Avery Goodman

Silver Prices Are About to Fall

Silver is likely to go up in price over the very long term. I have very clearly stated, many times, in this article and others, that silver is an excellent very long term investment. It is better to buy it when it is cheaper, however, rather than when it is more expensive.

As a long term silver investor, you will need to grit your teeth as it gets periodically clobbered. The reason for the volatility is a topic for a book, or, at minimum, an article, because historically silver and gold are the most stable commodities. Not anymore. Without a long explanation of why, we can simply say that lack of effective regulation of the futures markets casino clearly has something to do with it.

Decent men do what they can to make the world a fairer place. But, practical men will also deal with the world as it is. Practical men will not engage in swordfights against windmills. It is not always pleasant to deal with reality.

One reality that an author on seekingalpha must deal with is the requirement of disclosing long or short positioning, I DO NOT endorse the idea of people taking short positions in silver. Generally, that should be left to people who have the knowledge to do it without putting themselves at risk. One can be both hedge existing silver investments, or become overtly short silver in many ways, including buying puts.

The essence of this article is simply an explanation of why I reversed my opinion, temporarily, on a bullish speculative trade suggested in an article I wrote in early March. Nothing more.

Silver Prices Are About to Fall

This piece was intended as presenting some thoughts on a speculative trade. It was never intended as a primer on investing strategy. A very limited part of anyone's portfolio, in relation to overall wealth, can be devoted to speculative trades. The risk of being wiped out is too high to devote a large part of your portfolio to this type of activity. Remember, your family must eat, regardless of whether you win or lose in the market.

A long term "core" position is very different. Long term, you may choose to hold stocks, bonds, metals, and so on. You've determined that the long term positions are worth sticking to for a very long time, regardless of whether they move up and down a bit, while you are holding them. Income can be generated from long term holdings in the form of dividends, and/or by selling covered calls at appropriate times.

In contrast, speculative trades are short-term ones that have a reasonable likelihood of resulting in a spectacular gain. You take a big chance, and are willing to lose the value of the entire investment in exchange for the prospect of a big gain. You should not bet any more money than you can afford to lose on speculative trades.

Acting on the opinion that silver was going to soar, back in March, and, now, acting on the opinion that silver is about to go down substantially, are both examples of speculative trades.

Why Our Credit Crunch Mirrors the Weimar Hyperinflation from 1919-1923

Some of you have expressed a preference for "housing" over gold, as your theoretical means of escaping from the stealth tax of heavy inflation. Let me quote from the famous former Fed Chairman, Alan Greenspan who, before being seduced by the "dark side" wrote, in 1966, in a paper, titled "Gold and Economic Freedom":

"...Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights..."

Why Our Credit Crunch Mirrors the Weimar Hyperinflation from 1919-1923

On the other hand, a terrorist attack might actually have the opposite effect of prolonging the avoidance of hyperinflation. This is why I have pointed out, in the article, that no two historical events are ever alike. But, there remains a frightening parallel between the credit/debt situation of Wiemar Germany vs. the USA, as well as the behavior of the Reichsbank in 1918 and early 1919, in reaction to the post-war "credit crisis" and the behavior of the Federal Reserve, now, in response to this "credit crisis."

Why Our Credit Crunch Mirrors the Weimar Hyperinflation from 1919-1923

The Zimbabwean experience has few parallels to the process now happening in the USA, other than the unfunded fighting of a foreign war (which is not insignificant, however). It is presented only to show that neither the German reparations payments, nor the destructive war on Germany's territory, nor a change of government at the initiation of hyperinflation, are necessary prerequisites required for the initiation the phenomenon.

Because of the policies of the monetary oligarchy, all the elements needed for hyperinflation are already in place, with respect to the USA. By means of example, and not by limitation, all that is now needed is, perhaps, a new terrorist attack, or even just a series of failed treasury auctions to fill in the missing element of a "trigger" event. The same is even more true of the U.K., which is unlucky enough not to be issuing the world's reserve currency.

Why Our Credit Crunch Mirrors the Weimar Hyperinflation from 1919-1923

Some comments imply that in the absence of the devastation of WW I, and the payment of reparations, hyperinflation is not possible. This is a reflection of the basic humanity of the commentators, and must be understood as such. The first instinct we all have is to deny reality, and say, "No, no...that can't possibly happen. Maybe, it can happen to someone else...but NOT to me!" I went through this phase, during the first part of the time I began to consider the possibility.

It is human to deny, but it is not always logical or correct. We must often overcome such instincts in order to see the truth. One cannot flee from reality simply because it is very hard to accept. Neither the devastation of a war on a nation's own territory, nor forced reparations are a necessary prerequisite for hyperinflation.

Up until recently, Zimbabwee was the breadbasket of Africa, one of that continent's richest nations, a net exporter of grain and minerals, and one of the most successful African nations. It has not been involved in a devastating war. It did experience a change of government, in 1980, when blacks took over the government from the minority white government, but heavy inflation didn't start until years after that.

Inflation rates in Zimbabwee were high, in the 1980s, ranging from 7% to 20%, but, in the early part of that period, prior to the ascent of Paul Volcker to the Fed Chairmanship, inflation was high all over the world, including in America. Extraordinarily high inflation rates, in Zimbabwee, began in the 1990s. It did not begin as a result of any war, but, rather, as a result of economic mismanagement.

Zimbabwean inflation was made considerably worse, however, when the nation became involved in a war in Congo in 1998. That is when heavy inflation converted itself into hyperinflation. The war was never fought, however, on Zimbabwean territory. There was no bombing of cities or towns, no wrecked homes or industrial parks, no shell-shocked population. Zimbabwee simply intervened in a foreign war, pure and simple. All fighting took place in Congo. Just as George W Bush emptied America's coffers by invading Iraq, Robert Mugabe, the President of Zimbabwee, emptied his country's coffers supporting troops in Congo.

Since then, the situation has become uncontrollable. Just recently, it was taken out of circulation by the new government, and foreign currencies are now the circulating medium of exchange, with the U.S. dollar, and South African Rand dominant. In short, Zimbabwean hyperinflation was purely the result of economic mismanagement, including economic mismanagement of the budget for a war, and nothing else.

According to Wikipedia, "The first Zimbabwean dollar was introduced in 1980 and replaced the Rhodesian dollar at par...At the time of its introduction, the Zimbabwean dollar was worth more than the U.S. dollar, with ZWD 1 = USD 1.47...According to Central Statistical Office statistics, annual inflation rate rose to 231 million percent in July 2008." As most people already know, the Zimbabwean currency is now worth next to nothing.

One would hope that Americans, being more politically active, with a long history of an active republic, with traditions of independence and the rule of law, will eventually cry out so loudly that those in power will no longer be able to ignore them. The monetary oligarchy, otherwise known as the "Federal Reserve", and its constituent banks, will be forced to take notice. Before that happens, however, a devaluation in the range of the single or low double digits is certainly possible, and, dare I say...even likely.

As I said in the body of the article, my personal estimate for U.S. dollar devaluation does not reach into the millions or trillions. I believe that American devaluation will range somewhere between 1 to 4, or 1 to 10 by the end of the next 4 years. That, however, is still enough to essentially wipe out the savings of the middle class. The wild betters and risk takers will be subsidized, and those who were prudent will be punished.

That is why such inflation is immoral. That is why it will deeply scar our nation for a generation. It is time for people to begin to make their voices heard, so that the inevitable scarring can be kept as small as possible. Even in countries that do not own the world's exchange currency, the process of currency devaluation takes place over time. This time, the event will be far more protracted than in cases like Weimar Germany or modern Zimbabwee.

We are Americans, and fortunate enough to have the benefit of forefathers who were much wiser than we. The rest of the world willingly gave them the right to print the world's reserve currency. They did this because they believed in us, our integrity, our honesty, in our strength, in our courage and in our convictions. The monetary oligarchy, however, is in the process of either knowingly, or unknowingly, tearing all of that apart.

Did the ECB Save Comex from Gold Default? (Part 2)

Kohalakid, the article title starts with "Did the ECB...?", not "The ECB..." did this or that. We do not know, for sure, as I have made clear, that ECB gold was sold to Deutsche Bank, and that is part of the complaint. That being said, any rational person's suspicion level would be raised very high. So, I call for a full investigation. That is all. Not condemnation, nor a finding of "guilt". There is a big difference.

The piece is not intended to allege that Deutsche Bank or COMEX defaulted. If you got that from it, it was an unintended message. The delivery was made. However it was accomplished, I am happy, because, otherwise, the buyers might have had a lot of anguish. The sudden appearance of 883,300 ounces of gold, however, is circumstantial evidence that the conspiracy theorists, from GATA to Jim Sinclair, are correct, and that is the point of the piece. Nothing more.

Did the ECB Save Comex from Gold Default? (Part 2)

Tern, evil can only breed in darkness. If state authorities were empowered to regulate, subpoenas would be issued -- something that never happens now, offices possibly raided with computers seized, etc. which also never happens. All the dirty laundry that is alleged to exist, if it does exist, would be revealed.

If, indeed the Fed and Treasury Department are involved, then it will show on documents, or in selective document destruction, as it always does. That would be enough to collapse the alleged conspiracy, assuming that there is one.

Did the ECB Save Comex from Gold Default? (Part 2)

Kohalakid, I can't properly answer a specific legal question in this forum, because that is giving legal advice. You should direct the question about puts to your lawyer.

Did the ECB Save Comex from Gold Default? (Part 2)

Jake, you and Jim Sinclair are, perhaps, correct about the title, but I think, in retrospect, it would be better to say "default on the COMEX" rather than simply of Deutsche Bank, because one particular bank is irrelevant. It is the reasonable suspicion that COMEX is allowing major dealers to sell naked short positions that is in question.

Kohalakid, I don't "believe that DB was short". I cannot come to that conclusion, because to do so, in the absence of sufficient evidence is unfair to the accused. People are innocent until proven guilty, and they have not yet been proven guilty.

I believe, however, that from a legal standpoint, there is a reasonable suspicion that they were nakedly short, and that warrants investigation.

I withhold judgment on whether or not there is a conspiracy to suppress the price of gold, for the same reason, although the circumstantial evidence that they may be is mounting, day by day. But, if there is a conspiracy, delivery of 8500 contracts, all at one time, on the first day, can be seen a an episode of showmanship in preparation for other events intended to suppress gold prices, most notably the announcement of sales of IMF gold by the G20.

If the delivery from ECB to Deutsche Bank, and from Deutsche Bank to COMEX, occurred for reasons of showmanship, it wouldn't matter if they might have been able to source gold, elsewhere. Indeed, they can ALWAYS source gold from IAU, the COMEX gold trust. When they do that, the gold is already in the form of 100 ounce bars (the COMEX gold trust, unlike other ETFs stocks an unusual number of 100 ounce bars). So, it would be easier from a logistical standpoint, since they could avoid trading 400 ounce bars with IAU or other COMEX dealers. But, if they did that, they would have dramatically raised demand for the ETF, and raised prices for gold at a time when the gold price was "running up".

Theoretically, by sourcing gold from the ECB (if they did) the "conspirators" (if there are any) would have avoided a short squeeze that would occur to normal dealers who get themselves in such a position, and who don't have political influence. They also avoided upward pricing pressure that is inevitable if 8833 contracts (the current number they delivered this month by my estimate), sitting undelivered for a month. Such undelivered gold would inspire allegations of wholesale shortages of gold (which would place more upward pressure on the price).

In short, with the G20 about to release propaganda about "saving the world" and the proposed IMF gold sales, the alleged conspiracy would do these things in the hope of reducing prices, instead of seeing them rise. And, indeed, we have seen prices reduced in recent days from their highs in late March.

Did the ECB Save Comex from Gold Default? (Part 2)

I think the consensus view is that, even if the conspiracy theorists are correct, there is really nothing the alleged manipulators can really do, in the long term, to stop a massive price rise in precious metals. They can only harvest money from over leveraged long buyers, but, when conservative buyers purchase for cash on the futures market, they can get gold cheaper than anywhere else, especially during a major downward manipulation. So, the conservative cash rich buyers will step in on deep dips, and buy all the gold bars in sight. Then, they will stand for delivery, take the bars away from COMEX for a time, and wait.

All things change with time. However, even now, you could, potentially, sell large bars of gold on consignment to major gold dealers for a premium over the alleged "spot" price. You could also sell a 100 ounce bar, easily, to one of the many Swiss banks who are eager to buy them. Or, most likely, you could just hold onto it for, let's say, 5 -10 years, keeping it off of the COMEX/NYSE-Liffe exchanges, and then, sell it back, when the prevailing order changes, as it inevitably will.

We are entering a major depression/hyperinflation episode. It is going to be one or the other, or both. But, whatever the upcoming events are, huge changes will result, and existing "heads" are going to roll.

In 5 years time, for example, if Congress removes the exclusivity of jurisdiction from CFTC's enabling act, state law enforcement will move in. Such "irregularities" as may now exist will be cleaned up, the playing field more level, and the futures exchanges will be better places for smaller traders to do business,

Did the ECB Save Comex from Gold Default? (Part 2)

The prior comment should read:

"...I think further that the derivatives dealers would have a terribly difficult experience in continuing with the alleged gold & silver pricing fraud, if people, especially any of the larger hedge funds were serious about making money in trading bullion. If two of them bought 50,000 contracts each, and then stood for delivery, that would end any possibility of continuing the alleged conspiracy..."

Did the ECB Save Comex from Gold Default? (Part 2)

Generally speaking, I agree with you. I think further that the derivatives dealers would have a terribly difficult experience in continuing with the alleged gold & silver pricing fraud, if people, especially any of the larger hedge funds. If two of them could bought 50,000 contracts each, and then stood for delivery, that would end any possibility of continuing the alleged conspiracy.

Since most of the shorts are probably naked, gold would not be available to satisfy the deliveries. The ECB and/or the Federal Reserve would be forced to make a huge and dangerous policy decision, to bail them out.

If the same thing were done in the silver market, since the sovereigns have no silver, and the shorts are even more certainly naked, the result would be complete implosion.


On Apr 07 08:58 AM SW Richmond wrote:

> Mr Goodman,
>
> The government and the Federal Reserve now have a direct hand in every aspect of our economy...

Did the ECB Save Comex from Gold Default? (Part 2)

Large scale delivery demand would stop all potential conspiracies in their tracks. The alleged scheme is based upon the premise of not needing to stockpile real supplies of metal. Stockpiling supplies in line with the amounts of metal contracted for, either with vaulted metal or real mining forward contracts, would be extraordinarily expensive, and would make the scheme unprofitable. Since the players are profit motivated, the scheme, if it exists, would surely end.

Did the ECB Save Comex from Gold Default? (Part 2)

Sovereign gold holders, like ECB and the Federal Reserve, may be passive participants happy to see gold prices suppressed, but not the driving force. Silver short manipulation, and, previously, oil price long manipulation may simply be good ways of making money. Silver is only a "quasi-monetary" metal. Oil has no monetary component at all, in spite of the hopes of some who would like to use it to back currencies. Yet, both have suffered apparent manipulation pressures at least as great, and perhaps much greater than gold.

In high finance, the motivation is almost always making money. The gold conspiracy theory revolves around the idea that sovereigns have concocted a scheme to bolster paper currencies by suppressing gold. If the conspiracy does exist, its primary motive is probably not to support the dollar or the Euro. That may be a secondary result, welcomed by central bankers. However, the goal is probably to make money for short sighted individuals at derivatives dealer houses, who want big money now, and don't particularly care if they bankrupt the institutions they work for, in the longer run.

There is much more profit in failing to comply with legitimate cover requirements. If you are a profit-oriented person, you want to minimize expense and maximize profits. Why spend money on stockpiles, if you can get away without doing so? In 1974, having purchased the vesting of exclusive jurisdiction of CFTC, big derivatives dealers made sure that they would not be held to the standards embodied in the law.

Follow the money, and you will find the answer. The alleged gold and silver manipulation would be extraordinarily profitable. For those on the inside, who may cooperate to insure that they know tomorrow's news, today, it would be a money machine. The concept may simply be to regularly "harvest" the deposits (margin) of leveraged long players. Doing this, periodically, even while allowing the price to rise, over time, is extraordinarily profitable. Sovereign gold holders may be participating as opportunists, rather than as a driving force.