Oddly, and thanks in part
to the rise of the precious metals ETF's, large investment and banking
institutions have continued to dispense with all manner of recommendation,
analysis, and commentary.
Seasoned observers should
take these statements for what they are; typically contrarian indicators, or
signals, of impending market moves.
Recently, Bank of America
closed its silver short, while in late June of this year, Citibank's Tom
Fitzpatrick called for $100 silver.
Ultimately, despite all
the noise, the uncontrolled expansion of the Federal Reserve's balance sheet
is the key factor determining the value of the measuring stick used in these
price predictions.
Price Discovery
The price offered for physical
silver has two essential components:
·The basic spot price.
·The wholesale mark-up or
premium.
Paper price discovery is
a nebulous construct calculated by using the futures price in a market where
investment banks have primary influence (or where they rig the price). The
result is that the price of silver (and Gold) is not derived by its physical
demand or supply, but rather by the speculative positions standing long or
short on the commodity exchange like any other traded commodity, stock or currency.
Alas, the basic mechanism
of price discovery (based on demand and supply for actual use) of anything
traded on an exchange has been terminally infected by speculators having
access to unlimited funds and super fast computers
for trading resulting in volatile price swings and the quite (near)
destruction of the mining sector for these metals.
Up the Proverbial
Creek
By de-monetizing the
metals, and suppressing the price of silver from the commodity side, we have
lost one of the last true crisis signals in a system that is teetering on the
edge of the abyss. It would be obvious if it weren't so complex...and
therefore, off the radar screen for the masses.
For most of it's existence, the US Central
Bank remained behind the scenes. The irony is that Paul Volker was the first
"super-star" central banker (for all the wrong reasons) made famous
for his fiscal conservatism in going against the grain by fighting the then
visible inflation and demonstrating the FED's independence.
Since that time, as the
great credit boom grew larger and with each bust rescued by more infusion of
the same, we now find ourselves in a position where the direction of the
market is completely at the mercy of the words spoken and recorded by the
Federal Reserve Chairman and its Open Market Committee.
The Fed is now backed
into a corner. It can no longer continue with its bond buying without
competing for the much needed REPO market collateral. Because of this, it
faces another Lehman-like market freeze without the political support to
protect the derivative fallout it had last time around.
The Fed desperately needs
the US government to expand its recently shrinking deficit in order to create
the "room needed" for more debt monetization. Tapering is off the
table but war, and the aftermath of the government shutdown, may be suitable
options.
$100 Silver and
The Dirty Secret of Silver Monetary Demand
Long term precious metals
investors have endured two major events where massive (induced) sell-off's resulted in a
scramble to off-load the paper silver equivalents. The fall from $20 to
nearly $8 resulted in near shortage. The more recent fall from $49 triggered
unprecedented demand and physical off-take, with the damage still unfolding.
The price of everything,
including precious metals, will likely suffer when speculators unwind their
positions due to some event they have not anticipated nor foreseen. But the
measuring stick, a fiat currency past it's average
life span, ensures that ultimately wealth will be counted in ounces.
For more articles like this, including thoughtful precious metals
analysis beyond the mainstream propaganda and basically everything you need
to know about silver short of outlandish price predictions, check out http://www.silver-coin-investor.com
