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Global Silver Mine Production
In order to satiate the world’s growing hunger for silver, a lot of pressure has been placed on its supply chain. And with total annual supply recently exceeding 31k metric tons (1.0b ounces) for the first time ever, the suppliers of this white metal have so far made a valiant effort to meet demand.
Silver demand is on the rise for a variety of reasons, in large part due to big increases in investment demand. And this has naturally created a structural imbalance that has spawned a major secular bull market. A bull in silver of course translates to higher prices. And silver’s much higher prices have provided ample incentive for the major sources of supply (recycling and mining) to boost output.
On the recycling front, silver’s higher price (+1094% from its 2001 low to its 2011 high) has prompted more folks to recover silver scrap from devices that would normally end up in junk yards. And as a result, we’ve seen a 30% increase in scrap supply over the last 10 years (per the latest figures from research and consultancy powerhouse GFMS).
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The bankers’ bet that sufficient credit can reverse an economic contraction is no longer on
the table. This does not mean central bank credit will tighten. Just the opposite will happen.
Monetary easing will continue until the very end. Central bankers are trapped. The end game
is now underway.
It is highly unlikely the Mayan predictions of the end of the world referred to the bankers’ world
of credit and debt. Nonetheless, with only one month remaining until December 21, 2012—the
end date of the Mayan 5,125 year Mesoamerican calendar—the concomitant end of the bankers’
300 year ponzi-scheme of credit and debt should not be dismissed as mere coincidence.
The world has entered a paradigm shift of immense proportions; and the collapse of the bankers’
economic world is a part of that shift. The bankers’ credit fueled a 300-year global expansion
which transformed the world. The bankers’ credit, however, has now become debt which
increasingly cannot be repaid.
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Real Rates and Gold 11
Early in gold’s secular bull, contrarian investors looked to real interest rates as one of this metal’s primary drivers. Eleven years ago when gold still languished under $300, mainstreamers scoffed at the notion that there would ever be sizable gold investment demand. But then, as now, negative real rates create strong incentives for bond investors to deploy significant fractions of their portfolios in this unique asset.
In the financial world, the word “real” simply means after inflation. It reflects capital’s actual purchasing power rather than its nominal, or face, value. And ultimately purchasing power is all that matters. Savers invest the hard-earned surplus fruits of their labors in order to increase their future purchasing power. They forgo consumption today in order to grow their capital’s utility to afford higher future consumption.
So in order to be successful, investors must earn returns exceeding inflation. As any country’s central bank grows its money supply, relatively more currency bids up the prices of relatively fewer goods and services. These money-driven general price increases are called inflation, as they result from an inflating money supply. Inflation insidiously erodes investors’ nominal returns, sapping their purchasing power.
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3 Events Worth Watching
By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors
Indian Gold Demand Picks Up
The love for gold has been reignited in India, according to the World Gold Council (WGC) in its Gold Demand Trends for the third quarter of 2012. India regained its title as the strongest performing market, overtaking the greater China area, as the country experienced a bounceback in demand due to improved sentiment during the festival season.
Compared to the third quarter of last year, Indian gold jewelry demand grew by 7 percent while gold bar and coin demand rose 12 percent. Total consumer demand was 223 tons, compared to 205 tons this time last year. The second largest market was Greater China, which consumed 185 tons in the third quarter of 2012. This was less than the 201 tons consumed in the third quarter of last year.
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Nov 20, 2012
- Earlier this year, Goldman Sachs’ Peter Oppenheimer said that compared to bonds, US stocks were the cheapest in 50 years.
- If Peter is correct, that could be good news for your gold stocks, because there is an ongoing correlation between the Dow and most gold equities.
- Unfortunately, Goldman also believes that the fiscal cliff situation could drive stock markets 8% lower by year-end.
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Big Inflation Coming 3
Well, Americans voted and the winner is inflation. Half our voting populace inexplicably decided to award a second term to Obama. Four more years of mind-boggling record deficits and record national debt growth! Obama’s Administration spent roughly 50% more than the government took in, which can essentially only be financed in two ways. Borrowing from foreigners and running the printing presses.
The latter of course is pure inflation. And the Fed bent over backwards with its quantitative-easing campaigns to buy massive amounts of the Treasury debt Obama ran up on our children’s credit cards. It created trillions of new fiat dollars out of thin air to purchase Treasuries to finance Obama’s trillion-dollar-plus annual deficits. And with Obama sticking around, this dangerous trend is only going to accelerate.
The ironic thing is inflation wreaks the most damage on the people with the least. Its corrosive effects on purchasing power are felt most at the margin, among the poor and minorities whose overwhelming support of Obama carried him to victory. They apparently didn’t care about the crushing unemployment rates among blacks, Hispanics, and the young from Obama’s policies, but they will care about inflation.
Inflation is a simple supply-and-demand phenomenon, economics 101. When the supply of money grows faster than the economy, the underlying pool of goods and services on which to spend it, it takes more money to buy anything. Relatively more dollars are competing for relatively fewer things, bidding up their prices. With more dollars in circulation, each one is worth less. So prices inexorably start rising.
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SPX and 2012 Elections 3
After a long contentious slog, the hyper-critical 2012 elections are almost here. Americans will finally have the opportunity to choose our great nation’s future course. Will we collectively vote for free-market prosperity or big-government dependency? One thing is certain, the fortunes of the US stock markets will play a major role in this all-important decision. Few things influence our national sentiment more.
While ideology governs how some cast their votes, for the great majority of Americans the deciding factor is how we are doing economically. Do we feel secure in our jobs? Are our businesses thriving? Can we maintain our lifestyles? Are our incomes sufficient to provide for our families and save for the future? If we feel good economically, we favor incumbents. Why change leadership that is producing good fruits?
Of course we intimately understand our own personal economies, whether we are blessed with surplus income or are struggling to make ends meet. But naturally we humans are always anxious about the future, wondering if times of plenty or scarcity are coming next. So we look to broader economic trends to try and game the unknown future. Our own little economies generally mirror America’s national one.
But for the average American who isn’t a student of the markets, it isn’t easy trying to understand how our national economy is doing. There’s an endless torrent of economic data released constantly, which is difficult to comprehend without context. All the individual data series such as our gross domestic product and unemployment rate have varying utilities. Digesting and integrating them is certainly no trivial task.
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Secession Fever Sweeping Europe Meaningless Without Debt Repudiation
While regional independence is superior to both the failing European Union and the façade of special interest controlled democracy, one further action should taken by any jurisdictions that choose secession: Newly restored sovereign nations should repudiate their share of the illegitimate sovereign debt when they exit existing unions and nation-states. Created by distant banking elites buying national politicians and parliaments to load up on sovereign debts that can never be paid off, this massive national debt load is illegitimate and destructive to existing and new national economies.
Governments have three ways to deal with debt loads of this magnitude: The first is hyperinflation designed to destroy the payoff value of the debt, second is the official repudiation of the debt or third, a combination of both options.
Attempting to hold the bankers accountable is not an option. The investment banks like Goldman Sachs and a few others have already made their money packaging and selling the debt and derivatives so they are now out of the deal. At this point, the world waits for eventual sovereign debt repudiation.
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By Ron Hera
October 23, 2012
©2012 Hera Research, LLC
Famed Austrian economist Ludwig von Mises wrote in his seminal work, Human Action (originally published by the Yale University Press in 1949), that “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” The collapse of a historic credit bubble occurred in 2008. However, despite years of further credit expansion, “a final and total catastrophe” of the U.S. dollar system has yet to occur.
While an inflationary U.S. monetary policy has serious consequences, hyperinflation is not an immediate result. There are three general ways in which the U.S. dollar system could break down: (1) rejection of the U.S. dollar as the world reserve currency, or (2) as an eventual consequence of U.S. federal government insolvency and (3) a domestic failure of confidence. Of the three, U.S. federal government insolvency is the most serious because it would result in both the loss of the U.S. dollar’s world reserve currency status and also in a failure of domestic confidence. However, a new threat to the U.S. dollar has emerged which could trigger a hyperinflationary collapse before the U.S. federal government’s finances become unworkable, e.g., when debt service begins to crowd out military and Social Security spending. Specifically, the perceived legitimacy of the U.S. financial system has not merely been tarnished by recent scandals but is in danger of collapsing. The consequences of a domestic breakdown of confidence and trust in the U.S. financial system cannot be overstated.
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Silver ETF Impact 3
Silver is no doubt tiny on the grand commodities scale. But its attractiveness, spearheaded by a 1000%+ bull-to-date gain to its latest high, has spawned a wide range of products for investors to partake in. And one of the most unique and powerful is the SLV iShares Silver Trust ETF.
This ETF’s objective is quite simple, to mirror the price of silver (minus a small management fee of course). But while simple in its objective, two unique traits have allowed SLV to take the silver market by storm. First is SLV offers a bridge for stock-market capital to track the price movements of a high-flying commodity, which historically had only been an arena for the futures guys. And second is it uses this capital to buy the physical metal.
SLV is asset-backed by silver bullion. So not only is a share of SLV equivalent in value to an ounce of silver, it is backed by a physical ounce of silver that is sitting in a big vault somewhere.