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The Three Legs of the Precious Metals Bull: Part II

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In Part I, readers were again reminded of two of the primary reasons we should all be converting our decaying paper currencies to gold and silver. Currency dilution and price-suppression are realities which don’t merely suggest that bullion prices might rise in the future, but rather indicate why they must rise substantially.

However, precious metals investors don’t have to limit themselves to just those two reasons why bullion prices must rise dramatically over the longer term. There is a “third leg” to this argument which is an equally powerful dynamic, and also unequivocally certain to lead to much higher gold and silver prices.

Demographics:

I refer to the third leg of the precious metals bull as “demographics”, but in actuality this is just a reference to some of the extremely potent supply/demand fundamentals which are certain to drive bullion prices much higher.

In the global economy, it is common knowledge that there is a relentless transfer of wealth (and economic power) from West to East, as the thriving economies of Asia have real economic growth and real income growth amongst their populations.

In China, per capita income was only around $1,000/year (USD) in 2003. By 2011, that figure had exploded to nearly $3,500 (USD) per person, and China’s government is expecting a further doubling of that total by 2020. Given the explicit recommendation by official (i.e. government) media for the Chinese people to invest those rising incomes in bullion, we don’t simply suspect that Chinese bullion demand will continue to increase; we can be certain of it.

In India, per capita income finally crossed the $1,000/year threshold in 2011, which has already unleashed a wave of discretionary consumption; as low debt-levels/high savings and a low cost of living mean that Indian households are already rising above a subsistence existence at even these modest income levels.

However, Indians were voracious consumers of bullion even before they rose above this subsistence level, as their peasantry (who lack access to banking services) use their bullion holdings (generally in the form of jewelry) as their means of saving their wealth. This deep, cultural affinity for bullion is obviously unlikely to diminish as incomes rise further.

Instead, as indicated in a recent commentary; India has a huge, national gold-deficit – requiring the importation of hundreds of tons of bullion per year to satisfy domestic demand. With silver also widely held among the populace, there is a large silver deficit as well.

Meanwhile, in Indonesia – another very large Asian population with rising incomes and a growing economy – gold currency has already been introduced into the economy several years ago. And the appetite for gold in the Middle East petro-economies is nothing short of legendary. This is still another demonstration of the general understanding in Asia of a principle which is (as of yet) beyond the ken of Western Sheep: gold is money; paper is merely currency.

 

We can demonstrate the enormous power of these demand demographics with one, simple comparison. As already noted, from 2003 to 2011 Chinese per capita income more than tripled. During that same period of time, global mine-supply of both gold and silver only increased by approximately 20%.

The response (by the banking cabal) to this large-and-increasing supply deficit in the bullion market is to do what comes so naturally to bankers: sell “paper gold” – i.e. sell Chumps paper but tell them that there is gold (or silver) “backing it.” Western banksters have been scamming Chumps in the West with this fraud for many years, with their larger paper-gold (and paper-silver) frauds as of yet not fully exposed.

Not only is this form of gold-fraud already alive-and-well in China, but some of the bankster scams have already started imploding over there. Not surprisingly, the Western banking cabal is now trying to bring their gold-fraud to India’s huge, domestic market as well. However, as even Forbes Magazine observes; such fraud does not prevent prices from rising, but rather leads to even more spectacular price-spikes.

The dynamic here is simple. As the paper-gold fraud unravels (as all fraud inevitably does), there will be first the shocked discovery that actual supplies of bullion are only a tiny fraction of all “bullion” holdings. How tiny a fraction? Just ask Jeffrey “100:1” Christian, head of the CPM Group.

A panic then ensues, as holders of paper who thought they were holding gold and silver suddenly scramble to attempt to obtain the real thing. Most of these would-be buyers will end up disappointed – especially in the silver market. Global silver inventories have already plummeted by at least 90% over the past quarter-century, while noted silver authority Ted Butler estimates that global stockpiles have declined by over 80% in the past half-century.

Most of this silver has been consumed industrially (in tiny quantities), and is now scattered across landfills all over the globe. This silver is now gone forever; unless much, much higher prices make the recycling of this metal economically feasible.

For the more parochially-minded Westerner, oblivious to these global demand demographics; our own demographic picture is perhaps even more startling – but equally bullish.

Typically, Western investors have held between 5% and 10% of their wealth in precious metals; with that ratio tending to rise significantly in times of economic uncertainty. Yet with hopelessly-insolvent Western economies in the grip of the worst economic crisis in their history (and showing absolutely no signs of being able to cope with it), we see the average Western investor with roughly 1% of their wealth (on average) in gold and/or silver.

If Western investors have any doubt about their own, absurd folly; they need to merely have a look at the actions of the world’s central banks. Gone is the lie that gold is some “barbarous relic”. It has been re-elevated to being the premier monetary asset in our monetary system. Meanwhile, the lying central bankers have gone from being net-dumpers of nearly 500 tons of gold per year to net-buyers of roughly 500 tons/year – with their gold-buying increasing exponentially over the past three years.

Demand demographics couldn’t be more simple: nobody has as much bullion as either they want, or they need. Meanwhile, on the supply side the parameters are equally extreme.

The relentless price-suppression of bullion and the even more-rabid “shorting” of gold and silver miners means that these mining companies are in the midst of their second depression in the last five years. Under such conditions it is absolutely impossible for any significant increase in mine supply. This refers not merely to the short term (1 – 2 years), but the medium term as well (3 – 5 years).

We have massive supply-deficits in both the gold and silver markets, due to voracious and rising demand amongst the world’s largest populations and most-dynamic economies (with rapidly rising incomes). Conversely we have a totally stagnant supply picture, with absolutely no possibility of any significant increase in supply to match this demand – no matter how high bullion prices go.

Scrap” sales of gold and silver cannot possibly suffice. As noted, almost all our silver stockpiles are already gone. Meanwhile, the poorer holders of gold have already pawned most of what they possessed, while (for obvious reasons) more affluent bullion-holders are unlikely to part with what they hold, even at dramatically higher prices.

Looking at the Big Picture the investment message is clear: nothing can beat this three-legged Bull. Purchase only real, “physical” bullion – and avoid the bankers’ magic beans.

 

[Disclosure: I hold physical gold and silver bullion, and shares in gold/silver miners.]

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Comments (8)Add Comment
Jeff Nielson
...
written by Jeff Nielson, January 04, 2013
There was a movie made in Japan, (I don't recall the name), but the story line was this;
The Emperor passes through a village, and leaves a Royal Dump.
A local peasant collects this Royal Turd, and spends the rest of his days protecting, preserving, and worshipping it.
This is the strength of his belief in the all powerful Majesty, knowledge, and beneficence of the Emperor.

Today, on the National Financial Game Shows, was paraded a man who espoused, apparently with the backing of several Congressional types, the minting of $ 1 Trillion coins by the Treasury.
These could be marched across the street to the Fed, who would obligingly print $1 Trillion in paper money in exchange.
This would obviate the messy need to have to raise the debt ceiling, and would be perfectly "legal", since the Treasury still retains the right to print US coinage...


Thanks for the anecdote Bobbbny.

We're seeing such absurdity on an ever more-frequent basis, as our ever more-desperate governments (and the Oligarchs behind them) are having more and more difficulty trying to invent PLAUSIBLE band-aids. smilies/wink.gif
bobbbny
...
written by robert berg, January 04, 2013
Hi Jeff,
I just posted a new thread under "General Economic Comment" called "The trillion dollar turd".
Here's the opening salvo:


There was a movie made in Japan, (I don't recall the name), but the story line was this;
The Emperor passes through a village, and leaves a Royal Dump.
A local peasant collects this Royal Turd, and spends the rest of his days protecting, preserving, and worshipping it.
This is the strength of his belief in the all powerful Majesty, knowledge, and beneficence of the Emperor.

Today, on the National Financial Game Shows, was paraded a man who espoused, apparently with the backing of several Congressional types, the minting of $ 1 Trillion coins by the Treasury.
These could be marched across the street to the Fed, who would obligingly print $1 Trillion in paper money in exchange.
This would obviate the messy need to have to raise the debt ceiling, and would be perfectly "legal", since the Treasury still retains the right to print US coinage.

Are you fucking kidding me?

I nearly fell out of my chair, not at the thought of what a blatant counterfeit operation this would be, but at the thought that by proposing this, (surely as a "trial balloon"), that the counterfeiters would actually expose themselves in broad daylight.

What's the difference between taking a few ounces of platinum & calling it a trillion dollars, than taking a stack of newly printed T-Bills & calling it a trillion dollars; or of taking the Emperors turd & calling it a trillion dollars?

The absurdity of the scheme does not shock me.
The fact that they would propose something that, in it's absurdity, finally allows the common citizen to comprehend the counterfeiting that has been going on is what shocks me.

As long as they could hide behind "T-Bills, notes, bonds, repos, debt ceilings, QE's", and anything else that people could not grasp, I get.
When they tell you a turd is worth $ 1 Trillion, I think people will begin to grasp the Ponzi scheme.

They are finally falling on their own knives, aren't they?

PS- US 90% silver has traded to a premium for the first time I can remember.
Eagles at a premium, yes. Always.
Pre 1965, no.
My dealer tells me there is no more 90% coming in.
It is dry & mined out.
He is scraping to put together $10m for a client.
Buy & hold physical, now more than ever.
Otherwise, they will sell you a turd.
dgierl
...
written by David Gierl, January 02, 2013
When you make the truth be known, all writing and talking is hard hitting. You are good at it. Keep it up. And,Yes. Now that I think about it you have mellowed some. I'm sure it's good for your blood pressure. smilies/smiley.gif
Jeff Nielson
...
written by Jeff Nielson, January 02, 2013
One could spend a good part of the day reading all of commentaries from your links (and subsequent links). I would say that my personal favorite was the "History of Silver" series that I initially found on Seeking Alpha, long, long ago. That's how I found Bullion Bulls of Canada. I would suggest that all who haven't read those pieces do so, assuming they are still available. It has been a long time.

Another comment that I would like to make is that your writing doesn't seem to fit the way you normally sound in an interview. This could well be the way I'm feeling when I read your commentaries. In your interviews I've heard, you are soft spoken, even when you mention the banksters. When I read your commentaries, to me, you sound much more like Gerald Celente when he's all roweled up. I sure hope you don't take offence to this. I really enjoy listening to Gerald Celete.

Finally, I have an actual comment on your article. When I see the title "Three legs ...", I think more of the slow beginning where a few very observant individuals get into the metals and it goes up a little. Then, second, some smart money managers see the prices rising and get in and the prices really start moving. Then finally "everybody and his brother" gets in and causes a parabolic, blow-off top. Now this time, however, I believe it's different, as I think you also do. The way things currently are the blow-off top will continue until at least the weakest fiat currencies are gone, such as the US dollar, yen, and pound. Unless the EU changes their agreement on Central Bank printing, they may not be able to hyper-inflate like the other three.

Now the part you may not agree with me. I think the Canadian dollar may survive. I just don't see the Canadian central bank as getting as crazy as the US, GB, or Japan. Sure, it may be significantly hit, but you'll still be able to trade them for the New World Order Currency after the crash. That may just be wishful thinking on my part as the only stock I own is a Canadian Gold Mining company and I like to think they'll survive.

Have a great new year! I expect 2013 may be where things start to really heat up.


Thanks for the detailed comment and observations Dgierl! Such feedback is always helpful and appreciated.

With respect to your general comments about some difference in tone between my commentaries and interviews, to some extent that is intended. When I'm interviewed by someone I see myself as a "guest" on their site/program. So I leave it up to them to set the tone.

If they are somewhat understated with their questions, then I don't want to reply with some intense/vehement language. It may embarrass them and/or shock their audience(s), which doesn't do either of us any good.

Conversely, I think SOME of my clips with SGT Report and my appearance on Jay Taylor's "Voice of America" program (for example) tend to project a more "hard-hitting" persona.

Meanwhile, with regard to my writing; as a long-time reader I'm sure you've noticed at least a LITTLE "mellowing" with my writing style (lol). At least I don't FEEL as angry now (lol).

With respect to your specific comments on this article, you are quite right that the "three legs" metaphor could easily have been applied to a chronology rather than as an investment platform. Indeed, I fully agree with your characterization -- and think it would make a great topic for a commentary. But PERHAPS it should be written by one of the more veteran commentators who was actually "here" when the bull market started...? smilies/smiley.gif

Let me at least give titles to your three phases:

1) Contrarian phase
2) 'Slow boil'
3) Desperation

Yes Dgierl, a Happy 2013 to yourself as well -- and to all our wonderful/loyal readers!
Jeff Nielson
...
written by Jeff Nielson, January 02, 2013
Happy New Year to you and everyone who reads/ contributes to BBC!
I am going to make a prediction following that photo-opportunity that took place when QE (Queen Elizabeth not Quantitative Easing) visited the BoE gold vault. Some country is going to demand the repatriation of its gold from the UK. The BoE will not dare to do it and will try to settle in cash. Then there will be a run of countries demanding their gold. As it has all been leased/ sold the only thing the UK will be able to do is pay-up in paper. The gold price will be rising and the UK will be paying out more and more, in effect buying the gold it has leased out. But as it has likely been leased out 10 or more times over, this excercise is just going add to the economic disaster that the UK likely faces in the near future.
I guess Mr Carney will have the answer.


Interesting prediction -- and certainly a very plausible one. We already know that "cash settlement" has been an important tactic in warding-off any bullion-default just to this point in time. Indeed, we had some Establishment Stooge (Christian perhaps?) claiming that there could NEVER be a bullion default -- because any shortfall could always be dealt with by cash settlement.

If I controlled the gold reserves of some major, Western nation; the day I heard THAT remark would have been the day I "repatriated" every gold bar I could still get my hands... smilies/wink.gif
dgierl
...
written by David Gierl, January 01, 2013
As usual, this is great info, especially for first time readers. One could spend a good part of the day reading all of commentaries from your links (and subsequent links). I would say that my personal favorite was the "History of Silver" series that I initially found on Seeking Alpha, long, long ago. That's how I found Bullion Bulls of Canada. I would suggest that all who haven't read those pieces do so, assuming they are still available. It has been a long time.

Another comment that I would like to make is that your writing doesn't seem to fit the way you normally sound in an interview. This could well be the way I'm feeling when I read your commentaries. In your interviews I've heard, you are soft spoken, even when you mention the banksters.smilies/cheesy.gif When I read your commentaries, to me, you sound much more like Gerald Celente when he's all roweled up. I sure hope you don't take offence to this. I really enjoy listening to Gerald Celete.smilies/wink.gif

Finally, I have an actual comment on your article. When I see the title "Three legs ...", I think more of the slow beginning where a few very observant individuals get into the metals and it goes up a little. Then, second, some smart money managers see the prices rising and get in and the prices really start moving. Then finally "everybody and his brother" gets in and causes a parabolic, blow-off top. Now this time, however, I believe it's different, as I think you also do. The way things currently are the blow-off top will continue until at least the weakest fiat currencies are gone, such as the US dollar, yen, and pound. Unless the EU changes their agreement on Central Bank printing, they may not be able to hyper-inflate like the other three.

Now the part you may not agree with me. I think the Canadian dollar may survive. I just don't see the Canadian central bank as getting as crazy as the US, GB, or Japan. Sure, it may be significantly hit, but you'll still be able to trade them for the New World Order Currency after the crash. That may just be wishful thinking on my part as the only stock I own is a Canadian Gold Mining company and I like to think they'll survive.smilies/shocked.gif

Have a great new year! I expect 2013 may be where things start to really heat up.
Norbull
...
written by Graham, January 01, 2013
Hi Jeff,
Happy New Year to you and everyone who reads/ contributes to BBC!
I am going to make a prediction following that photo-opportunity that took place when QE (Queen Elizabeth not Quantitative Easing) visited the BoE gold vault. Some country is going to demand the repatriation of its gold from the UK. The BoE will not dare to do it and will try to settle in cash. Then there will be a run of countries demanding their gold. As it has all been leased/ sold the only thing the UK will be able to do is pay-up in paper. The gold price will be rising and the UK will be paying out more and more, in effect buying the gold it has leased out. But as it has likely been leased out 10 or more times over, this excercise is just going add to the economic disaster that the UK likely faces in the near future.
I guess Mr Carney will have the answer. smilies/cheesy.gif
apberusdisvet
...
written by Andy Bergeron, December 31, 2012
Jeff: first of all, a very Happy New Year to you and yours. Second, your point about future supply problems needs to be further emphasized principally with the idea of "available to the free market" PMs. Perhaps as much as 50% of all global gold mined stays in the country of production and goes directly to the Treasury or CB (notably Russia and China and a few of the 'Stans) and never is freely traded. Then there is the reality of resource nationalism in these times of financial unrest, notably Venezuela and perhaps Bolivia and Peru. When the economic SHTF, no sovereign will allow the export of any strategic resource mined within its country.

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