Monetary Metals Outlook 2015

We have consistently been making the contrarian call for a falling silver price and a rising gold to silver ratio for years. This leads to the logical question. Are we ready to change our call yet? This being the start of a new year, we wanted to take the opportunity to look at this question [...]



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18 replies
  1. 5050 says:

    Thanks Keith I like your unconventional, counter intuitive thinking. Makes a lot of sense to me and reflects reality, much better than most of the biased pro-gold bug wishful thinking out there. Will be following your reports with much interest for 2015.
    Cheers
    Paul

  2. h0rati0 says:

    Keith many thanks for this explanation as you filled in some gaps in my thinking. I struggle every day with the problem of maintaining real wealth/capital in this environment of quicksand and am very fearful of paper assets, despite their apparent relentless rise.

  3. stustev says:

    Keith,
    If, at the current rate of production, it will take only 61 years to double the amount of above ground gold in the world, why is there not MUCH more total gold after thousands of years of production?

  4. Keith Weiner says:

    Thanks for your comments!

    RD: If you think we recommended shorting silver, much less doing it with leverage, may I suggest re-reading this and some recent Supply and Demand Reports? We never recommend naked shorting a monetary metal. You never know what some central bank may do overnight. We may recommend a long/short position in the two metals, but not naked shorting worse yet naked shorting with leverage.

    stustev: Over time, the absolute number of gold ounces increases as does the rate of production due to an expanding global economy and improving mining technology. One of the interesting things about gold, however, is that one cannot just trade money for gold mining production. You need to find a viable ore body. This does cost money, but also time and a bit of luck.

  5. James Linnstrom says:

    Thanks Keith for this comprehensive article on precious metals. This one may be an instant classic. Much appreciated! But I note in the charts that for several weeks at a time, the market price of gold and silver can diverge radically from the ‘real price’, even in general direction. And it looks like the direction of ‘real price’ for gold is an important indicator. But silver is really all over the place, perhaps reflecting the smaller and very emotional silver market. But these charts are really helpful for us to understand your weekend updates. Would you please post the updated charts with each weekend updates??

    Thank you very much for your work.

  6. sreed says:

    Hello Keith,

    A very well-written piece, and I generally agree with you. Your thinking is clearly superior to Wall Street conventional wisdom. Keep up the good work!

    I believe both monetary metals will increase in value relative to the U.S. dollar for the following reasons:

    1) Relative value versus bonds, i.e. the worldwide bond markets are huge, many trillions of dollars. Bonds are becoming less and less attractive assets, lower yields and more potential risk to principal if market rates increase. A relatively small change in sentiment by Mr. Market, based on this fundamental, could cause a preference for gold and silver over bonds, at least for 5% to 10% of one’s portfolio. Because the bond markets are huge, a modest shift of sentiment could substantially increase the dollar value of monetary metals.

    2) Demand from weak currency nations, i.e. if one is a citizen of Russia, Argentina, Turkey, Hungary, Brazil, Iran, etc., etc., then gold and silver is a time tested way to preserve purchasing power. India is a prime example of this fundamental. The U.S. dollar is clearly an alternative; yet both the dollar and monetary metals can benefit concurrently.

    3) Market sentiment, i.e. the extended multi-year bear market in both metals has discouraged many potential buyers. This could reverse if a meaningful rally begins.

    4) Some market participants incorrectly (in my opinion) regard gold and silver as commodities, not money; therefore they see commodities falling in value and assume gold and silver will do so also.

    All assets must be assessed and valued relative to other assets. Bonds are expensive today. Prime real estate is expensive today. Stocks appear to be close to fully valued, which naturally means more risk as the margin of safety shrinks. Monetary metals look more attractive relative to these perceived more conventional assets.

    Thanks again for your continuing good work.

    Cheers,
    Stew

  7. drdavis2 says:

    Keith–

    I studied your chart of silver market and fundamental prices, with special interest in the times when the fundamental price changed a lot. That’s when I noticed a discrepancy between your market price and the “spot price” from Stockcharts.com ($silver). You show a big drop from $22 to less than $20 in late February, 2014. There is no similar drop in the daily chart at Stockcharts.com. Is there an explanation?

  8. blowforhome says:

    Keith,

    I have always admired the intellectual content of your posts but this is the first time I have been able to congratulate you on the clarity of your prose. To write clearly about a complicated subject is very difficult and takes a great deal of time, re-reading & re-writing. Thank you for putting in that extra effort.

  9. OneTinSoldier66 says:

    “Three is just magical thinking. For example the bigger your position, the more you control the price. How? Of course markets don’t work that way.”

    So far I have only read up to that point. It immediately brought something to my mind.

    I may be mistaken about this, but didn’t the Hunt Brothers get a visit from the U.S. Government concerning their Silver position? It was at that time(the very early 80’s) that Silver went to $50. The market share that the Hunt Brothers garnered had nothing to do with that?

    From an article I’m reading on this… http://www.investopedia.com/articles/optioninvestor/09/silver-thursday-hunt-brothers.asp

    “The Squeeze
    The Hunt brothers had already considerably reduced the amount of silver available on the market and made their continuing buying action all the more powerful by pushing up the price of silver. In any commodities deal, there are longs and shorts, but in this case, the shorts were vastly overmatched. A short squeeze formed as the brothers continued to buy up available silver stocks and take delivery on their futures contracts. The Hunts’ position was now worth around $4.5 billion. People were pawning coins and silverware to take advantage of the high price of silver, but there was less than a third of the silver market left that the Hunts did not control via futures.

    Uncle Sam Steps In
    The U.S. government became concerned over what it saw as a clear attempt at manipulating the nation’s silver reserves, and the fact that this corner involved the Middle East added some venom to the government’s reaction: after all, the 1970s oil crisis was still fresh in the nation’s mind. Federal commodities regulators introduced special rules to prevent any more long position contracts from being written or sold for silver futures. This stopped the Hunts from increasing their positions by temporarily suspending the fundamental rules of the commodities market. With longs frozen and shorts free to pile in, the price of silver began to slide. Margin calls on the loans began to take a toll on the Hunts’ reserves to the point where they were paying millions a day in calls, storage fees and interest.”

    I would imagine that you are already well aware of all this and will have an explanation. I look forward to hearing it.

    Thank you Keith

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