Magflation: An Unexpected Gold and Silver Driver

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he 1970’s, the U.S. experienced a decade of below-trend economic growth combined with rising interest rates – and eventually – massively higher gold and silver prices.

Some sectors boomed while others lagged, and then as now, the majority of the population struggled with rising home and commodity prices, bookmarked by lofty interest rates.

This stilted and challenging environment, which came to be called stagflation, eventually drove the more perceptive people into gold and silver.

The result?

Gold, having been freed from its long-term tether of $35, first rose to $200, then dropped to $100 before rocketing to an all-time nominal high of $850.

As per usual on a percentage basis, silver rose even more, topping out at $50 the ounce.

For years now, (officially-stated) inflation has been annualizing at one or two percent per year. Most people, including the current generation of market participants, have little or no memory of the relatively high inflation, interest rates and metal’s prices of the late ’70’s.

They may be about to get a shock…

Plata o Plomo?

Mexican bandits, when attempting to relieve victims of their money, might ask them “Plata o Plomo?” – Silver or lead (bullets)?

.22 rounds for sale at a local gun range.

Given that demand and the rising cost of components have now priced ammunition several times higher in all calibers than last year, perhaps those who stack both silver and ammo should change this phrase to “Plata y Plomo”… Silver and Lead.

The picture nearby from a local gun range shows something well beyond the Fed’s sub-2% inflation target.

But then they also said it would be acceptable to let inflation “run hot.” Last year a box of .22 rounds could be had for less than $25. Is the Fed getting what they asked for?

Inflation? Deflation? Both?

This debate has gone on for several years as governments continue to ramp up spending. Oversimplified, if they let our debts default, the result is deflation.

If the printing press and spending spigot remain unchecked, then inflation is more likely. Excessive demand, loss of confidence, and increased money velocity (turnover) leads reliably to the inflationary door.

A few asset classes like the stock market and most real estate sectors initially keep up but later on lag severely, as purchasing power declines precipitously.

But gold and silver catch a wave, and wealth preservation for the lucky relative few, historically topping out at 2.5 – 3% of the population’s assets, is largely assured, enabling a small minority to seriously blunt the inflationary impacts on their material wealth.

Since August 2020, it hasn’t been a bed of roses for metals/mining shareholders.

However, as Lobo Tiggre states, “No price goes up forever without taking a break. That’s why they call it a correction…In short, I see any near-term correction as a buying opportunity for commodities – even more so for gold and silver, which are monetary metals as well – notice that silver falls into both categories.”

Prices UP? More buying of gold and silver. Prices Down? Same Story.

What’s becoming increasingly apparent is that when gold and silver prices rise, public buying increases. And when prices drop… public buying increases! The mints I’ve spoken to all report sustained sales of everything gold and silver.

Take Australia’s Perth Mint.

Perth Mint minted product sales for both gold and silver soared during February, with more than 124,000 troy ounces of gold, and more than 1.8 million troy ounces of silver sold during the month. Relative to February 2020, sales increased by more than 400% for gold and 200% for silver, as investors took advantage of lower precious metal prices.

The Federal Reserve has only three ways to “deal with” debt: make significant cuts in deficit spending; substantially raise taxes; or let inflation drive economic policy, with the end result that government debts are paid off in increasingly worth-less paper.

Agriculture Prices Have Broken a 10-Year Downtrend

Given the way politicians and the currency creators have historically dealt with this, I’d cast a strong vote for the inflationary “solution.”

What indications do we have right now that not only is inflation higher in disparate sectors of the economy considerably than the government’s highly- manipulated statistics tell us, but even more important, that the rate of increase is moving at a worrisome (to us) speed.

• In Indonesia, tofu costs 30% more than it did in December.
• In Brazil, the staple, turtle beans, have risen 50% in the past month.
• In Russia, consumers are paying 60% more for sugar over the last year.
• Cereal inflation is now running at a 20% annualized rate.
• Locust swarms are devouring food supplies in East Africa and Saudi Arabia.
• Michael Snyder writes that The Head of the UN Food Program has stated there will be “famines of biblical proportions in 2021.”
• And demonstrating that, thanks in no small part to the recent Wall Street Bets – Reddit successful (if initially short-lived) foray into buying silver miners and physical metal, the case that we’re moving into the public recognition phase for our thesis has been greatly strengthened.

Note a new subreddit, Wall Street Silver, already has over 30,000 subscribers.

Few people are aware that, even as the Feds tout the validity of the CPI in tracking inflation – both current and expected – they openly admit food prices are the most accurate predictor of inflation!

Start keeping track of your grocery tab!

No less an establishment thinker than former U.S. Treasury Secretary, Lawrence Summers, opines, “I think there’s a real possibility that within the year, we’re going to be dealing with the most serious incipient inflation problem we have faced in the last forty years.”

Consider that – starting right now – elevated inflation, concomitant with uneven economic growth and massive deficit spending via guaranteed income and the likely build out of MMT – is going to duplicate the deleterious stagflationary effects of the ’70’s… on steroids!

Got silver? Got lead?

 

David Smith is Senior Analyst for TheMorganReport.com and a regular contributor to MoneyMetals.com. For the past 15 years, he has investigated precious metals’ mines and exploration sites in Argentina, Chile, Mexico, Bolivia, China, Canada, and the U.S. He shares his resource sector findings with readers, the media, and North American investment conference attendees.

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Signs of a Bottom in Gold and Silver Prices

Published here: http://goldsilverworlds.com/gold-silver-price-news/signs-of-a-bottom-in-gold-and-silver-prices/?utm_source=rss&utm_medium=rss&utm_campaign=signs-of-a-bottom-in-gold-and-silver-prices

The U.S. dollar’s value is set to get diluted by another $1.9 trillion.

On Saturday, Senate Democrats narrowly passed their massive COVID relief bill on a party line vote. It includes $1,400 in additional free-money handouts for most Americans, $350 billion in aid to state and local governments, and hundreds of billions more for various other pet programs.

Upon approval by the House of Representatives and President Joe Biden’s signature, expected later this week, another wave of government-induced inflation will cycle through the economy.

The impact on commodity and precious metals markets won’t necessarily be felt immediately. But investors who can see what’s coming will want to position themselves ahead of the trend.

Last week saw some smart money rotation into mining stocks ahead of a potential bottom in precious metals spot prices. The HUI gold miners index (NYSE:HUI) finished out the week with a 4.7% gain, despite continued weakness in metals markets.

This positive divergence is a bullish sign. It may indicate that a significant bottom is in, or in the process of forming, in gold and silver markets.

After becoming deeply oversold, the HUI could now rapidly push toward to its uptrending 50-week moving average line on a rally.

That would likely coincide with gold prices recovering off their similarly oversold condition.

Since peaking 7 months ago at over $2,000/oz, gold has trekked lower in a large corrective pattern. That correction is now getting long in the tooth, assuming as we do that it’s occurring within the context of a larger, structural bull market.

Silver, meanwhile, is seeing a huge positive divergence via the physical versus the paper markets. Robust physical bullion buying by investors continues to defy lackluster paper price moves.

Bullion dealers have been absolutely slammed with demand for coins, bars, and rounds this year – draining available inventories in the process. While Money Metals is still well stocked, many other dealers are nearly wiped out or are quoting month-long delays on many items.

Availability has actually improved some since the height of February’s buying frenzy. However, scarcity-driven premiums on popular products such as Silver Eagles remain elevated.

It is unusual for extremely stressed conditions in the bullion market to persist while spot prices merely bounce around within a capped range.

Although frustrating for bulls, the people who should be nervous in this environment are the bears – in particular, the naked short sellers. They face unlimited risk in the event of a price spike driven by physical shortages.

A demand strain on minted bullion products doesn’t necessarily imply a shortage of silver itself.

At least not immediately.

Industrial users of silver normally command a much larger share of the total physical market than investors. But the pace of investment buying over the past year (nearly 600 million ounces) has shifted the scales to the point where it actually exceeds total industrial demand.

Of course, industrial demand for silver suffered last year due to economic lockdowns that are gradually being lifted. As manufacturers ramp back up, so will their need for silver.

But industrial demand can’t return to normal at the same time as investment demand remains elevated without generating a massive supply deficit. These powerful dynamics of physical supply and demand will ultimately exert pressure on prices – perhaps putting a real “squeeze” on paper silver short sellers.

 

Stefan Gleason is President of Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.

 

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Bond Yields Roil Markets, Gold/Silver Drop

Published here: http://goldsilverworlds.com/gold-silver-price-news/bond-yields-roil-markets-gold-silver-drop/?utm_source=rss&utm_medium=rss&utm_campaign=bond-yields-roil-markets-gold-silver-drop

As financial markets sold off this week, precious metals got dragged down in the selling. The culprit, once again, was rising bond yields.

On Thursday, the 10-year Treasury climbed above 1.5%. While still low on a historical range, the upside momentum has investors concerned. Over the past seven months, the 10-year yield has tripled from a low of just 52 basis points.

The 10-year note serves as a benchmark for mortgage rates as well as risk premiums in the equity markets. Elevated price-to-earnings ratios in the S&P 500 are more difficult to justify in a higher interest rate environment.

As we’ve noted, real interest rates are also a headwind to precious metals markets. The key word there is “real” – as in, after adjusting for inflation. And if inflationary pressures continue to grow, that could be all that is needed to drive real interest rates down deeply into negative territory.

The Federal Reserve may also be on the verge of restarting Operation Twist. Under that program, the central bank sells some of its short-dated Treasuries and buys longer-term bonds. The aim is to drive down long-term yields.

But when Fed chairman Jerome Powell spoke on Thursday, he gave no definitive commitment to launching Operation Twist or any other intervention to tame the bond market.

At some point, Wall Street may force Powell’s hand. Despite trillions of dollars in COVID stimulus and more to come, the economic recovery is shaky with inflation risk rising.

Trends forecaster and a many time guest here on our podcast Gerald Celente released a video yesterday warning of what he calls “dragflation”:

Gerald Celente:
And Powell failed to reassure investors that central banksters would keep surging bond yields and inflation expectations in check. What did we say about inflation? Only about six months ago in the Trends Journal, coined the term dragflation. Economy dragging down and inflation going up.

Despite inflation showing up in oil prices and elsewhere in the economy, gold and silver trading markets aren’t really reflecting that reality at this time and have had a really tough week.

On the plus side for gold and silver bulls, the selloff in precious metals mining stocks didn’t gain any new downside momentum this week. In fact, the GDX gold miners index showed a slight gain through Thursday’s close.

If gold and silver equities continue to display relative strength versus the broad market averages, that would bode well for precious metals themselves.

It’s been several months since a fear trade gripped Wall Street. But with stocks showing vulnerability and bonds failing to serve as a good counterweight, precious metals may begin to look more attractive to more investors as an alternative asset class for portfolio diversification.

Bullion dealers including Money Metals Exchange have seen buying activity surge in recent weeks, especially for silver products. However, sentiment among those who trade futures and exchange-traded products is an entirely different story.

The paper gold markets have yet to pick up. According to the World Gold Council, holdings ETFs that track gold declined last month by 2%. Global gold assets under management now sit at their lowest level since last June.

Last month’s sudden spike in silver buying did carry over into ETFs and other derivatives for a while. But after the silver squeeze failed to sustain any big upside in price, many of the fast-money momentum chasers from “Wall Street Bets” sold out of their positions.

The online chatter and unusual volumes in silver trading caused the Commodity Futures Trading Commission to hurriedly issue a statement announcing it was closely monitoring the market for “fraud and manipulation.”

Regulators jumped into action after a decentralized campaign by individual investors to buy silver pushed prices up for a couple trading days.

For years, though, the CFTC has failed to root out the fraud and manipulation being perpetrated in the silver market by large institutional short sellers. In 2013, it ended a 5-year investigation into allegations that JPMorgan and other banks manipulate the COMEX silver futures market. The CFTC claimed it found no evidence of wrongdoing.

The head of the CFTC at that time was Gary Gensler. He is currently President Joe Biden’s pick to run the Securities and Exchange Commission. That means for the big investment banks on Wall Street, it will be business as usual.

It doesn’t necessarily mean they will keep silver prices depressed, however. Rising industrial demand coupled with powerfully strong retail bullion buying will test the ability of supply to keep pace.

The bullish case for silver doesn’t rest on engineering a dramatic “short squeeze” event on the futures market. Instead, it is based on the fact that silver is scarce in the face of rising physical demand. It is based on the certainty that inflation will diminish the value of the U.S. dollar and the history that shows precious metals function as sound money.

 

Mike Gleason is a Director with Money Metals Exchange, a national precious metals dealer with over 50,000 customers. Gleason is a hard money advocate and a strong proponent of personal liberty, limited government and the Austrian School of Economics. A graduate of the University of Florida, Gleason has extensive experience in management, sales and logistics as well as precious metals investing. He also puts his longtime broadcasting background to good use, hosting a weekly precious metals podcast since 2011, a program listened to by tens of thousands each week.

 

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The Great Reset Is Coming for the Currency

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As the Great Reset proceeds from globalist think tanks and technology billionaires to allied media elites, governments, schools, and Woke corporations, what will be “reset” next?

Supporters of the World Economic Forum’s all-encompassing Great Reset agenda are eyeing BIG changes for the global monetary system.

Plans that might once have been dismissed as pure speculation or conspiracy theories are now being openly pushed by people who occupy the highest levels of power.

President Joe Biden’s economic policies were grafted directly from the “build back better” language of the Great Reset’s authors.

Biden’s agenda for the economy is now being spearheaded by Treasury Secretary Janet Yellen. The former Federal Reserve chair has taken a particular interest in stamping out cryptocurrencies and expanding the reach of the International Monetary Fund (IMF) – which could ultimately be the issuer of a new global digital currency.

Bitcoin’s recent surge to $1 trillion in market value (it has since pulled back some) irked central bankers and government officials.

While they have long complained that cryptocurrencies are, supposedly, a major vehicle for fraud and other illegal transactions, officials are now focusing their ire on crypto-mining’s energy usage.

Since the Great Reset prescribes a transition to a “sustainable” economy, anything tied to resource consumption is now subject to being attacked.

Yellen derided Bitcoin as “an extremely inefficient way to conduct transactions” because “the amount of energy consumed in processing those transactions is staggering.”

A report just released on Monday by Citi (“Bitcoin: At the Tipping Point”) makes the case that Bitcoin could become the currency of choice for international trade within seven years. That assumes governments won’t act in conjunction to ban or co-opt the technology to ensure they maintain “legal tender” monopolies.

In principle, Yellen and her global central planning cohorts support the digitization of money. In fact, they are enthusiastic about the prospects for replacing circulating paper cash with digital tokens.

They just want to make sure those digits are issued and controlled by governments and central banks.

‘New Blueprint for Worldwide Inflation’

Last Thursday, Yellen told the G20 the United States would back a new issuance of the IMF’s international reserve asset, known as a Special Drawing Right (SDR).

The move, which reverses the opposition of the Trump administration, will direct liquidity to poor countries struggling to recover from the coronavirus downturn on their own.

SDRs were last issued in 2009, in part to address liquidity concerns, in part to build a precedent for something bigger down the road.

In 2011, the IMF issued its first blueprint for replacing the U.S. dollar as the world’s reserve currency with a global SDR regime.

And in 2016, the IMF added the Chinese yuan to the SDR basket, elevating China’s Communist government to prominence on the world monetary stage.

Economist James G. Rickards predicts, “Over the next several years, we will see the issuance of SDRs to transnational organizations, such as the U.N. and World Bank, to be spent on climate change infrastructure and other elite pet projects outside the supervision of any democratically elected bodies. I call this the New Blueprint for Worldwide Inflation.”

Rickards views the Great Reset of the monetary system as being ultimately bullish for precious metals. The push to digitize and globalize the U.S. dollar will only accelerate the demise of its value and increase the need for investors to hold tangible safe havens.

Yellen, Powell Openly Push for Digital Dollar

If the Federal Reserve, perhaps in coordination with the IMF, attains the ability to inject stimulus directly into digital wallets, then Quantitative Easing could take a whole new meaning. Central bankers could bypass Congress and distribute their own aid as they see fit.

Treasury Secretary Yellen recently told the New York Times, “Too many Americans really don’t have access to easy payment systems and to banking accounts, and I think this is something that a digital dollar — a central bank digital currency — could help with. I think it could result in faster, safer and cheaper payments.”

A central bank digital currency might also result in the imposition of negative interest rates or the automatic deduction of taxes with no way for holders to escape… except by exiting the dollar-denominated financial system entirely.

Federal Reserve Chairman Jerome Powell told Congress last week that the Fed is indeed “looking carefully” at issuing a digital dollar, calling it “a high priority project for us.”

Anyone who is concerned about the prospect of being herded into a new digital currency regime should make it a high priority to own tangible money that exists outside the financial system.

No technology or government mandate can change the fact that gold and silver have universally recognized, inflation-resistant value.

 

Stefan Gleason is President of Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.

 

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Bullion Banks Sell Even More Silver: Do They Have It?

Published here: http://goldsilverworlds.com/physical-market/bullion-banks-sell-even-more-silver-do-they-have-it/?utm_source=rss&utm_medium=rss&utm_campaign=bullion-banks-sell-even-more-silver-do-they-have-it

Anyone with a naked short in the silver futures market risks getting squeezed by physical buying. Demand for delivery of COMEX silver bars is rising, even as the paper price of the metal fell more than 4.5% last week.

Silver shorts sold contracts representing a whole lot more silver than they have available to deliver again last week.

The disconnect between paper prices and physical demand is getting more ridiculous by the day.

It is also getting more dangerous for COMEX market participants – long and short. The COMEX functions on confidence, which can vanish suddenly.

It will happen when long contract holders discover, en masse, the paper they bought cannot be redeemed for the actual metal as expected. Instead, they get cash settled or, in the event of an outright default, they get nothing at all from insolvent counterparties.

Garrett Goggin has been keeping an eye on COMEX silver deliveries. He notes a huge difference between this year and last.

Delivery demand is roughly 20 times what it was for this period last year.

It is approximately 4 times the previous record for the period set in 2010.

The 41 million ounces delivered over the past three weeks is very significant relative to the total “Registered” stockpile of silver in the COMEX vaults. Bars in the “Registered” category are the ones actually available for delivery to a new owner.

COMEX vaults also contain a larger stockpile of “Eligible” silver. Bars in this category can be converted to Registered when owners decide they are willing to let them go. Until then, they are not available to be claimed by contract holders.

It looks like 80 to 100 million ounces of physical silver will be delivered in March – likely a new all-time record.

The latest report from the CME group shows just 135 million ounces of Registered silver sill available – down from 16 million from the 151 million ounces reported two weeks ago.

Watching the Registered inventory is a good way to judge whether the effort to squeeze silver prices is working.

How much of the silver currently being delivered will remain as Registered in the vaults? How much will be converted to Eligible and made unavailable? And how much will be moved to segregated storage or removed from COMEX vaults altogether?

It could get worse for the banks. Shorts may be nervous.

Demand for physical metal keeps accelerating and the COMEX bar inventory continues to fall.

Bullion dealer inventories are low and demand for retail bullion products has never been higher.

Even thousand-ounce bar premiums are elevated, which is an extremely rare occurrence. Rising lease rates in London imply an inventory shortage across the pond.

It is an extraordinarily dangerous time for bullion banks to continue selling silver they don’t have. Their play is to destroy sentiment and shake investors out of the market. Thus far, at least on the physical front, this effort appears to be backfiring.

 

Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

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Fed Grilled about Its Unsound Currency, Digital Currency Schemes

Published here: http://goldsilverworlds.com/money-currency/fed-grilled-about-its-unsound-currency-digital-currency-schemes/?utm_source=rss&utm_medium=rss&utm_campaign=fed-grilled-about-its-unsound-currency-digital-currency-schemes

As financial markets gyrated this week, Federal Reserve chairman Jerome Powell touted the U.S. dollar as a form of “sound money.” More on that incredible take in a moment.

But first, let’s review this week’s market action.

Inflation fears helped drive another spike in long-term bond yields, and by Thursday that began to spook Wall Street. The Treasury market is now off to one of its roughest starts to a year on record. As a result, calls are mounting for the Fed to up its bond purchases.

A steepening yield curve is helping to depress precious metals prices. Rising real interest rates tend to be negative for the gold market.

But with short-term rates remaining locked near zero and inflation pressures rising, the case for rising real rates as a major trend remains tenuous at best. If central bankers begin deploying yield curve control measures to bring down long-term bond yields, that could serve as a catalyst for the next up-leg in gold and silver.

In the meantime, gold and silver have fallen back sharply here at the end of the week – with gold trading down to $1,730 and silver at $26.50.

In other alternative asset markets, Bitcoin prices plunged more than 25%. The cryptocurrency had been gaining increasingly widespread adoption by some large corporations and financial institutions. At the same time, Bitcoin has come under increasing scrutiny by regulators and central bankers.

Treasury Secretary Janet Yellen recently derided cryptocurrencies for supposedly facilitating illegal activity. Yellen along with some members of Congress are threatening to crack down on crypto markets.

Meanwhile, Fed chairman Powell along with other central bankers and the International Monetary Fund are vowing to roll out official digital currencies in the near future. As the globalist Great Reset agenda proceeds, a more globally coordinated, centralized currency regime may be coming – one that seeks free-market digital currencies as well as paper cash.

Powell told Congress on Tuesday that developing a digital currency is a “high priority project” for the Fed. But he admitted that there are still significant technical and legal issues that need to be worked out.

For now, he continues to cheerlead for higher inflation while at the same time insisting the U.S. dollar’s value is stable and everyone should have confidence in holding it. In an exchange with Republican Congressman Warren Davidson, Powell laughably claimed that depreciating Federal Reserve notes are “sound money”:

Warren Davidson:
What would you say constitutes sound money?

Jerome Powell:
Well, the public has confidence in the currency, which they do, which the world does. That’s really what it comes down to that people believe that the United States currency is perfectly reliable and stable in value.

Warren Davidson:
Is it diluted as a store of value when M2 goes up by more than 25% in one year. Does the printing of more U.S. dollars somehow diminish the value of the dollars that others hold?

Jerome Powell:
There was a time when monetary aggregates were important determinants of inflation and that has not been the case for a long time. So, you’ll see, if you look back, the correlation between movements in different aggregates, you mentioned M2 and inflation is just very, very low. And you see that now where inflation is at 1.4% for this year.

Surging food, energy, housing, and healthcare costs this year would suggest that real-world inflation is running at a much higher rate than 1.4%. But even that rate of currency depreciation means that long-term savers of dollars are guaranteed to lose significant purchasing power as that rate of depreciation compounds.

That is a far cry from sound money. A truly sound currency would be backed by more than mere expressions of confidence. It would be backed by something solid, timeless, and universally recognized. It would retain value over years, decades, and centuries – not depreciate at an arbitrarily prescribed pace.

Physical precious metals are the basis of sound money. Although in theory a currency could attain soundness through other mechanisms, only gold and silver have a consistent historical track record worldwide of serving as the ultimate money.

The era of unbacked fiat money may be heading toward a ruinous end. The M2 money supply has been exploding over the past several months. Even as Powell expresses nonchalance at the prospect of an inflation problem, the risks of spiraling adverse consequences to all his money printing are growing.

It’s true that the rate of money supply growth doesn’t necessarily cause corresponding price increases in the economy immediately. Cash can sit on the sidelines or be cycled through financial markets without generating any noticeable uptick in conventional inflation gauges.

And as long as inflation expectations remain well “anchored” as Fed head Powell often puts it, money velocity tends to be slow. But when business owners and consumers begin to worry about higher costs ahead, they tend to accelerate their spending. That in turn causes price levels to rise more rapidly and inflation expectations to no longer be anchored at the Fed’s desired rate.

An inflationary spiral that develops slowly at first does not mean that inflation is therefore contained. As long as the currency supply isn’t contained, then neither is inflation risk.

There is at all times a limited supply of physical precious metals. Although supply and demand dynamics will cause price fluctuations, what makes gold and silver sound investments is that they retain intrinsic value regardless of inflation rates or other threats particular to paper and digital assets.

 

Mike Gleason is a Director with Money Metals Exchange, a national precious metals dealer with over 50,000 customers. Gleason is a hard money advocate and a strong proponent of personal liberty, limited government and the Austrian School of Economics. A graduate of the University of Florida, Gleason has extensive experience in management, sales and logistics as well as precious metals investing. He also puts his longtime broadcasting background to good use, hosting a weekly precious metals podcast since 2011, a program listened to by tens of thousands each week.

 

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Is the Reckoning Nigh for Silver Shorts?

Published here: http://goldsilverworlds.com/gold-silver-price-news/is-the-reckoning-nigh-for-silver-shorts/?utm_source=rss&utm_medium=rss&utm_campaign=is-the-reckoning-nigh-for-silver-shorts

Investors are buying silver in vast quantities – in whatever form they can get it.

Smaller silver bugs are buying it a few ounces at a time from scarce retail inventories. Whales are accumulating millions of ounces via the silver ETFs or by standing for delivery of COMEX futures contracts.

Unless the bullion banks and other shorts can finally engineer a price smash, they may have to stop selling paper and start buying a lot of physical.

If the short sellers are naked, i.e., not hedged with long positions elsewhere, a genuine short squeeze driving prices higher could commence.

Over the past several trading days, the silver market has simply been resilient. Prices haven’t risen. More importantly, they haven’t fallen much either.

Long investors continue to buy as the paper sellers dump massive amounts of unbacked silver contracts on the market.

We’ll know by the end of this week, when the March futures contract goes off the board, how many of those contracts are held for delivery of actual bars.

It is expected to be a record number – perhaps 2-3 times the average. See below.

If the number of contracts held is 30,000, the demand would, in theory, completely wipe out the entire stockpile of registered bars in the COMEX vault system.

That almost certainly won’t be allowed to happen. The contracts provide the option of cash settlement in the event physical silver is not available in adequate quantities.

Widespread cash settlement would at least put the lie to the notion that a futures contract is a proxy for the actual metal. In a sense, that would be good thing.

The COMEX has been a tool for manipulating prices, creating price volatility, and discouraging ownership of the physical metal since gold and silver futures trading started at the exchange during the 1970s.

The number of “Registered” bars has been in decline in recent months and that trend is accelerating. The stockpile dropped by 5.5 million ounces last week.

COMEX bar inventories are being accessed by nervous speculators who want the actual bars and by mints and refiners who are scooping up metal to convert into retail-sized coins, bars, and rounds.

The situation doesn’t appear to be any better in the larger London physical markets.

Ronan Manly of BullionStar recently estimated there are only about 150 million ounces of silver not locked up by ETFs in London vaults. Much of that remainder may be owned by investors who will not be willing to sell unless prices go higher.

David Jensen, who watches the London markets carefully, noted that silver lease rates are spiking.

The spike in lease rates last week is much larger than the jump seen nearly a year ago when a shortage drove thousand-ounce bar premiums higher.

Bullion banks, and other shorts, lost hundreds of millions of dollars trying to get hold of bars with which to meet delivery requests.

Silver leases are a mechanism shorts can use to essentially borrow bars today for the purpose of making good on delivery requests. Usually this is possible without much cost.

In fact, bar owners typically defray some of the cost by paying a small fee to lessees. This is because the lessee takes on the cost of storage and insurance. That is one reason why the chart above shows lease rates as negative most of the time.

Leasing silver may be an option for bankers and other shorts, but it carries substantial risk in times like these. They are required to return the bars at the end of the lease term.

Unhedged shorts will get crushed when/if they have to buy the needed silver at much higher prices.

Silver prices have not done much since the surge past $30/oz was reversed on February 1st. Those just looking at the price might assume the effort to squeeze short sellers has failed. However, based on developments behind the scenes, it appears the squeeze may be just getting started.

 

Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

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