murphy metal monday

Fraud has never ever worked. Eventually things go south. When the hell did we forget all that?
–Quote from movie “The Big Short”

No doubt most are familiar with “The Big Short” movie, a realistic portrayal in which the banks packaged “worthless” mortgages and allowed just about anyone to buy a house, regardless of whether qualified or not. Of course, after many years of a booming real estate market and an elated public, the mortgage crisis hit in 2008 resulting in the Great Recession. Simply put, the banks defrauded the American people, who ultimately got wiped out by the millions.

Thanks to the work of Mike Savage of Raymond James Financial, here are just a few examples of how the public is being duped current day:

  • The government reports full employment while almost 100 million working age Americans are excluded from the calculation.
  • The government also reports inflation at 8.5%, but in reality, the formula for calculating the rate has been altered many times over the last forty years. In fact, if you apply “old school” calculation, the inflation rate is closer to 17%. And, who could forget the Fed announcing rising inflation as “transitory” just last year.
  • Bullion banks have been suppressing gold and silver via the COMEX paper markets, giving the impression these metals are less worthy investments, while at the same time these same banks AND central banks worldwide are hoarding as much physical gold and silver as possible.
  • And the biggest dupe of all: the created wealth effect via trillions of dollars conjured up from thin air, along with decades of interest rates being manipulated lower. Much like the real estate fortunes amassed up to the year 2008, for anyone invested in stocks, bonds, and real estate over the last decade or so – it was “easy” money. However, the easy money days are now over as the financial bubbles have popped and are popping. The feel-good feeling of having incremental wealth is once again heading for the exit and this time around the consequences are potentially and dramatically more dire than 2008.

Regarding the status of gold and silver, some of the public following and investing in the metals are frustrated and confused. After all, why are gold and silver prices relatively weak at the same time inflation is raging? Certainly, the weak bullish sentiment is understandable, considering the artificially suppressed prices and the higher interest rates which now stand in the way of gold as a competing investment. However, as mentioned in my prior weekly emails, the bullion bank manipulation might be at an end. History shows any time a market sentiment this weak typically marks a major price bottom. One way to tangibly measure this phenomenon is via the Open Interest reported daily on the COMEX (the NY Commodity Exchange).

Simply put, the Open Interest measures the total number of open long and short “futures” positions in each market. When the Open Interest is at an extreme high, the price and market sentiment is typically strong, and the market is prone for a big correction. When the Open Interest is low, the price and market sentiment is typically weak, and the market is ripe for a big rally. Over many years, the open interest range for silver is a low of 135,000 contracts to a high of 250,000 contacts. In 2010, when the sentiment for silver was weak and the open interest was a lowly 135,000 contracts, silver proceeded to go from $20 to $50 in just nine months! With the silver open interest currently standing at 126,000 contracts, we could be in for some fireworks very soon.

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Additionally, adding to the fireworks scenario is the incredibly low available silver supplies (and gold supplies as well, but less severe). At all levels, from gold and silver producers to COMEX inventories to wholesale and retail levels, supplies are so tight that insiders are now warning of a supply shock coming to a crisis point. And why the extreme tightness? Because of the artificially low prices, Central Banks are accumulating as much physical silver (and gold) as possible. Plus, silver producers have cut production. In fact, the last four years have resulted in silver demand exceeding production. In the end, maybe Ted Butler puts it best when saying,

“Any such artificial price manipulation must succumb to the forces of actual supply and demand, no matter how long the artificial price regime has been in effect.”

All things considered, gold and silver prices appear truly ripe for something special!