Silver Supply Inadequate To Meet Growing Demand

In the media much has been made of the investment demand for silver and whether or not it will maintain its blistering pace. So far, it has. Even if one were to make the argument that demand will remain flat, within commodities a bull market can thrive. This takes place when supply declines faster than demand—disrupting the fragile balance and igniting what we believe are the beginnings of a massive bull market.

In 2012, for January alone the U.S. mint sold 6,107,000 oz. of silver, after remaining stable throughout 1999-2007, averaging 9,400,000 oz. annually. In 2008, sales more than doubled, reaching 19,700,000 oz., and then another huge rise in sales to 34,700,000 oz. for 2010. In 2011 a fresh peak was set: 39,868,500 oz.! This is more silver than the United States produces as a nation, for the sole use of being fabricated into 1-ounce coins.

For the remaining silver needed for industrial and other purposes, the United States relies on imports. The January 2012 United States Geological Survey shows that U.S. reliance on silver imports has grown from 64% in 2007, up to a staggering 75% of U.S. consumption coming from overseas.

Mike Maloney

Don’t believe the hype about the US ‘recovery’

The bulls have a new story for investors to get excited about.

Don’t worry about Greece. And don’t worry about China. Because the US is on the mend. 

Sure, things still look ugly out there. Unemployment is high. House prices are still falling. But Federal Reserve chief Ben Bernanke can sort all that out with a bit of money printing. After all, with all this deleveraging going on, we won’t need to worry about inflation for a long, long time. 

Sounds good. And as we’re seeing right now, the promise of more quantitative easing is certainly enough to give markets another sugar rush. 

America is more indebted than during the Great Depression

Feeling optimistic about the outlook for America? Well you shouldn’t. 

Dr Tim Morgan, global head of research at broker Tullett Prebon, has turned his eyes to the US. Morgan recently wrote a trilogy of reports on the state of the UK economy. Morgan’s review of the state of the US isn’t any cheerier. In short, America has too much debt. It’s growing too slowly to get out of the debt hole. Now it needs serious structural reform (ie it needs to come up with a better idea than just printing more money in the hope that another consumer boom will kick off). And that’s not going to happen for as long as politicians are too focused on winning elections to be honest with voters.

Take the debt first. In the ten years to 2011, America’s total debt (private sector as well as public sector) has grown from 275% of GDP, to 358% of GDP. That’s not as bad as the UK, but for the US, this is “unprecedented… exceeding even the levels reached in the Great Depression”.

And it’s the rate of growth in the ratio that’s the real problem. From 1945 to 1980, debt/GDP ranged between 130% and 170%, says Morgan. But the “credit supercycle” from 1980 saw the ratio roar upwards as the US economy was driven by “excessive debt-fuelled consumption”. Now we’re at the end of the supercycle, “no one seems to have worked out how to manage an economy that is not debt-propelled”.

Lies, damn lies, and US inflation statistics

The other problem is that most Americans don’t realise just how desperate their situation is, because the figures are fiddled. “Under a process which began in the early 1980s, reporting methodologies have been massaged to the point where the true scale of the economic malaise is masked from most Americans.”

All the bad things – debt, the deficit (the annual overspend), inflation and unemployment – are understated. Meanwhile, “growth and absolute GDP, are flattered, and not to a minor but to a fundamental degree”.

The official inflation figure is particularly misleading. There’s hedonic adjustment, whereby if a product gets better, then it’s deemed to be cheaper. So a $500 high-definition TV, say, is seen as being ‘cheaper’ than a $500 ordinary TV. 

Then there’s substitution, where if steak gets particularly expensive, consumers are assumed to buy chicken instead. As Morgan notes, as well as masking the true inflation figures, this “turns the index from a calibration of the cost of living to a measurement of the price of survival”.

The extent to which they distort the figures is staggering. Morgan reckons “true inflation might be at least 9%, rather than the 3.4% reported in December”.

What does that mean? In short, it means that your average American could be a lot poorer than anyone imagines. If you take the official figures, the US dollar has lost 21% of its purchasing power in the last decade. If you assume the higher rate of inflation, it’s more like 55%. 

There is hope

The US has lots of other problems. Unemployment data are also fudged. And just as in Britain, in the past decade, too much money has been misallocated to property. And as in Britain, the financial sector has become too dominant. 

You can argue that we knew all this already. But given the recent spurt of optimism over the US economy, it’s a useful reminder that underneath all the money-printing and fudged statistics, America is in a bad way. And the solutions – because they’re politically difficult – won’t be reached until things get far worse. 

That’s not to say that you should shun the States, or that there’s no hope. For one thing, there are signs of a pick-up in the US manufacturing sector. With wages in China rising, and unions in the US more willing to compromise, the cost advantages of outsourcing is rapidly falling. The same can be said for the UK. 

in the short term at least, what drives share prices is money flows. If everyone decides they like the look of the US better than anywhere else, then the country’s stock market will do well. 

But don’t be fooled into thinking that the latest rally signals that the crisis is over and that a lasting recovery has begun. That’s another good reason to hold onto gold as insurance – just in case America doesn’t manage to sort out its problems.

John Stepek

The truth about Gold

The price of gold jumped yesterday. Reports said investors were betting on another round of 'quantitative easing', aka money printing. 

But are gold buyers making a big mistake? Is history repeating itself? The New York Times suggests it is: 

As it was in 1980, could it be again in 2012? 

The 1980 presidential election was fought by a Democratic incumbent weakened by a poor economy amid worries that the United States had lost its ability to compete in the world. Gold prices had risen to unprecedented levels as the election approached, and the Republican nominee hinted he might propose a return to a gold standard. 

That Republican, Ronald Reagan, won the election and soon appointed a commission to study the role of gold in monetary systems. To gold bugs, it appeared to be the best chance in decades to move the country toward gold and away from what they like to call “fiat money,” a currency anchored by nothing more than government dictates. 

Last month, Newt Gingrich, seeking to widen his support in the days leading up to the South Carolina primary, promised that he would appoint a new gold commission. “Part of our approach ought to be to re-establish something Ronald Reagan did in 1981 and that is to have a commission on gold to look at the whole concept of how do we get back to hard money,” he said in a speech.

No, dear reader, history is not repeating itself. The NYT is wrong… about everything. Well, almost everything. It understands that gold is a threat to its big advertisers… and most of its readers (who don’t own any gold). It is also a threat to most economists – who have built their careers on not understanding how a real economy actually works… and whose income and whose professional status now depend on a gold-free, centrally-planned economy. 

So, to prove that gold is a ‘barbarous relic’ and that gold bugs walk on four legs, they merely put the question to economists. 

The University of Chicago last month asked a panel of 40 economists, including former advisers to both Democratic and Republican presidents, if they agreed that “price-stability and employment outcomes would be better for the average American” if the dollar’s value were tied to gold. Every one of them disagreed, some with more than a little incredulity that such a question was worthy of discussion. 

“Why tie to gold?” asked [the very witty] Richard Thaler, a University of Chicago professor. “Why not 1982 Bordeaux?” 

“Eesh,” responded Austan Goolsbee, a Chicago colleague and former adviser to President Obama. “Has it come to this?” 

The NYT goes on to report that “even economists with some sympathy to gold opposed the idea” of a gold-backed dollar. And Mr Ben Bernanke, former professor of economics at Princeton, says he doesn’t think gold is money.

Oh yeah, replied Congressman Ron Paul, then why do central banks hold gold… and not things such as ’82 Bordeaux or diamonds? 

Mr Bernanke replied that it was just a matter of “tradition”.

Yes, he’s right… it is a matter of tradition, like marriage… like property rights… like government… like murder… like teenagers who moon adults out of car windows… or like drivers who give each other the finger.

Traditions become traditions because people keep doing them. And they keep doing them for reasons that aren’t likely to go away. Times change. Conditions change. Human nature doesn’t.

But let us get back to the New York Times’ silly notion that we are about to relive the period following ’80. What seems to have triggered the idea was Newt Gingrich’s proposal to study the idea of going back on the gold standard. Every right thinking person in the country – the Times implies – knows the idea is foolish. And the price of the yellow metal is sure to fall, as it did after the Reagan election, when people realise how foolish it is.

But gold didn’t fall after ’80 because the Reagan administration didn’t put it back in the monetary system. It fell because Paul Volcker made it unnecessary. Instead of printing money, Volcker tightened up… taking out some of the money that was already there. And he did it under conditions that were not merely unlike those of today… but almost the exact opposite.

Then, the US was still a creditor to the rest of the world, not a debtor.

Then, the US was still running positive trade balances, not losing money every month.

Then, US stocks were at bargain levels…selling for five to eight times earnings; today, they’re twice as expensive.

Then, US bonds were cheap too…with yields for US Treasury debt as high as 18%, or nearly SIX TIMES as high as today’s long bonds.

Then, US households had debt of only 60% or 70% of their disposable income, not 120% like today.

Then, the Fed was determined to stifle inflation; now it is determined to cause it.

Then, the federal government’s debt was less than 40% of GDP. Now, it’s over 100%.

Then, even in today’s inflation adjusted terms, the US government ran a deficit of $197 billion. Today, the deficit is $1.1 trillion. 

Then, stocks had been going down for the previous 14 years; bonds had been going down for at least 31 years. Now, stocks and bonds have been going up, generally, for the last 30 years.

This final point is not just a detail. It’s the heart of the matter. With bonds at a 30-year low, Paul Volcker could squeeze inflation… begin a three-decade period of rising bonds (with falling interest rates)… and an 18-year bust in the gold market.

Will that happen again? Impossible! 

What kind of strange history would it be if it could repeat itself… from totally different initial conditions? Could Napoleon march on Moscow… if he had started out in Chicago rather than Paris? Could Liz Taylor have married Richard Burton twice if she’d died in a traffic accident after her first marriage?

Can gold now repeat its path of ’80-’98, even though today’s situation is almost the opposite in every way?

No, dear reader, history doesn’t repeat itself. It just stutters out the same truths, over and over. G..g..g..g..gold is m…m…m…money. It says.

The N..N…New Y…Y…Y…York Times is full of s..s..s..s…

Bill Bonner

America is going down

“America is back,” said the President of all the Americans. “Anyone who tells you America is in decline or that our influence has waned, doesn’t know what they’re talking about.”

Well, dear reader, we’re here to tell you: America is in decline.

We can give it to you straight because we’re not running for public office. And if we were elected, we would immediately demand a recount.

Anyone who tells you America is not in decline is either running for office ... or not paying attention.

In 1969 more than one out of every three dollars of income in the entire globe was earning in the US. That’s what the IMF’s World Economic Outlook tells us.

By 2000, that number had fallen... but not by much. The US still took home 31% of global income. But in the last ten years, the US share has fallen hard – losing more than 7%. Now, only 23% of the world’s income is generated by the US.

Ten years ago, China’s economy measured about 1/8th the size of the US. Now, it is 41%. Another decade and it will the biggest in the world. It is already bigger by several measures. And even if its growth declines to 7% a year, it will still surpass the US in a dozen years.

Hey, don’t take it personally. The entire developed world is in decline – with America leading them all down.

By 2050, according to a new study from HSBC, today’s emerging economies – as a whole – will be larger than Europe, America and Japan put together. 

As the developed economies stagnate, the ‘emerging’ economies grow. Nineteen of the world’s top economies in 2050 will be those we regard as 'emerging' today. China and India will hold the number one and number three spots, with the US sandwiched between them. 

So far, we are just talking about numbers. Try to imagine a world in which today’s emerging markets have more economic power, and vastly more people, than today’s leaders. It is not just China and India who will be calling the shots, but Brazil, Turkey, Russia, Mexico and Indonesia too.

Bill Bonner

Silver could save your life!

Silver is as efficient as a leading chemotherapy drug in treating cancer and may even have fewer side effects, a new study has revealed.

Results from the study at the University of Leeds, show that particular silver compounds are as toxic to cancer cells as the platinum-based drug Cisplatin, which is widely used to treat a range of cancers.

But the crucial difference is that silver is thought to be much less toxic to healthy human cells, and in some cases, can be beneficial.

Silver is currently used for its antiseptic and antibiotic properties, in bandages, wound dressings and water purification filters in the third world.

Nausea and vomiting, kidney damage and an increased risk of infection are common side effects of Cisplatin, which is used to treat cancer of the lungs, breast, bladder, testicles, head and neck, ovaries and lymph nodes.

"As many are unfortunately aware, chemotherapy can be a very gruelling experience for the patient. Finding effective, yet non-toxic drugs is an ongoing problem, but these preliminary results are an important step in solving it," Dr Charlotte Willans who is leading the study said.

"Our research has looked at the structure which surrounds a central silver atom. This 'shrubbery' is what determines how reactive it is and what it will interact with. Our research has used different types of these ligands to see which is the most effective against cancer cells," Dr Willans added.

The research, still the first phase of drug development, involved exposing breast and colon cancer cells with different silver-based chemicals for six day periods.

It has been shown that ligands which are co-ordinately bonded to the central silver atom through two sites are more effective than those coordinated through only one site.

This may be due to the release of silver being much slower and make these compounds more effective over a longer period of time.

A major barrier to the continued development of these compounds is a lack of understanding of how they work. Over the next 12 months, research will focus on investigating how the compounds damage cancerous cells and what effects they have on healthy cells.

This will establish whether these silver complexes are in fact less toxic to ordinary human tissue, and will help to design and develop the next-generation of chemotherapy drugs.

Sify News

What happens when Greece defaults

1. Greece is poised to default, the end-game everyone anticipated in 2011. It is not a matter of if but when.

2. That default will trigger credit-default swap contracts, derivatives known as CDS that protect the owner from events such as default.

3. This will implode the shadow-banking system and the visible banking system, as those who sold the CDS (financial institutions) do not have enough cash or assets to pay the owners of the CDS.

4. The general idea is that sovereign default is very unlikely, so you can sell protection (CDS) against that possibility for a low premium, and cover that bet by buying your own protection from another player.

5. If that player (counterparty) can't pay you off, then you can't meet your obligations on the CDS you originated and sold.

6. So the failure of one counterparty can trigger a systemic failure akin to a row of dominoes being toppled by the fall of one domino.

7. To avoid such a CDS-triggered collapse, the European Union and its proxy agencies (European Central Bank, etc.) are attempting to call a default by Greece something other than "default."

8. This will theoretically keep the first domino--a credit-default swap--from falling. In other words, if we call a default by some other name, then it isn't a default.

9. Those absorbing the losses caused by a Greek default (and let's stipulate that this references owners of Greek debt who bought CDS as insurance, not speculators who leveraged CDS at 30X the actual bond value) will want to cash in their insurance, i.e. the CDS they own against a Greek default. They have every incentive to demand a default be recognized as a default. If they accept the official plan to avoid calling a default a default, then all the losses will be theirs and none will fall to the counterparties who sold them the CDS.

10. How is this fair?

11. The official response of avoiding default is focused on self-preservation, not fairness, justice or the rule of law.

12. The system can be likened to a pool of $100 bets leveraged off $5 in cash. If every bet is covered perfectly, then it's somewhat like $95 in bets being paid by passing $5 around--much like the famous email that depicts all debts in a small town being paid by the same $5.

13. In the real world, somebody's bets and insurance will not be perfect and their obligations will exceed their cash on hand. In other words, they will end up with $3 and owe $5. They will default and the dominoes will start falling as everyone down the line doesn't receive their $5 counterparty payoff.

14. Empires tend to fall when the interests of their Elites diverge. We are at such a point in the global financial Empire.

15. "Extend and pretend" has "worked" for almost 2 years. If Greece defaults and it is recognized by even one player as a default, then the system will quickly unravel and cash/dollars will be king until the deleveraging runs its course.

Charles Hugh Smith

Who is buying all the Gold?

Gold bears often argue that the gold market is now at the mercy of demand from speculative investors, who have piled into exchange-traded funds (ETFs), chasing gold higher. The danger is that if the market turns sour, they could pull their money out en masse and send the price plunging.

But according to a study by Amit Bhartia and Matt Seto of US investment firm GMO, the majority of physical gold purchases in the past decade have not come from speculators in ETFs. Indeed, ETFs only account for a tiny fraction (around 7.5%) of the near-30,000 tons of gold purchased between 2000 and 2010.

The demand didn’t come from developed market investors or central banks either – in fact, central banks have been net sellers.

Instead, nearly 80% of the total demand for physical gold has come from retail purchases in developing markets. China and India’s combined demand alone amounts to more than that of the entire developed world.

In other words, “the main driver for gold’s dramatic rise has been the emerging markets consumer”, say Bhartia and Seto.

Why? It’s pretty straightforward. While trade liberalisation and the commodity boom has enabled emerging markets to prosper, their financial systems have not kept up with the pace of modernisation. Combined with a tendency to save – rather than spend – money, this has led to a large build-up of savings. (Or, as economists call it, a “savings glut”).

Now, what can all these savers in emerging markets do with their savings?

One solution is to invest it abroad. Some argue this led to the low interest rates that drove the credit boom in the US and Europe (as money from Asia flooded into US Treasuries and the like, driving down bond yields). However, capital controls mean that investing savings abroad directly is not really an option for retail investors. And the domestic stock markets – particularly in China – are far too volatile to be trusted with your life savings.

There are of course domestic savings accounts. Unfortunately, in many countries the banking system is either corrupt or state-run. Negative real interest rates (ie adjusted for inflation) making saving money little better than burning it.

The final course left is to invest savings in hard assets. Property has proven popular. But with prices – in China at least – at record levels, and now starting to fall, this has become less attractive. That leaves gold.

“Combined gross savings in China and India increased from $557bn in 2000 to $3.4 trillion in 2010”, say Bhartia and Seto. In short, there was a huge rise in the amount of money available to invest, “and given the lack of good alternatives, gold was a preferred choice”.

What does this mean for gold prices?

You might assume that the tough patch that the Indian and Chinese economies have seen would therefore hit the price of gold. Not necessarily. Economic problems in these countries could in fact encourage people to double down on gold, especially if the banking systems and the property markets bear the brunt of the damage.

Indeed, there is already evidence that far from reducing demand for gold, the collapse of informal lending networks and the end of the property bubble in China have pushed investors further towards precious metals. Year-on-year sales of gold in China increased by nearly 50% in the holiday period from 22 to 28 January.

Gold sales in India also rose strongly last month, Meanwhile, there have been unconfirmed reports that its central bank will pay for its energy supplies from Iran in gold, in order to sidestep sanctions.

That raises the prospect of other potential threats to the gold price. Beijing seems to be becoming increasingly uneasy about domestic money going into gold purchases rather than low-yielding bank accounts. At the end of last year, the Chinese government closed down all but two of the myriad of domestic financial exchanges where gold was traded. Although this doesn’t directly affect individuals, it could be a first step toward restrictions on retail investors.

On the other hand, a more open financial system could also impact on emerging-market demand for gold. If capital controls are reduced and Indian and Chinese citizens had more freedom to invest abroad, their demand for gold could drop. And if emerging-market consumers, start spending more and saving less in general, then this could hit demand for all savings products.

The gold bull market looks set to continue

However, no significant reforms are anticipated, while capital controls are likely to get tighter – not looser – in the near future. Therefore the short-term prospects for gold are excellent.

Plus, as Bhartia and Seto point out, the importance of the emerging-market consumer means that those who argue that gold has become a hugely crowded trade among investors in the developed world are simply wrong.

“This analysis indicates that ‘conventional wisdom’ demand is far from saturated.” Both central banks and developed world portfolios have a lot of catching up to do, suggesting that “gold prices may very well experience another leg up”.


Mathew Partridge