Silver Fundamentals VS. The Base Metal Bubble

7 Dec 2016

by Andy Hoffman, Miles Franklin:

The market “response” to the Italian referendum – unquestionably, a political, financial, and economic “nuclear bomb” – was as hideously rigged as anything I’ve ever seen.  And trust me, the strafing is just starting, given this morning’s news that not only is Bank Monte dei Paschi likely to be nationalized this weekend, but snap elections to elect a new Prime Minister (likely, a violently anti-EU Five Star Movement candidate) may occur as soon as next month.

In yesterday’s Audioblog, I noted how the Cartel utilized its DLITG, or “Don’t Let it Turn Green” algorithm, to prevent gold from turning positive in the referendum result’s wake; first after it was initially announced at 5 pm EST; and then, at both 11 pm EST and, of course, the 2:15 AM EST open of the London paper Pre-market.  After prototypical raids at the 8:20 AM EST COMEX open (featuring yet another $3.5 billion paper futures dump); and the 10:00 AM EST close of the London physical market; prices again surged back to breakeven when – yep, you guessed it – the DLITG algorithm again pushed prices down, as captured by the GLD daily chart below.  What a shock, just after the equally prototypically “key attack time” of 12:00 PM EST; i.e., the “cap of last resort.”  And by the way, for the propagandists and “analysts” claiming gold’s recent plunge is due to the “surging dollar,” consider that yesterday was the one of the dollar’s biggest down days in memory.

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The powers that be’s’ arrogance knows no bounds; nor do their manipulative algorithms – which thus far this year, have “improved” the time to replace the real reaction to major geopolitical events with rigged ones, from roughly three days following the BrExit; to three hours following  Trump’s victory; to three minutes following the Italian referendum.  Which has not only caused history’s largest financial bubbles to grow exponentially, but reduced Precious Metal sentiment – and prices – to their lowest levels of the year.  This, amidst the most bullish supply/demand fundamentals in memory.  Certainly, since the bull market commenced at the turn of the century – which in most nations (other than the center of manipulation, the U.S.) is either at an all-time high, or within 20% of it, in the gold arena.  Silver, being a far smaller, thinner market – thus, more manipulable – is much further from its highs; and consequently, is far more undervalued, particularly in light of the delicate supply/demand tightrope the Cartel must walk to prevent its inevitable, explosive breakout.

Unfortunately, truth-seeking, value-protecting investors like us have been forced to endure such hideous manipulative ignominy for years, despite being dead-on in our predictions of political and economic fundamentals; whilst those investing “with” the powers-that-be have been rewarded for being equally wrong.  Which, cumulatively, has been as mentally demoralizing as it has been financially challenging – particularly for those speculating with “paper PM investments,” versus insuring themselves with physical gold and silver.

“Economic Mother Nature” has yet to be defeated in 5,000 years of human history – and given that said powers that be are confronting the terminal phase of history’s largest, most destructive fiat Ponzi scheme, the likelihood of “EMN’s” inevitable, decisive victory becomes more imminent with each passing day; as aside from a veritable tsunami of fundamentally bullish news flow – political, geopolitical, economic, financial, and monetary – the inexorable forces of supply and demand continue to march forward; unfavorably for oversupplied products, services, and commodities, and historically favorably for Precious Metals.  Which, I might add, have been “turbo-charged” by two decades of price suppression – catalyzing record demand, declining production, and historically low above-ground, available-for-sale inventories.

Regarding such bubbles and “anti-bubbles,” no market fits the former description better than crude oil – which despite being down from $150/bbl in 2008 to $50/bbl as I write, is being supported well above its true equilibrium price by an “oil PPT” desperate to prevent the world’s most important commodity from bankrupting thousands of corporations and dozens of nations.  Which I assure you, if prices were to languish in the low $40/bbl range for any period of time would occur instantaneously; let alone, the sub-$40’s, where fundamentals dictate it should trade.  To that end, yesterday’s news that OPEC’s November production was much higher than October’s – to the point that last week’s “deal” now requires perhaps 400,000 barrels per day of additional cuts just to reach the “agreed-upon” baseline, demonstrates just how thin the veneer of crude oil market “stability” has become, amidst the biggest glut in its century-long history.

Oil’s “bubble” has, as noted above, only been able to be maintained at a level one-third of the 2008 highs – as opposed to lead, zinc, and copper; which, largely in the past two months, have surged to levels  two-thirds of their 2008 highs, in what may be one of the most egregious speculative bubbles I can recall.  Supposedly, based on the ridiculous expectations of Donald Trump’s insane fiscal spending plans – to repair roads and bridges, expand the military, and build a wall across the Mexican border.

Over the past 60 days, prices of the industrial metals copper, lead, zinc, and nickel are up roughly 20% – whilst that “monetary” metal silver is down 12%, despite the two political bombs that were the Trump victory and Italian referendum failure.  Not to mention, the free-fall plunge of dozens of global currencies that accompanied them.  And over the past six months, the gains in lead and zinc are far greater – at 45% and 35%, respectively, whilst the relentlessly capped silver price is essentially unchanged.

I figured I’d do a bit of research into supply and demand fundamentals, to demonstrate just how egregious this dichotomy is – particularly given the utterly insane premise that said industrial metals will see a parabolic demand surge due to Trump’s (unfinanced-able, unproductive) fiscal plans.  Let alone, as the only way such plans could even occur would be if the Fed launched QE4 to monetize the utterly massive amount of additional Treasury bond issuance that would be required.  Not to mention, the increased levels of supply from not only “bond vigilantes,” but the dozens of sovereign nations that have been accelerating U.S. T-bond sales to finance their own, massive fiscal deficits and currency collapses.

Regarding copper, its known inventory levels are not much lower than five years ago, when its price was 60% higher. This, compared to silver, whose COMEX-registered (available-for-sale) inventories are also roughly the same as five years ago.  Except that five years ago, amidst political, monetary, economic, and debt conditions dramatically more benign than today, prices were more than 100% of the current level.

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As for lead and zinc – of which, roughly a third of all silver production is their byproduct – their reported LME inventory levels are down roughly 50% over the past five years.  However, in the past two years – during which, their prices are up 35% and 15%, respectively, as the global economy collapsed – lead and zinc inventories are down just 15%-20%.  This, compared to silver, whose COMEX registered inventory has plunged a whopping 50% over the past two years, whilst its price – in an environment of wildly PM-bullish news flow – is not even 10% higher.

Just based on the aforementioned, wildly bullish monetary environment of the past two years – featuring explosive worldwide QE and negative interest rates – silver would have vastly outperformed lead and zinc if not for the massive paper supply holding it down.  However, if the argument is that lead and zinc are surging due to projected industrial expansion (as flawed as such analysis is), then consider the fact that according to GFMS’s “Silver Institute,” between two-thirds and three-quarters of all silver production, year in and out, is utilized for industrial applications.  In other words, to argue that a massive infrastructure spending program will be beneficial for lead, zinc, and copper prices, but immaterial for silver prices, is as ridiculous as claiming that overvalued stock prices can continue to surge amidst the “gigantic pink elephant” that is surging global interest rates and plunging worldwide currencies.


And for good measure, here’s a chart depicting projected mine production for all four commodities – of which, copper production continues to grow, whilst lead, zinc, and silver have unequivocally peaked.  A trend, I might add, that the Silver Institute expects to continue into the “foreseeable future.”  During which, the demand for copper, lead, and zinc is highly questionable – and their prices far more so.  As if, during the explosion of China’s historic real estate and ghost city construction bubble from 2011-15, copper, lead, and zinc prices declined between 30% and 50%, how on Earth could Trump’s comparatively piddling fiscal stimulus plan cause explosive base metal price surges?  Let alone, simultaneously weak silver prices – due to both the accompanying industrial silver demand surge, and surging monetary demand due to the massive deficits required to fund it.


Alas, I can only put out so much information on a given day, so I’ll have to end today’s article here.  But suffice to say, the dislocation of stocks surging along with interest rates is equally egregious to rising oil and base metals prices whilst Precious Metals – particularly, heavily industrially-used silver – decline.  Which unquestionably cannot continue forever, just as it didn’t a year ago, when prices – and sentiment – were equally weak.  Let alone, at a time when the physical price in China is more than 10% the paper price here in the United States of Corruption.

I have NEVER seen Precious Metal prices more undervalued, whether the metric utilized for valuation is the units of fiat trash produced, or actual physical supply and demand.  And given the explosively bullish political, geopolitical, and monetary factors to boot, my strong view is that the reward/risk trade-off for Precious Metals – and particularly, silver – has NEVER been stronger.

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