Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Which Price Ratio Matters Most in a Fiat Ponzi?

Commodities / Gold and Silver 2016 Aug 19, 2016 - 07:16 PM GMT

By: Dr_Jeff_Lewis

Commodities

“Those who wish to seek out the cause of miracles and to understand the things of nature as philosophers, and not to stare at them in astonishment like fools, are soon considered heretical and impious, and proclaimed as such by those whom the mob adores as the interpreters of nature and the gods. For these men know that, once ignorance is put aside, that wonderment would be taken away, which is the only means by which their authority is preserved.”  ― Baruch Spinoza, Ethics


In a recent review I quoted part of a social media piece written by James Anderson - our friend at JM Bullion.

Anderson stated:

“I repeat that is $25 trillion per year traded in these 2 money metals, the high 90% of which are never ever delivered in real physical bullion.

Just electronic paper trading back and forth, to and fro.

When you analyze the annual physical gold and silver bullion mining outputs per year, the leverage in the system is roughly 150 parts silver / gold derivatives vs. 1 oz of real bullion coming to market physically.” 

A number of readers pointed out that the leverage is actually much greater.

Here’s is one example, from a member of our private forum:

Dr. Lewis, 

The leverage of 150 parts silver AND gold derivatives per one ounce of real metal seemed low to me.

I think the leverage is much higher.  (I know 150 is absolutely insane, as well.) I did a quick calculation that suggests it is closer to 300 instead of 150, but even 300 seems low. 

Maybe the Bloomberg $25 trillion traded in these monetary metals is way low as well.

Here’s the math:

Silver

780,000,000 annual global production of silver troy ounces @ $25 per ounce is $19,500,000,000 annual revenue of silver production. 

Gold

2,500 metric tonnes annual global production.  32,150 troy ounces per metric tonne is 80,375,000 annual global production (troy ounces). At $1,200 per ounce, it’s $96,450,000,000 annual revenue of gold production.

Combined annual revenue of silver and gold production is $115,950,000,000.  

Paper to physical, the price leverage ratio of 216. 

However, the effective price leverage utilizing adjustments becomes 322 to 1 if we make the following adjustments:

Say all Russian and Chinese production, plus some other countries, never come to market. Let’s say this is 1/3 of global production. 

Leverage would be increased by 1/3 or 216/.67; 0.67, which equals the effect of reduction in global revenues that do not go to market. $77,686,500,000 adjusted combined annual revenues of gold and silver go to market...

There are probably other adjustments as well…

***

That kind of leverage is a disaster waiting to happen. 

I would submit that an even greater leverage exists the macro-financial realm. 

The ratio of debt, credit, and derivatives long detached from a the tiny pool of final payment collateral. 

In fact, the slightest breath of panic will suddenly evaporate (or freeze) that pool of hard collateral before anyone knows what happened. 

Getting back to the precious metals… 

As Kyle Bass stated in this video:

https://www.youtube.com/watch? v=lgNVNTvlpFY

“As a fiduciary, to the extent that you own it and it isn’t a trade…

COMEX (at the time of the recording) has 80 billion outstanding against 2.7 billion in deliverables. It’s an easy decision.”

Bass spoke with the head of delivery for COMEX/NYMEX and asked, “What if only 4% stood for delivery? What happens then?”

The reply:

“That never happens. Rarely do we get a one percent delivery. If it does, price will solve everything”. 

This is inevitable.  

Will it happen in isolation? No one knows. 

But the signs are all around us.

Do leaders or regulators have any clue at all about this? It is doubtful. And that’s why it could happen in isolation. 

The only free market price resolution would be an instant reversion to equilibrium. 

The equilibrium price is ‘somewhere’ between inflation adjusted highs and the resolution of the paper to physical ratio.

Bass characterized his reasoning not in price terms – but in terms of fiduciary responsibility.

We may not be able to break the backs of the bankers by stacking. 

But we can inform from the inside out. In some ways we all share the same duty.

After all, the default is measure in terms of forced legal tender fiat currency. 

A comprehensive financial earthquake kit must anticipate the response from the greater society and culture around you. And the collapse of currency. 

It’s one thing to ‘organize’ a neighborhood emergency response team. 

But bring up matters of money and finance - and we suddenly gone way off the radar from the majority. 

While those who know better, vehemently deny that collapse could ever come. 

Ultimately, change comes from the grassroots and trickles up, out of necessity. 

So be a trustee for yourself and for others. Before it’s too late. 

1. To receive early notification for new articles, click here. 

2. Or to view all of our products and services, click here. 

3. Or...support the cause, and buy me a cold one! 

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com

    Copyright © 2015 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Dr. Jeff Lewis Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in