The silver streak has only just begun

Following Friday’s dramatic price surge in response to the Bureau of Labor Statistics’ August jobs numbers, precious metals have cooled a little in trading this morning. Wednesday’s German Constitutional Court ruling and Thursday’s FOMC verdict are the big market-moving events to watch out for this week.

The European Central Bank’s insistence that its unlimited purchases of sovereign debt from troubled eurozone nations will be “sterilized” offered a sop to the Germans, though some have doubts about this. Robert Wenzel points to a little commented upon ECB press release that announces the suspension of “the application of the minimum credit rating threshold” on collateral used to access short-term loans from the bank. At this point it is worth quoting him at length:

“[This] creates a backdoor through which massive ECB monetization of Eurozone sovereign debt can occur. If you are an EZ government having trouble raising funds, just issue paper that will be bought by local banks that have ability to go to the ECB and use it as collateral for newly issued ECB euros.

This is the serious magic trick in Mario's bag of magic tricks. His sterilized bond buying is smoke and mirrors. The new collateral rules create the potential for unlimited backdoor money printing.”

In other words, the Bundesbank can scream all it likes, but the debasement of the euro will proceed apace.

Growing realisation on the part of investors that massive money printing is the only thing standing between developed economies and deflationary collapse should have a particularly dramatic impact on the silver price. James Turk discusses silver in a new interview with MarketWatch, noting the huge upside-potential in the metal, as more and more people are drawn to it as an affordable alternative to gold. He expects the gold-silver ratio to fall to 30 next year, which – assuming gold has reached $2,000/oz – would mean a silver price of around $67/oz.