Best of the Week
Most Popular
1.Scottish Independence YES Vote Panic - Scotland Committing Suicide and Terminating the UK? - Nadeem_Walayat
2.Independent Scotland Will Disintegrate as Unionist Regions Demand Referendum's to Rejoin UK - Nadeem_Walayat
3.Bank of England Panic! Scottish Independence Bank Run Already Underway! - Nadeem_Walayat
4.Gold and Silver Price Ready To Go BOOM - Austin_Galt
5.Gold and Silver Potential Price Meltdown Scenario - Rambus_Chartology
6.Scottish Independence UK Catastrophe - The Balkanisation of Britain - Video - Nadeem_Walayat
7.The Price Of Gold And The Art Of War Part I - Darryl_R_Schoon
8.Main Reason Why Scotland Will Vote NO to Independence, 70% Probability - Nadeem_Walayat
9.Heavy Gold and Silver Shorting is Bullish - Zeal_LLC
10.10 Year U.S. Treasury Short Best Place to be Remainder of 2014 - EconMatters
Last 5 days
Scottish Independence Bank Run Already Underway - Video - 16th Sept 14
The Emergence of the US Petro-Dollar - 16th Sept 14
Economic GDP Drives Stock Prices Inestment Myth - 16th Sept 14
Don't Miss This Gold Buying Opportunity - 16th Sept 14
Why ECB QE Is Bearish For Gold Prices - 15th Sept 14
Property Rights and Property Taxes—and Countries That Don’t Have Them - 15th Sept 14
Junior Miners Breaking Out Higher Forecasting Gold and Silver Price Bottom? - 15th Sept 14
Stock Market Patiently Waiting for Mean Reversion - 15th Sept 14
A Closer Look at the US Dollar - 15th Sept 14
The Silver Price Sentiment Cycle - 15th Sept 14
Stock Market Correction Underway - 15th Sept 14
Marc Faber - “I Want To Be Diversified, I Want To Own Some Gold” - 15th Sept 14
The Myth of Nuclear Weapons - 15th Sept 14
US Dollar Forecast to Go Much Higher - 15th Sept 14
Analysis And Price Projection Of The Uranium Market - 15th Sept 14
Bank of England Panic! Scottish Independence Bank Run Already Underway! - 15th Sept 14
The Ethics of Entrepreneurship and Profit - 14th Sept 14
The Big Investor Opportunity in the Orbital Space Junkyard - 14th Sept 14
Kohl's and The Rest of The Retailers are in Deep Doo Doo - 14th Sept 14
Independent Scotland Will Disintegrate as Unionist Regions Demand Referendum's to Rejoin UK - 14th Sept 14
Stock Market Pullback Continues - 13th Sept 14
SNP Fanatics Warn of Day of Reckoning for Scottish Independence No Campaigners - 13th Sept 14
Scottish Independence Would Shake Up the Global System - 13th Sept 14
The World Order Becomes Disorder - 13th Sept 14
Is Geothermal Power About to Become The Next Great Battleground Over Fracking? - 12th Sept 14
Heavy Gold and Silver Shorting is Bullish - 12th Sept 14
Strong U.S. Dollar Undermines Gold and Silver - 12th Sept 14
Debt And The Decline Of Money - 12th Sept 14
Panic On The Streets Of London ... Can Scotland Ever Be The Same Again? - 12th Sept 14
Will The Real Silver Commercials Stand Up? - 12th Sept 14
If You Own Only One Investment, Make Sure This Is It - 12th Sept 14
Main Reason Why Scotland Will Vote NO to Independence, 70% Probability - 12th Sept 14
Better Days Ahead For U.S. Stock And Housing Market - 12th Sept 14
U.S. Meddling Dims Prospects for Ukraine Peace - 12th Sept 14
Is the Fed Preparing to Asset-Strip Local Governments? - 12th Sept 14
China Holds “Gold Congress” - Positioning Itself As Global Gold Hub - 11th Sept 14
Fire Ice Could be Energy's Magic Bullet or a Planet-killing Catastrophe - 11th Sept 14
The Mass Psychosis Of 9 /11 Will Never Be Healed - 11th Sept 14
Radical Islam's Crisis of Competing Caliphates - 11th Sept 14
Ukraine Crisis And Self-Determination - 11th Sept 14
Cameron and Miliband Desperately Attempt to Prevent Scotland Committing Suicide - 11th Sept 14
A Supply Crunch Points to Higher Uranium Prices - 11th Sept 14
The Myanmar Shadow - 11th Sept 14
Europe Takes the QE Baton - 11th Sept 14
Full Frontal Inflation - 11th Sept 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Huge Stocks Bear Market

A Gold and Silver Paper Default in the Wake of an EU Collapse

Commodities / Gold and Silver 2012 Dec 28, 2012 - 07:23 AM GMT

By: Dr_Jeff_Lewis

Commodities

The EU has failed to recapitalize its banking sector, which still remains massively over-leveraged. They have not yet had their "Lehman moment" of truth.
 
Furthermore, governments of the Eurozone adopted the Euro as a common currency in part because by doing so, they could collectively borrow at much lower interest rates than they were used to when they printed their own money.


So, if inflation picks up in the here and now, then that is not going to worry Ben Bernanke because he is going to look beyond that to the future.

Unpredictable Flow and Predicting the Aftermath

Strangely, Bernanke specifically said that he is not going to look at increases in the price of globally traded commodities.That means inflation in oil, food, energy and basic materials, which includes key commodities — like silver — that are essential to each of those sectors.

It seems that if all of the Fed’s recent money printing activities creates an increase in oil prices or food prices, Ben Bernanke is not going to care. Of course, the net effect is going to depreciate the U.S. Dollar, which the world is already selling, so perhaps you should too.

When it comes to guessing which way the hot money will move, inflationary monetary policy offers no real control over where that highly liquid capital flows to.

It's All About Interest Rates

How does the Fed propose reversing inflation? Well, by raising interest rates and then attempting to sell the toxic securities on its balance sheet.

Nevertheless, rising interest rates after the greatest expansion of sovereign debt the world has ever seen will immediately crater a fragile economy already teetering on the edge. Market interest rates would soar and should easily eclipse tax revenue collections.

The Fed obviously knows this, and it will continue to manage perceptions as long as the market consensus is willing to believe or their survival depends on it. The U.S. central bank has already discounted the future by many generations in the hope that markets will follow its increasingly tenuous lead.

Banks’ Market Manipulation Facilitates Charade

Many participants in the market now know that the manipulative actions of central banks have made prices in financial markets essentially meaningless.

By controlling interest rates, the central banks have destroyed interest rates’ important function of providing information about holding intrinsically valuable assets like silver and gold.

In the meantime, the age of sub-$100 silver hangs in the balance between bullish fundamentals and the ability of bullion banks to pull off the modern equivalent of alchemy by turning metal into paper as captured regulators look the other way.

This charade can only last so long.

For more articles like this, and to stay updated on the most important economic, financial, political and market events related to silver and precious metals, visit www.silver-coin-investor.com

By Dr. Jeff Lewis

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

    Copyright © 2012 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

A Gold and Silver Paper Default in the Wake of an EU Collapse

The EU has failed to recapitalize its banking sector, which still remains massively over-leveraged. They have not yet had their "Lehman moment" of truth.
 
Furthermore, governments of the Eurozone adopted the Euro as a common currency in part because by doing so, they could collectively borrow at much lower interest rates than they were used to when they printed their own money.
 
Now they cannot continue to do this because the beleaguered Eurozone has lost the confidence of the markets and cannot seem to regain it no matter what financial band aids are applied to the situation of excessive sovereign debt. Instead, confidence is largely confined to the currencies of those nations which still maintain a legal monopoly on its creation.

Printing Money Does Not Create Wealth

Everybody knows that money printing will not make a nation wealthy in the long run. Nevertheless, powerful constituencies benefit from money creation in the short term so politicians understand that their re-election depends on not thinking about the absurdity.

It is also often assumed that a wholesale Euro collapse would be U.S. Dollar positive since an overall EU default would cause financial panic, so money would flood back into US Treasuries as a safe haven.

This sentiment tends to weigh against using precious metals as an alternative safe haven — at least in Dollar terms.  Nevertheless, the United States is also overleveraged in terms of its debt.

Precious Metals Likely to Spike on Euro Collapse

If you think that the prices of silver and gold are not going to rise much and that the physical metals are even going to be available immediately after the Euro collapses, you are quite the optimist.

The far more likely pricing scenario would include a demand spike for precious metals reminiscent of January 1980, as people in Europe rush to hard assets to protect their savings.

Fleeing to any perceived safe haven in the wake of the European sovereign debt crisis, liquid money has already flowed quickly away from the various banks, currencies and assets affected peripherally by the debacle.

Physical Gold and Silver Would Become Scarce

Any short term price decline in the precious metals seen during a time of massive economic uncertainty would likely result in physical metal simply disappearing from the market. This would blow up physical premiums relative to paper like the market has ever seen before.

The market got a preview of this in 2008, when silver was pushed from $20 all the way down to $8, despite a notably worsening financial outlook sparked off by the subprime mortgage crisis, falling U.S. real estate prices and the dramatic Lehman bankruptcy. This situation nearly caused a physical shortage panic, which was reflected in physical premiums of over 100 percent at times relative to paper. 

The market’s subsequent response boosted the price of silver from its low of $8.44 in October of 2008 to hit a historic $49.77 high in April of 2011. This dramatic rise in silver’s price was further intensified by the ongoing European Sovereign Debt Crisis that began to make headlines in late 2009.  

Of course, someone might still be willing to sell you a paper forward or futures contract during an EU collapse, but do not count on being able to obtain the physical metal. The declaration of Force Majeure would be almost a certainty, with a cash settlement offered in place of a metal deliverable when the time comes to take possession.

Basically, cashing out now to try and time the market in the middle of a major currency event is definitely a ‘picking up nickels in front of a steamroller’ strategy. It seems better to ‘be right and sit tight’ instead.

For more articles like this, and to stay updated on the most important economic, financial, political and market events related to silver and precious metals, visit www.silver-coin-investor.com

By Dr. Jeff Lewis

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

    Copyright © 2012 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

© 2005-2014 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

Free Report - Financial Markets 2014