Will the Run Up of Cryptocurrencies Serve To Be The Undoing of the Gold & Silver Cartel?
Expert Analyst Rob Kirby Joins Us For A MUST LISTEN Show:
- The Cartel Had to Get Their Gold Butt Kicking in Early!
- $4 Billion Shellacking An Attempt to SMASH Sentiment!
- Why is Silver Open Interest At Historic Highs At LOW Prices?
- Kirby Reveals Why Silver is Bankster KRYPTONITE
- Katie Bar the Doors: Once the Cartel is Overwhelmed With PHYSICAL Demand That Can’t Be Met – the Supressors of Price Will Become BUYERS
- You Will See Gold & Silver Trading the Way the Cryptos Have the Past 3 Months
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Physical Silver Update:
The US Mint reported Silver Eagle coin sales of 229,000 this week, bringing year to date totals to 11,476,500 coins.
This is a marked drop off year over year from 2016, which saw 26,250,500 Silver Eagle coins sold Jan-June.
Doc: [00:00:01] This is The Doc and Eric Dubin with the weekly metals and markets wrap. Well joining us today is a special guest we’ve been wanting to have on the show for a long time but he’s finally making his appearance here Rob Kirby. It’s great to have you with us. Pleasure to be with you guys. Well gold and silver had a nice couple of weeks here but they’ve been hit hard here this morning. We record the show Thursday afternoon just ahead of James Comey his testimony this morning in the circus in Washington D.C. as Washington D.C. held their trump Super Bowl today $4 billion of gold was dumped on the market just prior to that. So why don’t we start with that. And your thoughts on the circus and the shenanigans there Rob.
Rob Kirby: [00:00:50] I think many market participants felt that this could be a metal’s friendly type of event. And so we had to get the we had to get to the launch pad warmed up to to dispel any notions that there’d be a rally in the metals.
Rob Kirby: [00:01:21] And so they had it to get their good butt kicking good early in front of the Comey testimony today because we wouldn’t want to we wouldn’t want to see the metals move up significantly from that critical chart levels that they’ve just attained. I don’t believe it’s gold and silver and gold just recently broken through their 200 week moving averages to the upside which is a bullish a Polish sentiment indicator for people who are momentum traders. Not that I believe in all that stuff. I don’t believe technical analysis works in a rigged market. And the metals markets are rigged beyond belief.
Rob Kirby: [00:02:12] And so these technical analysis points is in some regard or at least to me shouldn’t mean as much as they do. But they still do mean a lot to hedge funds and momentum players. And hot money like the kind of money that’s been buying the cryptocurrencies in recent weeks.
Doc: [00:02:41] Rob I almost think that they do still mean a lot but maybe not in the same way as traditionally. It’s almost that you can take a look at the charts and have an idea when they’re going to unleash the next raid the cartel that is because you can see what the charts painting and they’re not going to want to see that.
Rob Kirby: [00:02:59] Well I mean listen we know that any time gold rallies if any of your listeners happened to follow the work of Bill Murphy of the métropole cafe there’s a very frequent contributor to Bill Murphy’s daily commentary and his midas column. His name is James McSurely and he’s a veteran Futures trader on the commodities exchanges and has his real forte I believe is trading lumber but he’s done analysis of the way the gold market is controlled through algorithmic trading and how all gold rallies or let’s just say 98 or 99 percent of all gold rallies are all capped exactly at a 1 percent increase from the day before. And if the market surges after an economic release at 8:30 or 9:00 in the morning the market surges ahead. You know 1.3 percent or I guess in Gold’s case up 12 or 13 bucks, he generally says you can pretty much turn your computer off because that’s it for the day. And it’s unbelievable how correct his analysis is of the surreptitious nature in which the COMEX futures are rigged.
Rob Kirby: [00:04:32] And you can’t be this right this many times unless the market is absolutely and utterly raped the way we say. So I guess in answer to your question for a billion dollar shellacking today is to take the steam out of any perceived bullish tone that the price riggers felt might have been coming into the market today. They just wanted to make sure that it was the Sturge taken out of the bullishness to make sure that metals don’t get ahead of themselves and the other thing we’ve also seen particularly in silver is even silver at a pathetically low price. The outstanding contracts from a COMEX perspective the open interest is basically at a historical high. And to see open interest in the silver futures contracts at such an historic high with a low price is not something you would generally expect to see. Typically open interest expands and reaches a climax after a major price run up and when a market is starting to turn.
Rob Kirby: [00:06:03] But I mean the silver market’s been in the doldrums now basically since the Sunday evening massacre back in May of 2011 when the cartel went into action and dropped the price of silver from 49 to $42 and about I don’t know if five minutes on a Sunday evening with literally with literally nobody. And very few tradeable markets for silver being open and it’s been a downward ride in silver in price anyway ever since then. And silver is referred to by a lot of people as the cartels or the I’m going to say the financial elites. Silver is viewed as kryptonite because silver and gold do stand as alternatives to the world’s fiat money regime. And when gold or silver or both have rapid price rises, it stands as a failing grade to the people who manage our fiat money in the world and central bankers and the U.S. Treasury certainly don’t like it when something’s making the almighty U.S. dollar not look like the preferred store of value in the world because the U.S. Treasury and the central banking community have this burgeoning U.S. born edifice that they must protect the perception of value that the world has and the look and the liquidity for this enormous amount of paper wealth that they’ve put into the marketplace. So anyway it’s quite a calamity.
Rob Kirby: [00:08:05] I mean I refer to our whole capital market structure and the exchange stabilization fund, which is a secretive offshoot of the US Treasury, which isn’t talked about much by respected people in the mainstream financial press because it’s not to be spoken about in in polite company. But I refer to it and much of our capital markets. The exchange stabilization fund in particular is capital markets crack house.
Eric Dubin: [00:08:50] So where do you see the end game going as far as where prices of precious metals are going to unfold with the manipulation and the stresses within the financial system.
Rob Kirby: [00:08:59] Well the suppression is ongoing and continues to be ongoing. And ultimately when this ends it will be signified by people who have contracted to buy physical metal and they don’t. At some point in the road here people have contracted to buy physical metal won’t get it and somebody at some point will make a huge stink of this and it will discredit the paper markets to such an extent that they will literally have to shudder because there will be lawsuits involved and let’s just put it this way. Three days after Trump’s win in the presidential election last fall the initial reaction for gold was for the price to shoot up almost a $100 when the TV stations started saying that Trump had indeed one. And within about 45 minutes of the price being up a hundred dollars in the futures markets. And correspondingly the stock markets were way down like close to 1,000 points in the Dow and in the futures markets and on election eve and within three days we found out that in paper form three times global annual mining production in gold was sold in paper form. So between whenever the election was and two to three days later on the Friday afternoon, three times annual global mine production had been sold in paper form. And this turned a $100 up into about $150 down.
Rob Kirby: [00:11:17] And so let’s just say the paper contracts for gold that got sold in that paper barrage is gold. That does not exist, will not ever exist in a lump in one place anywhere because it’s it’s absolutely insane because we’re talking something in the magnitude of ten thousand metric tons worth of paper being sold in a three day period. And you see it’s this overwhelming false supply being added to a market that can’t get enough physical because where we verifiably know that this paper gold was sold into the market. We know that the voracious buyers of physical metal, namely India, China and Russia and other European or other Asian countries in particular they can’t get enough physical metal. Period.
Eric Dubin: [00:12:30] And just to put that into perspective for our listeners, that level of time is more than the supposed tonnage of a thousand two hundred tons but in Fort Knox. I mean that’s a huge amount of gold. And then I make that point to just stress how absurd it is to see the leverage that’s in our futures markets and how disconnected they are to the physical world of just how much gold really is around.
Rob Kirby: [00:12:59] And when you consider the size of the U.S. dollar exchange position is of China. If anybody actually had a thousand or 2000 metric tons of gold bullion legitimately for sale, China would buy it and probably pay a premium for it within minutes. But you see the reality is in the end, the institutional markets it’s very difficult to find probably any more than 5 metric tons worth of physical gold at any one time.
Eric Dubin: [00:13:40] I remember when the IMF was selling the 400 metric tons and India was given it as opposed to China and China had a cash bid offer for the warehouse receipt and counting movement.
Rob Kirby: [00:13:53] The real issue is if you actually have good amounts of let’s just say good delivery bars of gold bullion you can in many cases do get a premium if you know who to talk to if you know the right purveyors of precious metals and I’m not talking about going to the local coin store and buying a dozen gold eagles or four or five boxes of silver eagles, I’m talking about if you’re an informed player and if you happen to be a sovereign or if you happen to have a stash of physical bullion and if the prospective buyer doesn’t believe that you’re in a position where you have to sell because, it’s very interesting in the gold market when you have there’s endless demand for physical metal but the price that someone is willing to pay oftentimes is dependent upon their perceptions of how desperate the seller is. And it’s sort of like when there’s blood in the water the sharks will swim frenetically. And when a prospective buyer believes that somebody must have the money to meet immediate commitments, then they might drive a very hard bargain and offer less than they would if they felt that the seller was just trying to alter their asset next. So in the end in that way I’m trying to speak to the issue that the gold market and the precious metals markets are are very bifurcated. And when I say that bifurcated the prices paid for metal vary from region to region as in the raw gold trade in Africa where you have indigenous peoples mining alluvial gold, maybe through sluice boxes out of rivers and in different countries in Africa tribes people doing their indigenous alluvial gold gathering. The prices that get paid for that kind of gold because it’s very risky to do business in the heart of Africa. You’ve got warring factions in it and you’re talking about countries that are very corrupt in large part. And so the price is paid for raw gold which maybe and maybe and not good form or maybe in doree form and doree is gold that is in a bar that would be a lot less than four nines pure. They might be 80 or 90 percent or maybe 22 karat.
But in any case the prices that get paid for that gold like it trades at a discount to typically at a discount to the stock price. And then as that gold gets refined up to delivery standard which is minimum 3 nines sure it adds value to the gold. And like 3 nines pure bars that aren’t hallmarked might trade at spot and maybe the raw gold trades at spot less 10. And then when you have it refined up to good delivery standard as in the standards set by the LBMA as being good delivery which is minimum 3 nines pure and often for 4 nines pure and hallmarked with an approved smelter that’s on the LBMA a good delivery list. Then oftentimes we’ll see those first trade at a premium to spot in the in the institutional market. So that’s what I mean when I say the market is bifurcated and then mix in there you have good debt would sell at the retail level and they trade at a spread typically of some spot plus something and that spread moves at as per market conditions or in accordance with what market conditions dictate. So you know there are times when you can buy a gold eagle maybe $30 over spot and sometimes when the market is very tight at retail you might pay a spot of plus $80. So these spreads move. So not all raw gold sells for spot less $10. Some of it might sell its spot less two or three dollars. And these spreads are subject to move and different segments of the market behave differently at different times. It depends where you are operating in the value chain and these prices can move because spreads do move. That’s why they’re called spreads. They move.
Eric Dubin: [00:20:21] Doc, you want to talk about what’s going on in physical in response to hit this morning.
Doc: [00:20:28] We saw strong demand today but I wouldn’t call it crazy or phenomenal. Definitely a pickup in demand. We’ve seen really strong demand for silver this week but it’s mainly due to 29 cents over round’s we’ve been selling. So overall the demand in the market has been pretty strong. But a tick off of the levels we saw probably the first half of May. Certainly not anything that’s going to produce a shortage in the near future; the next week or two. Personally I’m looking for silver to get closer towards $20 and to gold probably running up over $1,350 and get a little bit of excitement in the market before we see really a renewed surge of demand as sentiment recovers a little bit here. So really not too much of a change in the demand side in the physical markets here in the U.S. over the past week I would say.
Rob Kirby: [00:21:33] Well I’ll tell you what my view as to what is likely to happen at some point in our in our retail markets for precious metals. I do believe that at some point the people doing the suppression of precious metals will find that this has not been a winning strategy and that they’ve expelled a great deal of scarce capital to maintaining these extremely low prices in precious metals. And I do think that they’re going to realize they’ve basically gotten nothing for their return on how much they’ve put into it. And I think that they turn around and what’s going to force this change of thinking is going to be demand for physical metal that cannot be matched. And once they are overwhelmed with demand that clearly cannot be met, then that is when they will be forced into giving up their paper suppression of price. And I do believe that at that point in time the people formerly doing the suppressing of price will become buyers themselves. And then it’s going to be Katie bar the doors because all the horses are going to come out of the burn at once. And I do believe at that point in time you will see gold and silver which will become much of a cash and carry market. And I do believe that you will see it treating much the way the crypto currencies have been trading for the last three months. And I do believe that we will reach a time when silver will have transformed very quickly into a cash and carry market. Silver could go up 30 times in three months and that would only be half the percentage gain of ripple a smaller one and a smaller but still large crypto currencies and ripple increased in a three month period by a factor of 60 in 90 days.
Silver could trade very similar to that once its unshackled and gold will trade much the same except I do believe that when the metals become unshackled, then silver will rise on a percentage basis quicker than gold for the simple reason that the gold to silver ratio does not reflect what nature would suggest it should be. Sorry excuse me and in saying that when one speaks of the gold silver ratio we’re talking about if you take the price of gold which is roughly around let’s just say for big round numbers let’s say the price of gold today is thirteen hundred dollars and it’s a little less than that actually. And if we take the price of silver and if we rounded off and say it’s $18. If you divide thirteen hundred by 18 you get 72.2. So that means at current prices if we accept the prices just for a minute that I just gave the thirteen hundred and eighteen. That means you can buy for the money that it takes to acquire one ounce of gold, you can buy 72.2 ounces of silver. And that gives you the gold silver ratio of 72.2. Well in the real world the way metals are mined of the earth’s crust for every one ounce of gold that is mined over of the earth’s crust roughly 8.5 ounces of silver are mined of the earth’s crust and that means that nature would be implying that silver is about roughly 8 and some change times more plentiful than gold and that would suggest to me anyway that probably the more natural nature suggested gold silver ratio should be something like 10 to 1 as opposed to 72.2 to 1.
And my feeling is that when the metals become or reach a state where they are no longer suppressed through the paper markets the gap of the gold silver ratio will narrow back into something approaching something like ten to one. Maybe it doesn’t get to ten to one. Maybe it comes in a 15 to one. But then again maybe it overshoots and it goes to five to one. There have been times historically when the price of gold and silver have been the same. Anyway. I just believe that the current gold silver ratio at 72 to 1 is an anomaly and we will not stand once the metals are free to trade and once they start trading on a cash and carry basis.
Eric Dubin: [00:27:37] You know that just gets back to what you were speaking about before as silver being kryptonite to the whole system because it is the huge disparity to the gold to silver ratio is a reflection of just how much suppression has been going on to push silver down as much as they’ve been able to achieve. But we’re not at Silver 13 and miners at this stage are having a hard time getting more supply than many miners are operating with their operating losses and we have a deficit developing and the physical supply stresses to the market are going to give at some point and Kryptonite it is. Silver is the achilles heel of the cartel and physical supplies will take it down.
Rob Kirby: [00:28:22] I completely share that view of.
Doc: [00:28:27] As do I and I agree Rob I really think it probably will overshoot when it happens. And just to the tremendous built up potential energy of the suppression below the true value for all these years when it’s finally released just the sheer kinetic energy in my opinion I would expect it to overshoot that ratio but we’ll see. But again even if you reach that ratio without any increase in the price of gold you’re looking at $150 silver without any movement in the gold price.
Rob Kirby: [00:29:01] If we return to something approaching what nature suggests should be the right price. Yes. So what that really means guys is the price of silver could move up six or seven times its current price with gold not moving at all. And that in my view anyway would only put silver, in terms of the gold silver ratio, where nature suggests should be. And if silver were to move up five, six or seven times its current price then it wouldn’t mean that silver would then be in a bubble. It would only mean that it’s adjusted back to its historical relationship to gold. So I don’t know if that’s clear to the listeners but it’s worthy of mention and it’s probably worthy for anybody who’s considering building a similar position to maybe try to understand that concept.
Eric Dubin: [00:30:04] And even when we were moving up in 2011 and we were just shy of $50 silver I mean back then the silver to gold ratio was only just under 30. I mean the range which it has moved is pretty astounding to see it way up in the 70’s. Plus right now just in the huge open interest on COMEX do in fact make that a reality with all of the short interest that’s just dumped in the paper to absorb ongoing rising demand. It’s an untenable situation at some point. They have to back off like Bill Murphy says and the very least a managed retreat. So we will have an interesting summer. We’re going to have a political siesta in Washington. There’s going to be no National Day of Protest on June on July 2nd. And this whole impeachment drive is only just the beginning. So when we have plenty of reason to see precious metals move higher. But you know as we see today there’s the effort to prevent gold from shooting over $1,300. But before Comey’s testimony was the real main reason why they attacked.
Rob Kirby: [00:31:17] Here here. And of course we’ve got Britain voting and I’ve seen no early indications as to how the election has gone in Britain today. But we’ve got those results pending we’re seeing.
Doc: [00:31:30] Before we let you go Rob. Any last thoughts for our listeners here looking out into the second half of 2017.
Rob Kirby: [00:31:44] Well I’ll tell you what’s really caught my attention. Not that I’m a big pusher or supporter of cryptocurrencies but I certainly have taken note of of their parabolic rise, geometric rises of many of these cryptocurrencies. And my view on what is occurring in cryptocurrencies are only doing what gold and silver want to do but are being prevented from doing. And I do believe Andy Hoffman of Miles Franklin stated very aptly, where he was speaking of the rise of the cryptocurrency has basically amounted to the opening of a second front in an honest money against the price rigging cartel that has had their hands all over the gold market for years. And the degree to which the cryptocurrencies have appreciated in such a very short period of time. I do believe has served as to shine a light on the farcical suppression of the precious metals markets and I do believe that this run up in the cryptocurrency prices will ultimately serve very likely to be the undoing of the people doing the rigging in the metals arena because these cryptocurrencies, and let’s just say I have issues with owning something virtual and in cyberspace and I have very severe reservations about how much of my net worth I’d want to have in anything virtual or in cyberspace. And I really do believe that in the very end physical precious metal will stand tall… of all stores of wealth and monetary assets. But it’s worth noting that the function that these cryptocurrencies are performing because they are being viewed by the people buying them as alternatives to the dollar.
And to me the rapid rise in their values or their market caps because these things have finite supply. To me they represent dollar rejection trades and there’s quite a few of them and the market caps are growing very quickly and these in my view are people buying. And I understand there’s a lot of hot money in it. But these are people who are willing to own something virtual as opposed to owning greenbacks. And as such it’s dollar rejection and you see in the grand scheme of things I guess metaphorically or realistically what will break the rigging in the precious metals market is when there is a sufficient amount of dollar rejection. So whether the dollar rejection is being expressed in a higher gold or silver price or whether the dollar rejection is being expressed as a parabolic rise in the value of cryptocurrencies, it’s dollar rejection all the same and as cryptocurrencies appreciate it dramatically. And as we have increasing amounts of crypto millionaires and billionaires being created out of the woodwork I would expect that you will see a large part of these gains to be recycled back into adding and creating more demand for physical precious metals. So it’s sort of like a double edged sword that I do believe on one hand the monetary elites and the establishment are probably happy to some extent that hot money is being deflected into cryptocurrencies because I guess if you view it in a very narrow sense money that’s flowing to cryptocurrencies right now might otherwise have flown into gold or silver which is in short supply. But by creating all of this new wealth in this crypto space you’re going to see people who make big amounts of money, at least I do believe their first choice won’t be to buy US government bonds with their windfall profits. You’re very likely to see a lot of them want to recycle and diversify and put some of their money into physical precious metal and that’s just going to create a lot of problems for the guys trying to maintain this price suppression probably in the very near term. So it may very well be a very positive development for the metals but with a time line.
Eric Dubin: [00:37:28] Dollar rejection trade is a good way of putting in some 55 billion in market capitalization across the entire crypto universe. Now in the grand scheme of things is actually pretty small but if it were to be half a trillion and all of sudden that’s a lot of education value in the marketplace people would be noticing. They wouldn’t take that much actually is the other point to try to see cryptocurrencies is an entire universe get ten times larger than what they are now because in the grand scheme of things 55 some odd billion is not a lot of money compared to the sloshing around funds that are in the global market. I mean to help the good the currency markets trade nearly 6 trillion bucks every day in notional value.
Rob Kirby: [00:38:12] Yeah and I would also throw this out there for consumption. If only 5 billion dollars were to find its way into demand for physical silver bullion. I don’t believe there’s $5 billion for the physical silver for sale anywhere in the world right now. So that could cause a huge problem for the people doing the price suppression.
Eric Dubin: [00:38:36] Less than five billion bucks went into GDXJ in the first quarter and that blew up the inability to get positions over 20 percent and a lot of the underlying companies. So you know I mean the whole grand scheme of things, the precious metals space is so small and it does move big when there’s small dollar flows.
Doc: [00:39:00] And as we both know both gold and silver are giving goods so when they start to move up all the excitement that you’re seeing in the cryptos right now, that’s going to manifest itself in the gold and silver market I believe. And when that happens it’s a positive feedback cycle and it’s self-fulfilling and I really think the demand shortages on the retail market that we saw in 2015 are just a small taste of what could happen when the general public wakes up. I mean the general public in 2015 was not participating at all. So I imagine when the average Joe American starts to get interested.
Rob Kirby: [00:39:43] Yeah. Well listen people often ask me how will we know when the precious metals are really starting to go. To be honest with you, you will probably see lines in the morning outside of coin shops and the talk in social circles will be about metal and how people need to get some and how people just say they have to get some. And you know what I find interesting is that the sort of chatter that I’m beginning to hear in some circles regarding the cryptos. And you know what let’s just see what happens and how this mania for cryptos develops over the next two or three or four months. And let’s just see if there is some positive feedback that comes from it back into the metals. So I think the metals have actually for the first time probably in a few years have a bright future. But I take this development in the last three or four months in the cryptos space as a very positive development for the metals.
Doc: [00:41:16] All right well Rob is great to have you on.
Rob Kirby: [00:41:20] My pleasure being with you guys.
Doc: [00:41:23] It’s been a long time coming but I’d love to have you back on sometime soon.
Rob Kirby: [00:41:28] I look forward to doing it.
Eric Dubin: [00:41:34] And you run KirbyAnalytics.com as a subscription service. Can you tell our listeners a bit about that.
Rob Kirby: [00:41:40] Yes. Well what I write is proprietary forensic macroeconomic research. You can catch me on the web at KirbyAnalytics.com and it’s a pleasure being with you guys.
Doc: [00:41:56] All right so we’ll wrap up this week’s show there. For The Doc, Eric Dubin and Rob Kirby thanks for tuning into this week’s SD Weekly Metals and Markets.