s way higher than that one number that we get to use.

Chris Martenson: Oh, absolutely! It has to be. And certainly China’s a large gold producer, and I’m not aware of any exports of gold that come out of the country. So I’m pretty sure that we can be certain that they’re building up from internal stores. But then is there a chance that there’s gold flowing in from other channels? Of course, there is. Absolutely!

Eric Sprott: Chris, we know there is. We’ve talked to people who have shipped into China, and it doesn’t all go through Hong Kong. But we won’t see those numbers until the Chinese are ready to tell us about them.

Chris Martenson: Absolutely! That’s the big picture then. So nothing’s really been fixed. I trust what people do more than what they say. So I’m trusting that the Fed’s dumping $85 billion a month into the markets for some reason. I trust that they’re shielding Bank of America from the repercussions of their actions for some reason. I trust they’re sending $230 billion to foreign banks in Europe for some reason. And I trust that the price of gold and silver are being held in check for some reason. And all these reasons really make sense.

Seriously, isn’t this exactly what you would be doing, potentially, if you were in there position and you were attempting to preserve the status quo? All of this makes sense to me, anyway, and secondarily, it also makes sense to me that it’s just foolish beyond belief to think that the Federal Reserve – and any other planning agency – can possibly control and plan all of this forever.

Eric Sprott: As Paul Volker said, the mistake we made in 1980 was not getting control of the gold price. And as you know, from 1971 to 1980, the price of gold went from $35 to $850. And we ended up with high double-digits of inflation. And I think they realized that if the price of gold gets away this time, people realize what their reaction should be. And it would cause inflation because real things would go up in value. So I’m actually convinced that’s why these shenanigans go on in the market. But sooner or later the people who own physical, they have to win today.

Chris Martenson: With that I absolutely agree. And I want to thank you so much for your time here today. I will note that we will provide a link to your upcoming conference. I think people should attend if they can. And also, where can people follow your work more closely if they’re interested?

Eric Sprott: If they go to www.sprott.com, pretty well everything we write and a lot of the interviews are there. And it’s easy to access. And if anybody wants to get in touch with us again, always send an email. And if they have an individual question we can try to answer it.

Chris Martenson: Fantastic! Eric, thanks so much for your time today. I appreciate it. I know you’re traveling, so taking time out of your schedule is very much appreciated by myself and everyone listening.

Eric Sprott: Good! And it was very much a pleasure, and again, thank you for being one of the realists who keeps people advised of what’s really happening in the world, Chris. All the best!

Chris Martenson: Just trying to connect a few dots, Eric, just like you, so thanks.

Eric Sprott: Thank you.

About the guest

Eric Sprott

Eric Sprott has more than 40 years of experience in the investment industry. After earning his designation as a chartered accountant, Eric entered the investment industry as a research analyst at Merrill Lynch. In 1981, he founded Sprott Securities (now called Cormark Securities Inc.), which today is one of Canada’s largest independently owned securities firms. In 2001, Eric established Sprott Asset Management Inc.

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54 Comments

sand_puppy's picture
sand_puppy
Status: Gold Member (Offline)
Joined: Apr 13 2011
Posts: 375
Monthly Gold/Silver Purchase Plan

Franklin Sanders, at http://the-moneychanger.com/ has a program that encourages monthly savings program in gold and silver.  They call it the "Monthly Acquisition Program" (MAP).  It is designed for people who want to accumulate PMs over time like a long term savings plan.  The minimum purchase is $300.  But you can skip any month and purchase nothing.  Thus there is never any obligation to buy anything.

How it works.

1.  You join the MAP by filling out a one page application. http://the-moneychanger.com/monthly_acquisition_plan

2.  Pay $12 / year membership fee.

3.  Every month they mail you a reminder letter.

4.  Prior to the 15th of the month, you respond saying how much you want to purchase that month and include a check for that amount.  (In the first 3 months they ask for a US Postal money order, after that, a personal check.  If you bounce a check they drop you from the program.)  Indicate whether you want 1) gold only 2) gold and silver 3) silver only.

5.  They mail you a little brown box of coins about 3-4 weeks later.

The advantages is that it allows individuals to purchase small amounts with very low mark-up and it encourages participants to stay the course with their intent to save via accumulating PMs with the monthly reminder letter.  (Small volume PM purchases typically have very high mark-up.)

amusedtodeath's picture
amusedtodeath
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Posts: 13
When the physical really matters

Where the rubber meets the road is real precious metal at real prices.We've been in la la land for too long.There doesn't appear to be any price discovery anymore.Oil, gold, silver,corn, soya, you name it there is no market.It's all manipulation one way or another.When the oil, gold and silver come into real world shortages of supply and the Fed can no longer play master magician, the real fun will begin. Pick a number and add two zeros.That's where this is going or it will be Weimar Republic time where a gram of gold is worth infinite dollars...

This of course all may take years to come about but looking at the desperate suppression of prices that's now going on. I'd say this is ENDGAME 

wroth5's picture
wroth5
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The market can stay irrational longer than you can stay solvent

Chris –

Assuming that everything said in this interview is true, price discovery in gold and silver will not happen in any time horizon that will be useful to any of us. Maybe decades from now the truth will come out – like LIBOR. In the meantime owning gold and silver is like tilting at windmills. Those imagining shortages of physical metals are dreaming. SLV and GLD are paper scams run by JP Morgan and HSBC that will provide all the metals needed and no one will be the wiser for decades that they hold no metal .

jcat3022's picture
jcat3022
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I don't know about this

I don't know about this Wroth.  While the battle might go on for one, two or five more years  (no one can predict the timing), there's no doubt it will come to a head at some point. A couple observations-

1. There were 4 people ahead of me in line this morning at the coin shop.  I've never been in there where there was that many people buying.  Two of them were making their first ever gold & silver purchases. The PM dealer told me he hasn't had a seller in almost two weeks, all buyers.  I get a sense that people are catching on and taking only physical delivery.

2. In regards to Libor, that took place for a few years (maybe 5 or so, not sure) but was exposed.  So while there has been very little in the way of prosecution, the rigging has ended.  The same could happen in the PM market.  At some point the game will be exposed, either from a whistleblower or a real price discovery event like China saying its hauled in 500 tons in the last 18 months.  At some point it will no longer be able to contained.  I always say its like telling one lie.  In order to keep the lie going, you have to tell 10 more to cover it up.

goldrunner1's picture
goldrunner1
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The Real Market in Information

The latest iteration of the gold suppression scheme probably has it's roots around the time Larry Summers and Robert Rubin wrote a paper in 1988 tittled "Gibson's Paradox and the Gold Standard."  Looking at the gold chart going back to the peak in 1980 it appears that the scheme was working very well, at least for a while anyways. In spite of TPTB efforts to suppress the price the gold price started to rise again in and around 1999. I think TPTB realized their efforts were failing and brought two new suppression vehicles GLD in 2004 and SLV in 2006. During the 80's, 90's and the earlier part of the 2000's IMHO my opinion that TPTB had pretty much a monopoly on information through the main stream media. The popularity of the internet started growing in the 90's and as it picked up speed reliable information on Gold that was difficult to come by in the past was becoming readily available. Astute investors ever since have picked up the ball and started to run with it. Today we have numerous experts such as the group at GATA, Peter Schiff, Eric Sprott that are able to relay the important message about precious metals through this relative new medium the internet. TPTB never foresaw this and I beleive this explosion in information will be the final nail in their coffin.

evad65's picture
evad65
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SLV & GLD

wroth5:

You are 100% correct.  This paper scam will last for years.  Eric Sprott is fighting a losing battle.  In each of his interviews, he uses the same boring & useless arguments.  Sprott needs to quit using these same old tired arguments.  It makes him look silly.  Trying to fight JPM & HSBC is complete waste of time.  All of these gold bugs predicting $10K gold & $500 silver are living in a fantasy world.  Most likely, PMs topped out in 2011.  Sprott needs to move on.

evad65's picture
evad65
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whistleblower

jcat3022:

Andrew Maguire blew the whistle on JPM & HSBC two years ago.  Absolutely nothing has been done by the CFTC.  And it never will.  This gold & silver scam will last for years into the future.  Eventually, investors will get sick of waiting for the "big move" and they will sell their PMs.  In the end, JPM & HSBC will win.

Arthur Robey's picture
Arthur Robey
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Marx' Marks.

What value is Gold? Let us ask Marx.

locksmithuk's picture
locksmithuk
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Posts: 30
Evad65's Theory

evad65 wrote:

wroth5:

You are 100% correct.  This paper scam will last for years.  Eric Sprott is fighting a losing battle.  In each of his interviews, he uses the same boring & useless arguments.  Sprott needs to quit using these same old tired arguments.  It makes him look silly.  Trying to fight JPM & HSBC is complete waste of time.  All of these gold bugs predicting $10K gold & $500 silver are living in a fantasy world.  Most likely, PMs topped out in 2011.  Sprott needs to move on.

Evad, please explain why Sprott's arguments are "boring & useless". Are they boring because they're based on distorted economic fundamentals that you're tired of hearing about? What fundamentals have you uncovered which contradict these? "Most likely, PMs topped out in 2011" seems to be a comment ripe for explanation. You have the floor.

jcat3022's picture
jcat3022
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Evad, I'm not 100% following

Evad,

I'm not 100% following your logic here.  What happens if there is a loss of confidence in paper currencies from debasement (occurring now w/ the Yen, Sterling, soon to be Euro and eventually back to the dollar after everyone else has been debased).  I guess if you think that everything will return to normal after creating 20 trillion + currency units to keep the system afloat without collapse or any inflation, then I see why PM's wouldn't be for you.  I agree that the shenanigans of the TBTF banks may work (for now), but I'm eventually just not seeing how they'll be able to contain it when there is serious money moving into the PM market.  So while folks like Sprott and James Turk may have their timing wrong, in the end the story they're telling will come true for no other reason that the system will collapse under its own weight.  I'm just not seeing any way out of this, maybe you are?

If emerging countries like China & Russia weren't massive accumulators right now, I might think about selling my PM's.

cmartenson's picture
cmartenson
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Posts: 3365
Not Time To Give In

One of the most important traits to have is the ability to hang on when you are right.  Bull markets have a bad habit of tossing a lot of people off along the way and this gold and silver bull market will be no different.

I did my heavy buying of gold and silver in 2002 and I have seen price increases every year since.  Perhaps this year will be the one that breaks the string, or maybe not.

The powers that be are fighting a losing battle here mainly because something lese very important happened along with the information revolution; China became very wealthy.

Prior to 2000 TPTB pretty much had the set all to themselves and firmly controlled both the vertical and the horizontal knobs.  Now?  Not so much.

The longer they keep  gold and silver suppressed the faster and sooner it will migrate east.  This will create very real pressures soon enough.

On a longer basis I see that silver is rapidly depleting and gold reserves are devilishly tricky to replace with both items facing diminishing ore yields on the one hand and rapidly rising mining costs on the other.  That's a recipe for less production and higher production costs both of which will feed into price.

As this process is unfolding we still have trillions in cash, tens of trillions of debt, and hundreds of trillions in derivatives all sitting there assuming that there will always be plenty of everything to buy.  That assumption will change, it has to or else reality no longer applies, and when it does where will it go and what will it do?

The daily wiggles of the price fixers are entertaining, but they are not reality.  The trend is your friend.  Figure out what the big trend is, establish a position, and hang on.  Yes, TPTB will fight everything that undermines their status quo, but if they are fighting reality, then reality will win.  At least it always has.

I am as confident of my positions in the PMs as I have ever been.

DLClark91's picture
DLClark91
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Posts: 14
Follow the trend...setters

Chris,

First - thanks for all you do.  I agree with you fully here.  I see the central banks around the globe who are purchasing gold as a key factor to watch.  Your work (& that of Paul Tustain & Michael Maloney) planted the key concept in my mind - that gold is at the core of the financial universe - and central banks continuing actions to accumulate supports this fact.

I've stopped worrying about anything denominated in dollars.  Our desperate empire will thrash violently trying to avoid its fiscal fate, so no telling what rules/laws/edicts will be forthcoming concerning PMs.  As you've pointed out, fundamentals are seemingly decoupled from reality.  But it shouldn't strike anyone as abnormal that when the currency creation is decoupled from reality, that fundamentals downstream likewise become decoupled.  I like the long arm of history on this one...that gold/silver will faithfully play their role as a store of wealth. Getting anxious about price is to somewhat miss the point of why PM's are preferable during this period of runaway fiat currency debasement. 

Charles Hugh Smith's writings in Survival + were also instrumental in opening my eyes to other measures of wealth during difficult times - the FEW (food, energy, water) things that make life sustainable.   Glad you've added him as a frequent contributor.  

Dan

wroth5's picture
wroth5
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Posts: 21
Suggestion

Chris,

Instead of only having interviews with people who agree with your viewpoint, how about some dialogue with those who don't. I think a civil discussion between you and  someone who thinks the bull market in gold is over might be very enlightening to your readers. Also about some dialogue with someone who thinks we are going to be awash in oil. 
nstead of

Jim H's picture
Jim H
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Posts: 1464
Wroth5

I think the more pertinent question is;  why are you here?  You seem to be selling the hopelessness of PM investing and now the idea that we don't face resource constraints.  What is your agenda?  Do you want to argue for the sake of argument?  Do you have some small piece of you that believes the CM/PP agenda may actually be true and you want to give yourself every chance to be convinced of its validity?

You ask alot of Chris above.. I ask only a little from you.  Is this your way of trying to tell yourself everything will be OK - by taking the position that our money won't die, and our oil won't continue to get more expensive?  I am not going to treat you as a troll because you joined long, long ago... I ask sincerely;  what are you trying to accomplish?   

westcoastjan's picture
westcoastjan
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Posts: 466
erroneous assumption

@ evad65

All of these gold bugs predicting $10K gold & $500 silver are living in a fantasy world.

It appears that you are making the assumption that all people who invest in PM are doing so in order to make a killing on capital gains. While there is no doubt we would all love to see major price appreciation, I think for many people PM acquisitions are viewed more an insurance hedge against inflation as opposed to an investment.

As CM has pointed out many times, inflation is inevitable when there is massive money printing. We are seeing plenty of evidence of what I call un-acknowledged inflation in our daily lives - smaller packaging that is still the same price as the old packaging, dilution of quality products by adding inferior products, increases in fees and surcharges that do not show up in pricing, and on and on.... we are being nickel and dimed to death. And look at what has happened to the poor souls in Venezuala - they have had their currency devalued five times in a decade. I remain confident in my thinking that most Venezualen citizens would be far better able to weather their ongoing storm if they had some PM that they could use for trading in the black market.

History has shown that PM are a solid hedge against inflation. If you are in it for a quick buck you are not likely to be rewarded. But the same can be said for stocks. A long term view is necessary to own these assets, and as an earlier podcast guest said "you must be wedded to your investments". I am wedded to mine, because I believe in real assets, as opposed to paper promises.

To each unto his own though. If you are wedded to paper promises then so be it. If you have absolute  faith that you will be able to maintain your standard of living on the basis of what a bunch of fraudulent manipulators do and say, then good on ya. With all the cheating and lying going on these days, I much prefer an asset that has no liability attached to it. It will always be worth something tangible, and I don't think you can say that for your paper promises.

Jan

AkGrannyWGrit's picture
AkGrannyWGrit
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Posts: 156
Fantasy World

Jan, you are absolutely right, you go girl!

Fantasy World - it's all relative.

  • $10,000 gold and $500 silver
  • digital ones & zeros (fiat money) will forever be able to buy food, fuel and basic life sustaining goods

Hmmmm let me ponder which one is fantasy.

I love the simplicity of this.  "Yes, TPTB will fight everything that undermines their status quo, but if they are fighting reality, then reality will win.  At least it always has.

Common sense reigns supreme.

AK Granny

anexaminedlife's picture
anexaminedlife
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wroth5 wrote:

Instead of only having interviews with people who agree with your viewpoint, how about some dialogue with those who don't. I think a civil discussion between you and  someone who thinks the bull market in gold is over might be very enlightening to your readers. Also about some dialogue with someone who thinks we are going to be awash in oil instead of [?]

I would second that suggestion. These are very trying times for those of us who agree with the 3E message (at least on the economic front and to some extent on the energy front). I am holding my PMs because I believe the fundamentals demand I do so. But what if I am wrong?

If we don't question our premises from time to time, we are, are at best, just "true believers." I think Chris would be excellent at throwing some hard balls (in a respectful and civil manner of course) at thoughtful, knowledgeable and intelligent folks in the other camp. Most of  us who work for a living in something other than the finance or energy domains don't have the intimate knowledge to really parse the arguments and understand our positions. I want to hear the other sides' arguments in an honest (i.e. not the shills on CNBC) and forthright discussion. 

In the end, no one knows the answers; it is all "belief" but I, skeptic that I am, want to understand better my beliefs. 

AndyG's picture
AndyG
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Posts: 33
Who knows the future? I'm

Who knows the future? I'm TPTB are well aware their house of cards is looking shaky and at risk of collapse. Yet we know humans are if nothing ingenous and clever. What are the options, other than reverting to some sort of asset backed [ie Gold] system?

Could a new universal currency [Fiat] be launched globally? The powers that be co-ordinating across continents as 'the crisis' becomes extreme and 'emergency' measures need imposing to prevent anarchy.

Jim H's picture
Jim H
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Examined, Wroth5, and others...

It may not surprise you to hear that the kind of interviews you are advocating for are already out there on the net.  This one in particular has CM schooling Sean from SGT report on the question of peak oil vs. abiotic oil vs. other oil conspiracy theories, in May of 2012.  The meat of the debate is between 3:50 and 10:00 in the first of the two parts.  Note that SGT states clearly that he does not buy peak oil.. and calls it propaganda;

http://sgtreport.com/2012/05/chris-martenson-peak-oil-will-change-life-a...

SGT report does a great service but effectively lacks ANY filter as it regards conspiracy theory.. hence you get strong doses of truth in some segments, and over the line whacko in others (Chemtrails being one of these topics that just sets me off).  Anyway, the portion I point to above is required listening for anyone who thinks there is not a rock solid scientific basis for peak oil and the nature of oil's origin... like for instance wroth5.       

jcat3022's picture
jcat3022
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AndyG wrote:Could a new

AndyG wrote:
Could a new universal currency [Fiat] be launched globally? The powers that be co-ordinating across continents as 'the crisis' becomes extreme and 'emergency' measures need imposing to prevent anarchy.

In a nutshell, yes.  The IMF has issued SDR's (Special Drawing Rights) for at least a few decades now.  The elites who run the global financial system would like to see SDR's become part (if not a majority) of the reserve currency because it places debt on an institution, not a country or currency.  It is favored because it in theory keeps the paper ponzi going.  It would take 5-10 years to implement though, so in a "super crisis" scenario I think you probably would get a lot more chaos than stabilization.

Jim Rickards covers it in his book "Currency Wars" which is a fantastic read. 

AndyG's picture
AndyG
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jcat3022 wrote:Jim Rickards

jcat3022 wrote:

Jim Rickards covers it in his book "Currency Wars" which is a fantastic read. 

Hi jcat,

I have just read 'Currency Wars' and plan to read it again just to make sure I miss nothing. I agree its a great read: - easy to follow, not too long [!] with a good insiders story to tell. I was thinking of the SDR. I just think there must be other alternatives available to the [so called] elites other than a crash and re-set with Gold.

An interesting main stream UK newspaper article from today:
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9891082/Trade-protectionism-looms-next-as-central-banks-exhaust-QE.htm

It even mentions gold at $10k/oz ...

Quote: 'Investors have of course been fretting about this for some time. Scott Minerd from Guggenheim Partners thinks the Fed is already trapped and may have to talk up gold to $10,000 an ounce to ensure that its own bullion reserves cover mounting liabilities. What is new is that these worries are surfacing openly in Fed circles.'

and here's the link to the report: Crunch Time: Fiscal Crises and the Role of Monetary Policy February 22, 2013

http://research.chicagobooth.edu/igm/usmpf/download2.aspx

Oliveoilguy's picture
Oliveoilguy
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Posts: 352
More Valuable than Gold

DLClark91 wrote:

Charles Hugh Smith's writings in Survival + were also instrumental in opening my eyes to other measures of wealth during difficult times - the FEW (food, energy, water) things that make life sustainable.   Glad you've added him as a frequent contributor.  

Dan

Here is an example where Gold may be of lesser value than a tangible asset. From C.H. Smith:

Let's say that the fragile supply chain of remaining oil breaks down in a complex interaction of positive feedback loops. Oil would not just be costly; it would be unavailable to individuals. The government would undoubtedly ration what was left for essential services like agriculture, food distribution, police and hospitals, etc.

Let's say we anticipated this and responded not by hoarding gold but by buying a 100 KWhr/day solar power array, productive land in a mild climate, a store of fertilizer and a few electric vehicles to share with our family/community. We own zero gold but we own a power supply, the means to grow food and transportation that does not require petroleum.

Now would we sell these productive assets for gold? At what price, if they were essentially irreplaceable? What would we do with our pile of gold if we can't go anywhere, can't grow food and have no power source?

The holder of gold assumes that all goods can be purchased with a means of exchange holding a tangible value, i.e. gold or an equivalent commodity. But this may not be entirely true. Yes, we will sell some of our power/energy output for gold, but we will not sell our "wealth" i.e. the power plant for gold, which may or may not be able to buy a replacement. As a store of wealth, gold is no match for a productive source of energy.

Oliveoilguy's picture
Oliveoilguy
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Posts: 352
"Monthly Acquisition Program"

sand_puppy wrote:

Franklin Sanders, at http://the-moneychanger.com/ has a program that encourages monthly savings program in gold and silver.  They call it the "Monthly Acquisition Program" (MAP).  It is designed for people who want to accumulate PMs over time like a long term savings plan.  

Sand_Puppy,

What is the premium over spot? Is it fixed? or does it vary according to size of order?

Thanks,

OOG

RJE's picture
RJE
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Posts: 1369
Eric Sprott is spot on, Chris is spot on, and...

...anyone who has not followed Jim H. work here (volunes of sensible data), has lost an opportunity for the pure logic of maintaining and holding on to PHYSICAL PMs.

I am NOT a Gold bug per se (I have no emotions up or down is what I visualize a Gold bug to be so I don't defend or boast) but the logic, and absolute need to hold money, that is NOT encumbered, that is money in every corner of the globe, and cannot go to zero, and has been, throughout history, proven to buy its value in goods and services (Deflation or Inflation) on a relative basis, and as I look out into the world, and see what I am seeing, is in fact risking myself to enslavement, to another individual or entity, and for that alone, in my world, is irresponsible. Again, I live for my charges, Barb, my sons, and to a great extent my families well being, so I must have insurance that should the unthinkable happen we are protected. That simple. I will own PMs until the alchemist have a suitable solution, and that ain't going to happen.

Regards

BOB

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Oliveoilguy, Your Self Sufficiency and Resilience,...

...is Golden or Gold. I have NO ISSUES with your opinion at all. What you have done or propose, and is saleable (is this a word?) to the grid because of over production then you have, I think, the perfect plan. I hold Gold because I am currently restricted from implementing these plans. I can afford too but local government, and my community currently oppose my further wantings for Resilience and Preparations.

I have no issues at all with your Resilience, very nice in fact.

BOB

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Oliveoilguy wrote: sand_puppy

Oliveoilguy wrote:

sand_puppy wrote:

Franklin Sanders, at http://the-moneychanger.com/ has a program that encourages monthly savings program in gold and silver.  They call it the "Monthly Acquisition Program" (MAP).  It is designed for people who want to accumulate PMs over time like a long term savings plan.  

Sand_Puppy,

What is the premium over spot? Is it fixed? or does it vary according to size of order?

Thanks,

OOG

OOG, the premium is generally higher for smaller metal items (based, no doubt like most other things, on the premise that buying in bulk/size attracts a lower penalty for the buyer). I've averaged approx 6% for a 1kg bar of silver vs 9% on smaller weights. However, a lot depends on your local market, supply & demand, and your timing. Of course there's nothing to stop you negotiating a reduced premium on smaller-sized pieces for a large volume order.

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suggest someone credible

anexaminedlife wrote:

Instead of only having interviews with people who agree with your viewpoint, how about some dialogue with those who don't. I think a civil discussion between you and  someone who thinks the bull market in gold is over might be very enlightening to your readers. Also about some dialogue with someone who thinks we are going to be awash in oil instead of [?]

I would second that suggestion. These are very trying times for those of us who agree with the 3E message (at least on the economic front and to some extent on the energy front). I am holding my PMs because I believe the fundamentals demand I do so. But what if I am wrong?

I also try to see the other side of the argument, but the problem is I'm finding little credibility there.
Can anyone interested suggest someone with a credible track record,  someone who foresaw the tech and housing bubbles.
Perhaps there is someone out there, but from my somewhat limited investigation, all those folks are advocating  PM's.

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Evad65 again

evad65 wrote:

All of these gold bugs predicting $10K gold & $500 silver are living in a fantasy world.

I thought more about your comment. You, I, and everyone here cannot predict if, when and by how much the value of $1 will change in the next 5-10 years.

However, consider just these few factors alone: above-average annual inflation, budget deficits & their exponential impact on debt mountains, larger and larger money-printing schemes, bond yields, the proliferation of unbacked paper-based investments. Now consider what all of those – aggregated – are likely to mean for the value of money. Ever heard of the Time Value of Money, or Net Present Value analysis? Anyone who has covered the basics of business investment appraisal will be familiar with both. If you accelerate the devaluation of currency then how on earth is $10,000 an unrealistic price for gold? Hell, why not $20,000? My mother bought a house in Zimbabwe for ZW$7,000 in 1980. By 2002 it was worth ZW$1,000,000. I won’t go and research the cross values at those 2 date points to the value of gold, but anecdotally it wouldn't surprise me if the equivalent number of gold ounces were in the same ballpark as one another.

If Zimbabwe's experience can teach you nothing else then let it teach you that price and value are 2 totally different concepts in times of economic turbulence. It seems that you value the future in terms of today’s monetary price. That is very dangerous - and unbelievably naive - in the current climate. Try determining value in terms what your wealth can buy you, and the relative values of assets to one another. My guess is that some wild divergences between asset prices will start to emerge in the not-too-distant future. $10,000 may be worth diddly squat in 5 years' time.

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It's no coincidence

It's no coincidence that there is an article on DIY solar power in the upper right of the main page today. and this on the upper left. OliveOilGuy is dead-on and in total agreement with Dogs-In-A-Pile about solar energy being a better investment for most than PMs. Not that we don't have some silver, but it's just a small amount. We are concentrating on getting more solar panels. The same goes for being able to produce food, especially for those of us that have very little wealth to store.

Go Google on this "A loaf of wheat bread or three loaves of barley will cost a day's pay. And don't waste the olive oil and wine." to see why I run the Agriculture & Premaculture Group here at Peakprosperity.com. In an overpopulated world facing rescource limits, having them means and the ability to feed yourselves and others may become the most important investmant of all.

First take care of food, (and that includeds energy for cooking), water (and that includes energy, if needed, for pumps and/or boiling), and shelter (and that includes energy for heat). PMs are great. I have them. But I don't expect to eat them, drink them, or live in them - or use them to keep warm.

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wroth5 Suggestion

I'd love to see an interview with Nicole Foss from The Automatic Earth for a slightly different perspective.

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yep

Yep on Foss but I think we all have done the Pro's and Con's to this, and I am still open to having my mind changed at a moments notice. When the market corrects I believe it will be a hard correction. Foss will appear right then. For the record I like her, she certainly isn't stupid, on the contrary. Lots and lots of paper laying around though. Fact is, The Automatic Earth is the balance I seek. Must have balance. 

BOB

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Wendy--appreciate your perspective

Thanks for your last post, Wendy.  With so many things that need a doin' it is very hard to prioritize. And when the price of PMs get slaughtered it is easy for me to get caught up in "I must buy now" frenzy.

Securing food production, water, wood burning stove and a solar panel system sounds like really solid advice.  I'll work on the garden, water storage tank, solar panels, and wood burning stove.

Anyone put in one of these 550 gallon water tanks?

http://www.tractorsupply.com/water-storage-tank-550-gal--2126933

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On Nicole Foss

What I smell here in this thread is an unwillingness on the part of many folks to take responsibility for their own decisions.. or to do the research necessary to make their own decisions.  In the "old" days, Chris used to say, "trust yourself" quite often, though I don't hear him say that much anymore (not sure why, as it really motivated me).  

Anyway... while I would be as entertained as anyone here with a cage match between Stoneleigh and Chris.. I just don't see why it is necessary.  Furthermore, I think it is being requested by folks who are skirting their own responsibility to themselves to educate themselves enough to come to their own decisions.. to exercise their own critical thinking skills.  I attended a very small, intimate presentation by Foss several years ago and have kept up with her thinking since.  On the critical subject of PM's, which is the main area of contention between Martenson and Foss, it pretty much comes down to this;

Foss:  There will be a giant, sucking deflation so great that it will take down the nominal prices of Gold and Silver with it.. .there may be a buying opportunity then.  No amount of money printing will be able to stem this deflation.  

Martenson:  He continues to be an advocate for Gold and Silver for the preservation of savings.  Money will be printed, and it's buying power will decrease vs. real things.  Chris is perfectly clear on the fact that he supports the purchase of Gold and Silver, now, for protection of savings.  

Foss would have you believe that the current flatlining of Gold is in fact this deflation playing out... she does not acknowledge manipulation and is actually fooled by it.  She uses it to feel like her prediction is correct.  It is not.  Central banks have been net buyers for a few years now.  The amount of paper wealth in the world is HUGE compared to the amount of Gold and Silver at current prices.  This is not, and has never been about the 99.9% of us that will get caught in either deflation, or inflation, whichever it is in the end... it is about the 0.1% that hold the vast majority of the wealth.. and the pension funds, etc.  When these entities decide that they want and need the Gold and Silver... the price will skyrocket, and you will be iced out of getting physical.  If you want physical you need to accrue it BEFORE this happens... and this is why Foss' advice is so perverse... if you follow it, you will have no protection.

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Points of view

Jim,

I have also attended a Nicole Foss presentation (and she was equally as articulate and persuasive as Chris). An audience member put to her a similar question that wroth5 asked and I am para-phrasing a bit here. "Who is there out there that has rationally analysed the same data yet holds different opinions?"

Very interestingly, Nicole immediately put forward Chris Martensons name as a person whom she greatly respected and said he would probably say she does not have all the evidence to justify all her conclusions.

Unfortunately I don't recall more specific details on where exactly she thought she differed from Chris other than being generally more pessimistic on impending financial catastrophes. She expected a break-up of the Euro zone before the end of 2012. You seem to have a good grasp of their differences on PM's.

On the topic of who Chris chooses to interview: I much prefer to listen to an academic who has done the research on all sides of an issue and come up with rational conclusions without bias. Most unfortunately are just too compromised by their vested interest to be taken too seriously. As an example, I place most people on financial sense news hour in this latter category (an exception is the guy from Shadow Stats). You can get almost any opinion you want on that site if you wait long enough.

Next best is someone else who has spent more time than me doing the hard work. I place you Jim in that category. As a kind of elder statesman of this site you are able to compare and contrast opinions and provide a valuable balanced view, just like you did in the previous post. But of course that is also what Chris and his team do and why we pay a subscription for the content.

Eric Sprott has a huge vested interest in PM's. The Harvey Organ thread on this site last year has over 300 posts including many from Erik Townsend, yourself, Bron Suscheki and others arguing over whether the PM market is rigged. It is easy to be convinced either way. Unfortunately CM was pretty silent in that thread and I came out of it confused. Eric Sprott sounds convincing too but he also stands to benefit enormously just by making people believe the market is rigged - whether it is or not.

So I sympathise with wroth5 and anexaminedlife. But I dont want to just hear alternate points of view for the sake of it.

John

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Bowskill

Thank you for posting and for the kind words.. Certainly you are right in saying that Nicole Foss is entirely sincere and her work comes from a place of scientific and personal integrity.. she is a compelling speaker and has great depth in terms of the energy picture.  There are others who are equally sincere and competent that are relatively anti-Gold.  For instance, you will never hear Denninger advocate for Gold, though I read him daily and love the fact that he pounds home relentlessly regarding the mathematical unsustainability of all the deficit spending and debt build-up going on.  The larger issue then is to understand whether the pundit is talking their book or not.  Most are.  Those that aren't can still be wrong from time-to-time   : ) 

It is interesting that you bring up the Harvey Organ thread... and indeed, Chris (and Adam) has come out of the closet more lately in terms of his acknowledgement of manipulation in the PM markets.

Wild stuff is going on beneath the covers of the PM markets.  Look at what happened last week, and cumulatively so far in 2013 in terms of GLD inventory... realize that when GLD is drawn down, it represents demand that does not show up on the supply vs demand Comex radar... you can pull craploads of Gold out of GLD without effecting price;

Just yesterday, the GLD saw a withdrawal of 8.88 metric tonnes. This followed a drawdown of nearly 23 tonnes on Wednesday. In fact, since the start of 2013, the GLD is now down 59.61 metric tonnes or 4.42% of "inventory".

http://www.tfmetalsreport.com/blog/4517/raiding-gld

Almost 60 metric tonnes?  That would place the Jan-Feb inventory drawdown in the range of Country #43 in the list of 110 largest Gold holdings by Country.  So yeah, that is kind of a lot.  

And yet the MSM would have us believe that price is going down because of lack of demand.  Ha Ha.   

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Jim, I love you, you know I do. Brothers

Anyways, (I am Not a troll. LOL) if I see a transaction of 60 tons of Gold move to someone as 60 tons of Gold at current prices then I don't expect Gold to rise as Supply/Demand hasn't been effected (it's a push). Do I believe Gold is manipulated, I do, do the fundamentals favor Gold, it does, but the paying that extra hundred bucks an once hasn't yet occurred to cause the feeding frenzy. If expecting a crash. and that is a reasonable anticipation then only those truly convicted will hold, otherwise I sit and wait with powder dry to add, and I fear not as I will get a better buying opp. Yes? Until the wash, rinse, and repeat cycle convinces the 95% ers to buy and hold then Gold will have it's volatility. IMHO

When a Man is trying to give away a Gold coin if you guess the cost and everyone shouts out the answer then it is too late. I don't know when I have seen an example of this except for the 70's. Even then it wasn't a frenzy in the sense because the dollar backed Oil. That frenzy ended around $2400 in today's cash? Then fell way back. Then again, the world hasn't embarked on a debasement collectively before. So, I think we have a leg up, and can be first to the switch. Again, I am no fortune teller but just trying to take care of Barb and I, and history tells me to own a core holding during times like this, and plan my exit strategy too.  

BOB

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Bob

Thanks for not being a Troll   wink  I love you too my friend.

I would not be planning my Gold exit based in any way on the structure of the 1980 peak.  Volcker brought the system back into equilibrium by making his money, the dollar, yield a strong positive real return vs inflation.  This brought about much pain to bondholders.  That will be impossible IMO once this next stagflationary cycle starts because the US cannot absorb the added debt service costs associated with even a mean-reversion interest rate shift.  I can't imagine what forces you think might come in to play that will cause a mirror of this past event.   

source is Denninger:  http://market-ticker.org/akcs-www?post=217892

The worse news is what happens if The Fed is forced to back off.

Let's assume that the One Year T-Bill rate goes back to the midpoint of its historical range (not including the 1980s discontinuity), or about 3.5%.  What happens?

The expense profile of the government does not rise by $355 billion in mandatory spending, it rises by nearly $900 billion annually in just two years time!

This increase is approximately one third of all tax revenues and into a flat GDP there is no chance of collecting the taxes necessary to fund it.

That in turn will provoke a discontinuous interest rate move.

Unfixable is a word that comes to mind.... one that our buddy Chris used recently. 

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Jim, I do understand what Volcker did, and...

I wish I had an article I read about how he wished he had suppressed Golds price before his great policy action. With Volcker close at hand, he wants Gold suppressed and the Fed will do all it can. That isn't the point I was making as I agree with your overall view. Your work here speaks for itself. Chris has even mentioned our exit strategy (at some point) and is all I was referencing. I did this to make a point that: "This too shall pass", and owning Gold at some point will have reached its apex and selling would then be wise. My bad if that wasn't clear.

I normally don't talk Gold because I really do not care one way or the other. I just will hold it, and add as I'm comfortable. I like the other action way better, in-out, and learning is still my very highest priority. I feel in the last 6 months I have learned more than the previous 4 years. I love it. I need visuals, always have, and I can see things now after watching charts and reading all the great minds out there, then watching what is happening. If I see a Man lite himself up or riots in the streets, that is a major tell to me in comparison to the BS governments give. Good (well Bad too) stuff.

Be good Jim

BOB

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Arthur Robey wrote: What

Arthur Robey wrote:

What value is Gold? Let us ask Marx.

Perhaps one of the more interesting posts on this thread is the shortest one, by Arthur Robey.

With all the apparent interest in alternative points of view, has anyone followed his link?

If you did, you would find an interview with academic Andrew Kliman, and while I would argue it has little to do (directly) with gold, he has a most interesting perspective on the causation of the current crisis which for me anyway, illustrates how far off base most of the commonly repeated explanations really are.

Much of the initial interview is a discussion of use value and exchange value, but right around the one hour mark he begins a discussion of the tendency for declining profits, and how this in his view is the root causality regarding the current crises. Not the Federal Reserve. Not Edward Griffin, not Ben Bernake, and not the size of the Federal debt.

He points to a structural tendency of capitalism to reduce to an ever decreasing margin of profits, ultimately, to a point where capital can no longer receive adequate returns to justify further investment.

One of the metrics to determine if this is occurring, might be if global corporations would be sitting on massive amounts of parked (inactive) cash. Another would be a data set that shows a consistent and substantial decline in the profit margins over a mutli-decade time interval. Professor Kliman points out both conditions are currently in force.

Kliman makes a compelling argument, but I did not post this to trumpet his claims as the de facto explanation of the financial crisis (which they may well be). Instead, I wish to present some other points of view that may seek to explain things in a different way, and these explanations may have a very different impact on a decision to own PM’s.

Also I agree that it must be right to use historic costs to value correctly the fixed assets of the capitalist sector in measuring the rate of profit.  This is consistent with Marx’s analysis of capital and is what capitalists do anyway in gauging profits.  On this basis, I’m entirely in agreement that the ultimate cause of the Great Recession must lie with Marx’s law of profitability and not with the alternative explanations of inequality and declining wage share (Husson, Reich, Wolff), or underconsumption or ‘over-accumulation’ (Harvey – see my post David Harvey, Marx’s method and the enigma of surplus, 13 November 2011) or excessive or uncontrolled debt (Keen – see my post, Bellofiore, Steve Keen and the delusions of debt, 7 october 2011 – or Dumenil, op cit) or financial instability (Lapavitsas).  In that sense, the Great Recession was a failure of capitalist production, not a financial crisis (Minsky), nor one of the lack of effective demand (Keynes), nor the end of some special neo-liberal structural order of capitalism (Husson, Dumenil) .

This passage outlines several competing theories on the cause of the great recession, all with ramifications that impact the potential value of PM’s. They are in summary form as follows:

-         Neoliberalism- e.g. income inequality and declining wage share.

-         Lack of aggregate demand e.g. underconsumption

-         Skyrocketing personal  debt, necessary to replace declining wages in order maintain a sustenance lifestyle.

-         Financial instability, e.g. intrinsic instability (per Minsky) as investors perpetually chase more risky returns.

Gold plays a different role and has a different meaning in each of these arguments.  I hear a lot of reference to critical thinking, yet I can find not a single instance of any substantive discussion (save for debt discussions) of these alternatives, rather, it looks something like an Austrian echo chamber with a fait accompli outlook that a currency failure is inevitable and the root cause. This is particularly troubling to me for several reasons, one, it always seems to be an ideology in search of data to support it, rather than the other way around. If you have a belief system and you look hard enough you will eventually find some type of data to support whatever position you want to advance. So it becomes a sin of omission, as data that contradicts the premise is suppressed or ignored.

Secondly, I find that all of the currency schemes as causation universally rely on the premise that the “system is being manipulated” to explain why the “fundamentals” so forcefully stated are not actually occurring as predicted by model. The truth is, if the explanation is singularly that the empirical does not match the theory because of manipulation, over and over again, that you really do not have a theory. This then becomes nothing more than an excuse to try and keep alive a dysfunctional premise. Yet, virtually any PM investment newsletter, or fund manager or anyone with any (financial) interest in the PM story will shout from the highest mountain- FRAUD- while they lose client’s money left and right.

Lastly, I believe that the PM/currency failure/Federal reserve explanation does not accommodate any of the aforementioned factors of (intrinsic) declining profit margins, neo-liberal effects, or systemic financial instability (with remedy only in massive regulation), rather it is an island of explanation that cannot entertain anything other than a free market solution inherent to Austrian ideology.

Conversely, these alterative explanations can all accommodate dysfunctional monetary policies and still carry their central premise.

One might want to consider the possibility that one or more of these alternative explanations might have some validity before one bets the farm (or even hedges a portfolio) with PM’s.

Thanks to Arthur for the link

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Darbikrash, very nice and well opinioned...

...Yes, I listened to the interview, and add this to the mix of all explanations and economic thinking after the fact that I have read. Many, many theories and connecting of dots..

I was still struck while listening to the interview that his opinion was still so subjective. In the here and now I must protect what wealth accumulation I have guarded, and wish to hold, even capture some wealth to keep with inflation, whatever Inflation is. This as you know has been very difficult during these most incredible times.

You said:

"If you have a belief system and you look hard enough you will eventually find some type of data to support whatever position you want to advance. So it becomes a sin of omission, as data that contradicts the premise is suppressed or ignore".

I will not speak for others but this bias that you speak of is tended to and examined every day by me. I have done my work, and will continue too in the hopes I can blow holes through my understandings. So good of you to remind us how very important this is.

Arthur is my Captain

Respectfully

BOB

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Commoditization is natural

I fail to see what this has to do with Capitalism.  Darbi seems to want to legislate a world whereby a factory must continue making things by hand, even if machines could make the product more cheaply, and with less variability (better quality).  While the process of commodization may certainly be accelerated by the profit motive... it will be active in any economic system one could imagine, save for one that is legislated by force not to.  It is simply human nature to find better ways to do things.. improve yield and efficiency, reduce defects, improve quality, etc.  It is not human nature to stand still.  It is also human nature to seek higher margin work to be in, and this leads to innovation.  Speaking of profit.. I'll bet no Marxist ever conceived the software business, with its 50% profit margins.      

If I look at a very long term chart of Corp. P/E ratio.. I don't see this systematic profit compression you speak of over the 70 year debt supercycle that we are nearing the end of (as per Kyle Bass);

http://www.advisorperspectives.com/dshort/charts/valuation/PE-ratio-over...

I will stick with my Gold and Silver as a means to hold onto some saved labor through the upcoming money crisis.

Darbi said;   The truth is, if the explanation is singularly that the empirical does not match the theory because of manipulation, over and over again, that you really do not have a theory. This then becomes nothing more than an excuse to try and keep alive a dysfunctional premise. Yet, virtually any PM investment newsletter, or fund manager or anyone with any (financial) interest in the PM story will shout from the highest mountain- FRAUD- while they lose client’s money left and right.

This is more hyperbole... totally exaggerated argument.  Gold and Silver have been in a 12 year bull market.. nobody is losing money left and right.  I am up > 50% on my primary investments since 2009, and others on this site are up much more having seen the trend earlier.  There is manipulation, but it is only slowing the progress of this market, not stopping it.  How the hell would you protect your savings Darbi?  Your arguments are so academic, so disconnected from the current reality on the ground, so totally dismissive of the pain and suffering of people in countries that are already suffering from the effects on their fiat currencies of this now ending 70 year debt supercycle (Iran, Argentina, and Venezuela to name a few) that I don't really know what else to say.  

Oops.. did I mention Venezuela?

http://rt.com/business/venezuela-currency-devaluation-802/

Marxism and the Venezuelan revolution

 
Friday, February 23, 2007 - 11:00

"Today a new epoch begins", Venezuelan President Hugo Chavez declared in his victory speech on December 3, having won the presidential election with the highest vote in Venezuelan history on a platform of deepening the struggle to build socialism. "That new era is the new socialist democracy. That era is the new socialist society."

Chavez has insisted that 2007 will be a year of a revolutionary offensive to greatly deepen the transformation of Venezuela that has begun through the Bolivarian revolution underway since Chavez was first elected in 1998. The struggle to challenge corporate interests and redistribute oil wealth to the impoverished majority has already brought about impressive social gains, and has been accompanied by increasing moves to organise working people into institutions of direct democracy. With the expansion of the state sector in conjunction with the formation of more than 100,000 cooperatives, the problems of the poor majority have begun to be tackled.

Globally, these gains have captured the imagination of many who believe a better world is possible. The growing radicalisation of the revolution, based on the increasing mobilisation of working people themselves (with the largest pro-revolution demonstration yet of 2.5 million the week before the election), has further focused attention on this attempt to create an anti-capitalist alternative in a world where corporate interests drive wars and environmental destruction.....

source:  http://www.greenleft.org.au/node/37067

I'm sure their version of Marxism, even though it had the headwinds of oil resources behind it.. just needed some subtle tweaking, right Darbi?       

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Non sequitur?

     So, darbikash, I agree that these points are a pretty good description of where we are in the   developed world:

-         Neoliberalism- e.g. income inequality and declining wage share.

-         Lack of aggregate demand e.g. underconsumption

-         Skyrocketing personal  debt, necessary to replace declining wages in order maintain a sustenance lifestyle.

-         Financial instability, e.g. intrinsic instability (per Minsky) as investors perpetually chase more risky returns.

But I don't understand at all your assertion that:

Gold plays a different role and has a different meaning in each of these arguments.

Setting to one side the Austrian school orthodoxy (which I, too, find simplistic) and the whole issue of  manipulation in the PM markets surely the very policy response to date to the problems you have outlined is validation of the case for investing in gold and silver.

I don't like where we are, nor do I like how we got here.  I don't even like having to bother with precious metals but we are where are and as far as financial investments are concerned I really don't see better alternatives.

(Apologies for the indentation issues.  Can't make the buttons work to order.)

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Jim H wrote: I fail to see

Jim H wrote:

I fail to see what this has to do with Capitalism.  Darbi seems to want to legislate a world whereby a factory must continue making things by hand, even if machines could make the product more cheaply, and with less variability (better quality).  While the process of commodization may certainly be accelerated by the profit motive... it will be active in any economic system one could imagine, save for one that is legislated by force not to.  It is simply human nature to find better ways to do things.. improve yield and efficiency, reduce defects, improve quality, etc.  It is not human nature to stand still.  It is also human nature to seek higher margin work to be in, and this leads to innovation.  Speaking of profit.. I'll bet no Marxist ever conceived the software business, with its 50% profit margins.      

If I look at a very long term chart of Corp. P/E ratio.. I don't see this systematic profit compression you speak of over the 70 year debt supercycle that we are nearing the end of (as per Kyle Bass);

Jim, I’m not really sure what exactly you think Marxism is, at least in the context of economic theory. Marxism, as advanced by Capital vI, vII, and vIII, is critique of the political economy. Nothing more. Nowhere is machine automation discouraged (or encouraged for that matter). It is an objective look at the anticipatory effects of the intensification of production, and the effects of same on profit margins. It is also a discussion (and clarification of other’s work) on the labor theory of value, first advanced (with serious flaws) by Adam Smith and Ricardo. Above all, it is an examination of the social implications of commodity production, and an expose of exploitation.

It does not ask that the world stand still. It does not opine that things “should be made by hand”. It simply points out that if such measures (intensification of production) are utilized (and suggests that they indeed must be utilized) than one should expect that profit margins will decline.

Most, when confronted with this conclusion, challenge the theory that profit margins must decline. This is the “normal” response to that part of Marxist theory. However, Kliman posits that previously successfully challenges to this theory by neo-classical economists was and is wrong. He does so not of opinion, but by supporting the preexisting Marxist theory of the tendential decline of profit margins, a famous and well known (and controversial) conclusion of Marx. He does this by providing data, not P/E stock market data, but in analysis of company actual profit margins, which are not the same thing as stock market valuations (obviously).

He suggests that the period of 1949 to 2001 (trough to trough to normalize the business cycle) there is between a 40-55% decrease in actual company profit margins. Notably, he also calls attention to the neoclassical parlor trick of simultaneously valuing the production inputs and outputs, which is necessary to support equilibrium theory so vaunted by the neo-classical economics crowd. This trick artificially skews the profit margin calculations, confounding any meaningful collection of comparative profit data across time. No business- and I mean none- would sign up for an accounting trick that resets the price of cost of goods sold if supply prices fluctuate downward after the product is actually sold.

If his data is correct, I would call this without question “a systemic compression of profit margin”. In fact, coupled with corporations holding excess undeployed cash reserves in the billions of dollars, this to me would justify a scathing indictment of neoclassical theory and a strong indicator that Marx’s theory was and is correct.

Let’s be clear about the implications. If margins decline to such a point where business no longer finds it attractive to invest, if the intensification of production reaches the point where machine automation supplants armies of workers, what exactly are the displaced workers supposed to do? Are all of them to advance into “innovation” skill sets? Legions of strawberry pickers, assembly line workers, hamburger flippers, etc. are they to toss off their dungarees and uniforms and get advanced degrees in computer science?

And yet it is me who is out of touch with reality?

As to your comment on the software industry, there is some merit to your point, but on the one hand, Marx did contemplate such types of industries. He called them “ficticious capital”, lumping them in with other such high margin/low investment “products” such as financial derivatives and other specious inventions of post crisis capitalism.

Kliman specifically speaks to the issue of software, and (correctly) states that it is valid only under monopoly capital conditions, because it has a use value of nearly zero, as there is virtually no tangible labor cost to replicate it. Without robust IP protection (by force), there would be no software market as everyone would bootleg it for free. Consequently you find entire markets driven either by monopoly protection, or by trading entirely on speculative exchange value (tulips, etc.)

It would be interesting to get a deeper understanding of how other types of knowledge workers (to coin a Peter Drucker phrase) would fit into the commodity/labor value construct.

This is more hyperbole... totally exaggerated argument.  Gold and Silver have been in a 12 year bull market.. nobody is losing money left and right.  I am up > 50% on my primary investments since 2009, and others on this site are up much more having seen the trend earlier.  There is manipulation, but it is only slowing the progress of this market, not stopping it.  How the hell would you protect your savings Darbi?  Your arguments are so academic, so disconnected from the current reality on the ground, so totally dismissive of the pain and suffering of people in countries that are already suffering from the effects on their fiat currencies of this now ending 70 year debt supercycle (Iran, Argentina, and Venezuela to name a few) that I don't really know what else to say. 

Which part is the hyperbole, Jim, the part where I claim that if the main explanation of a broken and deeply flawed monetary theory is manipulation, that there really is not a theory after all, or the part where I claim that the PM newsletters and internet pundits prime stock in trade when their trades fail is market manipulation? Because that seems fairly accurate to me. Note the interview at the top of this thread, I think you downplay the degree that market manipulation is called upon to explain the unexplainable. It’s ubiquitous, and to suggest that it is a claimed as only a minor “slow down” on what one supposes is the “natural” market behavior is disingenuous.

I'm sure their version of Marxism, even though it had the headwinds of oil resources behind it.. just needed some subtle tweaking, right Darbi?     

Jim, I have no interest in Venezuela, and no knowledge whatsoever as to what may or may not be going on down there. The point of my posts is that the explanation of currency manipulation and the associated anticipation of a currency collapse make a poor explanation for many observable events today, yes, some things are explained, but many are not. And it is the ones that cannot be explained by elliptical descriptions of pending currency collapse that worry me. I do not see people that follow this line of thinking looking outside the box at alternative explanations, rather I see them getting defensive when PM’s are questioned, and ignoring very large phenomena (like why are major multi-nationals parking large sums of cash on the sidelines- when they have a fiduciary responsibility to reinvest this money and maximize shareholder return- is this the confidence fairy?)

I think Andrew Kliman's claims deserve deeper investigation-not reflexive dismissal and spurious comparisons to Venezuela -as to how he got the data, and is it valid. Because if he is right, some Austrians and currency conspirators got a whole lot of ‘splainin to do.

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darbikrash
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Posts: 573
debu wrote: But I don't

debu wrote:

But I don't understand at all your assertion that:

Gold plays a different role and has a different meaning in each of these arguments.

Setting to one side the Austrian school orthodoxy (which I, too, find simplistic) and the whole issue of  manipulation in the PM markets surely the very policy response to date to the problems you have outlined is validation of the case for investing in gold and silver.

I don't like where we are, nor do I like how we got here.  I don't even like having to bother with precious metals but we are where are and as far as financial investments are concerned I really don't see better alternatives.

I’m not sure I have any better solutions than PM’s either, but I am deeply suspicious of an investment class that is focused primarily on either the collapse of currency, or the significant and instantaneous devaluation of said currency.

If these theories of monetary destruction are incorrect, or superseceded by effects not considered by the fiat catastrophe guys, then the “fundamentals” behind the investment decision are flawed. If the value simply goes down, you are neither preserving wealth nor going to win the FOFOA lottery. It may well be the case that of the alternative scenarios there is no “safe” class of wealth preservation. Land might go down, gold might go down, food based commodities might go down, in fact rampant deflation might be a more plausible outcome, and these outcomes might well be predicted if the underlying causality could be reliably ascertained.

So yes, I think it matters how you believe this is going to play out as to how and what you invest in, or more accurately if you invest at all, and the alternative scenarios provide a sobering view of a world that might not see currency collapse. 

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RJE
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Posts: 1369
Darbikrash, forgive my interuption here and your talks with Jim,

...but your excellent analysis also tells me that it appears your views as opposite, and just as well intentioned as Jim's, and in the final analysis I have to decide which way the world financial issues fall.

Clearly the world is printing in such a way that they are trying to get ahead of each others so that exports help to raise each countries bottom line. Not everyone can be an exporter but every country is printing, and that is most certainly a Inflationary policy. 

Deflation or Inflation, and even as you have stated, this may or may not end in a Deflationary (I assume this basically as I assume you have checks and balances to your Biases). So, would I be incorrect or irresponsible to play both side of the fence? I say I am NOT. I see Gold as historically a favored plan against Inflation. History has also shown me that Deflation, and Gold's relative value, will still purchase me the same loaf of bread on either side of the scale. My visuals of an extreme case is that I can walk into any grocery store with Gold, and not worry whether Hyperinflation or extreme Deflation, and purchase at the moment those goods or services I require. In such a situation, I visualize the merchant being very secure in accepting my Gold, and not so much with my paper.

It is important to know that I only care that I have the ability to purchase a loaf of bread not to be viewed as an investor of PMs.

I clearly see the struggle that you and Jim are positioning here. I believe we all do. Now, if I were to care about the fluctuation of Gold, and was asked to guess Inflation or Deflation I would guess Inflation. So, as an investment, after satisfying all Preparations and Resilience (ex: oliveoilguy) I would then buy Gold but I wouldn't pile in, I would hold a core amount, and add to this if I was able to on a percentage to income basis. 

Respectfully

BOB

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jcat3022
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darbikrash wrote: Jim H

darbikrash wrote:

Jim H wrote:

I fail to see what this has to do with Capitalism.  Darbi seems to want to legislate a world whereby a factory must continue making things by hand, even if machines could make the product more cheaply, and with less variability (better quality).  While the process of commodization may certainly be accelerated by the profit motive... it will be active in any economic system one could imagine, save for one that is legislated by force not to.  It is simply human nature to find better ways to do things.. improve yield and efficiency, reduce defects, improve quality, etc.  It is not human nature to stand still.  It is also human nature to seek higher margin work to be in, and this leads to innovation.  Speaking of profit.. I'll bet no Marxist ever conceived the software business, with its 50% profit margins.      

If I look at a very long term chart of Corp. P/E ratio.. I don't see this systematic profit compression you speak of over the 70 year debt supercycle that we are nearing the end of (as per Kyle Bass);

Nowhere is machine automation discouraged (or encouraged for that matter).

I'm not really sure if that is 100% correct - http://www.marxists.org/archive/marx/iwma/documents/1868/machinery-speech.htm

I'm by no means an expert on Karl Marx.  I've read a fair amount Das Kapital & The Communist Manifesto and as a small business owner that started a company with 3 people and built it to 35+ I find his work tiring and intellectually lazy.  Life is way to short to sit around and pontificate for hours, days, weeks, months and years on end about how to divide up labor and how many weeks vacation employees should have.  Quite frankly nowhere in your responses in this thread do you get to the point.  As they say in sales, all sizzle, no steak.

I've found success by finding a group of people as driven as I am and focused on producing.  In order to do that, sacrifices have to be made.  Some people are cut out for sprinting around the track, others not so much.  The ones who can run the fastest without bitching are hands down the most successful and happiest.  FYI, most of them are from Ethiopia and lived there in the 70's and 80's thru the brutal Marxist regime.  The horror stories they told me of loved ones being executed and generations of wealth, land and possesions being destroyed are gut wrenching.  One word of advice, if you're ever around Ethiopians, don't mention Karl Marx.

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therooster
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REAL-TIME Gold-as-money

That's part.'n parcel of the transition to real-time gold-as-money now that gold trades in real-time (floating). That transition cannot be by fiat. It cannot be top-down but must be market driven in view of the real-time component. We are seeing a market migration, bottom-up, from debt currency to asset currency. The free floating, debt currency stop-gap measure has been a "necessary evil" in the process of developing fully integrated real-time relationships between currencies, precious metals and commodities. Think Bretton Woods. Gold is a wonderful store of value, debt-free, but could never make for a good liquid currency as long as the price was fixed. Keep in mind that a weighted currency's total liquidity is the product of (weight x trade value). This is why the FIXED peg had to be severed in order to set gold free for the sake of future re-monetization ..... in real-time. Allow the value to rise ..... split the weight. Simple. Keep it that way.

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therooster
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Karl Marx had a busted computer

It's actually socialism via the development of free floating, debt based fiat currency that is indispensible to free market debt-free asset currency that floats in real-time. Marx got it wrong. His computer was busted.

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gillbilly
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Joined: Oct 22 2012
Posts: 377
Class Dismissed

Why do people dismiss so many economic theorists? I've spent a fair amount of time reading Smith, Malthus, Ricardo, Marx, Keynes, Hayak, etc. They all have incredible insights, and yes, not one of them has a complete grasp on economic theory. Why would we expect a complete view? It's one of the most dynamic subjects. They could only write within the context of their experience and time. Times change.

Jim, I've enjoyed so many of your posts and I've learned so much from them...especially the bitcoin, but claiming that commodization is "natural" makes a lot of assumptions about human behavior and nature itself that are currently being challenged, and in my opinion not entirely true. Your comment on efficiency, profitability, and productivity as progress and "making things better" depends on where you sit in relation to them and how those "improvements" impact our world. From reading your other posts, I know you know this, that's why I'm kind of surprised?

It does appear that our old models aren't working, but now that think of it, models should follow experiential narratives not the othe way around. It feels to me as TPTB are trying force our way of life to conform to models, and yet the narratives are changing. We need new these new narratives to drive new models of theory, if we want models at all. Maybe all this hyper-organization and re-organization is not making things better?

Peace!

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Jim H
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Joined: Jun 8 2009
Posts: 1464
commodization

Gillbilly,  Thank you for your post.  I was actually agreeing with Marx (I guess) that profit margins compress over time, and I called this process commodization, and I called it natural for the reasons mentioned.  My point of argument was that this process is not somehow unique to capitalism, but is rather just natural.  I think you would have to give examples for me to better understand the point or points you are trying make.  My point is that it is human nature to want to make things better, cheaper, and higher in quality.  There has always been a push toward increasing mechanization, and there always will be.  Darbi said above,

Are all of them to advance into “innovation” skill sets? Legions of strawberry pickers, assembly line workers, hamburger flippers, etc. are they to toss off their dungarees and uniforms and get advanced degrees in computer science?

And my answer to that is, regardless of Darbi once again using hyperbole, or overdramitization to make a point... um, yeah.  No, everyone does not need to get a four year degree to be productive, but yes, people doing work that will be mechanized or digitized in the future will need to get training if they want to be productive in the future of much of the available work (not including a hopeful boom in re-localized farming).  They will need to understand computers, databases, statistics, some math, etc.  I am not saying this is good or bad.. only that it is.  Andrew McAfee of MIT sees this and yet makes the point the future he sees because of it is not a dystopian one;

http://www.ted.com/talks/andrew_mcafee_are_droids_taking_our_jobs.html

Note that I do not happen to agree with his comment that economies don't run on energy... that they run on ideas.  They run on both. 

So, to summarize.. I see the progression of technology as a natural human endeavor, disconnected from the political economy (save for instances where progress is stunted by force).  I think that commodization is a natural subset of this progress, and that profits are compressed in the process due to competition.  Examples of this would be;

*  Making complex car parts that used to be assembled from many sub-pieces out of one, cheaper to make, monolithic piece using advanced injection molding.

*  Making car parts that used to be metal out of engineered plastics

*  Making some plastic replacement parts on the spot, as needed in real time, via 3D printing rather than holding them in inventory (along with associated carrying costs).

One can think of endless examples.  I understand that commodization, as practiced in Corp. America today, has many ugly sides, including the loss of our factories to places like China where labor is more abused, and the environment gets abused too... but I view this as a regulatory problem - one can level the playing field via tariffs.    

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