-The Inevitable Rise of Gold And Silver

-The Inevitable Rise of Gold And Silver

Written by Hugo Salinas Price

-The Inevitable Rise of Gold And Silver

The inevitable rise of gold and silver is close and thus, the end of the world’s present monetary system is already taking place. The clearest symptom is the frantic bellicosity of the US, propelled by the perception on the part of those who run the US, that the US is losing influence in the world, and that their deep-seated objective for control of the whole world is slipping out of their hands. The end of the dollar as the basis of the international monetary system means the end of the US as we have known it.

We shall not bother to discuss the future of the American dollar as the world’s currency. We take it as a fact, that the American monetary unit is nearing the end of its time-line, at least in terms of being the world’s money, if not as a money limited in use to the territory of the US.

China and Russia are accumulating important quantities of gold. China is the world’s largest producer of gold, and it does not sell one gram of its production on the world markets: it hoards it all, because China understands that the world’s present monetary system is on its way out.

The burial of the present monetary system may begin in slow stages, as Russia and China together begin to sell their products to the world, in exchange for gold. At this time, we don’t know how the transition to gold as the world’s money is going to take place. Perhaps it will begin when the Euroasian Bloc attributes a much higher price to gold, as compared with its present price; or perhaps it will begin with gold denominated in terms of its present price. But whatever technique is used, the price of gold will have to register a dramatic rise, towards a figure at least ten times its present price, and possibly much higher. Actually –and this is rather hard to imagine at this time– it will not be so much a case of a rising dollar price of gold, since these two powers will have discarded the dollar, but rather that the quantity of gold that Russia and China will demand in exchange for their exports will be falling to small fractions of what they would demand today. Expressed in a different fashion, closer to reality, it will be the purchasing power of gold that will rise to a much higher level than it enjoys at present.

The stabilization of the purchasing power of gold will take place as trade imbalances around the world are eliminated: both trade deficits and trade surpluses will shrink to merely transitory phases among the nations of the world.

Thus, the return to a world that recovers commercial balance between nations will not be the work of the Pax Americana, that imposes it’s fiat currency, but rather the work of the Pax Euroasiatica, that will offer, free of impositions, the spontaneous adhesion of the world to gold as its money, as it has been throughout History.

Gold, because of its quality (and not because of its scarce quantity) has always been the King of Metals. There is little understanding about why it has occupied its supreme place as money, followed in second place by silver. Gold has notably been the money that has been used in large transactions, while silver has been the favorite metal for the great number of smaller transactions carried out by popular masses. Why has this been so?

This is the reason: among all known substances, gold has been the substance that loses value to a lesser degree –in fact, almost imperceptibly– as the quantity of gold offered, increases in commercial transactions. Its fall in marginal utility is almost imperceptible, regardless of volume. Said in other words that are perhaps more understandable, gold retains its value whether we are dealing with an operation that requires the payment of one ounce of gold, or whether we are dealing with an operation that requires the payment of 100,000 ounces. The last ounce –the marginal ounce– of the 99,999 ounces delivered, is worth just as much as the first ounce.

Gold is the only substance whose loss of marginal utility is practically nil. This is why it is the King of Metals, and why it has been the world’s money for countless centuries. Just as for measuring distances we use multiples of the metallic meter carefully stored at a controlled temperature in Paris, France, so gold, because of its quality of enjoying a practically invariable marginal utility, is the ideal measure with which to express prices of everything whose value can be quantified; in other words, gold is the world’s natural “numeraire”.

-The Inevitable Rise of Gold And Silver

Silver does not behave in the same way. It is not adequate for large transactions, because as the quantity of silver offered increases, its marginal utility decreases to a small extent. As an example: whoever wishes to purchase gold by tendering silver in exchange, will find that the price in terms of silver will increase as the quantity of gold to be purchased increases; this will not be because the price of gold rises, but rather because the units of silver offered in quantity lose a small part of their value.

China has hoarded a great quantity of gold in recent years, much more than it is willing to state, that is only a fraction, according to careful research, of the total that they are thought to hold. The price of gold in Shanghai is invariably higher than the dollar price of gold in London. Thus, the world’s gold is flowing in only one direction, from London to Shanghai, and it will probably never return to London.

In the meantime, practically all Mexican gold and silver production flows out of Mexico at ridiculously low prices; these prices are suppressed by covert operations in the US and London, in order to protect the prestige of the dollar and to seduce investors with attractive profits that can be obtained by investing in speculative papers denominated in dollars and other currencies.

-The Inevitable Rise of Gold And Silver
The national flag flutters atop the Bank of Mexico building in downtown Mexico City January 23, 2015. REUTERS/Edgard Garrido

Mexico’s Central Bank, the Bank of Mexico (Banxico), says it owns about 100 tons of gold, but only a small quantity of this gold has been identified in location and with numbers on its bars of gold; the larger part of Banxico’s gold reserves are part of aggregates of unallocated gold shared by various institutions, and it is possible that this gold may already have been hypothecated one or more times by the institutions that are supposed to be its guardians.

In 2016, Mexico produced 3.3 million ounces of gold, that is to say, 102.76 tons, and we may speculate that its gold production in the coming years will hover close to 100 tons a year. As with the case of silver, gold production would increase strongly with a rise in its price by making lower grades of gold available for exploitation.

The world production of gold that originates in Mexico is a small percentage of the total. If Banxico should adopt the policy of China and retain all the gold produced in Mexico, the subtraction of Mexican gold from the world markets would be of no consequence, and besides, the advantage for Banxico in taking such a measure would be only as foresight regarding the future of gold and the collapse of the dollar, without any present benefit. An uninteresting proposition.

But let us consider silver.

In the not-distant future, Mexico’s production of gold and silver will be a key factor that will make possible the continuance of Mexico’s development, and allow it to survive the inevitable havoc that will accompany the death of the present monetary system, centered on the American dollar.

In 2015, Mexican mines produced almost 190 million Troy ounces of silver.

At present, mining analysts believe that the world’s production of silver will begin to slow down in the coming years; however, their calculations are based on the premise that the financial world will continue to function without great changes, and do not take into account a future significant increase in the price of silver. Such an increase in price would promote greater production of silver, as it would allow miners to make further investments in mining. Extensive silver-bearing lodes whose silver content does not make them exploitable at present price would come into production.

For the time being, we can project a silver production on the part of Mexico at 160 million ounces a year, in order to take into account the present trend, which is in decline.

Mexico is the world’s largest producer of silver. What would happen if Mexico, following the example of China, should decide to purchase all the silver it produces, for the Reserves of Banxico? Or if not all, half? Or a quarter of Mexican silver production? If Mr. Trump, or the Fed, would take very badly the purchase of significant quantities of silver by Banxico, the US would be hardly likely to punish Mexico if it initiated a modest program to accumulate silver for the Reserves of Banxico, especially taking into account that the private mega-bank JP Morgan of New York possesses – according to the conclusions of careful observers of its activities in New York – amounts of physical silver that are calculated to be between 100 and 200 millions of ounces of silver, and possibly more: a quantity similar to the annual production of silver on the part of Mexico.

Mexico is the world’s largest producer of silver. The subtraction from the world’s production of silver, not of 100% of Mexico’s production, but by only a small amount of it, would lead to a considerable jump in its price, for two reasons: First, because when a Central Bank adopts such a measure, the markets attribute great importance to the fact, and Second, because any subtraction of silver bars from the markets will have disproportionate repercussions upon its price: the price of silver in NY is controlled through enormous sales and purchase transactions, but these result in a practically negligible delivery of physical silver. The movement of physical silver into investment, compared with the volume of sales and purchases, is minimal, not to say microscopic (See note 1). Therefore, the subtraction of a relatively small quantity of physical silver could easily cause a doubling in its price – not only the price of the silver sold by Mexico in foreign markets, but also in the value of the silver Reserves held by Banxico, which would be of total liquidity.

Mexico has every right to defend the price of its silver –a non-renewable asset– for the benefit of the country’s mining industry, against the manipulation exerted by the US, that aims at maintaining the depressed price of silver.

Banxico would purchase silver from the Mexican miners, and would pay them in Mexican pesos, for the equivalent of the dollar price of the purchased silver. Since the miners require dollars to fulfill contractual requirements and to purchase with dollars equipment and other supplies which are imported, the resulting effect upon the dollar Reserves of Banxico would be a charge, a reduction in dollar Reserves. Banxico would in effect be exchanging a portion of its dollar Reserves, for Reserves in silver.

The dollar Reserves of Mexico have been suffering a contraction in value because of the falling value of the dollar on international markets. Supposing the value of the dollar to rise once again, the silver in Reserves might double in value, but the dollar certainly would not double.

Here we insert a brief anecdote about the way in which China entered world commerce in the XVIth Century.

In the XVIth Century, China was an enormously productive power of all sorts of goods, much more advanced in productive power than the Europeans who arrived in China from the West, seeking trade opportunities. The response of the Chinese emperor to those wishes, was to say that China had all it needed, and that the Europeans had nothing of interest to offer China. There was no reason, therefore, for China to consider any commercial interchange.

In 1564, the Spaniard Andres de Urdaneta made a voyage to Philippines from Barra de Navidad, a port in northwest Mexico, and discovered the way to return to Acapulco, by sailing from Philippines to the Northeast, where the ocean current carried him to America; he made landfall at Cape Mendocino, which he baptized in the name of the Viceroy of Mexico, Antonio de Mendoza.

From then on, the galleons that left for Philppines, first from Barra de Navidad, and later from Acapulco, carried with them something that was of great interest to the Chinese merchants in Philippines: Mexican silver! In exchange for silver they willingly supplied every sort of merchandise desired by the Spanish for their return voyage to New Spain, as what is now Mexico was then called.

Thus began the participation of China in world commerce, thanks to Mexican silver – coined, in fact, by the Mexican Mint of Mexico City, into the famous “Pieces of Eight” which years later, became the basis of the American dollar with 371.25 grains of pure silver. If I am not mistaken, the first American dollars were minted by the Mexican Mint in the early years of the American Republic, when it did not as yet possess a mint. The Mexican silver peso enjoyed the status of legal tender in the American West until 1857. And Mexican silver circulated in China until 1935!

Thanks to silver, and to the commerce with China which it made possible, Mexico City became, during the years of Spanish Colonial rule, one of the richest cities of the world.

I think that silver minted by our historic Mexican Mint, now under the control of Banxico, has a promising future in the world of tomorrow: both in China, as well as in many other countries that would eagerly wish to own these coins, and whose exporters would be well disposed to receive them in payment for their exports to Mexico, especially because when the decease of the monetary system based on the dollar takes place, our Ounces will acquire a monetary value that will be multiples of its present value.

The present monetary system of the world, based on the dollar, is on its death-bed. A fiat currency –such as the dollar– cannot be replaced by another fiat currency. Therefore, the world will necessarily have to take up gold as the world’s money; silver will doubtless complement gold as the world’s money, because it has always done so throughout History. It is likely that the Euroasian Bloc will initiate the monetary transformation of the world, in due course.

We cannot know what configuration the adoption of gold as the world’s money will take, but it may mean that the various currencies of the world will once again be simple representatives of various quantities of gold. Silver will always have a value with respect to gold, that will necessarily be a fluctuating value, but doubtless, the value of silver will be much higher than it is at present. The fluctuation of the value of silver with regard to gold can be reduced, but it is impossible to eliminate it: to ignore this fact has been the rock upon which all bimetallic standards have hitherto foundered.

Given these considerations, it is clear that Banxico would not be mistaken in purchasing silver for its Reserves: by doing so, it strengthens itself against the collapse of the dollar as world currency, and at the same time, it powerfully encourages Mexican mining industry, for the benefit of the national economy.

If besides purchasing silver for its Reserves, Banxico proceeds to monetize silver, by giving the silver coin a monetary value superior to its intrinsic value, adjustable for increases in the price of silver, but leaving intact the monetary quote in the case of falls in the price of silver, it will have applied a measure of transcendent importance that will encourage and protect the savings of Mexican families, and which at the same time will produce something of inestimable value: the full confidence of Mexicans in the great future of their country. A Mexican silver coin, monetized according to our program, would enjoy great demand on the part of American savers, and indeed, among savers around the world. Savers would hold these coins in their savings indefinitely, precluding their return to Mexico in exchange for fiat money. Thus, Banxico’s monetization of a silver coin would create an important export product for Mexico.

I have nothing more to add, than to reiterate my belief, that silver is linked to the great future of Mexico.

Note (1): “By multiplying the 159 billion ounces of paper silver traded in 2016 by the average spot price of $17.14, we arrive at a staggering $2.27 Trillion of notional paper silver traded versus $4.4 billion actual silver investment. Thus, the paper notional silver trading ratio to physical silver investment was a whopping 517 to 1….” (Source: www.srsroccoreport.com).​

-Gold And Dollar Prices Fall Simultaneously

-Gold And Dollar Prices Fall Simultaneously

Written by Christopher Aaron

The US dollar continues to show us signs of a significant long-term reversal lower in the making. As first proposed in January 2017, the dollar has now hit our initial lower target of 95.5 on the dollar index:

USD US Dollar Index

This target was derived from a measurement of the amplitude (4) of the false breakout above the 99.5 resistance zone (black lines) subtracted from this same level following the breakdown. It represents a liquidation of long contracts by those who purchased the US dollar on the assumption that Trump’s policies would overshadow any money printing by the Federal Reserve after the election.

We were on alert for the US dollar reversal starting in January 2017, as the currency continued to make lower lows after a major multi-year breakout. This was a warning sign – such immediate weakness should not occur in a strong breakout scenario.

Again, as of this week, the dollar has now hit our first target lower, at 95.5 on the dollar index.

What now?

First, please note that initial targets are just that: the first stopping point based on a technical measurement. We must use other forms of analysis to gauge the probability for subsequent movements.

Prepare For Dollar Bulls To Show Up

Dollar bulls are going to begin buying in the currency markets near 95.5. They are going to try to paint this decline as simply a higher-low in a series of such higher-lows that have formed over the past nine years. They are going to try to buy the dollar up above the recent false breakout at 103.5.

We suspect they will fail, as sellers are clearly present above 99.5 on the index. False breakouts at multi-decade highs tend to represent long-term reversal patterns.

While the price action for the US dollar has been weak over the past 3-4 months, the dollar has begun accelerating in downward momentum over the past week. There is no sign of an imminent bottom on the dollar chart, even though our initial target has been met.

Based on the deterioration in momentum, it is likely that the dollar is headed for its 2.5-year support zone between 92-93 as a next stopping point before any meaningful rally.

Visualizing a further drop into the support zone on the long-term chart:

-Gold And Dollar Prices Fall Simultaneously

Although a significant bounce should be expected to occur as the 92-93 support is reached, even a test of this region is a bearish long-term signal, as it opens the door to a possible massive head and shoulders top on any bounce, illustrated by the green arrows above.

Our best assessment is that the dollar will fail to hold the lower range of the support zone at 92 after a meaningful bounce. At this point, there will be little in the way of support for the dollar aside from the long-term rising trendline (magenta color), which comes in at 88. The target on a failure of support at 92 will become 80.5, equal to the amplitude of the failed advance (11.5) above the support zone, subtracted from the same support zone.

US Dollar/Gold Declining Simultaneously

-Gold And Dollar Prices Fall Simultaneously

Unfortunately for gold, we are living through one of those anomalous time periods in which the US dollar and precious metals are positively correlated – but to the downside.

Throughout history, gold tends to have its strongest moves when the US dollar is losing value, as gold receives bids from those looking to protect their savings against a decline in the world’s reserve currency.

However, as we can see at right, especially since the Federal Reserve meeting in mid-June, both the US dollar and gold have moved in the same direction: lower.

This is largely a market psychology phenomenon. Presently, the Fed has the markets fully convinced that it is engaging in just the right amount of money-printing to keep inflation modest but to keep economic growth strong. As a result, investors are choosing to protect themselves from inflation through the rising stock market, but are seeing little need for “safe- havens”, i.e. gold and the US dollar.

Respecting The Market

This is where our outlook may be different from most analysts in the precious metals community.

We of course know that gold and the US dollar are not both equal as per safe-havens. One is a historic store of wealth that has lasted for over 5,000 years, while the other is a fiat currency which has already lost 97% of its value in the past 100 years.

However – we also respect that market reactions are primarily determined by the psychology of its participants at a given time.

We agree that the market – in viewing both gold and the dollar as safe havens to be sold simultaneously – is acting irrationally.

However, the market can stay irrational longer than many expect.

We have no desire to be right on certain fundamentals, but to get “trampled” by the market moving opposite to us.

To do so would be akin to simply ignoring an irrational mob of people as it approaches. Perhaps the people have no logical reason for their behavior – but if we ignore them as they rush toward us, we will get hurt nonetheless.

Large market players can sell gold simply because they trust that the Fed has everything under control.

Something must change in the market psychology to alter this belief.

Gold Not Acting As Safe-Haven?

-Gold And Dollar Prices Fall Simultaneously

The last two days were especially noticeable in that gold failed to receive a bid, even despite weakness in both the US dollar and the broad stock market. At right we plot gold, the dollar, and the S&P 500 since Thursday:

There is an old investment adage which says: “If a market fails to move higher when it should, it is showing internal weakness.” (The implication is that absolute price weakness should be the next to manifest.)

This is the only way we can interpret the price action for gold recently. It is failing to attract buying on either US dollar weakness or stock market weakness.

If gold cannot move higher when traditionally-inverse markets are showing weakness, then when will it?

This is the question gold investors must ask themselves.

Short-Term vs. Long-Term

We are not bearish over the long-term. Irrational behavior can reverse just as quickly as it began.

But something must change as per market psychology to shake the precious metals out of their malaise. A trigger must present itself. We cannot say what that trigger will be yet – but we will absolutely see it on the charts when it occurs.

For now, subscribers continue to hold puts as protection in case of a more serious decline in the metals during the second half of the year.

US-Dollar Backed Gold

US-dollar backed gold

US-Dollar Backed Gold. Is it true and how does it work?  It is common knowledge that the value of the US dollar influences the price of gold. In particular, we can say that sometimes the under-performance of the US dollar backs up gold.

This is exactly what is been happening for the last few days, right after the Fed wrapped up its 2-day meeting, on Wednesday (15 March 2017), the Federal Funds Rate increased by 25 basis points to 1,00 percent. Along with price stability, the Fed is been targeting an inflation rate of 2,00 percent.

US-Dollar Backed Gold

The Fed’s 2,00 percent inflation rate, is now fast approaching and this is exactly what prompted the Fed chair, Janet Yellen, to raise the rates, for the second time since December 2016. The Fed is pushing for monetary tightening in 2017, with at least three rate increases expected for the year. Due to massive job gains and an increase in the US GDP, the rate hike is expected to continue during 2018.

Although currency traders were expecting a US dollar bump from the rate hike, it went the opposite way, and that was due to the fact, that there are more rate hikes to follow. As a result, the US dollar took a dive to a five-month low.

The most interesting development took place after the rate hike and that was the impact on gold bullion. Gold is a dollar-denominated asset like oil, copper, and others. When the dollar tumbles, the price of gold bullion increases. As a result, gold prices rallied substantially, with strong gains and reversing a short-term bear trend. Gold is now trading at $1,245.24 per troy ounce.

Interest rate increases are bad news for Americans. Every time there is an interest rate hike, homeowners, consumers, and others are subject to higher interest repayments. Even though the interest rate hike was by only 25 basis points, it is estimated it will cost the average American household on interest repayment on credit cards, $17.00. The truth of the matter is, that for every increase in interest rates, there is an increase in home loan repayments, as most home loans are variable and they adjust accordingly.

When interest rates are on the rise consumers should shop around for the best deals.



-Now Is Not The Time To Abandon Precious Metal Investments

-Now Is Not The Time To Abandon Precious Metal Investments

-Now Is Not The Time To Abandon Precious Metal Investments

Now, is not the time to abandon precious metal investments.  Due to the euphoria caused by Donald Trump’s election victory, many investors are prepared to leave gold, silver, and other precious metal investments for the good old Dow Jones.  I personally believe now is not the time to move away from safe-haven investments.

Although, there is a strong demand for gold and silver globally, in the US buying activity for physical bullion has fallen significantly, especially in the wake of Donald Trump’s election victory.  On the other side, retail selling has increased.

The two terms of President Obama included the 2008 financial crisis, zero interest rate policy from the Federal Reserve, and the Quantitative Easing from the Europeans. There was plenty of reasons to buy gold.  Today they still are, but they are less obvious to the average investor.

Many people who were disappointed by Obama’s policies are now investing in the stock market.  Artificially low-interest rates are pushing inflation higher and the US dollar looks decent, compared with other world currencies.

If the dollar continues to get stronger, along with real economic growth and the risk assets continue to outperform, then we should not expect a bullish market for precious metals.

The second path involves price inflation, with a sharp rise to the national debt.  There is also a scenario that involves geopolitical uncertainty.  In this case, investors will have to hedge themselves against the dollar’s declining purchasing power.

The Bureau of Labor Statistics just reported a massive jump in the Consumer Price Index in four years.  There is also a proposal for tax cuts, and we all know tax cuts increase spending and therefore inflation.  However, at the same time tax cuts can increase deficit and borrowing, leading to a weaker dollar.

If Donald Trump convinces congress to levy import or border taxes, with a major partner such as Mexico or China, that will also mean higher prices in the US.

At the same time, the only way to address the massive deficit is a substantial devaluation of the US dollar, which is inevitable.

In addition, the President has made it clear to fight the Deep State.  The unelected often anonymous bureaucrats, who have a behind the scenes say on how the state is run. The President has many enemies and many of them are some powerful republicans.

On the other side of the Atlantic, there will be some very important political elections, with the anti-European forces gaining ground.  If they succeed that will upset the markets.

Furthermore, China is facing great problems as officials are desperately trying to maintain a currency peg, in order to deal with the massive amount of bad loans piled up on Chinese banks.



-Political Uncertainty And The Weak Dollar Favor Gold

-Political Uncertainty And The Weak Dollar Favor Gold

Just a few weeks ago Donald Trump became America’s 45th president. Judging by his first two weeks, I can say that his presidency brings uncertainty and chaos.  Uncertainty and chaos, are exactly what the markets love to hate.  If you add to that the weak dollar, then you have the perfect recipe for gold.  You see, the weak dollar and political uncertainty favor gold.-Political Uncertainty And The Weak Dollar Favor Gold

Uncertainty cannot be planned for, cannot be predicted-can only be estimated, and can be wildly and unexpectedly wrong.

The United States economy is the biggest economy in the world, it has the biggest GDP in the world. (16.77trillion)  It also has the biggest debt in the world. (17.60trillion)

Because of this difference in size, most people think it’s insulated from the actions of the world economic climate.  In addition, the dollar is the world’s reserve currency of choice, and America has been used to have the first word, on many fronts economically.

However, this is about to change.

In recent years, the gap between government income and expenditure has widened due to the degree of military service, and social security commitments, and at the same time, productivity and educational levels, is where its fallen behind.

Without radical change, this gap could reach a point of no return.  In this case, the dollar will weaken to a degree unseen in recent years.

At the same time, Russia and China are teaming up in their efforts to replace the dollar, as the world’s reserve currency.  And this is possible due to changes in the IMF’s voting system.  The BRICS (Russia, India, Brasil, China, and Sth. Africa) have now collectively more votes than the US alone. That means the dollar will soon be in danger unless the Trump administration decides to reform the US financial system.

In addition, when it comes to the US balance of trade, the news isn’t good either.  The trade deficit for the year 2016 was $502.25 billion, a 0,4% from the year 2015.  This will also weaken the position of the US dollar role, as the world’s reserve currency.-Political Uncertainty And The Weak Dollar Favor Gold

It is imperative that you preserve the value of the things you have and I am talking about your savings.  Rather than investing in bonds, shares, and other paper holdings, I suggest that you invest in gold.  In this case, when you do come to draw down the money, there will be far more to take.  That is the whole idea behind it.

Remember investing in physical gold hedges you against inflation, and protects you if the dollar collapses.