There is a silver lining!

We have been focusing on gold lately and for a good reasons. I type this gold has crossed back below the psychological level of $1350, we are at $1348 at this very moment, after seeing $1365.

What threw us over the $1350 mark? For one, the dollar dropped under 90 on the index for the first time in three years! That helped gold and silver see some nice one day gains. We saw a retraction today (1/25/2018), we are still seeing some increases.

In most cases commodities priced in the USD go up in price as the USD goes down. We have witnessed that first hand this week.  I need to wait before I talk more about what went up and down today until I get more clarity as to why and what we can expect to see as a result going forward.

As the dollar continues to fall, what one commodity hasn’t gone up at the same rates/levels as most others in its field? That would be Silver.  We have seen similar situations as we are seeing now back in 2010-2011, leading up to the near record price of silver in 2011.

Silver was the top performer (based on percentage growth and action) back in 2011 which was the last time we saw major highs for metals. This year, 2018, is being primed to be another monumental year, as such, odds are silver will be the biggest winner, yet again.  That is why I want to focus little on silver today, I think you’ll be glad I did. This will be fun.

It is a fact that in 2017 gold saw a greater than 12% gain, that’s the best we’ve seen since 2010. Thanks to the cryptocurrency noise, gold and silver were all but completely ignored by most in 2017. Showing a 12% gain in the midst of crypto records and stock market records, bonds doing their things, is nothing to be taken lightly.

If you read these posts somewhat regularly, you may have read my post last week in which I did a little comparison of 2010 to 2017…If you did not read that post, I bet you still know what happened in 2011 with both gold and silver. If you don’t, I’ll remind you, gold hit over $1900 and silver hit $49. Being that 2010 and 2017 are similar, do you think 2018 could be like 2011?

Silver saw approximately 6% gains in 2017. Not all that great of a showing, but not all that bad either.   However, I honestly feel that 2017 will be remembered a one of the lowest years of gains for silver in the years to come.

Silver may very well be the stand out metal this year.  I have made my 2018 predictions, I’ll repeat them here again, of course borrowing any major geopolitical event(s), which will throw the markets for a loop. Should all stay as is with the markets (no major events) I think we’ll see $1420-$1450 gold, should we break through $1450, I think we may see $1485-$1500 (or higher) gold this year.  As for silver, it’s a bit trickier.  Silver could break $21 this year on its way upwards to who knows where? Silver can skyrocket more than most other metals could, should the right conditions be met. It would not be hard for silver to double.  It’s not hard to find those who thing silver could see triple digits in the next few years.

I hate repeating myself (contrary to the evidence that proves otherwise), I feel that these levels will be achieved IF and only IF there are no major blow ups, any where in this great big world of ours. Basically, if we have another year like we had in 2017: same old threats and rumors but no major actions (please know I am not saying that any of the terrorist acts and all the wars are not horrific, they are beyond horrific, each and every injury much less death is a travesty – these events did not cause a reversal in the markets) I can see even bigger gains than we saw in 2017.  Should, God forbid, a bigger war breakout, larger scale terrorist attacks, etc… and/or China, Russia or their allies drop the dollar or start using a dollar-less unit of trade, and/or if that unit of trade is backed by metals at any level, I think we could see record gains unlike we have ever seen, so far to date.

At this point in the post, I supposed we need talk about why silver did not fair as well as gold in 2017.

One rumor is that there is too much of it right now. That’s not a bad thing for us right now because silver is cheap. There are new industrial needs for silver coming to age that will take silver out of the market, taking a percentage out permanently.

What we know to be true at this moment is that the silver to gold ratio is approximately 10:1 (10 ounces of silver for every 1 ounce of gold above ground).  This is not to be confused with the gold to silver price ratio (which today sits a approximately 77:1), we are talking only about the above ground content here.  These numbers are not exact of course but it’s close from what we know according to the CPM group ,who study the world’s commodities all day everyday.  The joys of silver is that it doesn’t take much of an increase in demand to move the markets.

Here’s something else you need to know/consider. I have to go way back to a 2016 post in which I talked about JP Morgan earning the distinction of owning more physical silver than anyone else (banks, government, etc…) in the world.  As of 2017 JP Morgan is said to have nearly cornered the silver market holding somewhere close to 45% of the world’s silver.  That equals out to be around 675 million ounces.  What does one of the world’s biggest banks need with all that silver?

It doesn’t take one long to figure out that there may be a possibility that JP Morgan could be a major culprit (is major culprit even a real term) keeping the silver pricing low so that they can grab as much as they can at these cheap prices.   History could be echoing here.  The last time a single entity held the most silver records were broken, fortunes were made and lost.  Ever heard of the Hunt Brothers?

The Hunt Brothers had more than enough money in the 1970’s thanks to their billionaire oil industry daddy. These guys were born with silver spoons, so why not try to corner the silver market with daddy’s money? So they did, only they borrowed most of the money despite having access to billions.

The Hunt brothers were said to have owned about a third of all the world’s silver at that time, in 1979 which is still less than what JP Morgan allegedly has today.

January 1979 silver was just over $6 an ounce, after the Hunt Brothers played their game, by January 1980 (in one year) silver was over $49 (a record we have yet hit again to this day…I’ll stress ‘yet’). Add in inflation to today’s dollar value and silver was approximately worth $157 (at $49 in 1980). We’ll see triple digit silver, just wait.

The Hunt Brothers borrowed more money than they had to buy silver, hoping to drive the prices high and dump it (it’s little more complicated than just dumping it, to keep it simple) for massive profits. Funny thing about coming from billions of dollars as the Hunt brothers did (thank to their daddy), banks and institutions have no problem loaning you all you want. Ironically, if you truly need to borrow some dollars, good luck. The loaners lost their shirts trusting the Hunt brothers. They got in too deep. That tends to happen when you don’t value anything.  Anyway…

With all this loaned money the Hunt brothers bought silver future contracts and elected to take possession of the silver (can’t do that these days).  After the Hunt Brothers hoarded all that silver the COMEX got worried and changed the rules, they call this the “Silver Rule 7”.  People were really starting to get upset that it was this easy for some silver spoon chumps to drive up prices as they had. It’s a fascinating story, but to cut it short, the rule helped take the price of silver down, the Hunt Brothers couldn’t cover it.  They had borrowed enough money from numerous banks and institutions that the government feared that their losses, thus their inability to pay back the loans, would take down those banks and institutions.  Needless to say silver tanked! The Hunt Brothers and many of their lenders lost billions!

The markets learned a lot from this event and vowed never to let it happen again. We’ll see.

Just throwing this in there…In the late 1990’s Warren Buffett controlled most of the silver market too, not as much as the Hunt brothers, but better managed. Buffett was much smarter about it than those silver spoon brats. Buffett did not drive the prices up as the Hunt brothers did, but Buffett still made a small fortune versus losing one.  It is widely believed that Buffett still holds a massive amount of all precious metals his portfolio via many different companies that he owns or owns a part of.

What will JP Morgan do? I am thinking they’ll do a little of both Hunt and Buffett strategies.  I will go out on a limb and promise you this, a bank the size of JP Morgan does not risk this much on a losing bet. They’ll make sure they see a nice big profit. The question is, will you?

When you price in Trump’s tax cuts on top of the untouchable debt and deficit, interest rate increases, with the dollar at three year lows, our treasuries do not look appealing in the least.  We know that China and Japan, the two biggest buyers of our treasuries, announced potential cut backs (if not cut offs) from buying our debt.  All of these things are bad for the dollar but good for gold and silver (as we saw today, 1/24/18 – dollar drops nearly a point gold jumps around $17 and silver up $0.50).

How long until the bow that holds the entire system up breaks and our metals are set free to fly? That is indeed the trillion dollar question.  It certainly looks like there is an ever growing crack in that bow that will not hold up for much longer. The silver lining will be with owning physical silver (and gold) as insurance against this nasty mess.

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