MNeagle
14th April 2013, 02:08 PM
Submitted by Adam Taggart of Peak
Prosperity (http://www.peakprosperity.com/podcast/81512/mike-maloney-todays-low-gold-silver-prices-not-realistic),
During this very tumultuous week for precious metals prices, Chris sat down
with Mike Maloney, founder and owner of GoldSilver.com, one of the world's
largest bullion dealers.
Mike is a true scholar of monetary history. His reasons for getting into the
bullion business have their roots in a very predictable cycle that has happened
time and again over the centuries (more accurately millennia):
A new monetary system is introduced, based on sound money (most commonly,
using gold and/or silver)
Currency (e.g., paper bills backed by sound money) is introduced to
faciliate trade and commerce
Governments begin to tinker with ways to 'print' more currency than can be
fully backed (e.g., coin clipping, partially-backed notes, FRNs)
A false prosperity ensues. Those closest to the new money creation benefit
most and debase the currency further to forward their advantage.
Reality begins to catch up with this deficit spending and the purchasing
power of the currency weakens dramatically.
The monetary system collapses under too many claims on a limited pool of
sound money.
Eventually, a new monetary system backed by sound money rises from the ashes
(see Step 1, above).
Mike believes that we are currently experiencing Step 6 and that we will
witness the birth of a new monetary regime within the next ten years.
What makes this moment in history unique is that all past monetary regime
collapses have happened regionally. This is the first time in human history in
which all the world's major currencies are collapsing together. Which is why he
is so passionate about owning gold and silver.
In his opinion, we will soon witness the greatest transfer of wealth ever
seen, as countries worldwide realize they need to revert to monetary systems
backed by sound money (i.e., the precious metals). Those acquiring gold and
silver beforehand will not only preserve their wealth as existing fiat
currencies are extinguished, but will see staggering increases in their
purchasing power. Those interested in learning more of Mike's specific vision
can watch Episode One of his new Hidden Secrets
of Money (http://goldsilver.com/hidden-secrets-money/) video series. (Chris and I received advance screenings of the next
few episodes, which are excellent in terms of explaining the processes and
shortcomings of our current monetary system.)
On the Tightening Physical Market for Gold & Silver
What most people do not understand is that the price of gold and silver are
not determined by how much gold and silver is being sold. It is how many
gold and silver IOUs are being sold. And you can write as many
IOUs, futures contracts and options, as you want. Those are unlimited. The
supply, though, of physical gold and silver is quite limited, and so when people
actually start asking for it and they want the physical, then there is a
divergence of the paper price versus the physical price, and we are seeing that
right now.
We are in a back-order situation with all of the suppliers. Spreads are going
up. Silver eagles cost about fifty cents over spot more than they normally cost
because all of the suppliers have had to raise their price to try and find the
supply/demand equilibrium that the markets are for. The markets are there to try
and find a supply/demand equilibrium, so then price is the arbitrator. Price
rises; that draws more supply and reduces demand. Price falls; that reduces
supply and increases demand.
So the price discovery mechanism of the markets is what is supposed to ensure
that things are in equilibrium. We have this broken system where there are a few
big players that manipulate the market, and it always shows up when shortages
start developing in the physical market. You know that the price of gold
and silver right now are too low to be realistic. And the good thing about that
is that it cannot last.
On the Hidden Wealth Transfer Caused by Inflation Targeting
Everybody got in an uproar over [the Cyprus bank deposit haircuts], but
nobody gets in an uproar over the central banks targeting 3% inflation. That
compounds out to 34% of your wealth that they are confiscating every
decade. People got mad because it happened all at once and they could
see it. One day their bank account said one thing; the next day it said another
thing. With this insidious confiscation known as inflation, this is the
inflation tax – you do not see it because the number on your bank account might
say that you could make a deposit and if there are no fees or anything on that
deposit, $100,000 deposit a decade ago still stays $100,000. Except gasoline
went from $1.25 to near $5. Measured in gasoline, you lost 75% of that
$100,000, but it still says $100,000.
So the central banks targeting this 3% inflation rate is a wealth
transfer from the public to the financial sector.
On the Recent Price Weakness in the Precious Metals
You do not want to stay in just one investment class your whole lifetime. But
it is a very powerful tool to be able to measure these classes against each
other and then jump from an over-valued asset class to an under-valued asset
class at the appropriate time for the road to true wealth. And it only requires
a few big decisions during your lifetime.
Now, when I discovered wealth cycles, I was looking at the Dow Gold ratio and
thinking this thing has a cycle. I made another check of the Gold Dow
ratio instead the Dow Gold ratio, and put them on top of each other. Lo and
behold – there is a cycle. It has a positive side and a negative side. If you
are doing a Dow Gold ratio, you jump from being invested in paper assets like
stocks and then back to gold for the long investment waves. I would say it is
somewhere between 8 and 20 years you spend in an asset class, and you can do
this with anything. If you measure your house in how many barrels of oil it is
worth over a century and you jump back and forth from being invested in oil
wells to being invested in real estate, it is the same thing as being invested
in gold or the Dow. It is a very powerful tool that I believe has a high degree
of predictability and safety to it, if you do not let the short-term noise flush
you out.
Right now we are in consolidation. Gold has been chopping sideways for 19
months now, and it has worn people out. But basically gold is up. It is not up
from 19 months ago when it was nearing $2,000, but it sure is up over the last
decade. So I do not let the short-term noise affect me now that I know that we
have not reached the point where the price of gold equals the points on the Dow.
Right now gold’s value is one-ninth of the Dow, and so I know that it needs to
rise by a factor of 18 against stocks before I need to get worried and start
watching gold.
So I am very comfortable in these pullbacks. It gets a little aggravating,
but still it does not bother me that much and is definitely not going to flush
me out.
Click the play button below to listen to Chris' interview with Mike Maloney
(59m:02s):
http://www.youtube.com/watch?v=0Tw0ASnU7HA&feature=player_embedded
http://www.zerohedge.com/news/2013-04-14/mike-maloney-todays-low-gold-silver-prices-are-not-realistic
comments there are a 'flying...
Prosperity (http://www.peakprosperity.com/podcast/81512/mike-maloney-todays-low-gold-silver-prices-not-realistic),
During this very tumultuous week for precious metals prices, Chris sat down
with Mike Maloney, founder and owner of GoldSilver.com, one of the world's
largest bullion dealers.
Mike is a true scholar of monetary history. His reasons for getting into the
bullion business have their roots in a very predictable cycle that has happened
time and again over the centuries (more accurately millennia):
A new monetary system is introduced, based on sound money (most commonly,
using gold and/or silver)
Currency (e.g., paper bills backed by sound money) is introduced to
faciliate trade and commerce
Governments begin to tinker with ways to 'print' more currency than can be
fully backed (e.g., coin clipping, partially-backed notes, FRNs)
A false prosperity ensues. Those closest to the new money creation benefit
most and debase the currency further to forward their advantage.
Reality begins to catch up with this deficit spending and the purchasing
power of the currency weakens dramatically.
The monetary system collapses under too many claims on a limited pool of
sound money.
Eventually, a new monetary system backed by sound money rises from the ashes
(see Step 1, above).
Mike believes that we are currently experiencing Step 6 and that we will
witness the birth of a new monetary regime within the next ten years.
What makes this moment in history unique is that all past monetary regime
collapses have happened regionally. This is the first time in human history in
which all the world's major currencies are collapsing together. Which is why he
is so passionate about owning gold and silver.
In his opinion, we will soon witness the greatest transfer of wealth ever
seen, as countries worldwide realize they need to revert to monetary systems
backed by sound money (i.e., the precious metals). Those acquiring gold and
silver beforehand will not only preserve their wealth as existing fiat
currencies are extinguished, but will see staggering increases in their
purchasing power. Those interested in learning more of Mike's specific vision
can watch Episode One of his new Hidden Secrets
of Money (http://goldsilver.com/hidden-secrets-money/) video series. (Chris and I received advance screenings of the next
few episodes, which are excellent in terms of explaining the processes and
shortcomings of our current monetary system.)
On the Tightening Physical Market for Gold & Silver
What most people do not understand is that the price of gold and silver are
not determined by how much gold and silver is being sold. It is how many
gold and silver IOUs are being sold. And you can write as many
IOUs, futures contracts and options, as you want. Those are unlimited. The
supply, though, of physical gold and silver is quite limited, and so when people
actually start asking for it and they want the physical, then there is a
divergence of the paper price versus the physical price, and we are seeing that
right now.
We are in a back-order situation with all of the suppliers. Spreads are going
up. Silver eagles cost about fifty cents over spot more than they normally cost
because all of the suppliers have had to raise their price to try and find the
supply/demand equilibrium that the markets are for. The markets are there to try
and find a supply/demand equilibrium, so then price is the arbitrator. Price
rises; that draws more supply and reduces demand. Price falls; that reduces
supply and increases demand.
So the price discovery mechanism of the markets is what is supposed to ensure
that things are in equilibrium. We have this broken system where there are a few
big players that manipulate the market, and it always shows up when shortages
start developing in the physical market. You know that the price of gold
and silver right now are too low to be realistic. And the good thing about that
is that it cannot last.
On the Hidden Wealth Transfer Caused by Inflation Targeting
Everybody got in an uproar over [the Cyprus bank deposit haircuts], but
nobody gets in an uproar over the central banks targeting 3% inflation. That
compounds out to 34% of your wealth that they are confiscating every
decade. People got mad because it happened all at once and they could
see it. One day their bank account said one thing; the next day it said another
thing. With this insidious confiscation known as inflation, this is the
inflation tax – you do not see it because the number on your bank account might
say that you could make a deposit and if there are no fees or anything on that
deposit, $100,000 deposit a decade ago still stays $100,000. Except gasoline
went from $1.25 to near $5. Measured in gasoline, you lost 75% of that
$100,000, but it still says $100,000.
So the central banks targeting this 3% inflation rate is a wealth
transfer from the public to the financial sector.
On the Recent Price Weakness in the Precious Metals
You do not want to stay in just one investment class your whole lifetime. But
it is a very powerful tool to be able to measure these classes against each
other and then jump from an over-valued asset class to an under-valued asset
class at the appropriate time for the road to true wealth. And it only requires
a few big decisions during your lifetime.
Now, when I discovered wealth cycles, I was looking at the Dow Gold ratio and
thinking this thing has a cycle. I made another check of the Gold Dow
ratio instead the Dow Gold ratio, and put them on top of each other. Lo and
behold – there is a cycle. It has a positive side and a negative side. If you
are doing a Dow Gold ratio, you jump from being invested in paper assets like
stocks and then back to gold for the long investment waves. I would say it is
somewhere between 8 and 20 years you spend in an asset class, and you can do
this with anything. If you measure your house in how many barrels of oil it is
worth over a century and you jump back and forth from being invested in oil
wells to being invested in real estate, it is the same thing as being invested
in gold or the Dow. It is a very powerful tool that I believe has a high degree
of predictability and safety to it, if you do not let the short-term noise flush
you out.
Right now we are in consolidation. Gold has been chopping sideways for 19
months now, and it has worn people out. But basically gold is up. It is not up
from 19 months ago when it was nearing $2,000, but it sure is up over the last
decade. So I do not let the short-term noise affect me now that I know that we
have not reached the point where the price of gold equals the points on the Dow.
Right now gold’s value is one-ninth of the Dow, and so I know that it needs to
rise by a factor of 18 against stocks before I need to get worried and start
watching gold.
So I am very comfortable in these pullbacks. It gets a little aggravating,
but still it does not bother me that much and is definitely not going to flush
me out.
Click the play button below to listen to Chris' interview with Mike Maloney
(59m:02s):
http://www.youtube.com/watch?v=0Tw0ASnU7HA&feature=player_embedded
http://www.zerohedge.com/news/2013-04-14/mike-maloney-todays-low-gold-silver-prices-are-not-realistic
comments there are a 'flying...