Precious Metals - Nearing The End Game

April 7, 2014

Long-term precious metals investing as an option against disaster and financial collapse. It is fundamental motivation for many. The view from this precipice is lonely yet revelatory beyond compare.

Literally holding a monetary asset outside of the financial system crystallizes a vast matrix of disconnects and illuminates a thousand points where the dam could be broken. 

It also creates a false need to correlate the media's constant precipitate, which is largely driven by entirely separate motivations. 

There are daily examples based on the combinations of questions we receive directly and from the general financial commentary. Here are a few: 

-While news of spreading Chinese defaults has temporarily drifted away from the news cycle, credit fears remain visceral and certainly qualify as potentially major disasters on the forefront. 

-The West watches the unraveling of China's credit crisis as if on some exotic plane of existence far, far away.

-It is assumed that these events will be papered over and priced in.

Why should any recent economic downdraft (in China or elsewhere) suddenly be so important to silver?

The typical assumption is that a significant downturn in economic activity would put real pressure on silver prices, given its massive industrial demand. First of all, what is left of the underlying economy is dwarfed by the massively bloated fiat-derived financial system. Financial system fragility frames silver as a monetary asset and therefore requires a completely separate analysis. 

Ignoring monetary demand for a moment, what about industrial supply and demand? 

First off, demand is steady, strategic, and diverse. Replacements and substitutions will evolve at some point, but not ahead of price pressure. 

Secondly, supply is "pulsed" by just in time delivery practices which are completely reliant on what the moment provides. It is therefore always at the edge of panic - real or rumored. And finally, supply itself is a widely misunderstood concept. 

An industrial shortage that peaked interest among close observers would likely fall on deaf ears for a mainstream (and even specialist) analyst who understands very little about the supply side.

Production is the flip side of just in time delivery for silver. Pure silver mines are very rare. Most silver comes to market as a byproduct and is therefore dependent on the primary metal being mined. This creates a whole other layer of complex dynamics. It's as if production can only be measured as a derivative of truth, just as price is controlled by a paper derivative.

Professional analysts simply cannot 'go there' in terms of quantifying this kind of supply and demand complex, and consequently don't. Instead, we get generalized and meaningless sound bites, usually as a justification for this or that intervention-driven price move. 

Why should silver's monetary component be ditched?

Because it's just a story conjured by the desperate need for order. Monetary demand for silver comes as the result of disorder. It arises from totally manufactured store of value, a shadow of fiat, a synthetic derivative based on confidence.

What it Will Take to Break Through

The current technical picture is a well managed operation, an intervention that is the market itself, painting the perception for participants. It is a massively distorting and suffocating capital formation and the underlying economy.

What would bring in a wave of margin-derived long positioning?

While we have not seen the entry of any one high profile investor into the silver futures market, it is possible that accumulation is happening quietly as we speak. Ted Butler has documented JPM's long side physical accumulation over the last year. It appears that the giant commercial bank now holds one of the largest physical stockpiles of silver in the world. Whether this is anomaly or a preparation remains to be seen, but the giant banks rarely do anything that does not result in profit. 

All roads ultimately lead to physical. Hoarding is the preservation and conservation of capital. Preparing for the worst equates with never selling. The best works itself out by keeping that capital in a pure, recognizable, and unencumbered form.


For more articles like this, including thoughtful precious metals analysis beyond the mainstream propaganda and basically everything you need to know about silver, short of outlandish fiat price predictions, check out

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US silver mining began on a large scale with the discovery of the Comstock Lode in Nevada in 1858.