CPM Group’s Jeff Christian Responds “NEGATIVELY” To The SRSrocco Report On Silver Investment Demand

The debate continues between the SRSrocco Report and CPM Group’s Jeff Christian on the fundamentals of the silver market.  After my article, in which I questioned the CPM Group’s exclusion of silver investment demand from their supply and demand analysis, Jeff Christian responded with a comment on my website.  I am glad that Mr. Christian responded because it now allows me the opportunity to explain in more detail why I disagree with the CPM Group’s analysis.

As I have mentioned before, this has nothing to do with the individual or the company, but rather what I see as faulty analysis.  The whole idea of public writing is to be able to look at all sides of the story.  I have the right to disagree with someone else and to explain the reasons in my articles.  However, I have seen individuals in our alternative media community call names or ridicule individual’s that they are in disagreement.  I don’t believe that is the correct way to provide open debate as it focuses on the messenger, not the message.  (photo above left, courtesy of Kitco.com)

Before I get into the details on why I disagree with the CPM Group’s analysis on the silver market, I wanted to share a few things.  My analysis of the precious metals market has changed since I started writing articles in 2008.  Early on, I didn’t consider the impact of energy on the precious metals or the overall market and economy.  Furthermore, I stopped putting out price forecasts several years ago because it became apparent to me that it was impossible to do so.  Analysts who continue to put out specific price forecasts have been met with a great deal of frustration.

Today, I no longer believe in the fundamental theory that supply and demand forces are the leading factors in determining the price of energy, metals, commodities or most goods.  Thus, the analysis that suggests supply-demand forces or investment demand impact price is flawed or is likely overstated to a large degree.  Actually, I now believe that PRICE IMPACTS DEMAND, not the other way around.

We can plainly see this taking place in the Bitcoin Market.  It isn’t the fundamental demand that is pushing up the price, but rather, the skyrocketing price which is causing massive speculative interest in the Bitcoin Market:

It wasn’t Bitcoin’s blockchain technology that drove investors mad to get involved, maybe a few initially, but the near 2,000% increase in its price since the beginning of the year.  Furthermore, the insane Bitcoin price move has led to the following:

Bitcoin Mania Parabolic

Bitcoin Mania: Even Grandma Wants In on the Action

Auckland Man Sells House To Build Bitcoin Mining Rig

Bill Blain: Bitcoin Futures Could Be “A Clusterf*ck Of Monumental Proportions”

Bitcoin Has A “Whale” Problem: 1,000 Investors Control Nearly Half The Market

South Korea Bitcoin Frenzy: Everyone is Rushing to Invest in Cryptocurrencies

While it’s true that increased investor demand has been a partial factor in pushing up the Bitcoin price, its likely that the parabolic move is sucking in most of the demand.  I know this sounds like the old saying, “Which came first, the chicken or the egg?”  But, when a small handful of investors are controlling a large percentage of the market, the little investor really isn’t pushing up the price, rather… they are fuel for the deadly fire when the market collapses.

Getting back to the silver market, I would like to respond to Jeff Christian’s comment from my article, THE DISINFORMATION WAR: The Attempt To Disregard Silver Investor Demand In The Market.  In that article, I was responding to Mr. Christian’s remarks made during an interview with Kitco news about a decade surplus in the silver market:

I disagreed with Jeff’s statement,  “that if you keep silver investment demand as an “off-budget item,” then the price matches your supply-demand analysis almost perfectly.”  Here is a chart from the CPM Group on the silver market supply and demand fundamentals:

How does the CPM Group suggest that 15 years worth of deficits (according to their analysis) translates to a low $5.05 price compared to a quadrupling of the price to nearly $20 during a decade of surpluses?  Yes, I would imagine that they attribute increased investment demand for the rising silver price.  However, as I have mentioned several times, it has been mostly the oil price that is the overwhelming factor in determining the silver price:

Why did the rising oil price impact the silver price?  Because the cost to produce silver surged, especially during two periods (1971-1980 & 2000-2012).  This was also true for gold.  For example, I looked at Homestake Mining’s Annual Reports (1970’s) and found that their operating earnings in 1979, from their gold mine in South Dakota, were $15.3 million based on $76.1 million in total revenues:

By using this data, I calculated the estimated cost of production.  Furthermore, I found that Homestake’s South Dakota gold mine’s operating earnings in 1971 were a negative $238,000 on total gold revenues of $21.5 million.  Thus, Homestake lost money producing gold in 1971.  For those readers not familiar with Homestake, they had the largest gold mine in the United States for more than half a century.  Doing some simple calculations, I arrived at Homestake’s gold production cost versus the gold market price:

As the oil price surged during the 1970’s, it caused tremendous inflationary cost pressure on all aspects of the economy.  Here, we can see that Homestake Mining’s gold cost increased from $42 an ounce in 1971 to $247 an ounce in 1979.  However, as Homestake Mining’s gold cost grew, so did the market price.  Even though the market price increased to $306.68 in 1979, it cost Homestake Mining $247 to produce each ounce.  Yes, it is true Homestake enjoyed nice profits in 1979, but the notion that the gold price surged due to investment demand only totally disregards the COST PRESSURES on the gold mining industry.  This is also true for silver.  If gold’s production cost increased significantly during the 1970’s so did the cost of producing silver.

Again, this oil-energy-cost approach is missing from the CPM Group’s analysis.  Furthermore, the notion by industry analysts that higher gold investment demand and price would bring on more supply was not the case for Homestake.  Actually, Homestake’s gold production fell in half from 513,000 oz in 1971 to 246,000 oz in 1979.

Jeff Christian Responds “NEGATIVELY” To The SRSrocco Report On Proper Silver Market Analysis

Mr. Christian replied to my article where I disagreed with the CPM Group’s supply and demand analysis that excluded silver investment demand.  Here was the first part of his comment:

There are several very important reasons why legitimate analysts segregate investment demand from fabrication demand. One is that investment demand is distinct from fabrication demand in many important ways, including its relationship to prices. Investment demand drives prices, as anyone who studies the markets or has read ANY CPM reports for the past 40 years knows. Fabrication demand responds to prices.

If one buries investment demand in with fabrication demand, one cannot see what this prime driver of prices is doing. So, it is a separate line item in real silver market research. That allows researchers to see when the supply-demand fundamentals are tightening enough to push prices higher or loosening signaling weaker prices. More critically, it allows researchers, and real investors as opposed to always-bullish ideologues and marketers, to see when investment demand is rising sufficiently to push prices higher, or weakening in ways that suggest lower prices.

Jeff brings up a good point here, even though I disagree with their methodology.  Yes, it might be a good idea to separate investment demand from fabrication demand to see how each is responding to the market, but not to determine the silver price.  To rely on supply and demand fundamentals to determine price disregards the “Cost Of Production” or the “Thermodynamics” of resource depletion.  According to thermodynamics, the cost to produce gold or silver will continue to increase as ore grades decline and more energy via technology is used to extract the metals.

Nowhere in the CPM Group’s analysis do they discuss this.  To be honest, I didn’t understand the impact of energy on the precious metals or the economy until 2008.  When I was first learned about silver in 2002, from reading David Morgan and Ted Bulter’s analysis, I was investing in silver based only on supply and demand fundamentals.  However, by continuing to dig deeper and get down to the ROOT OF THE PROBLEM, I was able to understand factors that were determining the price of gold and silver, not found in any mainstream institutional analysis.

Here is a brief outline of my changing analysis of the precious metals:

2002: Began investing in silver based on future supply and demand fundaments

2008: Wrote about Peak Silver mine supply due to the peaking of resource extraction

2013: Began to write about how the Oil Price impacted the value of Gold and Silver

2016: Started to include how “Thermodynamics,” not supply and demand was another important factor in determining the price.

Since I started investing and writing about the precious metals, the most crucial EYE-OPENING factor was the understanding of how Thermodynamics impacts our way of life and economy.  I owe this knowledge to Bedford Hill of the Hill’s Group and Louis Arnoux.  If you have not seen my interview with Louis Arnoux, I highly recommend it, Thermodynamic Oil Collapse Interview: Why The Global Economy Will Disintegrate Rapidly.

Furthermore, a group of scientists and engineers wrote a recent paper titled, Decreasing Ore Grades in Global Metallic Mining: A Theoretical Issue or a Global Reality?  In that report, they did a study on how falling ore grades in metals mining impacted the amount of energy consumed in the process.  Here is a chart showing the relationship between falling ore grades and increased energy consumption:

It’s hard to read the chart but to simplify it, as the different metals’ ore grades fall (bottom axis, moving to the left from higher to lower), the energy consumption increases (left side of the axis, goes up higher).  The authors of that report wrote the following about the chart above:

The above observed trends are a reflection of the Second Law of Thermodynamics, which states that any activity performed implies the destruction of resources—degradation might be controlled and slowed down, but it cannot be avoided in the long run [28]. When the ore grade decreases in the mine, the energy required for metal extraction increases. For this reason mines with higher ore grades are exploited first, leaving the remainder for the future, hoping that technological improvements will offset those costs. But even if technology improves, the exponential character of the Second Law that can be observed in the figure clearly shows that when the ore grade approaches, the energy needed is exponentially higher. Thus, technology can improve extraction but cannot reduce the minimum energy required for the mining process as the minerals become dispersed.

Yes, some of this information is a bit complicated, but it shows that as gold and silver ore grades continue to decline, the energy consumption to extract these metals will increase.  Thus, rising energy consumption and the fluctuating oil price will impact the cost to produce these metals.

CRITICAL POINT:  Supply and demand forces may impact the silver price on a short-term basis, but the Thermodynamics does so over an extended period.  You will not see this written in ANY INSTITUTIONAL ANALYSIS on the metals market…. ZIP, NADDA, ZILCH.

While the GFMS team at Thomson Reuters, who produce the World Gold and Silver Surveys, do not include the cost of production in their price analysis, at least they do not publically criticize other analysts for taking a different approach.

Okay, here is the last part of Mr. Christian’s comment he posted on my website:

Steve, there is ignorance and stupidity. It is important to understand the difference. Ignorance means someone simply does not know what he or she is writing or talking about. It is a common weakness in U.S. society and the precious metals markets. Stupidity means that one does not have the intellectual capacity for critical thinking.

Reading your work, I can never figure out if it is one, the other, or some combination of the two that drives your writing. Clearly you are totally ignorant of CPM’s research. When you write stuff like “Investors who follow the CPM Group’s analysis on gold and silver based upon fabrication demand only, are being misinformed” you are displaying a total ignorance of four decades of our work.

Duh. You should buy our entry-level Silver Yearbook, available online at the link here.https://squareup.com/store/cpmgroup/item/cpm-gold-yearbook You also seem pretty uninformed about commodities markets, silver and gold, and other things that you regularly opine upon. That seems to be a human tragic condition, but each of us has an obligation to work to make the world better informed, starting with ourselves.

Jeff makes a few interesting remarks here.  He seems to be a bit more blunt in these last few paragraphs.  While I have no problem with someone being BLUNT, I have done so on occasion; you better make sure you have the GOODS TO BACK IT UP.  Unfortunately, for Mr. Christian and his team at the CPM Group, they have been putting out incomplete analysis of the metals markets because they have omitted the two largest factors that determine the price of metals….. Cost of Production and Thermodynamics.

Here are two of my charts which I have posted several times as they provide the data to support the thesis that the cost of production and thermodynamics have been the leading factors in determining the price of gold and silver:

While these two charts only represent a few mining companies’ cost of gold and silver production, I can assure you they are a good representation of what is taking place in the entire industry.  However, if we look at what the CPM Group’s 2016 Silver Yearbook says about the price of silver, we can clearly see that they only mention supply and demand forces:

Investment demand, one of the biggest influences on silver prices, meanwhile has fallen, in line with lower prices and a less worrisome economic and financial outlook on the part of many investors.

Silver and other commodities prices had risen sharply from around 2001 until 2011 or so because of several trends.  One was that there had been an upward shift in the fabrication demand curve for silver.  Another was a rise in investment demand.  The third broad trend was that supply, at least from mining operations, was constrained and could not rapidly respond to increased demand from users and investors and the consequent increase in prices.

The CPM Group lists three reasons for the increase in silver prices from 2001 to 2011:

  1. upward shift in fabrication demand for silver
  2. rise in investment demand
  3. supply from the silver mining industry was constrained

Again, we only see supply and demand forces being used to analyze price.  However, if we look at the price of oil and silver since 2000, we can spot an interesting parallel trend:

As the price of oil increased, so did the silver market price.  If we go back to the 1970’s, we see the same parallel trend:

It was no coincidence that the silver price shot up in 1978 along with the oil price.  Of course, these trends are not exact, but we can clearly see how the oil price is impacting silver.  Without oil, the world’s economies would grind to a halt.  So, to exclude the cost of production and thermodynamics from one’s analysis of the silver price, it will turn out to be incomplete and faulty.

According to the CPM Group, investment demand is one of the three leading indicators of price.  But, what would the CPM Group say to the record surge of silver bar and coin investment demand in 2015 as the price of silver fell 50% versus 2011?:

What is quite ironic about silver bar and coin demand in 2013, 2014 and 2015, is that it was much higher than in 2011 and 2012, even though the silver price was 30-50% less.  Something just doesn’t seem to jive if we go by the CPM Group’s investment demand analysis of price or their supply and fabrication demand forces.

Again, the ultimate determining factor in the silver price over the past 100+ years has been the cost of energy… especially oil:

It would be interesting to see if Mr. Christian will respond to this additional energy, cost of production and thermodynamic analysis.  I gather he won’t because it would negatively impact the 40 years of their price analysis of the metals’ markets.

Please understand I am not criticizing Mr. Christian or the analysts personally who are doing the work at the CPM Group.  Rather, I am focusing on what I see as incomplete and faulty analysis due to the fact they have omitted the most important factors that determine the silver price.

Why The Silver Price Will Surge In The Future As It Disconnects From The Oil Price & Cost Of Production

Many of my readers have sent the following question, “Why would the silver price increase if you say the price of oil will trend lower?”  That is an excellent question.  If you have been reading my work for a while, you will understand that I believe the oil price will continue to trend lower, even though we could see price spikes, due to thermodynamics.  Again, the oil price is also determined by the cost of production but also by the thermodynamics and the remaining net energy that is delivered to the market.

While the price of oil and thermodynamics have impacted the cost to produce silver and its market price, this will no longer be the case when global oil production heads south in earnest.   Why?  Because the majority of the world’s assets are in STOCKS, BONDS, & REAL ESTATE:

The value of stocks, bonds, and real estate are derived from the economic principle of NET PRESENT VALUE.  The values of these assets are based on future earnings.  To enjoy future earnings, we must continue to burn energy and produce economic growth.  Yes, growth.  If we just stagnate, then the hundreds of trillions in debt and quadrillion in derivatives come crashing down.

For example, a stock price based on a PRICE TO EARNINGS RATIO must have future growth to keep the value of the stock price from falling.  Thus, a STOCK PRICE gets its value from burning energy in the future.  Therefore, a STOCK ASSET is an ENERGY IOU.

However, GOLD and SILVER, that you purchased and held in your possession, received its value from burning ENERGY IN THE PAST.  This is a key critical difference between the precious metals and most other assets.  Precious metals behave like stores of “Economic Energy,” while stocks, bonds, and real estate are “Energy IOU’s.”

When the U.S. and global oil industry starts to disintegrate under the weight of a massive amount of debt along with the continued destruction of resource extraction by thermodynamics, investors holding on to stocks, bonds, and real estate will be wiped out.  The small percentage of investors who get out of these assets and move into precious metals will push their values up to levels never thought imaginable.

That being said, it is impossible for me to provide a price forecast for either gold and silver.  I believe it is impossible for anyone to provide an accurate price prediction.  We can’t know because we have never faced a future like anything else before.

So, when global oil production experiences CLIFF LIKE DECLINES, it will force investors to flee assets that will continue to lose their value and into precious metals that store value.  This is the time when the price of silver will disconnect from its cost of production and thermodynamics.  While it’s hard to determine what the price will be, I can assure you that gold and silver will offer much better OPTIONS than most stocks, bonds, and real estate.

In the future, it may be that the best we can do is hold onto “Stores of Economic Energy” assets that provide us the best options over those that become liabilities and energy IOU’s.

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99 Comments on "CPM Group’s Jeff Christian Responds “NEGATIVELY” To The SRSrocco Report On Silver Investment Demand"

  1. DisappearingCulture | December 11, 2017 at 10:34 am | Reply

    “Actually, I now believe that PRICE IMPACTS DEMAND, not the other way around.”

    You state that using the word “believe”, but the statement is factual. This is why it is critical for the powers that be to suppress the price in fiat of gold and silver. They know the price in fiat could quickly become like a runaway freight train. It has in Bitcoin, but that can be contained when they are ready to.

    • I said before and will say it again: he has been instructed to deliberately omit and paper over the impact of investment demand and other factors regarding gold and silver prices. As mentioned above “They know the price in fiat could quickly become like a runaway freight train.” The entire global financial market (paper fraud) and the global private banking cartel (fiat fraud) will come crashing down when the mass of people wake up.

      A person in his position will be removed very quickly if they say anything that could increase demand for gold and silver, away from the fraudulent paper markets and fiat & crypto currency games. They need to hide all the vital, damaging information no matter what the cost.

  2. How SRS Rocco could be bullish on silver in the long run with this article when stating at the same time that oil will crash in the next few years ???

    • RD,

      Do me a BIG FAVOR will you? READ THE ENTIRE ARTICLE. Especially, read the end of the article and stop browsing over it. I can tell from your comments you don’t understand why the silver and gold price will surge when oil production heads south…. because you don’t read all my work.

      It get’s VERY OLD HAVING TO REPEAT MYSELF when the information is right in front of your face.

      steve

    • rRead the whole article before taking place AND time here !

  3. DisappearingCulture | December 11, 2017 at 11:09 am | Reply

    “That seems to be a human tragic condition, but each of us has an obligation to work to make the world better informed, starting with ourselves.”

    He should start with himself. And calling someone ignorant is OK in my book [even if wrong], but calling someone stupid is childish. Reading the entire comment smacks of ego & arrogance to me. Let’s see if the issues can be debated instead of resorting to insults.

    • Bruce Gregory Bell | December 11, 2017 at 9:20 pm | Reply

      I agree with your assessment. The part that I caught in his Silver User Association and Pilgrim Society brainwashed rant was his definition of ignorance. Anyone can look up the etymology and see that ignorance comes from ignorant which comes from ignore.

      To ignore the truth leads to ignorant thinking and ultimately ignorance.

      The CPM has purposely ignored the facts for 40 years and did so to steal away the world’s silver for their own selfish purposes, namely to use the silver as a commodity and ‘burn’ up a finite element. They profited from their lying, misrepresented story. LBJ stood in front of America and told us that silver was too expensive to use for money.

      If the truth be told, CPM and SUA believe that they should own all silver on Earth and to use it as money limits their vision of global silver domination.

  4. Homerun!

    Mr. Christian should seriously take his own advice that “each of us has an obligation to work to make the world better informed, starting with ourselves.”

  5. thanks for your work. your analysis is excellent. very much appreciated.

  6. Steve,

    so when the price of silver will rise sharply, because the investments of Stocks, Bonds and RE are in heavily decline and therefore the investors flee into save havens, wouldn’t this be ironic, because then Mr. Christian is (in the end) right: Investment demand drives the prices.

    But seriously I have learned something today:
    There are two different phases
    a) “Normal times” here are the prices strongly determined by costs of production and the underlying thermodynamics
    b) Investors induce a “stampede” (as example we can take bitcoin) and then, the price is driven by that.
    Would you agree ?

    • Herbet,

      You stated,“so when the price of silver will rise sharply, because the investments of Stocks, Bonds and RE are in heavily decline and therefore the investors flee into save havens, wouldn’t this be ironic, because then Mr. Christian is (in the end) right: Investment demand drives the prices.”

      I don’t know if the surge of investors into silver to protect wealth during the collapsing oil production phase will be due to “DEMAND” or rather the “VACUUM” created by the Falling EROI – Energy Returned On Investment. Basically, investors should have been investing in precious metals all along, but they were HOODWINKED to put their funds in STOCKS, BONDS, & REAL ESTATE.

      What I am trying to say is this, the FALLING EROI should have been pushing the value of Gold & Silver higher all along. However, they have been kept artificially low from 50+ years of funneling funds into STOCKS, BONDS, & REAL ESTATE.

      steve

  7. Mr Christian has no idea how to handle investor demand – I could be making silver bookends, colloidal silver, burying it in the back yard for the great grandchildren – It most likely will not come out in his lifetime unless the price is very very right. It is GONE from supply!!!

  8. Jeffrey Christian should trade his first name with his last name and get on the preaching circuit when Silver goes to the moon.

  9. Could it be that the CFTC, the CME, LBMA, CPM etc etc are all in the same boat? That is to keep people distracted from what’s really happening? Price manipulation and fake propaganda? Together with central bank interference they make a perfect couple, don’t they? Keep the paper promise going as long as possible. Tough job to counter all this.

    • You may also lump in GFMS (Gold Field Mineral Services) which authors both the world gold report and the silver report. This entity had very close ties to the LBMA at it’s inception, by the hand of the then London gold pool.
      GFMS is now owned by the main stream media giant, Thomson-Reuters. All of these different control groups have one thing in common – continuation of the status quo.

  10. Thanks for the article Steve.

    I really needed to read that last part. I’m going to read it a few times over again. You’ve never put it quite so clearly.

    Thanks for your work.

  11. Jeff Christian argument and logic makes a lot more sense to me.

    • Stuart,

      If you believe that, than either you didn’t read the article or we have to back to the days of science when the EARTH WAS FLAT… LOL.

      steve

      • Steve, so far your theories are just that theories that remain unproven and have not been validated in the real world.

        • Why do you even read Steve’s articles if you are so skeptical of his analysis. I can see once or twice but you are quite consistent. Seems like an enormous waste of time on your part.

        • Bruce Gregory Bell | December 11, 2017 at 9:35 pm | Reply

          Stuart, if you are that far behind the knowledge curve, you have a lot of studying to catch up.

          My family has been in the oil industry for more than 100 years. Before dad died in 2011 he said that the shale would not provide what the hype promised.

          When it truly costs as much to produce as you get for your production on the market, it doesn’t take many years to go broke. This is playing out, interest on loans outstripped the revenue, exploration and producers alike bankrupt. The glory days are over.

          There is still expensive oil to be produced but the manipulated markets can’t afford it. Where this nation is headed financially is sealing the fate of energy and future production in all sectors.

          • Bruce you are talking like Steve’s predictions have come true but they haven’t. Just like Peak Oil, which was a sure thing in the 2000’s, his EROI will be consigned to the dustbin of history.
            It seems like a lot of followers of Steve are Doomsday Preppers who are preparing for Armageddon. They cluelessly follow doomsday predictions moving to new end of the world predictions as they each fall into obscurity.

        • Stuart: you’re not hearing the canary in the coal mine. The metrics are available in Steve’s articles and there are other blogs and information centers where you can corroborate the data. It’s not about being right. It’s about preparing for the sad inevitable future.

          • Petedivine,

            While I do reply once in a while to those individuals who I should have the wisdom to refrain, they will never change. It is similar to someone who goes to see his doctor because his junk food diet, beer drinking, and 2 pack a day cigarette habit are killing him. Instead of listening to the Doctor and changing his lifestyle, he tells the Doc to SHADDUP and to just give him a prescription.

            That POOR SLOB will go to the grave with a BIG MAC in his mouth and a beer and cigarette in his hands.

            I gather you get my drift. So, the best thing to do is to suggest to this sort of patient to see another doctor, continue with the insanity and remove them from one’s concern.

            That is WISDOM SPEAKING… LOL

            steve

  12. Steve, your thoughts on:

    Silver stock to flow ratio.
    As I understand, devide total mined by annual production, arrive at a stock to flow ratio in years it would take to double the total stock at current rate of production.
    If this be the case, then the silvers stock to flow ratio has been falling since it’s peak in 1951. Could this be an indication of silvers ever increasing rarity? Thoughts?

  13. Great article, Steve. One has to respect that you were open minded enough to internalize information contrary to your (early) beliefs, and act on it. Way too many “analysts” just parrot the same lines (products), no matter what the facts on the ground change to, due to ego, $, etc.

  14. Steve, Now you’re going to have to hire a couple of bodyguards! Jeff Christian is the frontline of the Cabal. By basing your knowledge on upsetting Jeffs partial definition with what makes up the true value of physical silver, you have helped to loosen the hinges on Christians Gate doors.

    • Wow, those are pretty damn fighting words.

      I’ve met Jeffrey Christian in person. First time it was in 2015 and then again I met him 3 weeks ago. Jeffrey Christian is a coward cockroach. He acts just as cowardly in person as he writes cowardly with his words.

      I wouldn’t worry about needing to hire any bodyguards to protect from that coward roach.

      • Ther, You obviously missed the point. It’s the cabal and not Jeff Christian to have to be focusing on in the future.

  15. It seems obvious that supply and demand cannot set price. Cost of production and profit must be primary in order to have a sustainable business. Therefore energy cost and other production costs must set initial price then supply and demand can increase the base price and fluctuate price higher or lower. A sustained price lower than the base production cost will bankrupt the business. Without business, you will not get supply and price will increase if demand exists without additional supply.

  16. Steve,

    what I have realized after I read the article a second time, is the following. You see supply and demand on the one side (short time price drivers) and the laws of thermodynamics on the other side (long term price driver).
    In my opinion it is a better understanding to say, that supply and demand are a function of the price (or price expectations) for a good or a service and thermodynamics gives a bundle of underlying scientific laws that define the natural boundaries, in which can be operated, to produce the good/service, thus it is clear, that thermodynamics influences prices and therefore supply and demand…
    To give an example: Let’s assume silver would be

  17. Steve,

    You are “gutting” the Fake Experts in the public square! Bravo! This is why I contribute to you. I recognized your abilities.

    Also, would you please direct me on how to invest in CDX? I want to make more of a contribution to the development and growth of the Alternative Media because I abhor the actions of the Ministry of Truth.

    I must make at least a small contribution for the new Renaissance.

    Bob F.

  18. Steve,

    I agree with a great deal of what you said, especially that on some occasions, price may affect demand, by driving it higher (I actually came up with this thought myself a while ago).

    Another thought of mine, is that increased cost to produce gold and silver due to increased energy requirements, may actually mean that physical gold and silver may yield much greater appreciation than mining stocks, even due to leverage, assuming a reasonable/fair valuation of the stock and excluding potential mania demand. Of course, mining companies which still possess deposits with high grade, may rise more in price/value as opposed to physical, due to leverage. What are your thoughts on this?

  19. OK, So I have been curious about EROI and silver (and metals).
    In this article I read that as the mineral deposits get ‘watered down’ essentially, it will take more energy to process more tonnes of dirt/rock whatever.
    I didnt’ get this before from reading your articles (I totally could have missed it). I was getting oil becoming scarcer or taking more barrels (5 to 1 not 100 to 1) to extract the oil. But now with having to process double the dirt to get the same amount of ore, therefore taking twice as much energy to do so, it’s starting to get clearer. Thank you for helping lift the fog, if only a little bit, for a little while. GOOD EFFORT! I auto buy 108 silver maples each year, but it seems so little, so late… Life just gets in the way.

  20. Hummmm, will the laws of supply and demand ever work in the world of PM’s? We may never know.
    When energy runs out wala so does production, therefore no more ability to increase supply no matter the price.
    In a very short time the supply line on the supply-demand graph will shift to vertical over a shrinking quantity with the top of the supply line quickly shifting left.
    Price for a constant or shrinking quantity will sky rocket, that is until there is nothing left to buy.
    Think I will need more rose tint in my glasses.

    • Seems no one respects economic theory enough to distinguish between a shift in demand or supply and a shift in the demand-supply curve….oh well

  21. Steve:

    Nicely done again. BUT You have two potentially conflicting statements partially refuting yourself:

    “So, when global oil production experiences CLIFF LIKE DECLINES, it will force investors to flee assets that will continue to lose their value and into precious metals that store value.”

    “ Thus, rising energy consumption and the fluctuating oil price will impact the cost to produce these metals. “

    YES both quite true, but we need to set down and look at some facts here. I must again disagree your continuing misleading premise that energy as the main factor in Silver or Gold cost of production (COP) and hence the price of the PMs. A price which must be above the COP.

    I would offer that Oil price may significantly influence Gold price but does not control it. Financial Fear does, hence events are more important than energy. Your first above statement validates that. Further, I know for a fact that grade control efforts at the mine directly CREATE the cost of production per ounce NOT THE OIL PRICE! Energy is but one piece of a much larger puzzle.

    Finding the relationship between oil cost and the production price of gold is not any easy task. So, I will turn into a wonk here. Hass McCook in a June 28, 2014 CoinDesk article entitled “UNDER THE MICROSCOPE THE TRUE COST OF GOLD PRODUCTION” cites Norgate and Hague, 2012 as defining the direct energy used to produce one kilogram of gold as from 145 to 300 Gigajoules of energy. Those gigajoules equate to from about 24 barrels of oil to about 51 barrels of oil consumed. This is a direct energy consumption cost, NOT an all-inclusive energy cost as per under your theory of EROI, with all the various physical inputs of mining.

    So how does this relate with the approximate price average prices of OIL and GOLD over time:

    Timeframe Oil/bl Gold/oz
    A) 1960’s -70’s $24 $285
    B) mid 1970’s $55 $650
    C) early 1980’s $78 $1000
    D) 1990’s $33 $475
    E) Late 2000’s to 2013 $95 $1190

    THEREFORE, at the highest energy cost of 51 barrels per Kg of gold:
    Scenario:
    A) has an oil consumption cost of ~$1224 and a gold value of $9163 for a ratio of 13.4%
    B) “ “ “ “ “ “ $2805 vs $20898 or 13.4%
    C) “ “ “ “ “ “ $3978 vs $32150 or 12.4%
    D) “ “ “ “ “ “ $1683 vs $15271 or 11.0%
    E) “ “ “ “ “ “ $4845 vs $38260 or 12.6%

    So, lets say an average of about 12.5% of the cost per Kg is the direct oil cost.

    According to annual reports, from 2012 to 2016, Newmont Mining had total revenues of $39.92B and a “cost of goods” of $21.92B or about 54.9% of the the value of gold produced. Lets assume that 25% of that percent is labor. So we have about 41% of revenue as energy and other direct operating costs, like repairs, chemicals etc.. Lets say ½ of that is “hidden” energy cost as per EROI or 20.5% of revenue. We then can add the direct oil cost of 12.5% to the indirect oil cost of 20.5% and we get literally 33% of the cost of an Kg of gold is ENERGY.

    If that is the case, then, HOW DOES a $25 to $115 oil price escalation or a 4.6X increase, create a $400 to $1600 gold price at 4.0X when only 1/3 of the gold cost is ENERGY? We should have had $400 X (4.6 x .33) $607 gold, not $1600

    Could it be that both OIL and GOLD are moved in parallel by forces we need to define. Components like FEAR of inflation: of politics, of global calamity or unrest, of monetary loss, of EROI collapse, etc. Hmmm, those to me are simple non-oiled DEMAND DRIVEN factors!

    • Interestingly, Gold is driven by FEAR, while Bitcoin is driven by FANTASY. Which one will win out over time.

    • Antler3343,

      yes there is a parallel force and that has something to do with the politics of the FED and other central banks. In times of easy money (QE) we can see rising oil prices and when there is a shortage of money supply (QT) we can see falling oil prices.
      https://gailtheactuary.files.wordpress.com/2015/10/27-rise-and-fall-of-debt-affected-oil-prices-2008-to-2014.png

    • Here is the full article from which I took the chart:
      http://www.resilience.org/stories/2015-11-04/oops-low-oil-prices-are-related-to-a-debt-bubble/
      As you will see, when you read it, there are the ideas of a falling EROI, credit cycles and the myth of ever lasting growth by debt expansion discussed and a synthetic overall picture is given.

      As Steve has pointed out, not energy itself but the decline of cheap energy represented by a falling EROI is the problem.

      Quote (article Gail Tverberg):

      “Many people have been concerned about what they call “peak oil”–the idea that oil supply would suddenly drop because we reach geological limits. I think that this is a backward analysis regarding how the system works. There is plenty of oil available, if only the price would rise high enough and stay high for long enough.

      Much of this oil is non-conventional oil–oil that cannot be extracted using the inexpensive approaches we used in the early days of oil production. In some cases, non-conventional oil is so viscous it needs to be melted with steam, before it will flow freely. Some of the unconventional oil can only be extracted by “fracking.” Some of the unconventional oil is very deep under the ocean. Near Brazil, this oil is under a layer of salt. If prices would remain high enough, for long enough, we could get this oil out.

      The problem is that in order to get this unconventional oil out, costs are higher. These higher costs are sometimes described as reflecting diminishing returns–more capital goods are needed, as are more resources and human labor, to produce additional barrels of oil. The situation is equivalent to the system of oil extraction becoming less and less efficient, because we need to add more steps to the operation, raising the cost of producing finished oil products. The higher price of oil products spills over to a higher cost for producing food, because oil is used in operating farm equipment and transporting food to market. The higher cost of oil also spills over to the cost of almost anything that is shipped long distance, because oil is used as a transportation fuel.”

      On the other hand, if the oil and gas industry cannot realize higher prices the supply will diminish and this leads to a further contraction of the economy and in the end to a collapse of the debt based fiat money system (Most of the loans will be “under water”). The asset classes that will suffer most have been named.

      • Herbert: Yes, that was a good articles, makes sense. Thanx for the direction. But this still does not seem to tie a 4.6X oil increase to a 4X gold price. FEAR or another factor is at work here.

        • Fear of a deflationary crash could be the underlying factor. Therefore the Fed expanded the money supply on a large scale (QE1 in 2009) and as a result gold, silver, oil and other asset classes have shown increased prices. If you want, you can call it inflation.
          The rising prices of oil and gold (and silver) would have had a common cause and that is the expansion of money supply (credit).

          The whole monetary system is now in a situation, where permanent credit expansion is needed only to avoid the deflationary slow down.

          But I believe that we will one day face boundaries. These boundaries can come from the financial side (the realization that debts are to high and cannot be payed back in a lifetime) or there will be hard boundaries set by mother nature (crude oil cannot be extracted anymore in a usefull way, because the energy input is as high as the output –> falling EROIs).
          What I do not know is which boundary will come first.

  22. Steve,
    I disagree that in your analysis that oil prices will basically remain low in the future. The practical history over the past 50 years show that oil prices zoom up and again followed by a crash in prices. For example, what if venezuelan oil production completely crashes in the next 6 months(a pretty high probability), then oil price will probably dramatically rise.The oil buisiness is highly cyclical in nature. Love your sight BTW. I really like the honest exchange of differing ideas and opinions without commentators resorting to personal attacks.

    • Doc Rich,

      If you watch that THERMODYNAMIC OIL COLLAPSE VIDEO interview, you may see why I see prices heading lower. The lower oil price is due to the lower quality oil.

      steve

      • Steve,
        I understand the falling EROI and its implications on the value of the oil companies. But is actually also the drilled oil in average of lower quality?
        thanks,
        Andy

        • Andy,

          Yes, it is the Falling EROI of the drilled oil, not the companies. The companies are just the ones going broke trying to extract oil that is not profitable any longer.

          U.S. Oil Industry was producing oil in the 1930’s at 100/1 EROI. Thus, 100 barrels of oil made it to the market for the burning of one barrel of oil (energy equivalent). By 1970 it fell to 30/1. Shale oil comes in at a whopping 5/1 EROI. This is very bad news because we in the United States need something north of 12/ EROI of oil to survive.

          There lies the rub.

          steve

  23. um… So JP MOrgan just told the half truth by saying: “Gold is money, anything else is credit” while more precisely it should be: “Energy is wealth, Gold and Silver is are money(store of value) !

  24. I’ve read your articles. But please explain to me why the price of oil will not increase substantially as supply falls but demand remains the same? I’m not being rude but rather trying to understand.

    • We cannot afford it KT. We add lots of debt to make it look affordable. In reality, we cannot afford it. The fogs of fiat, aka the ever widening gap between the laws of physics and the intermediate of exchange, has turned generations into believers.

      When a child costs you 300k a year, you’ll stop having them.

      Demand goes down, because we cannot afford it.

  25. Where do you find the time to write all this stuff?

  26. WOW! That Jeff guy sounds like a real sweetheart. I bet he would be a fun date.

  27. Steve,
    Thanks for the great article as usual.

    I think what a lot of people don’t understand about where we are with oil today is that we are dealing with an increasingly poor quality of oil to refine. For example, fracked oil wells produce very low quality oil that is contaminated with water and chemicals and is much more expensive to refine than crude from conventional oil wells. The same is true with tar sands or heavy oil. The extra operations necessary to produce crude that can be refined into usable produces are expensive and energy intense.

    Refineries are not big money makers for oil companies, despite what some people believe. So the increased costs of these processes are a factor, and contribute negatively to the EROI picture.

    IF one takes the time to study the shale oil picture and the declining conventional oil fields, it presents a gloomy picture indeed.

  28. https://www.reuters.com/article/us-pepsico-tesla-orders/pepsico-makes-biggest-public-pre-order-of-tesla-semis-100-trucks-idUSKBN1E61FB

    Pepsi buys 100 TSLA trucks. Is this just all BS?

    Granted 100 is a paltry number compared to the annual 260,000 normal trucks that are made.

    267 TSLA trucks sold to date.

    But really, why even buy 100 if it’s such a losing proposition? Is this their best way to get a tax write off?

    Considering that it’s only 20,000 to reserve a truck, Pepsi put down 2M.

    • PainInFiat,

      No, it’s not BS. Several large companies have made plans to purchase Tesla’s Electric Truck. However, I doubt the Electric Semi-trucks will be commercially available by 2019 or even 2020. Furthermore, with Teala losing $billions in cash a quarter, how long can they survive??

      steve

      • Yep. And how will Microsoft, Cisco etc survive and keep complex communication structures in place to provide for BTC Black Fridays?

        • houtskool,

          You bring up a good point about the continuation of BTC Black Fridays. However, we won’t have to worry about that because crypto-currencies will soon be able to produce oil for us. Or at least, technology in a few years will be able to provide us with STAR TREK REPLICATORS so we don’t have to make anything anymore. That’s according to Bix Weir.

          That being said, I see we still have a handful of BELLY-ACHERS, WHINERS, and COMPLAINERS. They will always be with us. Ever since man walked the earth, there was always that kind of individual who always never believed in what was happening until it happened. It took centuries before most of the people in the world no longer believed that the earth was flat. However, many people continued to hold onto that nonsense because they come from the same stock of the BELLY-ACHERS, WHINERS, and COMPLAINERS.

          Funny, I don’t even bring up ABRUPT CLIMATE CHANGE even though its happening in FULL FORCE. These poor CLOWNS have no idea of what’s coming… LOL.

          steve

  29. Hi Steve,

    I am a fan of your reasoning and articles, though unless I missed it, I don’t see you differentiate between crude oil price and finished product (fuel) price. It seems to me that crude oil is an energy carrier, where energy is the main demand.

    It stands to reason that crude prices should decline relative to general labor costs in any economy as EROI wanes because remaining available crude increasingly carries less energy. Mother Nature’s law of thermodynamics will define the bottom as EROI approaches a value of 1.

    While the cost of refining goes up due to handling increasingly heavier/sour crude and less energy/fuel can be extracted, it stands to reason the finished fuel prices should increase. Since all wells and sources vary in EROI, scarcity and supply/demand will be the price driver until the same law of thermodynamics defines the top in energy/fuel prices, relative to human labor/wages, independently of the crude low.

    Of course market manipulations, subsidies, financialisation, production contracts and speculation will always skew prices; I liken the “skewing” as waves on the waters as EROI dictates the depth of the waters that no mortal can adjust.

    I bring this up because I was trying to reconcile in my mind why the oil vs. silver price in one of your charts crisscross. Isn’t the silver price (cost of production) more influenced by fuel prices as opposed to crude oil price? Do you think fuel price and crude oil price will continue to correlate closely going into the future, or will they begin to diverge?

    If you have written on this concept in the past, could you point me to it? If not, would you consider commenting with your opinions on the matter. I find it quite interesting and wouldn’t mind seeing this discussed in a future article.

    Thank you for all your efforts. Keep up the good work.

    • dave jr,

      You bring up several interesting points. While I am not an analyst that focuses on the oil industry and the downstream business of finished products, it is true that the refining process is consuming more of the energy in producing the finished products. Bedford Hill of the Hill’s Group has done excellent analysis on this and you might want to go to TheHillsGroup.org site and check out their work. You can also contact him there and ask him more detailed questions.

      Bedford has told me that several oil refineries are losing money. The reason they can’t increase the prices on finished products is that they would not be competitive. You have to think of the Oil Refinery Industry similar to what took place in the Mortgage Industry from 2004-2007. Mortgage companies that were more prudent than those writing risky mortgages had to finally resort to originating LIAR LOANS, or they would have gone out of business.

      Thus, the U.S. Oil Refinery Industry is also cannibalizing itself to stay alive. Rather than seeing the price of the finished products increase significantly to make up for increased costs in the future, I see the disintegration of the shale oil industry first and foremost. The entire Petroleum Producing System will likely disintegrate together as one big happy family.

      best regards,

      steve

      • Steve,

        is the lack of competitive abilities a result of the poor quality of shale oil or the oil that comes from tar sands ? If this is the case, then there must be enough oil (conventional oil ?) of sufficient quality and quantity which other (competitive) refineries can use. Or is the US importing sheep finished products ?

  30. Steve,

    “silver bar and coin demand in 2013, 2014 and 2015”
    I once sent an unanswered email to Mr. Christian and copied Ted Butler that the silver bar and coin demand in 2013, 2014 and 2015 was most likely skewed due to one buyer i.e JPMorgan. Ted asked me to let him know if there was any response. None.
    For whatever it’s worth if true this “outlier” is never taken into account by anyone except Ed Steer. Everyone simply thinks that this demand was from the normal private sector. Not sure how this affects your analysis or if you believe it to be true.

    Good article

    • Greg Linton,

      You bring up a question and theory I have received dozens and dozens of times. I have spoken to the Dealer I sponsor on my site and he did say he had heard through his connections that JP Morgan had been buying silver in the past. However, they don’t buy Silver Eagles. They buy 100 oz bars.

      While JP Morgan may have been buying silver bullion, a lot of that physical silver investment demand 2013-2015 was Indian Silver Imports. And 90-95% of Official Silver Coins, such as Silver Eagles and Maples are purchased by either the public or larger investors. So, I would assume that the majority of silver bar and coins are being purchased by the large and small investor. Hedge Funds, Banks, and traders do purchase silver bars. But, we don’t know the exact percentages.

      steve

      • Thanks Steve. I sent your response to Ted.
        Did your dealer have extraordinary Eagle sales during that period? Anecdotal evidence gleaned from web sources indicate rather lackluster sales. Which dealers sold these Eagles? It’s somewhat of a mystery. Miles Franklin didn’t for example.

  31. Vampires hate silver, burns their skin.
    Jeff is awfully pale. Really needs to get out in the sun more.

    • Good information, as always, Steve, thanks.
      “Price drives investment demand.” So true.
      Wow, psychopaths always try to tell people how stupid they are, ego, ego,ego… Creative thinkers always threaten the control grid. Grid up your loins, the enemy is worried.

  32. Great stuff Steve. You sure put the facts out there. One suggestion I have. Your info
    is 20 years too soon. Patience on when to buy silver is paramount now for your proper use of investment capital. Many pipeline MLPs I own are buildig pipelines right now. Some are changing from NGLs to crude oil. Are these MLPs stupid or what?

    • DisappearingCulture | December 12, 2017 at 11:54 am | Reply

      “One suggestion I have. Your info is 20 years too soon. Patience on when to buy silver is paramount now for your proper use of investment capital.”
      The 20 year figure is an arbitrary number you have pulled out of your head; opinion only.

      “Many pipeline MLPs I own are buildig pipelines right now. Some are changing from NGLs to crude oil. Are these MLPs stupid or what?”
      The world needs energy from oil that’s all. They may be stupid. They may be cannibalizing themselves to stay in business.

    • You’ve been hanging on the fence for too long without looking over it Joe. Give it up.

  33. Steve,
    I found it very interesting to hear about some oil refineries that are losing money.

    30-some years ago I worked for various companies that designed, built, and upgraded oil refineries. I’ve been in many small and large refineries throughout the Midwest down to the gulf. Most of the smaller refineries have been closed and sold for scrap. Some of the larger ones are struggling and according to people I know have cut way back on their capitol budgets to survive. The refinery building business has really tanked.

    It’s very difficult to make much money refining poor quality crude such as what many are receiving today.

  34. I’m reading and hearing a lot of anacdotal references to poor quality crude refinement which makes sense in the context of poor quality shale and Canadian crude. If the American credit card used by the USA to purchase sweet crude from Saudi Arabia and elsewhere were to be canceled. That kind of come to Jesus moment would exacerbate our energy availability and would overnight create a post peak oil world we’re so desperately trying to avoid. Such a prospect and its impact on our society would be depressing to the extreme. Puts our current geographical conundrum into context. Something to really consider and ponder. Your’re either all in and preparing for such an existenince or your not. There aren’t a lot of half measures that will see you and your family through. FYI..I’m hoping that half measures will see me through.

  35. Fundamentals don’t matter when you can create millions of ounces of PAPER GOLD or PAPER SILVER with just a click of a mouse and dump it all on the futures markets seconds later at the most illiquid time.

    PAPER GOLD AND PAPER SILVER ARE THE ELEPHANTS IN THE ROOM.

    • That’s right.As long as physical material is available.The central banks have worked together.They look that silver is uninteresting as an investment.I reckognized this 2 or 3 years ago.Silver we need for the industry, not as money.Obviously the have done everything right.
      I was not smart enough to change to the cryptos.The greatest miracle for me are the miners.Why did they don’t work together and break the bankster groups and avoid supply?If they great one work together and would only shrink the supply about 30% the price would go to the moon.

      30% in total would mean for all big companys, especially for the great basic miners not so much.I think they are part of the betraying system.

      • Mining is only possible via debt$ at these (repressed) prices; the mining CEO$ have $-len$e$ (and their own $alary in mind) and the bank$ters got them by the ball$ via debt… You’re right, the miners are complicit and part of the (self-inflected) problem$. But this as well will resolve sooner or later.

  36. Steve, I had always believed that supply and demand determined price, probably because that was what was taught in economics. I find myself buying PMs on price pullbacks, that reinforces your point that price influences supply/demand. I believe your analysis is far more comprehensive than CPM and will ultimately be proven correct. When there is a run-up in oil prices and and cost of PM production increases, many people will only recognize the PM price advances and I believe there will be a run into PMs that will advance prices similar to bitcoin. I agree, trying to determine the timing and price targets is impossible. The outcome is inevitable. Great article.

  37. Maybe misinterpreting, but i’d just call people unaware about collapse ignorant, not “bellyachers and complainers”, Steve.

    For me, it’s just made me miserable. would be much happier if didn’t know. Survival instinct makes me learn stuff that doesn’t really interest me. Pm is better then stocks, may give you a few more minimal options if things break just right but that ain’t saying much. It’s going to be just terrible way beyond the pale and whatever you can do now to prepare is next to pointless. Learning to sit on the floor and do nothing may be most valuable aquisition or skill. So envy them, the unaware.

    • Indeed, ignorance is bliss. Yet once you have seen, you just cannot unsee… So we hang in, watch and observe with a heavy heart knowing that “joyfull bliss” is at best a chapter of a long book being written day by day.

  38. Hey Guys and Gals!!! Can I join the party? Talk about a hoe-down! Yee-ha!
    Man, I’ve never seen so many comments!

    Steve, my boy, you mus’ be doin’ somethin’ raht!!! Oh yeah!

    Hey folks, let me add my two cents:
    You don’t have to believe me, but Steve is about 97% on target with everything he says in his energy/resource/EROI analysis.
    I’m a retired electrical power production engineer who has been studying the whole resource/energy conundrum for 40 years. I have 25 years of work experience observing not only the electrical infrastructure around the nation, but associated systems such as water, sewer, rail and road transportation, etc. I can tell you, one way or another, we are near the end of this exponential growth/cheap food and energy/financial Ponzi scheme paradigm.
    The only thing holding us together is the relatively high-quality infrastructure that was put in place in the big money/oil surplus days of the 50s, 60s and 70s – and before. And, of course, the morals of our forefathers.
    The negative comments show that the EROI deniers will fight the truth until the end with every fiber of their being.
    When the end comes, it will be like the proverbial “thief in the night” and most systems will come crashing down in a cascading waterfall collapse. The timing and rate of collapse cannot be predicted, but there will be lots of chaos, violence, and even starvation. There will be no place for young people to charge their iPhones, and the resulting gnashing of teeth.
    I’m telling you, folks. Buy all the physical silver you can get your hands on. It is pretty much near the lowest, inflation adjusted price in human history. It is real money.
    Like Steve says: it is stored wealth and stored energy.

    • lastmanstanding | December 13, 2017 at 9:55 am | Reply

      Great comment Rob. Most of the folks that I know believe that technology will continue to infinity. Excess for ever.

      Brother, we have excesses in our life. We try to limit them to tangible items and reasonable choices…both of which are shared with family, friends and chosen organizations in our community.

      Think I’ll buy some Ag today…yesterday I bought ammo. Last week a bought a pig and 1/4 beef. Both animals were raised by friends and will be handled by my butcher. I hunt and put protein there myself. Most have absolutely NO idea or care where their meat comes from.

      We grow a garden and supplement it from local farmers…that are our friends. In fact, several of us in the neighborhood are planning a large garden that will hopefully serve the needs of 10-15 families and we’ll do it “in our spare time” after our normal jobs. We have fresh root crops stored “the old school way” until more are available next year and much more canned for years.

      I don’t think that I will have to worry about having fuel for the rest of my life but who knows…there has always been a “thief in the night”

      “don’t go down without one helluva fight”

    • Rob, it would be great if people with your knowledge and experience could write an article for Steve or do an interview and relay what you’ve seen firsthand. Your comment is fantastic. I would love to hear details.

      Eric

      • Thank you, gentlemen, for your comments.

        Some food for thought:
        I have seen public housing buildings in NYC and other cities with 70 to 90 year-old wiring systems. I have seen dams with 100-year old wooden gear components. I have seen large water main pipes made of wood that are over 130 years old. All of these still in “normal” operation. I could show you a power plant that has 95 year-old incandescent light bulbs – still burning!

        There is a sidewalk in town that my 75 year-old father used everyday when he walked to 1st grade – hasn’t been maintained or repaired since. And this is in a moderately prosperous Midwestern town with lots of new construction and a good tax base.

        All these things that I mentioned could have and should have been remedied in the 60s and 70s when we still had lots of good money flowing in the system. Nope! Now this is just a microcosm of the US, but does anyone believe that we are going to “Make America Great Again”?

        If we didn’t maintain or replace these aging systems 20 or 30 years before Peak Oil when we were still Kings of the Economic World, and had less than $1 Trillion in National Debt, do we believe that they will be fixed now or in the future?

  39. The physical silver market is so small, *they* just have to keep silver down to assure enough silver for the industrial demand. Telling people that investment demand in silver does not matter is a very convenient and cunning way to do this. With the ongoing price weakness all the physical silver is still being soaked up by “someone” (preferably *them*). Any uptick in retail demand for physical silver in size (with actual deliveries; a paltry 20 billion $ would rack up the yearly silver mine + scrap supplies !) could/would be fatal to the current fiat/debt $y$tem. It’s towards the end of the year and once again we’re chewing around the yearly lows, near cost of production. The paper pushers must be pleased with god’s work.

  40. The Independent
    UN shocked by level of poverty in Alabama: ‘We haven’t seen this in the first world’

    I was shocked too.The rich USA and such a poverty.I’am no communism, but we have to state the USA have defintely a problem with the wealth distribution.
    Trump did nothing.He is a phony and a total black out.I thought he will do things better.

    • What exactly do you expect Trump to do? What we are seeing with wealth inequality is the result of decades of Keynsianism, central bank moeny printing scams and massive corruption in the marrow of our nation.

      Trump can do nothing to stop what is coming, which is why all his legislative gains are meaningless. His tax reform? Who cares? Does anyone think it’s going to stop what is coming? His real role is to reveal the deep state collusion that has been running our country since WW2: Hollywood, Pornography, Wall Street, big Pharma, the Pentagon, the old media and the Neo-Con/ Democrat controlled opposition.

  41. Steve,
    when the final deflationary crash arrives and the oil industry as we know it has ceased to exist, what will be the final outcome for the mining industry ?
    No new production of all kinds of metals, no coal production anymore, no production of any kind of other minerals for example for fertilizers etc. ?

    • Herbert,

      When the stock market finally cracks, it will take the price of oil down with it. Now, what that looks like in the U.S. oil industry will be quite interesting to see. I would imagine we would see a big drop in oil production, but there will still be oil supply. If we are currently producing 9.7 million barrels per day of oil in the U.S., I gather we could see 2-3 million barrels per day lost in over 1-2 years, maybe more.

      It will take time for the U.S. shale oil industry to disintegrate.

      However, as the stock market cracks, so will the price of base metals. I see base metal production peaking at this time…probably for good. Although, we could see a rise in primary gold and silver production as their prices move north while most stocks, assets, and commodities head south.

      steve

      • Steve your statement “When the stock market finally cracks, it will take the price of oil down with it.” is what I do not necessarily agree with. The oil-for-gold movement is well on it’s way, I guess now it’s unstoppable (see e.g. http://www.zerohedge.com/news/2017-12-13/gold-will-soar-china-kneecaps-dollar ). The production costs of oil and gas in the US is already going thru the roof (if debt is included as “hidden-in-plain-sight” costs) so when the currency (the dollar) caves (in terms of gold) US inflation will first go thru the roof and (oil and all) prices SOAR – effectively killing the WAWKI as the current system will implode/collapse. Falling stock prices will fuel inflation as speculators will jump into the commodity sector (and PMs; see e.g. calls like http://www.zerohedge.com/news/2017-12-13/gundlach-reveals-his-favorite-trade-2018). Holders of PM, cryptos and the current 1% will make the (financially) surviving ~ (?) 10% as the world will spiral into chaos. What follows then and if there is any half-way happy/sustainable comeback after this remains to be seen.

  42. Steve

    This Jeff Christian critter has been a shill for the banker cartel for years. The fact he resorted to ad hominem attacks says it all. Your analysis is spot on, keep up the good work.

  43. Having re-read the article and comments, I conclude that indeed any discrepancies in the price of silver compared to price /cost of oil are multifactorial, but definitely include the distortions introduced by suppression of physical metal prices on one hand, malinvestment of the shale oil due to a fiat enabled system which almost forces banks to keep funding these shale oil players to avoid having to enter them as losses on their balance sheets, as well as the costs of production. That this Jeff Christian will not even acknowledge the existence of this cost of production issue, right or wrong, immediately discredits him.

    Price driven supply and demand have been based on the traditional assumption that the commodity or service can be brought to market in the first place! Admittedly there is a gray zone between price determining whether a commodity is brought to market, but that has been based on the fact that thermodynamically it was always possible to do so. But for the first time as Steve has stated, it has becomes a circular argument. You can’t sell a barrel of oil on the market if it physically takes a barrel of oil (not a bank loan or tax incentive) to drill, refine and transport that barrel of oil you want to sell.

    EROI (financial viability ) or EROEI (thermodynamic feasibility) determine this critical situation which is hiding in plain sight!

    Recently I have wandered into researching the cryptos to see what the hysteria is about, assuming for the purposes of discussion that 90% of the price increase is due simply to people “investing” into BTC simply because the price is going up, and not whether it is arguably cryptic, a store of value, an “easy”method of payment-if your clock stands still, costs of mining and transacting etc.

    I see on YouTube videos of these noisy crypto miners in houses as well as huge warehouses, being installed in places like Iceland to benefit from low electricity costs and cooling. It was like when I visited Easter Island. All these Mori statutes had been mined, transported across the island, and erected. For what? Based on a belief. Ultimately, the trees were all stripped, no means of building boats to fish or sail off the island and escape. The dwindling numbers of inhabitants resorted to cannibalism and the ritual of the Birdman. Absolute madness these mining machines!

    Why spend all these resources to “mine” something” that has no physical backing, exists only on “faith and formula” of mathematical equations and requires a continuously functioning energy supply and internet, as opposed to going back and using something like gold which already exists as the culmination of energy, labor, and mining?

    Indeed, I have wondered if cryptos are a scheme by the NSA to suck in people’s money by direct investment into BTC, and now secondarily through these exchanges in addition to converting the public from our fiat cash system, with all its faults (inflation, debt, etc.) into digital currency, which arguably may be even worse!

    The NSA had no qualms about hacking into all of our communications and storing them in the Utah facility. Now it uses proxies like Amazon, Facebook, Yahoo, etc. It seems very plausible to me that the NSA has a secret code of deactivation (malware) of the entire blockchain on each BTC, implanted on the originating source coin, which in theory could invalidate the whole chain on each BTC for any future use or store of value. Almost like the situation in that sci-fi series the Walking Dead, where every living person has the virus which activates when he dies, every one of these block chains carries on the original block a deactivation code/back door. I just don’t have any technical knowledge to make any meaningful opinions on this, admittedly just wild speculation. But the endless reassurances of the complex chains of mathematic equations making hacking impossible could almost be the ultimate trojan horse.

  44. Steve, I like your articles and I find your perspective very interesting.

    What I don’t quite see in this argument is why we should be certain that there’s a causal relationship between the price of oil and the price of silver as opposed to both of them responding to another factor independently but in the same way.

    Both oil and silver respond to inflation of the dollar and both specifically respond to price inflation.

    Both also have their price manipulated. The rules of the game were changed to hit silver in the early 80’s. The price of oil was hit to hurt the U.S.S.R. starting in the early 80’s.

    Coincident price movements of A and B don’t have to result from one affecting the other. They might both be affected in the same way by C. Maybe I’m just resistant to changing my way of thinking but I’m not convinced yet that it’s A affecting B.

    P.S.-I’ve donated to your site and will continue to do so and think you’re doing a great thing with your token system.

  45. »Investment demand drives prices, as anyone who studies the markets or has read ANY CPM reports for the past 40 years knows

    I’ve often heard the argument by someone older than me that they are more intelligent and wiser because of their age. But for obvious reasons in these situations it hasn’t be the case, which was the main reason the debate happend about it. Any ‘timespan’ or ‘age’ is not even a point, likely even more a conceited method of generalization brought up to personal level because of the lack of reasons (subjective niveau).

    Rhetorical question: Have you ever done something wrong for a 40-year timespan?
    (…and not realizing it?)

  46. Steve,
    this may be a case of confirmation bias, but I see your point
    …I also probably fall into the ignorant category, because I don’t have enough facts to be sure, but I did read the entire article including charts, and I thank you for verifying my judgment AND giving me more data to back it up…Tnx!!!!!

  47. You overlook that cost of production is a variable that responds to price. When gold prices rise, miners bring online higher cost mines. When gold prices fall, they shutter those mines and only work the low cost deposits.

    • RobT,

      I appreciate your comment, but I gather you are new to the SRSrocco Report site. Please go back and read articles on the COST OF PRODUCTION & THERMODYNAMICS. The cost to produce gold CONTINUES TO INCREASE… FOREVER.

      steve

  48. Dear Steve,
    Your analysis greatly impresses me and give me reason to purchase gold & silver as wealth protection. Your works will help lot of people surviving the coming unimaginable financial crisis.
    Edmond Yick

  49. I don’t understand the finer points of the economics debate between the parties referenced in this article. But, I do know what it feels like to hold gold and silver in my hand and to keep it in my safe. Owning some gold and silver coins makes me feel secure, so I will continue to hold it for a long time.

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