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Mike Maloney: Today's Low Gold & Silver Prices Are Not Realistic

Tyler Durden's picture




 

Submitted by Adam Taggart of Peak Prosperity,

During this very tumultuous week for precious metals prices, Chris sat down with Mike Maloney, founder and owner of GoldSilver.com, one of the world's largest bullion dealers.

Mike is a true scholar of monetary history. His reasons for getting into the bullion business have their roots in a very predictable cycle that has happened time and again over the centuries (more accurately millennia):

  1. A new monetary system is introduced, based on sound money (most commonly, using gold and/or silver)
  2. Currency (e.g., paper bills backed by sound money) is introduced to faciliate trade and commerce
  3. Governments begin to tinker with ways to 'print' more currency than can be fully backed (e.g., coin clipping, partially-backed notes, FRNs)
  4. A false prosperity ensues. Those closest to the new money creation benefit most and debase the currency further to forward their advantage.
  5. Reality begins to catch up with this deficit spending and the purchasing power of the currency weakens dramatically.
  6. The monetary system collapses under too many claims on a limited pool of sound money.
  7. Eventually, a new monetary system backed by sound money rises from the ashes (see Step 1, above).

Mike believes that we are currently experiencing Step 6 and that we will witness the birth of a new monetary regime within the next ten years.

What makes this moment in history unique is that all past monetary regime collapses have happened regionally. This is the first time in human history in which all the world's major currencies are collapsing together. Which is why he is so passionate about owning gold and silver.

In his opinion, we will soon witness the greatest transfer of wealth ever seen, as countries worldwide realize they need to revert to monetary systems backed by sound money (i.e., the precious metals). Those acquiring gold and silver beforehand will not only preserve their wealth as existing fiat currencies are extinguished, but will see staggering increases in their purchasing power. Those interested in learning more of Mike's specific vision can watch Episode One of his new Hidden Secrets of Money video series. (Chris and I received advance screenings of the next few episodes, which are excellent in terms of explaining the processes and shortcomings of our current monetary system.)

On the Tightening Physical Market for Gold & Silver

What most people do not understand is that the price of gold and silver are not determined by how much gold and silver is being sold. It is how many gold and silver IOUs are being sold. And you can write as many IOUs, futures contracts and options, as you want. Those are unlimited. The supply, though, of physical gold and silver is quite limited, and so when people actually start asking for it and they want the physical, then there is a divergence of the paper price versus the physical price, and we are seeing that right now.

 

We are in a back-order situation with all of the suppliers. Spreads are going up. Silver eagles cost about fifty cents over spot more than they normally cost because all of the suppliers have had to raise their price to try and find the supply/demand equilibrium that the markets are for. The markets are there to try and find a supply/demand equilibrium, so then price is the arbitrator. Price rises; that draws more supply and reduces demand. Price falls; that reduces supply and increases demand.

 

So the price discovery mechanism of the markets is what is supposed to ensure that things are in equilibrium. We have this broken system where there are a few big players that manipulate the market, and it always shows up when shortages start developing in the physical market. You know that the price of gold and silver right now are too low to be realistic. And the good thing about that is that it cannot last.

On the Hidden Wealth Transfer Caused by Inflation Targeting

Everybody got in an uproar over [the Cyprus bank deposit haircuts], but nobody gets in an uproar over the central banks targeting 3% inflation. That compounds out to 34% of your wealth that they are confiscating every decade. People got mad because it happened all at once and they could see it. One day their bank account said one thing; the next day it said another thing. With this insidious confiscation known as inflation, this is the inflation tax – you do not see it because the number on your bank account might say that you could make a deposit and if there are no fees or anything on that deposit, $100,000 deposit a decade ago still stays $100,000. Except gasoline went from $1.25 to near $5.  Measured in gasoline, you lost 75% of that $100,000, but it still says $100,000.

 

So the central banks targeting this 3% inflation rate is a wealth transfer from the public to the financial sector.

On the Recent Price Weakness in the Precious Metals

You do not want to stay in just one investment class your whole lifetime. But it is a very powerful tool to be able to measure these classes against each other and then jump from an over-valued asset class to an under-valued asset class at the appropriate time for the road to true wealth. And it only requires a few big decisions during your lifetime.

 

Now, when I discovered wealth cycles, I was looking at the Dow Gold ratio and thinking this thing has a cycle. I made another check of the Gold Dow ratio instead the Dow Gold ratio, and put them on top of each other. Lo and behold – there is a cycle. It has a positive side and a negative side. If you are doing a Dow Gold ratio, you jump from being invested in paper assets like stocks and then back to gold for the long investment waves. I would say it is somewhere between 8 and 20 years you spend in an asset class, and you can do this with anything. If you measure your house in how many barrels of oil it is worth over a century and you jump back and forth from being invested in oil wells to being invested in real estate, it is the same thing as being invested in gold or the Dow. It is a very powerful tool that I believe has a high degree of predictability and safety to it, if you do not let the short-term noise flush you out.

 

Right now we are in consolidation. Gold has been chopping sideways for 19 months now, and it has worn people out. But basically gold is up. It is not up from 19 months ago when it was nearing $2,000, but it sure is up over the last decade. So I do not let the short-term noise affect me now that I know that we have not reached the point where the price of gold equals the points on the Dow. Right now gold’s value is one-ninth of the Dow, and so I know that it needs to rise by a factor of 18 against stocks before I need to get worried and start watching gold.

 

So I am very comfortable in these pullbacks. It gets a little aggravating, but still it does not bother me that much and is definitely not going to flush me out.

Click the play button below to listen to Chris' interview with Mike Maloney (59m:02s):

 

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Sun, 04/14/2013 - 17:46 | 3447549 steve from virginia
steve from virginia's picture

 

 

 

Just a few notes b/c this is repeat topic.

 

 - Fluctuations in the price of collectibles is unusual. There is variability, however.

 

 - A drop to $1350 or so will be the same percentage drop as during 2008-09.

 

 - Metals have been a leading indicator for at least ten years including copper. Gold/silver plunging means something important is going to happen.

 

 - What gold 'costs' does not matter very much for a lot of different reasons. Gold is a component of a social-economic system that does not yet exist.

 

 - Why Chris Martenson gives garden variety shysters credibility alongside Gregor Macdonald is a big mystery to me. Stick with Jesse's Cafe Americain for gold info ...

 

Sun, 04/14/2013 - 17:58 | 3447581 quietdude
quietdude's picture

Jeebus! Gold and silver is fine but get a few years of non perishable food for yourself and any family. If food is hard to get / too expensive, would you rather trade some silver for food and risk ripoff or robbery, or simply get food from your pantry? i can store a years worth of rice, beans, pasta, and other staples for the price of one ounce of gold. Dry pack everything in one quart canning jars with oxygen absorbers. So simple even fucking Bernanke can do it.

Sun, 04/14/2013 - 18:02 | 3447582 newengland
newengland's picture

Buy gold, silver, land. Stay close to honest community and family. All will be well when this current nazionism fails. Pity anyone who believes the propaganda, and the Rothschild zionism - that supremacist, militaristic hateful thing, promoted by the likes of the Rockefellers, and O'bomba's handler, Rahm Emmanuel family of freaks.

Maloney is a privateer for the Crown. Will he build any country including Ireland ruined by banksters? Probably not. He takes his money and kudos and runs off into a pampered obscurity, probably.

Sun, 04/14/2013 - 18:02 | 3447587 Supernova Born
Supernova Born's picture

They are going to rock the boat over coming days like the sons of bitches they are.

Gold nonetheless, bitchez.

Sun, 04/14/2013 - 18:10 | 3447608 newengland
newengland's picture

And silver.

The working person with money to spare can afford to beat the bastids at their own game, and buy silver. After all, QE floats all boats, and silver is essential to electronics, tax subsidised solar panels, and medical device innovation....blah, blah, blah.

Don't get angry. Get even.

I can afford to own physical gold and silver. I understand that hardworking people need protection too, and can only afford silver. No surrender to the oligarchs who bail out their failed pet banks with the blood sweat and money of the majority, and empoy indoctrinated Mummy boys from 'elite' colleges to shill for their hateful inheritance.

Sun, 04/14/2013 - 18:12 | 3447622 ozzz169
ozzz169's picture

More gold pedaling from gold dealers.  Why dont they talk about the massive deleveraging of overleveraged banks around the world?  This is the main story.  I consider myself an Austrian but the vast majority of them miss the whole deleverage story, they got the over leverage story right a few years back but they dont realize the consequences of that overleverage, IE the need for deleverage. 

 

We already had high inflation while banks were leveraging up and creating tons of money that went to bubbles, and those bubbles are being reinflated, hense the money being printed currently is just going to replace money that was already destroyed...

 

Gold never corrected properly and outran inflation and has room to correct to the downside.  I am not sure why soooo many ZH readers miss this basic point but I have been spelling it out simply for a long time and its no shock gold dropped. (and not shocked gold dealers are going to hype things to try to get gold to go up).

Sun, 04/14/2013 - 18:22 | 3447630 Supernova Born
Supernova Born's picture

Inaccurate "points" do tend to miss. I learned that on the range.

Sun, 04/14/2013 - 20:38 | 3447906 alentia
alentia's picture

If Kitco and Apmex stil have cash on hand, they will overwhelm Perth Mint, RCM and J&M with physical order or will have to raise their price for physical retail delivery. This will on the other hand make big mints to ask for physical delivery from miners big time.

Sun, 04/14/2013 - 22:05 | 3448130 akak
akak's picture

You know, I HOPE and PRAY that we see $18 silver and $1000 gold again, because if their prices are knocked down that massively and artificially low, there will be ZERO physical available, the Comex and CME will be utterly blown up, the ETFs will be drained dry, and the whole sordid and fraudulent sham of a market in precious metals will be exposed for the corrupt mockery that it is, and self-destruct in spectacular form. 

Bring it on!

Sun, 04/14/2013 - 18:17 | 3447632 Kastorsky
Kastorsky's picture

this article claims that LBMA was frozen all the time prices were dropping.

No one could buy any phys.

http://www.marketoracle.co.uk/Article39944.html

If it is so, Bernanke - you are FUCKED!

You have price $100 lower, but you scared everyone into getting out of the system -

people will fuck futures, take deliveries, fuck bullion banks depositories and fuck you bernank - and you and morgue will die.

Sun, 04/14/2013 - 18:39 | 3447684 ZZR600
ZZR600's picture

Kitco charts show gold up $5 already, not much to shout about but maybe a positive start for the London open

Sun, 04/14/2013 - 18:42 | 3447687 beefman
beefman's picture

The pictures of this mine look FAKE AS HELL, anyone see this? or do I need to put my glasses on?

Seriously!

Sun, 04/14/2013 - 18:46 | 3447697 jim249
Sun, 04/14/2013 - 18:59 | 3447724 dolph9
dolph9's picture

I respect Mike Maloney but I wouldn't buy gold or silver from him, there are better options out there.

The key point is that our current financial system (fiat dollar reserve, floating fiat currencies, unlimited debt expansion) is not going to last.

Knowing that, both gold, silver, and physical assets owned outright with clear title provide a strong defense as we move through the transition period.

Think like a Goldman bankster without becoming one.  Let the muppets trade stocks and bonds.

Sun, 04/14/2013 - 18:57 | 3447725 Popthestock
Popthestock's picture

Gold is for People who do not know to Trade.

Sun, 04/14/2013 - 19:16 | 3447768 Vooter
Vooter's picture

Nobody cares...

Sun, 04/14/2013 - 19:12 | 3447757 kragsquest
kragsquest's picture

Boubght more "specie" at the Westchester coin show over the weekend, the bullion dealers were unphased, still selling at same percentage.  To the moon!  And Krugman to--bang-zoom!

Sun, 04/14/2013 - 19:57 | 3447841 SqueekyFromm
SqueekyFromm's picture

Another stupid goldbug! Here is a new Irish Poem:

 

Silence Is Tungsten???

There once was a guy named Maloney,

An economist-wannabe phony.

He slobbers and drools

Seeking out Greater Fools,

And his theories are full of baloney.

 

Squeeky Fromm, Girl Reporter

 

 

Sun, 04/14/2013 - 20:39 | 3447884 alentia
alentia's picture

We, at Goldenmoney.com, cranked up physical inventory to 10% margin from 6% off the paper spot, The demand is still at the same level. Previously we cranked up from 3.5% to 6%. Decoupling from paper gold is in effect since last drop in paper month ago. Not sure for how long other dealers can stay without stock. We have other small dealers buying from us to fill their orders.

 

Be very cautios placing orders at low prices, as many dealers may sell out of stock products and you may never receive your oder, if they go bust on short sell physical.

Comfort zone is at around $1650-1700 for physical inventory.

Sun, 04/14/2013 - 20:27 | 3447888 WallowaMountainMan
WallowaMountainMan's picture

does any of this mean that folks aren't just figgerin out gld paper is paper and are running ahead of whoever's last holdin the bag?

paper gold splits into, well, paper. real gold gets tougher to buy, but cheaper.

odd combination, eh?

Sun, 04/14/2013 - 21:23 | 3448013 Prairie Dog
Prairie Dog's picture

If you believe it, you know what to do: buy gold! I'm sure all the clever rich people at Zerohedge will soon be even richer!

Sun, 04/14/2013 - 22:08 | 3448063 Conax
Conax's picture

Netdania is showing extreme volume in trading tonight, like 30,000 contracts a minute, as the price of future silver is mugged again.  The price is a joke now, nobody should sell any physical for peanuts like this.  Dealers should unplug their servers for a day or two.  Just damn.

 

edit: make that 50,000 a minute now, down 70 cents in 15 minutes.

Sun, 04/14/2013 - 22:09 | 3448172 palmereldritch
palmereldritch's picture

From the article:

"Eventually, a new monetary system backed by sound money rises from the ashes..."

I know! We can call that new currency the Phoenix!!

http://www.globalresearch.ca/the-financial-new-world-order-towards-a-glo...

Following the 2009 G20 summit, plans were announced for implementing the creation of a new global currency to replace the US dollar’s role as the world reserve currency. Point 19 of the communiqué released by the G20 at the end of the Summit stated, “We have agreed to support a general SDR allocation which will inject $250bn (£170bn) into the world economy and increase global liquidity.” SDRs, or Special Drawing Rights, are “a synthetic paper currency issued by the International Monetary Fund.” As the Telegraph reported, “the G20 leaders have activated the IMF’s power to create money and begin global “quantitative easing”. In doing so, they are putting a de facto world currency into play. It is outside the control of any sovereign body. Conspiracy theorists will love it.”[1]

           
The article continued in stating that, “There is now a world currency in waiting. In time, SDRs are likely to evolve into a parking place for the foreign holdings of central banks, led by the People’s Bank of China.” Further, “The creation of a Financial Stability Board looks like the first step towards a global financial regulator,” or, in other words, a global central bank....

A Global Currency

The Phoenix 

       
In 1988, The Economist ran an article titled, Get Ready for the Phoenix, in which they wrote, “THIRTY years from now, Americans, Japanese, Europeans, and people in many other rich countries and some relatively poor ones will probably be paying for their shopping with the same currency. Prices will be quoted not in dollars, yen or D-marks but in, let’s say, the phoenix. The phoenix will be favoured by companies and shoppers because it will be more convenient than today’s national currencies, which by then will seem a quaint cause of much disruption to economic life in the late twentieth century.”

           
The article stated that, “The market crash [of 1987] taught [governments] that the pretence of policy cooperation can be worse than nothing, and that until real co-operation is feasible (ie, until governments surrender some economic sovereignty) further attempts to peg currencies will flounder.” Amazingly the article states that, “Several more big exchange-rate upsets, a few more stockmarket crashes and probably a slump or two will be needed before politicians are willing to face squarely up to that choice. This points to a muddled sequence of emergency followed by patch-up followed by emergency, stretching out far beyond 2018-except for two things. As time passes, the damage caused by currency instability is gradually going to mount; and the very trends that will make it mount are making the utopia of monetary union feasible.”

           
Further, the article stated that, “The phoenix zone would impose tight constraints on national governments. There would be no such thing, for instance, as a national monetary policy. The world phoenix supply would be fixed by a new central bank, descended perhaps from the IMF. The world inflation rate-and hence, within narrow margins, each national inflation rate-would be in its charge. Each country could use taxes and public spending to offset temporary falls in demand, but it would have to borrow rather than print money to finance its budget deficit.” The author admits that, “This means a big loss of economic sovereignty, but the trends that make the phoenix so appealing are taking that sovereignty away in any case. Even in a world of more-or-less floating exchange rates, individual governments have seen their policy independence checked by an unfriendly outside world.”

           
The article concludes in stating that, “The phoenix would probably start as a cocktail of national currencies, just as the Special Drawing Right is today. In time, though, its value against national currencies would cease to matter, because people would choose it for its convenience and the stability of its purchasing power.” The last sentence states, “Pencil in the phoenix for around 2018, and welcome it when it comes.”[34]

https://webcache.googleusercontent.com/search?q=cache:cpfSEVs9jrgJ:http:...

COVER: "GET READY FOR A WORLD CURRENCY"
Title of article: Get Ready for the Phoenix
Source: Economist; 01/9/88, Vol. 306, pp 9-10
 

THIRTY years from now, Americans, Japanese, Europeans, and people in many other rich countries, and some relatively poor ones will probably be paying for their shopping with the same currency.  Prices will be quoted not in dollars, yen or D-marks but in, let's say, the phoenix.  The phoenix will be favoured by companies and shoppers because it will be more convenient than today's national currencies, which by then will seem a quaint cause of much disruption to economic life in the last twentieth century.

              At the beginning of 1988 this appears an outlandish prediction.  Proposals for eventual monetary union proliferated five and ten years ago, but they hardly envisaged the setbacks of 1987. The governments of the big economies tried to move an inch or two towards a more managed system of exchange rates - a logical preliminary, it might seem, to radical monetary reform.  For lack of co-operation in their underlying economic policies they bungled it horribly, and provoked the rise in interest rates that brought on the stock market crash of October.  These events have chastened exchange-rate reformers.  The market crash taught them that the pretence of policy co-operation can be worse than nothing, and that until real co-operation is feasible (i.e., until governments surrender some economic sovereignty) further attempts to peg currencies will flounder.

              But in spite of all the trouble governments have in reaching and (harder still) sticking to international agreements about macroeconomic policy, the conviction is growing that exchange rates cannot be left to themselves. Remember that the Louvre accord and its predecessor, the Plaza agreement of September 1985, were emergency measures to deal with a crisis of currency instability.  Between 1983 and 1985 the dollar rose by 34% against the currencies of America's trading partners; since then it has fallen by 42%.  Such changes have skewed the pattern of international comparative advantage more drastically in four years than underlying economic forces might do in a whole generation.

              In the past few days the world's main central banks, fearing another dollar collapse, have again jointly intervened in the currency markets (see page 62).  Market-loving ministers such as Britain's Mr. Nigel Lawson have been converted to the cause of exchange-rate stability.  Japanese officials take seriously he idea of EMS-like schemes for the main industrial economies.  Regardless of the Louvre's embarrassing failure, the conviction remains that something must be done about exchange rates.

              Something will be, almost certainly in the course of 1988.  And not long after the next currency agreement is signed it will go the same way as the last one.  It will collapse.  Governments are far from ready to subordinate their domestic objectives to the goal of international stability.  Several more big exchange-rate upsets, a few more stockmarket crashes and probably a slump or two will be needed before politicians are willing to face squarely up to that choice.  This points to a muddled sequence of emergency followed by a patch-up followed by emergency, stretching out far beyond 2018 - except for two things.  As time passes, the damage caused by currency instability is gradually going to mount; and the very tends that will make it mount are making the utopia of monetary union feasible. 

The new world economy

The biggest change in the world economy since the early 1970's is that flows of money have replaced trade in goods as the force that drives exchange rates.  as a result of the relentless integration of the world's financial markets, differences in national economic policies can disturb interest rates (or expectations of future interest rates) only slightly, yet still call forth huge transfers of financial assets from one country to another.  These transfers swamp the flow of trade revenues in their effect on the demand and supply for different currencies, and hence in their effect on exchange rates.  As telecommunications technology continues to advance, these transactions will be cheaper and faster still.  With unco-ordinated economic policies, currencies can get only more volatile.

Mon, 04/15/2013 - 03:56 | 3448831 KashNCarry
KashNCarry's picture

Cogent:

'Assault On Gold Update — Paul Craig Roberts'

http://www.paulcraigroberts.org/2013/04/13/assault-on-gold-update-paul-c...

Mon, 04/15/2013 - 14:57 | 3451679 alentia
alentia's picture

The question is, would miners be forced to sell at this price or will they have enough cash on hand to hold off. If miners refuse to sell (taking for some of them it cost $1,300 to extract 1 ounce), short covering might be even more dramatic than what we saw in the past 2 days.

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