Are We About To See A Historic Melt-Up In Gold & Silver?

Are We About To See A Historic Melt-Up In Gold & Silver?

Today one of the wealthiest people in the financial world stunned King World News when he said we may be nearing a point where we see a historic melt-up in gold, silver, and the mining shares. 

 Rick Rule, who is business partners with billionaire Eric Sprott, also discussed exactly how this historic advance will unfold and why the up-moves will be so incredibly violent

Eric King: “Rick, are we finally seeing the more than 3-year bear market in gold and silver coming to an end?”

Rule: “You and I both believe in higher precious metals prices, Eric, so it’s tempting to say yes. Bear markets end with capitulation selloffs. I think we were on the verge of a capitulation selloff six weeks ago but we didn’t get one. The questions is, do we have to see a capitulation selloff this time? The answer is, of course not

“I said to my Chinese friends that ‘The U.S. dollar is in one way shape or form a lie.’ And they said, ‘Yes, but it’s the most liquid lie on the planet, and from that point of view we are attracted to it.’

When the confidence in the U.S. dollar begins to wane, and I say when, not if, then precious metals will shine. We may be seeing a preview of that today. But if you had bought precious metals in rubles, Eric, or yen, or the Brazilian real, you would be very happy today. 

 For many people who bought them in dollars this has created frustration because of the strength of the dollar vs other fiat currencies. Gold doesn’t have to win the war against the dollar, it just needs to lose it less badly for KWN readers not to be just happy, but ecstatic.”

Eric King: “In this secular bull market, if we are seeing an end to the cyclical bear market in gold, silver, and the shares, how do you see the advance unfolding off the lows? Will it give people time to get in?”

Rule: “I definitely believe it will. I believe that without a capitulation selloff, the bottom that we see will resemble the market that we saw from July 2013 - February 2014. That is a gradual saucer-shaped recovery, with higher highs and higher lows but plenty of volatility to scare people and also delay investment in the sector. And it may be that we are back into that phase after having been scared to death recently.

Certainly without the capitulation selloff what you will see is a long consolidation period that’s extremely choppy and volatile. And that has been, in my experience in the last three cycles, eventually greeted with a melt-up. 

That’s the only way I can describe it if you remember 2002, Eric. This is where, finally, all of the sellers get used up and the metal gaps higher and the shares gap higher. I’m not saying that past has to be prologue but that’s what has happened the last few times we have been in a similar position.”

Eric King: “You are talking about some pretty violent upward moves.”

Rule: “Yes. It’s funny that we have been, in effect, punished in this market since 2012 and subjected to several violent down-moves, so we forget that the thing which attracted us to this sector originally was the fact that in recovery this market exhibits very violent up-moves.

Remember, people’s expectations of the future are set by their experience in the immediate past. And everybody’s experience in the immediate past going back to the tail end of 2011 has been negative. What that means is that our expectations are all negative. 

 What moves a market is a market that exceeds expectations, and expectations for the mining industry are pathetically low, which means we will exceed those expectations.

And when we exceed those expectations the market will move significantly higher and perhaps very violently to the upside. If you remember back to the 1993 melt-up, or the 2002 melt-up, or going back even further to the melt-up of the late 1970s, which was the most violent melt-up I’ve ever experienced in my life, these are truly spectacular events. If past is prologue, and it normally is, this will happen again.”

See this article at King World News

US Mint Silver Coin Sales Climb to Annual Record as Silver Price Rebounds

The U.S. Mint has sold a record number of silver coins this year as demand for the physical metal helped futures in New York recover more than 20 percent since falling to a five-year low early this month.

Purchases of American Eagle silver coins reached 43.051 million ounces in 2014, data on the mint’s website shows. That tops last year’s 42.7 million ounces, the previous all-time high, according to an e-mailed statement yesterday. There are still enough supplies to keep selling 2014-dated coins through the week starting Dec. 15, the mint estimates.

A surge in demand prompted the mint to suspend sales in November for more than a week because of a lack of inventory. When the coins were again made available for purchase, it was on allocated basis. Buying has increased with prices heading for a second straight annual loss, the longest slump since 1992.

“This has been a very strong year for us,” said Michael Kramer, the president of New York-based MTB Inc., a dealer authorized to purchase coins directly from the mint and sell to consumers. “It was especially busy on days prices took a big tumble.”

Silver futures for March delivery jumped 5.3 percent to $17.134 an ounce on the Comex yesterday, the biggest gain since Dec. 1.

Prices declined 12 percent this year through yesterday, after dropping 36 percent in 2013. On Dec. 1, the metal reached $14.155, the lowest since 2009.

Swiss Franc No Longer a Safe Haven and a Possible Bottom for Gold

Peter Schiff responds to the results of the "Save Our Swiss Gold" initiative this past weekend. He explains why he thinks it is bullish for gold and might have even marked gold's bottom.



0:17 – “Save Our Swiss Franc” would have been a more accurate description of the Swiss gold initiative.

0:59 – Switzerland used to have more than 40% of its reserves in gold and was very prosperous.

1:47 – The Swiss gold initiative was a threat to the powers-that-be, because it limited the ability of the Swiss National Bank (SNB) to create inflation

2:35 – If the initiative had passed, Switzerland would have been an example of a strong economy in a sea of European inflation.

3:34 – How is it crazy to have only 20% of your assets in gold, but sensible to have 100% of your assets in fiat currencies?

4:30 – The Swiss originally didn’t want to adopt the euro, but now they’ve embraced a de facto euro standard.

5:30 – Gold and silver dropped dramatically after the vote, which was surprising since no one had really expected the initiative to pass.

6:23 – Gold and silver recovered their losses quickly once the United States started trading.

7:10 – Peter believes the “no” vote is more bullish for the long-term price of gold.

7:43 – If the Swiss had adopted the referendum, it would have slowed down Swiss money printing and Swiss inflation.

8:28 – When the world realizes the United States is going to return to quantitative easing, the Swiss franc will no longer be a safe-haven option. This would mean greater demand for gold.

9:36 – If the SNB won’t be buying gold on behalf of its people, the Swiss will buy gold individually to protect their purchasing power.

10:49 – Looking at historical actions of central banks, there’s a chance that gold’s low price on Sunday could end up being gold’s bottom.

Investor Sues the Silver Bullion Banks for Benchmark Manipulation

An investor has filed suit against the three firms that set the price of silver, accusing them of manipulation. The lawsuit, filed in the US District Court in the Southern District of New York, is noteworthy because similar accusations have been levied in the gold market and the process by which commodities prices are set has increasingly come under scrutiny.

The lawsuit was filed by J. Scott Nicholson, a Washington State resident, who is seeking class-action status for the suit. Bank of Nova Scotia "vigorously" denied the charges, according to an article from Bloomberg Businessweek, and the other two rate setters, Deutsche Bank and HSBC, declined comment. The three banks conduct the fix, or price-setting, once a day by conference call, according to an article from Reuters.

It is unclear if Nicholson has evidence to back his charges, but the complaint states that the defendants "have a strong financial incentive to establish positions in both physical silver and silver derivatives prior to the release of silver fixing results, allowing them to reap large, illegitimate profits."

Deutsche Bank said in January that it would withdraw from participating in setting the gold and silver benchmarks in London as it plans to cut 200 jobs in commodities trading. London Silver Market Fixing Ltd. said in May that it would stop administering the benchmark after Deutsche withdraws its participation in August.

The suit comes on the heels of similar suits in the gold market and a lengthy silver market investigation. The five banks accused in the gold fixing case deny the accusations. The five-year silver market investigation, conducted by the Commodities Futures Trading Commission, ended last September when it found no evidence of wrongdoing.

For more:
- read the Bloomberg Businessweek article
- read the Reuters article
- read the BBC article

JP Morgan Holds Highest Amount Of Physical Silver In History

While everyone is focused on the massive outflows in COMEX registered gold inventories and the gold ETF, GLD, it seems that an important evolution in silver is passing unnoticed. In what follows, Ted Butler, precious metals analyst specialized in COT analysis, reveals a remarkable insight in the physical silver market.

Butler’s calculations show that JPMorgan (NYSE:JPM) has piled up the largest holding of physical silver in modern world. Since the silver price peak in May 2011, the bank has accumulated between 100 and 200 million ounces of physical silver (if not more). The equivalent in metric tonnes is between 3,110 and 6,220 tonnes.

To put that number in perspective, it surpasses the amounts held by the Hunt Brothers or Warren Buffett (in his investment company Berkshire Hathaway).

On a yearly basis, some 100 million ounces of silver reach the investment market, which translates into 250 million ounces between May 2011 and December 2013. That has a value of approximately $5 billion. Given the size of the too-big-to-fail bank, that amount of silver, how large it may seem, is easily affordable:

JP Morgan’s quarterly profit is $5 billion (approximately 200 million ounces of silver).
In 2013, the closing of the gold short position, as well as the 20,000 contract reduction in the silver short position, netted JPM more than $3 billion.
In COMEX silver, JPM was the largest buyer in 2013.
These facts make it reasonable for JPM to be a big buyer in physical silver.

Methodology

JP Morgan knows the financial markets better than anyone else. It is no coincidence that the bank is (ab)using that knowledge to their own benefit. Evidence of that lies in the record number of penalties for which they have been accused because of market manipulation.

Butler explains that JPM was able to accumulate so much silver without being noticed through the big silver ETF, SLV. In his weekly commentaries to his premium subscribers, he has explained on numerous occasions that the physical silver holdings in SLV have been largely intact on a net basis, but there was a large “churn” in the holdings, which allows for a large buyer to go unnoticed. For instance, 60 million oz were liquidated in the two months after the price smash in May 2011; they were right away absorbed by a big buyer. The data are available on this site http://about.ag/SLV/.

Furthermore, the conclusion that JPM has been the big buyer in physical silver is confirmed by the following facts:

The growth of metal in the JPM COMEX silver warehouse over the past three years was 45 million oz.
The recent delivery stopped by the bank in December/January COMEX deliveries was 15 million oz.
JPM, being a master in manipulating financial markets, has also (ab)used their ability to set the silver price in the leveraged paper COMEX market, while simultaneously benefiting from lower prices to accumulate the physical metal.

“Causing the price of silver to be depressed via a concentrated short position on the COMEX along with the ability to crush prices in an HFT second, to then scooping up physical metal (and covering paper shorts) at the self-created depressed prices.

What this also highlights is the madness and illegality of having the paper price on the COMEX setting the price in the physical market. If JPM hadn’t been capable of rigging silver prices lower in 2013, it would never have been able to buy back 100 million ounces of short paper contracts and buy many tens of millions of physical silver as well.”

Motive

The underlying motive for JPM to accumulate such a large amount of silver is most likely related to the fact that the bank was on the wrong side of the market when the silver price exploded.
When silver went through its historic rally in March and April 2011, the weekly COT data indicated that speculators did not rush into COMEX futures, which means that the peak in the silver price was not driven by speculation in silver futures. On the other hand, there was buying in the big silver ETFs, including record short selling in SLV.

“So, if it was not highly leveraged speculative paper buying on the COMEX that drove silver prices to the peak, it had to be buying in the physical market (including the ETFs). Therein resides my conviction that we were on the cusp of the first wholesale physical silver shortage in history in April 2011. And clearly it was the investment side of silver’s unique dual physical demand (investment/industrial) that pushed prices higher, as there was no great rush by industrial users into physical silver.

JPM was on the wrong side of the silver market: neither the total commercial net short position nor the concentrated short position of the four largest shorts (including JPM) increased in any way and, in fact, both began to decline in April. This implies that speculators, particularly the technical funds, not only didn’t add to long positions, but reduced long positions on the $15 price jump from March 1, 2011.”

What does this indicate? The explanation that makes most sense is that JPM realized that it was on the wrong side of the trade, after having discovered how tight the physical silver market was. Consequently, the bank had to crush the silver price with their HFT tricks in order to reverse the trend. By doing so, JPM could regain control over the silver market.

Meantime, JPM has built the longest position in physical silver in recorded history. It holds its grip on the silver price through its short corner in COMEX silver.

Ted Butler has written time and time again that the extent to which JPM adds new short contracts on the next silver rally will determine the strength of the rally. Simply put – if JPM doesn’t add new short positions, the manipulation is over. Someday, JPM won’t add to silver short positions and they, more than anyone else, will be best positioned to realize massive gains.

Are Gold and Silver Prices ‘Manipulated’, or Not?

It is unlikely that gold and silver prices are not ‘manipulated’, given that every other market is – but the question really is whether governments and central banks are part of the process, or not.

There remains a debate over whether gold and silver prices are ‘manipulated’, although perhaps the debate should actually be are the prices manipulated by central banks, governments and the major investment banks in an attempt to control (suppress) prices.

In truth, of course gold and silver markets are manipulated – as is virtually every other market on the planet.  It’s really a question of how one defines manipulation.  Short selling, or concerted buying, by big money, particularly through the use of High Frequency Trading, of any stock or commodity could be considered attempted manipulation and no-one doubts this goes on the whole time in virtually any market or stock one cares to name.

It’s part of the modern financial system and however one looks at it, it probably should be considered at the very least unethical, if not, in some cases, illegal, although market regulators turn a blind eye.  It gives market advantage to big money which the average investor cannot hope to counter and thus creates a far from level playing field hugely in favour of the major institutions – or at least those with big money at their disposal.  That’s how the rich get richer.

However that’s not really the debate with gold, and to a lesser extent its less costly sibling, silver which just tends to move in exaggerated concert with gold.  Here we enter the realms of global power plays because of the historical significance of gold as the ultimate measure of wealth, for an individual – and even more so for a nation.  Gold is perceived everywhere, much as Western economists may deny it, or disapprove of it, as being the yardstick against which key currencies are measured.  Rising gold prices in any currency are not real increases.  It is the declining value of currencies against the golden constant which is the reality. 

Now governments and the central banks do not like the weaknesses of their currencies being emphasised for all to see by their depreciations in terms of gold and, so the argument goes, they may do their utmost to prevent the gold price rising outside certain controlled parameters. 

Indeed if they can actually cause the gold price to dip that is a job particularly well done.  Now arguably, back in the northern summer of 2012, gold looked to be in danger of breaking out hugely upwards, only to see a subsequent series of price reversals bringing it back, at one time, around 40% from its high point.

This is not seen by the gold bulls and entities like GATA, as just a bubble bursting and extreme profit taking by the investment community, but they attribute more sinister motives to the recent price pattern and see governments, central banks and their major investment banking allies as acting in concert behind the falls.  And given that governments and central banks openly ‘manipulate’ currency exchange rates to meet their perceived requirements in the global marketplace, if one looks at gold as a currency then it is perhaps inconceivable that these entities are not involved in attempts to move the gold price in a direction which suits them and their global financial policies.

Some of the arguments on governmental and central bank involvement in the control of the gold price have been superbly laid out in a recent article called Gold Manipulation 101 by Bill Holter of  Miles Franklin Precious Metals Specialists.  Holter notes in particular that he has explained over his career many times “why” gold would surely be manipulated and that the Fed (and other foreign central banks) would be foolish not to try to suppress the price.  Gold is THE main competitor to fiat currency, an exploding price is like a neon sign advertising policy failure and currency flaws, as Paul Volcker once said, “It was a mistake to let gold get away from us.” And then goes on to explain exactly how this price suppression was achieved in the past and how it is today.

Back in the 1960s and 1970s the process of keeping the gold price under control – once the gold window had been opened – before which gold had effectively been at a fixed price – was handled by the London Gold Pool where physical gold was sold on the London Market so as to meet any excess demand until gold stockpiles were depleted to the extent that this control could no longer be achieved and the price then spiked up to $850 in 1980.

The problem then became how to supply gold to meet any excess demand and thus get, and keep, prices under control again.  This appears to have been done by persuading the major gold producers to forward hedge their gold sales to protect their profits going forwards which effectively brought, as Holter puts it, 1,000′s of tons of gold “forward” for sale and on to the market.  It had not been mined yet but the true intent and result was to place excess supply (which had not even been mined) onto the market to depress the gold price. Some see this as collusion by the gold miners in gold price suppression although, in our view, it was slick salesmanship by the bullion banks which handled the forward sales contracts. 

Indeed the hedging, and eventual gold price recovery, after the ‘Brown Bottom’ of 1999-2002 which saw the low point in the gold price as the U.K. sold half its gold reserves under the Chancellorship of Gordon Brown (later to become the UK’s Prime Minister), accompanied by rising costs, that led to the demise of some gold miners – notably Ashanti Gold Mines which had to be rescued, by being swallowed up, by AngloGold.

But the gold price started recovering.  The gold ETFs were launched which diverted much needed investment away from the gold producers into the Funds – latterly a major source of physical gold helping suppress the markets as continued adverse gold publicity fed to the media pushed the ETF investors into equities,

But, in the interim COMEX trading and paper gold took precedence as the prime manipulation tool with vast volumes of paper gold being pushed onto the futures market as gold looked to be starting to take off again which, in conjunction with High Frequency Trading (HFT), contributed to a number of flash crashes in the market, usually taking place out of U.S. trading hours when markets were thin.  Some of these flash crashes were major with huge numbers of contracts being sold with the very obvious intent of triggering other HFT stop loss sales and thus creating huge downward spikes in the markets.  These also had the effect of driving further sales out of the ETFs and thus adding physical gold supply into the equation.

Finally Holter points to the last and longest lasting method to manipulate gold’s price has been the “leasing” of central bank metal. This, Holter reckons, arose from the 1996 U.S. ‘strong dollar’ policy which meant somehow keeping the gold price down and at this point Central Bank gold leasing was introduced whereby Central Banks could lease out their gold at a ridiculously low rate to a bullion bank, while the latter could sell the gold on and invest the proceeds at a far higher rate in ‘safe’ government bonds. 

A no-brainer for the banks – and because the gold was leased, not sold, has enabled the central banks to retain the gold in their books as it is a loan.  Much of the gold sold though has been converted into jewellery – or found its way into other strong hands - and as the gold price has risen, while physical metal remains in short supply, it seems unlikely that the gold can actually be returned to the central banks in physical form.  (Hence the speculation as to why it is taking seven years for Germany to get its 700 tonnes of gold back from the central bank depositories in the U.S. and France).

As Holter concudes, Any and all of this could be proven beyond any doubt and the perpetrators brought to justice and jailed within just a few days.  There is a paper trail for all of this and the Justice department would have slam dunks all over the place…but there is a small problem.  They can’t (and won’t) prosecute “themselves” because ALL of these schemes had one goal in mind, suppress the price of gold.  This is exactly the “unofficial”…official policy.

This is the theory of the actual practice behind gold price manipulation (suppression) by governments and central banks and their allies in the financial hierarchy.  There are still many deniers out there who put the strange gold price flash crashes of the past two years down to market forces, but the access to the kinds of funds necessary to perpetrate them does, in our minds, suggest that there are indeed other factors at play here than purely banking and fund financial ones.

Of course there are other factors in the equation now, which will ultimately see any suppression scheme fail long term, but may just lead to other forms of manipulation elsewhere for political advantage.

As we have pointed out in these pages a number of times recently, Chinese demand is almost capable on its own of absorbing the total of global new mine production and thus, along with other gold purchasing nations demand for physical metal by strong holders seems to be exceeding global supply.

This means less and less physical gold availability in the West which ultimately has to diminish the capability of those trying to control the gold price to do so – particularly as outflows from the ETFs slow down.  But then we may just be seeing a transfer of gold price manipulation capabilities from West to East and who knows what that might bring in terms of pricing.  Gold is significant enough in its global financial position for someone to want to control it – it just depends who will have the future financial muscle to do so – and what their agenda might be.