When panic and fear dominate financial markets, gold and silver both tend to rapidly rise in price. We witnessed this during the last financial crisis, and it is starting to happen again. Because I am the publisher of a website called The Economic Collapse Blog, I am often asked about gold and silver when I do interviews. In fact, just a few days ago I was sitting right next to Jim Rickards during the taping of a television show when this topic came up. Jim expressed his belief that investing in gold is superior to investing in silver, but I had the exact opposite viewpoint. In this article, I would like to elaborate on why I believe that silver represents a historic investment opportunity right now.
I should start out by disclosing that my wife and I have been able to put away a little bit of silver over the years. I wish that it could have been a lot more, but so often there are other priorities that need to be addressed. For example, I have always said that people need to take care of their emergency food storage first before even thinking about any kind of investments.
But if you have money left over after taking care of the basics, I am fully convinced that silver is a wonderful investment for the mid to long term. In this article, I am going to explain why this is the case. However, I have always warned that you have got to be ready for a rollercoaster ride if you get into precious metals. So if you can’t handle the ups and downs, you should probably avoid them altogether.
As I write this article, the price of gold is sitting at $1254.30 an ounce.
Meanwhile, the price of silver is sitting at just $15.81 an ounce.
That means that the price of gold is currently more than 79 times higher than the price of silver. For the ratio between gold and silver to be this high is truly unusual.
You see, the truth is that there is only about 17 times as much silver as there is gold in the Earth’s crust. And currently silver is being mined at about an 11 to 1 ratio to gold.
So it makes sense that throughout history gold has typically sold at about a 15 to 1 ratio to silver.
During the years to come, I do believe that gold will multiply in price.
But I am also convinced that the price of silver will go up much, much faster.
As they both skyrocket in price, the price ratio between gold and silver will shift very quickly from 79 to 1 in the direction of 15 to 1.
Perhaps we may never even get all the way back to 15 to 1, but if we even got to 40 to 1 or 30 to 1, what that would mean for silver would be history making.
Let us also keep in mind that unlike gold, silver is constantly being used up in thousands of different industrial applications. The following comes from Jeff Nielson…
Over the past quarter century, more silver-based patents have been created than with any other metal on the planet. But not only does silver have unparalleled versatility, it is an extremely potent metal, meaning that in many of its commercial applications it is used in only trace amounts.
Why is this of significance? Because in such tiny quantities it is economically impractical to ever recycle any of this silver, at prices anywhere near the (absurd) levels of recent decades. Thus this silver is being consumed in tiny amounts, but in billions and billions of consumer products, over a span of decades.
Unlike gold, our stockpiles of silver are disappearing. As previously mentioned, for at least the last thirty years, the only way that our strong demand for silver could be satisfied has been through consuming portions of these stockpiles.
It has been estimated that approximately one billion ounces of silver have been used in consumer products over the past ten years alone.
Even if the world could somehow avoid the great financial turmoil that has already begun, the truth is that eventually a great demand crunch for silver would come just based on how much of it we are steadily consuming.
At less than 16 dollars an ounce right now, silver is ridiculously undervalued.
Those that are wise see this, and they are stocking up on silver coins at an unprecedented level. Just check out these numbers…
Silver Eagle sales will likely jump by 25% in the first quarter due to deteriorating market conditions. During the first three months last year the U.S. Mint sold 12 million Silver Eagles. Already, sales of Silver Eagles have reached 13 million. There are two weeks remaining in March and the U.S. Mint will likely sell another two million. This will put total Silver Eagle sales for the first quarter at 15 million….. the highest ever.
I have always said that I believe that the price of silver will eventually go over $100 an ounce.
When that happens, those that got in today will be exceedingly happy with their returns.
Others are projecting even greater gains. For instance, investing legend Egon von Greyerz believes that the price of silver could ultimately go as high as $660 an ounce, and Jeff Nielson believes that $1,000 an ounce for silver would be a fair price.
But once again, don’t even think about getting into precious metals until you have the basics squared away. It is often said that you can’t eat gold or silver, and that is very true.
In our new television show, my wife and I are always going to tell it to you straight. A lot of people out there are relaxing right now because they think that the recent stock market rally means that the crisis is over. What they don’t understand is that this new financial crisis is just in the very early chapters. There are going to be more ups and more downs, and the shaking that we have seen so far is just the beginning.
Many of you may not want to believe me at this moment, but by the end of 2016 life in America is going to look dramatically different than it does right now. So please get prepared while you are still able to do so.
Why in the world has JP Morgan accumulated more than 55 million ounces of physical silver? Since early 2012, JP Morgan’s stockpile has grown from less than 5 million ounces of physical silver to more than 55 million ounces of physical silver. Clearly, someone over at JP Morgan is convinced that physical silver is a great investment. But in recent times, the price of silver has actually fallen quite a bit. As I write this, it is sitting at the ridiculously low price of $15.66 an ounce. So up to this point, JP Morgan’s investment in silver has definitely not paid off. But it will pay off in a big way if we will soon be entering a time of great financial turmoil.
During a time of crisis, investors tend to flood into physical gold and silver. And as I mentioned just recently, JPMorgan Chase chairman and CEO Jamie Dimon recently stated that “there will be another crisis” in a letter to shareholders…
Some things never change — there will be another crisis, and its impact will be felt by the financial market.
The trigger to the next crisis will not be the same as the trigger to the last one – but there will be another crisis. Triggering events could be geopolitical (the 1973 Middle East crisis), a recession where the Fed rapidly increases interest rates (the 1980-1982 recession), a commodities price collapse (oil in the late 1980s), the commercial real estate crisis (in the early 1990s), the Asian crisis (in 1997), so-called “bubbles” (the 2000 Internet bubble and the 2008 mortgage/housing bubble), etc. While the past crises had different roots (you could spend a lot of time arguing the degree to which geopolitical, economic or purely financial factors caused each crisis), they generally had a strong effect across the financial markets
And Dimon is apparently putting his money where his mouth is.
If Dimon believes that another great crisis is coming, then it would make logical sense to stockpile huge amounts of precious metals. And in particular, silver is a tremendous bargain for a variety of reasons. Personally, I like gold, but I absolutely love silver – especially at the price it is at right now.
Over the past few years, JP Morgan has been voraciously buying up physical silver. Nobody has ever seen anything quite like this ever before. In fact, JP Morgan has added more than 8 million ounces of physical silver during the past couple of weeks alone. The following is an extended excerpt from a recent article by Mac Slavo…
According to a detailed report from The Wealth Watchman JP Morgan Chase has been amassing a huge stockpile of physical silver, presumably in anticipation of a major liquidity event.
They’re baaaaack. Yes, “old faithful” is back at it again!
Of course, they never really left silver, and have been rigging it non-stop in the futures market, but for awhile there, there were at least no admissions of newly-stacked silver being made in their Comex warehousing facilities.
Yet, after a 16 month period of “dormancy” within their Comex warehouse vaults, these guys have returned with a vengeance.
In fact, our old buddies at JP Morgan Chase, not only see value in silver here, but they’re currently standing for delivery in their own house account in such strong numbers, that it commands our attention. Let me show you what I mean.
Here’s a breakdown of the Comex’s most recent silver deliveries to JP Morgan:
April 7th: 1,110,000 ounces
April 8th: 1,280,000 ounces
April 9th: 893,037 ounces
April 10th: 1,200,224 ounces
April 14th: 1,073,000 ounces
April 15th: 1,191,275 ounces
April 16th: 1,183,777.295 ounces
This is a huge bout of deliveries in such a short space of time. In fact, within the realm of Comex world, it’s such an exceptionally large amount, that it even creates quite a spike on the long-term chart of JP Morgan’s vault stockpile:
All in all, JP Morgan has added over 8.3 million ounces of additional silver in just the past 2 weeks alone.
Full report at The Wealth Watchman (via Steve Quayle and Realist News)
So why is JP Morgan doing this?
Do they know something that the rest of us do not?
Meanwhile, JP Morgan Chase has made another very curious move as well. It is being reported that the bank is “restricting the use of cash” in some markets, and has even gone so far as to “prohibit the storage of cash in safe deposit boxes”…
What is a surprise is how little notice the rollout of Chase’s new policy has received. As of March, Chase began restricting the use of cash in selected markets, including Greater Cleveland. The new policy restricts borrowers from using cash to make payments on credit cards, mortgages, equity lines, and auto loans. Chase even goes as far as to prohibit the storage of cash in its safe deposit boxes . In a letter to its customers dated April 1, 2015 pertaining to its “Updated Safe Deposit Box Lease Agreement,” one of the highlighted items reads: “You agree not to store any cash or coins other than those found to have a collectible value.” Whether or not this pertains to gold and silver coins with no numismatic value is not explained.
What in the world is that all about?
Why is JP Morgan suddenly so negative about cash?
I think that there is a whole lot more going on behind the scenes than we are being told.
JP Morgan Chase is the largest of the six “too big to fail” banks in the United States. The total amount of assets that JP Morgan Chase controls is roughly equal to the GDP of the entire British economy. This is an institution that is immensely powerful and that has very deep ties to the U.S. government.
Could it be possible that JP Morgan Chase is anticipating another great economic crisis?
We are definitely due for one. Just consider the following chart from Zero Hedge. It postulates that our financial system is ready for another “7.5 year itch”…
JP Morgan certainly seems to be preparing for a worst case scenario.
What about you?
Are you getting ready for what is coming?
Can you smell that? It is the smell of panic in the air. As I have noted before, when financial markets catch up to economic reality they tend to do so very rapidly. Normally we don’t see virtually all asset classes get slammed at the same time, but the bucket of cold water that Federal Reserve Chairman Ben Bernanke threw on global financial markets on Wednesday has set off an epic temper tantrum. On Thursday, U.S. stocks, European stocks, Asian stocks, gold, silver and government bonds all over the planet all got absolutely shredded. This is not normal market activity. Unfortunately, there is nothing “normal” about our financial markets anymore. Over the past several years they have been grossly twisted and distorted by the Federal Reserve and by the other major central banks around the globe. Did the central bankers really believe that there wouldn’t be a great price to pay for messing with the markets? The behavior that we have been watching this week is the kind of behavior that one would expect at the beginning of a financial panic. Dick Bove, the vice president of equity research at Rafferty Capital Markets, told CNBC that what we are witnessing right now “is not normal. It is not normal for all markets to move in the same direction at the same point in time due to the same development.” The overriding emotion in the financial world right now is fear. And fear can cause investors to do some crazy things. So will global financial markets continue to drop, or will things stabilize for now? That is a very good question. But even if there is a respite for a while, it will only be temporary. More carnage is coming at some point.
What we have witnessed this week very much has the feeling of a turning point. The euphoria that drove the Dow well over the 15,000 mark is now gone, and investors all over the planet are going into crisis mode. The following is a summary of the damage that was done on Thursday…
-U.S. stocks had their worst day of the year by a good margin. The Dow fell 354 points, and that was the biggest one day drop that we have seen since November 2011. Overall, the Dow has lost more than 550 points over the past two days.
-Thursday was the eighth trading day in a row that we have seen a triple digit move in the Dow either up or down. That is the longest such streak since October 2011.
-The yield on 10 year U.S. Treasuries went as high as 2.47% before settling back to 2.42%. That was a level that we have not seen since August 2011, and the 10 year yield is now a full point above the all-time low of 1.4% that we saw back in July 2012.
– The yield on 30 year U.S. Treasuries hit 3.53 percent on Thursday. That was the first time it had been that high since September 2011.
-The CBOE Volatility Index jumped 28 percent on Thursday. It hit 20.49, and this was the first time in 2013 that it has risen above 20. When volatility rises, that means that the markets are getting stressed.
-European stocks got slammed too. The Bloomberg Europe 500 index fell more than 3 percent on Thursday. It was the worst day for European stocks in 20 months.
-In London, the FTSE fell about 3 percent. In Germany, the DAX fell 3.3 percent. In France, the CAC-40 fell 3.7 percent.
-Things continue to get even worse in Japan. The Nikkei has fallen close to 17 percent over the past month.
-Brazilian stocks have fallen by about 15 percent over the past month.
-On Thursday the price of gold got absolutely hammered. Gold was down nearly $100 an ounce. As I am writing this, it is trading at $1273.60.
-Silver got slammed even more than gold did. It fell more than 8 percent. At the moment it is trading at $19.57. That is ridiculously low. I have a feeling that anyone that gets into silver now is going to be extremely happy in the long-term if they are able to handle the wild fluctuations in the short-term.
-Manufacturing activity in China is contracting at a rate that we haven’t seen since the middle of the last recession.
-For the week ending June 15th, initial claims for unemployment benefits in the United States rose by about 18,000 from the previous week to 354,000. This is a number that investors are going to be watching closely in the months ahead.
Needless to say, Thursday was the type of day that investors don’t see too often. The following is what one stock trader told CNBC…
“It’s freaking, crazy now,” said one stock trader during the 3 p.m. ET hour as the Dow sunk more than 350 points. “Even defensive sectors are getting smoked. The super broad-based sell off between commodities, bonds, equities – I wouldn’t say it’s panic, but we’ve seen aggressive selling on the lows.”
Unfortunately, this may just be the beginning.
In fact, Mark J. Grant has suggested that we may see even more panic in the short-term…
Yesterday was the first day of the reversal. There will be more days to come.
What you are seeing, in the first instance, is leverage coming off the table. With short term interest rates right off of Kelvin’s absolute Zero there was been massive leverage utilized in both the bond and equity markets. While it cannot be quantified I can tell you, dealing with so many institutional investors, that the amount of leverage on the books is giant and is now going to get covered. It will not be pretty and it will be a rush through the exit doors as the fire alarm has been pulled by the Fed and the alarms are ringing. There is also an additional problem here.
The Street is not what it was. There is not enough liquidity in the major Wall Street banks, any longer, to deal with the amount of securities that will be thrown at them and I expect the down cycle to get exacerbated by this very real issue. Bernanke is no longer at the gate and the Barbarians are going to be out in force.
If we see global interest rates start to shift in a major way, that is going to be huge.
Well, it is because there are literally hundreds of trillions of dollars worth of interest rate derivatives contracts sitting out there…
The interest rate derivatives market is the largest derivatives market in the world. The Bank for International Settlements estimates that the notional amount outstanding in June 2009 were US$437 trillion for OTC interest rate contracts, and US$342 trillion for OTC interest rate swaps. According to the International Swaps and Derivatives Association, 80% of the world’s top 500 companies as of April 2003 used interest rate derivatives to control their cashflows. This compares with 75% for foreign exchange options, 25% for commodity options and 10% for stock options.
If interest rates begin to swing wildly, that could burst the derivatives bubble that I keep talking about.
And when that house of cards starts falling, we are going to see panic that is going to absolutely dwarf anything that we have seen this week.
So keep watching interest rates, and keep listening for any mention of a problem with “derivatives” in the mainstream media.
When the next great financial crash comes, global credit markets are going to freeze up just like they did in 2008. That will cause economic activity to grind to a standstill and a period of deflation will be upon us. Yes, the way that the Federal Reserve and the federal government respond to such a crisis will ultimately cause tremendous inflation, but as I have written about before, deflation will come first.
It would be wise to build up your emergency fund while you still can. When the next great financial crisis fully erupts a lot of people are going to lose their jobs and for a while it will seem like hardly anyone has any extra money. If you have stashed some cash away, you will be in better shape than most people.
Is the United States about to experience another major economic downturn? Unfortunately, the pattern that is emerging right now is exactly the kind of pattern that you would expect to see just before a major stock market crash and a deep recession. History tells us that when the price of gold crashes, a recession almost always follows. History also tells us that when the price of oil crashes, a recession almost always follows. When both of those things happen, a significant economic downturn is virtually guaranteed. Just remember what happened back in 2008. Gold and oil both started falling rapidly in July, and in the fall we experienced the worst financial crisis that the U.S. had seen since the days of the Great Depression. Well, a similar pattern seems to be happening again. The price of gold has already crashed, and the price of a barrel of WTI crude oil has dropped to $86.37 as I write this. If the price of oil dips below $80 a barrel and stays there, that will be a major red flag. Meanwhile, we have just seen volatility return to the financial markets in a big way. When volatility starts to spike, that is usually a clear sign that stocks are about to go down substantially. So buckle your seatbelts – it looks like things are about to get very, very interesting.
Posted below is a chart that shows what has happened to the price of gold since the late 1960s. As you will notice, whenever the price of gold rises dramatically and then crashes, a recession usually follows. It happened in 1980, it happened in 2008, and it is happening again…
A similar pattern emerges when we look at the price of oil. During each of the last three recessions we have seen a rapid rise in the price of oil followed by a rapid decline in the price of oil…
That is why what is starting to happen to the price of oil is so alarming. On Wednesday, Reuters ran a story with the following headline: “Crude Routed Anew on Relentless Demand Worries“. The price of oil has not “crashed” yet, but it is definitely starting to slip.
As you can see from the chart above, the price of oil has tested the $80 level a couple of times in the past few years. If we get below that resistance and stay there, that will be a clear sign that trouble is ahead.
However, there is always the possibility that the recent “crash” in the price of gold might be a false signal because there is a tremendous amount of evidence emerging that it was an orchestrated event. An absolutely outstanding article by Chris Martenson explained how the big banks had been setting up this “crash” for months…
In February, Credit Suisse ‘predicted’ that the gold market had peaked, SocGen said the end of the gold era was upon us, and recently Goldman Sachs told everyone to short the metal.
While that’s somewhat interesting, you should first know that the largest bullion banks had amassed huge short positions in precious metals by January.
The CFTC rather coyly refers to the bullion banks simply as ‘large traders,’ but everyone knows that these are the bullion banks. What we are seeing in that chart is that out of a range of commodities, the precious metals were the most heavily shorted, by far.
So the timeline here is easy to follow. The bullion banks:
- Amass a huge short position early in the game
- Begin telling everyone to go short (wink, wink) to get things moving along in the right direction by sowing doubt in the minds of the longs
- Begin testing the late night markets for depth by initiating mini raids (that also serve to let experienced traders know that there’s an elephant or two in the room)
- Wait for the right moment and then open the floodgates to dump such an overwhelming amount of paper gold and silver into the market that lower prices are the only possible result
- Close their positions for massive gains and then act as if they had made a really prescient market call
- Await their big bonus checks and wash, rinse, repeat at a later date
While I am almost 100% certain that any decent investigation by the CFTC would reveal that market manipulating ‘dumping’ was happening, I am equally certain that no such investigation will occur. That’s because the point of such a maneuver by the bullion banks is designed to transfer as much wealth from ‘out there’ and towards the center, and the CFTC is there to protect the center’s ‘right’ to do exactly that.
You can read the rest of that article right here.
There are also rumors that George Soros was involved in driving down the price of gold. The following is an excerpt from a recent article by “The Reformed Broker” Joshua Brown…
And over the last week or so, the one rumor I keep hearing from different hedge fund people is that George Soros is currently massively short gold and that he’s making an absolute killing.
Once again, I have no way of knowing if this is true or false.
But enough people are saying it that I thought it worthwhile to at least mention.
And to me, it would make perfect sense:
1. Soros is a macro investor, this is THE macro trade of the year
so far (okay, maybe Japan 1, short gold 2)
2. Soros is well-known for numerous market aphorisms and neologisms, one of my faves being “When I see a bubble, I invest.” He was heavily long gold for a time and had done well while simultaneously referring to it publicly as a speculative bubble.
3. He recently reported that he had pretty much exited the trade in gold back in February. In his Q4 filing a few weeks ago, we found out that he had sold down his GLD position by about 55% as of the end of 2012 and had just 600,000 shares remaining. That was the “smartest guy in the room” locking in a profit after a 12 year bull market.
4. Soros also hired away one of the most talented technical analysts out there, John Roque, upon the collapse of Roque’s previous employer, broker-dealer WJB Capital. No one has heard from the formerly media-available Roque since but we can only assume that – as a technician – the very obvious breakdown of gold’s long-term trend was at least discussed. And how else does one trade gold if not by using technicals (supply/demand) – what else is there? Cash flow? Book value?
5. Lastly, the last public interview given by George Soros was to the South China Morning Post on April 4th. He does not mention any trading he’s doing in gold but he does reveal his thoughts on it having been “destroyed as a safe haven”
It is also important to keep in mind that this “crash” in the price of “paper gold” had absolutely nothing to do with the demand for physical gold and silver in the real world. In fact, precious metals retailers have been reporting that they have been selling an “astounding volume” of gold and silver this week.
But that isn’t keeping many in the mainstream media from “dancing on the grave” of gold and silver.
For example, New York Times journalist Paul Krugman seems absolutely ecstatic that gold has crashed. He seems to think that this “crash” is vindication for everything that he has been saying the past couple of years.
In an article entitled “EVERYONE Should Be Thrilled By The Gold Crash“, Business Insider declared that all of us should be really glad that gold has crashed because according to them it is a sign that the economy is getting better and that faith in the financial system has been restored.
Dan Fitzpatrick, the president of StockMarketMentor.com, recently told CNBC that people are “flying out of gold” and “getting into equities”…
“There have been so many reasons, and there remain so many reasons to be in gold,” Fitzpatrick said, noting currency debasement and the fear of inflation. “But the chart is telling you that none of that is happening. Because of that, you’re going to see people just flying out of gold. There’s just no reason to be in it.Traders are scaling out of gold and getting into equities.”
Personally, I feel so sorry for those that are putting their money in the stock market right now. They are getting in just in time for the crash.
As CNBC recently noted, a very ominous “head and shoulders pattern” for the S&P 500 is emerging right now…
A scary head-and-shoulders pattern could be building in the S&P 500, and this negative chart formation would be created if the market stalls just above current levels.
“It’s developing and it’s developing fast,” said Scott Redler of T3Live.com on Wednesday morning.
Even worse, volatility has returned to Wall Street in a huge way. This is usually a sign that a significant downturn is on the way…
Call options buying recently hit a three-year high for the CBOE’s Volatility Index, a popular measure of market fear that usually moves in the opposite direction of the Standard & Poor’s 500 stock index.
A call buy, which gives the owner the option to purchase the security at a certain price, implies a belief that the VIX is likely to go higher, which usually is an ominous sign for stocks.
“We saw a huge spike in call buying on the VIX, the most in a while,” said Ryan Detrick, senior analyst at Schaeffer’s Investment Research. “That’s not what you want to hear (because it usually happens) right before a big pullback.”
The last time call options activity hit this level, on Jan. 13, 2010, it preceded a 9 percent stock market drop that happened over just four weeks, triggered in large part by worries over the ongoing European debt crisis.
And according to Richard Russell, the “smart money” has already been very busy dumping consumer stocks…
What do billionaires Warren Buffet, John Paulson, and George Soros know that you and I don’t know? I don’t have the answer, but I do know what these billionaires are doing. They, all three, are selling consumer-oriented stocks. Buffett has been a cheerleader for US stocks all along.
But in the latest filing, Buffett has been drastically cutting back on his exposure to consumer stocks. Berkshire sold roughly 19 million shares of Johnson and Johnson. Berkshire has reduced his overall stake in consumer product stocks by 21%, including Kraft and Procter and Gamble. He has also cleared out his entire position in Intel. He has sold 10,000 shares of GM and 597,000 shares of IBM.
Fellow billionaire John Paulson dumped 14 million shares of JP Morgan and dumped his entire position in Family Dollar and consumer goods maker Sara Lee. To wrap up the trio of billionaires, George Soros sold nearly all his bank stocks including JP Morgan, Citigroup and Goldman Sachs. So I don’t know exactly what the billionaires are thinking, but I do see what they’re doing — they are avoiding consumer stocks and building up cash.
… the billionaires are thinking that consumption is heading down and that America’s consumers are close to going on strike.
So what are all of those billionaires preparing for?
What do they know that we don’t know?
I don’t know about you, but when I start putting all of the pieces that I have just discussed together, it paints a rather ominous picture for the months ahead.
At some point, there will be another major stock market crash. When it happens, we will likely see even worse chaos than we saw back in 2008. Major financial institutions will fail, the credit markets will freeze up, economic activity will grind to a standstill and millions of Americans will lose their jobs.
I sincerely hope that we still have at least a few more months before that happens. But right now things are moving very rapidly and it is becoming increasingly clear that time is running out.