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Flation And The Surge Of Silver

by Egon Von Greyerz, Gold Switzerland:

“Flation” is guaranteed in the next few years. We will see in-flation, stag-flation, hyperinflation and de-flation. Many of these flations will happen simultaneously. Currently we have major monetary inflation combined with asset inflation. Credit growth and money printing have in recent years benefited the ailing banking system but have not yet reached consumer prices and therefore there is no ordinary price inflation.

This is why Italy, Greece, Spain, Portugal and many more EU countries are totally bankrupt. These countries have been forced to use a currency which has made them completely uncompetitive and unable to export or function. At the same time, Germany has benefited from a weak Euro which has made their export industries very successful.

Velocity of money will accelerate in 2017

In 2017, velocity of money is likely to increase, leading to stagflation which is higher prices without growth. But as the problems in the financial system deteriorate, hyperinflation in most major economies is virtually a certainty. The build-up of debt and derivatives in the last quarter of a century guarantees that desperate governments will print unlimited amounts of money in a frantic attempt to save the financial system. What has happened to the banking system in Italy in recent years makes the Medicis look like saints. Mismanagement and corruption has driven Italian banks to insolvency. The problem is the same in Greece, Spain, Portugal, France, Germany etc as I discussed in last week’s article.

Hyperinflation will be fast and furious

But these problems are not limited to Europe. Banks in Japan and China will have the same pressures and so will the financial system in the US and emerging markets. The last financial crisis started in 2006. Since then global debt has gone from $140 trillion to around $240 trillion. Those extra $100 trillion should have led to massive hyperinflation already. Instead all central banks are complaining about deflation and are doing all they can to create inflation. There is a misconception that inflation is good for the economy. Inflation is a disease that leads to the destruction of money and of savings. Lost central bankers have no other solution for a failing financial system. But to solve a problem with the same methods that created it in the first place is the road to ruin. And this is what will happen in coming years and most likely start in 2017. Hyperinflation when it starts normally accelerates very quickly and might last for only 2-4 years until the printed money becomes totally worthless. Hyperinflation affects mainly goods and services. In real terms, all the assets that have been financed by the credit bubble will deflate. Simultaneously debt will implode leading to banks defaulting. Eventually hyperinflation will turn to a total deflationary implosion when all prices go down together with money supply. This will be a devastating period for the world since for a period there will be no money and most people will have to revert to barter.

During the hyperinflationary period, gold will reach unimaginable levels in paper money terms like in the Weimar republic:

Gold in the Weimar Republic went from 170 Mark in 1919 to 87 trillion Mark in 1923

When hyperinflation ends and the deflationary implosion starts, gold will fall from the dizzy highs. But since there is likely to be an extended period without any paper currency in many countries, gold will be the only real money and will therefore be very highly valued in relation to rapidly falling prices.

Although there is no sign of hyperinflation in any major economy, there are countries like Argentina and Venezuela where it is already happening.

The Venezuelan Bolivar has been totally crushed since 2011. In August 2012, there were 10 Bolivars to the dollar. Today there are 4,250 Bolivars to one dollar in the unofficial market. As the graph shows below the fall of the Bolivar and the rise of the dollar is now exponential. In mid-2015 there were 700 Bolivars to $1 and today the dollar is 6x higher at 4,250. Since Aug 2012, the monthly inflation rate has been 16%.

In gold, 17,000 Bolivars bought one ounce in 2012. Today one ounce of gold costs 5 million Bolivars.

A sign of things to come to many major economies in the next few years?

Physical Silver is now an attractive investment

As I have advocated since 2002, gold is the best way to preserve wealth and to insure against the coming collapse of paper currencies as well as the financial system. We have as a rule advised clients to hold gold rather than silver for wealth preservation purposes. The volatility of silver has made it an unsuitable investment for normal investors. In 2001 silver was $4, in Feb 2008 it reached $21 and in Aug 2008 silver was down to $8. Then back to $50 in April 2011 to again fall precipitously to under $14 in Dec 2015. For anyone seeking a thrilling roller coaster ride, silver is perfect since these massive swings will give most investor the fright of a lifetime. Because silver is also much heavier in relation to its value, it is less convenient to store and carry than gold. In addition, there is Vat (value added tax) on silver in Europe although this can be avoided legally by storing in bonded vaults.

Silver will appreciate at twice the speed of gold

The risk/reward situation for silver changed at the beginning of 2016. Silver has now reached a point where relative to gold it represents excellent value. What is particularly interesting is that silver is now in a position to move twice as fast as gold.

The Gold /Silver ratio chart below shows how it has peaked 4 times in the last 20 years at or slightly above the 80 level (gold price = 80x silver price). The last time this happened was in February 2016. Since then the ratio has fallen to 68 but this is just the beginning. It is likely that before a major correction of the ratio, it could move down to 30 which we saw in 2011 when the silver price reached $50.

The ratio can move extremely fast. In September 2010, it was at 68 and in April 2011 it had reached 30. Once the current move down in the ratio accelerates, it could reach 30 very quickly. Longer term the ratio is likely to reach 15 which is an important historical level or it could even overshoot to 10.

If gold reaches $10,000 which I believe is a minimum without hyperinflation, that would give a silver price of $666 to $1,000. These are clearly levels that sound totally unrealistic currently with silver at $17 but are likely to be achieved within 5 years or so.

Silver is extremely scarce

What makes silver particularly interesting is its scarcity. Around 170,000 tons of gold have been produced in history and virtually all of this quantity is still around in one form or another. This is not the case with silver. There are no significant silver stocks anywhere in the world. Almost 60% of the silver produced is consumed, the rest goes to silverware, jewellery and investment. Central banks hold no silver stocks. The annual global silver production is 27,000 tons which at $17 is $15 billion. As a comparison, annual gold mine production is $114 billion. More silver has been consumed globally than has been produced for a number of years. Investment demand for silver is only $2.5 billion annually. The total size of the silver market is miniscule in relation to world financial assets. That is why it has been very easy for Deutsche Bank, UBS, Barclays and a few other banks to manipulate this market. Deutsche has admitted their rigging of the silver market but since they have implicated a number of other banks, we haven’t seen the end of this story which is very likely to spread to the gold market also.

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31 comments to Flation And The Surge Of Silver

  • ecobel

    Egon continues to lay down bull to support his product. He has been wrong for many years as PM have given it all back.

    • Millicent

      You are correct but most here cannot hear you… They are hopelessly addicted to the “stack & collapse” meme.

      • Eric

        2 non arguments. I bet neither one of them knows the real definition of monetary inflation or asset inflation.

        • Millicent

          I’ll bet you’ll be poor in 20 years…

          • Eric

            You don’t have anything of value.

          • KRELL427

            I bet your poor now.

            • Millicent

              In the words of Eric: “you don’t know shit”…
              Very skillful prose there…

              • Eric

                Millicent,

                What do you base this prediction on?

                The sound money and physical possession principles we keep advocating?

                Either come up with some logic or go back to school.

                • mike

                  I think you need to go back to school…

                  Long ago you proven yourself to be a tard so nothing you say is surprising. You don’t even know the definition of money only the twisted logic that drives you into believing that an asset and not a good asset is money? Good money is limited in quantity is divisible and most importantly it can spend easily. Pms lack all those traits that is why they are NOT money.
                  I recently bought some perth rooster silver coins from JMbullion with BTC and got the bank-wire price so no extra cost like you suckers using credit cards.
                  BTC is money..Nothing else.

                • Eric

                  uh huh. That’s very interesting dumbshit.

                  Where is the “long history of acceptance” with bitcoin?

                  Where is the “durability?”

                  Where is the “convenience?”

                  Where is the “consistency?” hint: BTC is too volatile.

                  Where does it “possess value in itself?” Does BTC have any non-monetary utility?

                  Why are you buying Silver coins if you keep saying it’s not rare? Obviously, based on your transaction BTC is just another worthless currency. Not money. And obviously, you are still talking out of your bunghole.

                  https://www.milesfranklin.com/the-seven-characteristics-of-money/

      • mike

        Interesting ..Silver rare? Been through this already…Silver is as rare as a gallon of diesel makes it..Meaning its not rare at all hence the fair value price of $16 today.

        BTC on the other hand is very rare and limited….Hence the $788 price today.

        Much Higher than Penis’s prediction of a $580 high? …Penis really does not know shit…I mean absolutely nothing and I suspect that resonates in every aspect of the Penis life.

        Today BTC 788
        Today AG 7.22..The Penis was an awesome cheerleader when AG was at 18 lo ah hahaha..What a Penis.

        • Eric

          dumbshit,

          Please point to the large stockpiles of Silver.

          http://www.silverdoctors.com/silver/silver-news/a-brutal-48-hours-is-the-savage-attack-on-gold-silver-over/

          BTC is nothing but digital blips on a screen. Got plenty of those. Yours are just way overvalued.

          Maybe you should search for some intellectual property. But that’s probably way over your head.

          First Majestic Silver is still far outperforming your silly tiddly wink cryptocurrency.

          • Eric

            Oh and keep looking at the digital ticker paper price of everything. That should work out well for you in the real world.

            • mike

              I am in the real world moron..Your cleared for landing on runway 22.
              Your stock picks have all tanked hardcore, your misunderstanding of real markets is that of a two year old. You have no idea of true rarity your just an epic moron who knows absolutely nothing about anything of value.
              Do some real research instead of parroting the parrots. Your what is known as a lemming. One that can not think or form your own thoughts.
              AG sucks big green donkey balls and so do PMs. They are headed to all time real inflation adjusted lows because no one besides you wants them and they are too easily produced. They lack the rare quality the single thing that gives them value.

              • Eric

                Good. Now that we have established that your real name is dumbshit…

                Dumbshit,

                Sure they have. That’s why First Majestic Silver is still up 141% YTD with a $12.72 1 year price target.

                http://www.fool.ca/2016/09/23/why-first-majestic-silver-corp-is-1-of-the-best-plays-on-silver/

                Meanwhile…blipcoin is only up a wimpy 80.45% YTD. Not too bad, but it looks like I know a lot more than you do.

                http://factsreporter.com/2016/12/16/top-performer-of-the-day-first-majestic-silver-corp-nyseag/

                • mike

                  AG tanked hardcore when you were spewing your most vile lies at $18 and change..I told you it topped because I actually did some research unlike you parroting..I told you it was a single hedge fund out to exploit the PM mining market make some money and get out..You bought at 16 when Sean made a video about him buying AG not before and change and guess what you lost.
                  You can not wrap your tiny little bird mind around the fact the PM market is the most controlled and manipulated market. It will never break loose the shackles, it simply cant. Pms could if they were indeed money that you could spend. Since they are a relic of the past they will never be money again and will never break the manipulation. A failure to deliver is meaningless the only thing that will break the market is if people start accepting them as money…That aint going to happen.
                  You need to look more in human psychology than history of money. All money is simply perception even PMs when they were money. If PMs were more than just perception they would still be money today.

                  You will just never get it..The King of Morons and an epic Penis.

                • Eric

                  dumbshit, please provide evidence of your accusation.

                  You are one to talk about “human psychology” when everyone here knows you need a serious mental evaluation by professionals.

                  Where does it say “money is simply perception?” People used to use chickens and tulips as a medium of exchange? What changed there?

                  Are the 2 Gold crowns in my mouth composed of “perception?” I can tell you right now that Gold is a lot stronger than your perception which is very very weak.

                  It will be funny to watch you panic back into Silver and Gold like you should have been rather than dinking around with blipcoin.

                  Hahahaha! Let me know when you are done being a dumbshit so we can get down to business.

                • mike

                  Total imbecile ass clown…Can you spend you gold crowns, go to the store and buy anything at all? No..Was Gold and Silver money but today mere relics traded on a commodity exchange? Yep..What happened to sea shells, Gold, Silver, Tally sticks ect?

                  Perception, you idiot.

                  Get it? I doubt it because you are beyond redemption. You mind has sunk to the level of a 16th century worthless lemming serf. I bet you believe in vampires and werewolves as well.

                • Eric

                  dumbshit,

                  No I cannot go spend my Gold crowns. But they are strong as shit and have utility and real world applications for many other reasons unlike your blipcoin which does not.

                  I can however very easily go spend or exchange my Gold and Silver coins for whatever it is that I need. Maybe where you reside, it’s all white trash trailer idiots who dig around in the “muck” (your word) looking for clams who have no idea what Silver and Gold are. But here, people have at least a clue.

                  Strange that I haven’t seen one “we accept bitcoin” sign in Los Angeles.

                  Serfs don’t own lots of Gold. But because deal in believing rather than knowing, you are a slave to digital blips on a screen.

                  As for vampires and werewolves, can you tell me where those mythologies came from? No. Because you don’t read either.

                  What books do you read mike?

                  Keep believing rather than knowing anything. And keep looking at the commodity exchange price. Funny stuff reading your posts dumbshit.

  • KRELL427

    PM’s have given it all back, only if you listen to fake news. http://goldprice.org/30-year-gold-price-history.html

  • Troy

    I quite buying silver around 2013…because I already have a stack…and I put ALL my paycheck money into paying off my home/property and fixing everything/replacing everything that needed it. Zero debt. Now, if silver makes a huge run up someday, I will sell half and put the money into land and or 1960’s/ early 70’s Muscle Cars…one of the safest investments ever as they do not ever crash, just slowing keep going up with inflation and they are so much fun…girls really really love those cars. About 25 years ago I had a 1970 GTO Judge, like I said, the girls just love them.

    • KRELL427

      The 70 judge was a cool car, always wanted to get a 1971 Trans Am. My second car in high school was a 69 Z28, I bought the car without an engine and found a great deal on a 427, 425 horsepower engine and put it in, had m22 and factory 4:56 12 bolt, my friends called it the whiskey runner because it wasn’t pretty but it was rust free and repaved all our local streets with rubber. Then bought a 70 LS6 chevelle blue with white stripes,m22 with bench seat and 4:10 rear. Also had a 67 Shelby GT500, had a problem with the throttle on twin 4bbls would stick wide open in 2nd gear. The first time scared the crap out of me and had to think fast hitting brake pedal and turning off the ignition. in 1988 I found a 66 427/450hp corvette, triple black, side pipes and knock offs(I called them fall offs). I put a aluminum head L-88 factory with transistor ignition, car weighed about 3100lbs and with the 4:10 rear end it ran 12:30s at 117mph on street g70 radial T/As thru the original manifolds and side pipes. Acquired a second vette, 69 427/ 435 hp with aluminum heads 6-pack transistor ignition, m21 close ratio, 3:70 and f41 suspension. Had a lot of fun in that car. Here in Ontario they changed the laws about 5 years ago, if you get caught doing 50 K.P.H. over limit they take your car on the spot and you loose your license for a month. Also you could spin your tires for 10 feet and also receive the same penalty for stunt driving. That was it for me,my buddy bought both vettes off me. The only toy now is a 2000 BMW M5 with very low miles for week end cruising.

      • Troy

        Sounds like you have had a fun time with Big Blocks. I have had my share or fun also. My cars have been: 1969 Chevelle Malibu LS7 crate motor, 465 hp 4 speed, 196 Chevelle Malibu 327 350 hp, 1969 Chevelle SS396, 1971 Camaro 350, 1968 GTO 4 speed, 1970 GTO 4 speed 4:33 gears, 1970 GTO JUdge Ram Air 3, 1968 Tempest, 1968 Lemans, 1968 Lemans 350 HO 3 speed manual, 1970 Lemans Sport 400, 1970 F85, 1971 Cutlass S, 1971 Cutlass convertible, 1999 30th anniversary Trans Am WS6, 2000 Trans Am WS6, 1995 Firehawk convertible, 1970 Camaro. and probably a few other I’ve forgotten about.

        • KRELL427

          There is no replacement for displacement, Big Block torque was addictive. The GM week link was the “crunchie” transmission. I like youself was a fan of the General. Watched some buddies struggle doing up the headers on big block mustangs and wanted no part of it. I have a lot of good memories and even have a 67 white big block corvette hood with a red stinger stripe hanging on the wall, behind the guitar collection. Even the most expensive painting wouldn’t bring me the feeling that looking at that hood brings.

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