A $50 Bill
The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Tuesday, October 30th, 2012.
It's funny more precious metals observers, investors, and even the 'bugs' don't talk about it more. Silver suppression commentators have talked about the various factors and machinations that keep silver ridiculously cheap, but there hasn't been enough discussion about the importance of the $50 mark for silver. If you don't know, it's not just that it's double top resistance from a technical perspective. (See Figure 1 below.) No, far more important than this is the fate of the US empire / Western alliance and its dollar($) hegemony / fiat currency based markets / economies lie in the balance of silver remaining under this threshold. Or in other words everything will change once an ounce of silver is priced above a $50 bill - everything.
Who knew a $50 bill would be the signal financial apocalypse has arrived. Certainly the bureaucracy's price managing bullion banks know about the importance of the $50 mark for silver because their masters have instructed them to do whatever it takes to keep it below this critical barrier - anything. Short as much paper silver in the futures market as need be to keep it down. Fraudulently re-hypothecate silver in supposed bullion certificate accounts, exchange traded funds (ETF's), and any other paper scheme deemed necessary / possible to reuse dwindling physical bullion supply on the unsuspecting and ignorant.
Or in other words, do whatever it takes to keep silver below $50 because it's the last holdout. It's the symbol that the 'powers that be', our paper pushing fiat masters, are still in charge. It's the only commodity that hasn't bettered its 1980 highs even in nominal terms. And the fact silver is the second most important monetary metal next to gold makes this situation even more important. Again, and as alluded to above, it means this threshold is the signal financial apocalypse has arrived for our fully mature debt based fiat currency based economies, and that one should expect acceleration in monetary debasement in attempting to paper over mounting fiscal problems.
It means the end game has arrived. And eventually it means the US will no longer be able to export its worthless fiat $'s for hard goods in return, which in turn will mean America (now lost) will have to get back to work in its factories (and farms) once again. Financial repression and building the world's biggest bond bubble will not work forever. Eventually the bond bubble will burst because continuous and increasing monetizations (Q-Eternity) set against real declining incomes will eventually bring problems presently being faced by satellite states home, characterized by exploding inflation, soaring unemployment, and then a grand debt implosion. (i.e. now in progress.) So you see, this government dependency will eventually end in chaos.
And while a full-blown gold standard remains unlikely due to various logistical issues, at the same time, social and economic collapse appear inevitable under the present system, which growing numbers (with China at center), are beginning to both realize and take increasingly serious. What does this mean? It means that people are starting to do something about the present situation, which for China includes accumulating as much gold as possible in order to establish a partial cover of the Chinese currency. What's more, considering the US no longer likely holds much of the gold it still claims to possess in official reserves, and considering China's now formidable global economic might, it's possible a Chinese currency could become the world's new reserve currency, dethroning both the $ and Western banking model in one foul swoop. (i.e. China's gold reserves are likely far greater than presently known in preparation for such a move.)
China knows if something is not done to stabilize its economy while still in surplus they will follow Europe and the US into economic Depression. They know following the Western banking model (think Keynesian Economics) is a proven recipe for disaster, eventually leading to an increasing boom / bust cycle(s). So it appears they are making strides in this regard, with the re-monetization of gold a key component of their plan. And if gold is re-monetized, making it back into official competing currency status, silver cannot be too far behind (considering a silver standard has been used more than a gold throughout history because it's more plentiful), which may be the catalyst to finally push silver over the $50 threshold, meaning it would then cost more than a $50 bill to buy an ounce of the white monetary metal. (See Figure 1)
The big question standing right in front of us however is 'how do we get to $50 in silver?' Do we have a standard Fibonacci retracement, where we have already traced out a minimal sequence in relation to the advance off summer lows. Or do we get something different associated with a possible crash in the equity complex? This could bring prices back down into the mid to low 20's range you should know. While nobody knows this for sure obviously, you should know we have as good a set-up for such an outcome as this observer has seen in quite some time. (i.e. possibly ever.) In this regard you have a complacent investing population convinced the Bernanke put (think Q-Eternity) is putting a floor in stock prices, especially prior to the election.
See the weekly chart below, which shows not only the technical importance of the $50 mark once again, but also the importance of the $33 mark, and now that prices have breached back below it, technicals suggest a trip back down into the 20's is quite possible. (See Figure 2)
We know this because of marked changes in speculator betting practices discussed in our last sentiment related study, where it should be noted for the purposes of accumulating silver that the open interest put / call ratio for SLV also saw a big decline, meaning aggressive speculators have loaded up on calls, which is quite bearish. So in terms of building a bearish case, if stocks do continue to slide prior to the election, and heaven forbid Obama loses, because this is not priced into the market a crash could indeed occur. The idea here is Romney is an unknown and has vowed to boot the Bernanke out of office as soon as he is elected, bringing in another 'unknown' in terms of just who would replace him - someone more moderate?
Of course we may not even need an Obama loss to trigger such an outcome with fiscal cliff considerations and speculators so precariously poised as they are right now. Along this line of thinking, all you need to know is not only is the dumb money as bullish as they have ever been, but the supposed smart money (large institutions) is also bullish going into this period, which again, is not a recipe for higher stock prices no matter who is in the White House. (i.e. it does not matter who wins people do not like what is happening.) Focusing in on precious metals in this regard, with a large number of speculators betting on a bullish outcome near-term combined with broad market speculators poised to take those markets down, the prudent investor cannot help but be cautious here.
Continuing on with comments associated with Figure 2, the weekly silver plot, one should also know that in order for RSI on the monthly to reach its channel bottom, another price plunge down into the 20's (possibly the low 20's) would be necessary. (See Figure 3)
While such a move may anger impatient silver bulls, this may be just what the doctor ordered to finally scare more radical policy out Bernanke's bag of tricks, meaning not just increased currency debasement, but also new methods that more directly affects increasing numbers of people, as discussed previously. Because spreading the largesse to just a few investment bankers and execs is not enough anymore. The US economy has been completely hollowed out by Wall Street and the politicians, leaving the little guy to pay the tab. (i.e. rising prices.) And this is even beginning to show up in the fiat currency economy now, which means either more dramatic measures are taken or the whole thing will collapse. Perhaps we will finally see precious metal to stock market ratios begin heading higher in earnest now, because stocks maybe about to plunge. (See Figure 4)
Because word is no matter who wins the election the economy is to be thrown under the fiscal cliff bus given the timing to both blame and / or do necessary political dirty work is best done at the beginning of a new term, not the end. With the economy both at home and abroad (globally) already showing signs of extreme stress however, one does need wonder just how far central authorities will allow things to go down such a road before another bazooka like policy response would be deemed necessary. (i.e. look - Obama is back at the Keynesian trough ahead of the election.) Because this rather bad version of Animal Farm has finally caught up to the pigs, with the other gullible barnyard animals beginning to wonder just what storybook they are supposed to be reading from. Few thought it was 'Crony Capitalism in the 21st Century'.
Mind you they could just refer back to any novel that looks at the fall of Rome for reference, although today's version is slightly more barbaric in my estimation. (i.e. at least back then you knew when you were getting thrown to the lions.) Today - you are drawn to the pit's edge and then booted off with no warning - at least that's the way it looks like it will play out for most. A good dose of hyperinflation looks inevitable - right after the deflation scare brought on by the idiots in Washington playing fiscal cliff games after the election. What's more, if the stock exchanges stay closed too long prior to the election next Tuesday, all the traders looking to get out this week would be compressed into a shortened trading window, which could cause the 1987 analog comparison to trace out. (i.e. triggering a deflation scare.)
With Q-Eternity being viewed as a failure by the instant gratification crowd, without a doubt at some point you can expect even more money printing (Keynesians will not die without a fight in the US because those with their fingers on the money printing button(s) enjoy the power too much.), especially if stocks begin to fall in earnest, which appears likely if history is a good guide. (i.e. the declining half-life of QE is a function of monetization dilution, mal-investment, and all of the other vulgarities associated with Keynesians.) This is why the bond market in the States will eventually blow up; and, why you can expect to see precious metal (in this case silver) to bond (in this case the US long bond) ratios head dramatically higher as well. (See Figure 5)
Now you maybe saying to yourself - yes - but up until this point silver has had a positive correlation with both stocks and bonds during what appear to be deflationary events. (Note: Money supply needs to contract in order to be properly defined as an actual deflation event.) And for this reason isn't it better to assume silver would come under pressure during such circumstances. One is definitely wise to consider all the possibilities; however the big picture we envision associated with silver making gains on both stocks and bonds is within the context of an inflationary environment, not deflationary (although various price levels may fall at times). Because again, the Fed and other central monetary authorities participating in the Western banking model (fiat currency economies) around the world will flood the system with increasing currency(s) in response to such conditions - you can count on it. (i.e. look at what foreign central banks are doing just in response to Sandy.)
Considering some 8 million people in the greater New York area are presently without power and it may in fact take a week to get them reconnected, who knows, maybe the exchanges stay closed past today, bringing the 1987 analog comparison into full view post election next week. (i.e. because traders attempting to game an Obama win will not be able to get out before fiscal cliff related selling hits.) Even if this is not the case it's going to be increasingly difficult for the powers that be to make it appear they are still in control past next week with increasing leverage appearing to fail. Because when leverage fails these characters have only one card left to play, and that's the hyperinflation card.
And again, as discussed above, we will know when the powers that be have officially 'lost control' and must 'inflate with abandon' when you can no longer buy an ounce of silver for $50. That will be 'the signal' Pandora is out of her box, and that you should be very afraid - very afraid indeed.
So, buy all the silver you can under $50 because it still has good value at these prices and will not remain low forever.
Good investing in physical precious metals all.