2013: A Silver Market In Review

Wildlife Tracker
By Wildlife Tracker on Thu, May 1, 2014 - 3:19pm

 

56 Comments

davefairtex's picture
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nice work

Nice work on your silver market review.  Now let's hope that the silver market cooperates.  We might need to see some metal miners go out of business, which can take some time.

How much of silver mining is just a side product of base metal mining?  I.e. how much silver comes from "pure silver miners" vs as a byproduct of some big copper mine?  If I recall correctly, the Bingham Canyon pit mine is a copper mine - more or less anyway - and as you point out, it also happens to crank out silver too.

Wildlife Tracker's picture
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Byproduct Mining

Byproduct mining is misrepresented in the metals market in my opinion. If silver is considered a byproduct of gold or copper or some other metal, it only means that it is not the dominant source of revenue. In any given year, Fresnillo corp could be a dominant silver miner, or it could be a dominant gold miner. The difference is if ore quality or the price of the metal for the period provides Fresnillo with enough revenue to make it the dominant part of the business.

For example in 2011, when silver went "through the roof," silver was 52% of revenue for Fresnillo making the company a primary silver miner. In 2013, silver was 48% of the business therefore making Fresnillo a byproduct silver miner because gold was the dominant source of revenue.

Companies are making their ore profitable. That's what is comes down to. Byproduct, Primary, it doesn't matter. It comes down to the ore and what makes the company money.

 

 

 

 

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Awesome review!

Really nice work Wildlife.  Most folks would not understand the drivers behind the rapidly increasing costs of extraction.. but you lay it all out in terms of ore grade degrade (resource depletion.. where have I heard about that?) and the rising cost of energy.  Double whammy (that's a technical term).

It won't take much more incremental investment demand to break this market.... and that is why TPTB are working so hard to paint a negative chart for Silver.  Turd Ferguson thinks it's all about suppressing Western investment demand at this point.. and I agree.   

BTW, Dave Kranzler, my favorite U of Chicago non-Keynesian, is sensing a ripple in the matrix right now;

     http://investmentresearchdynamics.com/something-aint-right-out-there/

The overt and blatant manipulation of the gold and silver markets on the Comex reflects frantic desperation – but why?

Perhaps the most unsettling recent event was the announcement by the CME that it was looking at putting daily price limit curbs on gold and silver futures.   Why now?  The daily volatility of gold is at a 4-yr low.  Why were limits not in place a year ago when the bullion banks took the price of gold down $200 in a 24 hour trading period?

The only reason to put price limit curbs in is to prevent true price discovery.   Anyone with a pulse knows that the last year’s manipulated trouncing of the metals using Comex futures triggered an avalanche of physical gold and silver buying globally.    And based on the fact that over 1000 tonnes of gold was removed – and disappeared from sight – from all of the physical gold investment trust globally combined, including over 500 tonnes from GLD, the massive and determined price take-down last year was anything but true price discovery.

But there are other, equally as disturbing smoke signals:

1)  Silver was hammered early this morning, after the a.m. London “price fix” and leading up to and during the opening of Comex futures floor trading.   All of the European/eastern REAL physical markets were closed today – Switzerland, China, Viet Nam, Turkey.  London was not closed but I think we’re fooling ourselves if we consider London a true physical market.  Today was nothing but a pure paper jam job to try to force potential holders of Comex contracts to sell and not stand for delivery.  Note:  no other correlated markets, like the U.S. dollar index or currency futures flinched during the raid on the metals....   more at the link

 

davefairtex's picture
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misrepresenting byproducts

Byproduct mining is misrepresented in the metals market in my opinion

The only reason I bring it up is because of its implications for supply & demand.  If a mine primarily produces copper, and copper is still relatively profitable, then it won't shut down silver production if silver prices drop.  It will lose a bit of money, but it will still crank out silver.

So - "all else being equal" - is silver mostly a 20% byproduct thing, or is it mostly an 80% product thing?

Thought experiment:

If all silver production was essentially supported by gold, iron, or copper production (i.e. silver just comes out the side, and the only way the mine will shut down is if iron, gold, or copper prices tank hard) then costs of production for silver won't matter as much.

If silver is mostly a byproduct, then it will take the market longer to adjust.

If silver is mostly a primary product, then the market *should* adjust more rapidly.

I really don't know, I was just asking.  Sounds like your example (Fresnillo) silver is pretty close to being primary, i.e. 50/50.  But my sense is, that's not how it is for most mines.  I was just curious if you had a sense as to the breakdown.

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Nice work, WT!

Very interesting.  

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by product mining

Wouldn't it be a good idea to do away with the idea of byproduct mining and just assign costs for each individual mine to all metals produced at that mine in proportion to sales for that specific metal from that mine.  For example, if 1 million ounces of silver valued at $20 million are produced at a mine and total sales from that mine are $40 million, assign 50% of that mine's costs as silver production costs.  This would more accurately reflect the business decisions around whether to operate a given mine or not.

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Primary or byproduct?

If revenue determines,ie. the price of each mined material/unit ore, then whether a material is primary or byproduct is influenced by the price if the material as it exits the refinery( right?). this phenom affects market reaction times(right?) OTOH, if primary or byproduct is determined by the percent of the mined material realized as ore is "refined" ... there may need to be multiple curves... adding and subtracting sine waves as both price and yield decline or rise..i've confused myself(right?)

Wildlife Tracker's picture
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Re: byproduct mining

Exactly Quercus! It does not make sense that production costs be distributed towards the primary metal, but rather distributed based on their revenue earnings for the year. That’s what I did in the video above. The break-even price point for each company was not provided by the companies themselves. They were calculated using a slightly modified version of Steve St. Angelo’s formula which is this…

(Net profit/loss for the period * % revenue from silver) / Total mined ounces of silver for the period = profit/loss per ounce of silver

Then take the profit/loss per ounce and subtract it from the realized silver price for the company for the period (if you can find it) or the average price for the market for the period which companies are roughly selling at (because they sell continuously through the year). This is the break-even price point for silver the period.

This formula accounts really for the overall health of the mine rather than isolating silver completely as an individual. The major error is that a highly productive copper ore would not require silver to be at as high of a price as a mine which generates most of its revenue from silver.

For example, KGHM made a profit of $1,587,049,174 in 2012. Assuming silver is 18.87% of the revenue, then $299,525,968 of those profits was generated from silver sales.

[$299,525,968 (profits from silver)] ÷ [40,959,100 (ounces sold in 2012)] = $7.31 (profit per ounce)

So at an average silver price of $31.15, KGHM had a break-even price of silver at approximately $23.84 for the period.

KGHM was required to have a price of $23.84 given that copper price was such and such price and gold was such and such price during that period of time in order to not take a loss for the period. However, if the price changes for one of the other metals revenue generating metals then the break-even point for silver will slightly change.

Therefore the major take-home is the overall trend presented here. 

I hope this clears things up

Wildlife Tracker's picture
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Dave: I think my last comment

Dave: I think my last comment helped address the great point you made. Companies that receive only a fraction of their revenue from silver  are less dependent on the price of silver as long as the other metals are performing well as you said.

The price control idea between finding a balance between incentive for producers and providing silver to the market at a cheap price to sponsor growth is likely true with every industrial commodity. I don't have any other data to back that claim up beyond logic and basic economic concepts :(

Hugh/Jim: Thanks for the comments. I appreciate the support!

Robie: I also think I may have suggested a response to up above, but I also think you may also have an interesting idea that I'm not sure I was able to grasp just yet from your comment.

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Palladium.

That pie chart above is telling me that the other industrial metal, Palladium is a shoe in at $800 an oz.

It's 10 year trendline is not typical.

and it is showing some signs of life in the 1 year graph.

Wildlife Tracker's picture
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Arthur

I don't know anything about this technical stuff beyond making up ying yang patterns and such, but I do see a tea party just briefly looking at the 10 year for palladium!

 

http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:ch...

Certainly palladium is attractive based on where it is sourced from and you will probably make a lot of money on the speculation of it, but I would be concerned about holding palladium for the long-term. Gold and silver a very logical and secure investment in the long-term, whereas palladium seems more like speculation. 

So for folks you can afford speculation (certainly not me), I think you are lucky because I can see how palladium is going to make folks a lot of money.

 

Wildlife Tracker's picture
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Youtube conversation

Nobody should really care here, but I deleted this wonderful exchange with a fellow youtuber out of anger and I have nobody to share this with that would understand the references so I wanted to post it here. I wish I didn't delete it though because he was still able to continue the discussion and his last post was hilarious. I thought I could recover the discussion by unblocking him, but the discussion was apparently deleted.I feel so bad for some of these guys who post videos frequently if they get guys like this visiting their work. People can suck.

Skirts365: If silver isn't available at a "cheap" (?) price, growth in the economy is stopped? I shut the video off at that point.\

B. White: Here is the example I referenced in the video. Rising silver prices increased the production costs of solar cells in 2011. Rising cell production costs in turn made it harder to bring cells into the market at a cheap price. Rising prices are BAD for the economy because demand is reduced. http://www.reuters.com/article/2012/12/31/silver-solar-idUSL4N09D2BB2012...

Another example is when you go to the gas station to fill your car tank. If you were spending $80 dollars at the pump instead of the $30-40 today you would most likely be driving less. Silver is an industrial commodity, and my comment only demonstrated one of the most core understandings of economics as shown in the diagram. http://i.investopedia.com/inv/tutorials/site/economics/economics8.gif

Thanks for watching.

skirts365:You are quite unenlightened as to the equilibrium price of silver. You sound like a Silver Users Association plant. I don't see any qualifications on your part to be expounding on silver. Silver mining companies aren't a pack of African slaves for plantation owners to loot, exploit, and send into bankruptcy. This is a know nothing, do nothing, be nothing video made by a total zero operator. Investopedia? So what. You can cite any number of establishment economics sources.

B. White: Do you know how rude and unproductive your comments are? That chart I posted is something everybody who has ever taken a course in economics is required to learn. It's the law of demand. When prices go up, demand declines. When prices go down, demand increases. It's a simple concept. There is a lot of incentive to keep industrial commodity prices from going bananas in this economy. It's not rocket science.

Now explain to me like an intelligent person as to what was so offensive about my video that you had to come on here and insult me for presenting you with hours of my research that everybody else seemed to have appreciated. This video explains the current price actions far better than half the crap floating around the internet. It's not a masterpiece, but this is not bad information either. So please, act like a grown-up or go bother somebody else with you mastery of the equilibrium of silver prices or whatever.

skirts365: You have no background as to how silver has been price managed especially since the FDR years. It shows, and is what I find annoying. Silver reserves have been destroyed by price managers and this yammering about prices and demand---in this instance---sure sounds like scripting for the Silver Users Association. Their interests have been wildly profitable while miners have tiny margins to huge losses. Anyone can make a video that commits neglected aspect fallacies and parrots establishment doctrine.

B. White: Great. You have no background in how the economy works or how natural resource management works and it shows. All I did here was present relatively unbiased data on a vital industrial metal for the modern economy. I don't even think you even understand where this data was gathered from or who gathered it which is actually the real joke here. If you wanted a video on market manipulation by the Rockefellers or whomever you think controls silver prices, then I'm sorry. This was not that video. This video is based on data, and interpreting and presenting that data in an understandable format. It's like a scientific research paper if you are familiar with those (probably not). Despite your wildly outrageous (and completely wrong) fantasy about how this silver market works, silver miners were pulling incredible profits in 2011. Even though they were apparently were being "squashed" by higher powers as you believe. In fact, they usually are turning profits and making money. THAT'S WHY THEY ARE IN BUSINESS! Go read a financial report and while you are at it, go learn some respect

skirts365: I read financial reports often. As for respect, those who deserve it--get it. You earn a pail of goat shit---nothing more. If I hear back from you, I'm blocking you Jeffrey Christian SOB clone. For the benefit of other readers---spring 2011 was an anomaly, and the price of silver was managed back down. Even Eric Sprott acknowledges silver is price managed. Who the hell is this B. White compared to Eric Sprott? Huh?? There is still no free market in silver pricing. For 2013, a survey of profits by Silver Users Association companies shows they earned $12.66 billion, while corresponding silver miners LOST $783.6 million. This dishonest, uneducated, or near illiterate B. White is saying silver mining is an OK biz for profits. Totally false. The figures for 2013 are NOT anomalies, and can be found at Brother John F site, April 16, 2014, "Silver Bully Boys and Their Kept Slaves." At TF Metals Report, March 16, 2013, a post by Astro Turd references a presentation "Users Demand 71 Cent Silver." Looking that up we find the original New York Times quotation, from April 20, 1946--"Silver users demand that the price of silver be fixed at 71 cents an ounce for all time," VERIFIED in a check of the New York Times online. This B. White comes across as an establishment source covering up for the price suppressors. How many hits on Google search do you find for "Ted Butler silver manipulation" versus "B. White says all is well in the silver market?" B. White is a zero operator acting like he's hot research shit. He should be entirely disregarded and as I said, if he spews any more banker vomit my way, it's Block User time, or he can hit that button, either way---there's no gain in debating with uninformed boors or intentional liars. I see the You Tube censor system is on. You can still read the crossed lines.

B. White: Thank you for your insight. I had actually blocked you from this channel, but I made the effort to unblock you just so folks can read the arguments from the guy that down voted this video. Again, thank you for sharing your intellectual capacity with me and please don't reply.

Jim H's picture
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Been there, done that WT...

See my flame wars with DaveFairtex from 2012-2013.  It's hard to deal with stuff that you know not to be true, i.e. non-manipulationists.  Whatever.  It's the internet.  Oddly enough, these days when I see this kind of trolling it only serves to make me feel more sure of what I know.  Who in their right mind would put energy into talking down PM's on the internet for their own gratification?  To what end?  Only folks or entities that have some stake in maintenance of the status quo would go to such lengths in my opinion.    

Your troll said this;

When prices go up, demand declines. When prices go down, demand increases. It's a simple concept.'

And this is not true when when it comes to monetary metals, and some other investment vehicles.  Gold and Silver are Giffen goods,

In economics and consumer theory, a Giffen good is a product that people consume more of as the price rises—violating the law of demand. Normally, as the price of goods rises, the substitution effect makes consumers purchase less of it, and more of substitute goods. In the Giffen goods situation, the income effect dominates, leading people to buy more of the goods, even as its price rises.

http://en.wikipedia.org/wiki/Giffen_good

So your troll does need some schooling. 

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Actually that was me that said that :(

It was in reference to the price increase in 2011 where silver prices made it harder to bring solar cells to the market at a cheap price. 

Silver is primarily an industrial metal, and my next research project is to explore that price/demand relationship a bit more

To be clear, I DO believe in price manipulation and suppression. I just think it's mostly related to economic stimulus, rather than some of the other reason I have heard suggested. Price suppression for economic growth makes sense to me. They do it with oil... why not silver. 

That's the conclusion I have come to so far I guess.

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Price suppression for economic growth

I don't believe this idea has any connection to the price of Silver.  Silver is tiny.. it's not even on the radar screen from an economic growth perspective, or even a solar panel cost perspective.  If the price rises, the panel makers just find ways to use less.  Silver is manipulated because it is a monetary metal... if Western investors get interested in Silver.. things will get out of control quite quickly as there is much less Silver (on a stock-to-flow basis) around than Gold.    

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Here are my thoughts, 50% of

 

Here are my thoughts, 50% of the market is giffen as you stated, but 50% is susceptible to price increases because it is used in industry.

In 2011, when the price of silver went up we only saw a decline of a couple percentage points in industrial demand. This suggest that either the price doesn't matter, or silver is an important, hard to replace member of industry.

Solar panels are one example, and they did cut silver content in panels by 1/3 as you suggested.

This statement in this Reuters article really stood out to me though,

"It suddenly went from not counting for anything to 20 percent of cost for cell makers," said Charles Yonts, an analyst at Credit Lyonnais Securities Asia, a Hong Kong-based brokerage.

http://www.reuters.com/article/2012/12/31/silver-solar-idUSL4N09D2BB2012...

20% of production costs at an average price of $35 an ounce for the year!? I think there is about an ounce or so of silver in each cell, so it’s not a crazy amount of silver.

Now was this an isolated event in industry? No way. I need more data to prove that, but I can imagine there is a lot interest out there from large electronic component producers to keep prices affordable. 

 

Wildlife Tracker's picture
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This Isn't an outrageous

This Isn't an outrageous idea...

 

Jim H's picture
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Silver costs in solar panel manufacture

When we see a chart that states Silver is something like 20% of solar panel costs... this is actually speaking to the cost of the formulated Silver paste that is used.  While Silver itself is a component of the cost of this paste... I would suggest that the bulk of the cost is in the manufacture and formulation, packaging, quality control testing, and profit margin for the manufacturer.  

In very small amounts, Silver only accounts for 1/4 of the cost of the as-purchased paste;

  http://www.jewelrytools.com/eurotool/solder/SILVER-SOLDER-PASTE-HARD-SS7...

At larger scale my guess is that Silver cost would approach 1/2 the cost of the paste. 

Wildlife Tracker's picture
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hmm you my be right there

hmm you my be right there Jim.  I will have to look into tomorrow night.

I think the biggest thing for me is that all the industrial metals are trending in similar ways. The economy is crap and the Fed and friends want to promote growth. A GREAT way to do that would to make the commodities cheaper that are used to make the goods that create revenue. Silver would be on that list.

It's a complicated dynamic though as silver has been knocked down harder than any other metal, and gold can't be left out of it's relationship.

Anyways, time for bed though.

 

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Private vault

If anyone is interested in private vault storage in Colorado, I can recommend Colorado Vault & Safe Deposit Box Co. http://cvsafebox.com

 

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evidence suggests: its all or nothing

Tracker-

I think the biggest thing for me is that all the industrial metals are trending in similar ways. The economy is crap and the Fed and friends want to promote growth. A GREAT way to do that would to make the commodities cheaper that are used to make the goods that create revenue. Silver would be on that list.

Yeah, to my mind, either all metals are manipulated, or - pretty much - none of them are, since they all tend to track together.  That's what the evidence suggests, at least over the longer term.  You believe they're all manipulated, and I believe, none of them are - at least not successfully anyway.  Either thesis is backed up by the price evidence.

Here is why - and this is for Jim's benefit, not yours, since you already understand the correlations:

From observation, the longer term trend of the price of silver tends to follow the same pattern of the rest of the industrial metals.  When they rise, so does silver.  When they fall, so does silver.  And all the industrial metals peaked right along with silver in 2011, and they all dropped through the end of 2013.

However, the specific ratio of silver and the other industrial metals does change over time.  Sometimes silver is overpriced relative to the industrial metals, and sometimes it is underpriced.  We can see this visually by looking at the chart of the silver/copper ratio.

So if our thesis (Jim's thesis) is that silver has been unfairly (and successfully) singled out for beatings by the Central Planners because its a monetary metal, the silver/copper ratio should be lower than normal.  Is this the case?

No.  Silver/copper ratio appears to be in the middle of its trading range.  It is neither overpriced, nor is it underpriced - it has not been successfully manipulated lower relative to copper.  And indeed in 2011, silver appears to have become overpriced relative to copper when it hit that 2011 peak.

So again - the evidence suggests that either copper (and all of its cousin industrial metals) have been successfully manipulated lower right along with silver, or none of the metals were successfully manipulated lower.  There is no other choice.

Note: according to my historical data, the copper/silver ratio ranged between 40-100 all the way back to 1900.  Given the relative stability of this ratio over the long haul, I'm guessing this is a "physical mining constant" driven by byproducts and ratios of copper to silver in the earth.

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Thanks Dave.

Let us pretend that some alien species came to Earth and lusted after, oh I dunno, maybe dandelion seeds. So then we went to their planet and gold was everywhere. And we went crazy for the metal.

Who would be the nutters? Them or us?

The point is if our society is going to go through the turmoil that I think is coming, I am not at all sure that Gold or silver will be sought after. Even silver is going to lose it's throne to carbon as the preferred conductor for photocells, both because it can do the job and because if the efficiency of photocells  means we can afford to lose a little energy.

But still, I use the fantasy that silver will skyrocket anyday now to fool myself into saving. It works a treat.

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Moneyness or non-Moneyness of Silver

Dave, your chart is pretty cool I think... because it really makes my case.  How?  What happened starting in 1979 was that our new, unbacked fiat money system was getting it's first test of confidence post the 1971 decision to take any remaining semblance of the (Gold) governor off of the system.  There was an inflation crisis happening, and Silver (and Gold) expressed their character as money in the price action.  The incremental investment demand for Silver drove this price increase... and only through Volcker's bold move to make the US fiat money very desirable via an extraordinarily high yield did the investment demand for Silver abate.  

Today, there are numerous signs again that investment demand is climbing.  Since 2011, the forces behind our money system have been working hard to keep price from telling this story of investment demand.  What are the signs?

and then there's this;

http://www.ingoldwetrust.ch/wp-content/uploads/Silver-trade-1-2014.png?f...

And then there's this point about how different Silver is from other commodities, from Ted Butler;

The best thing about silver’s extreme undervaluation is that the reason for it is as clear as is the undervaluation itself; not in terms of legitimacy, but certainly in terms of clarity. As I have reported recently and for years, COMEX silver has the largest concentrated short position of any traded commodity. Eight traders, led by JPMorgan, are responsible for silver being the most undervalued asset in the world. The world’s largest concentrated short position should logically result in the world’s most undervalued asset. I think this is good news because it would be impossible for me to show conclusively that silver was the cheapest investment asset of all without providing a definitive explanation for the unprecedented undervaluation.

http://www.silverdoctors.com/ted-butler-silver-is-akin-to-a-lit-match-a-...

Ted's piece takes your approach Dave, of looking at Silver through the eyes of other commodities.. and he (like me) comes to a different conclusion.  TPTB don't want you to view Silver as a competing money.. only as an industrial metal.... and that is why Silver is suppressed.      

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back when silver was money

JimH-

That's an excellent summary of our two viewpoints.

I believe that silver has not been successfully suppressed because it has been tracking alongside the rest of the industrial metals (except for one big move outside the range in 1980) for the past 115 years.

You believe that silver has been successfully suppressed because - it has been tracking alongside the rest of the industrial metals for the past 115 years, and you claim that as a result it is way undervalued.  "TPTB don't want you to view Silver as competing money."

Ok, so way back when - before 1964 - silver WAS money.  What was its trading range vs copper then?

I'm glad you asked.  Answer: mostly, it was trading BELOW where it is now, vis a vis copper.  Current silver/copper ratio is 75.  By eyeball, it looks like the average was around 65 from 1900-1960.

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On Moneyness

Dave,  Yes, Silver was money up until 1964.  It stopped being money at that time because the long, slow burn debasement of the dollar that had been happening since the FED came into being in 1912 meant that the metal in the coin was about to surpass the face value of the coin.  I found one reference to Silver being $1.29/ounce in 1964, which would have put the Silver content of a quarter, in 1964, at 23 cents.  As long as the face value of the coin exceeds it's metal value, you are better off holding the coin (in other words, holding money as money) vs. holding the metal as money.  Based on this .. I discount the value of your chart to this debate prior to 1964, because there would have been no reason to hold the metal as money.  Silver was in dimes, quarters, etc... Copper was in pennies.  Apples-to-apples.    

From 1964 - 1971, Gold was still money in terms of settlement of trade imbalances between countries... so the governor was still on the system.  It's only after 1971 that things get unhinged and we enter an era where TPTB are working to convince us that the dollar is the money we want - not metals.  Now we are in the modern era where you have to decide for yourself what is money.  As per the chart I posted above, many more folks are choosing to save their money in the form of state minted Silver coins than ever before.  Gold and Silver are regaining their moneyness froTm the POV of investment demand.. just not so much from a (relative) dollar price POV.  The price is being suppressed in the paper futures markets by entities that don't want Silver to be viewed as a competing form of money - I don't think you commented as to why Silver having the largest amount of short interest among commodities is not a sign that it is being manipulated?   I just think it's possible to be a trader and anticipate the price action through the lens of manipulation without carrying the Cartel's water for them.  

This guy is one example;

    http://www.goldscents.blogspot.com/2014/05/commodities-moving-down-into-midyear.html          

 

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a non-printable yardstick

So first of all, I'm fine with saying that someone could well be trying to manipulate the price of silver with all those short positions.  I just claim that their attempts have not been successful enough to depress the price of silver past its "natural floor value."  In fact, if they are engaged in attempts at manipulation, they have only succeeded in driving silver down to the middle of that historical value range at 75:1.  Ho hum, wake me up when you get down to 40:1, then we can talk.

HIstorically, silver has been a lot cheaper (relative to copper) than it is today.  Today, I'd say it is "fairly priced" - again, relative to copper.

This is contrary to the position of many goldbugs, who suggest silver is super-duper-uber cheap.

I will say this though.  I believe that emotional buying public will decide one day that they need to own silver (or cabbage patch kids, or pet rocks, etc) and that will drive the price far, far out of its normal range relative to copper, and that the public is extremely unlikely to "panic into" copper with the same enthusiasm because of weight, history, rarity, and so on.  That's what happened in 1981.

That's why I hold silver.  I expect a superspike.  (2011 was not such a superspike - that's clearly visible on the copper/silver ratio chart).  But when the buying panic occurs, I'm not going to imagine that "silver has finally reached its natural level" which of course many of the silverbugs will all be saying - at that point, I'm going to sell and trade it for some other, real stuff that I want to have.  Silver isn't a love affair, its a long term trade, that's all.

The reason why a superspike hasn't happened?  My opinion - its that the industrial metals have all dropped since 2011.  Silver doesn't like to superspike by itself.  It needs company.  And the fact it is both industrial AND investment/emotional/monetary means that it tracks industrial metal prices when the investor attention is elsewhere, and it superspikes far beyond what the industrial metals do when the public starts to panic-buy.

At the end of the day, all I'm doing here is to try and construct a non-printable "something real" yardstick as a way to understand where we are in the metals: undervalued, overvalued, or fairly valued.  As a result of this yardstick quest, I don't see myself carrying water for any cartel other than my own personal "buy low sell high" organization, a place I thoroughly enjoy working for.

 

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Wildlife Tracker
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How would you interpret these

How would you interpret these charts? I presented my opinion already, which I am unable to support with any more data, so I'm not going to argue it anymore. I just don't know how you can see these data, and still believe that there has been a grand manipulation conspiracy over the years to suppress the public's opinion on silver as monetary asset. I wish I had data past 2004, but I don't.

I just don't see that idea fitting with what we see here, but if somebody can extract a different manipulation opinion out of these charts I would be interested to hear it. Maybe Dave is right that real long-term trend manipulation isn't anything but natural movements and only short-term swings can be recognized as manipulation.

I do think it would be a crazy coincidence that metals have tanked when the Fed has been trying everything possible to promote growth in the economy. That would be too weird.

 

 

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interpreting charts

Tracker-

I think what happened is as follows:

Through 2008: hot money ran into commodities, bid them up to crazy values after an 8 year bull market and a whole lot of money printing (via private borrowing) around the whole world.

2008-2009: deleveraging & panic took values well below their production cost - couldn't last

2010-2011: rebound from deleveraging & enthusiasm for QE/hyperinflation/reflation story bid commodities up again to semi-crazy values; PM especially benefitted from this.

2012-2013: the air slowly came out of the 2010-2011 rebound - hyperinflation didn't happen and in fact deflation in the eurozone slowly became apparent - and commodities overall drifted lower to where they are now.

Its one of those systems that, when hit with repeated shocks in both directions, runs too far in each direction then slowly tries to return to an equilibrium price again.

I honestly don't think the 2012-2013 move is the work of a sneaky Fed.  Its the hangover from the 2010-2011 commodity party that was based almost entirely on the storyline that "QE was going to lead to hyperinflation for sure."  No hyperinflation = 2012-2013 commodity price hangover.

But hey, that's just my opinion.  :-)

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Dave, I think your opinion is

Dave, I think your opinion is well established and I am very appreciative to hear it. Thanks for sharing.

While I was admiring my charts and comparing price movements to what you were saying, I actually saw this interesting 2 year trend shift in silver price.

has anybody extrapolated this before? Very interesting.

Time for bed, but I think a deeper look into this over the next day or two may be in order for me.

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tracker charts

Tracker-

No, thats a new one on me, I've not seen this particular chart before.  It does seem to highlight an interesting pattern - its around some sort of exponential function - or is that the magic curve that happens to best fit the move higher or what?  It sure looks pretty.  :-)

If the pattern holds, then silver takes off like a scalded cat the second half of 2014, next stop: 40.  And then a straight line up to 80, where it peaks, moves sideways for a time, and then plummets again.

Assuming silver continues this astonishing two-year oscillation around this function of yours.

Armstrong always said that things move in cycles - perhaps the trick is just in finding the right one for each instrument.

I think we are in danger of having a mutual admiration society...

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Money, Emotion and Silver

Late to the party, due to work duties, but as the Irish say "is this a private fight, or can anyone join?"

Of course, I am on the money side of silver, and the suppression side. Dave, your constant posting of copper:silver charts is really starting get under my skin, because I don't get why posting something that spans incredibly wild 10-fold swings, three monetary collapses, two World Wars, one complete disconnecting of gold to fiat currency, a massive silver market corner, to name a few "tiny" events makes any kind of relevant point to us understanding what is going on May 6th, 2014.

It's analogous to saying "except for Hitler, Stalin, Mao, Pol Pott, Idi Amin Dada, Castro, Milosevic, al-Gaddafi, governments are generally peaceful and work to the best interest of the citizenry."

Sorry, I can't ignore the key events in history.

The history of modern monetary systems is highly invasive and highly manipulative policies aimed at controlling prices of precious metals in favor of supporting government fiat currencies.

Let's try to focus on a few key facts and frame things historically- apologies for any repetition from Jim H.'s point of view.

Silver is an industrial metal and a monetary metal.  It's dual nature makes analysis of price complicated but not impossible.

Silver's monetary history is thousands of years old, it is described as money in the Bible (as a payoff to a corrupt Judas Iscariot to betray Jesus, e.g.), and it's longevity and utility as money is clearly evidenced as its use as money in the U.S. up until 1964.

The last couple of decades where silver has been taken out of use as money is the vast exception compared with the thousands of years of history where silver has been used as money.  So let's keep things a bit in perspective.

Perspective:  "the faculty of seeing all the relevant data in a meaningful relationship: Your data is admirably detailed but it lacks perspective. "

(direct quote from www.dictionary.com)

Silver was "canceled" as a monetary metal unilaterally by the U.S. government in 1964.  If this was not due to the destruction of the dollar by a deeply flawed monetary system and an irresponsible expansion of the size and scope of government and government debt, then please tell me why. 

Therefore, until 1964, it is easy to see how silver had a stable ratio to copper because there was a high "industrial" demand for both, if you consider minting the circulating coinage of a nation equivalent to an industrial endeavor, which I do.

If there is no recognition of the moneyness of silver in pre-1964 coins, then please tell where are the stores and places of business that make change in copious amounts of "worthless" pre-1964 coins.  I can find lots of pre-1964 pennies, but no silver coins.  Gee, I wonder why?  Maybe the "silver is an industrial metal like copper" folks can help me understand where all the pre-1964 dimes went.  Perhaps as silver paste for solar cells.  But I digress.

The policy of Keynesian central banks and Keynesian economists is clear, historically recorded by dozens of scholars, and publicly available. 

1.  The business cycle is harmful and must be suppressed with "liquidity" to boost "aggregate demand" during times of recessions and contractions of the economy.

2.  To perform this economic manipulation, correction, "control", correction, "miracle", requires a group of smart people with degrees in economic models produced by Princeton Ph.Ds, using reams of economic "data" and derivative "metrics" created by additional Princeton Ph.D.'s, collected by small armies of government employees and contractors, fed into computers armed with algorithms created by yet more Princeton Ph.Ds, to achieve the utopian world of no business cycles and no recessions.

3.  The number one and singular tool for enacting this utopian vision is fiat currency.  Fiat currency can be created in a number of ways, but mainly from "thin air", digital printing.  Again this is not conspiracy or secret, it is published in official public documents by the Federal Reserve.

4.  The paradigm requires the willing participation of the banking system to expand "liquidity" or "re-capitalization of banks" through amplification of thin air money printing through what I would call the Twin Towers of the financial system:  the fractional reserve system i.e. the privilege of printing money because you hang the word "bank" over your door, and the less appreciated but equally money destruction expansion of credit-money through lines of credit, leverage, and, relevant to our discussion, the creation of naked commodity "paper" options, which like our dollar bills, aren't backed by anything real, only a vague hope and promise that at some point in the future, real i.e. physical assets will show up to back these promises printed out of thin air by banks.

5.  The system only works if the following rules are followed.   Currency must be used like gasoline and an accelerator pedal, it must be created, from thin air as mentioned above, and injected in times of recession, and pulled back as the economy heats up. 

6.  The system falls apart under two conditions- a) a sound money system or "third party arbiter" is in existence that acts as a scorecard and reports to the public i.e. economy that there is not a healthy recovery but merely an injection of thin air fiat dollars to goose demand but in essence chasing after the same amount of true wealth, and b) an alternative "reservoir" or "escape hatch" or "pressure outlet" where all the freshly printed thin air liquidity may run away and hide to exists.  Traditionally, the escape hatches have been foreign currencies and foreign equities, and precious metals and hard assets.

7.  The escape hatch of foreign currencies have been taken away by coordinated money printing i.e. currency destruction by all the developed economies simultaneously.  The lonely outliers, i.e. the Swiss Franc, have been beaten into submission such that even they have unpegged from gold and gone "full fiat".   That leaves basically hard assets and monetary metals as third party signaling devices and escape hatches.  As mentioned above, escape hatches must not be allowed, because thin air liquidity is supposed to go into consumption i.e. aggregate demand to goose the economy.  Fiat that goes into silver and gold is a double whammy (to borrow Jim's term)- it is not being used to buy more Barbie dolls and Mercedes', and more importantly, it is driving up the price of gold and silver exposing the actual currency destruction.

8.  Pulling together 1-7, silver and gold must not be allowed to rise significantly in price.  It may be allowed to rise slowly, unnoticeably with the inflationary tide that is lifting all boats, but not rapidly, in parallel with the real rapidity of thin air money printing.  If gold and silver start to rise exponentially faster than the general level of inflation, it must be suppressed.

For example, if this happens:

 

(note the rise of silver to a not unreasonable $50 per oz in 2011)

then the two subsequent smashes must happen. (pardon my lack of arrow artistry, I think all know what events are referenced).

Dave, I actually agree that there is a component of overall deflation-inflation of industrial metals that 'affects' the price of silver, especially during normal times when the dollar is not being rapidly destroyed and things are relatively stable (in the Keynesian nightmare world, "stable" is a relative word, perhaps relatively less unstable is a better word).

The most challenging issue I have discussing 1-8 above is that all all of these are open secrets, it is publicly available Fed and government policy.  And published Keynesian theses from everyone from Krugman to Yellen.  To me, it's not even a discussion point or controversial.  I tend to listen to what people say, what their follow on actions, and believe that they will do what they say.

Hitler said Germany needed room to expand, and annexed Austria and then Poland.  He said it, he did it.  Even then, most world leaders thought it was incomprehensible for Hitler to expand further into Western Europe.  The rest is history.

Not to make a too clumsy analogy of Yellen to Hitler, but according to the principle of listen to what people are saying and watch what they are doing, the Fed said it is going to create inflation, it must have confidence in the dollar, and it must not have competing monies like silver and gold.  And when they print trillions, and the prices of silver and gold gets crushed and managed into a trading range, dozens believe that it could not possibly be the Fed that is following through on it's words and policies.

It's amazing to me, as I watch this unfold, that we are debating whether the Fed is manipulating gold and silver prices.  Just like in pre-war Britain, learned people were debating the intents and actions of Germany, when all was in plain sight.

The only thing we are lacking is a taped conversation of Yellen talking to Dimon saying "it's okay for silver to rise to the high 20's, and we'll ensure that we don't drop the regulatory hammer on your contract dumps and outsized short position.  Just don't let the price get out of control."  I assume those conversations, probably done through surrogates, are held in private offices or private meetings and for obvious reasons aren't publicized.  Recall this is the 'New Fed' that uses communication as a tool of control and is intensely focused on 'optics', which is a euphemism for propaganda.

Dave, you diminished the monetary interest in silver as emotion.  I've been thinking about that, and don't entirely disagree.  What we disagree on is what "emotion" really is.  What you call "emotion", I call reasoned expectation by investors with precious capital about inflation and currency destruction.  To distill this down, the price buyers pay for silver is based on their expectations of the future.  Call it analysis, or fear, or emotion, these are definitions with no important differences.  The net result is the same.  People buy silver because they believe it will be priced higher in dollars in the future.  The only shoe to drop is to have free and true price discovery based upon actual supply and demand, not on a fabricated Comex and Globex corrupted marketplace.

 

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Thanks Dave

This dishonest, uneducated, and near illiterate Jeffrey Christian SOB clone/zero operator will have to explore this further and make some more extensive/detailed charts on this relationship  ;)

Jeffrey Christian SOB clone or zero operator are pretty cool internet handles though

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I did it! I solved silver!

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Does this look about right...

For a top?

Dave you said somewhere around 80ish. That seems like a great guess to me

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fascinating patterns

Tracker-

Yes, that's what I saw last night too, exactly that pattern, although not that clearly presented.  If it holds, of course.  But its tantalizing, no?  And such lovely cyclicality to it.  An massive move up mirrored by a massive move back down, but with 20 "roughly" acting as support, all aligned on that curve moving up - roughly defined by "peak ore grades" as well as peak cheap oil.

People imagine manipulation when prices don't go the way they expect - in a straight line up, with only very modest deviations, preferably aligned with their favorite metrics such as M2 or BASE.  They want rational, calculated, understandable, predictable.  Unfortunately, the market is comprised of people, who are anything but.  Fear, greed, panic, euphoria.  Anyone who has traded understands this intuitively.

Cycles, I believe things move in cycles.  The central planners (and the goldbugs) may imagine their manipulation works, but I believe such activities will only "work" when aligned with the natural cycles that underly both the market and all of humanity.  They're great at pushing a rock that is already starting to roll downhill.  But try manipulating the public to stop buying cabbage patch kids when they want them - or manipulating the same public to continue buying them once the fad is done.  Good luck with that.

 

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hitler finally arrives, emotion vs rationality

Hrunner-

Hitler said Germany needed room to expand, and annexed Austria and then Poland.  He said it, he did it.  Even then, most world leaders thought it was incomprehensible for Hitler to expand further into Western Europe.  The rest is history.

After much waiting, we finally get a Hitler reference.  I'm invoking http://en.wikipedia.org/wiki/Godwin's_law.  This discussion must have reached its logical endpoint.

Well at least we can agree on one thing: you accept that the trading range of silver:copper from 1900-1964 is the natural, legitimate trading range for the two metals with respect to each other.

Therefore, until 1964, it is easy to see how silver had a stable ratio to copper because there was a high "industrial" demand for both, if you consider minting the circulating coinage of a nation equivalent to an industrial endeavor, which I do.

That's grand, especially in the face of the three wars and the 10-fold rises in silver vs the USD - which are mostly not visible in the silver-copper relationship.  Which is why I like copper as a reasonably good yardstick to answer the question "is silver in a bubble/superspike/something unsustainable?"

What you call "emotion", I call reasoned expectation by investors with precious capital about inflation and currency destruction.  To distill this down, the price buyers pay for silver is based on their expectations of the future.  Call it analysis, or fear, or emotion, these are definitions with no important differences.  The net result is the same.

To quote Reagan - "there you go again."  You imagine the market to be rational.  You WANT it to be rational, as does most of the world.  Of course if it was, if it was all about analysis, calculation, expectations of the future, and so on, there would never be any bubbles.  Its not simply the Fed that causes bubbles, its the willing borrowers who jump right on in.  The Fed plays their part by dangling the carrot, and people's greed and/or fear of missing out on the party does the rest.

I claim that the industrial metals are more grounded in rationality because their aboveground supply is less, and the accountants at all those companies are always calculating the effects of metals prices on P&L statements.  If another metal can be swapped in, they'll do it.  There's little emotion involved.  In contrast, the "investor" element of silver is almost completely fear & greed.  Fear of money debasement, and greed - especially when the price is rising - of wanting to get a position before it gets too expensive and/or the ever-present seduction involved with the perception of making some easy money.  Or the disappointment of being wrong, losing money, getting disgusted, and then finally capitulating and bailing out.

You imagine these silver investors to be Eugene Fama-like rational actors.  I think most are a bunch of lemmings, first all heading one direction, and later, heading in the other, motivated largely by emotion.

One only has to look at Tracker's cyclical silver charts to see all that fear & greed in prices - as the thundering herd first panics in, and then panics back out again.

I do agree with all the points 1-7, and I also agree that the central planners would love to be able to control everything.  I just don't think they can.  Over the longer term, markets go where they want, regardless of what the central planners would like.

Again, just my opinion.

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The nature of it is beautiful

I agree Dave. This chart discredits the long-term manipulation theory and it really is beautiful to observe. I'll give you a portion of the credit for the discovery of it ;)

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Silver

Dave quoted HRunner below;

Well at least we can agree on one thing: you accept that the trading range of silver:copper from 1900-1964 is the natural, legitimate trading range for the two metals with respect to each other.

Therefore, until 1964, it is easy to see how silver had a stable ratio to copper because there was a high "industrial" demand for both, if you consider minting the circulating coinage of a nation equivalent to an industrial endeavor, which I do.

Neither of these statements fit my own interpretation.  Prior to 1964, Silver was money in a way that had the face value of the coins being higher than the underlying metal value, therefore the metal vs metal relationship was simply that, Ag vs. Cu with no monetary investment pressure to change the relative supply vs. demand.  Ag was functioning as an industrial metal that just happened to be made into coins.  Let me say this differently;  If you wanted to invest in Silver, you would just hoard coins, where the stock-to-flow was high (kinda like Gold then and now).  Today that is not the case... today there is much less Silver around (stock-to-flow) as it is used and mostly not recovered/recycled industrially.  The percentage of total mined Silver being consumed through investment demand is rising rapidly, and this is without broadspread Western participation.

  While industrial silver consumption remained virtually flat since 2007, demand in another sector grew substantially.  In just six years, the demand for Official Silver coins increased from 39.7 million oz in 2007 to 136 million oz in 2013.  The 136 million oz figure was provided by the CPM Group in a press release of their 2014 Silver Yearbook.

http://srsroccoreport.com/the-one-silver-factor-the-fiat-monetary-author...

The past for Silver encompasses different eras that HRunner talked about.. and today, since the paper smash of 2011, is yet another era altogether.. one where investment demand is slowly overwhelming the market, as shown in some of the charts I linked earlier, and the article just above. 

Showing how mining costs create a floor shows... well.. the floor.  And I do think it's interesting that the manipulations have Silver at it's floor today.  The thing that the charts don't show is demand.... and while Dave (and WT?) can argue that price represents the balance between supply and demand... I would argue that price today represents paper futures demand in a (Comex) market that does very little physical delivery relative to all physical delivery.  

You guys seem to have convinced yourself that any future Silver price skyrocket will be the result of an irrational emotional herd action.  I simply don't agree... I think that the future Silver price skyrocket will be the result of natural forces of supply vs. demand forcing the cartel to take their boot off the pricing mechanism, allowing what is now a coiled spring to unwind.  You are looking at painted price charts, painted purposely, especially in the last few years, to make Silver look like a non-monetary, industrial metal, and you are telling us that Silver acts like a non-monetary, industrial metal.  Fantastic.

If Silver is an industrial metal, why do hackers work so hard at their DOS attacks on pro-Liberty, pro-PM sites?  

  I am currently hunkered down in a bunker beneath TBP Central as predator drones circle overhead waiting for me to show myself. The website has been under a relentless denial of service attack since Thursday afternoon. The site is being inundated with over 3 million hits per day that make it impossible for anyone, including myself, from getting onto the site.

http://www.theburningplatform.com/

Why do trolls try so hard to disrupt the dialogue on pro-PM sites, such as this one caught by SRS Rocco?  Who is engaging these trolls if there is not a broader plan to keep the Western psyche off the scent of the best possible investment for their long term financial health?  

http://srsroccoreport.com/the-grand-deception-in-the-precious-metals-ind...

See, the conclusion that markets are manipulated is not a one-mode conclusion... rather it is a conclusion borne of connecting many, many dots.  There is not one chart that tells the story... it is a story of debt-based fiat money and the lengths to which TPTB will go to kick the can down the road of the ponzi that they so profit from.  

If Ben Bernanke spoke for the US, and the US is the IMF, and the IMF is giving the Ukraine a $17B loan, and Ukraine is going to spend $1B of this diversifying their reserves into Gold, then why did Bernanke say he does not understand Gold.. .that's it's just a tradition? 

  http://www.zerohedge.com/news/2014-05-06/and-first-thing-ukraine-will-bu...
 

 

 

 

                  

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Oh, and speaking of that IMF loan to Ukraine...

http://www.blacklistednews.com/IMF_Loan_to_Ukraine_in_SDR%2C_not_US_Doll...

This is the first that we know of a loan by the IMF, headquartered in Washington, DC, as specifying a loan in SDR (Special Drawing Rights) rather than in the customary US Dollar.  As with most policy changes from Washington, they ease changes into existence, this seems to be the start in the use of SDR’s.

If this is the start in the use of SDR’s, then in return it’s also the start in not using the US Dollar for IMF loans, which are essentially US Govt loans.

The IMF Ukrainian loan press release is viewable here: www.imf.org/external/np/sec/pr/2014/pr14189.htm

We should not take this change lightly as this is a strong indicator and precedent of future IMF loans, and perhaps how the US Govt will begin conducting business - being once again that IMF loans are indistinguishable from US Govt loans. 

In a deeper view, several points should be clear:

  1. Ukrainian debtors, such as Gazprom and by defacto, Russia are willing to accept SDR’s
  2. IMF is willing to write the loan in SDR’s
  3. US Govt is complying with its usage in place of the US Dollar

This being true, we have to consider the fact that the dollar is no longer sought after and considered as valuable worldwide, and perhaps won’t be of the same value during the course of the loan as it is today.

Wonder what that emergency FED meeting was about?  Hmmmmmmmmmmmm

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i think it boils down to faith

JimH-

See, the conclusion that markets are manipulated is not a one-mode conclusion... rather it is a conclusion borne of connecting many, many dots...

All the dots may indicate something, or they may not.  If you go into the "search for truth" already sure you are right, then everything that might or might not indicate a conspiracy gets turned into a smoking gun.  That's the Texas Sharpshooter in action.

Me, I have my articles of faith too.  I believe - the same way Mish does - that mysterious forces cannot manipulate the trend in a marketplace until that trend is ready to change on its own.  Central Planners cannot move the rocks uphill - they can only push them downhill even faster than they ordinarily would have gone.

Our Central Planners were powerless to stop the move of silver from 20 to 50 during 2010-2011, and presumably they had some very strong motivation to do so especially when the rest of the commodity index was rolling higher, when QE was seen as leading to hyperinflation, and so on.  Logic would seem to suggest that the central planners/manipulators should be much less concerned about silver today, especially when all the rest of the commodity index has dropped 20-60%.  If I were a mostly-all-powerful manipulator, I'd spend my energy on manipulating other stuff that's showing itself to be an actual threat rather than putting all my effort at keeping something down that isn't even a concern, and is arguably below production cost at this moment.

But I realize this conflicts with your article of faith: if gold and silver drop, its all about manipulation.  And if it doesn't bounce back immediately, that's manipulation too.  Ultimately I get the sense that if silver isn't at three or four times your buy-in level and rising steadily every day, ispo facto the manipulators are keeping you from cashing in on your "sure fire money printing bet that by all rights should have paid off big time by now."  And each dip along the way - that's manipulation too!!

How many goldbugs cry "manipulators" every time gold or silver drops, in order to have a target for their anger at the failure of their sure-thing trade to pay off like a slot machine?  Maybe that's not you - but I bet, deep down, that is a very serious underlying core feeling in the goldbug community.  They feel cheated of their legitimate winnings, and they're angry about it.  Certainly its emotionally easier to cry "all powerful manipulators" rather than to understand that markets move in cycles, and sometimes the cycle goes down, even for sure-thing trades like gold & silver.

Again, that's just my article of faith talking.  I believe there is manipulation, just not successful trend manipulation, and I don't invoke manipulators every time I look at the red in my position in order to make myself feel ok about my core trades.

FWIW I do like your charts about investment demand growing as a percentage of total silver demand, those are cool.  It looks like a decent mega trend, and it will certainly help my little silver bars become worth more as time passes.  It won't do away with market cyclicality - nothing will - but it should provide some good support for a rising baseline around which the cycles will inevitably occur.

Silver won't stay below production cost forever.  It can't, unless we have a major deflationary accident.  And then the cycle will turn, and we'll be off to the races again.  And "the manipulators" will be completely powerless to stop it, in exactly the same way they were powerless to stop the 2010-2011 rally.

And that's my article of faith.

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What we agree on

Silver is going to make us money/wealth in the short, mid, and long-term. At least that's what the data says.

If anybody wants a couple more charts on this pattern. I shared this on youtube

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Excellent.

Thank you.

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Wildlife Tracker
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Exponentially Growing Trading Patterns

I thought I would share this one as well since this is now a front page discussion (thank you). The .5, 1, 2 represent how many $10 blocks the pattern is trading in. These numbers just happen to be doubling every series. This would also support the $80 price target assuming the next series spans 4 blocks...

 

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Nice job, WLT!

Nice job, WLT.  Technical analysis of PMs is not the kind of thing I would normally "get", but your charts. analysis and presentation made your points very cleanly and clearly.  Thanks for sharing what you see/understand (with some of us wouldn't see/understand otherwise:)!

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Wildlife Tracker
Wildlife Tracker wrote:

Undamped harmonic function.

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mikekep
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Posts: 4
pick and choose data

While I don't disagree with the final assessment, I find that there is a little bit of picking and choosing select data to make the case stronger instead of simply stating all of the facts.   The first point is that his data includes silver prices well into 2014, however one of the main arguing points is that input costs in the form of energy will continue to rise due to declining production.   This data / chart only includes production values up to 2012, which completely misses the "shale revolution", where the U.S. production has created an almost u-turn on the chart and we are now at 25 year high in domestic oil production.  Global oil production continues to increase, but production costs are the driver in crude price, not (at least for now) demand.

I happen to believe that the shale revolution will turn the other way and production declines could be precipitous, however we could have relatively steady state oil prices for awhile longer.   Additionally, another pullback in the economy would reduce industrial demand for silver in the short run, and you are hard pressed to find anyone besides Janet Yellen who really thinks the economy is doing better.  

Again, I don't disagree with the long term investment thesis for silver, I just pose a short term viewpoint, and point out a big hole in one of the major points of the argument.

Disclaimer:  I did just buy some silver two weeks ago, and will buy more on a dip scenario if it unfolds as I explained above.

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earthwise
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Posts: 848
So that's what happened to TBP!
Jim H wrote:

 

  I am currently hunkered down in a bunker beneath TBP Central as predator drones circle overhead waiting for me to show myself. The website has been under a relentless denial of service attack since Thursday afternoon. The site is being inundated with over 3 million hits per day that make it impossible for anyone, including myself, from getting onto the site.

http://www.theburningplatform.com/

 

I've been trying in vain to log on there for about a week. My thinking was that Quinn's site got nuked because of his battle with Google. Hope he gets this squared away.

 
Wildlife Tracker's picture
Wildlife Tracker
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Joined: Jan 14 2012
Posts: 403
My opinion

Mike

Oil prices: The shale boom did not bring back cheap oil. The massive increase (over-production even) in oil production in the US has been connected to a failure to slow down the extraction of a resource that comes out far faster than companies would like, and ultimately results in annual decline rates of 20% or higher from each of their wells. I don't think you could have a more terrible resource to depend on price security heading long-term. 

Also, most companies in the Shale business are taking losses.

Apparently Cheaspeake Oil creates shareholder value by re-selling land lease contracts because selling their resources alone isn't profitable. These resource companies are losing money in the BEST years, and we are moving very rapidly towards the "no so good years" and rapidly after to the "no good years."

So in short, your argument was that shale is re-stimulating production. The argument was for rising prices, not production. Production costs for oil and natural gas are rising. The prices for these resources are unsustainable low. Rising prices of energy resources directly impacts silver production costs. I'm pretty comfortable with my position on that.

2008: In the last market decline, industrial demand for silver declined 6%. 94% of the industrial demand for the metal remained. I don't have any data for copper or aluminum, but I imagine that decline was much more significant, but I could not tell you.

The other factor is that, about a 3rd of the global demand for the silver is as money as Jim pointed out. Demand for silver as money is skyrocketing and is showing very little sign of weakness. If silver demand drops 10% in industry, I would not at all be surprised if monetary demand rose 15%.

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Jim H
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Joined: Jun 8 2009
Posts: 2385
Excellent analysis WT

You are truly multi-talented. 

Apparently Cheaspeake Oil creates shareholder value by re-selling land lease contracts because selling their resources alone isn't profitable. These resource companies are losing money in the BEST years, and we are moving very rapidly towards the "no so good years" and rapidly after to the "no good years."

This is really insightful, and right on.  Shale oil runs out fast.  I know of no better illustration of this than a simple chart of the price action on one of the young shale oil trusts set up by Sandridge oil.  This trust started out at $30 per share... and it looked like a nice utility-like yield instrument for retirees... that's before the yield from oil started dropping on a quarter-by-quarter basis faster than anyone expected.  At this point, even with a (current) 22% yield, it's unclear whether you will ever get your principle back before these shale oil wells run down to zero;

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davefairtex
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Joined: Sep 3 2008
Posts: 5412
WT: insightful & multi-talented

JimH-

This is really insightful, and right on.

Yes, WT is insightful and multi talented, but I don't recall you noticing this about him way back when (two days ago) he was having a hard time finding long term trend manipulation in silver prices.  Back then, he was just a shill for the bankers, carrying the water for the cartel, etc, etc.  :-)

Ok, kidding aside, your SDT price chart is fantastic, as was the collection of articles on Seeking Alpha describing the actual production decline rates on the various SD trusts.  I've been looking for things that have real money in them that show off shale oil & gas returns, and these are them.  In the case of SDT, $30 was turned into $7 over the course of two years, and that looks really ugly.  This reminds me of some of those bundled subprime mortgage debt back in 2006.

Of course, whether or not shale wells are a good use of capital depends on the total expected value returned over (say) 10 years of production vs the cost to construct the wells in the first place, and that's the bit that still needs fleshing out - how much did it cost SD to drill these wells?  Perhaps I'm a masochist, but I want to see just how bad the losses are.

I really like these trusts as vehicles for identifying exactly how shale wells perform.  Waiting until all the wells get added seems best, so we can clearly see the decline rates.  Some thoughts:

1) it is possible the wells stuffed into the trust weren't the best ones - perhaps the company kept those and is continuing to operate them.  What's the opposite of cherry-picking - turd-picking?

2) its possible the Mississippi wells perform worse than wells in other areas.  Not all shale performs the same.

Seems like we could gather the data on a number of these trusts and try and intuit the more general picture from the production numbers from the trusts.  Maybe our insightful and multi-talented tracker could help.

One last comment.  US oil production has risen by 2.7 MBPD over the past few years, and no doubt that is due to shale.  Looking at world oil production, we see that the increase over the past few years has been - just about that amount.  Without US shale, the world overall would have been on the "undulating plateau" rather than rising.

Ok, another last comment: I love this discussion!

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