My reason for being interested in this, is largely because I have begun thinking about American hegemony which arose in the ashes of the second world war with its manufacturing industry still intact.
As a result of the Marshall Plan arrangement, a large debt of $12 Billion was created to enable the Europeans to rebuild their shattered economies. (And don’t forget, this was back when we still talked in millions for national economies)
This was owed to the U.S. by European nations, by giving them a line of credit to enable them to purchase American made goods, whilst rebuilding. At the time, America, who had raided the US citizens for their gold, had over 20,500 tonnes of Gold in its various vaults at Fort Knox, and under the Chase Manhattan Building, that the Chinese recently purchased. This gave the Americans the hegemony over Europe, who were the leading nations before that time.
This world hegemony, was cemented when the Soviet Empire collapsed in 1989, with the acceptance by those former communist states, that liberal democracy and private ownership were the way forward. When finally these nations began un-burdening their populations with rules regarding ownership of scarce resources, or manufacturing industries, and sold off these former state owned enterprises, (SOEs) the world was unipolar. And the dollar (formerly backed by gold) had given the U.S. immense advantages, in a world of rapid change.
Back in 1965, President de Gaulle of France told the world, that the current financial system, benefitted the Americans, because whereas the world had to pay for “stuff” such as oil, and food, and manufacturing goods, as well as the immense technological products that America seemed to have in the world of computing etc, with U.S. dollars. The Americans though, could just print up more dollars to buy that stuff. (Those technical advantages it has been argued by some, were as a result of the reverse engineering of captured alien technology, by America’s scientists such as Von Braun, who were former German engineers who departed for U.S. shores, after the fall of Hitler, and who themselves were alleged to have had visitations from the cosmos, but that’s another story, for another day.)
That link though, between America’s gold, and its place as the world reserve currency, ended on 15th August 1971, when President Nixon, got fed up with us Brits, and the French asking for some of their Gold back for pesky dollars, and closed “temporarily” the Gold window, ending the world’s right to return those dollars for something more tangible. The Central Bankers of the Fed, therefore, were keen not to let the world know just how much actual gold they had, as they massaged the books, by lumping together “Gold” and Gold Receivables” in a one line item in their balance sheet statement. In fact one commentator, Jeff Opdyke has already discussed document FT900, as giving clues to this. And Louise Auchincloss-Boyer, had told the world in 1974, that “All the gold in Fort Knox had gone” just days before she fell from her 10th floor apartment window – verdict probable suicide – Nothing to see here…(The Coming Battle)
But in the last few years as the amount of currency created by these banksters has flooded the world, those with an eye to the future have been stealthily, and not so stealthily buying up the ultimate insurance.
In fact the East – China, India and Russia to some extent have been the most avid purchasers, but a report emerged recently from Sprott Money, that now Norway’s and Switzerland’s Central Banks, are joinng the fray, when after the last 20+ years we’ve been led to believe that Gold was a barbarous relic of a bygone era, yet these two central banks, have each printed up $1billion and used it to buy Gold mining companies shares… So, printing up monopoly currency, to buy real assets is not just a Fed trick?
So, Why is the Fed so scared of Gold?
The answer to that question is simple: Gold’s price, tells you all you need to know about the value of currencies…particularly the dollar.
For 5,000 years, Gold has been exchangeable for other things, and money evolved from it, because they could make gold into small pieces for smaller purchases, and those pieces could be made into forms of adornment, making your wealth portable, durable, divisible, fungible and a unit of account, (which is all that real money is).
So, the value of a currency can be measured in gold – and vice versa. One troy ounce of Gold (31.15gms), currently buys around $1,334 of paper currency or circa £1,031 (as at 26th Sept, 2016 – $1.2937:£1) and Silver around $19.40, and those bits of paper and ink buy other things of value too, – oil, copper, tin, lead, bismuth, boron, Lithium, Gallium, Arsenic, and a myriad of other things. Coffee from Brasil, Uranium from Australia, Runner Beans from Kenya, Pop-music from Great Britain, i-Pads and i-Phones from China, Mercedes cars from Germany, and wine from France and Italy. The volume of stuff goes up in line with production and technological advantages, and the number of people producing them. Whilst the number of Dollars, Pounds Yen and Euros, goes up in line with those nations printing presses.
The problem for the American Federal Reserve is that Americans have got used to living on the cheap, and that means having King Dollar. But if other people don’t value that dollar, then they won’t give away as much “stuff” as the Americans would like, and in the final analysis, the value of any currency, is really only worth the amount of stuff it will buy, based on the labour, intellect, and materials, that go into finding or making that stuff… And Gold and Silver, take enormous capital injections, and immense energy and labour, with the appropriate management to find, smelt into doré bars, and finally to refine them into fine bars.
So a currency that is printed up in the Trillions on printing presses or computers, that only the Federal Reserve has access to, means those pieces of paper or electrons, shouldn’t really buy that much, unless they can be exchanged for Gold or some other valuable item from the rest of the world at a rate that is acceptable to both parties; and that is not likely to lose its value as fast as the pieces of paper – and therein lies the problem. America has little gold left. It has been used to manipulate the dollar, but the game is almost over. Dr. Jim Willlie says that the “End is Nigh.”, and dozens of others outside the Fed, and its MSM apparatchiks, agree.
With a gold backed dollar, the U.S. economy would have to compete on a fair basis world-wide, value for value, and not just use “funny money” to buy up scarce resources, or the time and talent of foreigners that have developed and built products. And America, would not be able to afford to station its forces in 147 different countries, nor wage wars on the scale they have hitherto either. And it would appear, the world is waking up to this injustice too…
Here below, Mike Maloney talks to Chris Martenson, and explains in simple terms how the Fed can magic up digital currency, and then use that new currency, to buy up assets that other people have sweated over, thought and laboured over, for huge amounts of time. And that is just not only immoral, but in the Fed, is called “Keynsianism”… And Mike in his inimitable style suggests the FED, is guilty of “manslaughter” at the very least.
Here also, Jim Sinclair, says emancipated gold, will ultimately reach $50,000 oz. It might, I suspect, but we are probably at least half a decade away from that, if not a generation (or two). Though if the SDR gets floated soon and becomes widely available as other currencies collapse, then it may – sooner, rather than later.
In one video, Dr Jim Willie discusseed with Elijah Johnson, the current state of affairs with respect of the American Dollar, and its status on international markets, including a mention I think that should be given wider prominence, a small matter of how the U.S. Navy fleet based in the Persian Gulf is having to pay for its diesel for its warships, with silver, as the Arabs, got tired of the depreciating asset – the dollar., or Treasury Bill, verging on negative yield, as the Fed does everything in its power to stimulate inflation, and more spending… However, for some reason, the video mysteriously disappeared from You-Tube; but Jim Willie suggests that Silver will be the straw that breaks the back of this Financial Camel…
So, what drives the price of Gold?
Obviously the difference between buys and sells, so the demand and scarcity of Gold has a bearing, but unfortunately, so do the paper derivatives used in the manipulation of the Gold price and the ratio of buys versus sells there too.. Which allows the major trading desks of the senior bullion banks, who are largely both the client banks, and owners of the Fed, to control the price to some degree – unless, they have no gold left to deliver, when a large buyer issues a buy order, and requests delivery. Which until now no serious buyer, has been prepared to do, though China, has been hoovering up gold around the world, in increasing amounts, and from its own mines, as well as those it owns overseas direct to its vaults since 2010.
JP Morgan-Chase Bank of New York too has been quietly buying, and has (according to Ted Butler of Butler Research) reputedly bought circa 500 million ounces of Silver – real physical silver, which presumably it will use to make major profits from in the fullness of time, but this might also be used to maintain price stability, if and when the derivatives markets blow up – which is increasingly likely, given the Shanghai Gold Exchange, which is tied to the physical market more closely, because participants must deposit gold (and presumably silver) in order to be able to sell on that marketplace.
This is likely to happen based on other factors.
So what are those other factors?
Those of use who follow commodities markets cannot fail to have noticed that price inflation, and Gold and Silver markets generally follow the currency volumes, which since 1970s, followed the price of oil, and which over a 12 year period from 1995, to 2007 went from circa $12/bbl, to $147/bbl briefly. Gold and silver followed on a little while later, peaking in price in late 2011, as the Fed flooded the world with dollars post the 2008 credit crunch. This action, largely echoed the events in the 1970s, when the oil price rocketed as a result of unrest in the middle-east and North Africa, as political machinations occurred there then too. Later, after the second line Banks went under, and the government, instructed the BoE to increase the money supply by 25%, we had inflation of 26.9% in Britain, and almost 25% in America. Back then we had powerful unions, who ensured their members were protected from these price rises by raising their wages, and industrial unrest reached a peak.
There’s a gold price chart in this piece that compares the 1970s price rises, with those in the period from 2000 to 2014, that shows you how the Gold prices have been shadowing the changes in that period, just circa 10x higher. Which gave rise to my confident prediction back then, that we would see $8,500 for Gold, and $500 for silver back when I first noticed it.
This time, the political changes, and plethora of service industries, has reduced that pressure, as people from Europe and further afield, immigrated into the UK, in large numbers, but as the Brexit vote showed, maybe now the people of Britain from the industrial heartlands, are fighting back, and even I have noted increased pay rates being offered at the bottom end of the pay spectrum as employers battle for the limited supply of labour as supplies from overseas dry up.
So, if the oil price drives the PM markets, what’s happening with oil?
I found this response to an item by Dr. Kent Moors, Professor at Duquesne University, and energy industry commentator, and governmental advisor on energy matters, articulating that the frackers in the American South-West are all leveraged to the price of money (interest rates) as well as the price of oil, so interest rate rises or low oil prices, will cause them to fail, if the price of oil falls much further, to below circa $40. Dr Moors suggested we could see a slew of bankruptcies later this year, as many as 130. I speculated in a previous piece, and even Wickipedia has mentioned this. According to – John England, Vice-Chairman Deloitte LLP, a statement on February 16, 2016 that – roughly 175 companies are at risk of bankruptcy and have more than $150 billion in debt, with the slipping value of secondary stock offerings and asset sales further hindering their ability to generate cash.
A crisis of this size, would help make the glut at the cushing oil terminal, and elsewhere disappear. The response below though has an interestiing perspective. In allowing the price of oil to climb the oil majors face issues, and a commentator obviously by someone close to the action wrote this, and which goes some way to suggesting where the price of oil, and thus where Gold and Silver are going.
September 15th, 2016 at 23:03 | #1Reply | Quote – Bob Schubring
I fully expect to see some volatility on the way up. Historically, Saudi Arabia has held the price of oil, such that between 10 and 20 barrels of oil, sold for the exact number of US doilars, that would buy 1 troy ounce of gold in the current-month futures contract. The Saudi Crown would intervene in either the gold or oil markets to achieve a correction, keeping the exchange rate between 10 and 20 bbl oil per oz gold, from 1985 until 2014. Over the past year, that price range shifted dramatically, remaining consistently above 20 bbl per oz and making three sharp peaks above 30 bbl per oz, at which point major trend changes struck oil, gold, silver, and currency markets, usually accompanied by a sell-off of stock. Since it’s record peak of 38 bbl per oz set this year, oil prices have risen against gold.
Any near-term rise in market volatility (eg a 10% correction in the stock market) will push up the dollar price of gold, thereby reversing what Saudi rulers consider a favorable trend. Even the very looniest nut-cases among them, see the futility of throwing away the Gift of Allah (their phrase for oil reserves) to get a wee bit of gold bullion, when by producing less oil, they historically bought more gold for the same amount of oil.
I really don’t think there will be a consensus amongst the Saudi rulers, if oil trades back to 35 barrels per ounce of gold, as the result of continued overproduction and overselling. The hardliners will recognize they cannot defeat the US by giving away cheap oil.
Whereupon, the younger and more pragmatic of King Salman’s brains trust, will focus on allowing spot crude prices to normalize, in time for the ARAMCO IPO. They’ll get that done, (insh’Allah), as soon as hardliners allow it.
What many in that Saudi brains trust actually want, is to acquire some distressed assets of struggling US shale and off-shore producers. The only cheaper place to wildcat for oil, than the New York Stock Exchange, is the office of the US Bankruptcy Trustee…and there will be a bumper crop of such bankruptcies this year. I won’t be at all surprised to see a sharp correction in November, in which crude prices retreat back toward $40/bbl before resuming the climb to the $60/bbl range in 2017.
So, that suggests we will see a pull-back in the Gold price, until then, before it begins its meteoric rise to our longer-term targets.
Money manager Michael Pento wrote a book a few years ago warning of “The Coming Bond Market Collapse.” All the signs say this calamity is very close. Pento explains, “Global central bank balance sheets have risen from $6 trillion in 2007 to $21 trillion today. That’s the increase in the size of central bank balance sheets. . . . I can prove to you when this bubble breaks, it’s going to be disastrous. . . . Just that they (European Central Bank-ECB) didn’t hint at expanding QE and look at what it has rendered us. That’s proof positive that everything that has happened since the 2008 collapse, that it’s just been artificial and ephemeral in nature. Once central banks even hint at pulling back from their QE programs and ZIRP and NIRP go away, bonds will crash, and when those sovereign bonds crash on a global basis, it’s going to take everything else down with it concurrently.” which will mean people flee into the only safe haven assets left – Gold, Silver and other precious metals.
In the meantime, those of us interested in shares in the junior commodities space, might be interested in some of the producers that are just about profitable at these low prices, with good resources, and an optimistic future if events turn out for the better. One – ASA Resources, a micro cap, with operations in several countries recently bought a slaughterhouse in South-Africa, which perplexed me, but it will in the longer term provide regular income, and some stability in terms of price, though may take the edge off the commodity space as their Gold and Nickel assets in Zimbabwe are about to erupt.
That said, Zimbabwe’s President Robert Gabrielle Mugabe, is suffering his own problems, as his brand of black socialism (he himself termed himself a Black Nazi) delivers the expected outcomes – a failing economy. Mugabe is now struggling for currency, and only the miners, with producing assets such as ASA, currently producing just short of 60,000oz p.a., are bringing in hard currency. But Mugabe’s problems go deeper. The Police and armed forces, that have traditionally supported Mugabe, are now turning against him, as the economy implodes because of a lack of currency for salaries. In fact hundreds of thousands are fleeing to South Africa, and over 3million have already fled..
When Mugabe goes – however or whenever that is – and at 92, that cannot be before much longer, the value of all profitable businesses will reach their true value. As I’ve mentioned to those that know me, the assets that ASA controls if fair value (i.e. cost price) were met, the company could be a £500-750 million Corporation. Given that it is currently valued at about £32m, that is a great deal higher than its value today.
Good luck and happy hunting.
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Note: We are not investment advisers, and nothing in this should be considered as such. Share Prices can go down as well as up, and you should not risk more than you can afford to lose. You should also take appropriate investment advice from a professional adviser.
Bloomberg – Russia’s Only Escape From More Deficit Pain Is Economic Growth http://bloom.bg/2aWh4Tf
Of course, to grow any economy, and improve the living standards of an economy’s citizens, the economy must grow over and above the growth in population.
When an economy stagnates, but the population does not, the citizens are essentially sharing a cake amongst more people, so all other things being equal, everybody gets a smaller slice – which means they get poorer.
When people invest in businesses, and raise the output of goods and services, the economy grows, and people are richer, but ONLY, if the rate of growth in output is more than the population growth.
This conundrum, is at the heart of economists problems. The rate of growth of the economy.
During the early Industrial Revolution, the increase in automation added lots more goods and freed up people who were moving from agriculture, to industry. These individuals were released from agriculture because it too was mechanising..
In a service based economy, it is difficult to grow the output, because it is more difficult to automate.
A restaurant frees up people from the drudgery of cooking, setting and laying the table, and washing dishes, but it produces not much additional value, because those citizens, cannot improve their own output by not doing these tasks because they are involved in waiting for food, between courses etc..
However, if we replace these waiters and waitresses with automatons, (Artificial Intelligence servers) and an experienced waiter to resolve difficulties, then those staff are released to produce more goods, and services elsewhere. THIS is the way to improve productivity in the economy.
However, when people are released from one industry to work in another, they have to be able to move their skills easily, and in an increasingly technological world, the time to retrain may take years. It is simply not cost-effective to retrain a 55+ year old, if he or she is going to retire perhaps two years after gaining the skills, but has (or would have) taken 4 or more years to gain the necessary expertise.
This is the problem, for economists, and politicians, because money can flow like water from one part of the economy to another, but people don’t move quite so easily.
That is at the heart of the European Union’s (EU) freedom of movement dictum. As one economy expands, people moving in, will dampen wages, and lower output per person. That’s the theory anyway,.
However, large corporations, when they use cheap money to merge with, or to take over in a hostile fashion, other corporations, do not add much value, if the people displaced do not have capital to build businesses, because their savings have been depleted by poor wages, poor interest rates, high taxation or other methods of losing value.
But, in the near future, we are about to see a positive explosion in technological advances, that will likely revolutionize the world economy. Artificial Intelligence, Virtual Reality, Augmented Reality, Robotics, Spintronics, Thorium Energy production, and Solar Energy production coupled with storage technologies to move the energy that hits the Earth during the day, to those parts of the energy demand curve usually later at night, to heat or cool homes, or to drive factories such as Tesla’s Giga-Factory in Nevada.
This factory, which Elon Musk, has committed to producing 500,000 vehicles per annum in, by late 2017, will catapult demand for Lithium Carbonate, critical in building the batteries for his car for everyman. Warren Buffet, who made a major investment in China’s BYD a similar automotive corporation with aspirations to produce huge numbers of electric powered vehicles using Li-ion cells, will also require huge amounts of Lithium Carbonate.
By the end of the year, according to Reuters, BYD should have 10 GWh of battery production capacity, which it expects to increase to 34 GWh by 2020 with a new factory in Brazil—about the same capacity as Tesla’s.
Other Tesla rivals rushing to the battery production scene will be iPhone manufacturer Foxconn and LG Chem, which is already one of the top three battery makers.
Samsung is also hot on the trail, having just acquired Magna’s battery production division.
According to Credit-Suisse, the lithium industry is “poised for significant volume growth,” which could lead to shortages of supply. As a result producers of lithium are set to enjoy significant earnings throughout the decade.
Elon Musk’s aspirations, if met, will require as much Lithium as is currently produced world-wide, and such demand will also be required by BYD, and the other major manufacturers working to catch up, such as: BMW, Mercedes, General Motors, Ford et-al.
“The key drivers of the continued growth in the market are electric vehicles (“EV”), which have been pioneered in Nevada in recent years, but the larger catalyst for global mass market uptakes is EV technology in China.
Deutsche Bank has forecasted that global sales of EVs in 2025 to be 16 million vehicles per annum (current sales are just 2 million).
This increase should lift lithium consumption in EV’s 8-fold from 25-kilo tonnes (Kt) of Lithium Carbonate Equivalent (“LCE”) in 2015 to 205Kt in 2025.
This along with the other increases in global lithium demand is expected to increase LCE demand to around 535Kt of LCE by 2025.
This new demand is being driven by the improved economics of electric vehicles and energy storage products.
In particular in the last five years lithium-ion costs have dropped from US$900/kWh to US$225/kWh.”
In the world, there are essentially 4 major producers of Lithium. Albemarle being the biggest in Nevada, but right next to it, is a junior Lithium explorer, with capital from major investors, who see this as a huge financial opportunity to grow output to meet this expected demand. And at a mere $1.66-1.70 range on the day I was writing this, it values the business at $114.27m (Source: Bloomberg)
Some Lithium miners, are lying about their resources, and others, simply lack the expertise to bring the Lithium salts to production.
From this small company’s web site they have this to say:
[Our Company] has an option to become the largest claims holder with over 15,020 acres (6,078 hectares) in Nevada’s Clayton Valley and land positions both north and south of Albemarle’s Silver Peak mine, North America’s only lithium producer.
Clayton Valley North covering approximately 5,480 acres (2,217 hectares) in northern Clayton Valley, Nevada. The claims are contiguous to private lands and placer claims belonging to the lithium production facility of Albemarle Corporation. Historic drill information and a geophysical survey show the Property covers basin-fill sediments which are similar to the sediments currently producing lithium brines. Two Albemarle production wells lie along the boundary. Two holes are proposed within the Clayton Valley North claims as offsets to the production wells to test the complete stratigraphic section. Drilling and exploration are active in the basin and the permitting process is well established.
[Our Company] has also acquired the Clayton Valley South Expansion, totalling approximately 9,540 acres (3,861 hectares). The property is strategically located between and contiguous with the Silver Peak lithium mine operated by Albemarle Corp. on the northern boundary, the Clayton Valley South project operated by Pure Energy Minerals Ltd to the east and the Neptune property owned by Nevada Sunrise Gold Corporation to the west.
But Eric Anderson, CEO of the lithium engineering consultancy TRU, was bearish on lithium investment as early as 2009, when a flood of new projects were being planned.
“I made this statement that people snickered at—that plants would be built and closed . . . because of the hype surrounding the industry,” says Anderson.
Anderson’s lithium predictions have been largely vindicated. Demand rose more slowly than some expected—still currently between 5 and 10% per year—and new operations have been plagued by problems.
In 2012, Galaxy Resources suspended production at its Mt. Cattlin mine in western Australia. In 2013, RB Energy Inc. opened a new lithium carbonate plant in Quebec, only to suspend operations in 2014.
Nevada-based Western Lithium, which has been repeatedly floated as a potentially convenient supplier for Tesla, has taken shareholders on a very bumpy ride, and is not yet online.
According to Anderson, Western Lithium, like many new lithium operations, simply aren’t working with the right raw materials. Though lithium isn’t rare in the environment, the cost of extraction varies greatly with its concentration and form.
With existing technology and present prices, truly profitable lithium comes only from the evaporation of highly concentrated brine. Those sorts of brine deposits are nearly all in southwest South America, and controlled by established players.
The three biggest lithium producers are Sociedad Quimica y Minera, based in Chile, American FMC Lithium, which controls the ominously-named Hombre Muerte mine (Dead Man Mine) in Argentina, and the U.S. based Albemarle, which recently acquired competitor Rockwood Holdings. Albemarle is developing lithium brine holdings around Magnolia, Arkansas too—the only American deposits that Anderson thinks might make economic sense in the near future.
Together, these three companies provide more than 90% of the world’s lithium, and have absorbed much of the rising demand simply by bringing untapped capacity online.
A dearth of technical talent seems to be another widespread problem. The Bolivian state has faced serious management and technical hurdles in extracting the massive, high-density lithium deposits in the other-worldly salt flat Salar de Uyuni.
Similarly, Chinese producers Quinghai Lithium and Citic Guoan MGL, hoping to exploit sources near Tibet, have experienced major hurdles, and plans to expand Chinese capacity to 60,000 tons a year by the end of this year have been revised downward by half.
Elon Musk however, is eyeing a “complete transformation of the entire energy infrastructure of the world to completely sustainable zero carbon,” and what he’s talking about here is lithium-battery production on a mind-blowing scale.
Tesla is planning to produce more lithium-ion batteries in this factory than in the entire global marketplace combined.
Lithium—the lightest and most versatile of the metals—is the backbone of this exploding battery market.
Lithium is already a key part of our everyday lives, but as batteries become the rule of the day in a new global energy picture, demand for lithium is soaring—and we are only at the beginning of this curve.
Battery manufacturers across the board are moving to lithium because it has the highest electric output per unit weight.
And nowhere will this demand soar more than with the production of hybrid, plug-in hybrid and electric vehicles used by everyone from Toyota, Honda, Nissan, Renault, and Mitsubishi to Ford, Chevrolet and GM.
By the end of the year, according to Reuters, China’s BYD should have 10 GWh of battery production capacity, which it expects to increase to 34 GWh by 2020 with a new factory in Brazil—about the same capacity as Tesla’s.
Other Tesla rivals rushing to the battery production scene will be iPhone manufacturer Foxconn and LG Chem, which is already one of the top three battery makers.
Samsung is also hot on the trail, having just acquired Magna’s battery production division.
According to Credit Suisse, the lithium industry is “poised for significant volume growth,” which could lead to shortages of supply.
As a result producers of lithium are set to enjoy significant earnings throughout the decade.
Therefore, this little company, stands to be able to produce Lithium Carbonate, even quite possibly at the Albemarle facility which we know meets Tesla’s Standards, and it has even been suggested, Musk might be interested in buying the whole company to guarantee Lithium for his Nevada Giga-Factory, and his future plans.
And, the name of this Lithium junior placed to take advantage of this rapid surge in demand is: Lithium X (TSXv.LIX) and LIXXF in the U.S.) .
And remember, we’re not Investment Advisors, so nothing in this piece should be considered a recommendation. Prices of shares can go down as well as up. We do not hold, and have no short-term intentions to do so.