Written by Jeff Nielson Thursday, 17 January 2013 13:34
Observant precious metals investors would have recently noticed a rare – almost unheard-of – occurrence: a bullion market where prices actually respond to supply/demand fundamentals. No, obviously I’m not referring to either the gold or silver market, but rather the platinum market.
Analysis was provided by a mining website. Unlike the pseudo-analytic drivel spewed by the mainstream media concerning commodity markets; this featured long-term, hard data and cogent reasoning – versus the short-term trivia, empty rhetoric, and fear-mongering we generally get from the Corporate Media.
Specifically, the article noted that recycling in the platinum market had quadrupled over the last decade. Compounding that bearish supply factor, industrial demand has softened considerably, and even jewelry demand has been shown to be more price-sensitive than previously thought.
The combination of these factors has meant that platinum inventories are abundant, and with weak supply/demand fundamentals and abundant inventories, prices have floundered; with the price of platinum now trading below the price of gold (a very unusual situation).
With a concrete example illustrating both supply/demand fundamentals and how markets are supposed to respond to those fundamentals; the extreme/serial manipulation of the silver market appears even more blatant in comparison. Now let’s look at the “fundamentals” in the silver market.
We can begin by looking at the absurdly low, current price of silver. This artificial/suppressed/manipulated price can be illustrated in several different ways. Relative to the price of gold, silver is priced at less than 1/3 of its historical average.
During the nearly 5,000 years in which humanity has been mining/refining gold and silver; the gold/silver price ratio has averaged roughly 15:1. Yet currently (and through all the recent decades of silver manipulation) this ratio has been depressed to 50:1 (or lower).
We know that this is a case of silver being under-priced rather than gold being over-priced through simply examining the supply-side of the gold and silver markets: the miners. Gold and silver miners are experiencing their second “depression” in five years – as the radical under-pricing of silver and gold has made it difficult for established miners to raise capital, and nearly impossible for the junior exploration companies who are the life-blood of the mining industry.
Indeed, silver mining is so severely depressed that despite a six-fold increase in the price of silver over the last decade most of the world’s silver is still produced as a secondary byproduct of other mining – while bankrupted silver mines remain shuttered all over the world, and new projects are extremely slow to develop.
Further proof of the suppressed/manipulated price of silver comes from the collapse of inventories, where global inventories plummeted by more than 90% over just 15 years (from 1990 – 2005). Despite the collapse in inventories, the six-fold increase in the price of silver has barely registered any reaction at all on the supply side, where mine-supply limps higher at an anemic rate of about 2% per year.
This is yet more proof of silver price-manipulation, as with any/every commodity market where prices are free to respond to supply/demand fundamentals, we would see prices rise to whatever level was necessary to fuel new supply and discourage consumption – until supply/demand equilibrium is reached. This is the literal definition of a “free market”, something which most of us have never seen in the silver market during our entire life-span.
Written by Jeff Nielson Monday, 14 January 2013 14:43
Attempting to decipher the global picture regarding food prices, food inventories, and food production is not akin to navigating a labyrinth. A deluge of misleading propaganda and short-term ‘noise’ from the mainstream media means anyone attempting to decipher these parameters is likely to encounter a plethora of “dead-ends” and “wrong turns.”
Those following agricultural markets and agricultural prices have seen two, general trends emerging over the past decade: rapidly rising (nominal) prices and steadily falling inventories. This flies directly in the face of the most basic of all supply/demand fundamentals.
Yes, falling inventories are supposed to lead to rising prices. However, those rising prices are then supposed to naturally lead to both falling demand (because of higher prices) and rising supply (because of higher prices) – with the rebuilding of inventories an inevitable result.
Yet despite the largest price-spike in the price of agricultural commodities in 40 years, inventories remain depressed, and critical stock-to-use ratios remain close to multi-decade lows. So why has the global economy ceased to respond to basic supply/demand stimuli? Because our subsidy-saturated global agriculture model is so absurdly broken.
[Source: United Nations Food and Agriculture Organization]
While fiscally-irresponsible Western governments continue to whine (and do little else) about their exploding debts and deficits, utterly massive (and still-growing) farm subsidies remain untouched. Western agricultural subsidies (direct and indirect) now amount to somewhere in excess of $100 billion/year; however these subsidies are so endemic and heavily-disguised that coming up with an exact figure would be a Herculean task.
For example, much of the U.S.’s corn subsidies are in fact listed/described as “ethanol subsidies”. The preferential prices (and access) given to U.S. farmers for (precious) water supplies does not even seem to be counted as a “subsidy”, despite the tremendous quantities of subsidized water being directed toward (what is now) the U.S.’s “banana economy.” U.S. soya bean farmers received nearly $30 billion in “direct subsidies” alone from 1995 – 2011, with subsidized water not even mentioned.
There are two obvious and inevitable effects of long-term agriculture subsidies, and long-term subsidies in general: artificially low prices and depressed production. Let me repeat this: the effect of these permanent subsidies on agricultural commodities means that crop prices (and food prices) would have been spiraling upwards even more rapidly otherwise.
Put another way, crop prices (and food prices) are not “high” today. Rather, the debauched paper which our bankers (and governments) call “money” has been plummeting in value so rapidly that even with nominal prices spiraling here, in real dollars agriculture prices remain extremely depressed – explaining the relentless, long-term deterioration of inventories.
The dynamics are simple. Heavily-subsidized (Western) agricultural products are dumped in markets all over the world. Poorer, less-developed nations cannot compete with those subsidies, and thus subsidized Western agricultural products have bankrupted 10’s of millions of small farmers all over the world – and taken that land out of cultivation, further depressing supplies/inventories.
Those reactionaries in the U.S. incensed over Mexican “illegal aliens” can thank the “farm lobby” in the U.S. (i.e. Monsanto), as it is 100% responsible for the flood of Mexican migrants into the U.S. Massive corn-subsidies in the U.S. bankrupted millions of Mexican corn-farmers. With no other options for survival, these farmers made their only logical choice: they migrated to the place where they knew that the corn which they used to grow was now being grown – the U.S.