By SD Contributor AGXIIK:

The tale of the silver boom ended badly for the Hunts when the Federal  Reserve, Justice Department, Saudi kings and others with a real desire to smash the Hunt Brothers took after them with a vengeance.  Jim Sinclair was part of the team that helped Volker dismantle the silver barons, restoring  the US Dollar hegemony from the frightening specter of even worse currency debasement.  Silver and gold went to sleep for another 30 years. The Petro Dollar system was preserved.  That cost was in the billions.Today things are different.  Or are they?  The same economic tides are making precious metals a safe haven from the real perception of inflation and its harmful effects. The difference today is that silver is in a shortage with most of the silver production immediately absorbed into commercial and investment uses, leaving many asking for their precious metals and not getting delivery in short order, or if at all.  Most of us can acquire silver and gold in small amounts.  Gold has no ready stocks available for sale.  Every ounce, pound or ton is spoken for, sometimes several times over given the theft occurring from allocated accounts and vaults emptied by smart money investors like China and Russia taking delivery from bullion banks and their badly placed paper bets.

Unlike the 1970s when  gold and silver price spikes were stimulated by fear of inflation erosion despite massive above ground supplies,  all precious metals today are in short supply, even to the point where small hot wars are being fought for its possession.  This is not the era of the Hunt Brothers chasing an enormous bet on silver in hopes of making a few billion in profits, riding the public’s desire to save themselves from currency devaluation.
Our present era is a Cold War being fought over these most important commodities.

 

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I’m going to approach the silver price spike in a little different manner than my prior attempts.
Having been through last silver and gold price explosion, first  as a somewhat broke student and later a somewhat broke employee working for wages, who incidentally worked in an office next to a commodities trader with a focus on trading gold and silver futures, I did spend some time talking with the broker and studying precious metals.

Having no money to invest, I was still anxious to understand why these precious metals were going up so quickly.  This was taking place while silver was moving from $20 to nearly $50 an ounce. Gold was completely unaffordable but silver caught eye.

Imagine how anxious I was to place a paper bet on some options.  A mere $800 could get me into the market.  Just as well it was not to be and that was good for me.   Knowing my tendencies I would have exited too late and lost everything, just like the Hunts.  The only thing I was able to do was stand in line and sell my box full of Junk Bullion when it was $30 an ounce as silver bounced to $40. The broker’s office quickly closed after the silver collapse, just like the local coin stores,  so my conversations and studies ended at that point.  But the broker did offer some advice. He said these prices were due to speculation and money chasing yields.   He also said this phenomenon would not last, warning me to stay away from this market. Those words fell on deaf ears.

The effects of inflation began in earnest in about 1970 when  ‘Guns and Butter’ President Johnson’s fiscal policies showed up through deficit financing and currency printing. Inflation was running at a quiet mid single digit level from 1966 to 1970.  I felt the first bite of inflation in  my first job out of high school, involving a promotion that should have resulted in a raise. Then President Nixon implemented wage and price controls in a failed attempt to curtail the price increases. No raise for me.

No hourly wage increases were permitted.   No product price  increases were permitted either but manufacturers and retailers managed to pass through price increases before this Executive Order was laid down. Shortly into the law’s implementation these same firms were repricing products, with price gouging.  They called them end product something else or repackaging the same item and jacking the prices up substantially so as to avoid these labels. Wages were still static.

Gas price shocks started in earnest, hitting the American pocketbook twice; once when pump prices doubled  to 50 cents a gallon and a second time when prices went to $1.00 a gallon.  Severe shortages took place with gas lines a mile long and rationing of gas to Odd Even sales days based on your  car license number.

These prices shocked and rattled people and did so in a way not seen since WWII.  My parents and I spoke about this frequently, comparing prices to fill a shopping bag at the grocery store.  The commonplace complaint was that a loaf of bread hit $1.00 a loaf, an obscene cost that got real national attention.  A grocery bag could be easily filled for $10 with silver coin change left over. I did my own shopping so I felt that pinch while making no additional wages.  The same grocery bag later cost $20 and that also got national news attention as well.

Inflation’s effect could not be denied and unlike today, with SNAP and EBT  food subsidies, $1 trillion in government largesse buffering the worst  inflation we’ve seen over the last 10 years, and people buying cheaper and cheaper goods just to get by, those more halcyon days where real silver was still used in everyday commerce,  we had no buffer against inflation then running 10% or moreWages never increased to meet price inflation.  People started looking for alternatives.  Home prices began rising and did so substantially.  Interest rates began to rachet up from mid single digits to low double digits.  Savings account rates never kept pace with inflation.  These rates started taking place before Reagan was elected and brought Paul Volker in as Chairman of the Fed.  Rates rocketed upwards and the prime rate hit 21%.

The government worked overtime  to crush inflation, throwing everything they had towards this beast.  The cure was very painful.
Before the regime change, everyone was trying to find a way to get out of the way of the inflation juggernaught.  No one had any experience in how to deal with this phenomenon.  People were struggling and desperate to get ahead and yet continued to fall behind.  We think our present era is troublesome and it is but if you lived through era of malaise with inflation at 13-15% and unemployment at 10%, it  was one of the worst time periods in anyone’s recollection.

And then along came the price rise in precious metals.  People piled on. The Hunts piled on.  Everyone dreamed of being silver millionaires in the hopes that prices would rise to the moon.  This was a reasonable assumption since pocket change went to $40 an ounce and a silver dollar could pay for a week’s groceries, just like the good old days.

In all likelihood the Hunt Brothers did not create the silver price spike, much less the gold price spike.  The GTSR was still 16 to 1, a historical norm, but $50 and $800 silver and gold were delirious prices and people starting going a little crazy over this. Lines formed outside the coin shops and pop-up precious metal buyers.  Anything with phyzz attached showed up at the doorsteps of these outlets.  One story noted that 90% of all the junk bullion in circulation ended up passing through these businesses, later melted down as scrap.

The tale of the silver boom ended badly for the Hunts when the Federal  Reserve, Justice Department, Saudi kings and others with a real desire to smash the Hunt Brothers took after them with a vengeance.  Jim Sinclair was part of the team that helped Volker dismantle the silver barons, restoring  the US Dollar hegemony from the frightening specter of even worse currency debasement.  Silver and gold went to sleep for another 30 years. The Petro Dollar system was preserved.  That cost was in the billions.

Today things are different.  Or are they?  The same economic tides are making precious metals a safe haven from the real perception of inflation and its harmful effects. The difference today is that silver is in a shortage with most of the silver production immediately absorbed into commercial and investment uses, leaving many asking for their precious metals and not getting delivery in short order, or if at all.  Most of us can acquire silver and gold in small amounts.  Gold has no ready stocks available for sale.  Every ounce, pound or ton is spoken for, sometimes several times over given the theft occurring from allocated accounts and vaults emptied by smart money investors like China and Russia taking delivery from bullion banks and their badly placed paper bets.

Silver has not an ounce of surplus.  Every ounce produced finds an immediate home.  Vaults are similarly being looted by those who call for delivery.  The US is shipping hundreds of tons of silver to the LBMA. The Swiss are backstopping gold demand from the LBMA.  The LBMA is forced to ship their bullion to the traders who call for delivery at every price smack-down, whether it’s $32 silver or $1,700 ounce gold, both low prices in this world of precious metal wars waged to acquire these immensely valuable and strategically important currency backing metals.

Unlike the 1970s when  gold and silver price spikes were stimulated by fear of inflation erosion despite massive above ground supplies,  all precious metals today are in short supply, even to the point where small hot wars are being fought for its possession. Violent trikes, nationalization at gun point and harsh regulatory attacks create even greater supply chain injuries.  The following effects are critical in evaluating the future price of gold and silver.  This is not the era of the Hunt Brothers chasing an enormous bet on silver in hopes of making a few billion in profits, riding the public’s desire to save themselves from currency devaluation.  The following effects and events affect the prices at every quarter:
Lower Exploration
Lower Discovery
Lower Ore Grades
Lower Prices
Higher Energy Costs
Higher Labor Costs
Higher Taxes
Higher Regulations

Our present era is a Cold War being fought over these most important commodities. Wars beget shortages. Nothing is safe during wars.   Every country with a central bank and an eye to acquiring precious metals sees how important it is to be ahead of the purchase/price curve. Many are calling for repatriation of gold stored overseas. That gold is gone.

All major countries are devaluing their FIAT currency to keep pace with the economic slowdown seen in every hemisphere.  They are responding to both the perceived shortages in precious metal.  The actual shortages that are so commonplace that the US Government and its crony bankers are spending billions to supress the price.  If the price remains suppressed, the FIAT and currence debasement con game can continue.  This con game hides the real price of silver and gold. It hides the real price of money. It hides inflation and it hides the real economic price of hyperinflationary  FIAT printing.  It’s fellow traveller, ZIRP, provides cover for precious metal theft by driving the getaway car.
The countries that are fighting for their economic lives, including the US, China, Russia, the  Euro-zone, the UK and many others with GDPs in 13 digits know that the jig is up. They can lie cheat and steal but Gold backed currencies are coming.

Those who have gold make the rules.
Silver is mission critical to the industrial base of any country that builds things.  Silver is real money and every person knows that.   These countries are now acting like the individuals who raced to the coin store to buy precious metals in hopes of grabbing a small profit, and maybe protecting themselves from FIAT erosion.  Those countries who fail to realize the value of precious metals, preferring to hold true to FIAT,  are racing to the global coin store to sell their stores of precious metals in the faint hope they can continue the con game, continue printing, pushing off the day of reckoning.
Those countries that represent the Global Coin Store will end up prospering because of their common sense and foreward thinking.
Every country fights a constant and ongoing economic and monetary cold war with every other country, trying to exact a small advantage over their adversaries.  Today, evey country tried to fight this cold war with FIAT currency, completely unbacked by any hard asset. This beggars all participants as paper currency eventually wears out in spite on the quantities produced. The country and it’s people eventually drown in paper.  The only winners are those who trade paper for hard assets. These countries and people eventually win the battle. Much blood is shed in the interim.

When that day reckoning  comes, and it will be very soon in the overall scheme of things, the con game will end, FIAT based countries will be destroyed and the countries with the foresight to buy precious metals cheaply, like now, will prosper.  People who follow this real money paradigm will save themselves.  There are always winners and losers in this global battle of currencies.  The only winner will be the one backed by something other than the central government’s promise to pay.  Those promises ALWAYS go unfulfilled.

 

    • I know AGX well enough to say this: 
      It’s all in there, he just has to sit down and let it roll out into the Keyboard.

      His vast and varied life experience makes it possible. His somewhat humble beginnings led him to learn from mistakes he observed in his life and from triumphs also. One can tell that AGX has lots of “adult education” in his time on Earth! Much research and study. He has been a great help to me in many ways, even in the limited personal conversations we have had.

      @AGXIIK: I had the “talk” with my BOB junior. He’s 1000%. Everything is exactly as you said it would be. Thanks So Much! 

  1. Came across a report from the UK Office for National Statistics for Oct 2012.
    http://www.ons.gov.uk/ons/rel/uktrade/monthly-review-of-external-trade-statistics/october-2012/index.html
    If you check out p55 of the report it shows silver export/import figures from 2002-2012. For 2012 (up to October) UK has a massive silver deficit to the tune of about 3.5 billion pounds in value ($5.5 billion). In other words in 2012 the UK has imported a heck of a lot more silver than they have exported, say approximately 180 million ounces if you assume an average price of $30oz. Something pretty odd seems to be going on in the London silver market.
     

    • “Something pretty odd seems to be going on in the London silver market.”
       
      Yes, it is!  My guess is that Asian money is flowing into the London paper metals market when prices are smashed down so that they can then stand for delivery when prices rise a little.  They are literally sucking the life-blood out of that paper Ponzi system.  It is confusing, though, and I do not know for whom to cheer.  Both seems like real bastards.  
      The US seems to be backing the LBME with HUGE amounts of silver sent from the US to the UK but only God and Bernanke seem to know why the hell we are doing this.  For some reason, they will not be allowed to collapse as long as the US can supply them the silver they need to keep their paper Ponzi scheme afloat.  Clearly, this will not work long-term, so they must be doing it just to buy time before the whole house of fiat cards collapses.
       

  2. Chrissy  sometimes I wonder about this myself.  I think it comes from being  an information sponge, pretty obsessive in learning as much as I can about these subjects and enjoying the conversations held by people who  think critically about the myriad issues we face, and this focus is oriented specifically  the people who populate Silver Doctors.
    SD is my launch point for exploration of everything that applies to precious metals, even if they may not seem pertinent to these topics.  Usually four hours a day is enough to absorb the daily data feed.  Once a week or so I’ve sifted enough data to opine on some subject and this one was the end result of being pretty hacked off by the circumstances good people find themselves in at the present time.
    BTW, if you shoot as well as you post, remind me not to be 200 yards down range when you light up the landscape with your blaster.  I am very impressed at your tech skills you noted in another post.  That is a skill that’ll be very valuable to a community who values preparedness. 

  3. M45  I actually wrote this about 2 weeks ago.  Yesterday I was in a 5 hour deposition as a witness on a civil rights matter.  Whoo hoo.  Being grilled by the DA and the plaintiff’s atty was tense.
    No—-I didn’t violate anyone’s rights, as much as I would like to sometimes.
      Just got caught up in the subpoena dragnet on a pretty simple matter when I was working with the Sheriff dept and one of the deputies arrested a Dumb A**.   Did you get my response to your wordpress  I sent it to an alt email address.

  4. Great article AG12K…Hard to say when the day of reckoning will come.  I tend to think it will be later rather than sooner.  I know in the past fiat currencies have all collapsed, but the dollar is a bit different.  The dollar is a global reserve currency backed by a global military force.  In the realm of fiat currencies everything is relative and in a world of global currency weakness the dollar remains the best looking girl in an ugly contest.  Really, what is the alternative? 
     
    What I expect will happen is that the Euro will hold together.  The Fed and all the other Central Banks will continue to inflate.  Pennies, nickles, and dimes will go away.  In a few years a $100 bill will feel like a $20 does today. 
     
    You see, it’s all about control.  Our government does not need one dollar of your tax money.  Goodness, if they are printing money anyways, print a little more and let me keep my pittance.  The purpose of taxes is not to fund the gov’t.  The purpose of taxes is to control the people and shape their behavior.
     
    What I expect will happen is that when the Fed has seized enough assets like mortgaged backed real estate and the like, the U.S. Treasury will suddenly get smart(it’s all planed I expect) and Congress will disband the Fed and issue U.S. Notes(like Pres. Kennedy) backed by a percentage of gold.  Foreign gold held by the Fed Reserve will be appropriated and it’s owners paid in the new script.  The world will swallow hard and the new dollar will be accepted globally basically because we have 12 carrier battle groups that say you’ll accept it or would you rather be paid in cruise missiles.
     
    Fiat currency is all a confidence game.  I have to disagree with John Williams that we are near the point of hyperinflation.  That indicates a total lack of confidence in a currency like we have seen in Zimbabwe or Weimer Germany.  The difference today is that their is no competing currency to the dollar.  For example, the dollar was the underground currency in Zimbabwe.  I know people will say gold and silver are the competing currencies.  But, are they?  Hardly anyone in the population at large holds precious metals. 
     
    The first country that gets smart and backs their gov’t currency with gold like Rickards suggests in his book “Currency Wars” is going to win.  I sure hope it’s the U.S. and not Russia.
     
    Back to silver.  I think the PTB will let silver go.  I don’t see how they can stop it.  They’ll come up with some crazy explanation to sell the public on why silver took a moonshot.  But, they will keep a lid on gold and control its assent the best they can.   And gold is what counts in the world of central banks.
     

    • “I know people will say gold and silver are the competing currencies. But, are they? Hardly anyone in the population at large holds precious metals.”
       
      Actually, UD, this is what will help gold and silver become competing currencies again.  While the sheeple munch their cud and fail to convert their fiat paper into REAL money, the central banks are buying gold and perhaps silver as well, hand over fist.  My thought is that they are doing this for a reason.  The only reason that makes any sense to me is that metals backed or partially backed currencies are returning… and they know it!
       
      Back in the 1930s, FDR had to call in the gold that was in circulation so that the Gov could manipulate its price and via doing that devalue the US dollar.  Gold was MONEY back then, so they had to gather as much as they could from those who had it (mainly the big banks) BEFORE launching their manipulation program.  Once they had about as much gold as they thought they could get, in came the devaluation, making many Americans about 70% poorer than they were the day before.  Those who recognized this scheme for the theft that it was and had the guts to ignore the Executive Order to sell their gold did VERY well, economically.
       

  5. Ugly Dog  You hit the nail on the head. The government could print FRNs from here to there and back again to pay the entire tab for their expenditures. They’re already funding nearly half now. They will never do that because  the government has its cake and can eat it to and gummint loves their cake.

    They can drown the world in FRNs, as they do and particularly with those worn out $100 notes that are flooding the markets.  They drown us poor schlubs with FRNs that drop in value regularly but still traps us in the paper paradigm AND, this is the kicker, they can also strip mine the tax cows of their wealth, what little they’ve retained,  to continue this waking nightmare of taxes, taxes and more taxes. The redistribution of wealth to whomsoever they chose is one of the most important goals of government from time immemorial.
    The ability to tax is the ability to punish and control those who are the productive, hard workers and business owners, transfer the revenues to anything that strikes their fancy, reward allies and keep the much-needed votes bought and paid for when the time comes to relect these thieves and criminals that occupy positions of elective power.   

    • And government workers are now higher paid than many in the civilian sector, plus government jobs are about the only sector that is growing. That picture signals the end of the US. Government needs to shrink, not grow for this country to ever prosper again.

    • I agree, Mary.  Government is literally consuming this nation with its incessant demand for more rules, regs, taxes, and employees. The resources being hogged by FedZilla could be FAR better and more efficiently used in the private sector.  The perverse thing about this is that if the Gov would get the Hell out of the way and let the private sector work, the Gov would be awash in more tax money than even they can possibly imagine. But noooo, they have to stand on the patient’s oxygen hose, shake their heads, and wonder why the patient is dying.  Idiots!
       
      IMHO, we have about 2x as much Gov as we really need.  We should be spending 10-12% of our GDP on the Gov and not the current 20-25%.  Once we have tried a half-sized Gov for a while, we can then look at further cuts.  At some point in this process, we would have plenty of good paying jobs and companies would be competing seriously for technical and professional employees.  Industrial productivity would sky-rocket and exports would boom.  Amazingly, many here in the US cannot grasp the idea that a good swimmer cannot swim at all, let alone well, with an increasing number of concrete blocks tied to his feet.  These blocks are the requirements that governments place on the actions and performance of the individual.

  6. Moses came down from the mount and smashed the golden calf to dust. Gold is a ‘False Idol’. Those who would have us worship gold are ‘False Prophets’. Silver is ‘the people’s money’ … ‘the true standard’ … because it balances out the proper values of gold on the one side and copper on the other. Curious how Mr. Sinclair came out of the Hunt fiasco as ‘Mr. Gold’, huh? Oh, I eat his porridge … but with a bit of salt.

  7. Well said AGXIIK. Thursday and Friday’s smack down caused a huge jump in our retail trade, we couldn’t even let any of the staff out on Friday and catered lunch to keep up with the queue of mostly small buyers. Most small buyers were in the range of 1oz to 5oz of gold, most likely bringing forward future purchases or stretching themselves to buy a bit more for their regular purchase.

    On the wholesale side business is steady and as you mentioned China is aggressively buying and their purchasing agents are even sniffing around bullion dealers as well as standing for delivery from exchanges.
    The gold and silver wars are starting to heat up.

    • …as you mentioned China is aggressively buying and their purchasing agents are even sniffing around bullion dealers…

       WOW! These guys are SERIOUS! That is relatively nickel & dime stuff compared to other methods! 
      This shortage must be getting SEVERE. It’s a miracle that phyzzz prices do not reflect this. I predict
      bidding wars will erupt soon.  Thx TOTM, did not know that!

    • Copy that undeRGRound.  Congratulation in adding to your team. Having a like minded core group is the most vital part of the preparations.
      How is it that we keep talking about porridge or oatmeal.  I eat the stuff every day.  Now here something that separates the men from the boys. 
      HAGGIS-  Old School Style.
      That’s a meal good to eat before doing battle with the SOBs that we challenge daily.
      Haggis, a dram of whiskey,  the pipes, kilts, and a steely eyed glare at our foes. 
      The Germans feared only two enemies.  The Devil Dog Marines and the Scottish fighting regiments.  Those Ladies from Hell

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