Skip to comments.The Direction of Silver Prices before QE Forever
Posted on 09/04/2012 4:13:38 AM PDT by blam
The Direction of Silver Prices before QE Forever
Commodities / Financial Markets
2012Sep 03, 2012 - 07:53 AM
By: Dr Jeff Lewis
The price of silver has moved up from $27.50 seen just a week ago to stage a test of the $31.00 level. Although technical traders may consider this market currently over bought, the fact remains that a bull market can stay over bought for quite a long time.
It will be interesting to look back on this rally that began in the wake of the Financial Times story about the CFTCs lack of evidence and impending conclusion of its four year study into manipulation of the silver market.
As it stands, the big shorts remain active by virtue of the declining open interest.If this rally is sustainable, then the shorts seem to continue hoping they can cover at lower prices. Unless, of course, they are simply handling customer business that can readily stomach the paper losses.
What this implies for silver in the short term is anyones guess, as the world waits for the next coordinated monetary policy intervention that will largely determine silvers longer term prospects.
Fed Hints at More QE to Come
Perhaps the most important driving factor for silver is that Fed policymakers are no longer talking about an exit strategy. They just talk about scope, room for more easing and new ideas for easing. Also, when will Japan intervene again?
One especially interesting indicator of monetary stimulus is the amount of Federal Reserve Credit outstanding. At the end of 1990, this amount was just $291 billion, but during the 91/92 recession, it rose to $342 billion over two years.
Another substantial credit expansion of $35 billion occurred in 1998, and again in 1999 as Y2K approached, leading to a record $108 billion rise for that year. The recessionary 2001/02 period then saw Fed Credit grows by $120 billion, leaving the total at $747 billion.
Nevertheless, the Federal Reserve then permitted a massive credit rise of $1.36 trillion in 2008 in response to the financial crisis, leaving Fed Credit at $2.247 trillion by the end of that year.
Perpetual QE on the Horizon?
The Fed now seems to be floating a trial balloon for the concept of perpetual quantitative easing. Remember how Operation Twist gradually evolved into bond sterilization?
Although there does not yet seem to be enough political will for more easing, if the new easing program can be made perpetual or recurring, it could provide a much-needed boost for the paper currency Ponzi scheme, while also lulling the masses by making QE seem normal and harmless. Another brilliant solution by the masters of perception!
In the Reuters article, "Fed mulls open season on bond buys to help economy, the following passage clearly broaches the touchy subject of an open-ended QE program:
The Federal Reserve is considering a new approach to unconventional monetary policy that would give it more leeway to tailor the scale of its stimulus to changing economic winds.While fresh measures are not assured and the timing of any potential moves are still in question, some officials have said any new bond buying, or quantitative easing, could be open-ended, meaning it would not be bound by a fixed amount or time frame."I am inclined to think that if the Fed decides on more QE it would be of the open-ended variety," said Michael Feroli, chief U.S. economist at JPMorgan and a former Fed economist.
Contagious Money Printing Mentality Makes Inflation Virtually Inevitable
This worrying trend is not just seen in the United States. According to financial pundits, especially those located outside Europe, what the German court has to agree to so that the European Central Bank or ECB can start acting like a real central bank is really quite simple.
One New York based banking analyst summed it up like this: Policy makers should empower the ECB to rescue banks,create a deposit insurance program and allow it to print money, like the Federal Reserve.
All in all, this trend toward dilution of the value of paper currencies managed by central banks that permit an ongoing expansion of the money supply remains supportive of higher nominal prices for silver and other physical commodities as inflation appears virtually inevitable and endemic.
Furthermore, silver remains good value as one of the few hard assets still trading well below its inflation-adjusted highs. Even though silvers price discovery mechanism remains dominated by a net and highly concentrated short position that commands almost half a year of global production, its future looks bright.
I believe I will be selling a 10 oz silver bar today to help subsidize the purchase of a new Glock 30. It feels OK since I am getting a firearm out of the deal. I wouldn’t do it otherwise and I’ll still be sitting on plenty of metal after today. I think there’s a strong probability that all metals will be climbing for the next few months. There’s a lot of uncertainty right now.
——Contagious Money Printing Mentality Makes Inflation Virtually Inevitable——
There is but one factor to consider. That is total debt. This week it will likely exceed $16 trillion. There is no prospect nor proposal for elimination of this debt. For the forseeable future only debt growth is on the horizon.
The only way to reduce the total debt in a meaningful fashion is to inflate it away, to devalue the bonds. Silver, gold, oil, corn; cotton, beef, land, houses will all increase in price as the real value of the currency declines.
the same pattern has been happening for a few years
the british and US markets open... and gold/silver starts to drop... asian markets open... gold/silver jump up
almost as if someone were selling their metals...
and someone else was buying them up.
I'd say so:
QE will have to be forever. The government cannot afford to pay higher interest on the debt. The markets will not buy Treasury paper at the current low interest rates. Therefore the Fed is funding the debt by printing money and accepting low interest payments in return.
It is the perfect solution for a government living well beyond its means. So far they are getting by with it dues to the dollar’s reserve status plus high unemployment and low demand during a recession remove pressure for wage inflation and the Chinese subsidizing their exports of consumer products keep prices of non food/energy consumer goods down.
At some point in time the US will lose its reserve currency status because there will be so many worthless dollars floating around the world. We will then see hyperinflation and the collapse of the US economy.
Good idea to keep your wealth in “tangibles”.
You’d be better off, actually, to spend “debt dollars” on the tangible thing, though.
Last I heard, their attitude was
“print money until the economy recovers”...
Very similar to the “medieval barber” approach to “medicine”.
Bleed him some more.
Isn't that what 'did-in' George Washington?
looks like that was some good advice.