Posts Tagged ‘Silver’
The Illuminati were amateurs. The second huge financial scandal of the year reveals the real international conspiracy: There’s no price the big banks can’t fix
by Matt Taibbi
April 25, 2013 1:00 PM ET
Conspiracy theorists of the world, believers in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game. We found this out in recent months, when a series of related corruption stories spilled out of the financial sector, suggesting the world’s largest banks may be fixing the prices of, well, just about everything.
You may have heard of the Libor scandal, in which at least three – and perhaps as many as 16 – of the name-brand too-big-to-fail banks have been manipulating global interest rates, in the process messing around with the prices of upward of $500 trillion (that’s trillion, with a “t”) worth of financial instruments. When that sprawling con burst into public view last year, it was easily the biggest financial scandal in history – MIT professor Andrew Lo even said it “dwarfs by orders of magnitude any financial scam in the history of markets.”
That was bad enough, but now Libor may have a twin brother. Word has leaked out that the London-based firm ICAP, the world’s largest broker of interest-rate swaps, is being investigated by American authorities for behavior that sounds eerily reminiscent of the Libor mess. Regulators are looking into whether or not a small group of brokers at ICAP may have worked with up to 15 of the world’s largest banks to manipulate ISDAfix, a benchmark number used around the world to calculate the prices of interest-rate swaps.
Interest-rate swaps are a tool used by big cities, major corporations and sovereign governments to manage their debt, and the scale of their use is almost unimaginably massive. It’s about a $379 trillion market, meaning that any manipulation would affect a pile of assets about 100 times the size of the United States federal budget.
It should surprise no one that among the players implicated in this scheme to fix the prices of interest-rate swaps are the same megabanks – including Barclays, UBS, Bank of America, JPMorgan Chase and the Royal Bank of Scotland – that serve on the Libor panel that sets global interest rates. In fact, in recent years many of these banks have already paid multimillion-dollar settlements for anti-competitive manipulation of one form or another (in addition to Libor, some were caught up in an anti-competitive scheme, detailed in Rolling Stone last year, to rig municipal-debt service auctions). Though the jumble of financial acronyms sounds like gibberish to the layperson, the fact that there may now be price-fixing scandals involving both Libor and ISDAfix suggests a single, giant mushrooming conspiracy of collusion and price-fixing hovering under the ostensibly competitive veneer of Wall Street culture.
Why? Because Libor already affects the prices of interest-rate swaps, making this a manipulation-on-manipulation situation. If the allegations prove to be right, that will mean that swap customers have been paying for two different layers of price-fixing corruption. If you can imagine paying 20 bucks for a crappy PB&J because some evil cabal of agribusiness companies colluded to fix the prices of both peanuts and peanut butter, you come close to grasping the lunacy of financial markets where both interest rates and interest-rate swaps are being manipulated at the same time, often by the same banks.
“It’s a double conspiracy,” says an amazed Michael Greenberger, a former director of the trading and markets division at the Commodity Futures Trading Commission and now a professor at the University of Maryland. “It’s the height of criminality.”
The bad news didn’t stop with swaps and interest rates. In March, it also came out that two regulators – the CFTC here in the U.S. and the Madrid-based International Organization of Securities Commissions – were spurred by the Libor revelations to investigate the possibility of collusive manipulation of gold and silver prices. “Given the clubby manipulation efforts we saw in Libor benchmarks, I assume other benchmarks – many other benchmarks – are legit areas of inquiry,” CFTC Commissioner Bart Chilton said.
But the biggest shock came out of a federal courtroom at the end of March – though if you follow these matters closely, it may not have been so shocking at all – when a landmark class-action civil lawsuit against the banks for Libor-related offenses was dismissed. In that case, a federal judge accepted the banker-defendants’ incredible argument: If cities and towns and other investors lost money because of Libor manipulation, that was their own fault for ever thinking the banks were competing in the first place.
“A farce,” was one antitrust lawyer’s response to the eyebrow-raising dismissal.
“Incredible,” says Sylvia Sokol, an attorney for Constantine Cannon, a firm that specializes in antitrust cases.
All of these stories collectively pointed to the same thing: These banks, which already possess enormous power just by virtue of their financial holdings – in the United States, the top six banks, many of them the same names you see on the Libor and ISDAfix panels, own assets equivalent to 60 percent of the nation’s GDP – are beginning to realize the awesome possibilities for increased profit and political might that would come with colluding instead of competing. Moreover, it’s increasingly clear that both the criminal justice system and the civil courts may be impotent to stop them, even when they do get caught working together to game the system.
If true, that would leave us living in an era of undisguised, real-world conspiracy, in which the prices of currencies, commodities like gold and silver, even interest rates and the value of money itself, can be and may already have been dictated from above. And those who are doing it can get away with it. Forget the Illuminati – this is the real thing, and it’s no secret. You can stare right at it, anytime you want.
The banks found a loophole, a basic flaw in the machine. Across the financial system, there are places where prices or official indices are set based upon unverified data sent in by private banks and financial companies. In other words, we gave the players with incentives to game the system institutional roles in the economic infrastructure.
Libor, which measures the prices banks charge one another to borrow money, is a perfect example, not only of this basic flaw in the price-setting system but of the weakness in the regulatory framework supposedly policing it. Couple a voluntary reporting scheme with too-big-to-fail status and a revolving-door legal system, and what you get is unstoppable corruption.
Every morning, 18 of the world’s biggest banks submit data to an office in London about how much they believe they would have to pay to borrow from other banks. The 18 banks together are called the “Libor panel,” and when all of these data from all 18 panelist banks are collected, the numbers are averaged out. What emerges, every morning at 11:30 London time, are the daily Libor figures.
Banks submit numbers about borrowing in 10 different currencies across 15 different time periods, e.g., loans as short as one day and as long as one year. This mountain of bank-submitted data is used every day to create benchmark rates that affect the prices of everything from credit cards to mortgages to currencies to commercial loans (both short- and long-term) to swaps.
Dating back perhaps as far as the early Nineties, traders and others inside these banks were sometimes calling up the company geeks responsible for submitting the daily Libor numbers (the “Libor submitters”) and asking them to fudge the numbers. Usually, the gimmick was the trader had made a bet on something – a swap, currencies, something – and he wanted the Libor submitter to make the numbers look lower (or, occasionally, higher) to help his bet pay off.
Famously, one Barclays trader monkeyed with Libor submissions in exchange for a bottle of Bollinger champagne, but in some cases, it was even lamer than that. This is from an exchange between a trader and a Libor submitter at the Royal Bank of Scotland:
SWISS FRANC TRADER: can u put 6m swiss libor in low pls?…
PRIMARY SUBMITTER: Whats it worth
SWSISS FRANC TRADER: ive got some sushi rolls from yesterday?…
PRIMARY SUBMITTER: ok low 6m, just for u
SWISS FRANC TRADER: wooooooohooooooo.?.?. thatd be awesome
Screwing around with world interest rates that affect billions of people in exchange for day-old sushi – it’s hard to imagine an image that better captures the moral insanity of the modern financial-services sector.
Hundreds of similar exchanges were uncovered when regulators like Britain’s Financial Services Authority and the U.S. Justice Department started burrowing into the befouled entrails of Libor. The documentary evidence of anti-competitive manipulation they found was so overwhelming that, to read it, one almost becomes embarrassed for the banks. “It’s just amazing how Libor fixing can make you that much money,” chirped one yen trader. “Pure manipulation going on,” wrote another.
Yet despite so many instances of at least attempted manipulation, the banks mostly skated. Barclays got off with a relatively minor fine in the $450 million range, UBS was stuck with $1.5 billion in penalties, and RBS was forced to give up $615 million. Apart from a few low-level flunkies overseas, no individual involved in this scam that impacted nearly everyone in the industrialized world was even threatened with criminal prosecution.
Two of America’s top law-enforcement officials, Attorney General Eric Holder and former Justice Department Criminal Division chief Lanny Breuer, confessed that it’s dangerous to prosecute offending banks because they are simply too big. Making arrests, they say, might lead to “collateral consequences” in the economy.
The relatively small sums of money extracted in these settlements did not go toward reparations for the cities, towns and other victims who lost money due to Libor manipulation. Instead, it flowed mindlessly into government coffers. So it was left to towns and cities like Baltimore (which lost money due to fluctuations in their municipal investments caused by Libor movements), pensions like the New Britain, Connecticut, Firefighters’ and Police Benefit Fund, and other foundations – and even individuals (billionaire real-estate developer Sheldon Solow, who filed his own suit in February, claims that his company lost $450 million because of Libor manipulation) – to sue the banks for damages.
One of the biggest Libor suits was proceeding on schedule when, early in March, an army of superstar lawyers working on behalf of the banks descended upon federal judge Naomi Buchwald in the Southern District of New York to argue an extraordinary motion to dismiss. The banks’ legal dream team drew from heavyweight Beltway-connected firms like Boies Schiller (you remember David Boies represented Al Gore), Davis Polk (home of top ex-regulators like former SEC enforcement chief Linda Thomsen) and Covington & Burling, the onetime private-practice home of both Holder and Breuer.
The presence of Covington & Burling in the suit – representing, of all companies, Citigroup, the former employer of current Treasury Secretary Jack Lew – was particularly galling. Right as the Libor case was being dismissed, the firm had hired none other than Lanny Breuer, the same Lanny Breuer who, just a few months before, was the assistant attorney general who had balked at criminally prosecuting UBS over Libor because, he said, “Our goal here is not to destroy a major financial institution.”
In any case, this all-star squad of white-shoe lawyers came before Buchwald and made the mother of all audacious arguments. Robert Wise of Davis Polk, representing Bank of America, told Buchwald that the banks could not possibly be guilty of anti- competitive collusion because nobody ever said that the creation of Libor was competitive. “It is essential to our argument that this is not a competitive process,” he said. “The banks do not compete with one another in the submission of Libor.”
But Wise eventually outdid even that argument, essentially saying that while the banks may have lied to or cheated their customers, they weren’t guilty of the particular crime of antitrust collusion. This is like the old joke about the lawyer who gets up in court and claims his client had to be innocent, because his client was committing a crime in a different state at the time of the offense.
“The plaintiffs, I believe, are confusing a claim of being perhaps deceived,” he said, “with a claim for harm to competition.”
Judge Buchwald swallowed this lunatic argument whole and dismissed most of the case. Libor, she said, was a “cooperative endeavor” that was “never intended to be competitive.” Her decision “does not reflect the reality of this business, where all of these banks were acting as competitors throughout the process,” said the antitrust lawyer Sokol. Buchwald made this ruling despite the fact that both the U.S. and British governments had already settled with three banks for billions of dollars for improper manipulation, manipulation that these companies admitted to in their settlements.
Michael Hausfeld of Hausfeld LLP, one of the lead lawyers for the plaintiffs in this Libor suit, declined to comment specifically on the dismissal. But he did talk about the significance of the Libor case and other manipulation cases now in the pipeline.
“It’s now evident that there is a ubiquitous culture among the banks to collude and cheat their customers as many times as they can in as many forms as they can conceive,” he said. “And that’s not just surmising. This is just based upon what they’ve been caught at.”
Greenberger says the lack of serious consequences for the Libor scandal has only made other kinds of manipulation more inevitable. “There’s no therapy like sending those who are used to wearing Gucci shoes to jail,” he says. “But when the attorney general says, ‘I don’t want to indict people,’ it’s the Wild West. There’s no law.”
The problem is, a number of markets feature the same infrastructural weakness that failed in the Libor mess. In the case of interest-rate swaps and the ISDAfix benchmark, the system is very similar to Libor, although the investigation into these markets reportedly focuses on some different types of improprieties.
Though interest-rate swaps are not widely understood outside the finance world, the root concept actually isn’t that hard. If you can imagine taking out a variable-rate mortgage and then paying a bank to make your loan payments fixed, you’ve got the basic idea of an interest-rate swap.
In practice, it might be a country like Greece or a regional government like Jefferson County, Alabama, that borrows money at a variable rate of interest, then later goes to a bank to “swap” that loan to a more predictable fixed rate. In its simplest form, the customer in a swap deal is usually paying a premium for the safety and security of fixed interest rates, while the firm selling the swap is usually betting that it knows more about future movements in interest rates than its customers.
Prices for interest-rate swaps are often based on ISDAfix, which, like Libor, is yet another of these privately calculated benchmarks. ISDAfix’s U.S. dollar rates are published every day, at 11:30 a.m. and 3:30 p.m., after a gang of the same usual-suspect megabanks (Bank of America, RBS, Deutsche, JPMorgan Chase, Barclays, etc.) submits information about bids and offers for swaps.
And here’s what we know so far: The CFTC has sent subpoenas to ICAP and to as many as 15 of those member banks, and plans to interview about a dozen ICAP employees from the company’s office in Jersey City, New Jersey. Moreover, the International Swaps and Derivatives Association, or ISDA, which works together with ICAP (for U.S. dollar transactions) and Thomson Reuters to compute the ISDAfix benchmark, has hired the consulting firm Oliver Wyman to review the process by which ISDAfix is calculated. Oliver Wyman is the same company that the British Bankers’ Association hired to review the Libor submission process after that scandal broke last year. The upshot of all of this is that it looks very much like ISDAfix could be Libor all over again.
“It’s obviously reminiscent of the Libor manipulation issue,” Darrell Duffie, a finance professor at Stanford University, told reporters. “People may have been naive that simply reporting these rates was enough to avoid manipulation.”
And just like in Libor, the potential losers in an interest-rate-swap manipulation scandal would be the same sad-sack collection of cities, towns, companies and other nonbank entities that have no way of knowing if they’re paying the real price for swaps or a price being manipulated by bank insiders for profit. Moreover, ISDAfix is not only used to calculate prices for interest-rate swaps, it’s also used to set values for about $550 billion worth of bonds tied to commercial real estate, and also affects the payouts on some state-pension annuities.
So although it’s not quite as widespread as Libor, ISDAfix is sufficiently power-jammed into the world financial infrastructure that any manipulation of the rate would be catastrophic – and a huge class of victims that could include everyone from state pensioners to big cities to wealthy investors in structured notes would have no idea they were being robbed.
“How is some municipality in Cleveland or wherever going to know if it’s getting ripped off?” asks Michael Masters of Masters Capital Management, a fund manager who has long been an advocate of greater transparency in the derivatives world. “The answer is, they won’t know.”
Worse still, the CFTC investigation apparently isn’t limited to possible manipulation of swap prices by monkeying around with ISDAfix. According to reports, the commission is also looking at whether or not employees at ICAP may have intentionally delayed publication of swap prices, which in theory could give someone (bankers, cough, cough) a chance to trade ahead of the information.
Swap prices are published when ICAP employees manually enter the data on a computer screen called “19901.” Some 6,000 customers subscribe to a service that allows them to access the data appearing on the 19901 screen.
The key here is that unlike a more transparent, regulated market like the New York Stock Exchange, where the results of stock trades are computed more or less instantly and everyone in theory can immediately see the impact of trading on the prices of stocks, in the swap market the whole world is dependent upon a handful of brokers quickly and honestly entering data about trades by hand into a computer terminal.
Any delay in entering price data would provide the banks involved in the transactions with a rare opportunity to trade ahead of the information. One way to imagine it would be to picture a racetrack where a giant curtain is pulled over the track as the horses come down the stretch – and the gallery is only told two minutes later which horse actually won. Anyone on the right side of the curtain could make a lot of smart bets before the audience saw the results of the race.
At ICAP, the interest-rate swap desk, and the 19901 screen, were reportedly controlled by a small group of 20 or so brokers, some of whom were making millions of dollars. These brokers made so much money for themselves the unit was nicknamed “Treasure Island.”
Already, there are some reports that brokers of Treasure Island did create such intentional delays. Bloomberg interviewed a former broker who claims that he watched ICAP brokers delay the reporting of swap prices. “That allows dealers to tell the brokers to delay putting trades into the system instead of in real time,” Bloomberg wrote, noting the former broker had “witnessed such activity firsthand.” An ICAP spokesman has no comment on the story, though the company has released a statement saying that it is “cooperating” with the CFTC’s inquiry and that it “maintains policies that prohibit” the improper behavior alleged in news reports.
The idea that prices in a $379 trillion market could be dependent on a desk of about 20 guys in New Jersey should tell you a lot about the absurdity of our financial infrastructure. The whole thing, in fact, has a darkly comic element to it. “It’s almost hilarious in the irony,” says David Frenk, director of research for Better Markets, a financial-reform advocacy group, “that they called it ISDAfix.”
After scandals involving libor and, perhaps, ISDAfix, the question that should have everyone freaked out is this: What other markets out there carry the same potential for manipulation? The answer to that question is far from reassuring, because the potential is almost everywhere. From gold to gas to swaps to interest rates, prices all over the world are dependent upon little private cabals of cigar-chomping insiders we’re forced to trust.
“In all the over-the-counter markets, you don’t really have pricing except by a bunch of guys getting together,” Masters notes glumly.
That includes the markets for gold (where prices are set by five banks in a Libor-ish teleconferencing process that, ironically, was created in part by N M Rothschild & Sons) and silver (whose price is set by just three banks), as well as benchmark rates in numerous other commodities – jet fuel, diesel, electric power, coal, you name it. The problem in each of these markets is the same: We all have to rely upon the honesty of companies like Barclays (already caught and fined $453 million for rigging Libor) or JPMorgan Chase (paid a $228 million settlement for rigging municipal-bond auctions) or UBS (fined a collective $1.66 billion for both muni-bond rigging and Libor manipulation) to faithfully report the real prices of things like interest rates, swaps, currencies and commodities.
All of these benchmarks based on voluntary reporting are now being looked at by regulators around the world, and God knows what they’ll find. The European Federation of Financial Services Users wrote in an official EU survey last summer that all of these systems are ripe targets for manipulation. “In general,” it wrote, “those markets which are based on non-attested, voluntary submission of data from agents whose benefits depend on such benchmarks are especially vulnerable of market abuse and distortion.”
Translation: When prices are set by companies that can profit by manipulating them, we’re fucked.
“You name it,” says Frenk. “Any of these benchmarks is a possibility for corruption.”
The only reason this problem has not received the attention it deserves is because the scale of it is so enormous that ordinary people simply cannot see it. It’s not just stealing by reaching a hand into your pocket and taking out money, but stealing in which banks can hit a few keystrokes and magically make whatever’s in your pocket worth less. This is corruption at the molecular level of the economy, Space Age stealing – and it’s only just coming into view.
This story is from the May 9th, 2013 issue of Rolling Stone.
August 16th, 2012
In a harbinger of what may be coming our way in the Fall of 2012, billionaire financier George Soros has sold all of his equity positions in major financial stocks according to a 13-F report filed with the SEC for the quarter ending June 30, 2012.
Soros, who manages funds through various accounts in the US and the Cayman Islands, has reportedly unloaded over one million shares of stock in financial companies and banks that include Citigroup (420,000 shares), JP Morgan (701,400 shares) and Goldman Sachs (120,000 shares). The total value of the stock sales amounts to nearly $50 million.
What’s equally as interesting as his sale of major financials is where Soros has shifted his money. At the same time he was selling bank stocks, he was acquiring some 884,000 shares (approx. $130 million) of Gold via the SPDR Gold Trust.
When a major global player with direct ties to the White House, Wall Street, and the banking system starts off-loading stocks and starts stacking gold, it suggests a very serious market move is set to happen.
While often lambasted for his calls to centralize global banking, increase government intervention in the economy and his support of what he has called an “emergence of the new world order,” if there’s anyone with an inside track of where things are headed next it’s Soros.
Soros, who has written extensively of a coming global paradigm shift in his book The Crash of 2008 and What It Means, calling the current economic and political model ”an end of an era,” has recently suggested that the financial and economic situation across the world is so serious that Europe could soon descend into chaos and conflict. He also notes that the world is entering “one of the most dangerous periods in modern history”, and foresees violent riots in America and a brutal clamp-down by the government that will dramatically curtail civil liberties.
This is an individual who not only predicted the collapse of 2008 and took action to insulate himself, he also proposed the various fixes that governments in Europe and the US would eventually implement in order to stave off a deflationary depression. In his aforementioned book he suggested that central banks infuse the system with massive amounts of monetary expansion, but also warned that not injecting enough money would simply extend the onset of deflation and printing too much could lead to hyperinflationary currency collapse.
Based on recent activity in Soros’ US held accounts, it seems that governments and central banks have failed at those efforts to stabilize the system. As such, Soros is getting out of those companies which are most at risk should the financial system buckle like it did in 2008 and he’s shifting his assets into what may be the only asset class left standing when it’s all said and done.
Read the entire article HERE.
by Bix Weir
The silver markets are rigged. Every day. Every trade. Every option. Every derivative. The silver markets have been rigged since the early 1970′s when Alan Greenspan introduced computer market trading systems to the world beginning the long term commodity market rigging operation.
Since that time there has not been a day when the silver markets have been “freely traded”. Nobody, and I mean NOBODY, knows the true “Fair Market Value” of silver!
But like all price suppression schemes, the silver manipulation must come to an end and we are on the brink of that moment. The only remaining question should be “What is the true value of silver in terms of money?”
First a little background to set the stage.
Computer Commodity Trading
Beginning in the early 1970′s, computers were introduced to control the order flow in financial markets. Order processing was drastically changed with the New York Stock Exchange’s “designated order turnaround” system (DOT, and later SuperDOT) which routed orders electronically to the proper trading post to be executed manually, and the “opening automated reporting system” (OARS) which aided the specialist in determining the market clearing opening price (SOR; Smart Order Routing).
Today we have algorithmic trading, auto trading, algo trading, black-box trading, robo trading…and the list goes on. Algorithmic Trading is widely used by pension funds, mutual funds, and other buy side institutional traders, to divide large trades into several smaller trades in order to manage market impact, and risk. Sell side traders, such as market makers and hedge funds, claim to provide “liquidity to the market”, generating and executing orders automatically. In “high frequency trading” (HFT) computers make the decision to initiate orders based on information that is received electronically, before human traders are even aware of the information.
Over the years computers have played an increasingly important role in everything related to our “free and open market system” such that today’s financial markets CANNOT function without computers. The Federal Reserve, US Treasury, Wall Street insiders and the Exchanges were all instrumental in the integration of computers but they also gained access to secret trading information before the order hit the open market. This information coupled with the fastest computers on earth made market manipulation easy.
This power, the power to control markets, was too much for anyone to resist. Over time those who were given the official key to the back office operations have used and abused their position to its manipulative fullest. Although some of the time they used this power in an official capacity (for the good of the country), more often than not it was used in an unofficial capacity… for the good of themselves.
Bernie Madoff, the ex-head of the NASAQ, was a great example of this public to private transition as his private trading firm was all computer algorithm based market rigging operations. There are many other ex-Exchange/Wall Street officers that went on to open computer trading operations. Many continue to thrive such as EWT, LLC which became a dominant trading/market making firm using “state-of-the-art technology and algorithmic models”. EWT was founded by Vincent Viola (ex NYMEX Chairman) and David Salomon (reported to Robert Ruben at Goldman Sachs) and are also an “Authorized Participant” in the iShares Silver ETF (SLV).
Are you beginning to see the problem? He who has the biggest, fastest and smartest computers (or programmers) can set the price and will ALWAYS WIN! No longer is there any kind of true supply/demand factors related to commodity exchanges or prices. Computer trading should be outlawed…the convenience and efficiency it provides does not offset the detrimental effects and potential for total and complete market manipulation.
CFTC Created to Cover Up the Manipulation
When the computer rigging programs were implemented there needed to be some kind of cover to ensure secrecy and maintain a false confidence in free markets. In 1974 Congress passed the Commodity Futures Trading Commission Act that overhauled the Commodity Exchange Act and created the CFTC as an independent agency with powers greater than those of its predecessor agency, the Commodity Exchange Authority.
From that moment the CFTC has been run by board appointees that showcased a revolving door of Wall Street insiders ensuring that the computer market rigging operations were not interfered with. The only notable exception is Brooksley Born who was fired by President Clinton when she found out the truth about our supposed “free markets” and tried to warn everyone. (see The Warning)
Listen to Brooksley Born explain the problems in her own words when she accepted her JFK Profiles in Courage Award in August 2009.
A while back I gave up my fight against the CFTC as I determined that they were NOT protecting the best interest of the investor but rather they were protecting the computer market rigging operations and the people involved. Here is one of my last articles on the subject:
Road to Roota III — Who’s the little man behind the curtain?
Now that you have some background let’s get back to $8,000 Silver!
Historically, when any price rigging operation stops the violence of the ensuing price changes are determined by the length and scale of the manipulation as well as the underlying fundamentals of the item being rigged. Take for example the famous 1980′s case of the Hunt brothers trying to corner the silver market. From early 1974 the Hunt brothers started accumulating silver which ultimately drove the price from $6/oz to $50/oz until January 21, 1980 when the CFTC finally pulled the plug on their operation. Within 2 months the price of silver plummeted from $50/oz to $10/oz and the silver price was back under control of the US Government and Banking Cabal. An excellent account of what transpired can be found here:
This account shows what can happen to the price of a manipulated commodity when the price manipulation is ended. In the case of the Hunt Brothers the manipulation lasted 6 years and involved approximately 130M oz of physical silver and 90M oz of COMEX silver contracts. This was an attempt at a Long Silver price manipulation but it was going on while the Short Silver Official manipulation was going on trying to keep the price down. The only way the Hunt’s accumulated so much silver without the price heading into the many thousands of dollars was the official computer price suppression operation.
The manipulation was ended when the CFTC stopped all COMEX Silver purchases and allowed only silver liquidation sales instantly driving the price down. In 1980 the US Government held 3B oz of silver and in order to maintain the lower silver price levels they sold the entire stock of silver into the market over the next 25 years. That excess supply combined with other governments divesting their silver was enough to continue the price suppression scheme for almost 40 years. That supply is now gone.
One Bank has the Hot Potato
So here we are 40 years after the official manipulation of silver began and the world is finally awakening to the situation. The CFTC, having investigated silver manipulation allegations twice previously, has had an open investigation into silver market manipulation for over 3 years. They have even stated that the investigation was moved to the “Enforcement Division” within the CFTC which pretty much tells you what the conclusion of the investigation revealed. The FBI has separately stated that they are investigating JP Morgan for silver market manipulation.
These two facts and the absolute SILENCE from JP Morgan were strong indicators that the long term manipulation of silver was about to end but on April 5, 2012 JP Morgan broke their silence about silver manipulation. The “Wicked Witch” of silver, Blythe Masters, (the head of JPM Commodities and the creator of the mammoth Credit Default Swaps complex) came on a scripted CNBC interview and denied that JP Morgan manipulates the silver price.
JPMorgan Not Speculating on Commodities: Blythe Masters
Of course she is lying through her teeth when she claims that JP Morgan only has neutral positions. The obvious “tell” is that JPM booked almost $3 BILLION in revenue from their commodities division in 2011! Either they have the highest commission structure in human history or she is LYING THROUGH HER TEETH! As a matter of fact, Blythe’s boss Jamie Dimon recently claimed that they need to get rid of the Volcker Rule so they can continue to offer their customers THE LOWEST prices possible…
Dimon on Price Wars, Volcker Rule, Stock Prices
Here’s the specific quote just over 2:00 into the piece: “When the client calls up JP Morgan, if we don’t give them the best price then we don’t get the business.”
So tell me Blythe…how did you make $3B off your commodity clients by offering them “the best price” and NOT trading for your own book?!
Looks like Blythe has cracked the age old secret for turning lead into gold…PILE ON THE PAPER DERIVATIVES!
*The REASON that Blythe gave this article is that they are about to be BUSTED for silver market manipulation and she is trying to start the defense early…nice try Blythe but you are about to be MELTED!
Ted Butler of Butler Research has been exposing the official manipulation of Silver for the past 25 years. His research was instrumental in exposing the gold/silver leasing operations and the massive concentrated short positions in both gold and silver. On September 3, 2008 Butler published a report entitled Fact Versus Speculation where he showed how one bank, JP Morgan Chase, took over the Bear Stearns Silver COMEX Short position of 30,000 contracts or 150M oz.
Since this report was published JP Morgan has continued its silver market rigging antics in an effort to get out of this precarious short position. After Butler exposed JPM as the culprit there have been wild orchestrated swings in the price of silver as JPM attempts to cover their massive COMEX short position. The price of silver has risen from $13 to currently over $30 in this time frame and the size of the short position held by JP Morgan has gyrated wildly between 30k and 40k contracts as they desperately try to shake the longs to cover their shorts. But even with this rise in price the short position is STILL around 20k contracts according to the CFTC’s latest Bank Participation Report.
Add to this various silver market manipulation tools such as naked shorting silver ETF’s, falsifying COMEX warehouse data, unallocated silver, leasing and swapping metal and you have a situation that dwarfs the Hunt brothers case.
Of course, JP Morgan is no ordinary bank because they are also the LARGEST derivative holder in the WORLD at over $75 TRILLION! Do remember Warren Buffett calling derivatives “Weapons of Mass Financial Destruction”? Well, JP Morgan holds the mother load when it comes to silver too with over $19 BILLION of Silver derivative contracts!
(OCC Report table 9: Classified as “PREC METALS”… might be a little platinum but not much).
This report was for the quarter ending September 2011 when the price of silver was slammed down to $30 from $42/oz at the beginning of Sept. Interesting: Had silver NOT been slammed down almost 30% in Sept 2011 then JPM would have had to declare silver derivative of close to $25B instead of just $19B. Talk about “painting the tape”!
At $30/oz silver the JPM $19B silver derivative position is representative of over 630M ounces of paper silver.
COME ON PEOPLE! I’m starting to think my $8,000/oz silver call is too conservative!
What’s going to happen when JP Morgan’s derivative monument comes crashing down?
Here’s where I get to $8,000 per oz for silver.
1) I know silver has not been freely traded in 40 years so today’s price if irrelevant.
2) I, like many, estimate there is only about 1B ounces in above ground physical silver for investment purposes.
3) I, like many, estimate there is only 5B ounces of above ground physical gold for investment purposes.
4) If the price of gold is not manipulated, like the banks claim, then the price of silver should be 5x the price of gold due to its supply/demand fundamentals.
CONCLUSION: The price of gold is around $1,600/oz so the true Fair Market Value of Silver should be around 5x the price of gold or $8,000/oz in a FREE market!
It’s simple, if you remove ONE BANK from the supply side of the equation the price of silver will SKYROCKET overnight.
ONE BANK controls the price of silver.
ONE BANK controls the fate of our monetary system.
ONE BANK is behind the curtain pulling the silver manipulation levers.
ONE BANK has control over a nation that was founded by “We the People”.
ONE BANK MUST GO AWAY TO SAVE OUR LIBERTY!
May the Road you choose be the Right Road.
Read the entire article HERE.
by Michael Maloney
December 19, 2011
Just last week we wrote about the dangers that MF Global revealed in the global banking system. The basic idea is that MF Global and probably every other Wall Street bank is gambling with their clients’ wealth. What’s clearly a fact is that these firms’ fiduciary responsibility is to themselves and their shareholders—it’s their clients that are the ones being taken out back for slaughter.
A Barron’s article today, published in Yahoo! Finance, proves many of those clients’ worst fears—that lost assets including cash, stocks, commodities, futures, and gold and silver will be commingled by MF Global’s trustee, and losses will be shared amongst all of MF Global’s creditors. But the holders of gold and silver had warehouse receipts identifying individual bars and coins that the clients believed were theirs. These clients, of course, assumed that their metals were safe and sound in the custody of MF Global, but as we have talked about before, when a bank goes under, anyone storing metals becomes an unsecured creditor—and in that case you are at the whim of the bank—or more accurately the bank’s bankruptcy trustee.
When we wrote this in July of 2010, many thought we were crazy. Ownership is ownership, they claimed, and it didn’t matter if you owned gold in ETF format, pooled account, or with a bullion bank.
Just as when you deposit your currency at a bank, the bank doesn’t keep your dollars separate from everyone else’s dollars; the bank simply tells you in your bank statements how much it owes you. But, legally, when you buy into a gold pool or certificate program, the bank becomes the owner of the gold.
If the bank gets into financial trouble (gasp!) it can sell your gold to maintain its assets at a level where it won’t get shut down and where it will avoid a run on the bank. In that instance, you won’t be paid back in gold, but rather in currency—less currency than the value of the gold the bank owed you—because logically a bank in trouble almost certainly would be forced to sell assets at fire-sale prices. If you live in a country with some kind of bank deposit protection (such as the Federal Deposit Insurance Corporation in the United States or Financial Services Compensation Scheme in the U.K.), your gold will not be covered. That’s because deposit insurance only applies to currency—meaning that, in the event of a bank crash, currency deposits are safer than unallocated gold.
When we first heard the story of Jason Fane of Ithaca, NY, having his precious metals held from transfer by the bankruptcy trustee, we smelled something fishy, and assumed that something more sinister was going on.
Today’s Barron’s article proves exactly those fears—that precious metals owners who seemingly owned their metals outright will actually lose a portion of the value of their precious metals. Barron’s says this:
That has investors fuming. “Warehouse receipts, like gold bars, are our property, 100%,” contends John Roe, a partner in BTR Trading, a Chicago futures-trading firm. He personally lost several hundred thousand dollars in investments via MF Global; his clients lost even more. “We are a unique class, and instead, the trustee is doing a radical redistribution of property,” he says.
But a redistribution of property is exactly what is planned—with “owners” of precious metals held by the former-MF Global being forced to take a 28% haircut on the value of their metals. But it gets worse:
So the big secret is out in the open now—and maybe, people won’t think we are crazy any more. As Mike Maloney has said for years: “If you can’t hold it, you don’t own it.”
Read the entire article HERE.
BY STEVE ST. ANGELO
The world is about to peak in global silver production. This will not occur due to a lack of silver to mine, but rather as a result of the peaking of world energy resources, declining ore grades, and a falling Energy Returned On Invested – EROI. The information below will describe a future world that very few have forecasted and even less are prepared. This is an update to my previous article Peak Silver and Mining by a Falling EROI. In my first article I stated that global silver production may peak in 2009 if we were to enter a worldwide depression. We did not have the global depression as massive central bank printing and bailouts have thus far postponed the inevitable.
The world has entered a plateau of global oil production over the past 5-6 years. A higher oil price has not brought on more supply to offset depletion rates from existing fields. From the graphs above we see a correlation between global silver supply and oil production, especially in the latter part of the 20th century. Up until the late 1800’s and early 1900’s the majority of energy used in mining silver came from human and animal labor. It is truly amazing just how much silver was produced in the United States at this time without the use of oil and modern mining practices (information provided later in the article). This all changed as global oil production as well as the technique of open-pit mining increased.
The 3 Big Energy Game Changers for Silver Mining
There are a number of some very large open-pit mining projects supplying silver that are forecasted to go into production within the next several years as well as others by the end of the decade. It is astounding to see these 25-45 year extended forecasts by these mining companies without any consideration of what the energy environment will be like in 2015-2020 or later. It seems like everyone in the sector assumes there will be ample supplies of energy at commercially viable prices.
This is where the trouble begins. There are three negative energy game changers that will impact the mining industry going forward. They are: (1) the Peaking of global oil production, (2) the Land Export Model and (3) the falling EROI – Energy Returned On Invested. Of the three, I believe the falling EROI will be the most devastating. Before explaining why this is the case, let’s take a look at each.
Peak Global Oil Production
According to JODI’s global oil production figures represented HERE in a post on theOilDrum.com, it looks like the global peak of convention crude/condensate and natural gas liquids took place in 2006:
Global oil production has increased steadily since the early 1980’s and has now been in a bumpy plateau for the past 5-6 years even with much higher oil prices. It is true that there are more projects and oil fields slated to come online in the next several years, but much of the increase will be offset by depletion in existing fields. To add insult to injury, the majority of oil that is exported throughout the world is being supplied by countries that are also increasing their own domestic oil consumption. This is a double-edged sword for dependent oil importing nations— which leads us to the Export Land Model.
Export Land Model
The Export Land Model developed by geologist Jeffery Brown and others shows how oil- exporting countries suffer higher declines of exports due to increased domestic consumption. As the nation increases its own oil consumption for their expanding economy, this causes exports to fall even greater than declines in oil production alone. This becomes apparent when we look at what is taking place in Saudi Arabia.
In 1980, Saudi Arabia produced approximately the same amount of oil it is presently. However the kingdom is exporting 2+ mbd (million barrels a day) less oil. The right side graph above reveals that as domestic consumption has increased (black line), exports have declined. By 2020, Saudi Arabia’s domestic consumption is forecasted to reach 5.9 mbd of oil equivalent, including natural gas, which will decrease the country’s exports even further (Jadwa Investment’s “Saudi Arabia’s coming oil and Fiscal Challenge”).
If we add up all the other exporting oil countries and consider what the future percentage loss from this model might be, the drop in oil exports will be significant indeed. Here we can see that the peaking of global oil production, plus the declining oil exports described above by the Export Land Model, puts a serious dent in the ability for future growth in the world economies. If the world economies are unable to grow, neither will the supply of base metals and silver.
These two energy constraints are in themselves bad enough news for the global economy and the mining industry. Unfortunately the third is by far the most devastating. The falling EROI measures what amount of that oil will be available for market. It is also described as the net energy that remains after production costs are considered.
The Falling EROI: Energy Returned on Invested
In my opinion, the EROI —Energy Returned On Invested— is by far the most important aspect confronting our economy, society and world at large. Ironically, the EROI of oil and natural gas has been falling ever since man drilled his first well.
According to work done by Cutler Cleveland of Boston University, the EROI of U.S. oil andgas was 100/1 in 1930. It fell to 30/1 by 1970, and hit 11/1 by 2000. Oil was so abundant during the 30’s in the States that it only took the cost of 1 barrel of oil to produce 100 barrels for market. By 2000, it has declined nearly tenfold.
The graph on the right side shows the falling Global oil and gas EROI (by Gagnon, Hall & Brinker) to be 18/1 in 2006. They plot with a solid black line that a possible 1:1 EROI projection may be by the mid 2030 decade. As this EROI ratio continues to decline, it puts a huge stress on the world economies by increased energy costs while providing less net energy for the market.
There has been so much misinformation put out by different organizations as to the amount of oil and natural gas reserves that it is has totally confused the investing community and the public. Whenever I get into a debate about peak oil or oil reserves there is always someone who brings up the notion that the United States is sitting on trillions of barrels of shale oil. This is the subject of a whole other article, but to get to the point, shale oil as a savior of the inevitable United States (or World) Energy Crisis is a pipe dream. Here are the three biggest lies propagated in the U.S. energy industry:
- 1950’s – Nuclear energy…..too cheap to meter.
- 2000’s – Shale Oil trillion+ barrels of U.S. reserves
- 2000’s – Shale Gas 100 years worth of U.S. supply
To explain why there is a great deal of hype in shale oil and gas, take a look at the graph below.
Shale oil is much more expensive to extract than light sweet crude in Saudi Arabia. Many say that increased technology will bring more oil to the market, but it does so at a lower EROI. The lower the EROI, the less net energy is available for market. With less net energy, there is less growth.
Furthermore the depletion rates of a typical shale well in the North Dakota Bakken Field are 75-80% by the second year. Shale gas depletion is even worse, with fields reported from the Texas Barnett Field declining 60% in the first year. The notion that the U.S. will be able to increase oil production significantly with shale oil turns out to be a red herring when you figure that these severe depletion rates make it impossible to do so.
Another nail in the coffin for shale oil is its low EROI. The figures on the right side of the graph above show the different EROI ratios for conventional and nonconventional energy sources. The only thing worse on the EROI scale than shale oil (5:1) is tar sands (2-4:1). Why are these EROI ratios so important and ultimately devastating to the world economy and silver mining? The next graph provides the answer.
As we can see from the left side of the global oil peak, everything is rosy; high EROI ratios with a majority of net energy already consumed by the world economies. Once we slide over to the other side, the picture gets downright scary. Even though there is a great deal of oil on the downward side of the peak, the majority of it gets consumed in the production of the energy itself. Once it costs more to produce a barrel than you get in return, the game is over.
Unfortunately, there is more to it than that. There is a minimum EROI that a modern society needs to sustain itself. All the EROI ratios listed above are figured from the point the oil & gas comes out of the well. We have to remember the oil & gas has to be transported and refined and the interstate-highway system and infrastructure has to been maintained. All of these are costs that are subtracted out of that EROI ratio. This is explained in detail by Charles Hall & David Murphy HERE. The bare minimum a modern society needs is an EROI of 3:1….but if you want the luxuries of art, entertainment, medicine, education or etc; the ratio has to be higher still.
The graph above is one possible forecast of net energy. The creator of the graph has produced another showing a more gradual slope of net energy. I have had several conversations and email exchanges with other geologists and engineers who believe the graph presented above is a more realistic representation than the second. I agree.
Peak Oil is Here Whether You Believe it or Not
Before we get into the silver part of the article, there is one more topic on energy that needs to be discussed. There is continued debate about the Abiotic Theory of Oil as well as the blocking of oil drilling in certain areas of the United States by environmentalists. The Abiotic Oil Theory states that oil fields are continuously being refilled, so there will be no peak oil. Even though this might be true in some small cases as it pertains to methane, the amount is infinitesimal.
The list of countries presently past peak is long. If we consider a good portion of these countries are in areas of the world that do not have much in the way of regulations or environmentalists, peak oil still took place. It is true that there is still some oil in the U.S. being kept from the market by environmentalists and the government, but in the end….it doesn’t change the overall picture all that much.
Lastly, for those of you who believe the information above is controlled by the Illuminati, Bilderbergs or whomever and there is still plenty of oil in wells capped all over the country, there is nothing that can be written or said to change your mind. As illustrated by the data, peak oil is here whether you believe it or not.
As the world is currently peaking in oil production, the United States passed its peak forty years ago in 1971. The same can be said for overall silver production. The U.S. extracted the majority of its high grade silver by the middle of the 20th century. Today, the U.S. has to resort to mining a great deal more total ore to produce the same or less silver than it did years ago. This process is occurring throughout the world. In my first article (link provided at the top of this article) most of the information on ore grades came from Gavin Mudd and his work on the Australian mining industry as well as data on declining global gold ore grades. To continue to understand this ongoing process, I choose to focus on the United States as the USGS – U.S. Geological Survey – has kept some very detailed records of historical mining activity in the States.
CASE STUDY: United States Past Silver Production and Falling Ore Grades
In the early days, miners and investors sought out the best quality and highest ore grades they could find. The higher the ore grade, the higher the profit. Today, there is a great deal of excitement when mining companies release drill results with higher ore grades than expected. Yet, these same ore grades would have been embarrassing to the prospector and investor just 100 years ago. How the passage of time makes us forget what life was like just a short while ago…
The majority of the top eight silver ore-producing states in the country peaked in annual silver production before the 1940’s. Only Idaho and Nevada had higher peaks after 1950.
Colorado had the highest annual silver production of all 50 states with 25.8 million ounces produced in 1893, almost 120 years ago. New Mexico peaked in 1885, Montana in 1892, California in 1921, Utah in 1925, and Arizona in 1937. Even though Idaho had its true peak in 1966 at 19.8 million ounces, it surpassed its previous record by only 200,000 ounces, which occurred in 1937. Nevada peaked late in the game due to two factors: 1) it has recently become the largest gold producer in the country currently, providing nearly 75% of nation’s gold. (with gold mining comes by-product silver), and 2) due to the McCoy/Cove Mine, which single-handedly mined 11 of the 27.4 million ounces Nevada produced at its all time peak in 1997.
Not only did the McCoy/Cove Mine help Nevada to become the second-highest silver producer in U.S. history, it also accounted for 35% of all silver extracted from the state between 1987 and 2003.
The record silver production in Nevada as well as the McCoy/Cove mine are now gone. In its last recorded year of production, the McCoy/Cove Mine produced 596 oz of silver in 2006. That’s correct, a mere 596 oz (that year it was still producing some gold). According to theMajor Mines of Nevada 2010 publication just released, Nevada only produced 7.3 million ounces of silver in 2010…a 70% decline in just 13 years from its peak.
From the late 1800’s to 1950’s the same eight states listed above produced the lion’s share of silver in the country. Very few people who are asked will know which state was the largest producer at this time. Most when asked will say Idaho, Utah or Colorado. I was quite surprised to find out that Montana outperformed them all by producing 775 million ounces by 1950.
Montana produced the most silver in the country at this time due to the richness of copper in the state, where silver was a by-product. According to the MONTANA MINING NEWS MINING JOURNAL dated 8/30/1930:
Anaconda Copper Mining Company is confining work at the Flathead Mine, near Kalispell, Montana, to development, because of the present metal prices, according to a reported statement by Jack Dugan, superintendent. Thirty men are employed in extracting 40 tons daily, of ore, said to average 50 ounces of silver, per ton.
This is an example of the kind of high grade ores they were pulling out of Montana back in 1930. Impressive as it was, this was not the average. To give you an idea of the difference of 75 years, Montana produced 9.3 million ounces of silver in 1935 at an average ore grade of 3.45 oz/ton. In 2010 there were only two mines producing silver as a by-product of copper. The larger producer is the only publicly traded company in Montana and it produced a little more than 1 million ounces of silver at an average ore grade of 0.87 oz/ton or a 75% decline.
The USGS provides Mineral Yearbooks for the states back until 1932. One can imagine what the ore grades must have been in 1892 when Montana produced its most silver in one year at 19 million ounces.
Idaho: the Largest Silver Producer in the Country’s History
The one state that sticks out like a sore thumb in the graph above is Idaho. It is the only state that has produced over a billion ounces silver by 1990 with the majority of it after 1950. Even with this significant production, Idaho wasn’t able to escape the negative aspects of falling ore grades.
In the late 1800’s and early 1900’s a larger percentage of silver came from a grade called “Dry and Siliceous Ore”. During this time, between 40-50% of silver produced in the country came from this type of ore. To give you an example in 1922, 46.8% of silver in the U.S. came from dry and siliceous ore. The percentage dropped over the next decade— falling some years into the teens (especially during the 1930’s depression). By 1935, it climbed back to 40%.
This is the sort of ore that primary silver mines are made of as it contains the most silver per ton. Idaho had some of the richest dry and siliceous ore grades in the country. The graph below represents how much this sort of ore grade has declined since the 1940’s.
The reason why this graph only shows data up until 1980 for Idaho and 1989 for the U.S. is due to the fact that information was withheld from the USGS due to proprietary reasons by the mining companies. Furthermore, this is also true for individual state reporting of detailed silver statistics after 1990. In the early days the states provided the USGS with so much information on gold and silver that many of the gold-silver reports were over 200-300 pages. Today the Silver Yearbooks barely fill 15 pages.
To bridge the gap to the present day, we can look at what has taken place in the largest publicly traded mining company in the state. Hecla’s Lucky Friday Mine in Idaho produced 3.3 million ounces in 2010 at an average ore grade of 10.25 oz per ton. The chart below compares the difference from the same mine in 1965.
Here we can see that Hecla has only produced a little more than 100,000 ounces of silver than it did in 1965 but has to process almost double the amount of total ore. This insidious decline of silver ore grades over the years seems subtle to the mining industry that is focused on quarterly results, but becomes an increasingly difficult problem now that the world suffers from peak oil and a falling EROI.
The United States: Produced 25% of all Global Silver 1900-1950
When the U.S. was the Saudi Arabia of the world in oil production at the early and middle part of the 20th century, it was also the second-largest silver producer in the world behind Mexico. Of the 10.5 billion ounces of silver produced by the world from 1900-1950, the United States accounted for 2.7 billion (or 26%) of the total amount.
This historical graph is relevant due to the fact that in next 60 years from 1951-2010 the U.S. only produced 2.58 billion ounces of silver… with significantly falling ore grades shown below.
The chart above represents total ore from mining gold, silver, copper, lead and zinc. The majority of silver comes from base metal mining in which zinc/lead provides the highest percentage compared to copper and gold. In 75 years, the total ore grade of silver has fallen nearly 92% while actual production has remained basically flat. This is due to the fact that all base metal ore grades in the U.S. are falling as well.
For example, copper has shown a huge decrease in ore grade since the early 1900’s. In 1906 the average ore grade for copper was 2.5%. By 1935 the average copper ore grade had fallen to 1.89% and in 2009 the United States produced copper at 0.43% a ton. This is a decline of 77%.
The Falling EROI and Declining Ore Grades
On top of declining ore grades and adding insult to injury, is the falling EROI of energy. When the U.S. and the world were tapping into high quality concentrated ore grades in the early years, they did so with the majority of human and animal labor. This kind of labor was not only very efficient but it also utilizing a higher EROI. The open-pit mining practices employed today are in fact quite the opposite….extracting metal at a much lower EROI.
For example, people today have this misguided opinion that modern farming is very efficient. They see one farmer on a huge tractor working hundreds or thousands of acres of agricultural land. They do not factor in all the energy it costs to plant, fertilize, harvest and process the crop. This does not include all the energy and technology it takes to develop hybrid seeds, the manufacturing of the tractor and equipment as well as many other aspects that go into modern farming. In reality, the pre-industrial farmer with horse and plow was extremely more efficient that his modern counterpart.
Hunter Gatherer = 10/1
Pre-Industrial farmer = 10/1
Modern high-tech farmer = 1/10
The pre-industrial farmer with horse and plow was able to produce 10 calories (of food) for market for every 1 calorie of energy (food) consumed by the operation. Today, the modern farmer needs to consume 10 calories of energy to provide only 1 calorie of food for market. If we consider this ratio, the modern farmer is 98.8% less efficient than the simple farmer with horse and plow.
The only reason why modern farming practices have been successful at this horrible rate of efficiency is due to the high EROI of energy over the past 100 years. Now that the EROI is falling considerably, it is putting severe pressure on the agricultural industry. This will also be true for the mining industry.
Base metals are extracted by either open-pit or underground mining. Of the two, open-pit mines account for the larger percentage of metal produced in the world. (Surface Mining Methods and Equipment) The technique of open-pit mining utilizes huge excavators and large haul trucks to move the ore from the mine. There is a great deal of energy consumed in the development, manufacturing, maintenance and operation of these huge earth moving machines in the mining industry.
It is difficult to estimate an EROI ratio for open pit mining as the end product is metal and not energy. That being said, a simple rule of thumb can be assumed if we take the negative EROI of modern farming as an example. The larger and more complex the machine used in industry, the more inefficient its production as it pertains to the EROI.
Now that we understand the past and present EROI ratios in the agricultural sector, we can see why the early miners and prospectors were much more efficient in producing silver than the huge open-pit mining operations of today when we consider all the energy involved. As the world’s energy sources start to decline in the future and the falling EROI destroys an ever increasing portion of the net energy available for market, the number of open-pit mines will decline as well. As this process takes place, the peak in global mining will occur due the fact that human or animal labor cannot equal the extraction rate of diesel powered earth-moving machines. What is taking place in the mining industry today is the WORST OF BOTH WORLDS… declining ore grades on top of a falling EROI of energy.
The Coming Global Depression: Another Nail in the Coffin for Peak Silver
The world hasn’t suffered an economic depression for almost 80 years. The Kondratieff-Wave analysts who study business cycles say we are now overdue for a depression. Even though this is true, they are correct for the wrong reasons. Business cycles have occurred because humans were able to constantly grow and expand their economies. It was due to the 10/1 EROI of the pre-industrial farmers that enabled the rest of the economy to grow and flourish. After several generations of booms, we had the busts.
As we moved into the modern-industrial economy cheap energy with a high EROI allowed the world economies to grow exponentially—allowing these business cycles to continue. Today we are at the top Boom part of the cycle. The big Bust and depression have been postponed due to the ability of central banks to print money and financial institutions to invent hundreds of trillions of dollars worth of derivatives to hedge overly inflated assets. When the global depression finally arrives, we will never return to anything like we enjoyed before. This bust will be the depression that ends all global depressions.
If we consider what took place during the last depression, base metal & silver mining activity fell off a cliff. The interesting thing to note in the next two graphs below as global silver production declined, gold production actually increased.
Global silver production declined 38% from 1929 to 1932, whereas gold production actually increased 24% in these three years. It took eight years before the world was able to increase silver production over its 1929 figure. Gold on the other hand, increased its global production a staggering 80% during the same time.
This time will truly be different. The world will not be able to increase its gold production anywhere near the percentage it did in the 1930’s. There is a good chance that actual global gold production will decline as the supply chains break down disrupting the highly technical method of refining and processing gold. Another reason may be due to its dependence on copper production as part of its supply. When economies collapse, so does the demand for base metals such as copper, zinc and lead. This is the reason why silver production suffers greater during a depression than gold.
Here we see just how much difference there is in the base metal mining percentage between gold and silver. Zinc & Lead account for the larger portion of the base metal percentage of silver mining, whereas copper production provided 15% of all the gold produced in the world in 2010….or 75% of the base metal pie.
When the world’s central banks are unable to continue to prop up the global economies with money printing, economic growth will drop considerably. China is starting to show signs of an economy heading into a brick wall. Base metal production will decline significantly in the following years cutting back the production of silver as well. If history is a good reference, the future global supply of silver can decline between 20-40%.
A Brief look at World Silver Production
Over the past decade global silver production has increased on average between 2-3% per year. In 2010, according to the World Silver Survey, global silver production reached 735 million ounces of silver. In the first half of 2011 some of the top silver-producing countries have increased their production while others have seen declines. The top producing silver mine in the world, BHP Billiton’s Cannington, has seen its production decrease from 18.9 million oz in the first half of 2010 to only 15.5 million ounces in the first half of 2011 (an 18% decline). Cannington — like all mines— suffers from falling ore grades.
In 2000, Canningtion mined 1.6 million tons of ore and produced 30 million ounces of silver at an average ore grade of 636 g/t. By 2011, it mined 3.1 million tons of ore (or 92% more) just to produce an additional 5 million ounces than it did eleven years ago. What is occurring at Cannington is typical of mines throughout the world.
If we take a look at global silver supply, only a handful of countries have increased their production significantly over the past several decades. Out of all the countries listed in the graph below since 1985, China has had the largest percentage increase. China increased its estimated production from only 2.5 million ounces in 1985 to 99 million oz (or +3,850%) by 2010. The other countries that have increased their production in order of highest percentage are, Bolivia from 3.6 mil oz to 41 mil oz (+1,039%), Argentina from 2.1 mil oz to 20.6 mil oz (+880%), Chile from 16.6 mil oz to 41 mil oz (+147%), Peru from 58.2 mil oz to 116.1 mil oz (+100%), and finally Mexico from 73.2 mil oz to 128 mil oz (+75%), in the same time period. Even though Mexico is the number one silver producer in the world, it had the lowest percentage increase of all six countries. These countries account for 61% of all global silver supply.
Australia was not included in the graph for two reasons. First, even though its production has increased 71% since 1985, its future growth is not forecasted to improve as much as the nations listed above. Secondly, because of Australia’s western form of capitalistic government, it is least likely to deal with issues of political instability, threats of nationalization or protectionist policies such as those in South America, Mexico and China.
Argentina, Bolivia, Chile and Peru— which are located in South America— may suffer from the same type of policies that have plagued the resource industry in Venezuela. Not only are Venezuela’s oil fields nationalized, in August of this year, President Hugo Chavez has also ordered the same for the gold mining industry.
In Mexico, billionaire Hugo Salinas Price has gained significant support in the country to reintroduce the Silver Libertad as legal tender to compete with the Peso for the Mexican people. If this policy were to pass, a large percentage of Mexico’s silver production would be consumed by its own people to protect them from continued inflation. Furthermore, the country suffers from a great deal of upheaval and violence from the drug wars which could lead to political instability possibly threatening the mining industry.
Lastly, over the past several years the world has felt the ramifications of China’s cutback of rare earth mineral exports. China currently produces between 95-97% of the 17 rare earth minerals in the world. Not only have prices of rare earth minerals increased substantially due to this monopolistic policy, it is also forcing foreign companies to move their facilities that manufacture end-user products in China. These companies are also being requested by China to transfer valuable technology to other domestic companies so they can benefit from the knowledge.
This may also occur in exports of Chinese silver. As global tensions increase due the continued disintegration of the world fiat currency system, China may decide to put a total ban on silver exports. Even though Chinese exports have declined substantially (from 3,000 metric tons in 2005 to only 1,575 metric tons in 2009), there is a good possibility that they may turn off the silver spigot completely.
The countries listed above are enjoying the best records of increased silver production, but at the same time are some of the worst candidates for dependable future global supply.
Final Remarks and Conclusion
The world produced a record amount of silver in 2010. Many analysts are forecasting a continued increase in global production for the next decade. There are several factors that show why this will not be possible.
As the world peaks in global oil production and the net energy available for market continues to shrink due to the falling EROI (Energy Returned On Invested), of oil and natural gas, global economic growth will come to a screeching halt. The falling EROI of energy is a one way street to the bottom. Unconventional energy sources such as shale oil, shale gas and tar sands will not be able to stop this decline.
As global economic growth disintegrates so will the demand for base metals – which 70% of silver is a by-product. On top of that, silver ore grades are relentlessly falling in mines throughout the world which takes an increasing amount of energy just to keep production flat. If the mining industry tries to incorporate more human and animal labor to offset declining oil based energy in the future, it will do so only at much lower rates of production than today. This is due to the fact that human or animal labor cannot match the extraction rate of diesel powered excavators or huge dump trucks when it comes to mining silver.
Then there is the negative effect of a global depression on the production of silver. Presently the world has entered into tremendous chaos and economic turmoil. Conditions are ripe for a complete disintegration of the financial markets, thus pushing the world over the edge into a new dark age of hyperinflationary depression. In this sort of atmosphere, countries may resort to the nationalization of mines as well as other protectionist’s policies.
When the nails of the peak silver coffin are added up, the death of increasing future supply is close at hand. The CEO’s and analysts in the mining industry are for the most part oblivious to these factors that will destroy their ability to make viable forecasts of future projects. It amazes me to see professionals plan a huge open-pit mine with a 25-45 year economic plan without any consideration of what the energy environment will be like at that time. For some strange reason, there is this false assumption that “If we build it, the energy will come.”
If the world enters a depression within the next year or two, this will certainly guarantee the global peak of silver production. Why? It won’t matter if the global economy recovers in the next decade, because the peaking of oil and the falling EROI of energy will have destroyed enough net energy to kill any attempt to bring global silver production back to the level it was before.
Lastly, anyone who is good at connecting the dots will realize the ramifications of this article go way beyond just the peaking of silver. The falling EROI of energy will not only be a destroyer of precious net energy, but will also help bring down the largest empire in the world. This will be the subject of a future article.
Read the entire article HERE.
by Michael Maloney
August 3, 2011
A recent white paper released by the World Gold Council confirms to a large extent what we at WealthCycles.com have been saying all along—that in just about any imaginable economic scenario, gold stands to outperform all other assets.
The report, The Impact of Inflation and Deflation on the Case for Gold, prepared for the Council by Oxford Economics, differs from our own analysis primarily in degree—we don’t think it puts nearly enough emphasis on the “perfect storm” of global economic and monetary factors brewing on the not-so-distant horizon—conditions we believe are converging to produce the greatest wealth transfer in history.
The study examines gold and its past performance under certain conditions such as high oil prices, positive or negative real interest rates, the strength of the dollar, inflation or deflation. Based on the historic analysis of gold’s performance, the study creates formulas with which to forecast gold’s future performance. As WealthCycles.com did in its own article, The Road Ahead, the study then postulates how gold will do under four potential future scenarios. The only scenario under which, according to the study, gold does not shine is its “Baseline scenario”:
Steady economic recovery in major economies supported by strong emerging market growth
Easing of financial stress and repair of banking
Read the entire article HERE.
August 14, 2011
SAN FRANCISCO (AP) – For gold sellers on eBay, the recent stock market turmoil has been a boon for business. Gold and silver sales on eBay had already been rising steadily over the past several years – so much so that eBay Inc. created a special area in May to make it easier for buyers to find sellers.
Now, activity on that part of the site, the Bullion Center, is intensifying as consumers unnerved by the economic uncertainty flock to gold in hopes it will be a stable investment.
“When people are coming down to the question, ‘Do they want to have cash in the bank or gold in their hands?’ the answer is they’d rather have gold or silver,” said Jacob Chandler, CEO of Great Southern Coins, the largest seller of precious metals on eBay.
The stock market just ended one of its most volatile weeks in years, prompted in part by a downgrade in the nation’s credit rating and fears of another recession. The Dow Jones industrial average fell nearly 6 percent on Monday, its worst one-day drop since December 2008. Then the index rose Tuesday, fell Wednesday and rose Thursday and Friday to end the week 2 percent lower than a week ago.
Through most of last week, the average selling price increased for gold bullion – bars or coins stamped with their weight and level of purity.
According to the most recent data available from eBay, sales of 1-ounce gold American Eagle coins and 1-ounce gold Pamp Suisse bars rose steadily from Aug. 5 to Wednesday, before dipping slightly on Thursday.
On Aug. 5, when Standard & Poor’s lowered the nation’s credit rating, American Eagle coins were selling for an average of $1,800 among eBay’s featured sellers. The average price of the coins, produced by the U.S. Mint, rose more than 8 percent to $1,952 on Wednesday, before dropping to $1,915 on Thursday.
The Pamp Suisse brand of gold bars sold for an average of $1,787 on Aug. 5 and climbed nearly 8 percent to $1,927 by Wednesday. On Thursday, the bars dropped slightly to $1,890.
Even before last week’s market turbulence, investors were cautious because economic signals in the U.S. and overseas pointed toward trouble.
The Dow index fell 6 percent in the week ending Aug. 6. That week, the number of gold buyers on eBay rose 11 percent compared with the year’s weekly average. The number of gold sellers rose 14 percent. EBay would not provide the total number of buyers and sellers.
“With all the turmoil in the markets, this is seen as a way to diversify,” said Anthony Delvecchio, eBay’s vice president of business management and strategy for eBay’s North America business.
EBay, which is based in San Jose, Calif., does not impose minimum purchase amounts for bullion. Sellers offer gold both through auctions and “Buy It Now” fixed-price sales.
The increased popularity of gold on eBay echoes what’s happening in the broader gold market, where prices have spiked during the past two years.
Gold traded at about $900 per ounce in the summer of 2008, before the financial crisis unfolded that year. It passed $1,600 in late May and briefly rose above $1,800 for the first time on Wednesday before pulling back to $1,784. On Friday, gold fell to $1,740.60 per ounce, still nearly twice the summer 2008 prices.
Great Southern Coins has benefited from this uptick. Chandler said the company is selling more gold lately, and its silver sales remain strong, too. Chandler estimated his business has nearly quadrupled in the past 45 days, and he said it appeared to be up about five or six times during the past week, with most of this growth coming from sales on eBay.
Daniel Hirsch, a New York-based statistician who recently purchased more than a dozen gold coins on eBay from Great Southern Coins, said he started buying gold less than a year ago in an effort to expand his investment portfolio.
“It’s kind of a safe haven and a hedge against low interest rates,” he said.
Read the entire article HERE.
In this GoldMoney segment, James Turk, Director of The GoldMoney Foundation, talks to Jim Sinclair, host of JSMineSet.com, about his successful gold price predictions, US debt problems, how to ride the trend and the second phase of the gold bull.
Jim Sinclair talks about a formula/theory that Jesse Lauriston Livermore used called “the square of the numbers.” Jim Sinclair’s father, Bert Seligman was a business partner of the famous Stock Operator Jesse Lauriston Livermore.
Sinclair discusses a barrier, whether psychological or not, of the price in gold at $1764. This key theoretical price is the price that which confidence is lost in the markets and growth in gold price can go exponential. James Turk continues on to discuss the fundamentals of gold, the debt ceiling, the dollar, euro, fiat currency, sound money, the banking system and markets.
July 29, 2011
ProActive Investors UK
Sovereign debt worries here in Europe and in the US could push the gold price up to US$2,500 an ounce, and possibly even as high as US$5,000 ounce, according to research from Citigroup.
Today gold is changing hands at over US$1,600 an ounce as investors beat a retreat into a safe-haven “hard asset”.
And analyst Heath Jansen likens the current, seemingly inexorable rise of precious metal to the bull run of the 1970s and 1980s.
“When investors are hungry for gold, the metal has a habit of rising exponentially which has no parallel amongst metals,” he said in a note to clients.
“While base metals still have to adhere to some form of analysis along the lines of “supply less demand = inventory”, gold has decades of inventory lying in Central Banks and so that consideration doesn’t enter the equation, unless banks wish to sell that inventory.
“The last time they did that, and swapped their hard-asset gold for cash, it turned out to be the wrong option.
We do not believe that they will go that route in a hurry again. In fact, we believe it is that hard-lesson learned which makes them even more keen holders of gold and this has tightened up the market significantly.
“Added to that, equity investors nowadays often express dissatisfaction when gold companies hedge their gold and so that big negative, prominent in the nineties, has also been removed.
He singles out Randgold (LON:RRS) as its favoured equity play in the sector and jumps on the apparent disconnect between the lacklustre valuations of the miners and the precious metal’s sparkling performance on the commodities market.
“On a worst-case scenario for Euro sovereign debt and USA fiscal problems, we believe gold could repeat the extent of the 1970-1980 gold bull market, implying upside-risk to above $2500 an ounce,” Jansen added.
“A short-term (but not long lasting) large spike in gold is still possible in our view. We would now rate that probability as above 25 per cent, up from below 5 per cent just weeks ago (because of increased sovereign financial issues), and growing.”
This in turn ought to give a significant boost to the UK gold producers, which have underperformed the gold price and global gold equities.
The reason for this underperformance is put down to company-specific factors. For example, Randgold derives 20 per cent of its asset value from the Ivory Coast, which Jansen describes as a “tense political geography”.
Centamin (LON:CEY) and European Goldfields (LON:EGU) are discounted for the tough backdrop in Egypt and Greece respectively, while Tanzania is the major drag on African Barrick Gold (LON:ABG), he adds.
“These issues have contributed to the UK gold miners’ underperformance against the gold price and global gold equities,” Jansen explained.
“It also appears that investors do not view the current gold price as sustainable and are therefore not factoring current prices into the earnings estimates of the gold miners.
“However, based on the analysis presented in this note on the direction and magnitude of possible gold price movements, there could well be a swathe of earnings upgrades to come and a corresponding share price reaction, should gold prices maintain current strong levels or rise even further.”
Jansen even runs scenarios where the gold price could conceivably go to US$3,800 or US$5,000.
“It is difficult to argue that gold is going to $5,000 an ounce on the basis of equivalence with the seventies bull market. However the drivers are the same – the debasement of fiat currencies as a store of value and fear over the outlook for the global economy,” the analyst said.
“Given the historical role of gold as a storage of wealth, perceived devaluation in the purchasing power of fiat currencies translates into demand for the what is essentially the ultimate global reserve currency. It is not illogical then, to ask what conditions are needed to drive gold up to and even past this level.”
Citi’s is the latest in a long list of research which looks at the gold price and the underperformance of stocks in the sector.
Earlier this week, Investec’s Mark Heyhoe released ‘buy’ recommendations on a number of gold miners that have not been hitting the mark operationally, but are now expected to catch up.
They included Randgold, African Barrick Gold, European Goldfields and Centamin Egypt.
The analyst said: “We have a positive outlook on all companies, but stress that each company offers its own particular attraction to investors.”
Before that heavyweight Bank of America Merrill Lynch said it believes that bullion prices are sustainable between $1,500-2,000 an ounce in the medium term.
Like Investec, Merrill said there is ‘compelling scope’ for catch up trade for a number of gold plays.
Its favourite ‘buys’ are Centamin, Petropavlovsk (LON:POG), African Barrick, Randgold, and European Goldfields.
Ambrian Capital’s Duncan Hughes singles out Avocet Mining (LON:AVM) as his top pick in the gold sector.
Among the small-caps Archipelago Resources (LON:AR.), Condor Resources (LON:CNR), Hambledon Mining (LON:HMB), Mwana Africa (LON:MWA), Nyota Minerals (LON:NYO) and Vatukoula Gold Mines (LON:VGM), catch his eye.
Read the entire article HERE.
Jim welcomes Eric Sprott, Founder of Sprott Asset Management back to Financial Sense Newshour and discusses silver manipulation, and why he sees silver as the investment for the next decade.
Eric has accumulated 35 years of experience in the investment industry. After earning his designation as a chartered accountant, Eric entered the investment industry as a research analyst at Merrill Lynch. In 1981, he founded Sprott Securities (now called Cormark Securities Inc.), which today is one of Canada’s largest independently owned securities firms. After establishing Sprott Asset Management Inc. in December 2001 as a separate entity, Eric divested his entire ownership of Sprott Securities to its employees.
Audio Link HERE.