Reminder of the Undervaluation of Gold & Silver

Adam Taggart
By Adam Taggart on Tue, May 21, 2013 - 10:34pm

This new video from Mike Maloney is full of charts and data providing a great reminder of the relative undervaluation of both gold & silver right now. Anyone sweating the recent continued monkeying of PM prices should watch this -- you'll feel better:

Mike is one of the best monetary scholars we know of.

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Nervous Nelly's picture
Nervous Nelly
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Posts: 209
Gold Silver Undervaluation

Thx Adam I really needed a bit of positive influence today! 

You get a heart.heart

Adam Taggart's picture
Adam Taggart
Status: Peak Prosperity Co-founder (Offline)
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Posts: 3213
Gold Shorts at All-Time High

Zero Hedge notes that COMEX gold shorts are now at an all-time high:

Either gold is going much further down as the shorts are predicting; OR bearish sentiment has reached an extreme zenith, and reversion to a higher price will happen soon. With sentiment this stretched, a rising price would trigger a massive short squeeze. That would send the gold price on a rocket ride.

Something for PM holders to dream of tonight...

Jim H's picture
Jim H
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Gold shorting at historical high.. bullish

Per ZH just now;

As the following chart of the day from Bloomberg shows, as of this week, hedge funds have made "the biggest bet ever" against gold by taking Comex gold shorts to all time highs.

Oh, and Gold keeps draining out of GLD;

Today,  the GLD reported another huge loss  in inventory of 3.01 tonnes of gold. Yesterday, 8.42 tonnes of gold was removed. Monday we lost 6.91 tonnes.  Friday night saw the loss of 3.01 tonnes which followed Thursday's loss of  5.71 tonnes. To close out the week's activity, last Wednesday's liquidation of 4.52 tonnes of gold. Everyday we witness massive amounts of gold leave London's vaults.  This is equivalent to a bank run..let's call it a bullion bank run!!

Can you feel the pressure building? 

Jim H's picture
Jim H
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I was two minutes behind you Adam!

I am really starting to smell the blood in the water now.....   (that's Gold shark talk  : )

herewego's picture
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Posts: 156
More Maloney

An interesting and heartening presentation!  Wondering how manipulation fits into the picture painted, I found this from April.



Jim H's picture
Jim H
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Posts: 2391
Interesting piece by Jesse on PM rehypothecation

You may find this article by modern monetarist Peter Stella to be interesting:   What Economists Need to Know About the Modern Money Creation Process

In it Mr. Stella describes how the banking system routinely pledges the same piece of collateral over and over again without a properly risk adjusted diminution of value. No wonder the housing market is in such a mess, with the concept of title to property having been reduced to a financialized abstraction.

"In the traditional money creation process, collateral consists of central bank reserves; in the modern private money creation process, collateral is in the eye of the beholder. Here is an example.

A Hong Kong hedge fund may get financing from UBS secured by collateral pledged to the UBS bank’s UK affiliate – say, Indonesian bonds. Naturally, there will be a haircut on the pledged collateral (i.e. each borrower, the hedge fund in this example, will have to pledge more than $1 of collateral for each $1 of credit).

These bonds are ‘pledged collateral’ as far as UBS is concerned and under modern legal practices, they can be ‘re-used’. This is the part that may strike non-specialists as novel; collateral that backs one loan can in turn be used as collateral against further loans, so the same underlying asset ends up as securing loans worth multiples of its value. Of course the re-pledging cannot go on forever as haircuts progressively reduce the credit-raising potential of the underlying asset, but ultimately, several lenders are counting on the underlying assets as backup in case things go wrong."

If you think that this has not been done in the gold market you are kidding yourself.  Rehypothecation is not an aberration but a fundamental principle of the modern money creation process. It is what attracts the 'hot money' because it offers the opportunity to keep levering up. And this is why gold and silver have found little favor, if not intense dislike, amongst the modern financiers, except in its most diluted paper form, because it resists their attempts at ponzification.

As an aside, the re-hypothecation of collateral is still a massive problem in the banking sector.  The same collateral has been pledged innumerable times.  If any of the collateral should fail, as we had recently seen in the housing sector, the domino effect becomes the great bank-killer as balance sheets turn to shredded paper. 

And this is why the entire banking system seized when Lehman failed, because they did not know whom they could trust, since they were caught up in a daisy chain of control fraud. 

Jim H's picture
Jim H
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Nick Laird (via Jesse) on disappearing Gold (GLD, Comex, etc)

The one anomaly to all this remains, as Davefairtex has pointed out, the Sprott PHYS fund, which is actually sitting at a negative 0.5% premium to NAV... I think that will close quickly once we get a clear change to the Gold price trend.  The number of units remains the same today as it was on 4/30 based on my own records, hence nobody is removing physical Gold from the Sprott fund.  Then again.. they don't need to since owning the shares is as good as owning the Gold... it is not fractionally reserved in any way, and most investors know this.

Here is a comment on this from Nick:

Since Dec 31st
Gold holdings have fallen 17.5 %

Silver holdings have risen 2.7%
Platinum holdings have risen 0.1%
Palladium holdings have risen 8.2%

I believe that there's a transfer of gold holdings from the publicly visible sector to the private sector where the numbers cannot be followed. Gold holders are taking possession of physical by removing physical from public places, eg. Comex, and selling them from visible accounts, eg. ETFs.

I do believe that there is a lot more to this than meets the eye and that we're seeing the initial transition stages that in a year or two's time we will look back & say 'Aha!' Gold is flowing not just from West to East but also from public to private places, and this I think is solely related to Cyprus and the future implications of a financial meltdown.

I think we're on the verge of the music stopping and a rush to safety.

All we need do is sit back and watch what happens to these public stocks when gold starts rising again. My bet would be that public stocks will continue to dwindle as more people feel unsafe about where their gold is held."

I tend to agree.  I also think that a fear of the 'rehypothecation' of gold, especially in light of the seizure of assets held even with allocated receipts in the failure of MF Global, is driving people to take more care about where they keep their wealth.

As Nick points out, the biggest drawdowns are in gold itself. Ted Butler has recently speculated that some of the bullion banks may be taking inventory on the cheap as GLD disgorges inventory. So something is happening with gold that is not happening in the same way with the other precious metals.

And I am sure that by now you know that I am persuaded that big changes are coming to long standing global currency arrangements.

My first take was that on the whole this remarkable inventory drawdown in public repositories in the West resembles the receding of the ocean after an earthquake. I don't think the bankers realize the signals that they sent to the markets with the manner in which they handled Cyprus. And MF Global and the entire financial crisis for that matter. These things take time to build, and then it seems that suddenly people begin to act.

We will have to wait and see what comes next, and, as Nick points out, what the inventory levels do when the price of gold starts rising again.

Jim H's picture
Jim H
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Posts: 2391
Apropos to themes in this thread on Gold and rehypothecation

Where would the red pill community be without ZH?

Bloomberg has just reported that Europe may begin a crackdown on that most important credit money conduit: the $80 trillion+ global shadow banking system, by effectively collapsing collateral chains, and by making wanton asset rehypothecation a thing of the past, permitted only with express prior permission, which obviously will never come: who in their right mind would allow a bank to repledge an asset which may be lost as part of the counterparty carnage should said bank pull a Lehman. The result of this, should it be taken to completion, would be pervasive liquidations as countless collateral chain margin calls spread, counterparty risk soars all over again, and as the scramble to obtain the true underlying assets finally begins.

So, here we come, full circle following the posts above.  Why is Gold moving out of "public" (aka rehypothecatable) areas like GLD and the Comex, into private hands?  Who is frontrunning what?  Answers are here if you take the time to look.  rehypothecation is one of the drivers behind the fractional reserve nature of today's paper PM markets.. especially Gold.  We are watching history in the making.. and the signals are not coming from price.... yet.         



goldcoinnet's picture
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Joined: May 21 2013
Posts: 5
Thank you for this video.

Thank you for this video. Like Nervous Nelly posted, a positive influence our way is always appreciated.

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