house-of-cardsGlobal financial markets are now in a very perilous state, and there is a much higher than normal chance of a crash. Bernanke’s recent statement revealed just how large a role speculation had played in the prices of nearly everything, and now there is a mad dash for cash taking place all over the world.
Collectively, the move away from commodities, bonds, and equities in all markets globally tells us that there’s nowhere to hide and that this is a 2008-style dash for cash. Everything is being sold, as it must, to meet margin calls, pay down leverage, and get out of positions; all are signs of the end of a speculative phase.
It’s time to consider that we are entering the next phase of our date with destiny.


 Silver Buffalo Rounds As Low As
$.99 Over Spot At SDBullion!


From Chris Martenson, Peak Prosperity:

Global financial markets are now in a very perilous state, and there is a much higher than normal chance of a crash. Bernanke’s recent statement revealed just how large a role speculation had played in the prices of nearly everything, and now there is a mad dash for cash taking place all over the world.

After years of cramming liquidity into the markets, creating massive imbalances such as stock markets hitting new highs even as economic fundamentals deteriorated (Germany) or were lackluster (U.S.), junk bonds hitting all-time-record highs, and sovereign bond yields steadily falling even as the macro economics of various countries worsened markedly (Spain, Italy, Greece, and Portugal), all of this was steadily building up pressures that were going to be relieved someday. Just over a month ago, Japan lit the fuse by destabilizing its domestic market, which sent ripples throughout the world.

The Dash for Cash

The early stage of any liquidity crisis is a mad dash for cash, especially by all of the leveraged speculators. Anything that can be sold is sold. As I scan the various markets, all I can find is selling. Stocks, commodities, and equities are all being shed at a rapid pace, and that’s the first clue that we are not experiencing sector rotation or other artful portfolio-dodging designed to move out of one asset class into another (say, from equities into bonds).

Here’s the data. Let’s begin with the place that the most trouble potentially lurks  bonds and here we have to start with the U.S. Treasury 10-year note, as that is the benchmark for so many other interest-rate-sensitive items, such as mortgage bonds.

Here there’s been a very interesting story that predates the recent Fed announcement by nearly two months. This chart of the price of 10-year Treasurys tells us much (remember, price and yield are exact opposites for bonds; as one moves up, the other moves down):

The first take-away is that the current price of 10-year Treasurys is now lower that at any time since late 2011. The second take-away is that this has happened despite both Operation Twist and QE3.

That is, after all the hundreds and hundreds of billions of dollars of thin-air money-printing and bond-buying, Treasurys are now lower in price than when the Fed initiated Operation Twist and QE3.

And it’s not just 10-year rates; the entire yield curve from 5-year to 30-year debt is now higher than it was a month ago:


This is very, very important. On the one hand, it tells us that the Fed may not be omnipotent after all, because you can bet your bottom dollar that the Fed simply does not want long rates to rise and that this was an unplanned and unwelcome move. On the other hand, rising rates will do much to a fragile economy and over-leveraged speculators and institutions.

I may need more hands here, because there are other undesirable effects of rising rates, including falling equities (we’ll get to that in a minute), fiscal difficulties for heavy borrowers (many sovereign entities belong to this club), and mortgages becoming increasingly expensive.

An early casualty of rising U.S. interest rates, of course, was mortgage rates, which have climbed approximately 40 basis points (0.40%) over the past month:

Obviously, anything that will impact the housing market at this point is entirely unwelcome by the Fed, which has openly stated that it wants people buying homes and for a variety of reasons, people tend to take out fewer mortgages when rates rise. This is especially true for refinancing mortgages, an important source of revenue for financial institutions.

If it were just U.S. rates that were rising, that would be one thing, but rates have been on the move in Europe and Japan. In this next table, you can see two things: (1) much of the one-month rise in rates can be attributed to the past 24 hours (red arrows), and (2) quite a number of the most problematic nations have bond yields that are below their recent highs (as seen in the green circle).


What I gather from this is that countries like Spain, Portugal, Greece, and Italy do not deserve the ridiculously low rates they now enjoy, and that those old highs in yield will be revisited.

Where the U.S. had a change in yield trend in mid-May 2013, Spain was leading the charge by reversing course in early May:

Who was buying all that junky sovereign debt at inflated prices as Spanish yields fell? Institutions and speculators. The institutions were entities like Spanish banks and the Spain pension system, buying Spanish debt for reasons that seem far more political than financially prudent. For a while, that strategy worked, as rising bond prices delivered both nice yields and capital gains, but now pretty much anybody who bought those bonds in 2013 is (at best) roughly even for the year, leaving plenty who are nursing losses.

The speculators in this story represented the hottest of the hot money, involving hedge funds jumping on any trades that seemed to be headed in the right direction and/or offered useful yields for spread trades, both of which conditions were met by southern European sovereign debt. But that hot money is best described by the phrase easy come, easy go. It arrives fast and leaves even faster.

Okay, so what we can say at this point is that bonds are being sold off around the world. This is very bad for equities, because there’s a connection between falling yields and rising equities. As yields fall, the risk-appetite of investors climbs because they need returns, and so they put more money into equities and real estate. This is especially true when interest rates are negative, meaning that they yield less than the rate of inflation, and that is precisely what the Fed engineered. On purpose.

However, this coin has two sides, and the less virtuous face combines rising bond yields with falling equities. It is simply the reverse of the Fed’s desired and manufactured outcome of the prior several years.

If we look at the U.S. stock market, as typified by the S&P 500, we see that it peaked in May (to no one’s surprise, I hope) and has been steadily falling over the same period that interest rates have been rising.

1600 is now the magic ’round number’ for the market to break through if it is heading lower, which I think it is. We’ll also note that the 50-day moving average (the rising blue line) has been critical support for the S&P 500 throughout the entire advance (green circles), and that it has been soundly violated on this drop.

Commodities have been heading down, too, but seemingly as a part of a larger move that’s been underway for a couple of years:

Note that commodities are now beneath their 200-week moving average, which is a very bearish indicator (green circle).

Collectively, the move away from commodities, bonds, and equities in all markets globally tells us that there’s nowhere to hide and that this is a 2008-style dash for cash. Everything is being sold, as it must, to meet margin calls, pay down leverage, and get out of positions; all are signs of the end of a speculative phase.

I know it’s a lot to claim that we are at that turning point, but the evidence that we are there is now more than a month old, and it’s time to consider that we are entering the next phase of our date with destiny.

What’s Coming Next

In Part II: The Ride Down from Here, we look at the increasing number of flashing indicators warning that a 2008-style but worse sell-off is arriving. We say “worse” because this time it looks like it will be accompanied by a vicious cycle of rising interest rates. Plus, governments and central banks have used up all of their major options already. There are no more white knights to hope for.

We examine the likeliest course from here for asset prices and what to expect from the central planners as desperation increasingly drives the decision-making. We also look at what defensive steps individual investors should be considering. Because, as we’ve been advising for months, now is a time for safety.

Buckle up. It’s going to be a bumpy summer.

Click here to read Part II of this report (free executive summary; enrollment required for full access).



  1. Money has to go somewhere, you’d say? After the flight to bonds and stocks, what’s left to flee to? And what’s most undervalued? It seems like ano-brainer to us stackers, but it may not be as easy when every downtide price target is taken by the manipulated market. Do investors dare to burn their hands on that? They seek ultimate safety.

  2. C&P from FB side …

    Question then arises … where to ‘park’ the ‘cash’, but in bank accounts? Given the ‘bail-in’ mechanism (trap) hastily set into all Euro-American legal systems, it’s looking like the banker cowboys are driving the ‘herd’ over the cliff to me.

    By ‘bailing in’ all the banks, now irreparably ‘damaged’ by this engineered ‘crash’, the ‘funding’ is made available to cover the interest-rate derivatives in the process of blowing up the whole banknote scheme, while simultaneously circumventing the hyper-inflation that would otherwise have to be carried out withour the ‘bail-in’ facility.

    There are NOT trillions of Plantation Scrip stamps available for folks to sojourn out of the digital prison, leaving only one single escape hatch for the VERY astute and nimble … physical metals.

    Paper Rots, Coin Does Not.

  3. Dear Silver Docs
    What is the actual “break-even retail price of a Silver Eagle or a Gold Eagle?  
    If the actual “break-even” price for a coin dealer is ABOVE the “paper” price of Gold when is a coin dealer unable to replenish his stock?
    Just as an example:-  If it costs $1100 to dig Gold out of the ground and another $100 for production of a Gold Eagle (I’ve no idea if this is true) then the retail break-even price would be $1200.
    So if the “paper” price of Gold is $1000 then everyone would rush to their coin dealer and buy his complete stock.   The coin dealer would be out-of-pocket to the tune of $200 on each coin.   He then orders more at $1200 and the same thing happens.
    How long would he stay in business?
    More importantly.   If we know the break-even retail price we would then know when Gold and Silver would disappear from the market and no Bernanke or Draghi could hide this fact.

    • I cannot really answer that, but your over-simplified scenario cannot even begin to simulate the actual mechanisms that are at work here. I’ll list some of the things you have excluded, and it will help you to see how these ever-lower prices can keep the PM circle (jerk) going… 
      Newly “recycled” metals from “weak hands” (scared sellers) are entering the market at all times. If these weak hands settle for MALL PRICES (2/3 spot) or an unscrupulous buy back program (like Goldline tried to hook me with) This “newly recycled PMs” will be bought at well under spot, and then this mall Gold Buyer will then turn a quick profit at the REFINER. (if refining is needed)
      Then usually a broker buys from the refiner in large quantities, and sells to a fabricator (private bars, or Govt. issue) who then makes new PM products for public consumption, or Central Bank purchases. The LCS (coin dealer you mentioned) can buy at SPOT+ (the fabricators premium) and then sells at SPOT++ so to speak. If he has “old stock” then the premiums will be higher, (and this is seen frequently) as the old stock was bought at higher prices than is currently available, or I have even seen shops “go on vacation” and close down temporarily, and this usually coincides with a price dip LOL!
      I have also over simplified the situation, there can be extra layers of fabrication and wholesalers, and the Govt. chain of custody is much more complex. They have (or HAD?) better QC and certification requirements, and there is a “BLANK” coin called a PLANCHET that must be produced and sourced. US Treasury only buys these from 2 or 3 sources…
      Great Question, complex answer.  

  4. I would guess the cost price for the mint starts with the replacement cost of the gold. This would be spot plus a little bit for shipping/handling
    The US Mint don’t dig it up themselves, so what it costs to dig is irrelevant to the cost price of a gold eagle.

    I would guess the mint spends closer to $5-10 to mint the coin. If the gold price halves, this amount stay the same, so do shipping/handling. Thus the premium % doubles for those factors. 
    The Mint can keep offering coins as long as the market provides the silver. Conveniently, the US Mint doesn’t even produce their own blanks. So they are dependant on the market to provide these at the pace the retail market wants the end product.
    Who really purchases the gold and silver I am not sure. The blanks providers? Or does the Mint have their metal delivered there for processing? Anyway, those blank costs will also double as a % of cost price when the metal price halves.

    EDIT : just to add nothing. Because I can 🙂

    • LOL @ your “Edit” @XC Skater!
      Cost for fabrication is quite low, I can buy QUALITY Copper Rounds for maybe $.69 cents above copper spot prices. 
      These are ebay rounds and the quality is very near to US Treasury stuff, (exceed the current dimes and nickels!!!) 
      I also talked to Jim @ (name of Mint withheld, competition to Doc!) and he told me quite a bit about copper and SILVER 
      round fabrications. I’d say that Silver requires a stronger press than Copper, but Gold has to be close to Copper. But 
      figure in that the gubment fabrication costs are higher, but somewhat mitigated with their HUGE VOLUME. Cost per unit 
      is under $.03 cents per “zinkie” as I call the pennies, so each strike is right at 2 cents and that would include all handling. 
      ASE’s and AGE’s would be a bit higher in “per unit fab costs” but in big volume, it is surprising how little each one costs 
      to fabricate. Add to that, Volume Pricing in buying Silver and Gold planchets, and it’s no wonder our “Big Brother” keeps 
      selling us PM Coins even as prices plummet… Plus, they believe they can EO us out of them in the future and recall our 

  5. I do some trading of my stack. 
    The problem I now face : I could try and make a sale and buy back ~5% lower (or 5% more or nicer silver), and wait for ~1 month or more to be supplied. This means I and handcuffed for a full month, cannot make a new sale.
    Or, do I wait up to a month, and possibly see for instance 10% higher prices and shorter lead times? It’s possible.
    If I had cash to spare I’d just buy more right away, not wait.
    I am in it for the ounce gain than extracting cash, but I do have bills to cover with my little profits. Too long lead times put me out of business effectively, and for some reason secundary market demand is tiny anyway. I am very visible but only coin collectors (one round here and there) seem to find me.

  6. @ undeRGRound
    Your “complexity” argument only holds up as long as the “cost of digging Gold out of the ground” is less than the price.
    Once the “price” is lower than the “cost” you eventually (quickly) go out of business.  It doesn’t matter how “complex” things are the “price” lower than “cost” will sink your business every time.
    SO.   What is the minimum price of a Krugerrand or Gold Eagle?   I don’t want to know how complex life is just the “minimum retail price”.   As Joe Friday said “All we want are the facts, ma’am.”

    • A good friend of mine has an African (Ghana) connection. They only got ~$400 per ounce when Gold was over $1600.
      Big money for them, and that was for gold dust and nuggets tha assayed rather high, like 22K average. (91% average)
      Refining costs and middle men add greatly to the bottom line.
      My friend is trying to steer thru the legalities of getting Gold from there to here  😀
      Supply DOES dry up the lower the prices get, I was not saying otherwise, but the secondary markets will “keep going”
      for a while, and I agree with you, but TPTB are using all the “tricks” to keep PM liquidity in the US markets for the “illusion”
      that there is no shortage in supply! You see, if the American Public perceives a problem, WE can crash the system FASTER
      than anyone, including the Chinese or TPTB! Or at least almost as fast.  That is what they are trying to avoid. Also, that 
      “$1200/oz” cost of production is likely the average or the average for the big players… It’s lower in Africa and China, but 
      China is not exporting ANY Gold. 
      So likely (I do not have a real figure) The $1200 is pretty close for the ‘Rand and the AGE. 
      But they can keep PMs “flowing” without proper price discovery, for a while… We are likely 
      already UNDER or CLOSE to the actual average cost of production for the average Gold and SIlver Miners.
      I do not think we can really know, until we see the charts after it springs back up! 

  7. Actual mining costs are very much debated. Like 2 art afficionados standing side by side in front of a painting, they will derive different leads from the work and come to different conclusions.
    When a mine is skilled in hedging strategies, and knows when to withhold metal from the market, and when to offer stockpiles, they should be able to survive when on average selling under cost. But then, with such hedging skills, why not hedge and buy the metal from refiners or even retailers?
    Mines who didn’t have COMEX shorts in place before silver dipped under $27, will be hurting right now. And the margin hikes will have made it even harder for them to hold on to the shorts, it takes a lot off free cash to deal with that. And to hedge all your production gets expensive.

  8. Yes, precious metal prices can go down from here. The price manipulators are helping by shorting metals,  hoping to scare weak hands from their phyzz while showing the world that precious metals are a bad and losing investment.  That has not created the intended result given that the big money folks are buying in 1,000 ton gold tranches while the  small buyers, like us, are buying feverishly.  Shortages are cropping up again.
     These price drops are also part of a fear factor liquidation event that we’ve seen in the past.  This will  be temporary, once the fear subsides and people see the value in precious metals. That is happening now.
     PM price drops in 2008 were some of the most dramatic.  Note that silver dropped to $8 from $17 over several months then went to $49 in 2 years.  It was not available for sale at less than $10-12 when it was available at all,  a bit like the shortage of 2 months ago with premiums of $4 an ounce.
     The miners are shutting down now as noted in Harvey Organ’s site.  The Velardena mine in Mexico, owned by Golden Minerals in Golden Co will lay off 470 people.  Mexico is not a high priced producer yet it could not make money at $1,600 an ounce gold and $30 an ounce silver. 
    Steve DeAngelo noted that this mine was just one of many that are simply unable to produce at a profit with these prices levels. 
    Where will the precious metals, and particularly gold, come from?  The only place where physical gold is readily available. In this buying frenzy, when miners can’t keep up with demand or mine PMs fast enough, the  COMEX and LBMA are the only two sites with enough gold to satisfy demand.   They will be stripped of inventory.
    GLD might be stripped of its paltry 990 tons if Force Majeure is declared and JPM raids the vaults, on order of the Federal Government.
    So physical is going into severe shortage and miners will be forced to shut down or go out of business. Shutting down before the Grim Reaper of Bankruptcy visits their offices is the best expedient to save the mine. But all those highly paid workers will be on the streets.  It  could easily be months and potentially years before these mines restart.  No miner wants to sign a suicide pact with  shortages that spell bankruptcy if the mine continues operations.  Almost all forces that can be allied against a miner are now lined up.
    As for the price to print a silver coin, I visited Hommel’s mint and PM shop in Grass Valley CA early last year, looking to do some business with him. He was out. His father in law took me on a tour of the mint, shut down at the time, and the equipment appeared to be in order.  During our interview, it was dislosed that once the silver was provided, the custom molds cost about $1,600.  The minting/printing cost was neglible, well under 50 cents per coin for larger volume of 1,000-5,000 rounds.  At the time, he told me that he was producing mostly custom coins for state parks and historical societies using brass or other base metals since his mint was not able to get a handle on silver prices in a way to make a profit on custom minting. That equipment sat idle. Those prices swings of last year were to tough to work with so decisions to print silver coins was on hold  The bullion shop was doing business but the prices charged over spot were not competitive in my opinion.
    Where to park FIAT? Some in FIAT, some in future bill payment and debt reductions and the rest in physical.

  9. Not only that, but I expect the mining companies are only hedged to a small extent. I used to trade currencies 5 years ago, until the platforms all hiked their spreads to 15 points during announcements and hogged up all the momentum movement/ profit.  I would open a trade in both directions with a stop after 10 points in both directions. This ALWAYS devoured 10 points of gain, but during the NF Payroll, or Unemployment announcements, the market would at least move 17-30 points in either direction. This was a safe stratedgy, but cut into profits greatly.  If they hedge against their product, it’s only for minor moves I suspect a 7% dive hit them where it hurts!!!
    P.S. There are a lot of good posts here today and common faces… Great reading! Oh, and Hey guys!
    P.P.S.  GBS You never answered my prv question:  What does GBS stand for? (Global Banking Syndicate?) LOL Just bustin yer nuts bud! 🙂

  10. Something obvious I would like to remind my fellow stackers of:  investing in physical is psychologically no different than your 401k. You do not co tribute to it with intention of “robbing the piggy bank” next month or next year. The great protection you ha e is that it’s REAL!  It will not evaporate with bankruptcies like stocks. So it’s a better and safer investment.  All of this short action should only trigger your mind to buy on FIRE SALE. Your old stack hasn’t shrunk in size, and no ones twisting your wrist to sell at a loss, so relax!  Who invests so heavy in their 401k that they can’t pay their bills or put food on the table? If your investing too much the. YYou’ve got Gold Fever. (Not difficult to so) I encourage all of you to reprogram your investment mind to think of it as a 401k. Keeping cash on hand, as any reasonable man would do. And relax, if your not in the eyes your not going to be forced into cashing out at a loss, and if you have never seen Omw drop this hard do your research, be ause they dropped this hard prior to 2008, and just before the rally in 1980’s. 60% down, 900% up. I emplore you to put your stack away where you can’t see it, and take your kids out on the lake. Spend some cash on something that will bring happiness, and leave the “Great Depression” worrying and heavy lifting to YOUR silver stack. 🙂 Cheers!

    • Yes my man, I hear ya! Oh, and sorry about the not so smartphone word screwerupper. Lots of words are jacked in that, and my browser didn’t refresh after posting so I lost the option to “Modify”. 🙁

  11. No worries Shamus 001   Even a bit of garbling from a smart phone can’t obscure the message—received 5 X 5
      That 300 tons of gold ‘we’ owe Germany.  It occurs to me that if we had the gold we’d send it.  So we probably don’t have it to send.  If ‘we’ really wanted to send it and our gold bank was empty, then our people would just steal it, like any honorable commitment between thieves—ours—not Germany’s. Hey Bubi, it’s just business.
    So, are we talking about some hidden agenda, a Golden STFU, from our bankster homies to Merkel and her crew at Buba and DBank.  What’s 300 tons of gold anyways.  Maybe $15 billion.  Heck, Mental Ben just  sent $1.25 trillion in FIAT to the ECB and IMF to jack up the deposit bases of these house-of-cards bankrupty Euro banks.  $15 isn’t jack,  IMO.
    So I surmise this is a big American FO  from Deadbeat Uncle Sam to Merkel, Draghi and a few others across the pond.  MOLON LABE?  Nah.  More like MELON BUBI, sweetheart.  lol

  12. On fly in the ointment is one of the executive orders Obama signed giving him the power to take over all manufacturing, commodities, farms, etc in this country if a state of emergency is declared.

  13. I have been lurking on this site for some time. Why don’t the Doc just put a big sign up saying please go to ZH. Most of the articles on here are from there. Every time I come on here it’s like Deja vu.

    • Here, it is less about the articles than it is about the posts.  I have been to ZH several times.  Most of the posters sound like complete jackasses.  Not so here.  Ergo, I come here for the articles and the posts.  Works for me, although others may see it differently.

    • YAH!

      @ZH it’s like almost everything is an inside joke
      or refers to the poster’s prior thoughts.
      Hate the format too… The whole thing is hard to follow.

  14. Can we clarify one thing?  All assets that are denominated in paper money are being sold.  Hard assets such as physical Gold and Silver are being bought.  The idea that the dollar is a safe place to park your money in a deflationary frenzy is correct, at least in the very short run because its days are numbered.

  15. If it smells like ZH over here Neo, it’d probably me as much as anything. I patrol that site regularly.  The one thing you will rarely see is any of the considerable amount of original home grown content here on SD appear on ZH.  Probably a bit of jealousy.  Doc does not print much of ZH’s original content here either. But both are blog aggregators and bring some of the good stuff over to their respective sites.  In the case of ZH, you will not see direct  attribution as often on ZH.  Many times it looks like their original stuff when in reality it was published elsewhere.  Doc does attribution anytime other material appears on SD.  Why it seemslike deja vu all over again is that there is not that much first rate material in the blogosphere so a good amount is repeated elsewhere time and time again. 

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