Silver – Golden Opportunity

SILVER – GOLDEN OPPORTUNITY

September 6, 2019

by Egon von Greyerz

There is one spectacular investment opportunity today that virtually no one talks about. It represents less than 0.1% of global financial assets. This investment has a potential upside of 36x or 3,500%. The downside is extremely limited since supply is finite and demand strong. It is selling at around production cost and has a real intrinsic value. It has also been money for thousands of years.

Yes, I am of course talking about silver. It is probably one of the most undervalued investments that you can buy today. Since the top in 2011 at $50, silver went as low as $14 in 2015. But we must remember that silver was $4 in 2002. Many investors have been burnt by silver, buying high and selling low. I heard of investors who bought at $50 as they expected a breakout above the 1980 high at $50. A fall of up to 70% since then obviously hurts but fortunately all silver investors will be amply rewarded in coming years, whatever their buying price was.

If you hold silver today, or if you intend to buy, you are now looking at one of those times in history when an investment is likely to make spectacular gains for an extended period of several years. At some point, probably this year, silver will move up several dollars in a day or two and later tens of dollars. Over the next 5 years silver could exceed $500.

SILVER IS NOT FOR WIDOWS AND ORPHANS

But let me warn you already now. Silver is not for widows and orphans. The move up will also see periods of vicious corrections that will keep you awake at night, if you are a nervous investor. Thus there will be a massive volatility so the gains will also involve regular pains.

So definitively better to buy now before the real move starts. We have already seen a $4 move from the lows at the end of June, but that is nothing compared to what is coming.

It is normally not worthwhile to wait for  pullbacks because they might not come or they will come from much higher levels. So although we will see massive volatility in silver, most of the surprises will be on the upside. There will be periods when all technical indicators are screaming overbought but the price continues to run. But don’t forget that there will also be vicious corrections like the one we have just seen which is a great opportunity to buy silver.

GOLD / SILVER RATIO IS THE KEY

So why I am so certain that silver will move up now. I have often stated that the real upturn in the precious metals will always be led by silver. Once gold broke the 6 year Maginot resistance line at $1,350 in late June, this was the signal for the metals getting out of the starting blocks.

So that break was the signal and the gold/silver ratio peaked a few days later at 94. (See chart) As silver is now going up faster than gold, the ratio is coming down fast and has so far lost 13%. But that is just the beginning. I expect that ratio to first come down to the 2011 low at 30. This means silver will go up 3x faster than gold (ratio goes from 94 to 30).

WHEN GOLD REACHES $2,000, SILVER COULD BE $66

If we take an example that gold will reach an intermediate top at say $2,000, and the gold/silver ratio then reaches 30. That would mean a silver price of $66.

The long term historical average of the ratio is 15. That corresponds pretty well to the quantity of silver to gold in the ground which is 19 times and to the quantity of silver to gold mined which is 9, ( 9 ounces of silver mined for every one ounce of gold ).

LONG TERM TARGETS GOLD $10,000 & SILVER $666

If we take our long term forecast for gold which is at least $10,000 in today’s money, and apply the gold/silver historical ratio of 15, we get a silver price of $666 which is quite possible.

GoldChartsRUS has produced a silver chart adjusted for real inflation (Shadow Statistics inflation index) which produces an adjusted silver price of $840 in 1980 instead of the actual peak price of $50. Thus, a price of $666 is certainly possible in the next 5 years.

SILVER PAPER SHORTS – ONE YEAR’S PRODUCTION

We must remember that the futures markets are totally manipulated with chronic short massive positions. Just the silver shorts in New York and China represent more than one year’s silver production. Once the futures market breaks, there will be no physical silver available.

Silver demand is now increasing dramatically and the ETFs have seen an increase of 125 million ounces in the last month. That makes 500 million per year which is 50% of annual production. Investment silver is normally around 30% of demand with the rest being industrial use and silverware. Thus, there is not enough silver for this elevated demand and we must question if the ETFs actually are getting the deliveries of physical silver or just paper promises. I would not count on that they are getting physical silver.

There is a similar situation in gold. Since June gold ETFs, Published Repositories and Mutual Funds increased their gold holdings by 250 tonnes which is a record since 2016. The question is where is the gold coming from to meet this increased demand?

SWISS REFINERS REPORT WEAK PHYSICAL DEMAND

Swiss refiners are still reporting very slow business and high stock levels. They are seeing material coming back from the Far East including China and Thailand. The same with many bullion banks which are reporting unusually high stocks. We would clearly have expected the Swiss refiners who produce 70% of all the gold bars in the world, to reflect the increase in demand from ETFs and other sources. I can only assume that the ETFs are not actually getting physical deliveries but are just buying paper gold with an undertaking by the bullion bank to deliver physical.

This confirms my strong opinion that no one should ever buy gold or silver ETFs. All you get is a piece of paper that you own x ounces of gold. Most ETF prospectuses state that they don’t have to hold the physical. And judging by the slow business and high stock levels of refiners and bullion banks, the ETFs seem to top up their paper stock rather than the physical.

Even if the ETFs do hold physical metals, it is still within the banking system with all the risks that involves. Investors in ETFs don’t have their own bars, they have no access to their gold. The gold is not insured and it is subject to all the risks of the financial system, especially if the ETF only has a paper claim on the bank it bought the gold or silver from.

Gold has had a spectacular year so far and outperformed virtually all major investment classes. In 2019, gold is up 20% in US dollars, 24% in Euros, 25% in UK Pounds and 15% in Yen.

In August we have seen strong moves in gold. Gold took off when the Maginot Line was broken at $1,350 back in June.

GOLD PAPER MARKET STILL RULES

The lack of physical demand confirms what we have always known, namely that the gold price is determined by the paper market. So in spite of the best year for gold since 2009, it is not yet reflected in the physical market. In one way, this situation makes the coming price move in gold and silver even more bullish. Futures exchanges and bullion banks are clearly accumulating even bigger short paper positions in gold and silver. When the paper market breaks there will be absolute panic in the physical market with gold going up by $1000s and silver by $10s. That will definitively happen in the next few years but it could happen at any time.

GOLD IS FOR WEALTH PRESERVATION AND NOT FOR PRICE GAINS

I have given some potential price projections in this article. They are by no means meant to be sensational since I believe they are very realistic. But remember that you are not buying gold or silver for short term price gains and therefore price targets are unimportant.

Physical precious metals are bought for wealth preservation purposes. You buy and own physical gold and silver as insurance against a totally rotten and manipulated financial system which is unlikely to survive in its present form.

If you don’t already own gold and silver, buy now. Don’t be greedy and wait for pullbacks. That way, you might miss the boat totally which doesn’t just mean losing a potential investment gain. No, it means that you will be totally unprotected and unprepared for what is going to hit the world in coming years.

Even if you have to pay up when buying in the near term, that is totally irrelevant. In a few years gold and silver will be multiples of where it is now. And if you store it in the safest vaults and jurisdictions, you will be able to sleep well at night.

Egon von Greyerz
Founder and Managing Partner
Matterhorn Asset Management
Zurich, Switzerland
Phone: +41 44 213 62 45

Matterhorn Asset Management’s global client base strategically stores an important part of their wealth in Switzerland in physical gold and silver outside the banking system. Matterhorn Asset Management is pleased to deliver a unique and exceptional service to our highly esteemed wealth preservation clientele in over 60 countries.

Stocks No Bid – Gold No Offer

STOCKS NO BID – GOLD NO OFFER

July 25, 2019
by Egon von Greyerz


It is not difficult to understand Cassandra’s enormous frustration. She was given the gift of accurately predicting important events and her curse was that no one would believe her. Some of us are certain that we can now see the biggest bubbles in economic history coming to an end with totally devastating effects for the world. But like Cassandra, we are also cursed since more than 99.9% of the world’s population would not believe our predictions.

The problem is that this time it will not only involve the biggest wealth destruction in history but also lead to major problems in society with mass unemployment, no social security, no pensions, breakdown in law and order, social unrest, civil war and geopolitical conflict.

Reading these very dark predictions, I can understand that most people want to stick their head in the sand and ignore these dire forecasts.

Obviously I would also hope that all these predictions are false and won’t come to pass.

But as Winston Churchill said:

“THE TRUTH IS INCONTROVERTIBLE,
MALICE MAY ATTACK IT,
IGNORANCE MAY DERIDE IT,
BUT IN THE END THERE IT IS”

The problem is of course that the truth will often only be known after the event.

I wrote about Cassandra back in June 2017 and have over a very long period tried to warn anyone who is willing to listen about the risks and the events that will affect us all. We are obviously not alone in worrying about the magnitude of the problems in the world. Virtually everyone following KWN has similar views so here we are talking to a converted audience. But even when we speak to family, friends, business friends etc, we are met with the same degree of skepticism.

This is of course understandable since we are facing an event that occurs once a generation or once every hundred years. And the magnitude this time might even be a multi century cycle.

When the secular bull market turns down, the world will experience unprecedented market behaviour as asset bubbles burst. Investors will find that there are no buyers at any price. And for gold, there will be no sellers at any price:

Stocks – No bid
Bonds – No bid
Derivatives – No bid
Gold – No offer

STOCK COLLAPSE

What this means is that at some point during the down turn, stocks will fall precipitously with no buyers to be seen. Computer trading programmes accounting for 70-80% of volumes will issue massive sell orders and the price will just drop into a black hole since there will be no bid. The general investment public will naturally panic and sell at any price. But the problem is that there will be no market because there will be no buyers. This is how stocks quickly can drop 50% or more in a couple of days due to a total lack of liquidity and buyers.

As the Dow chart below shows, there is now a quadruple top, with weaker momentum or negative divergence for each top. This is extremely bearish and likely to lead to a major fall in coming weeks or months. The secular bull market in stocks is now coming to an end, leading to the biggest secular bear market in history.

BOND IMPLOSION

The Same will happen in the bond market. Investors will want to get out of government or corporate bonds which are unlikely to pay the interest and many will default. With no buyers, the bond market will collapse and bond rates will go to infinity. Rates above 50% might sound attractive but meaningless if neither interest nor capital will be paid. This will create total panic in credit markets as global debt of currently $250 trillion implodes. In the meantime central banks around the world will print additional $100s of trillion in a futile attempt to save the world.

THE END OF THE DERIVATIVES MARKET

But it will be the $1.5 quadrillion derivatives market that will totally kill financial markets. This is a totally false market that only works in bull markets when there is liquidity and counterparties pay up. In the coming implosion of asset values, there will be no liquidity and no buyers of worthless derivatives as counterparties default. In retrospect, this incredibly profitable activity for all the major investment banks will be judged as fraudulent with severe consequences for management and regulators as well as for the world.

Obviously, central banks will panic, print unlimited amounts of money, lower rates to zero or negative, stop trading in markets for extended periods, and manipulate markets in every possible fashion. But they and their governments will fail since they are totally bankrupt, having issued unlimited amount of debt that they can never repay.

THERE WILL BE NO GOLD OR SILVER AVAILABLE AT ANY PRICE

As panic in markets start and investors quickly turn from the stock market euphoria of the past to total fear, some investors will rush to buy wealth preservation assets. Some part of whatever liquidity they have left will go into precious metals, gold, silver and platinum. The only precious metal of size is gold and initially there will be gold available, albeit at much, much higher prices than today.

Initially there will be some willing sellers and gold will rise to multiples of the current price. But as the paper gold market collapses, there will be panic and at that point gold will go “no offer”.

No offer means that there is no gold offered at any price since there is no physical gold available to be bought. Eventually, there will probably be a price where some sellers are prepared to part with a small part of their gold but that price is likely to be at such a high level that it will be difficult to fathom today. Due to high inflation or hyperinflation, no gold seller is likely to accept paper money as payment but instead other assets, whether it will be property or commercial assets such as businesses.

GOLD CONFISCATION

There are a number of people who believe that governments will confiscate gold or ban gold trading. This is clearly possible and one should avoid holding gold in certain countries like the US or even the EU. This means that it is not advisable to store gold in those regions and nor to deal through precious metal companies that are based in the EU or the US even if the vaults are in other countries.

Also, it is important to only deal with countries with a long tradition of democracy and rule of law. Many off-shore locations, whether the vault or the arranging company is based there, should be avoided. We had very recently a client who wanted to ship a small part of his gold holding from Switzerland to Panama where he lives. When the gold arrived there, the customs agent said there was a new rule and that our client had to pay a fee of $30,000 on the total amount transferred of $150,000. That was a penalty or duty of 20% of the value the gold. Whether this was a bribe or a proper duty was never made clear. Nevertheless, we managed to ship the gold back to Switzerland and avoid the fee.

In my view, a country like Switzerland which has a long tradition in the gold industry and who refines 70% of all the gold bars in the world is very unlikely to ban or confiscate gold. Also, gold is 29% of Swiss exports which means that Switzerland is very unlikely to kill the goose that lays the golden egg.

PENSION FUNDS WILL BE MAJOR BUYERS OF GOLD

Another argument I hear is that governments are not going to allow individuals to earn major profits as gold goes to multiples of the current price. But we must remember that in the next couple of years, institutions, pension funds and investment funds are going to buy all the gold they can get hold of, at whatever price, as an inflation hedge. Governments are very unlikely to confiscate gold assets of pensioners and other private investors.

There is a much easier way for penalizing private investors who benefit from the coming increase in the gold price and that is of course taxation. The assets of the rich are likely to be heavily taxed in coming years and that is why tax planning is as important as investment planning.

If Cassandra is right and investment markets will implode in coming years, investors still have a very, very brief period to protect their wealth.

Global stocks are all in a position from which a major fall or crash can start at any time. Same with precious metals and precious metal stocks which are on the cusp of a massive bull market. It is likely that these major market moves will start in the early autumn of 2019, at the latest, and possibly earlier.

GOLD IS NOT AN INVESTMENT – IT IS INSURANCE AND MONEY

We must remember that gold is primarily not an investment although it will appreciate substantially in real terms. But gold is insurance, gold is money, gold is wealth preservation and gold is the only asset which is no one else’s liability.

Unfortunately, very few are aware of these important facts and will not be prepared for what is coming very soon.

Egon von Greyerz
Founder and Managing Partner
Matterhorn Asset Management
Zurich, Switzerland
Phone: +41 44 213 62 45

Matterhorn Asset Management’s global client base strategically stores an important part of their wealth in Switzerland in physical gold and silver outside the banking system. Matterhorn Asset Management is pleased to deliver a unique and exceptional service to our highly esteemed wealth preservation clientele in over 60 countries.

THE GOLD MAGINOT LINE WILL SOON BREAK

May 2, 2019
by Egon von Greyerz

Why do 99.9% of investors not own gold? Due to my interest and activity, I clearly meet a higher percentage than the 0.1% who both understand and own gold. But I also meet a lot of people who have been indoctrinated by their investment advisors and the media about gold’s uselessness. Most of these people don’t understand gold and don’t know the history of gold, nor its role as money.

GOLD IS MONEY

So let’s list some of the facts without being too long-winded:

  • Gold has been money for 5,000 years
  • Gold is the only money that has survived in history.
  • In every major crisis, gold has been used as money.
  • In all periods of history, fiat money has always lost 100% of its value. Fiat means money issued by government not backed by anything as opposed to gold or silver.
  • For example, during the Roman Empire the silver coin the Denarius went from almost 100% silver content to zero during a 100 year period.
  • The same has happened to all major currencies today like the Dollar, the Pound, the Yen and the Mark/Euro. Since the creation of the Fed in 1913, all currencies have lost 97-99% against gold. Thus there is only 1%-3% left until they have lost all their value. This is guaranteed to happen in the next 5-7 years as the debt and asset bubbles implode and governments print unlimited amounts of money in a futile attempt to save the financial system.
  • In the 2000s gold has outperformed all major asset markets including stocks.

IF CHILDREN ARE NEVER TAUGHT TO UNDERSTAND MONEY, HOW CAN ADULTS?

All the above are indisputable facts. But no government or central bank will ever admit to it since the total debasement of a country’s currency shows the failure of their economic policies.

Economic history is not taught in schools. No child is given a proper lesson about money, savings or compound interest. They learn empirically about debt, credit cards and spending money that you haven’t earned. How will they ever learn, how will they ever learn about sound money and how to manage their own affairs? Well they sadly won’t.

Since school children are not taught about sound money and economic history, how can we ever expect adults to grasp this subject.

In the West, the majority of people don’t understand that the Dollar, Euro, or Pound in their pocket is falling in value daily, due to incessant credit creation and money printing. People think that house prices or stock prices are going up. And they believe that food and services are regularly becoming more expensive. Very few people understand that it is not the price of goods and services that are going up but that it is the value of the money in their pocket that is constantly declining.

The principal reason why gold is the only money that has survived throughout history is that it cannot be printed. It also has many other important attributes, such as scarcity, indestructibility, divisibility etc.

MONEY CHANGERS & BANKERS

In the past, if someone performed a service or produced a product, he would be paid in gold and that gold would always maintain its value. Over time, the money changers and the bankers issued tradable notes that replaced the gold which was kept in their vault. They soon realised that they could earn a lot more money if they printed many more notes than they had gold. This is how the debasement of paper money started.

Imagine that someone had worked a whole day and received a gold coin as payment for his services. He then takes it to the bank to deposit it and receives a tradable paper note instead of his gold. But his banker is shrewd and issues another note as a loan to someone else. If this was the only transaction in the economy, by issuing the second note, the banker has now halved the value of the note. The banker is greedy and issues even more notes, so the value continues to go down. But the gold maintains its value whilst the paper money has been devalued. When the gold later was replaced by fiat money, that would be continually be debased as the banker as well as the government issued more and more paper money without any corresponding production of a goods or service.

FAKE MONEY LEADS & FAKE VALUES WILL IMPLODE

In the last 100 years, since the creation of the Fed, more money has been printed than ever in history and we are now in the exponential phase with global debt having trebled since 1999 from $80 trillion to $250 trillion.

The current global financial bubble cannot and will not end well. All the fake money and asset values must implode together with the debt. It is for this reason that we must hold physical gold as protection against the coming calamities. And whether gold goes up tomorrow or in six months’ time is totally irrelevant, in relation to the risk we are trying to protect with it.

GOLD TRADING IS 850X GOLD PRODUCTION

The reason why gold often fluctuates wildly has nothing to do with physical gold in a free market. The gold market is totally manipulated by central banks through the BIS in Basel (Bank for International Settlement) and its lackeys, the bullion banks.

The daily mine production of gold is $329 million. But the gross daily trading volume in the gold market is $280 billion according to the World Gold Council. So the daily gold trading is 850x the daily production. Most of that trading is done by the bullion banks and not the Comex or other futures exchanges. You don’t need to be an expert in trading to figure out that a market that every day turns over 850x the daily production of the underlying commodity is massively manipulated. Also, trading of that magnitude has nothing to do with physical gold but clearly has a much darker purpose. Surprisingly as the chart below shows, daily gold trading is 2x the trading in S&P stocks.

Most Western central banks are unlikely to have anywhere near their officially declared gold reserves. These have either been sold covertly or leased via the bullion banks. Most of the sold or leased gold has gone to the East. Thus, most central banks just hold an IOU from a bullion bank that they are owed a certain amount of physical gold. What is absolutely clear is that this gold will never come back. Consequently the bullion banks are short 1,000s or more likely 10-15,000 tonnes of physical gold that they will never see again. It is likely that the frantic trading of the LBMA banks is to cover up the massive shortage of physical gold both in the bullion banks as well as in the central banks.

GOLD MAGINOT LINE IS AS PENETRABLE AS THE ORIGINAL ONE IN WWII

There are a number of critical factors that will soon lead to the crossing of the Gold Maginot Line at $1,350

Among them are:

  • The LBMA physical gold shortage as discussed above
  • The global credit explosion since 2006 from $125 trillion to $250 trillion today.
  • Gold vs US money supply being at the same level as 1970 (Gold $35) and 2000 (Gold $300)
  • The fragility of the financial system.
  • US budget deficits for 60 years and trade deficits for 50 years.
  • The continuous debasement of currencies.
  • Trade wars
  • Geopolitical tension.

The above list is certainly not exhaustive. It could of course be argued that many of the factors above have been present for a long time and gold has been going sideways for 6 years.

Due to factors such as manipulation, gold doesn’t move in a straight line. Between 1972 and 1980 gold moved up 24x from $35 to $850. Gold then corrected 29 years to a low of $250 in 1999 when central banks like the UK and Switzerland sold a major part of their gold.

We then saw a major move to $1,920 in 2011. Another correction followed and for six years gold has oscillated below the $1,350 Maginot Line. But gold should not just be measured in one currency. It has performed very differently against other currencies. In dozens of currencies gold is above the 2011 high. Due to the dollar’s temporary strength, gold seems weaker than it is if measured against a basket of currencies.

GOLD SPECULATORS ARE IMPATIENT BUT WEALTH PRESERVATIONISTS CONFIDENT

So when will the uptrend in gold start again? Many investors who bought gold near the 2011-12 highs are clearly impatient.

The fundamental factors above are not going to help us with the short term timing of the gold price. Many of us did not expect gold to pause for 8 years. But having been seriously invested in gold for over 17 years since early 2002, we have patience.

So the only short term method to predict gold’s next move is looking at gold’s technical picture. This tells us that gold is now in the finishing stages of a corrective move. Once the correction is over and gold breaks the Maginot Line at $1,350, we will see a quick move to $1,600. I would not be surprised to see gold making new highs in 2019 against the dollar, above $1,920. The next move up could start as soon as in the next 2-3 weeks. Possibly, but less likely is that the move starts August – September.

But gold should not be bought for speculative investment purposes. Gold should be held as wealth preservation or insurance against a rotten financial system that is unlikely to survive in its present form.

Like any insurance, holders of gold should not hope for gold to surge. Because when it does, the world will be a much more unpleasant place to live. It is much better to enjoy the present times knowing that if and when the problems in the world start in earnest, you are protected.

SILVER SUPPLIES ARE GETTING TIGHT

The supply situation in gold is still acceptable. But in silver it is becoming more difficult to get hold of and Swiss refiners are confirming that silver supply is tight. What we must remember is that real physical trading volumes are low today. With the sideways move in prices, physical demand is not buoyant. But once gold clears $1,350 and silver $15.50, shortages are likely to arise.

Egon von Greyerz
Founder and Managing Partner
Matterhorn Asset Management
Zurich, Switzerland
Phone: +41 44 213 62 45

Matterhorn Asset Management’s global client base strategically stores an important part of their wealth in Switzerland in physical gold and silver outside the banking system. Matterhorn Asset Management is pleased to deliver a unique and exceptional service to our highly esteemed wealth preservation clientele in over 60 countries.