Precious Metals In 2014

Tyler Durden's picture

Submitted by Alasdair Macleod via,

It's that time of year again; when we must turn our thoughts to the dangers and opportunities of the coming year. They are considerable and multi-faceted, but instead of being drawn into the futility of making forecasts I will only offer readers the barest of basics and focus on the corruption of currencies. My conclusion is the overwhelming danger is of currency destruction and that gold is central to their downfall.

As we enter 2014 mainstream economists relying on inaccurate statistics, many of which are not even relevant to a true understanding of our economic condition, seem convinced that the crises of recent years are now laid to rest. They swallow the line that unemployment is dropping to six or seven per cent, and that price inflation is subdued; but a deeper examination, unsubtly exposed by the work of John Williams of, shows these statistics to be false.

If we objectively assess the state of the labour markets in most welfare-driven economies the truth conforms to a continuing slump; and if we take a realistic view of price increases, including capital assets, price inflation may even be in double figures. The corruption of price inflation statistics in turn makes a mockery of GDP numbers, which realistically adjusted for price inflation are contracting.

This gloomy conclusion should come as no surprise to thoughtful souls in any era. These conditions are the logical outcome of the corruption of currencies. I have no doubt that if in 1920-23 the Weimar Republic used today's statistical methodology government economists would be peddling the same conclusions as those of today. The error is to believe that expansion of money quantities is a cure-all for economic ills, and ignore the fact that it is actually a tax on the vast majority of people reducing both their earnings and savings.

This is the effect of unsound money, and with this in mind I devised a new monetary statistic in 2013 to quantify the drift away from sound money towards an increasing possibility of monetary collapse. The Fiat Money Quantity (FMQ) is constructed by taking account of all the steps by which gold, as proxy for sound money, has been absorbed over the last 170 years from private ownership by commercial banks and then subsequently by central banks, all rights of gold ownership being replaced by currency notes and deposits. The result for the US dollar, which as the world's reserve currency is today's gold's substitute, is shown in Chart 1.

Chart1FMQ 311213

The graphic similarities with expansions of currency quantities in the past that have ultimately resulted in monetary and financial destruction are striking. Since the Lehman crisis the US authorities have embarked on their monetary cure-all to an extraordinary degree. We are being encouraged to think that the Fed saved the world in 2008 by quantitative easing, when the crisis has only been concealed by currency hyper-inflation.

Are we likely to collectively recognise this error and reverse it before it is too late? So long as the primary function of central banks is to preserve the current financial system the answer has to be no. An attempt to reduce the growth rate in the FMQ by minimal tapering has already raised bond market yields considerably, threatening to derail monetary policy objectives. The effect of rising bond yields and term interest rates on the enormous sums of government and private sector debt is bound to increase the risk of bankruptcies at lower rates compared with past credit cycles, starting in the countries where the debt problem is most acute.

With banks naturally reluctant to take on more lending-risk in this environment, rising interest rates and bond yields can be expected to lead to contracting bank credit. Does the Fed stand aside and let nature take its course? Again the answer has to be no. It must accelerate its injections of raw money and grow deposits on its own balance sheet to compensate. The underlying condition that is not generally understood is actually as follows:

The assumption that the Fed is feeding excess money into the economy to stimulate it is incorrect.
Individuals, businesses and banks require increasing quantities of money just to stand still and to avoid a second debt crisis.

I have laid down the theoretical reasons why this is so by showing that welfare-driven economies, fully encumbered by debt, through false employment and price-inflation statistics are concealing a depressive slump. An unbiased and informed analysis of nearly all currency collapses shows that far from being the product of deliberate government policy, they are the result of loss of control over events, or currency inflation beyond their control. I expect this to become more obvious to markets in the coming months.

Gold's important role

Gold has become undervalued relative to fiat currencies such as the US dollar, as shown in the chart below, which rebases gold at 100 adjusted for both the increase in above-ground gold stocks and US dollar FMQ since the month before the Lehman Crisis.

gold adjusted 311213

Given the continuation of the statistically-concealed economic slump, plus the increased quantity of dollar-denominated debt, and therefore since the Lehman Crisis a growing probability of a currency collapse, there is a growing case to suggest that gold should be significantly higher in corrected terms today. Instead it stands at a discount of 36%.

This undervaluation is likely to lead to two important consequences.

Firstly, when the tide for gold turns it should do so very strongly, with potentially catastrophic results for uncovered paper markets. The last time this happened to my knowledge was in September 1999, when central banks led by the Bank of England and the Fed rescued the London gold market, presumably by making bullion available to distressed banks. The scale of gold's current undervaluation and the degree to which available monetary gold has been depleted suggests that a similar rescue of the gold market cannot be mounted today.

The second consequence is to my knowledge not yet being considered at all. The speed with which fiat currencies could lose their purchasing power might be considerably more rapid than, say, the collapse of the German mark in 1920-23. The reason this may be so is that once the slide in confidence commences, there is little to slow its pace.

In his treatise "Stabilisation of the Monetary Unit – From the Viewpoint of Monetary Theory" written in January 1923, Ludwig von Mises made clear that "speculators actually provide the strongest support for the position of notes (marks) as money". He argued that considerable quantities of marks were acquired abroad in the post-war years "precisely because a future rally in the mark's exchange rate was expected. If these sums had not been attracted abroad they would have necessarily led to an even steeper rise in prices on the domestic market".

At that time other currencies, particularly the US dollar, were freely exchangeable with gold, so foreign speculators were effectively selling gold to buy marks they believed to be undervalued. Today the situation is radically different, because Western speculators have sold nearly all the gold they own, and if you include the liquidation of gold paper unbacked by physical metal, in a crisis they will be net buyers of gold and sellers of currencies. Therefore it stands to reason that gold is central to a future currency crisis and that when it happens it is likely to be considerably more rapid than the Weimar experience.

I therefore come to two conclusions for 2014: that we are heading towards a second and unexpected financial and currency crisis which can happen at any time, and that the lack of gold ownership in welfare-driven economies is set to accelerate the rate at which a collapse in purchasing power may occur.


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greased up deaf guy's picture

PMs, bitches!!!

that felt good. hehe...

happy new year, all.

BaBaBouy's picture



Kim Jong Un ‘fed uncle to pack of 120 ravenous dogs’ By Sean Piccoli and Post Wire Report January 3, 2014 | 11:19am

The uncle of North Korean dictator Kim Jong Un was ripped to pieces by a pack of starving dogs in a slow, barbaric execution that Kim himself watched, an official Chinese newspaper reported.

Jang Song Thaek, the 67-year-old family member once considered Kim’s right-hand man, died horribly with five other condemned officials in a capital punishment ritual called “quan jue”— execution by dogs, according to the Hong Kong newspaper Wen Wei Po, a mouthpiece for China’s government.

The ghastly account of Jeng’s execution could not be independently verified, but its publication in an official Chinese daily signaled Beijing’s growing disgust with Kim, according to a Singapore daily, the Straits Times, which suggested the Chinese might have leaked the gory tale to further embarrass and marginalize Pyongyang’s reigning madman.

Modal Trigger

Kim Jong UnPhoto: AFP/Getty Images

Quan jue is reserved for North Korea’s most hated enemies— and for those occasions when a simple firing squad doesn’t send a strong enough message, according to the Chinese newspaper.

Jang was stripped naked before and literally fed to the dogs as Kim and hundreds of North Korean officials watched, Wen Wei Po reported. The 120 animals, deliberately starved beforehand, spent more than an hour devouring their six victims, the newspaper reported.


PontifexMaximus's picture

Has ralston purina already signed a cantract with comi. payable to a Delaware company?

oddjob's picture

The Eagles wil sign him first.

Boris Alatovkrap's picture

Typically communism...

In South Korea, you are eat dog. In North Korea, dog is eat YOU!

SRSrocco's picture


THE BIG QUESTION: Where Is The Price Of Silver Headed In 2014?

I believe the FED & Member Banks would be too stupid to force the price of gold and silver below the cost of primary mine production for an extended period.  According to my analysis, the estimated Q3 2013 break-even for the top 12 primary silver miners is $21.39.

quasimodo's picture

As always appreiate this site, not the typical puff piece I see so prevelant elsewhere screaming 

"moonshot we r all gonna beez rich!" bullshit.

That said, I still tend to stay rooted in the mindset metals won't budge much until it's decided they can't control the shenanigans any longer........sure feels like we are close to that point. 

artytom's picture

Yes, that's primary silver miners. The problem is often that other mining organisations produce silver as a by product and sell it at hedge values to support the production of other metals from their mines. As long as the mines contine to hedge their silver, the Comex have a lot of power.

SRSrocco's picture


While it is true that the base metal miners do hedge some of their silver, I can tell you that with the price of silver now in the $20 range, many companies have dropped their hedging strategy.

For example, KGHM Polska Miedz is the largest by-product silver producer in the world.  KGHM Polska is a large copper miner in Poland that produces about 40 million oz of silver a year .  According to their quarterly reports, KGHM had 6,300 contracts of silver hedged in Q3 2012.  However, from their most recent Q3 2013 report, total silver hedge book is now a BIG PHAT ZERO.

They have totally removed all of their silver hedges.


BaBaBouy's picture

I Wonder.?.Is Rawdman Gonna Visit NK For Another Million???

Boris Alatovkrap's picture

Next black ameriKan athlete visit is Michael Vick, maybe learn dog training tip.

akak's picture


The uncle of North Korean dictator Kim Jong Un was ripped to pieces by a pack of starving dogs in a slow, barbaric execution that Kim himself watched

And the latest headline of the Korean Daily Canine:


gonetogalt's picture

Uncle Jang and associates actually got what they deserved, pretty uncommon for any government official nowadays. Now if the rest of the NK party cadre could go into the dog pit, Kim Jong Un to go last.  Millions tortured to death on their watch, this is karmic justice.  

Oh, and feed'em Ben for dessert?

buzzsaw99's picture

i can think of 537 others more deserving than he.

are we there yet's picture

I might differ at about 512 plus or minus, but lets not be dogged about it. Does Kibbels have a congressional lobyist flavor?

drendebe10's picture

Dont forget to include the arrogant, narcissist, lying illegal alien kenyan muslum in there as well..

Atlantis Consigliore's picture

Yr yr yr yr honour,  im a scumbag lian thieving enabler of North Korea,  did they at least get him a liar, (lawyer) and read his rights;

no, ok, LETS SELL HIM ANOTHER 50 MILLION BARRELS OF HEATING OIL,  and build some repo houses for him,  

btw  how Fellugia going?   what/???

NickVegas's picture

Pictures or it didn't happen.

logicalman's picture

The US kills people over the course of years in Guantanamo.

Just saying.

TeamDepends's picture

My advice to you is to go all in.

Winston Churchill's picture

Gold or dogs ?

I think one more gold takedown this coming week , for psychology reasons , then in

50% gold , 50% assorted currencies in cash under the mattress.

Still not convinced we will not get deflation before hyperinflation.

Motorhead's picture

Methinks gold is going further down...not that I want it to, but gold & silver are fucked up right now, and until the trend reverses, then they've got more room to fall, IMO.

BlackChicken's picture

I think the metals could continue showing strength until the correction begins, then they are likely to decline with equities.

However, if the correction gets ugly, we could easily see this turn into a no-bid crash. That is when metals will have their day; when the naked Emperor appears.

buzzsaw99's picture

gold is suffering the same malady as treasurys. hot money was chasing it but now money is coming out to chase bullshit stocks higher.

akak's picture

He who laughs last, stacks best.

Theosebes Goodfellow's picture

He who laughs last slow on uptake.

Greenskeeper_Carl's picture

not gonna be the least bit mad if it stays down around leave levels for a while. I am in it long term, and will be happy to keep picking it up at these prices. As this shit show economy continues to unravel, those who didnt at least buy a little for insurance will regret it. Or, fuck it, ill get me some of that twitter instead...

StormShadow's picture

Paper gold price and physical price are already disconnecting albeit in a very chaotic, inconsistent manner. When they finally shear from one another it will be like tectonic plates shifting and they'll never rejoin again. That's why you hold physical for insurance and ignore the paper price.

dbTX's picture

The Eagles are landing !

s-logic's picture

"but a deeper examination, unsubtly exposed by the work of John Williams of, shows these statistics to be false"

you know what's so funny about shadowstats? John Williams argues for inflation not reflected in the official numbers, but AS A SUBSCRIBER I PAID $89 FOR 6-MONTH SHADOWSTATS SUBSCRIPTION IN 2010 AND I STILL PAY THE SAME PRICE FOR IT!!! Sort of confirms the FED's view of inflation, doesn't it?

Tinky's picture

Are you familiar with the expression "Too clever by half."?

disabledvet's picture

gold to a dollar an ounce. move along...

JustObserving's picture

If the NSA can solve the problem of spying on everyone in this world with its alledged budget of $75 billion a year, the Fed can control a few precious metal markets given its infinite resources.

Markets can be manipulated much longer than most think especially in a fascist, police state.

Which market is a free market in the land of the free?


Cast Iron Skillet's picture

I'm sure TPTB can set the price of gold to pretty much any number ... the proof of the pudding will happen when enough people become no longer willing to exchange physical for FRNs at the "spot" price.

Sufiy's picture

Jesse: COMEX Gold Registered Inventory Potential Claims Still Historically High 80 to 1

Jesse reports that COMEX is still leveraged at the record levels of 80 owners per one oz of Gold. Next week will be very important for Gold market. The move above $1260 will bring more short covering and will bring more confirmation on Double Bottom retested in 2013 at $1180 level.

buzzsaw99's picture

let's hope his double bottom is better than his cups and handles. :snark:

ebworthen's picture

Yet another chart showing the disastrous consequences since the 1972 Nixon unhinging of the Gold Standard (chart one).

Chart two shows a 36% discount on Gold since 2008, but combine the two charts and Gold is at a 936% discount.

Acidtest Dummy's picture

I predict that Au will continue to glom into ever larger lumps, the lighter elements will continue to facilitate gold's lumping nature. So, in terms of investing advice: don't stand in Au's way!

Rising Sun's picture

my fucking finger smells

hungrydweller's picture

They keep puutin' 'em on sale and I keep buyin'!  Love a good sale.

A Lunatic's picture

Why are small miners not performing in light of all of the supposed demand for PM's.............?