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Precious Metals vs. U.S. Treasuries

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Two weeks ago, I wrote that volatility was “the new bankster weapon” in the gold and silver markets.  In writing that this marked a “new phase” for these markets, I admit to never imagining that we would immediately see the bankers display this new phase with such a vivid “exclamation mark”.

That said, it is now equally important to emphasize to investors that nothing at all has changed for gold and silver from a long term perspective. Indeed what makes this current episode of market manipulation all the more surprising is that there wasn’t even any serious attempt by the mainstream media to manufacture a “reason” for the plunge in gold and silver – as “cover” for the banksters’ actions.

With “competitive devaluation” still the mantra for the economically/intellectually bankrupt governments of the West, and with most of the Rest of the World also being forced to play this game, we know that the banksters’ fiat currencies will continue losing value at an increasing rate. Note the use of the word “competitive”. It directly implies that these governments are driving down the value of their currencies as fast as they can.

Obviously, saying a currency is losing its value is exactly the same thing as saying that prices are going higher. As a matter of the simplest arithmetic, and the simplest logic, if most of the governments of the world are trying to push up prices (as fast as they can) then the prices for gold and silver can also only go higher over time.

Of course some things are “different” in the gold and silver markets – in comparison to where we were when this bull market started over ten years ago.

Back then, the banksters had lots and lots of bullion to dump onto the market to depress prices. Now they don’t. Back then, the governments of the world were not deliberately trying to drive up prices. Now they are. Back then, our governments were not obviously insolvent, and gold and silver were not viewed as “safe havens”. Now they are.

In short, ten years ago there were lots of reasons to worry about the “strength” and “stamina” of the gold and silver markets (as “long” investments). What happened at that time? The price of gold nearly quadrupled from under $300/oz to over $1000/oz. The price of silver more than quintupled, from under $4/oz to nearly $20/oz.

It was at that point (punctuated by the “Crash of ‘08”) that our governments began “competitive devaluation”. It was at that point that the banksters ran out of bullion to dump, and began to buy it themselves. It was at that point that we (finally) recognized the imminent insolvency of our governments. It was at that time that gold and silver once again reasserted their 5,000 year old status as “safe havens”. The real “bull market” for precious metals only began in 2009.

Today, thanks to the banksters flooding our markets (and economies) with more of their worthless paper than at any time in history, and thanks to the banksters rendering all of our governments insolvent with their scam-financing, both gold and silver are more undervalued today than they were ten years ago. While the fundamentals for gold and silver are (much) stronger today than ever before, the same cannot be said for their current “competition”: U.S. Treasuries.

Admittedly I dealt with precisely this same topic only three and a half months ago. However, at that time our markets were not in the grip of another bout of mass, temporary insanity. Given the hysterical (and hilarious) commentary from the media and so-called “experts” on the precious metals sector, I can only assume that the current panic has also led to fear-induced amnesia.

U.S. Treasuries are worthless. U.S. Treasuries are the largest Ponzi-scheme (and “bubble”) in the history of humanity. We now have the Federal Reserve openly admitting to “buying” $100’s of billions per year of this worthless paper with their other worthless paper (U.S. dollars) merely to keep this bubble inflated.  No one (outside of the Fed) knows how many $100’s of billions they have secretly bought (with their counterfeited money). As the infamous Jeffrey Christian of the CPM Group (and formerly of Goldman Sachs) observed during The Great Gold Debate”, manipulation works best if the market doesn’t “see you coming.”

Manipulation of the Treasuries market only implies that Treasuries are grossly overvalued. It is the “fundamentals” for U.S. Treasuries which make it obvious that their actual value is near-zero. To begin with, the U.S. is a hopelessly insolvent debtor. The current banner-carrier for this argument is Professor Lawrence Kotlikoff. He calculates “total indebtedness” of the United States government at $211 trillion, or roughly fifteen times the $14 trillion fantasy-number which the government calls “the national debt”.

He calculates that the U.S. is significantly more insolvent than Greece (by roughly 20%) despite the fact that Greece’s government is currently being forced to pay more than ten times the interest rate on its debt as the U.S. pays on its own debts. As I’ve pointed out in my own previous work, Greece’s interest rates have been fraudulently manipulated to these usurious rates through the “economic terrorism” perpetrated by Wall Street in the credit default swap market.

That same “market” (i.e. Wall Street) has been recently asserting that the probability of Greece defaulting on its own debts is already at 98%. This puts the risk of a U.S. default at somewhere above 100%.

It is common knowledge, however, that the preferred approach of the U.S. government to avoid repaying its creditors is a “stealth default” – to “default” on its debts by repaying those debts with currency only worth a tiny fraction of its original value. In other words, if the U.S. government drives down the value of the U.S. dollar by 90% and then repays its creditors it will have cheated them out of 90% of the obligation owed to them, in “real dollars”.

By now, everyone should be able to connect the dots: “competitive devaluation” is “stealth default”. Our (insolvent) governments have now explicitly decided to cheat all of their creditors by repaying all of them with grossly diluted paper. Put another way, they have taken the “stealth” out of stealth default.

However, at least with the other governments who are in the process of cheating their bond-holders they are currently paying interest on these mountains of debt. The chumps holding U.S. Treasuries are not getting any interest, and are paying the highest prices in history for this worthless paper.

Buying Treasuries at the highest prices in history at a time when the explicit economic policy of the U.S. government is to drive down the actual value of those Treasuries is a form of behavior which would seem to provide conclusive proof that the buyers are not “of sound mind”. But that is not the whole “message” which the propaganda machine was sending during the latest ambush of gold and silver.

Media talking-heads were telling us that (supposedly) investors were “fleeing” gold and silver, and “rushing toward the safe haven of U.S. Treasuries”. They are rushing out of a “hard asset” which (as I just recounted) is grossly undervalued, and at a time when the official policy of all of our governments is to drive up the value of all such hard assets. They are (supposedly) rushing to buy the debts of the world’s biggest deadbeat-debtor, whose “total indebtedness” exceeds all the other debts of every other nation on Earth – combined. They are doing this at a time when the explicit economic policy of the U.S. government is to drive down the actual value of its own bonds.

Selling gold and silver and buying U.S. Treasuries at the highest prices in history? The legendary “Jack” (of Jack and the Beanstalk” fame)  got much better value when he traded the family cow for “magic beans”.

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Comments (8)Add Comment
rogrant84
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written by rogrant84, October 07, 2011
I believe precious metals are not directly related to currency but its value is.
Jeff Nielson
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written by Jeff Nielson, September 27, 2011
Thank you for the support Dalkrin!

Certainly the banksters have give us all a lot of PRACTICE in maintaining our convictions in the face of adversity. Being a contrarian helps. If the servile media is pushing us toward something you shun it. If they try to frighten us away from something, you embrace it.

As far as traffic goes, as a newer site to some extent this is simply a matter of "paying our dues". Our own Community is still small, but robust, and we're continuing to work on establishing and reinforcing our identity.

Unfortunately/fortunately the betrayals by our political leaders and the constant lies from the media provide a niche for sites like ours, and we'll continue to try to serve that niche to the best or our abilities.
Dalkrin
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written by Dalkrin, September 27, 2011
Jeff, Thank you for keeping the rest of us sane in these trying times.

The state of affairs is clear to anyone who observes the world. What is difficult is maintaining our convictions in the face of the constant propaganda onslaught from the mass media, which faithfully carries out the wishes of the financial complex to keep the public misinformed.

I cringe whenever I see "financial planners" parroting the line that T-Bills are a safe, sensible investment. Those of us who are aware of the US ongoing deficit realize this is a blatant lie, to divert dumb money from (dangerous for TPTB) hard assets, to government-propping paper confetti.

I believe I may have stumbled across your site by way of ZeroHedge, which seems to have a much larger reader base. I encourage you to try and have some of your articles front-lined as guest posts. Your writing skills blending conviction with reality are needed for the greater struggle for honest monetary policy.
Jeff Nielson
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written by Jeff Nielson, September 26, 2011
Yes GoldenEconomizer, I was about to post my own "buy it IF you can find it" advice on our forum.

At least in one respect this makes things "easier": we don't have to worry/wonder if there might be even cheaper prices before the reversal higher - because we would NEVER be able to buy much/any cheaper than this...
samix
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written by samix, September 26, 2011
goldeneconomizer, let alone friday, My local dealer simply puts a 'out of stock' board the moment he seesth price fall or rise rapidly.
goldeneconomizer
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written by goldeneconomizer, September 25, 2011


Sam -

The easy way to understand the difference is to go to a local coin dealer tomorrow and see how much silver and gold they will sell you at any price.

I know that my local dealer would not sell any, or even quote a price on Friday, even a price with a huge premium. They know the value of metal vs paper better than anyone, and realize that they could undergo huge losses by selling their stock to you at a time of such great volatility, when they are unable to replenish their stock at any price.

True, there are a number of internet dealers with inventory still available for sale, and if you don't mind purchasing over the internet, it is an incredible buying opportunity right now. You would be getting real metal based on a fictitious, manipulated futures price, which will certainly be short lived. And if you are foolish or desperate enough to sell metal to a local dealer at this time, you would almost certainly be able to sell at a healthy premium to spot.
Jeff Nielson
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written by Jeff Nielson, September 25, 2011
Hi Sam.

First of all, we all have to be aware that when we are talking about markets (and manipulated markets, at that) that over the short term almost anything is possible.

However, actions carry consequences. The ENTIRE reason that the bankers lost their choke-hold over the gold and silver markets was BECAUSE of all the years of extreme manipulation which occurred in the yeas (and decades) prior to this.

Stomping on the price DESTROYED gold and silver mining (wiping out around 90% of all the miners) and GREATLY stimulated demand. This created massive supply-deficits in both the gold and silver markets. Thus, the vast majority of the bankers' BULLION is long gone - and it was the "physical" metal which made it easy to manipulate the market in prior years.

The problem for the bankers is that while they are able to create EXTRAORDINARY leverage (in their fraudulent casino, the derivatives market) they must have SOMETHING to "leverage" (i.e. the physical metal). When bargain-hungry buyers clean out the last of the metal out of their inventories, the banksters can "leverage" their positions all they want - but 1 million X zero is still ZERO.

Keep in mind we have ALREADY seen "significant increases" in the prices. Even AFTER this latest ambush the price of gold is about six times its absolute low, and the price of silver is more than EIGHT TIMES its absolute low - and those price increases came while the bankers still (more or less) controlled the market.

They are now LITERALLY "paper tigers", and all they are capable of doing is creating temporary "sales" for gold and silver (for which the buyers in Asia are EXTREMELY grateful)...

smilies/wink.gif
sam johnson
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written by sam johnson, September 25, 2011
Jeff -

I value you opinion and just have a few concerns/questions about the cartels ability to take the silver market down.

1- Is it possible that they could take silver further down and continue to suppress the price especially considering that the US government gives them as much $ as they want to naked short?

2- you know the people we are up against are brilliant and have most probably had think tanks discuss every possible scenario. Maybe they would like to take silver down and then have the gov make an announcement that they need to confiscate it for national security. Of course they will give us the going rate of $10 or whatever??

I guess my problem is that I do not understand the difference between the paper market and the physical market.

I heard a man say that Fri in S Korea the spot price for silver was about $43. Of course, that doesn't help us because we can't sell in S Korea.

Would you please shed some light on paper vs real silver and do we have to wait for the entire system to implode before we will see any significant rise in price?

Thanks!!!

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