Greetings From Vacation

361
Thu, Jun 27, 2013 - 10:48am

Desperate times call for desperate measures...like getting up early to write a post, even while technically "on vacation".

First of all, watching the sun rise is a tonic that I would recommend for just about everyone during this current period of metal strife. There is no better reminder of the long-term view than taking a moment to appreciate the beauty and the majesty of a sunrise. The planet was here for billions of years before us and it will remain for billions of years after we're gone. Though the stress of each day can be great, in the grand scheme of things, daily events are nothing but the tick of an infinite clock.

I mention this not because I'm trying to be philosophic. I do so as a reminder of The Big Picture. Below are the reasons I hold physical precious metal:

  • Physical gold and silver are my "monetary insurance" against the eventual collapse of the current global, fiat money economic economic scheme.
  • Physical gold and silver will provide me a tool for barter should some type of natural or man-made disaster render paper money useless or unavailable.
  • Physical gold and silver are stores of wealth and true money, recognized as such for millenia before the current system arose and they will be recognized as such after the current system fails.

With this as my mental basis, why on earth would I be selling now?

And just who is selling now? Is there any physical metal for sale? Andy confirms that there are no physical sales in London. Just paper sales and physical purchases. Walk down to your local coin shop and ask the proprietor if there are more sellers or more buyers. My suspicion is that the buyers still greatly outnumber the sellers.

So why has price fallen this far? It's quite simple, really. The paper markets and, specifically, the HFT WOPRs which dominate them, are in control. Because of the leverage and rehypothecation, the futures markets are now fully disconnected from physical reality. This is fine. It happens from time to time and it can continue for a while but it can't continue indefinitely. Why? Read the excellent work of SRSrocco or the recent posts on ZH about the cost of production. Eventually, as producers of the physical commodity realize that continued mining is a losing proposition, they wisely halt production. Tight supply lines grow even tighter and, eventually, the laws of supply and demand reassert themselves.

Does this mean that silver will immediately head back to $49. Probably not. But it does mean that it's not headed to $8, either. (And, as an aside, I should point out here that silver was $18 in August of 2010 before rising to $49 in April of 2011 so it's not like it hasn't happened before.)

I am of the firm belief and conviction that The Price Bottom to all of this nonsense is within sight. Though gold has exceeded my low target of $1270-1290 and now rests near $1230, I'm buying it with confidence. Recall that when silver broke $22, I warned you that $18 was now likely with a possibility of an overshoot toward $16. With this in mind, why panic now? What has changed and what has been fixed? Anything? Or have the WOPRs so distorted the supply/demand fundamental that price does not currently reflect reality?

Tomorrow we will get an updated CoT report that will likely reveal Commercial positions of historic proportions. I know you're probably sick of hearing it...but I can't stress enough how critical this is to understanding the current price structure. QE∞ changed everything and, after years of fighting it and selling into rising prices and covering on dips, The Bullion Banks made the dramatic shift last fall. They began this current, counter-intuitive slide as an attempt to flatten their books and get out from under their massive naked short metal positions. As of this next CoT report, we will likely find that they have nearly accomplished just that. When they are done, price will be free to run.

As I conclude, I see that a fog has rolled in that conceals what had been a beautiful view. The locals tell me that this is a regular occurrence and that it will soon lift to reveal yet another beautiful day. Similarly, a fog has descended upon the metals markets and it is obstructing your view. I can assure you, though, that this fog too will soon lift and a new day will emerge, beautiful and bright, and when it does, your physical metal will have you prepared for all that the world has to offer.

TF

About the Author

Founder
turd [at] tfmetalsreport [dot] com ()

  361 Comments

Jun 27, 2013 - 11:13am

OK that's all for now

Back to vacation I go.

tyberious
Jun 27, 2013 - 11:13am

Top 10?

Top 10?

GoldenTicket
Jun 27, 2013 - 11:23am

Commercial Positions

In regards to commercial bank short/long ratios, is the fact that they are now (or soon will be) long, significant enough? If they are to make money from a rising gold price, of course they should be net long, however the magnitude of their net long position is incredibly important. They wouldn't want to waste a generational bull market by not having enough exposure. I don't know the answer to this, but is the magnitude of their long position large enough yet? Perhaps this is the crest, where the tide is changing, but it's hardly a question of timing a sharp reversal... Maybe it will be 6mo to a year until they've amassed a large enough position for them to truly step away from their terminals and let the market find its balance. At one time their shorts were enormous, we thought they would be crushed under them, yet they weren't. Are their long positions yet enormous and crushing? Have they bet the farm yet?

Just a thought!

Istack
Jun 27, 2013 - 11:23am

Vacation

I hope your enjoying yourself Turd. Truly. Funny though that even while on vacation, the crazy world we live in is always simmering on the back burner of our brain.

Every now and then go away and have a little relaxation. To remain constantly at work will diminish your judgment. Go some distance away, because work will be in perspective and a lack of harmony is more readily seen. -Leonardo DaVinci

No vacation goes unpunished. -Karl A. Hakkarainen

csquared13
Jun 27, 2013 - 11:27am

You lucky Turd you...wish I

You lucky Turd you...wish I could enjoy a sunrise with an Irish Coffee and a cigar. That's my kinda vacation.

I think I will take a quick vacation ASAP too...

Patrancus
Jun 27, 2013 - 11:27am

While on holiday

beach treasure can be golden

prius_driver
Jun 27, 2013 - 11:27am

IStack--that pic is from Maui I think?

IStack--is that pic is from Maui?

Byzantium
Jun 27, 2013 - 11:34am

The silver vigilantes

About 6 months or so ago, there was much optimism based on the understanding that everyone had turned on JPM in the silver pits, leaving them as the single short. I had mooted at the time, that Fed/JPM survival, depended upon getting these 'jackals' back into line, and putting some of the more rebellious ones slowly through the meat-grinder so as to set an unforgettable example for the others.

Here we are now at $18. In order to protect the dollar, there was no need to go below $22 or $1300; sufficient damage had been done to PM sentiment and the longs. Such low prices are placing huge strains on the physical market, so is no easy position to maintain. And yet we go lower; why?

I can only assume that key players are still holding out (we can call them the paper 'silver vigilantes,') and they must not be allowed to win. Once they capitulate, then the boot comes off silver's neck to a point.

I guess this is COT territory, but it is not exactly the same diagnosis as COT. COT wisdom simply suggests that once net long, that the big boys will allow the metals to rise in order to profit. By contrast, the 'hierarchy and discipline' model that I describe, suggests that if independent thinking and opportunism can be snuffed out and punished among the big investment houses, that they will learn not to go long silver again even when it is a screaming buy, and will instead continue to collaborate with the Fed/JPM machine in suppressing the price against all the fundamentals.

That is a much more worrying scenario. If these longs capitulate, then after an initial rebalancing of the price, it might then be held in a vice for a very long time.

The Watchman
Jun 27, 2013 - 11:40am

US Production Does Not Come Close to Demand For ASE's

U.S. silver production up 4% in March - USGS

The average Handy and Harman silver price for March 2013 declined $4.17 per troy ounce over March 2012, said the U.S. Geological Survey.

Author: Dorothy Kosich
Posted: Wednesday , 26 Jun 2013

RENO (MINEWEB) -

U.S. mines produced 90,400 kilograms (2,906,427 troy ounces) of silver in March, a 4% increase compared with March 2012, the U.S. Geological Survey reported Tuesday.

For the first three months of this year, U.S. mines yielded a combined 272,000 kilograms (8,745,003 ozs) of silver.

Nevada mines produced 59,000 kilograms (1,896,894 ozs) during the first quarter of this year while other states mined a combined 213,000 kilograms (6,848,109 ozs).

Average daily silver production in March 2013 was 2,920 kg (93,880 ozs) , compared with 2,820 kg (90,665 ozs) per day for the full year 2012.

The United States imported 1,390,000 kilograms (44,689,538 ozs) of silver during the first quarter of the year with the largest imports coming from Canada and Mexico. The U.S. exported 61,300 kilograms (1,970,840 ozs) of silver during the same period, according to the USGS.

YaMasuta
Jun 27, 2013 - 11:44am

The True Scale of Gold and Silver

The True Scale of Gold and Silver

I have been pondering and reflecting to share some knowledge that I have acquired when I was studying the financial system of Islam during my college years. I studied engineering but I was fascinated by the different financial systems that existed in the past and some survive to the present. One of those ancient systems is the financial system of Islam. The financial system in Islam DOES NOT recognize any fiat money; it only recognizes GOLD and SILVER as money.

Therefore, I decided to go back to my study and calculate the fair price of Gold and silver as set in the Islamic financial system. Why, because in the era when Islam was flourishing there was no real poverty across the entire financial system due to the use of Gold and silver and the implementation of their fair tax system (explain later).

The question is what is the fair price (scale) of Gold and Silver? To answer this question with clarity, I have to provide some background first. In the financial system of Islam there were two metal coins that were used:

1. GOLD Dinar = 4.250 grams of pure gold = 0.136641 Troy Ounce

2. Silver Dirham = 2.975 grams of pure silver = 0.095648 Troy Ounce

[1 Gold Troy ounce = 31.1034768 grams]

The Gold and silver financial tax system is stated that every individual has to pay a yearly (Lunar Year = 355 days) 2.5% Tax (in gold or silver) on anything above the minimum wealth set by the decree of the prophet of Islam to be 20 Gold Dinar which equal exactly 85 grams of Gold (2.732813458 Troy Ounce) OR 200 Silver Dirham which equal exactly 595 grams of Silver (19.12969421 Troy Ounce). This means that if your wealth at present time is below any of these two amounts you do not have to pay the yearly tax when it is due.

Now that we have established the basics of the tax system in Islam, let us move to the true ratio of Gold to Silver. You are going to be captivated by the finding.

Divide 19.12969421 by 2.732813458 you get the ratio of 7

19.12969421 / 2.732813458 = 7 (God’s Magic Number)

Therefore the true ratio set by God scale is 7 and not the current ratio of 66 (According to Gold and Silver prices on June 27, 2013).

Ok let us fathom the fathomless and determine the fair price of Gold and Silver in USD.

The financial system in Islam uses only Gold and Silver as money and has set the minimum taxable amount as stated above. However, it is of paramount importance to understand that this minimum amount is not set arbitrarily but it was set to be equal to be one year’s provision of essential food-stuffs for an average family. Please note that the definition in the USA of an average family is given by USDA (United States Department of Agriculture) to be 4 people, reference: https://www.cnpp.usda.gov/Publications/FoodPlans/2012/CostofFoodJan2012.pdf

Thus, the tax system in Islam said that an average family has to at least be able to buy food and sustain itself for a lunar year before it there is responsibility to pay tax on anything above the minimum taxable amount. Therefore, the basis for the minimum taxable amount was not the physical count of Gold Dinar but rather the purchasing power of the money. [Roy Jastram, https://www.lbma.org.uk/assets/alc56_golden_constant.pdf].

Hence we can use the data given by the USDA to compute the true value of a Troy Gold and silver ounces. Here is how:

According to USDA, the average family of food consumption per solar calendar month(all Prices are in USD):

Thrifty plan

Low-cost plan

Moderate-cost plan

Liberal plan

548.00

697.50

861.20

1067.30

This is for a family of four with two children age: 2-3 and 4-5 years

Thrifty plan

Low-cost plan

Moderate-cost plan

Liberal plan

629.10

821.10

1024.70

1244.30

This is for a family of four with two children age: 6-8 and 9-11 years.

For my calculation I will take the smallest and poorest family (thrifty plan) which means we will take the monthly food consumption of 548 USD. The yearly cost of food for this the average poorest family in USA is 548 * 12 = USD 6,576.00. Deduct 10 days’ worth of food cost for the difference between the lunar and solar year we get USD 6,576.00 – 180.16 USD = USD 6,395.84

Hence, to get the fair value of Gold and Silver we have to divide this amount by the number of Ounces set earlier for feeding an average family for one lunar year which is 2.732813458 of Troy Ounce Gold or 19.12969421 Troy Ounce Silver.

Fair Troy Ounce Gold Price = 6,395.84/ 2.732813458 = USD 2,340.38

Fair Troy Ounce Silver Price = 6,395.84/ 19.12969421 = USD 334.34

Therefore, the current Troy ounce of gold should be 2340.38 USD. For silver the Troy Ounce of Pure Silver should be 334.34 USD.

Please note that these prices are based on the poorest average family in USA and not the average of the average family given by USDA. If we use true average the numbers will be much higher but I wanted to be extremely cautious so I used the minimum of all average family spending per USDA data.

I would like to end my finding by the words of God stated in the Holy book:

“We raised the heavens and we set the scale. Do not tip the scale”

It looks like the evil doers of mankind have tipped the scale so far that the heavens (the universal laws of the universe) will set the scale back. In the case of Silver the scale is tipped so far out balance according to these universal law calculations that the only conclusion I have is the evil ones are tipping the balance to satisfy their satanic desire of hoarding wealth and removing it from the hands of righteous ones in order to enslave them and take their freedom away from them.

It is my conclusion that this battle is not between Gold and the fiat USD but rather it is a battle between the evil ones and the virtuous ones. It is the battle between freedom and slavery; it is the battle between an evanescent financial system of the USD and the lasting eternal system of GOLD and SILVER. The universe has set these two metals to be the store of energy and has set the ratio to 7 between them. This 7/1 ratio is the true scale of heavenly universal law balance between Gold and Silver and therefore the current ratio of 66 will revert back when the law of the universe reset the balance through the painful process of the reset that mankind has to endure due to their evil doing.

In science we know what happens when we tip the scale of anything in this universe, we pay the price of our fault. If mankind tips the scale in physics, chemistry, or biology mankind will pay dearly for its mistakes and evil doing. The same applies to financial systems as they follow the same rules of the universe. There is no escape from the scale, the universe runs on equations and those equations define the universe scale and therefore, we play with one side of the equality in our financial equations such as Gold and Silver true value of energy store and we will sooner or later have to pay dearly and set the equality in the equation so the left hand side and right hand side are equal.

I also would like to share a story that I read in one of the ancient books of Islam that talks about the river Euphrates that passes through Syria and Iraq. The Ancient story said that the river Euphrates will expose a mountain of Gold and when that happens, people will fight to get the Gold from that mountain. The Prophet of Islam said: “The Last Hour will not arrive until the Euphrates uncovers a mountain of gold, over which people will fight. Ninety-nine out of every hundred will die but every man amongst them would say that perhaps he would be the one who will be saved.” This ancient story is perhaps a testimony that Gold will be the greatest store of energy until the end of time. Furthermore, it is apparently clear from this ancient story that Gold will be valued so high that one is willing to die in order to get it even though one knows that the survival probability is only 1%.

“We raised the heavens and we set the scale. Do not tip the scale”

The evil doers will not triumph against the laws of the universe.

With my greatest regards and best wishes of heavenly balance restored to all.

YaMasuta

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