Gold And Silver: The Next Chapter

I’ve read some fascinating commentary on the monetary metals of late. My favourite was an extremely lazy analyst who claimed the low volume days in October have shown no one is interested in gold and silver any more, and explains the Bitcoin rally. Of course if this had a modicum of truth gold would be sitting at $1000/oz or less as every dumped their holdings and no one was interested in buying back on the way down. Bitcoin is purely speculative, and has one enormous bungle:- it will someday become regulated. When it does, it will likely to be just before CBDCs are released. Just look at what is happening in China. The result? It will tank.
 
For those that do actual research would have picked up that with the Basel III regulations coming into effect in January 2022 in London that the unallocated game is soon to be up, and this may explain the recent low volume. To explain further, for every one oz of physical gold that exists, there is roughly 90 oz of paper gold. This number has decreased over recent times as the finish line to unwind unallocated positions is in sight. The silver situation is said to be more than four times worse than gold. The LBMA always argued that a more physical market would dry up liquidity. It’s the only statement they’ve made in this near decade long fight that I’ve agreed with. Low volume should be the norm. Paper smashes in trading hours of thin liquidity, shouldn’t.
 
Basel III was designed to deleverage the outrageous gambling that banks have created over the years by making more stringent  lending criteria. To explain further, banks have two sides to their balance sheets: assets and liabilities. When lending against assets, only Tier 1 categorised can be offset against 100% of their value. These are cash, treasuries and now physical gold meaning that 100% of its value can be used on the assets section of the balance sheet. Furthermore unlike fiat currency sitting in the vaults, gold doesn’t lose purchasing power per se over the years. Take any reasonable time frame and your gold has more purchasing power at the end of it than your dollar. Genius idea from The BIS – more gold held, more worth in the future, therefore remove the paper smashing criminals to ensure the price of Gold moves higher. But this is old ground, so we won’t dig up previous articles written on this.
 
Silver isn’t classified as a Tier 1 asset under the new banking regulations, however there is a twist, and that comes from it’s relationship to gold. Bullion banks across the globe have been reducing their employees as unallocated gold is costly to trade since June 28 2021 for the rest of the world, therefore these employees that rip paper gold are now not needed. That said there is still a window where these cheeky chaps can use the cover of London desks to smash the price down, but this window is getting smaller as we head towards the end of 2021. That means these desks that specialise in unallocated gold and silver won’t exist. This should lead to more of price discover in silver. After all, if we go back 30 years, 40 years you name it, there is no other asset on the planet that sits at a lower price today than silver. Let that sink in.
 
We are also firmly in the camp that the Fed can’t taper; or if they do they will soon revert as the markets won’t like it. Furthermore the US is planning on spending trillions more on the green plan and infrastructure. So how can The Fed taper? If anything, they’ll be printing even more money. And as for raising rates, I mean come on. Raising the rate by only 1/4 point is an additional $75 billion / month in interest. And lets not forget they can’t pay off interest only on their current balance sheet.  
 
There’s a very good chance if you are reading this that you’ll know my thoughts on gold and silver. In summary, nothing has changed. Fundamentals remain strong. Most markets are susceptible to short term volatility and weakness due to headline trading events. Medium and long term however with the world debt now a huge bubble and the economies across the globe likely hitting a stagflation wall very soon, our favourite shiny metals will have their moment especially with The Fed finally admitting that inflation might not be transitory. Who saw that coming by the way? Everyone except the employees in that building it would seem.
 
The commodity supercycle is well underway and history tells us these last 5 - 7 years. Gold and silver are still consolidating and will take off once the conditions finally align. Money always rotates out of the stock market and into the metals in the above described environments. We are very close to this happening, perhaps months.

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The way to play this market is to buy and hold physical. There are so many unknowns in the world today and with CBDCs around the corner holding your gold and silver is insurance and a store of wealth that has held the test of time for hundreds of years. Wake me up when the phrase “its rarer than Bitcoin dust” becomes worldwide colloquial slang.

Written By: Andrew Lane