What is fiat currency, how it is used and does it work? In this post, I will answer all these questions and many more.
What is Fiat Currency – Definition
Fiat currency is currency established by government law or regulation. Fiat currency is not backed by a physical commodity. (gold, silver, etc.) The value of fiat money derives from the relationship between supply and demand, rather than the value of the material that the money is made from.
In the past, most currencies were based on physical commodities such as gold, or silver, but fiat money is based solely on the faith and credit of the economy.
Although modern currency is used on a daily basis to purchase millions of items, it is actually considered fiat money because it has no real value of its own. Its value depends directly on the issuing country’s economy.
It is well known that cigarettes are used as currency in prisons. In fact, inmates will mass cigarettes and use them as a medium of exchange. In both cases, cigarettes and paper money, or even bitcoins, or whatever a currency, is simply an agreement that a particular item is a currency.
Switching back to a gold-backed regime does not mean switching away from fiat currency, it means switching to a fiat currency system where paper money is linked to a commodity.
Paper Money Have No Intrinsic Value
We all like to think that our paper money, dollars, euros, etc. have intrinsic value, whereas value in a marketplace is determined by supply and demand, not anything intrinsic. In reality, our currency system, and any currency system, is backed by absolutely nothing, except a shared agreement by everyone to use the currency.
In addition, the government’s law or regulation that makes money, in reality, is useless without the consent of the currency users.
Due to the fact that fiat money is not linked to physical commodities, the value of the fiat money depends on the strength of the issuing country’s economy, and inflation, or even hyperinflation, could result if the government issues too much fiat money. In that case, paper money will become worthless.
Fiat Money Depends on Trust
Because fiat money is not a source or fixed resource like gold, governments, and central banks have much greater control over its supply, which gives them the power to manage economic variables, such as credit supply, liquidity, interest rates, and money velocity.
On the other side, the threat of depression or serious recessions is still there and the mortgage crisis in 2007 and 2008 is living proof. A currency tied to gold is more stable than fiat money due to the limited supply of gold. Fiat money provides more opportunities to create bubbles due to its unlimited supply.
During the last couple of years, there have been many voices calling for the return to a commodity-based currency. Mr. Alan Greenspan, the former US head of the Fed, has also asked the US President to consider going back to the gold standard.
I hope my What is Fiat Currency – Definition article was useful to you. If you still have any questions let me know in the comment section.
The supply and demand basics for precious metal markets got tossed into disarray this year, resulting in heightened volatility– initially on the drawback, then on the upside. Will the gold and silver supply and demand in 2021 will be such that will drive the prices of the two assets higher?
The Gold and Silver Supply and Demand in 2021
Although gold and silver will complete 2020 listed below their highs for the year, the gold price will end up with a yearly return of nearly 25%; and silver around 45%.
Can Precious Metal Investors Expect More Price Appreciation in 2021?
Yes, however, there are some near-term threats to the favorable long-lasting supply/demand outlook.
Assuming financial conditions begin stabilizing next year, we would anticipate demand– specifically from commercial users– to increase. Mine production is expected to rebound also.
The mining market, like numerous others, faced extraordinary operational challenges in 2020 due to COVID-19 interruptions. Many mines around the world were required to scale back or suspend production in the first half of the year.
By the third quarter, mining output among significant producers started to ramp back up. In general, however, the top 20 gold miners will end up in 2021 with an approximate 5% drop in output.
The mining industry is issuing positive assistance for 2021. Whether it fully recuperates to pre-covid19 numbers remains to be seen.
While mine supply is likely to increase versus 2020, so is consumer demand for refined precious metals items such as fashion jewelry. The financial investment need for bullion will, as usual, be a wild card that could move the marketplace at the margins.
A related wild card is the COVID-19 virus. Epidemiologists hope something near herd resistance can be reached through mass vaccinations. However, the virus stays unforeseeable and might mutate into numerous new strains.
Virus dangers, political dangers, and inflation risks originating from the Federal Reserve‘s unrestrained printing of money and the European Central Bank’s money flooding are all potential drivers for safe-haven investment purchasing of precious metals.
Silver’s 2020 Historic Low Could Turn to a Historic High in 2021
A massive rise of investment demand hit the bullion market this spring as panic gripped Wall Street and bargain hunters came out in numbers.
What occurred was a once-in-a-generation event. Some markets reached unprecedented extremes that defied centuries of recorded history.
For instance, crude oil futures traded deeply into the unfavorable area for many months. Silver got historically oversold versus gold, as the gold-silver ratio surged to as high as ever prior to being seen at 130:1.
Near the outright bottom of the market on March 17th, we wrote, “Never has silver been as low-cost to acquire in genuine terms as it is today. Never has the silver market traded so extremely detached from its fundamentals.”
That post recommended we had actually hit “peak fear”– out of which “a new uptrend in silver, and a corresponding constricting of the gold/silver ratio, can be expected to extend for many years.”
The very next day, March 18th, silver struck its outright low point for the year at $11.75/ per troy ounce. It went on to surge as much as nearly $30/per troy ounce in August.
A less remarkable 2021 may be the case. However, an international economic recovery and return to some form of normalcy would assist in stimulating demand for commercial metals along with silver, platinum, and palladium.
A major trend set to accelerate in the months ahead is the move away from nonrenewable fuel sources and toward electrification.
Solar energy and battery technologies are experiencing explosive growth, and with that development comes a need for lots more copper, nickel, silver, and strategic metals. In fact, photovoltaic panels are among the fastest-growing sources of silver demand.
The “green” programs of the incoming Biden administration, paired with ongoing fiscal and monetary stimulus into the economy, could have the unexpected repercussion of stimulating metals markets.
Demand can grow a lot more quickly than supply. Some analysts expect to see broadening supply deficits for silver and platinum in 2021.
According to Bloomberg Intelligence commodity strategist Mike McGlone, silver will head towards a new record high on improving principles and collecting technical strength.
Silver investors must anticipate some volatility and maybe some surprises on the way to an eventual brand-new high in dollar terms above $50 per troy ounce. It might take place next year. It might take a bit longer.
Having a long-lasting horizon is important to be able to participate in the full magnitude of a precious metals bull market.
A brand-new nominal high in silver will just be the very first major turning point in a booming market that might increase several times from here prior to being overvalued in genuine terms.
Silver prices have underperformed gold for many of the time since 2011. Nevertheless, if we take a look at the past we will see that silver outperforms gold most of the time. Annual ordinary gold prices climbed more than those of silver every year from 2012 to 2019 with the exemption of 2016, and also right into the initial quarter of this year. The gold: silver rate ratio increased to a record 126:1 in the center of March 2020. However, the silver-gold price ratio is now at 74:1.
And also past performance has actually been a rather regular sign in highlighting that silver costs surpass gold in a time when gold costs are rising sharply, a gold rate rally. As can be seen in the table listed below, silver prices have actually surpassed gold almost every time throughout the duration of climbing gold prices because gold prices were released from their dollar secure in 1968.
CPM Group has actually mentioned that silver prices out-perform gold ‘most of the moment’ when gold prices are climbing, or remain in a bull market. We were asked to examine the extent to which this held true and/or if silver constantly out-performed gold. The table right here reveals the information made use of in the research study.
The first set of silver price data makes use of the same dates as gold’s troughs and tops for gauging silver’s efficiency. The second set of silver price information is gauged from silver troughs and peaks that are close to or ‘in the very same cycle’ as the duration of gold cost increases. When utilizing silver’s troughs and peaks that were close to or ‘in the same cycle’ as the duration of gold cost boosts, silver constantly exceeded gold and the percent gains were additionally a lot more powerful than when making use of the various other time structure.
What Contributes To Silver’s Out-Performance
There are numerous reasons silver often lags behind gold in starting a major upward rate relocation, but after that climbs faster in portion terms. One of the most essential is that the silver market is dramatically smaller than the gold market. In 2019, for example, the dollar value of the gold market was around 5.5 times that of silver. The marketplace dimension for silver and gold is defined here as the summation of yearly physical supply (including recently improved mine results, second healing from scrap, and when it comes to gold net authorities transactions in those years when the main field has been a web distributor of gold to the market), futures and options exchange trading volume, and also London Bullion market-clearing quantities.
Provided the smaller size of the silver market it takes much less effort for financiers to move the rate of the metal higher or lower. The smaller size of the marketplace basically increases volatility, which while supportive of outperformance contrasted to gold when prices are increasing additionally adds a threat to the performance of silver as a stand-alone property and to any portfolio in which precious metals are included. (This is a topic reviewed in higher deepness in the second part of this collection.).
While the silver market is extremely fluid, it is fairly much less liquid than the gold market both in terms of deepness and breadth, with fewer institutional investors, retail capitalists, bullion banks, and trading firms interested in the silver market versus gold. This lack of liquidity also contributes to the sharper relocation of silver to gold.
Silver Commonly Lags And After That Outshines Gold.
It has been continuously observed that the gains in silver rates commonly delay those of gold. For one, as stated in the past, even more capitalists and more kinds of investors get gold than silver.
In addition, silver capitalists consistently have actually shown a willingness to sell their silver when the positive view toward the metal discolors. En masse, financiers have consistently been net sellers of silver for long periods of time, showing themselves to be a lot more opportunistic than several yet not all gold capitalists.
Gold capitalists have a tendency to purchase less gold when the sentiment sours yet they just seldom and for a short duration of time transform into internet gold sellers as a team. Because silver investors will certainly sell silver, some of that silver will back up in market makers’ stocks. Since silver investors transform web vendors when belief sours, those stocks that were marketed earlier by capitalists get backed up in market manufacturer inventories and they come out sooner, maintaining the silver rate down much longer than gold, which does not face this obstacle.
Since silver has numerous commercial usages, economic distress injures the construction need for silver much more than for gold, which at first weighs on silver’s cost. Silver investors are and have always been a more dominant force in affecting prices than producers. Generalist investors generally divert their interest towards silver just when gold starts to rise higher. This delayed focus from generalists likewise has a tendency to add to the lag in silver cost efficiency relative to gold.
What We Anticipate This Time.
From the end of 2019 to 14 August 2020, the cost of silver was up 46% basis the neighboring energetic Comex agreement. Rates have softened in current days: Silver prices had actually been up 54% on a negotiation cost basis on 10 August from the end of 2019.
Is Silver Playing Catch or is it Out-Performing Gold?
After years of underperformance in gold, shown in the sharp boost in the gold: silver proportion, the silver cost is now playing catch up with gold. The proportion has actually slid reduced but is still at traditionally elevated degrees.
While the daily gold cost broke its past document and also already has made several brand-new ones, the price of silver at the height of its existing run-up on 7 August 2020 at $29.91, still is 39% below its record high in 2011. That is stated because, since July, the price of silver has actually outmatched that of gold, increasing 32% versus gold’s 7% gains over the same duration.
To date, silver is playing catch-up. For a brand-new capitalist getting into the market as a customer, silver is outperforming gold. For a veteran holder of these steels, silver is playing catch up. The solution lies not in the actual cost performance but in the point of view of private onlookers and capitalists.
Just How Sustainable is the Toughness?
Even though silver rates currently have actually risen greatly up until this year, there is more potential for advantage in the brief to tool term. There are numerous essential resistance degrees to be crossed but a go-to silver’s past record ought to not be entirely unexpected.
Some visitors of this note will certainly examine the strength in silver costs offered the weakness in silver construction need arising from the decline in economic development. While fabrication demand no doubt plays a vital duty in the silver market, financial investment demand has been the dominant factor in affecting the rate of steel. Silver’s financial investment demand is driven by both expectations of manufacturing demand for steel and a bush against macroeconomic and also political dangers. Currently, the extra leading variable driving silver investment demand is its use as a hedge against danger.
Capitalist sentiment toward silver is turning extremely favorable. This favorable capitalist view is being driven by financiers searching for a bush to the increased political and economic threats worldwide combined with silver’s loved one value to gold.
Additionally, the recent break out of silver costs is most likely to attract generalist investors searching for relatively undervalued possessions to park their funds and the unfavorable return on the 10-year IDEAS definitely makes possessions like silver and gold attractive. The approaching U.S. election, Brexit, wearing away UNITED STATE– China relationships, and also the pandemic provide additional factors for investors to add silver and gold to their portfolios, which should aid in sustaining the strength in rates.
While silver costs can possibly increase back to their document levels, they might not be able to receive those high levels for a prolonged amount of time, with several of the much shorter-term capitalists locking revenues and fabrication demand being hurt by the high cost. That claimed, while costs might not remain at those previous record levels for also long and will certainly come off they should not be anticipated to sink back to the degrees experienced in the last few years, and even earlier this year, in any type of hurry. The fallout from the pandemic should help to keep the prices of these steels at elevated degrees for a long period.
The vital to future silver, and also gold, rate trends lies much less in the degrees to which these steel costs already have actually increased and will certainly be much more a function of the underlying environmental aspects, financial, economic, political, social, public health, that press financiers to buy basically silver and gold. That will identify the height, more than any type of provided price level.
The pandemic and subsequent global lockdown have actually trembled the worldwide economy to the core, and the unfavorable economic fallout of these occasions is expected to have a long-term unfavorable impact on business real estate values, air travel, and jobs as a result of the acceleration of automation, to name a few. Governments and reserve banks worldwide have actually rushed to give assistance to the economic situation from this shock, which has actually injected a flood of money out there that is seeking return. The increased liquidity on the market has pushed prices into the unfavorable region, making non-interest-bearing possessions like silver and gold interesting capitalists. These all are expected to be essential aspects stimulating financial investment need and subsequently pressing silver prices up in the near to medium term. Additionally, while silver costs have actually lowered the deep discount at which they were to gold rates only recently, silver still is underestimated relative to gold. This suggests even more room for silver costs to rise in the medium term. The gold and silver bull markets seem still in their early days; this is particularly the case for silver, which has started climbing sharply and burst out of some crucial resistance levels only three weeks ago.
Where do the two Metals Fundamentals Factor in?
The currently sharp increase in gold and silver prices coupled with reasonably weak economic problems in the near-to-tool term ought to weigh on the construction need for these steels. Solid capitalist need for these metals in the face of the financial and political concerns dealing with the United States and also the globe need to a lot more than countered any weakness in fabrication demand for the steel in coming quarters.
On the supply side, it will certainly be years prior to the sharp gains in costs seen in current weeks and months that will affect mine supply. Miners also have become more careful concerning investing in growths after the last advancing market in these steels, offered their development of high financial obligation degrees and developing of poor quality possessions. So any type of positive effect of stronger prices on mine supply must not be anticipated for numerous years out. The secondary supply of these steels is normally more receptive to costs and economic conditions and needs to be anticipated to climb. This will certainly be a headwind to prices yet not a variable that can drive costs greatly lower.
Exactly How to Navigate Around Silver Investment and More
Capitalists are required to be careful. While the outside world is motivating capitalists to stockpile silver, the reality is that large parts of the financier’s anxiousness driving investors into silver can disappear swiftly. While we state that the price levels are lesser than those exogenous factors, high costs due and will certainly have an impact on rates.
CPM’s view is that costs of silver and gold are likely to rise for many years. We specified in 2000 that we saw a ‘gold renaissance’ that would bring many more capitalists in more parts of the globe into the market purchasing even more gold for a longer amount of time at greater rates than ever before. There was an upward change in the financial investment demand curve for gold and silver on a semi-permanent basis.
We claimed that gold and silver enjoyed a secular booming market that would certainly be in 2014 if not decades. When costs peaked in the Global Financial Crisis and Great Economic Crisis of 2007– 2011, we forecasted intermittent descending relocate prices that could last 3 to 5 years within the context of that secular advancing market, saying we anticipated rates to return to increasing eventually after 2015– 2017, because every one of the financial and political problems that were driving capitalists to acquire gold stayed un-repaired, and oftentimes had intensified and would intensify further.
All of this still Appears a Valid and Logical Expectation for Silver and Gold.
That claimed, there plainly are extremely unsupportable remarks about silver and gold circulating the market by precious metals and mining advertising and marketing groups, followers in the faith that state the financial imbalances that have actually built up since the 1970s can just be dealt with by a disastrous failure of the global economic system, and others who relatively have neglected silver and also gold market fundamentals, including the massive quantity of silver and gold formerly gotten by investors that can cost massive revenues throughout periods when the financial and political atmosphere look a little far better.
This is what happened from 2012 up until around 2017, much to the irritation of the believers and marketing representatives. It needs to be anticipated to take place once again.
Many people in the community are now wondering whether capitalism is still a healthy system, or whether it has changed for the worse, and whether capitalism faces its biggest crisis ever.
We are living in a world that can not survive without a constant budget deficit, can not survive without cash printing, can not survive without negative interest rates, there is something extremely rotten. In fact, we are living in a world that accumulates government and public debt, a world that gives us a false sense of fulfillment by spreading around worthless currency. Well, this world is not only rotten but also disgusting! Yes, it stinks of lies, deception as well as ethical decadence.
Capitalism Faces its Biggest Crisis Ever
Why does not anyone stand up to warn the community where we are heading? Well, for the straightforward reason that no politician can tell the truth. Since if they did, they wouldn’t be chosen. The principal function of any politician is to buy or obtain votes and as a result, they can never speak the facts.
Additionally, there are so many beneficial interests with endless rewards. The money men who regulate the monetary system have all to obtain, from developing false markets, false money, and false interest rates.
The Reality Never Dies
The Roman philosopher and also statesman Seneca said: “Veritas Nunquam Perit” (The Truth Never Perishes). That could very well hold however it can be suppressed for a very long time as we are seeing now all over the world.
Let us initially think about the greatest lie which is cash. For 5,000 years, the only genuine cash has been gold (and sometimes silver). Whenever the financial system has differed from that basic principle, by creating false money, it has finished in disaster for the world, whether that has been done with silver coins full of zinc or copper or by just printing paper money.
Complete Disaster of the Currency System to Follow
Which is where we are heading currently. A tragic course of events was triggered when Nixon closed the gold window on August 15th, 1971. Ever since international debt has taken off and also all money has imploded. Financial obligation, derivatives, and unfunded liabilities have gone from workable amounts in 1971 to over $2 quadrillion today. As well as every single money has shed 97-99% in actual terms.
We are currently at the point when we will certainly not be able to change the training course of either of the two. The environment is figured out by really long cycles that humans have no impact on. Now we just have to allow it to take its course which will be devastating for the whole world.
So why is nobody seeing what is taking place and why is nobody taking on the claim that the Emperor is completely naked?
The truth is unpleasant and painful yet it does never die.
It is an indisputable reality that essentially all the fiat cash that is printed by federal governments, central banks as well as commercial banks is pointless as well as for that reason incorrect.
If a federal government prints cash out of nothing to cover deficit spending, that cash has NO worth given since all the jobs needed to develop it was to push a button on a computer system.
We likewise recognize that the money has no worth because no financial institution or central financial institution is prepared to pay interest in deposit accounts. Instead, because cash is worthless, these bankers desire to be paid to hold the money. There is no reason to pay interest on worthless money.
There is an Abundance of Worthless Money
American Dollars
As well as when a financial institution receives a $1,000 down payment and after that lends out that very same cash 10 times or even more, that cash is likewise worthless, considering that it has set you back $0 to provide the funding.
It is the same with a credit card company or car funding, they all concern counterfeit money developed by the touch of a switch.
For the ones who don’t recognize what this implies, let me describe it. Allow us to begin with the bubble’s possession. When the worldwide stock, property, and also various other bubble asset markets stand out, all these properties will certainly lose a minimum of 95% of their value in actual terms. The best way to calculate real terms is certainly gold because that is the only cash that has actually survived and also preserved its purchasing power for hundreds of years.
And also, if we take a look at the financial obligation bubble, global financial debt goes to the very least $270 trillion. Yet when the financial obligation bubble stands out, so will other liabilities like the $1.5 quadrillion of derivatives. So when the financial obligation bubble pops, basically all that fiat money ends up being entirely useless. No person can repay it as well as no one wants to acquire it.
Global Debt Chart
I recognize that the above two paragraphs are an extremely streamlined description of what will certainly take place over the coming years. However, this is the ugly truth.
These occasions will undoubtedly not take place in one go. They will certainly most probably begin with the securities market very first collapsing, which will certainly put pressure on credit score markets. A lot more QE will certainly adhere to yet that will just have a short-term impact. Even more collisions, even more, cash printing, the rising cost of living, devaluation, credit report defaults, company closures, and also bank defaults.
We had the first clear signals from numerous significant reserve banks, that something was rotten in the worldwide monetary system already in August, when the Fed, ECB, and BOJ all proclaimed that they would do what it required to sustain the system.
Quantitative Easing and Money Printing the Same
In September the Fed launched overnight Repos of $75 billion boosts to $100 billion. They additionally took on two-week Repos of $ 30 billion rising to $60 billion. Adhering to that the Fed has now announced that they will certainly start QE of $60 billion each month. We should not call it QE according to the Fed. So allow us to just call it money printing since that is what it is.
The President of the Minneapolis Fed stated: “This is not about changing the stance of monetary policy. This is about making sure markets are functioning. This is kind of just a plumbing issue.” He is right, it is a plumbing concern. However, the issue is that the economic system is leaking like a filter without the possibility of connecting all the openings.
Between the end of 2017 and also 2019 the Fed reduced its balance sheet by $700 billion from $4.5 trillion to $3.8 trillion. As always, the Fed has no idea whatsoever. The issue is that the system will not make it through with even more cash printing either.
Central Banks Introduced Unprecedented Economic Stimulus
The FED
The world’s largest central banks had no other option to fight the COVID-19-caused crisis than to introduce further economic stimulus amounting to trillions of dollars. It was the Fed and the US government first with the ECB-European commission next, and all the other major western economies and central banks to follow.
Yes, the system is rotten and is currently starting to smell. The activities by the central banks specifically in the last couple of weeks smell of panic. The problem with JP Morgan or the Financial Institution of America, the ECB, or possibly the Fed is supporting the bankrupt Deutsche Financial institution? We will most likely quickly learn where the greatest stress is.
On top of the bank issues, the company’s financial debt is obtaining riskier day by day. The financing of firms like We Work and Merlin, are clear indications of just how hazardous this market has ended up being.
Central banks are already trying to deal with the fires, but most people are not aware these fires exist. There is a concern whether the central banks will be able to contain these fires or whether they will spread like wildfires.
The Decadence Started in 1971
US financial debt back in 1971 was $400 billion versus $26 trillion today, a “plain” 55x boost. US GDP was $1.2 trillion in 1971 versus $26 trillion today. A 55x boost in US financial debt in the last 48 years has just generated a 17x boost in GDP.
The US economy is in trouble which is not surprising because the never-ending money printing of pointless paper money, can not create real growth and wealth whatsoever. Its only effect on the economy is to create a stock market bubble.
It is not just the US that is in this setting. Since taking away the gold support of the dollar in 1971, offered all countries an incentive to print money and increase credit.
The UK Example
I do keep in mind the beginning of the damage of money. Moving later on to the UK, I saw the pound collapse against the Swiss Franc from CHF 10 in 1972 to Swiss Franc or CHF 1.20 today, an 88% loss of the extra pound.
A period of economic mismanagement and political turmoil in the UK in the 1970s started it all. The annual rising cost of living was 15-17% for 7 years and interest rates got to over 20%.
The economic system was moments from breaking down in 2008 throughout the Great Financial Dilemma. Eleven years later on, worldwide financial debt has doubled and danger has increased greatly.
Central lenders are conscious that the global economic situation is currently standing at a crossroads. The course was laid by them many decades back and now there is no way back.
The US and the Gold Standard
August 2020 remains in many ways comparable to August 1971. America was at that time behind-the-scenes. The country was under pressure after the costly Vietnam battle, as well as the gold standard, which stopped the United States from cheating the system by printing cash. The remainder of the world saw the US’s precarious situation as well as began marketing bucks. To recover their position, Nixon saw no other way than to take the buck off the gold standard, and this was the start of 50 years of global cash printing, and also credit score growth on a humongous scale.
Nixon-Elvis
Nixon’s August 1971 choice has brought about a dilemma of extraordinary proportions. Still, most people can see that we are currently at the point of “a final and also total catastrophe of the currency system included” as von Mises stated.
This August is not one solitary event like in 1971 yet a variety of very clear indicators that all reserve banks are worrying about. Every major reserve bank is currently revealing a level of concern that is extraordinary. They are all telling us that there will certainly be unrestricted money publishing incorporated with no or negative interest rates. This will certainly not clear up half a century of reckless monetary mismanagement.
What Nixon started will now be finished off by current governments as well as main lenders in the most magnificent money printing bonanza, leading to hyperinflation as well as a collapse of the economic system.
Until now, over 40% of worldwide bonds currently generate less than 1% and over $16 trillion well worth of bonds have an unfavorable interest or negative interest.
Negative Interest Policy is Insane
A negative rate of interest prices is of course complete insanity. It will certainly come to be much more intriguing when home loan rates go to minus 25% so after a few years the financial obligation has been paid by the financial institution!
Us Rates to Decline Unless
95% of international bonds are now listed below the Federal Finances price. Since that rate is 2.5%, this is a short-lived scenario. US rates are likely to decline dramatically throughout the autumn to absolutely nothing unless the devastating results of the neverending money printing start to take place. That will cause a lower dollar and greater gold. US stocks will certainly decrease despite lower prices.
Lower rates are no longer seen by securities market financiers as helpful for markets as a sign of financial difficulty in advance.
Powel Trump and the US-China trade war
Fed Chief Powell simply stated that the “Economy is in a beneficial area”. You ask yourself where that area is, considering that there is nothing good regarding the United States economic climate currently. As well as it appears that Powell doesn’t think in his very own words given that in the same breath, he claims that there are “substantial threats”.
So the Tit for Tat video game between the US and also China proceeds and what is specific is that everybody is a loser in a trade battle. Trump won’t give in and neither will China. As they play their video games, the global economy will certainly suffer and so will a breakable global economic situation. Global trade is currently down and I am afraid things could get worse in the autumn.
Trump is most likely to win this video game over Powell. Trump has stated that rates need to drop by 1% now. Hence, we are assured to see a lot lower US rates and a rapidly falling buck throughout the fall.
Investors set to Suffer Big Losses
Regretfully 99% of investors will not understand that they need to be out of stocks and move into gold, till their wealth has been wiped out. All stock investors will believe that central banks will certainly support them once more. But as I have described, this time support will certainly fall short as we begin a secular bear market in stocks, and the global economic crisis will last a very long time as well as lead to massive wide-range destruction.
The End of Money Printing and Neverending Credit
That the global economic situation for the last 100 years was reliant on credit scores as well as printed cash, is not a new miracle paradigm but a sign of a diseased system. The never-ending credit and the constant printing of worthless money are about to end. In a corrupt way, it is virtually paradoxical that the trigger for finishing this sick financial system would certainly be a pandemic disease.
Social Discontent and Anger to Come
Currently, the world remains in a situation where all of those aspects will possibly come to pass. We already have the recession and also we have a condition. There is no significant famine yet however, this is most likely to come. Social discontent and conflict are possible repercussions of these troubles. Starving and angry people will stand against their leaders as well as against the elite. The differences in income, as well as the huge gap that separates the wealthy and the poor, have created an illogical scenario. This is basically without exception just how every change starts.
There is a lot of anger in the community. People aren’t happy at all. They are wondering what on earth is going on with their taxes, they are wondering why the money they earn is never enough, they are wondering why social inequalities have increased, they are wondering where all this abundance of (fake) money is going, and so on.
The Money that does not Exist
Central banks and governments are currently printing limitless amounts of cash to help small and also big organizations as well as individuals. It is a program terrific in that every person gets aid, but no one asks where is the money coming from.
No one stresses that THERE IS NO CASH. The $ 100s of billions as well as trillions that are being provided to the needy do not exist. They are just produced out of thin air. Because the situation started in the very early autumn of 2019 with the Repos, the Fed’s balance sheet has increased by practically $3 trillion to $6.5 T. Yet this is just the start. The forecast is that it will get to $9T in June as well as possibly $12T a couple of months later on.
What we have to keep in mind is that this situation did not start now, however, in 2006 the Fed’s annual report was $800K. By 2012 it had gone to $3T. In the following few months, the equilibrium sheet will certainly blow up by 3-4x to $12T.
In the present year, the US can quickly get to a shortage in unwanted of $4T, taking the financial debt to $ 28 T. If we just go back 3 months, who would certainly have thought a Fed equilibrium sheet reaching $12T as well as a US financial obligation of $28T? They don’t even do that because if they had, they would have known that the United States financial debt has doubled every 8 years because of 1981.
The United States is likely to have a debt of $40T in 2025 however, that number is most likely a low number. Then we are going to see failings not simply in the economy but also in the financial system. That is the danger the economic system is currently facing as well, as we are currently in a stage when the surprises will be much even worse than anybody can think of.
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Back to the Future
It all began with private lenders taking control of the financial system in 1913 when they established the Fed for their very own benefit. For practically 60 years their power grew slowly however, in 1971 when Nixon closed the gold window, all hell broke shed.
The United States currently begun what is currently 60 years of shortage investing. Every solitary year given that 1960, the United States is running at a loss. (deficit)
Because the main purpose of political leaders is to purchase votes, Nixon had no choice back in 1971. The United States had currently at that point been running a shortage for ten years. With a gold standard, it is necessary to run a sincere economic system without deficits. Or else you lose all your gold as well as the currency breaks down. Given that Nixon had no intent to run excess, he might not have been connected by a gold requirement and consequently abolished the gold backing of the dollar. The consequences were of course tragic as well as the dollar has actually fallen since.
Back then $33 could buy you an ounce of gold nowadays you need well over $1900. This is how much the dollar has depreciated.
Considering that the US began running deficits 60 years ago, total United States debt has actually gone from $800 billion to $26 trillion today. What we are seeing is a fantasy world all built on financial debt, federal, state, customer, home mortgage, car, trainee, and so on. The checklist is limitless just how to produce phony wealth simply based on the financial obligation.
US Debt Chart
The US is currently coming back to reality which will certainly be the biggest shock. The trillions of fake cash and fake assets will now implode and so will certainly the US economy.
What the world has experienced in the last 100 years is fake capitalism. It more looks like Voodoo capitalism. Central bankers, led by the Fed, have successfully taken on Mayer Amschel Rothschild’s philosophy: “Permit me to issue and control the money of a nation, and I care not who makes its laws.”
By doing this, they have placed a spell on the international economic system as well as lumbering it with debt that might never be paid back. They are instrumental in developing a debt-plagued world economic situation as well and then they are the only ones who can come to the rescue and “save” it.
A debt-burdened world can never be saved by even more financial debt. Next, we will certainly see limitless cash printing that squashes money as well as leads to depressionary run-away inflation.
Inflation is on the Way
The reckless money printing by the Fed is expected to bring about an inflation crisis. Analysts are convinced that unprecedented money printing could increase inflation substantially. That means your cash will lose value. For example, if you are planning to take a holiday to an exotic location with your retirement savings, chances are that you will not be able to afford it. You could probably end up at a cheap resort nearby.
Business Collapse and Unemployment.
Market bulls argue the market is already recovering. Shops are opening, factories are back in business, restaurants are opening too, stocks are holding up, and so on.
They are wrong. Unfortunately, unemployment levels are massive and still growing. Several airlines already declared bankruptcy. Some of them are Avianca from Colombia, Virgin Australia, Trans States Airlines from the US, Compass Airlines also from the US, and many others. Rolls Royce announced 9000 job losses in the UK, Nissan shut down its Barcelona plant in Spain with 3000 redundancies, and another 25000 jobs indirectly threatened.
In the US the news is not good either. The country has lost 20,6 million jobs since mid-March, resulting in an unemployment rate of 14,7% a level not seen since the great depression in the 1930s. I am afraid, there will be more business collapse and more unemployed in the following months.
The recession is going to be bigger than the 2008 recession. It will take years for the world economy to recover not months or weeks. The numbers are already massive and still growing. As I just said, the economy is not going to be back to where it was within a year that’s for sure. So why is the stock market still high? What is that’s still driving equity prices? It is the Fed’s liquidity.
Stocks and Bonds Set to Collapse
In genuine terms, all bubble possessions will now collapse. Actual terms indicate secure acquiring power and evaluate against gold. We will see supplies, bonds, and residential or commercial property decline by 90-100% against gold. In nominal terms, stocks may go up at first with hyperinflation. That will just be imaginary gains.
Supplies worldwide dropped initially by around 40% and have currently recouped half of that loss as stock capitalists have been buying the dips in the hope that central banks will certainly save them afterward. Yet they will certainly quickly have their next shock. Markets might begin their next leg down already in the coming week. Or it could take 2-3 weeks. What is clear is that a profane bearish market has begun which has a very long way to go.
Gold is Still Undervalued
For twenty years I have discussed the value of riches conservation in the form of physical gold. Throughout that time gold is up 6-7 times depending on which currency you rate it with. Still, much less than 0.5% of world economic possessions are in gold.
Gold is still exceptionally undervalued regarding the growth of the international cash supply. It is still possible to obtain gold, yet the physical market is under real pressure.
This is an outrageous circumstance that will not last long. Both the Comex and the LBMA are under huge pressure which quickly will lead to substantial distribution problems and also a significant cost squeeze. The home window of opportunity to acquire physical gold at current costs will soon close.
Keep in mind that gold is actual physical wealth in addition to an insurance policy against a monetary system that is unlikely to make it through. Gold can still be bought with miscalculated fiat cash at prices significantly below its genuine value, however, not for too long.
Last week’s gold rally has been outstanding. This goes to show that gold is on fire. Its run started on Monday from $1,810 and ended on Friday at $1,901 per troy ounce. Gold needs only 19 dollars to get over its record high of $1,920. Judging from last week’s performance this outcome is highly probable to take place in the oncoming week.
Reasons for Gold Rally
The oncoming US and China trade war
The falling yields
The growing economic uncertainty due to the Covid-19 nightmare
The weak dollar
The US and EU economic stimulus
The Oncoming US and China Trade War
The trade issues between the US and China did not start with the covid-19 virus. Prior to the pandemic, the two superpowers were fully immersed in a trade war.
In fact, the trade war started in July 2018 with the US imposing 34 billion in tariffs on certain Chinese products and as a result, China followed suit. The trade war did not stop there and by the end of 2019, the Americans had imposed a total of 450 billion dollars in sanctions. The Chinese responded with a total of 170 billion dollars in sanctions.
This year the Chinese have been accused of the way they handled the coronavirus crisis and rightly so. President Trump is one of their critics.
The US-China relations saw another escalation last Friday, when China retaliated for Houston’s consulate closure, by ordering the US to close its consulate in the city of Chengdu.
No doubt this action added more fuel to gold’s engine.
The Falling Yields
Empty pockets
High-grade fixed income plays an important role in a modern investment environment. It tends to be safe, more liquid, and a less volatile asset.
Nevertheless, right now bonds are trading at very low yields even negative yields. In fact, there are trillions of dollars trading at negative yields. This is due to the quantitative easing policy adopted by the European central bank and by the Fed.
This has pushed many investors away from the bond market and forced them to place their capital in profitable assets. Gold is one of them. If we take a closer look at gold, we will see that gold was trading at around $1400 per ounce before the end of 2019. Last Friday gold jumped over the $1,900 mark. In addition, analysts expect gold to continue its rally before consolidating.
The Growing Economic Uncertainty Due to Covid-19 Nightmare
There is no country in the world the global pandemic hasn’t touched. In the beginning, we all thought we could deal with it easily by shutting down and staying at home. It didn’t work. Unfortunately, over 14 million people have been infected worldwide, and over 636,000 have lost their lives.
In the US the nightmare doesn’t seem to come to an end. The number of those infected is on the rise. In Europe, the second wave is on the way. Spain yesterday reported 8,000 new infections, while there is also concern In Italy, France, Germany, and many other countries.
The damage to the global economy is enormous. Trillions of dollars have been lost, large corporations have gone bankrupt, and many more are facing an uncertain future. There is no end to bad news as LinkedIn announced job losses. The Microsoft-owned firm will be letting go of around 960 jobs across the globe, as the pandemic has reduced demand for its recruitment products.
The Weak Dollar
The US dollar is down on its knees. At the moment it trades at 0,86 and it looks like it will stay there for a while. The dollar’s downturn came as a natural consequence of the government’s and Fed’s massive money printing program.
The weak dollar makes it easier for international investors to buy gold and silver because the cost is significantly lower. Increased international demand boosts gold’s value.
The US and EU Economic Stimulus
The Americans and the Europeans have announced massive economic stimulus programs to deal with the covid-19 devastating effects. The US government has already carried out a 2.3 trillion stimulus program and is just about to introduce an additional 1 billion program. This will actually raise the national debt to $26.5 trillion dollars, or 132% of the national domestic product. (GDP)
On the other side, the EU has agreed to spend a $2.1 trillion stimulus package. The Europeans will raise money by selling bonds collectively rather than individually, which then will be given to member states. Most of it will be grants given to countries without them having to pay it back.
Those enormous economic stimulus programs are a way for the US and Europe to deal with the coronavirus’s massive economic blow.
All additional fiscal stimuli introduced around the world will give gold a further boost.
Final Words
The never-ending US and China trade conflict will continue for a while and as the election date is getting closer, President Trump could actually step it up if he thinks he could get more votes out of it.
The quantitative easing policy will continue for at least the next couple of years, which will push more investors out of the bond market and into precious metals.
The coronavirus nightmare will be dealt with only after a vaccine is introduced and that will be no earlier than 2021.
I do not see the dollar recovering before the end of 2020.
The US and EU economic stimulus are here to stay and that will push gold’s price further.
My opinion is gold and silver will continue to rally, but not for long. There will be some consolidating in the following weeks and then I expect the rally to start again, as the fundamentals are right therefore, now is the right time to invest in gold.
In the last few days, we’ve seen gold trading below the $1500 mark. Yesterday though, gold’s price dropped just above $1465 per troy ounce. We see the gold rally delayed but gold will bounce back.
Gold Rally Delayed But Gold Will Bounce Back
It seemed as if the market was overbought and a number of other issues affecting gold’s price seemed to defuse. Firstly, the Europeans offered to accept a delay in the Brexit deal, which helped the pound gain 400 pips. Then, the news from the Fed meeting in September, indicated the possibility of another interest rate cut will be off the table. And last but not least, the trade talks between the United States and China were looking better.
Therefore, the worn-out market was not met with great enthusiasm from the investors who were reading that gold at $2000 and silver at $25 was imminent. Yesterday’s gold’s and silver’s performance was a negative surprise for gold investors.
Bullish Gold Again
Although the gold market doesn’t look good, the fundamentals are there for gold to become bullish again. The global recession is imminent, the stock market bubble is real, the European Central Bank will continue its negative interest rate policy and the Fed will follow with even lower interest rates too.
Conclusion
Gold’s price will go up, but it will not be on a straight line. Gold and silver prices might drop even lower, (gold could get as low as 1400) but in the end, gold will go up because, the fundamentals are all there. Remember, investing in gold is a long-term investment, and no investor is lost in the long run. Nevertheless, the gold rally delayed but gold will bounce back.
The economic outlook is getting from bad to worse.
The global debt bubble.
The covid-19 effects on the global economy
Gold Consolidates
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In my mind, gold will consolidate for a while as the formal withdrawal of the Hong Kong extradition bill, will remove fear from the global markets. Also, in Britain a bill is about to pass that will forbid a no-deal Brexit. These two events will remove fear from money managers around the world, as they will see fewer risks coming out of Hong Kong and Britain.
As a result, gold will consolidate for a while until the various central bank meetings take place in September. Central banks will continue their monetary policy as it is, we all know that. In fact, Christine Lagarde, the next president of the European Central Bank, already announced the continuation of Mario Draghi’s policies regarding quantitative easing and negative interest rates.
Silver Soars
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Silver soars like there is no tomorrow, surpassing each of our target prices of $18,00 and then $19,00. On top of that, the silver-to-gold ratio has fallen from 90-1 to 79-1 and we expect the ratio to continue to narrow, while gold and silver continue rallying. Remember, it is widely accepted that the gold-to-silver ratio should be at around 60-1.
Recession is Coming
According to Frank Giustra, the chairman of Leagold, we are heading for a recession worse than the one we had back in 2008 and I agree with him.
Global debt has actually doubled since the 2008 crisis. In fact, global debt value was fueled by “cheap” money such as quantitative easing and low-interest rates.
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The overpriced and overvalued Stock Market has also been fueled by massive amounts of easy money. The Stock Market has been moving up for an unusually long time and as a result, people have become accustomed to that type of behavior. They think this will keep going on forever, which is not the case and in the end, they will be hurting themselves. A thirty percent fall in the markets will be normal to see.
No Reason to Sell Gold
We are long overdue for a recession, as this was the longest economic recovery ever. If we take a better look at the recovery we’ve seen, it was a fragile anemic recovery. The growth we’ve seen all these years was nothing more than 2% or 2,5% annual growth, compared to 5% and 7% healthy recoveries in the past.
If the bad scenario takes place, we could see massive unemployment, large corporation collapse, currency war, hyperinflation, and geopolitical uncertainty.
Conclusion
Although, a serious investor should always have some insurance in his portfolio, and the only insurance is gold, nowadays it will be reckless for an investor not to own gold. As the bad news continues coming in, many investors increase the percentage of gold in their investments. The best gold investment for me is to possess physical gold.
Silver too can be handy, as it is undervalued-underpriced and it also has the gold-to-silver ratio distance to cover. Furthermore, silver tends to follow gold as it rises and as it falls. A physical ownership of silver is always a better investment.
There is absolutely no reason to sell gold whatsoever.
As gold consolidates around the $ 1,500 mark, investors are turning to silver and all investors are wondering when will silver’s price rise? Silver already enjoys a year’s high, but compared to gold, still has a long way to go. If we take into account that gold enjoys a six-year high, to silver’s one year, then yes silver has a lot going for it.
When Will Silver’s Price Rise?
The truth of the matter is that silver has been consolidating for a number of years together with gold. Gold broke through this year and made some of the lost ground. On the other hand, silver’s breaking was not anywhere near gold’s. As a result, the gold-to-silver ratio is 88 at this moment.
Gold, silver’s rival, is consolidating at around the $ 1,500 mark right now, but it still has the potential to move higher. As long as the large economies around the world fall into recession, the trade war between the United States and China, the possibility of a no-deal Brexit, the troublesome Italian Banks, the civil unrest in Hong Kong, the German Economy’s slowing down, the United States economy slowing down, Turkey is just about to turn its back to the west and join Russia. You will have to be mad not to own gold and silver.
Right now the US and the German economies are still vibrant but all economic data suggests both economies are slowing down. The recession will hit both countries in 2020. That’s my humble opinion.
Recession Is Coming
If all hell breaks loose (no-deal Brexit, Italian Banks collapse, US-China trade war deteriorates, etc.) then there is no doubt, the recession will be as bad as the 2008 recession.
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However, the Fed, the European Central Bank, and Japan’s central Bank are all ready for the recession. They are prepared to do anything in their power to ensure the recession will be mild. At the moment they are considering ways to inflate the money supply. The lowering of interest rates by the Fed and the quantitative easing by the ECB will do exactly that.
If you are going to engage in the precious metal market, then silver is the way to go. The gold to silver ratio has dropped from 93 to 88 so the momentum is there. In my opinion silver at $17,10 per ounce is dirt cheap.
According to Peter Hug, Kitco’s global trading director, the demand for silver in Hong Kong is much stronger than the demand for gold. The Chinese are adamant, that silver is currently undervalued.
If gold reaches $1600 by the end of the year, then silver should be between $18,50 to $19,00. Nevertheless, the silver-to-gold ratio will drop, one way or another. I think the when will silver’s price rise question has been answered.
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”.
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 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).
Is now a good time to buy silver? Many investors are asking the same question over and over again. Here I will outline all the reasons for silver.
Is Now a Good Time to Buy Silver?
Now is a good time to buy silver, as the US silver Eagle sales in May surged, compared to the previous month. This is interesting, as precious metal sales and sentiment have declined in the West, especially in the United States. ever since Donald Trump was elected President.
Most precious metal analysts and investors, (including me) thought the Trump election win could be very positive for the gold and silver market. Unfortunately, this is not the case, as demand for precious metals declined considerably in 2017. I assume, the general public actually thinks Donald Trump is going to make America Great Again.
My humble opinion is that this is a bad assumption because with Donald Trump in the White House nothing has changed. President Trump I am afraid could actually speed up the collapse of the US economy and financial system.
The fundamentals of the US economy continue to disintegrate. The economic bubble indicators have reached what took place in 2007. In addition, the US and the World Oil Industry, are losing money and at the same time, they have been cutting their oil reserves. It looks like the situation now is worse than what took place during the 2008 Global Meltdown.
According to the recent update provided by the US mint, silver eagle sales reached 2,005,000 oz so far in May, compared to 835,000 in April. This is a 100% rise.
The reasons for that were due to the following.
1-There was an extremely large investment by a single wholesaler.
2-There was an increase in buying for the small investor, who took advantage of the lowest premiums in seven years.
3-There was a buy signal for silver by a group of respected analysts.
Although 2 million silver eagle sales in May are much less than they were last year, (4,498,500) this surge in demand suggests that the hype about the Trump presidency may be fading away.
If the strong demand for silver continues for the remainder of May, we could see silver eagle sales reach 2.5 to 2.8 million ounces. This definitely lower than last year, but it is a sign that the market is actually seeing something that it does not like at all.
At the same time, silver eagle sales outperform gold eagle sales. In March silver eagle sales were 1,615,000, compared to gold eagle’s sales of 56,000 oz, and in May silver is over two million ounces with gold’s only 42,000 oz
It is a common secret that the Bond, Stock, and Real Estate markets, are developing into the biggest bubble ever. When this bubble explodes, then god helps us all. I do not think so! God will only help those who actually possess precious metals.
Silver IRAs
Over the years silver IRAs are gaining in popularity. It is not an unusual decision for an investor to invest part of his IRA in silver.
I hope my is now a good time to buy silver? post has been helpful to you. If you still have any questions feel free to let me know in the comment section.
