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Silver Fundamentals: The Numbers Don’t Lie - Jeff Nielson

Silver Fundamentals: The Numbers Don’t Lie - Jeff Nielson
By Jeff Nielson 4 years ago 300788 Views 21 comments

Jeff Nielson is co-founder and managing partner of Bullion Bulls Canada; a website which provides precious metals commentary, economic analysis, and mining information to readers/investors. Jeff originally came to the precious metals sector as an investor around the middle of last decade, but soon decided this was where he wanted to make the focus of his career. His website is www.bullionbullscanada.com.

March 16, 2016

“Statistics can be used to say anything.”

Many readers are familiar with this cliché, but few understand its real significance . Numbers don’t lie, meaning the raw data which we collect on a nearly infinite number of subjects. Statistics, on the other hand, are rarely just raw data. Instead, they are numbers that have been massaged (i.e. manipulated) with various adjustments.

Deception and deceit enters into the picture when our governments (and charlatan economists ) create their statistics, and do so by making adjustments which are completely indefensible from an analytical standpoint. These adjustments don’t improve upon the raw data in terms of adding clarity, but rather they pervert the data into numbers which cease to have any resemblance to the real world.

Thus, with their adjusted statistics, these frauds-with-numbers can make the U.S. Great Depression look like a recovery. An even more obvious example is found in all the imaginary “jobs” the U.S. government claims to have created during its imagined recovery .

Fewer and fewer people are working in the U.S. every year, and virtually every month. Since the start of the “recovery,” the U.S. economy has lost an additional 3+ million jobs. The “11 million new jobs” boasted of by the political puppets, and manufactured by charlatan economists, never existed. They were completely created with mammoth – and bogus – adjustments.

“Numbers don’t lie – people do.”

This brings us to the silver market, and some numbers that illustrate some unequivocal truths. There are few better sources for numbers on silver than precious metals icon, Eric Sprott. In a recent interview with The Daily Coin , Sprott provided a few interesting numbers.

Silver is mined at an 11:1 ratio to gold. This is raw data. This becomes significant when we look more raw data numbers: the natural occurrence of these two metals in the Earth’s crust. Silver is approximately 17 times as plentiful as gold. Therefore, all things being equal, we should expect silver to be mined at a near-identical ratio of 17:1.

Instead, silver is under-produced by roughly 50%. How? Why?

We know it could not possibly be due to lack of interest or demand. Historically, over a span of thousands of years, the price ratio between silver and gold was a very steady 15:1. This means that (over thousands of years) humanity has exhibited a slight price preference for silver. It occurs at a 17:1 ratio, but people have been willing to pay for it at a slightly higher 15:1 ratio.

In more modern times, we have proof that humanity’s desire for silver hasn’t waned at all. As was explained in a previous commentary , the silver market has been in a state of supply deficit for thirty consecutive years – something totally unprecedented with any other commodity market in history.

Indeed, it is impossible for any other commodity on the planet to ever experience a supply deficit of this magnitude, with one exception: gold. What makes gold and silver totally unique in this respect? Being “precious,” we have conserved these metals over thousands of years, and as a result humanity has accumulated gigantic stockpiles of them. In fact, nearly all the gold ever mined has been conserved.

However, this is no longer true with silver. In addition to being a more brilliant metal than gold, silver is incredibly useful. Over the past quarter century, more silver-based patents have been created than with any other metal on the planet. But not only does silver have unparalleled versatility, it is an extremely potent metal, meaning that in many of its commercial applications it is used in only trace amounts.

Why is this of significance? Because in such tiny quantities it is economically impractical to ever recycle any of this silver, at prices anywhere near the (absurd) levels of recent decades. Thus this silver is being consumed in tiny amounts, but in billions and billions of consumer products, over a span of decades.

Unlike gold, our stockpiles of silver are disappearing. As previously mentioned, for at least the last thirty years, the only way that our strong demand for silver could be satisfied has been through consuming portions of these stockpiles. Perhaps no one has studied this dynamic longer and more closely than noted silver researcher Ted Butler.

Butler argues that consumption of the world’s silver (on a net basis) dates back more than 70 years , to World War II. This begs the obvious question of how much (above-ground) silver is left in the world, but no one can supply a precise answer. Estimates have ranged from a high of 6:1 (versus gold), all the way down to where some commentators argue that the stockpile of gold is now larger than the dwindling stockpile of silver.

Give these numbers, there could never possibly be any legitimate explanation as to why silver is under-produced by 50%. In fact, there is only one illegitimate explanation: price suppression . Let’s toss out some more numbers. In the 1990s the price of silver was manipulated to a 600-year low.

We’re not talking about minor, subtle price suppression here, but rather a massive, systemic attack on this market, which began (originally) a hundred years ago. Another silver historian, Charles Savoie, provides the background here, in his noted chronology The Silver Stealers.

Savoie points out that during World War I, the British Empire conscripted vast numbers of soldiers into its army from India’s immense population. But these soldiers would not accept banker-paper for wages. They would only fight if paid in hard silver – the “Peoples’ Money.”

By the end of World War I, a large percentage of the world’s silver had flowed into India. Enter the Old World Order , the oligarch crime syndicate which readers know today as “the One Bank.” Both contemporary sources like Bill Still (The Money Masters) and historical sources like Charles Lindbergh Sr. ( The Economic Pinch) document how this crime syndicate was already pulling the strings of our puppet governments a hundred years ago.

These Western oligarchs ordered the British government to loot all the silver from India after World War I. Once that had been done, the Old World Order then commanded that much of that silver be dumped into the global market, virtually all at once. It was these massive twin crimes which distorted (and destroyed) the historic 15:1 price ratio which had existed for roughly 5,000 years.

Silver has been under-priced, both versus gold and in absolute terms, ever since. However, it was only in the 1990s that the One Bank took this price suppression to a criminal extreme. The 600-year low they produced by that systemic price manipulation literally destroyed the global silver mining industry .

Well over 90% of all silver mining companies were bankrupted. Since this era of extreme silver price-suppression began, roughly 80% of the world’s silver is now produced as a by-product of other mining (primarily lead, zinc, and copper) – further proof of extreme price manipulation.

There is no other explanation as to why (for thousands of years) we got most of our silver from primary silver mines, but no longer do so today. Because of this extreme, systemic price suppression, only the world’s richest deposits of silver can still be mined at a (small) profit.

This brings us back to another number provided by Eric Sprott in his recent interview. Silver is currently being purchased (in investment demand) at a 50:1 ratio to gold. For the significance of this shocking number, we need merely refer back to two other numbers already presented.

Silver is currently mined at an 11:1 ratio to gold (including all by-product production). It exists in the Earth’s crust at a 17:1 ratio. How can it be purchased and consumed at a 50:1 ratio? It can’t – not without leading to an inevitable inventory default once the last ounce of the world’s stockpiles is consumed.

Anything that is under-priced will be over-consumed.

This economic tautology has been presented in several previous commentaries . The hypothetical example used most often is chocolate bars. Imagine if chocolate bars only cost a dime. This was the actual price of chocolate bars, before Paul Volcker assassinated the gold standard and unleashed the One Bank’s “inflation” upon us.

If chocolate bars were priced at 10 cents apiece today, in our ultra-diluted dollars, all chocolate bars would disappear from store shelves in a few days. Worse still, no chocolate bar manufacturer could remain in business selling its chocolate bars that cheaply.

All the world’s chocolate bars would disappear. No more would be produced. The only bars remaining would be the tiny number hoarded and stockpiled by chocolate lovers. This brings us back to silver.

As previously documented, over a span of thousands of years humanity has exhibited a slight preference for silver over gold, in relative terms. This is not surprising, given that silver is the more brilliant of the two metals, and today, the more useful of the two metals. Yet the price ratio today has not shrunk from the historic 15:1 ratio, to reflect the decimation of global silver stockpiles. Instead, it has soared to a totally absurd level of today more than 80:1.

Again, there is no legitimate explanation for the current (ultra-suppressed) price for silver. Conservatively, silver should be priced at a minimum of a 6:1 ratio to gold, reflecting the maximum ratio of silver-to-gold stockpiles – i.e. priced over $200/oz. Arguably, silver should be priced at least as high as gold (if not higher), reflecting that the world might now have more gold than silver. This translates into a current price for silver at or above $1,200/oz (USD).

Perhaps by coincidence, a previous commentary pegged a “starting point” for the price of silver at $1,000/oz. This number came via a totally separate line of reasoning. It began with an observation by analyst Rob Kirby that, historically, the average wage for workers was 1 ounce of silver per week. With the average (paper) wages of the workers of today being approximately $50,000/year, this would require that the workers’ 1 ounce of silver (per week) be priced at roughly $1,000.

Numbers don’t lie – people do. And the “numbers” on silver tell an unequivocal story.

1) Silver price suppression has been more extreme and more continuous than any other form of price manipulation by the One Bank crime syndicate.

2) The near-total destruction of the global silver mining industry is a direct result of this systemic crime.

3) If silver was ever priced anywhere close to a fair and rational level, we would see the resurrection of the global silver mining industry. Once again, most of the world’s silver would come from silver mines, as had been the case for thousands of years.

4) An absolute minimum price for silver today would be $200/oz. However, a very strong case can be made that the current price of silver should be at least $1,000/oz (USD).

The world will eventually run out of silver, and it will happen soon. Roughly one billion ounces of stockpiled silver has been consumed over just the last decade alone. The numbers don’t tell us that this silver default might happen, they tell us that it will happen.

The views and opinions expressed in this material are those of the author as of the publication date, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

Rene 4 years ago at 2:48 PM
Excellent analysis of the fundamentals of silver along with two of the best charts in existence. If this does not resolve your questions, nothing will!
icemammoth 4 years ago at 6:22 PM
Great Article! I liked your analogy with the chocolate bars. I would say that the one difference I see is that when it comes to investments, people generally do the opposite of what is logical. When any investment is soaring in price, the interest and the demand seem to soar along with it. This was demonstrated in 2011 when silver went into the high 40s and it seemed almost impossible to purchase physical silver without a long waiting period. I think that's part of the reason that suppression has continued for so long. With the price at such a low number, this seems to work as a deterrent in terms of attracting investor interest. Obviously on the industrial side it would be the opposite. I would love to hear your best guess for the timeframe for silver to get to the minimum $200 price you mentioned?
Jeff Nielson 4 years ago at 5:54 PM
Yes Icemammoth, LOW prices now deter buying in the West, because we no longer have "investors" (who buy low/sell high). We have Momentum-Chasing Idiots. The mantra of the MCI's is: buy high, TRY to sell higher. Since we first created investment markets, that's surest way to turn a LARGE pile of money into a SMALL pile of money.

My childhood icons were Sherlock Holmes and Mr. Spock. Neither of those individuals engaged in guessing (lol). More to the point; the numbers I gave are rational prices for TODAY. Six months from now, our paper currencies may no longer EXIST.

In fundamental terms, Western paper currencies are already worthless. That makes the "price" for any hard asset (priced in worthless paper) infinity. "Predicting" prices has now been rendered 100% a Fool's Game.
Bri3D 4 years ago at 9:30 PM
I always enjoy your commentaries Jeff. Keep up the good work.
C. Shelton 4 years ago at 8:20 AM
This analysis of silver price suppression for decades by the criminal One Bank elements is not new. Yet not one of the commentators states WHY the banksters do it. Are there enormous profits in this criminal activity -- what is the reason??
Paris 4 years ago at 11:17 AM
I am not an economist or historian but here is a line of thought:

If silver’s price was left to fluctuate freely, it would become, de facto, a barometer of the inflationary practices of central banks. The Fed (or ECB) are currently issuing ~80 billion dollars (or euros) per month to keep the economy going. Wouldn’t this impact the price of a “freely” traded precious metal every month?

As the article mentions, the “OneBAnk” strategy has been not to simply suppress the silver’s price but to completely smash it to such a ridiculous level (~16 $US as we speak) so that it makes it meaningless for anyone to use it as a gauge of inflation. This strategy accomplished its goal to disconnect silver from people's minds as the “people’s money”.

TPTB have similarly suppressed gold but do not dare to smash it down to $200-300 per oz today to keep it harmonized with the historical 15:1 ratio. In my view, this is due to at least two reasons: 1) Several central banks themselves hoard it to be potentially used as some standard of reference in a future global collapse of fiat currencies; and b) at $300 per oz, gold would be easily accessed by middle income earners and become quickly depleted. There are no other easily exchangeable “stores of value” that have such a global appeal as gold.
Jeff Nielson 4 years ago at 6:10 PM
Yes, Paris, this is precisely what is meant by the term "monetary metals". In free markets, gold and silver automatically function as barometers of "inflation", because as these paper currencies are diluted, the price of gold/silver should automatically rise by a PRECISELY proportionate amount. In the case of silver, industrial demand muddies this equation slightly.

Note what this principle automatically proved...

D 4 years ago at 8:08 AM
they do it to uphold the "strength" of the us econpomy and to protect the USD from completly collapsing along with hyperinflation. GOld Silver is the thermometre of the economy and if they were at these true levels i.e 200$ then the USD would become worthless, they spuress to keep the ponzi scheme going
pana 4 years ago at 4:46 AM
The illusion of "barbaric rocks" must be indoctrinated into the sheeple to keep them confident in their toilet paper fiat currency. Just 40 years ago silver was real money. That is an extremely short period of time to change 1000's of years of perception of what "money" is. Currency is not their goal but is their tool.
Jeff Nielson 4 years ago at 5:57 PM
C.Shelton, once you have (absolute) control of nation's printing press, "profit" becomes a nearly obsolete concept. Why work to STEAL $billions, when you can simply PRINT $trillions -- and hand those $trillions to yourself for free (i.e. at 0% interest)?

Most market-manipulation is now geared at CONTROL over our economies, although the bubble-and-crash cycles still serve one very useful purpose: expediting the "liberation" of all OUR wealth.
Jean-Francois 4 years ago at 12:39 PM
To C. Shelton: Great question. I can understand the underlying motivations of central banks in the case of gold price suppression, but silver? Is it because it is perceived as an viable alternative to the yellow metal as a store of value? The situation described by Jeff in this excellent paper appears "justified", if you want, in the post WWI era, but seems quite a complicated scheme to maintain for years. There must be good reasons to do so.
Luker 4 years ago at 12:52 PM
Hey Jeff,

I am an admitted "silverbug" and I agree with the majority of your articles as well as most of the present article but for the following:

"This brings us back to another number provided by Eric Sprott in his recent interview. Silver is currently being purchased (in investment demand) at a 50:1 ratio to gold. For the significance of this shocking number, we need merely refer back to two other numbers already presented.

Silver is currently mined at an 11:1 ratio to gold (including all by-product production). It exists in the Earth’s crust at a 17:1 ratio. How can it be purchased and consumed at a 50:1 ratio? It can’t – not without leading to an inevitable inventory default once the last ounce of the world’s stockpiles is consumed"

Specifically I think the following quote is a bit of a strawman/person argument, and it's been one used by Eric Sprott many times in the past : "How can it be purchased and consumed at a 50:1 ratio? It can’t – not without leading to an inevitable inventory default once the last ounce of the world’s stockpiles is consumed"

The answer to the question posed is self-evident if and only if the consumption/demand one is implying represents 100% of total consumption/demand AND stockpiles have been completely "consumed" (or are otherwise unavailable to holders of physical silver refusing to let go of that silver at any fiat-based price). But if for example, one is considering the RETAIL subset of total silver demand/consumption , and if this percentage is say 10 to 20% of total silver consumption/demand, then is very possible mathematically that the ratio of silver to gold purchased can in fact be in a 50:1 ratio or even greater, for an infinite period of time. As an example, if 1 billion oz of silver are mined/consumed per year and 20% (200 million oz )are consumed by retail (as compared to 4million oz of gold using the 50:1 ratio) one could theoretically see the ratio exceed 50:1 if the retail demand for gold drops (due to sentiment or due to a higher price of gold) or if industrial silver demand drops such that any excess retail demand is balanced by an equivalent amount (with the total demand remaining constant). Of course the latter condition would necessitate that total worldwide consumption remain flat , which admittedly could be argued against.

Now given that only a small percentage of the population holds an appreciable amount of their assets as wealth preservation in the form of silver (most assuredly less than 1% of the population and I would guess perhaps only 0.1% or less are "silver stackers" ) , I agree that it wouldn't take much of a population sentiment shift (towards silver stacking) to make that 50:1 RETAIL purchase ratio completely unsustainable in a very short time, but that is a completely different argument.

I am totally open to being "schooled" on any faulty logic that I may have presented.

Luker (a.k.a. Let-them-eat-silver)
Jeff Nielson 4 years ago at 6:03 PM
Luke, Eric Sprott is a meticulous individual when it comes to his grasp of the fundamentals, so I always look very carefully at precisely what he is saying:

Silver is currently being purchased (in investment demand) at a 50:1 ratio to gold.

I put "in investment demand" in parentheses, precisely to try to draw peoples' attention to that precise point. In INVESTMENT demand, it is being purchased at a 50:1 ratio.

This is highly relevant, especially with the FAKE RALLY currently taking place with bullion markets. In the real world, silver is being bought (by the investment public) at a 50:1 ratio. At the current price-ratio that the total dollars going into silver is more than half as much as with gold.

Now look at our (phony) markets. Despite the 80:1 price ratio, gold has been leading the way. That's impossible. It could only happen if LESS THAN 2% of the money entering this sector was going into silver -- and that's just silly.
Luker (Let=-them-eat-silver) 4 years ago at 6:21 PM
I still have a problem with the use of the 50:1 ratio as representing “Investment demand”.
Without specification, use of the phrase “investment demand” in common parlance implies or infers worldwide investment demand.
I can see where he pulls this number based on this article that he penned:
http://ericsprott.blogspot.ca/2012/12/why-are-smart-investors-buying-fifty.html" rel='nofollow' target="_blank">http://ericsprott.blogspot.ca/2012/12/why-are-smart-investors-buying-fifty.html
It is presumably based on the chart (see article) using US Mint statistics which purport that sales (in oz.) through the US mint, of silver to gold had a ratio of ~45:1 back in 2012 (with perhaps similar ratios seen during the years since). Assuming that the chart does in fact represent the total oz. of gold (in all forms) and silver (in all forms) sold through the US mint, then all that one can say is that the investment demand (through the US Mint alone) for silver to gold in oz. was 45:1. Even if one utilizes this ratio (which is based on ~10% of annual worldwide silver investment demand) as a proxy for total US investment demand (given anecdotal evidence from other US dealers of a similar ratio) one cannot use this ratio as a proxy for worldwide investment demand.
As per the very same article, there is 350 million oz. of silver available worldwide for investment per year and ~120 million oz. of gold available for investment (~8% of gold was used for industrial purposes worldwide in 2015). That is how he arrives at the ~ 3:1 silver to gold oz. available for investment.
I think it is safe to say that gold investment demand is the sum of gold bullion products (purchased by both retail and central banks) and jewelry. If one was to go to India, where the majority of the world’s investment gold is purchased (through jewelry) , one might have evidence that the investment demand (in oz.) for silver to gold is perhaps 1:5 (as opposed to the 45:1 noted above) . It would be just as inappropriate for me to extrapolate this ratio to represent “investment demand” (implying worldwide investment demand), as it is to extrapolate US mint sales to represent “investment demand” (again implying worldwide investment demand).
Using a somewhat analogous argument, David Morgan recently reiterated that the demand for certain bullion products (i.e. American Silver Eagles) cannot/should not be used to imply or create the perception that there necessarily is a scarcity of the metal. To do so, would be akin to stating that because one cannot obtain Rice Krispies at a given moment in time, this extrapolates that there exists a worldwide scarcity of rice (it may be true in fact, but does not have to be so).
One cannot look at subsets of sales/demand, and extrapolate by inference to the whole.
http://ericsprott.blogspot.ca/2012/12/why-are-smart-investors-buying-fifty.html" rel='nofollow' target="_blank">http://ericsprott.blogspot.ca/2012/12/why-are-smart-investors-buying-fifty.html


p.s. Arguably, it just may be that I have a mental block
Luker (Let=-them-eat-silver) 4 years ago at 6:25 PM
"David Morgan recently reiterated that the demand for certain bullion products..."

Should have read:

" David Morgan recently reiterated that unavailability of certain bullion products..."
Gary Olson 4 years ago at 10:46 PM
The printing press was invented around 1440. The price of silver has been declining ever since that time. The common mans currency has been replaced by paper fantasies.
KO 4 years ago at 4:58 AM
A very interesting perspective thank you.

I have one question - perhaps something you might address in a follow-up article.

You cite suppression/price manipulation as the cause the artificially low silver price. This implies an active rational participant or participants, following an agreed and co-ordinated strategy.

Well, who is or are these participants and how could they manipulate silver lower consistently for 400 or more years? Shady "elites" or "world orders" and other conspiracy theory cannot, without much more proof, be the answer.

Could it be that the silver decline is a consequence of other actions, not necessarily co-ordinated by anyone? I know for example that Spain and the Spanish Empire experiences enormous inflation (which ultimately destroyed it from within) as a result of the flow of silver and gold from New Spain after about 1540.

The sheer volume of silver flowing into Europe from the 1540s onward could, all other things being equal, explain the steady decline in silver price until the early modern era.

And what about China? Does China's silver-based Imperial economy feature in the graphics, or is this merely Western-centric until modern figures (say since 1900) are used?

There is much in what you have written. Many fascinating and undoubtedly good points. It would be interesting to hear more from you along the lines above.

Sincerely yours.
Jeff Nielson 4 years ago at 6:07 PM
KO, what do you base your idea on hat the price of silver has been manipulated for 400 years?My belief is that the era of silver price-manipulation dates back roughly 100 years -- based upon the work of Charles Savoie.

Please review "the Silver Stealers" for more distant data/analysis, and my own work for more-recent analysis, and the reasons and agenda behind silver manipulation.
Mike 4 years ago at 11:08 AM
When all fiat currencies find their true value (zero) and everything is repriced in term of PMs, the gold and silver will find their real value.
Luker 4 years ago at 10:05 PM
as I suspect will bullets, water filters, toothpaste, toilet paper, tampons, soap, cigarettes, coffee, antibiotics...,
Wyldbill 3 years ago at 10:28 AM
Why very recently has David Morgan said: Theres no silver shortage?!!

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