kingworldnews.com
With
interest rates soaring, today the man who has become legendary for his
predictions on QE, historic moves in currencies, and major global
events, spoke with King World News about coming global chaos and the
road to $1,000 silver.
Global Chaos And The Road To $1,000 Silver
Egon von Greyerz:
“Flation” is guaranteed in the next few years. We will see inflation,
stagflation, hyper-inflation and deflation. Many of these flations will
happen simultaneously. Currently we have major monetary inflation
combined with asset inflation. Credit growth and money printing have in
recent years benefitted the ailing banking system but have not yet
reached consumer prices and therefore there is no ordinary price
inflation. In 2017, velocity of money is likely to increase, leading to
stagflation, which is higher prices without growth. But as the problems
in the financial system deteriorate, hyperinflation in most major
economies is virtually a certainty. The build-up of debt and derivatives
in the last quarter century guarantees that desperate governments will
print unlimited amounts of money in a frantic attempt to save the
financial system…
Egon von Greyerz continues: “What
has happened to the banking system in Italy in recent years makes the
Medicis look like saints. Mismanagement and corruption has driven
Italian banks to insolvency. The problem is the same in Greece, Spain,
Portugal, France, Germany etc as I discussed in last week’s article.
But
these problems are not limited to Europe. Banks in Japan and China will
have the same pressures and so will the financial system in the US and
emerging markets. The last financial crisis started in 2006. Since then
global debt has gone from $140 trillion to around $240 trillion. Those
extra $100 trillion should have led to massive hyperinflation already.
Instead all central banks are complaining about deflation and are doing
all they can to create inflation. There is a misconception that
inflation is good for the economy. Inflation is a disease that leads to
the destruction of money and of savings.
Lost
central bankers have no other solution for a failing financial system.
But to solve a problem with the same methods that created it in the
first place is the road to ruin. And this what will happen in coming
years and most likely start in 2017. Hyperinflation when it starts
normally accelerates very quickly and might last for only 2-4 years
until the printed money becomes totally worthless. Hyperinflation
affects mainly goods and services. In real terms, all the assets that
have been financed by the credit bubble will deflate. Simultaneously
debt will implode leading to banks defaulting. Eventually hyperinflation
will turn to a total deflationary implosion when all prices go down
together with money supply. This will be a devastating period for the
world since for a period there will be no money and most people will
have to revert to bartering.
When
hyperinflation ends and the deflationary implosion starts, gold will
fall from the dizzy highs. But since there is likely to be an extended
period without any paper currency in many countries, gold will be the
only real money and will therefore be very highly valued in relation to
rapidly falling prices.
Although
there is no sign of hyperinflation in any major economy, there are
countries like Argentina and Venezuela where it is already happening. The
Venezuelan Bolivar has been totally crushed since 2011. In August 2012,
there were 10 Bolivars to the dollar. Today there are 4,250 Bolivars to
one dollar in the unofficial market. In mid-2015 there were 700
Bolivars to $1 and today the dollar is 6x higher at 4,250. Since Aug
2012, the monthly inflation rate has been 16%. As the graph below shows,
the fall of the Bolivar and the rise of the dollar is now exponential.
In
gold, 17,000 Bolivars bought one ounce in 2012. Today one ounce of gold
costs 5 million Bolivars. A sign of things to come in many major
economies in the next few years?
As
I have advocated since 2002, gold is the best way to preserve wealth
and to insure against the coming collapse of paper currencies as well as
the financial system. We have as a rule advised clients to hold gold
rather than silver for wealth preservation purposes. The volatility of
silver has made it an unsuitable investment for normal investors. In
2001 silver was $4, in Feb 2008 it reached $21 and in Aug 2008 silver
was down to $8. Then back to $50 in April 2011 only to again fall
precipitously to under $14 in December of 2015. For anyone seeking a
thrilling roller coaster ride, silver is perfect since these massive
swings will give most investor the fright of a lifetime. Because silver
is also much heavier in relation to its value, it is less convenient to
store and carry. In addition, there is Vat (value added tax) on silver
in Europe although this can be avoided legally by storing in bonded
vaults.
The
risk/reward situation for silver changed at the beginning of 2016.
Silver has now reached a point where relative to gold it represents
excellent value. What is particularly interesting is that silver is now
in a position to move twice as fast as gold.
The
Gold /Silver ratio chart below shows how it has peaked 4 times in the
last 20 years at or slightly above the 80 level (gold price = 80x silver
price). The last time this happened was in February 2016. Since then
the ratio has fallen to 68 but this is just the beginning. It is likely
that before a major correction of the ratio, it could move down to 30,
which we saw in 2011 when the silver price reached $50.
The
ratio can move extremely fast. In September 2010, it was at 68/1 and in
April 2011 it had reached 30/1. Once the current move down in the ratio
accelerates, it could reach 30/1 very quickly. Longer term the ratio is
likely to reach 15/1, which is an important historical level, or it
could even overshoot to 10/1.
The Road To $1,000 Silver
If gold reaches $10,000, which I believe is a minimum without
hyperinflation, that would give a silver price of $665 to $1,000. These
are clearly levels that sound totally unrealistic with silver currently
at $17, but are likely to be achieved within 5 years or so.
What
makes silver particularly interesting is its scarcity. Around 170,000
tons of gold have been produced in history and virtually all of this
quantity is still around in one form or another. This is not the case
with silver. There are no significant silver stocks anywhere in the
world. Almost 60% of the silver produced is consumed, the rest goes to
silverware, jewelry and investment. Central banks hold no silver stocks.
The annual silver global silver production is 27,000 tonnes, which at
$17 only equals $15 billion.
As
a comparison, annual gold mine production is $114 billion. More silver
has been consumed globally than has been produced for a number of years.
Investment demand for silver is only $2.5 billion annually. The total
size of the silver market is minuscule in relation to world financial
assets. That is why it is been very easy for Deutsche Bank, UBS,
Barclays and a few other banks to manipulate this market. Deutsche has
admitted their rigging of the silver market but since they have
implicated a number of other banks, we haven’t seen the end of this
story, which is very likely to spread to the gold market also.
The
gold/silver ratio indicates that the manipulation might soon come to an
end which and that will lead to increased physical demand. That, in
turn, will put the paper silver market (short positions) under severe
pressure. As physical demand rises, the silver price will increase
rapidly. Even today it is difficult to find big quantities of physical
silver, and as price rises there will be no silver available anywhere
near current prices. Any surge in demand will only be satisfied
by substantially higher prices.
Silver
should not be bought for speculative purposes but for long term wealth
preservation. Due to the volatility of silver, 15-25% of total precious
metals holdings is the right level in our view. For any investor who
doesn’t hold silver, it is my strong belief that now is an excellent
time to buy physical silver at a price that will never be seen again and
for a journey which will be extraordinary.”
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