Silver To Hit New Highs As The Quality Of Analysis Sinks To New Lows

The coming explosion in the value of silver will be a shock to the world due to the failure of the analyst community.  I am completely amazed at the lack of quality analysis today.  Except for a few good analysts, there’s a sea of lousy ones who continue to put out work that becomes increasingly worthless each and every passing day.

While we can totally write-off most of the forecasting that comes from the MSM – Main Stream Media, I am quite surprised at the amount of garbage coming from the alternative media.  I don’t mean to be blunt here, but sometimes it’s best to be honest.

I get a great deal of email from readers who forward articles that run contrary to my analysis and forecasts.  They do so because they are concerned of the possibly that there might be a kink in my analysis.  What they are looking for are answers and confirmation in their beliefs and investments.  I actually do the same thing myself.

I believe, if the best high-quality work is put forth, the answer is plain to see by the investing public.  Unfortunately when the majority of analysis in the market is faulty… so are the majority of investments.

Part of the problem with the analyst community today is that their paycheck forces them to put out work that goes along with the consensus view.  And… the consensus view is to continue the largest financial Ponzi Scheme in history.  Thus, any analyst who works for the establishment must never think outside the box as the box is from where he receives his salary.

This also seems to be true for many in the Alternative Media.  Either the alternative analyst goes along with the company’s overall message in which he or she is employed, or utilizes data and information in forecasts that is superficial or worthless.  Both are lose-lose propositions.

For example, there seems to be a great deal of hype on the “New Shale Energy Revolution” supposedly taking place here in the United States.  While the shale industry has brought on more oil and gas production in the states, it is not a new revolution, but rather the final stage of an industry heading for retirement.

I gather many of these analysts and websites pushing this new U.S. Energy Revolution mantra are trying to be part of the “IN TREND.”  This is indeed the curse of the analyst community — riding the fumes of a trend that will collapse as the fundamentals kick in.

The Silver-Energy Connection

As I have written and spoken many times before, gold & silver are a store of value because they are a store of ECONOMIC ENERGY.  When I first came up with this theory, I used the term “Store of Energy Value.”  However, Mike Maloney in his excellent series, “Hidden Secrets of Money” used the term Economic Energy to describe how gold and silver store this value.  I now use that term all the time.

Another problem with the alternative analyst community is that they tend to over-specialize and not see what is taking place in other industries.  That being said, lets look at the chart below which shows the extreme volatility in oil prices during the 1960’s decade:

Price of a Barrel Of Oil

As we can see the price of oil dropped from $1.90 a barrel in 1961 to $1.80 for the remainder of the decade.  That 10 cent drop was the extent of the volatility in the oil price as the U.S. and world regulated supply to keep prices at a contracted $1.80 for an entire decade.

Of course nothing stays the same, so after the U.S. peaked in oil production in 1970 along with the Arab Oil Embargo in 1973, the world would never again enjoy regulated low oil prices as it did in the 1960’s.

This next chart shows how supply-demand forces, politics and inflation impacted the price of oil in the following decade:

Price of a Barrel of Oil 1961-1980

Several factors pushed the price of oil from $1.80 a barrel in 1970 to $36.83 by 1980.  As I mentioned, the U.S. peaked in oil production in 1970 at 9.6 mbd (million barrels a day) — the last year the price remained at $1.80 a barrel.

In 1973 the Arab Oil Embargo pushed up the price of oil to $3.29.  Then by the following year, as U.S. oil production fell to 8.8 mbd and the full impact of the oil embargo was realized, the price of oil more than tripled to $11.58.

In addition, as monetary inflation kicked in the latter part of the decade and as U.S. oil production continued to decline (to 8.5 mbd), the price of oil hit a new record of $36.83 in 1980.  This is a factor many who analyze precious metals by technical analysis, fail to comprehend.

I was sent a technical trend report from Eidetic Research by one of my readers.  In the report was this long-term silver chart.

Eidetic Research Long Term Silver Chart

Basically, the chart is showing the long-term 127 month cycle for silver.  We can see the different cycles — bull, bear and transition.  From this chart, the folks at Eidetic Research are trying to give a future forecast on where silver is heading.

I believe this sort of analysis is a waste of time because they are forecasting in an energy vacuum — predicting the future price of silver void of future energy factors.  These cycles may have worked when the world was continuing to grow its oil production, but will fail miserably when energy comes in short supply.

I am not singling out Eidetic Research as most of the precious metal community still adhere to the worthless religion of technical analysis.  On a positive note, the folks at Eidetic Research believe the future price rise in silver will be due to the debasement of fiat currency and not the supply & demand forces.  I totally agree.

The reason why the price of silver increased substantially in the 1970’s decade, was not due to technical analysis, but rather the fundamental exponential rise in the price of oil… shown in the chart above.

You will notice that the price of silver paralleled the increase of the price of oil:

Price of Ounce of Silver 1961 to 1980

From 1961 to 1970, the price of silver remained virtually flat as did the price of oil.  The only reason why we had the move up to $2.06 in 1967 was due to the impact of the 1965 Coinage Act which removed silver from circulation.

When the price of oil went from $2.24 in 1971 to $11.58 in 1974, silver moved up from $1.39 to $4.39 respectively.  This is when the Hunts started buying silver.  Between 1970-1973, the Hunts purchased 200,000 oz of silver.

Then from 1974 to 1978, the price of oil only increased modestly from $11.58 to $14.02.  We find the same movement in the price of silver as it increased from $4.39 in 1974 to $5.98 in 1978.  This was at the same time the Hunts purchased over 75+ million ounces of silver.

There is a silly notion that the Hunts were trying to corner the silver market… they weren’t.  They were trying to protect their oil profits from their Libyan Oil Fields as inflation was increasing rapidly in the United States.

In just one year, the price of oil shot up from $14.02 in 1978 to $31.61 in 1979.  This is the same year that the price of silver skyrocketed from $5.93 (1978) to $21.79 (1979).  Please note all these figures are in average prices for the year.

Even though the price of silver (300%) performed much better than oil (125%) from 1978-1979, when we consider the change since 1971, they were about equal.

Silver & Oil Increase 1971-1979

Oil = 1,300% increase

Silver = 1,450% increase

So, the idea that the big move in the price of silver was solely due to the Hunt’s trying to corner the market fails to consider the impact of the price of energy on the shiny metal.  Jim Sinclair mentioned in one of his interviews that while the Hunts were buying a lot of silver, there were huge institutions right behind them doing the very same thing.

We also can’t forget, as the price of oil moves higher, so does the cost to mine silver.   Another assumption made by the precious metal community is that the miners were making a killing during the big move up in gold and silver during the latter part of 1970’s.  This is erroneous once we realize costs were moving up significantly as well.

I have obtained old Annual Reports from Homestake Mining, and I can tell you point-blank…. their financial results were much better in 1973-74 than they were in 1978-1979.

Homestake Operating Earnings to Revenues

1973 = 16.3%

1974 = 31.3%

1978 = 12.4%

1979 = 24.4%

The one thing that Homestake was quite successful in doing compared to the present gold mining companies, is the huge payout of cash dividends to shareholders.  In 1979, Homestake paid $22.6 million in cash dividends… a whopping $2.00 a share.

Here are the dividend payouts by the top 5 Gold Miners during the record price of gold in 2011:

Barrick = $0.51

Newmont = $1.00

Anglo Gold = $0.34

GoldCorp = $0.41

Kinross = $0.11

Newmont paid the most to its shareholders at $1.00 a share, but this was still half of what the Homestake shareholders received in 1979 at $2.00 a share.  This may not seem like much of a difference until we factor in the ravages of inflation over the past 32 years.

If we go to John Willams Shadowstats.com and input a $1 worth of dividends in 1979, it turns out to be worth $2.94 in 2011 Dollars… let’s just make it a round 3 bucks.  So, the Homestake shareholders would actually be getting $6 a share in 2011 Dollars.  Thus, inflation makes the gold mining dividends paid today seem quite insignificant.

I decided to reduce all the gold miners 2011 dividends in the example above to a third to equal the same value in inflation terms to the $2.00 a share in dividends Homestake paid out in 1979:

These are the TRUE DIVIDEND values if we adjust for inflation to equal the $2.00 a share dividends paid to Homestake shareholders in 1979:

Barrick = $0.17

Newmont = $0.33

Anglo Gold = $0.11

GoldCorp = $0.14

Kinross = $0.04

Once we factor 32 years worth of inflation, we can see that the gold miners today are paying a pathetic amount of dividends compared to Homestake Mining in 1979.

One important factor the precious metal analysts fail to understand today is the huge DILUTION of shares over the past several decades that went into growing the gold mining industry at the expense of the shareholder.  This was due to the falling EROI of energy as well as the manipulation of gold and silver via the derivatives and financial markets.

Now that we understand the relationship between energy and silver (and gold), let’s look at some very interesting Silver-Oil Ratios.

The Vital Silver-Oil Ratio Relationship

Today, fundamentals are thrown out the window so the Greatest Financial Ponzi Scheme in history can continue for a little longer.  Analysts who go along with this trend get to keep their jobs.  Because I don’t have to bend-over for a paycheck from one of these fine brokerage houses or banks, I can provide out-of-the-box analysis free from the threat of the orthodox mindset.

Analysts who forecast where silver is going based on technical analysis such as Elliot Wave, Cycle Theory and Candlestick formations do so in an energy void.  They see the price or value of silver based on movements of charts only.  Silly analysts.

If we go back and look at some fundamental data on oil and silver, we can see a very interesting trend.  This first chart shows how the price of oil and silver are closely tied together.

Silver vs Oil Price & Ratio 1961-1970

When gold and silver were used as money in the United States, their ratio’s to the price of oil were held relatively close.  Here we can see that the price of oil and silver remained virtually flat unless we consider the slight blip up in 1967 due to the public hoarding of silver coins after it was removed from circulation via the 1965 Coinage Act.

The Silver-Oil ratio remained at 1.4 for many years until it dropped to 0.9 in 1967 (due to the impact of the public hoarding silver).  The Silver-Oil-ratio for this decade averages out to be 1.2.  Thus, the Silver-Oil ratio was extremely low when gold and silver were the legal forms of money in the United States.

The next chart reveals the impact of a peaking domestic oil supply, the drop of the gold-dollar peg, the Arab Oil Embargo and inflation on the price of oil and silver during the 1970’s decade.

Silver vs Oil Price & Ratio 1971-1980 NEW

You will notice as the price of oil increased, so did the price of silver.  The trends aren’t exact, but they moved up in a similar fashion.  The Silver-Oil ratio increased from 1.6 in 1971 to 3.0 in 1977, even though the Hunts were buying a great deal of silver supposedly cornering the silver market.

We must remember, the higher the Silver-Oil ratio, the cheaper silver becomes compared to oil.  So, for the price of silver to gain in value compared to oil, the ratio will be a lower number.

Here we can see as the price of oil shot up in 1979, so did the price of silver.  Many analysts claim that silver was extremely over-bought or highly speculative at this time, but according to my analysis… it was trying to regain its proper relationship to oil as a monetary metal.

Once the Fiat Monetary Masters got involved along with the CFTC, the price of silver was knocked lower in 1980 to average $16.39 even though the price of oil increased to $36.89 from $31.61 in 1979.  Furthermore, as the price of silver weakened, the Silver-Oil ratio increased to 2.2 in 1980 up from 1.5 in 1979.

If we take the average for the Silver-Oil ratio in the 1970’s it had increased to 2.1 from the 1.2 ratio in the prior decade.  Again, the higher the ratio the lower the value of silver to oil.

The Dollar was saved when Fed Chairman Paul Volcker increased interest rates which further destroyed the value of silver compared to oil.  For the next two decades the Silver-Oil ratio became extremely volatile.

Silver vs Oil Price & Ratio 1981-2000

I am not going to get into too much detail during this time period, but we can clearly see the Silver-Oil ratio increased again during these two decades to average 3.8, nearly double the ratio compared to the 1970’s decade.

This next chart gives us an idea just how out-of-whack the Silver-Oil ratio has become.  Similar to the 1970’s decade, the price of oil and silver have risen in tandem during the 2000-2013 time period.

Silver vs Oil Price & Ratio 2000-2013

In 2000 the Silver-Oil ratio was 5.8, but fell significantly in 2011 to 3.2 when the price of silver averaged $35.  Once again, as silver was getting ready to top $50 in April of 2011, the Comex stepped in and increased silver margins a record 5 times within a very short period of time to bring “Order” back into the market.  What they meant to say was, “to bring order back to the weakening fiat Dollar.”

Many analysts believe silver was becoming parabolic and extremely over-bought during the first 4 months of 2011.  However, if we look at the data going back 5 decades, we can clearly see that silver was trying to reestablish itself as a monetary metal in relation to the price of oil.

Here are the average Silver-Oil ratios for the four time periods:

Silver-Oil Ratios

1961-1970 = 1.2

1971-1980 = 2.1

1980-2000 = 3.8

2000-2013 = 5.2

Ever since gold and silver have been removed from their role as monetary metals, the ratio of Silver to Oil has increased from an average of 1.2 in the 1961-1970 time period to 5.2 during 2000-2013.

Basically, you can buy more than three times the amount of silver compared to oil today than you could during the decade of the 1960’s.

The Central Banks and Monetary Authorities have done a fine job bamboozling the public in making sure that gold and silver remain as silly investments only the fringe in society would purchase and hold.

When the price of silver reached $35 an ounce in 2011 it wasn’t a parabolic move higher, rather it was behaving more like a balloon being released from far below the surface of the water.

If we were to value silver today compared to its oil ratio during the following periods, this would be the result:

Present Silver Value At Prior Silver-Oil Ratios (based on $111.30 Brent crude oil)

1981-2000 (3.8 ratio) = $29.30

1971-1980 (2.1 ratio) = $52.95

1961-1970 (1.2 ratio) = $92.67

What has taken place with the price of silver is that its value to oil has declined significantly over the past 4 decades while the world has increased its exposure to owning paper assets.  Here is a chart that I have used in past articles.

Global Conventional Assets Under Management

The majority of investors in the world have parked their hard-earned fiat currency into paper assets hoping they will protect their wealth in the future.  Unfortunately for these investors, energy is the driver of the global economy… not finance.

So when the world finally realizes that the new supposed “Shale Energy Revolution” is nothing more than another Ponzi Scheme kept alive by ultra low-interest rates, huge amounts of debt and massive drilling to give the illusion of sustainability…. the over $100 Trillion of PAPER GARBAGE called Global Conventional Assets will implode.

When you add-on top of this the coming collapse of fiat currencies, only a NIT-WIT would pay most of their attention to Technical Analysis Waves or Cycles.

Folks, due to the coming Peak of Global Oil Production, the Business Cycle will be over.  The world just doesn’t know it yet.  The value of gold and silver will explode in the future not because I am a Precious Metal Bug who can only can regurgitate a BULLISH RANT, but because the fundamentals and data say so.

The majority of analysis today is completely worthless because most of the analysts have no idea the world has passed them by.  They continue to focus on subjects and areas that are completely worthless.  The internet is full of analyst’s WHITE NOISE which is quite a shame as the public and investors will pay the ultimate price.

I have recently come across new data that makes an even larger degree of analysis seem quite meaningless.  I plan on putting out a full report on this in the beginning of the year.

Please check back for I will be publishing the BOMB-SHELL that destroys a great deal of previously held assumptions.

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63 Comments on "Silver To Hit New Highs As The Quality Of Analysis Sinks To New Lows"

  1. Great article as always. I am a novice at best but there is no problem in seeing the facts for what they are in each of your articles. You frequent your site often. Many Thanks

  2. Another great report! As usual, I am in the same boat as others in that most of my friends and family just don’t get it or perhaps don’t want to.

  3. One of the things that struck me about the bullshit Eidetc article was that they mentioned that there is still plenty of supply for investment purposes, at least a billion above-ground ounces of supply. I’m not sure if this is true or false or how they got their numbers. Nonetheless, what we’ve learned over the last couple of years is that price and fundamentals don’t have to match. Nothing happens until there is actually a physical shortage.

    Sure, the artificially low prices are good for stacking, however my feeling is that this is a crime against humanity because it allows people to waste this precious resource. A fair price would drive incentive to develop electronics and solar panels that don’t require silver, however there’s no good reason to do so at these dirt-cheap prices.

  4. Steve,

    Your analysis is spot on. Thank you for all of your hard work. We really appreciate you taking the time to digest all of the information that is basically in front of our faces. Keep up the great work, for it is truly appreciated.

    Chuck

  5. It is always good to look at the numbers and facts if you want to be a good valve investor. Thank You Steve for presenting them in such a good way to us.

  6. I agree! The amount of disinformation out there seems to be growing. I like reading your posts because you always have information that is unique and thought provoking. I hope all the years of being in the precious metals markets will pay off one day. So far it has been a bust for me. I believe that your posts will help me to make better investment decisions in the future. I appreciate all your hard work and hope to one day compensate you for your time spent helping all of us.
    Thank you,

  7. A tour de force … and gutsy.

    No … make that BALLSY!!!

    We are lucky to have you.

    • Everyone,

      Just wanted to say thanks for the positive comments. Of course, I respect those who are in disagreement with me as it provides a good venue for debate.

      steve

  8. “according to my analysis… it was trying to regain its proper relationship to oil as a monetary metal.”
    I have a question here Steve.What are the mechanics of inert silver doing the above?

    • yuan abet,

      Could you rephrase that question. I have no idea what you mean by the mechanics of inert silver.

      thanks,

      steve

      • Steve: this is my take on Yuan Abet’s stament: What are the mechanics involved behind an inert metal such as silver attempting to regain its proper relationship to oil as a monetary metal?

        • Jesus,

          The “Mechanics” behind silver regaining its proper relationship as a monetary metal is a grey one indeed. Basically, it’s the common sense fundamentals coming back to play in the market.

          While silver is no longer used as money, it is still an excellent store of ECONOMIC ENERGY. The $100+ trillion in paper assets as well as all the fiat currencies are not a store of value, rather they are the Biggest Ponzi Scheme in History… they are ENERGY IOU’S.

          I believe the BRIC countries are growing tired of the Fed propping up the Dollar and agree with Jim Willie that there will be a Global Fiat Currency Reset. This is when we will see the values of Gold & Silver rise.

          However, this reset does not change the problems associated with the $100+ trillion in Global Conventional Assets that will suffer tremendously as Peak Oil is felt.

          So, the mechanics will be the loss in faith of Fiat Currencies as well as the peaking of oil production.

          The overwhelming amount of paper assets will implode in the future, so it would be wise to invest in STORES OF VALUE that will weather this storm.

          steve

      • Steve,
        I love the site,but I don’t understand certain things you mean.
        You conclude that silver, a wonderful healing metal,has almost anthropomorphic qualities,or am I mistaken? Is this movement towards equality of sorts with oil purely economic then,based on dollar values?Or are there unseen forces based on something else? That is the best I can do to rephrase this point,sorry.

        • yuan abet,

          Let me see if this explanation can help.

          The world is run by energy. Without energy there would be no economic activity… or life for that matter. If we take a tennis shoe and break down all the costs that went into manufacturing, transporting and selling of the shoe… the overwhelming percentage of market value of that tennis shoe comes from all the ENERGY COSTS in all forms and in all stages.

          Of course we have supply and demand forces as well as the marginal utility of an item that goes into valuing the tennis shoe, however competition in the global economy has leveled the impacts of supply & demand as well as marginal utility.

          So what is left over in determining the value of a good or service are the energy costs in all forms and in all stages, plus a margin of profit.

          The world is using a fiat monetary system and has invested most of its hard earned currency in paper assets. Both of these are not stores of values… but ENERGY IOU’s. Energy in the future has to be burned to allow these two paper systems to continue.

          Furthermore, it has to be a growing energy supply because of the huge debts and leverage in the system. So.. as the global oil supply peaks, the whole Ponzi Scheme becomes unraveled and the world finally realizes the STORE OF VALUE nature of gold and silver.

          Hope that helps.

          steve

          • Steve… first time here. I’m surprised anyone is talking about the “exchange” and “store” of energy, and the relationship it has with gold, silver, and economics. Thank You.

            If I could suggest an important modification to your comment above, that changes the paradigm considerably, and that is the difference between the tennis shoes “market cost” vs “market value”. I believe you are describing the market cost of the shoe, and not the value.

            For instance, I may be able to produce a shoe, at a market cost of $10 (worth of energy), but it allows me to run 100 miles per hour, saving me countless hours, in a finite amount of hours (and energy) that I have each week, providing a “market value”, and would suggest, that will ultimately be determined by the “savings in energy” of that shoe.

            If you want to get a bit deeper on this subject, it is more precisely, the “economy of energy”, that always, in the end, provides true market value. Those shoes could easily have a market value of $10,000, and will find that value, if free to do so, in a free market of finite energy.

            I will come back often…thx
            Lee

  9. Wow Steve; excellent article. It takes one who can look outside the box like you, plus someone with backbone, to pen such an article. i remember one of my geology professors in 1974 talking about peak oil, and some of the ramifications. I think the other profs thought he was a bit nuts, but he was way ahead of the crowd.

  10. “Silver To Hit New Highs….”

    It will be interesting to see when that happens, as the current paradigm will do everything in their power to suppress viable alternatives to fiat currency, or digital representation of currency, and financial products based on fiat currency. Will it be 2014? Or closer to 2017? I have no idea.

    • David,

      Thanks for the Kudos and as for the Peak Oil argument, it looks like a former BP Geologist just went on record saying Peak Oil is here and will “Break Economies.” The link to the article is below:

      Former BP geologist: peak oil is here and it will ‘break economies’

      What is even more interesting is that the geologist explains in the interview that the EROI of oil and gas is too low to sustain the U.S. economic system. This is certainly BIG NEWS as I have never heard anyone from MSM discuss this in public.

      What a Whopper.

      As for the timing of the BIG RESET of currencies and the implosion of PAPER ASSETS, it could be any time or within the next several years.

      steve

  11. Awesome! Great read. Ties together a lot of alternative views I have read over the last 5 years. Which incidentally, is when I first bought Silver & Gold Bullion. The dollar is the best looking horse at the glue factory. Get smart and move on. That’s what the smart money is doing….

  12. Always enjoy your posts Steve. However, now you’re becoming a well respected mainstream writer, we
    may have to tweak your use of the Queen’s English a tad, as in:

    for ‘ the ravishes of inflation over the past 32 years ‘ read ‘ ravages ‘……Freudian slip ? 🙂

    • unclepte,

      Thanks for your input and help with my grammatical error. I will be the first to admit that I am a BUTCHER with the English language. While I love the research and analysis, I do struggle with writing at times.

      Gosh, the one positive thing that I can say is that my writing ability is leaps and bounds better than when I first started writing articles for websites back in 2009.

      I believe I was cursed at birth. I suffer from the Archie Bunker Syndrome — I say a word, but it means another…LOL. I actually went to go to college to be an artist. My creative side has allowed me the ability to produce these graphs.

      Anyhow… I always enjoy any assistance or corrections in my work. I have made the change in the article… thanks to you.

      steve

  13. Doesn’t the charts take into account energy indirectly? People are making decisions based on a complex list of things and the charts can take that into account, right?

    • You even referenced how the price of silver was going up with price of oil in one of your charts so it would seem it is priced in the chart to me.

      • Rick,

        Yes, all 3 charts show that the price of silver parallels the price of oil, especially when there are BIG MOVES UP. We must remember this factoid:

        ENERGY IS THE DRIVER OF THE WORLD’S ECONOMIES….. not Finance.

        Finance is supposed to steer our economies… and is now driving us right over the cliff.

        The reason for the huge increase in the price of silver since 2002 is due to the quadrupling of the price of oil. As the price of oil has gone up significantly, so has the cost to mine silver.

        While 70% of silver comes from by-product mining of Lead-Zinc-Copper & Gold, these companies still need all the revenue they can get from silver… so no, they are not mining silver for free as some investors believe.

        The largest By-product silver producer in the world is KGHM Polska Miedz. They produce over 40 million oz a year of silver. Because the price of silver has fallen so much, it has impacted their bottom line substantially.

        Lastly, even though some silver miners like Hecla state a low CASH COST of silver at $7.40 for Q3 2013… they still recorded a LOSS for the period. So all that by-product gold-copper-lead and & zinc revenue did not allow Hecla to make a profit.

        steve

        • Thanks for the response, I appreciate discussion. I agree that silver is not coming out free, however is it coming out at 10, 15, 20 dollars an ounce, I believe that is the question. The over losses have to be spread across all the final products coming out of the mine. I believe they are selling all final products at too low of a price.

  14. Also it seems that silver is coming out of the ground as a byproduct of copper, zinc etc and that could be a reason why current cost of silver is not in line with energy costs now. your thoughts?

  15. Very interesting and completely in line with some other reviews I have read. Interesting that JPMorgan brought up their patent interest recently in an aspect of digital currency. The coming shift is being played out right before our eyes – Russia, China and other world players get it – they are moving to bring in as much gold as possible and to develop their own currencies as the basis of their international trading. Our fiat paper will certainly be devalued in the upcoming year or years.

    Others are grabbing PMs like there is no tomorrow…..and yet…..price decline. What a manipulation. The thing about Ponzi schemes is they eventually end. Wait until interest rates go up and Uncle can’t afford the interest on the bonds. That is when something dramatic will happen. Of course, throw in nOcare and the complete unwillingness of both parties to present any serious plans to tackle the debt and you have the recipe for a significant move in PMs. As a true conservative, the latest budget “deal” (it should be called a farse), purporting to save 2 billion a year over the next 10 years, is laughable. What is the projected addition to the debt over the same time period? 5 trillion? 10 trillion? Like I said…..laughable.

    • JJ,

      I don’t see BitCoin or an Electronic form of Money working over the long haul because of several factors that I will get into in later articles.

      However, there is a NEW SITUATION that I will be writing about that should be posted in the beginning of the New Year.

      I believe the DATA shows that many of previously held assumptions that we have made…. may indeed be invalid going forward.

      steve

  16. The Ackaringa Basin discovery in southern Australia which some analysts believe contains over 200 billion barrels of oil, and possibly up to 233 bililon, which would put the energy close to that of Saudi Arabia’s. This will sustain the economic boom began in the United States by the Bakken and Eagle Ford projects (among others) for generations to come. Additionally, Venezuela believes they have proven reserves of 297 billion barrels. Between the shale projects in the U.S., the Ackaringa Basin and Venezuela, the planet is still flush with untapped energy that will foster in another massive economic boom as basic science is probably still in its infancy with regard to computing, efficient mechanics and medicine. In a hundred years, the great grandchildren of today’s generation will wish their families had invested appropriately in strategic equities.

    • JTM,

      I thought you left this comment once before. Regardless, the supposed 200-223 billion barrels in a resource is not a reserve and is nothing like Saudi Arabia if you think comparing a AMC Pacer with a Lamborghini is a fair assessment.

      Also, the Ackaringa Basin is located where there is little water or infrastructure to produce that CRAP OIL.

      Furthermore, the EROI ratio of that crap oil there is like 2-5/1 while the Saudi Arabia Light Sweet Crude is like 20-30/1. Basically, it will take nearly 5-10+ times the amount of energy per barrel to extract that low quality oil in the Ackaringa Basin compared to the wonderful Saudi Arabian oil.

      Then if we factor in the lack of infrastructure and drilling rig capacity… it will cost a great deal more.

      steve

      • Thank you for responding to my comment, Steve. I agree that the bought-and-paid-for media is increasingly narrative-driven as opposed to data driven for political purposes.

        Another item to consider when debating the energy driven economy is the evolving efficiencies of processes that are in use today. For example, graduate students at Stanford have constructed the world’s first computer using carbon nanotubes (CNTs). According to the article, “CNTs could take us at least an order of magnitude in performance beyond where you can project silicon could take us.”
        I think the worldwide scientific community has an excellent chance of achieving not only new levels of energy efficiency, but a new sustainable energy source (such as fission) before the plummeting EROI of fossil fuels becomes a situation that is problematic to a point that none us want to think about. I believe that wind, solar and untapped natural gas and crude reservoirs will prove to be a sufficient bridge until the next great technological leap for humanity is implemented.

        • I used to think that also. Maybe technology will be a game changer at some point in the future but not yet. Thinner iCraps and quantum computers don’t solve our energy and food production problem, at least not in the short-term. Technology is not going to save us from currency crisis, world war and widespread de-population of the planet. After that, who knows, maybe a renaissance and a golden new energy paradigm but we’ll be gone by then.

          • Steve, great article. I’m still looking forward to your upcoming paid reports with your mining stock picks (although I’m probably buying AG and SLW tomorrow.)

            I LOL’d at “iCraps”… it’s always good to be in the (albeit virtual) company of people that at least slightly question the “technology as savior” paradigm that seems to be the norm for the average sheeple on the street.

            I’ve gone to sleep at night wondering if it might be possible to create gold and silver in some sort of futuristic “Replicator” type technology. True, technology can do some pretty amazing things, but as Chris Martenson pointed out one time, one thing that technology cannot do is _create energy_. If you look at the landscape we inhabit, all of this fancy, destined-for-obsolescence technology is still largely the outgrowth of 19th century technology. Graphene, rare earths, etc… you name it, they still need a hell of a lot of OIL to get them out of the ground.

            Perhaps there will be some sort of game-changer energy source like some of the nuttier conspiracy types tend to think there is (I don’t buy it at all personally: any car company that could come out with a 200 MPG car would have the best selling car of all time) but I tend to doubt it. I’m now on the cusp of middle age and I’ve been hearing some of these stories about all of these wonderful things that are “just around the corner” for 3 decades now: cold fusion, artificial intelligence, “free energy”, etc. What no one seems to acknowledge or admit is that oil was, if not truly “free”, as pretty close to free energy as we could hope for. At ~$100/bbl, it’s still a massive bargain (it would probably still be “cheap” at even two or three times that if you actually stop and think about how much human energy can be replaced with one barrel of oil.)

      • as far as energy what about hydro energy , people making energy out of water since the late 70,s but the big oil company’s buying them out or just murdering them and the government steeling there research or electro magnetic energy , at some point this info will go mainstream and our energy cost wont matter much because the cost will be almost free. what will that impact have ?

    • JTM,

      I don’t think we are trying to argue that there isn’t lots of oil in the ground. What people here are trying to point out is that its just not the oil that most people can afford to burn. The prices that will pull the tight oil out of the ground are the very same prices that will leave you parked on the side of the road.

      I would also agree with you that technology is amazing and getting more incredible. However, its important to note that its getting MORE expensive to extract the non-conventional oil, despite technological improvements. I’ve talked to people in the shale industry, They won’t touch that oil if the market price is less than about $80/barrel. Unfortunately, this is about the price that starts to strangle the economy.

  17. Steve, Good insight and an excellent analysis on silver in which most analysts are afraid to tell the truth .A few things that come to my mind that may have significant impact on the silver price.
    1. Silver as a BY PRODUCT from the mining of base metals and gold.
    2. Silver miners being forced to sell or hedge their production to keep them in an environment of continued depressed silver prices.
    3. The many billionaires that have been writing and advocating the virtues of silver and asking the public to buy and stack them. If they have been truthful, how come they themselves are not buying up most of the silver on the physical market at the present bargain basement prices and take delivery from the inventories that are in COMEX and SLV. It will only take a part of their wealth to buy up a whole year of production.

    Any comments ?

    • @12well,

      Regarding your point #3, BrotherJon did a commentary kind of dealing with that topic once. Kind of interesting.
      http://www.youtube.com/watch?v=ALFyJg4hXbM

      See also Chris Duane has also touched upon this
      http://www.youtube.com/watch?v=gJYLmDbIV9s

    • 12wells,

      While 70% of silver is a by-product of base metal mining, these miners still need all the revenue they can get to stay in business. KGHM Polska Miedz is a Polish Copper company that produces the most silver on the planet at 40 million oz a year.

      The fall in the price of silver has hurt their bottom line significantly.

      The problem with the Miners Hedging and Billionaires not buying a great deal of silver is because they are at the WHIM of the Fiat Masters. Sprott learned all to well what happened to the Hunts back in 1980 and to him to a lessor extent when the price of silver was smashed from $49 down to $18.

      So right now everyone is playing the PATHETIC FED INDUCED TREND. However, this will not last forever and cracks are beginning to appear.

      steve

  18. Very informative. When do you think we’ll see silver start coming out of the current slump it is in and finally start entering unprecedented areas of gain where the oppressive taskmasters of the mainstream financial world no longer have any influence?

    • Skipper,

      I have no idea, however several excellent analysts believe we will see a Global Currency Reset this year. So that should get the ball rolling.

      steve

  19. WOW! Great article and most helpful to grasp the energy relationships. You might enjoy my rather outdated discussion of assessing values in a fiat world…And perhaps a headache will be the result…But,..have a look.

    I sent this as an email to our little network:

    The chart showing the long term silver prices by Eidetic Research (127 month cycles) is especially offensive. Long term price trends are measured by currencies that progressively shrink in buying power. So when one sees long -decades – of flat line price action, the value of the metal is actually going DOWN. Again, that it is shown as a (suppressed) flat line or bear market (which compounds the problem) we can argue that silver has not, thru most of its modern history, kept up with inflation even as its supply plummeted.

    John Williams estimates that the 1980 dollar buys nearly 10 fold in 1980 compared to now. That means the price of silver in 1980 dollars is approximately 1/10 of $20.00 (our present price) or $2 per ounce in equivalent terms. In 1980, you might recall that silver hit $40. Another way to look at this is that silver should be ten times its present value to be fairly priced (note that it hit 1/15 of gold’s price which has been its historical average over most of human history). So silver should be much higher due to the “dollar shrink” or inflation since the ’70s. As you might surmise, this is also a measure of the “economic energy” that Steve mentions in his fine article…

    Note that the average price in the 1970s before the spike started in ’78 was between $4-$5. Due to dollar shrink factors the modern price should be $40 to $50 now to reflect the inflation and prices of that old bull market to where we are in our newest bull market. I used to use the spike, but that was, well, a spike, not average low prices at the time…And we should note that after 1980 the silver price returned to an average price of around $5.50 -$6. For some twenty boring years. And the primary silver mines were once more barely profitable…But at $20 prices today, they are some 30% under the cost of production. At the very least, a $26 POS is equivalent to a 1970s average price of $5. Just from a cost standpoint that is a five fold discount of the silver price below a barely profitable price.

    Politically, the banksters would rather kill silver. As they would gold. Instead they rig the markets and commit financial war on its own manufacturing base and primary producers of strategic commodities of neighbour countries like Canada. Oil is the prime example. And the EROI is a very valid way of measuring viability.

    The Americans are NOT our friends.

    https://srsroccoreport.com/silver-to-hit-new-highs-as-the-quality-of-analysis-sinks-to-new-lows/silver-to-hit-new-highs-as-the-quality-of-analysis-sinks-to-new-lows/

    Best regards,

    G.

  20. GoldSilver Guru | December 29, 2013 at 4:02 pm | Reply

    There has never been a better time to start buying PHYSICAL GOLD and SILVER and just keep on buying it month in, month out until the price explodes!!!! I also wish to thank the banking cartel and the feds for setting up this once in a lifetime opportunity!!! ;).

  21. Additional:

    One could also make an argument that the 1980 spike was a brief moment of fair value and the present POS should be $200.00 per ounce.
    FWIW,
    G.

  22. Go Steve go. I am happy to see this explosion of exposure for you. Got here from survival blog this time. You are going places my friend. Happy to see other Turds in here as well. Happy Holidays yall.

  23. Agree with the concept that silver represents energy consumed. It was however consumed in the past and there is no way to recover that energy in the present/future. With energy being the limiting factor, how does a token of past consumption have value?

    • workinstiff,

      Actually, I was trying to make the ECONOMIC ENERGY connection rather than energy consumption. But, silver is being consumed as well.

      However, the most important concept to understand is that most of the supposed assets out there are not assets, they are energy liabilities…. ENERGY IOU’s.

      So, if there are over $100 trillion in paper assets called Global Conventional Assets as well as all the worthless fiat currencies (another Energy IOU), then this is where gold and silver will really shine.

      People will have to move into gold and silver to PROTECT their wealth as the investments they are in currently… do not do so.

      steve

      • So money is a claim on production, whereas PMs are a store of production. Money is tenuous because you may not be able to convert the claim into the product. (Or the conversion ratio changes significantly).

        Not sure what I mean by this; but seems to me PMs are time invariant whereas money is time variant.

        Hmm, coming closer to being comfortable with the idea that PMs have intrinsic value.

  24. Thank you for the great report. It helps calm the nerves.

    One tiny suggestion related to the terminology: silver-oil ratio. What you show in the charts is actually an oil-silver ratio. Oil is the higher priced commodity, and when silver prices are less than oil prices, the ratio is greater than one.

    In ratios, the scientific or mathematical convention is to name the numerator first. As a result, this ratio threw me off and I found it confusing.

    There may be a good reason why it must be named in reverse order, and if so, I’d like to know. Either way, you might want to clarify this for other readers, or in a future post.

    Many thanks for the data, the charts and especially the analysis.

    • R,

      You’re correct. I should have realized it, but after I made all the charts… I just went with it. I gave an explanation in the article on the value of the Silver-Oil ratio. But next time, I will make sure to put the higher value first.

      Thanks

      steve

  25. Thanks, Steve. I’m looking forward to the next report. You do good work.

  26. steve,
    again, i’m more bullish than you for the following two reasons.
    1. silver in monetary form has decreased by over 95% vs 60 years ago while crude production is 5-10x bigger
    2. if we go back further into history, we can find data points that shows silver-oil ratios much lower than 1; i remember crude was 0.1 dollars per barrel due to the relative abudance of oil vs silver.

    the crude oil price has been an upper bound of silver price for the past 50 years. but i believe in the current bull run of silver/gold, silver price will be totally freed and the crude oil price will become a lower bound of silver price!

    i think you can elaborate your reports further by digging up data that support the above points!

    let’s be more bullish!

  27. Hey Steve,

    thanks for your logical and well supported analysis of both energy and real “money” in PM form.

    In the idea of “knowing your enemy”, seems important to remind some folks that for all the wrong reasons there are still many dangers in going all in on PM’s. So many negative scenarios still…

    Supply can be maintained via miners could be incented to produce more even at continually lower price points via tax credits, in essence interest free loans due to the importance of the metals “in maintaining economic national security”…of course the paper derivatives, hypothetication, leasing, etc. to increase paper supply is well documented.

    Demand can be cut via continually increasing taxes on the purchase and sale of PM’s. Also setting caps on these purchases to “avoid hoarding against the national interest”, etc.

    I’m sure there are so many more levers and schemes to avoid a national or international awakening that fiat is now being printed infinitely while PM’s are very finite. My point isn’t that PM’s aren’t a proper hedge or insurance against the irresponsibility of the fiat Ponzi…it’s only that to holders of PM’s must think deviously and seriously about how PM’s prices can be pushed lower…because those in charge will not simply give up. They will push, pull, lie, change law’s, and even try change the laws of supply and demand. My sense is as the economic situation degrades further PM’s will fare worse likewise because they must bar all exits to the monetary Ponzi. The attacks on the only true alternative will likely become more brazen and likely even less sustainable…but they won’t care as we approach the dying days of fiat as they “are all in” and will do “whatever it takes”. PM holders should not expect holding the anti fiat will be a simple rewarding experience…you will be demonized and attacked for this and you should be prepared for such an environment.

    • When you are among a 1% to 2% fraction that hold an asset that is the true barometer of worth, do not expect supply and demand will simply be allowed to reward those who have patiently saved in non-paper assets and stacked…while the imbalances created by manipulation become greater (even ludicrously obvious) so will the pressure to maintain what is similarly ludicrously unsustainable. The situation will almost surely get worse for those holding these finite assets before the dawn ultimately arrives. Nearly every despot, tyrannical government, etc. have not willing stepped down but gone down in spasmodic attempts to sustain their power before ultimately failing…this should be no different.

      • I agree – there is real risk of future problems for PM owners, but the risk is significantly less than to be invested in paper assets.
        One should think carefully about the future and plan in accordingly

  28. Steve thanks again for an outstanding analysis. Silver should at the very least be on a near par with oil. That is one easy indicator for the level of suppression. Oh and thanks for blowing away all my misconceptions about shale oil & gas. Keep on stacking and Happy New Year to all!

  29. Steve, thanks for providing a certain brutality in the mainstream woods of destruction. Looking forward to your posts about energy markets and real money in 2014. Happy new year to you and yours, and thanks. I’ve been reading many financial sites for a few years now, Zerohedge, Jesse’s Crossroads and SRS survived, sometimes a peek at Jim Willie or a Dutch site, but your stuff is good. Dude.

  30. Do you have any charts that compare how many barrels of oil it takes to mine 1 oz refined silver from a specific mine? Is there even a way to find the data to determine it?

  31. Love your analysis. It seems that you are talking my language. I was counting up my pennies and was going to jump on some silver after reading the post, but learned long ago to try and poke holes in any argument before spending money on it.

    SO

    I got my wife to read it, and she had some of the same comments as your other readers … no need to rehash them. Then the ultimate argument against your thesis hit me: Correlation is not causation.

    Sure the energy thing speaks to me. Any resource extracted from the earth is a concentration (or remnant) of the value of energy that went into its production i get that. However, the ratio that you feel that must somehow be returned to could very well be a fiction. In the ’60’s the ratio was 1.4, and you say it must return there. Why? (By why i mean, give me a reason that 1.4 is a not magic number, but a real indicator. Give me the mechanism.)

    People buy metals as an inflation hedge. You plot the price of oil with the price of silver and sure enough they move together. If you were to add the inflation rate to the same chart, you would show that oil, silver, gold, and inflation have moved in near lockstep in the past. In fact, if the price of silver does jump at the end of the fracing boom i will guarantee you that the inflation rate would be right there.

    As an answer in part to one of the comments posted you said, “I believe the DATA shows that many of previously held assumptions that we have made…. may indeed be invalid going forward.” I agree. I agree so much that I humbly offer the following. (First, why do I say “humbly” and then go right ahead an be arrogant? One of lifes eternal mysteries.) Some things i think you, me and most of your readers will agree on:

    1. Silver is a hedge against inflation or as people have said against the collapse of the fiat currency.
    2. Silver is produced as a by-product of other metals extraction. (I actually worked at the last Homestake silver mine that existed for the production of silver.)
    3. The fracking bubble will pop before the end of this decade because oil/production will flatten out or decline.
    4. The problems with money, debt, the fed etc. will eventually become to absurd to continue, probably also in this decade.

    In the past, when the production rate for oil has declined, the price went up and it caused inflation. That can’t happen now because to get inflation, there must be a population that gets higher wages, or has savings to spend. That happened in the ’70’s, but now is impossible. In fact, when the fracing bubble comes to an end, the price of oil/silver may go up some, but then will remain flat or actually decline. Why? Hopefully, i can elucidate a mechanism.

    1. The price of oil will go up just enough to get people looking, or maybe some mainstream analyst will catch a clue. Then the mainstream media/analysts will notice that they got tricked (again). They will say “No one could have seen this coming!”. and then they will point out the obvious.
    2. Panic will ensue. “Where will I get gas for my Hummer?”
    3. The Fed will try to print more money to re-inflate the bubble, but the banks have all the money they need/want and so it won’t be very effective.
    4. There will be stimulus bills in congress, but they will fail because its the modern congress and the debt is already too high. (Plus any stimulus would happen in the context of there being enough energy to provide power. No amount of deficit spending or money printing will make the economy grow if there is to little fuel (I mean liquid petroleum – gasoline) to run it.)
    5. Layoffs, foreclosures, bankruptcies, etc. The amount of silver produced will go down since copper mining will be greatly curtailed.
    6. No demand for oil, the price goes down – maybe way down.
    7. No one has money to invest, and if they do, they can buy stock, real estate, etc. for pennies on the dollar – the price of metals goes down. In fact, it will go down in lockstep with inflation (well deflation at this point).
    8. All sorts of techie gizmos will be invented and won’t change a thing. (That really isn’t relevant to my argument, just a jab at the techno-utopian that commented above.)

    In summary: The price of silver will go up only if there is inflation. There will be no inflation because the amount of debt greatly exceeds the money supply, people have no savings, people can’t get raises, etc.. The price of silver will actually go down when the world enters a deflationary spiral.

    In the past, during deflation it was best to have cash. Will that truism hold this time around?

    • “There will be no inflation because the amount of debt greatly exceeds the money supply”

      I call bullshit on that tired argument. Hyperinflation will be the response to the deflation you’re talking about. Read a history book. There will be inflation for everything you need for survival and deflation for shit you don’t need to survive.

      Secondly, think about it. Pretty much every resource is either peaking or diminishing while there’s 7 billion greedy termites chewing up everything in sight. There’s no mathematical way commodities get more affordable for the masses moving forward, no matter what the nominal dollar amount is.

      “All sorts of techie gizmos will be invented and won’t change a thing.”

      What are you talking about? Everything is changing with blinding speed as we speak. Humanity is in the process of changing its operating system. Unfortunately about 6 billion of us probably won’t be around to see the transformation.

      • Aggressive much? Please note that we are on the back of the beyond internet wise and we can afford to be nice.

        I’ve read some history. Where is the inflationary pressure of which you speak? If people have no money – I mean NO money – how will prices go up? Sure, we won’t be able to afford anything, especially useless silver/gold that is my point.

        Re your resource paragraph, we are totally on the same page.

        Re your gizmos paragraph: Dude, we are in total agreement – “Unfortunately about 6 billion of us probably won’t be around to see the transformation.” All sorts of techie gizmos will be invented and won’t change a thing.

  32. Another truism that may fail during the (apparently) coming round of deflation is that the price of oil is traditionally covariant with the inflation rate. But under these conditions I wonder if the price of oil might go up while the price of everything else goes down.

    • Hey Lou,

      good thinking and glad to read thoughts from those who wish to look @ every angle rather than cherry picking info to support their positions.

      Big pieces @ play are jobs, demographics, debt, energy…and all these impacts adding up to a inflationary / deflationary outcome. Clear that the natural order of things in a over-indebted mature economies (those that have low growth potential even absent high indebtedness) is a deflationary rebalancing to reduce debt to sustainable (repayable) levels. Absent monetary or fiscal inputs,this could mean excess capacity removed, jobs lost, assets (equities, CRE, RE, bonds) revalued to be in line w/ falling wages (wages that are themselves falling to re-balance w/ global wages). Population growth slows. Companies, corporations continue to outsource, innovate through technology to reduce costs and maintain profit margins. This means fewer and fewer people (and more computers, more robots, more automation, more self serve, more autonomous trucks, trains, planes (drones)). There will continue to be a clear delta between job growth (being destroyed far faster by the above than the growth of people needed to create these technologies) vs. population growth (being supported by social safety nets, etc.). And this jobs trend is global…not just US.

      Impacts of this situation on commodities would be declining rates of increasing demand…not down but up less due to global population still increasing, but supply likewise falling as exploration, new technology and cap-ex non-existent…net net supply and demand down. However, many of the energy exporters are the least mature, have the least debt, and the most growth potential thus they will continue to use more and more of their own energy and export less and less.

      Since energy is priced on the margin of exportable energy and the outstanding amount will be falling…energy prices will likely continue rising despite falling demand in the over-indebted mature nations.

      Of course this deflationary process will not be allowed as Fed and Congress in US and CB’s and gov’s globally will take countermeasures to ensure this does not occur (at least as long as they can delay it). This deflationary depression would destroy the over-levered under capitalized.

      So let’s agree the only option is to print (a bail in doesn’t really work as it only transfers money from those who would spend to those who need capital…causing further economic slowdown). More money and more credit by some means. As the deflationary debt based issues become more extreme so will the counter measures…but the countermeasures will be unlikely to do anything but continue the current economic malaise. But at some point stocks, bonds, RE will all be so over priced as to be laughable…and the search for a real store of value will lead to the old stand-bye.

      The CB’s only power is the power of printing and they will print to the end…something bout a hammer is the only tool you have…and real money will be the nexus of the inevitable restart.

      • I largely agree Chris, but i think that you are too optimistic. Here’s why:

        Peak oil and climate change will make the “inevitable” restart impossible.

        I can (and will) flesh out that statement if you are interested.

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