Precious Metals: Three Legs Strong, Part I

VANCOUVER (Bullions Bull Canada) -- Normally at this time of year, writers tend to turn their thoughts toward making predictions for the upcoming year. My own belief is that this practice has turned into a Fool's Game.

Without accurate information and legitimate, vigilant regulation, our markets have become nothing but rigged casinos -- where "the House" doesn't even honor its losing bets, if inconvenient. Prices are no longer the product of supply/demand fundamentals, but merely the outcomes of crime.

In such an environment, investors are forced to purely "play defense." The object is not simply to seek out promising investment opportunities, but rather to survive the rapacious plundering of the banking cabal. It is not enough to identify assets that "should" or "probably" will turn a profit.

Instead, investors need to identify asset classes that must appreciate in value (over the long term) at a greater rate than the spiraling inflation generated from the exponential money-printing of the banksters. At the top of the list are gold and silver, humanity's ultimate shield against financial crime in general and (predatory) inflation in particular.

For those craving certainty/security in the most uncertain of times, the precious metals bull market (which began over a decade ago) offers "three legs" of support; or (alternately) three reasons why we know that gold and silver must outperform most/all other asset classes in our current circumstances.

Excessive Money-Printing: The First Leg

Currency dilution is neither a theory, nor is it some obscure concept that can only be grasped by those with training in economics. Rather, it is the obvious and inevitable result of simple arithmetic.

Incredibly, while nearly all but the most novice of investors understand the concept of "dilution" when it applies to the printing of shares by our corporations, virtually none of those same investors comprehend the dilution of our (fiat) currencies -- despite the fact that currency-dilution is precisely analogous to share-dilution in virtually every respect.

If a corporation prints excessive quantities of its own shares, the share price will plummet. If the bankers holding monopolies to all of our sovereign(?) printing presses print these fiat currencies in excessive quantities, they must plummet in value (i.e., purchasing power). This is "inflation."

As we saw with the hyperinflation of Weimar Germany, it is possible to delay the effects of even the most extreme/insane excesses of money-printing. However, it is never possible to prevent such monetary depravity from totally destroying the value of one's own paper.

How much is "too much" when it comes to money-printing? Under ordinary (i.e., sane) circumstances, that can be a difficult answer to determine. Unfortunately, current parameters are "extraordinary" in every respect -- and not for the better.

Current Western money-printing grossly exceeds any other time in any modern, major Western economy, with the exception of Weimar Germany. Worse still, it continues to ramp-up at an exponential rate. And even worse, we have these rapacious banksters now openly using words like "unlimited" (Europe) and "open-ended" (the U.S.) to describe their suicidal money-printing.

If a company prints a lot of shares, you should probably sell it. If a company prints up more shares than it (or any other company) has ever printed, in all of History, then you should dump all that soon-to-be-worthless paper as quickly as is practical.

As our purest (and "untaintable") monetary assets, gold and silver don't merely provide probable protection from this predatory inflation; as hard monetary assets, they offer complete immunity to this paper debauchery. We don't "think" that precious metals will rise in value as the banksters destroy their own fiat currencies (yet again). We know they must.

Price Suppression: The Second Leg

One of the many reasons to avoid any/all purely "paper" bets in the banksters' rigged casinos (i.e., our markets) is that with such nebulous assets, the potential for manipulation (of prices) is potentially infinite. Not so with commodity markets, and other bona fide "hard assets."

Here manipulation can only be a temporary phenomenon, or to put it more simply: low prices lead to high prices. There is much to say on this subject, fortunately, I have gone into great detail in this area in many previous commentaries.

From a theoretical standpoint, it can be established through elementary arithmetic that any significant/serious suppression of the price of any hard asset must ultimately result in the price of that asset not merely returning to the equilibrium price, which would have occurred without manipulation, but even higher price-levels. This is the inevitable consequence of the inherently destructive market practice known as "shorting".

While the consequences of manipulation can be explained with absolute certainty, so too can the existence of such manipulation in our gold and silver markets. There are many means of demonstrating this in unequivocal fashion; however, for the sake of brevity, I'll stick with the simplest and most obvious.

For more than 4,000 years, most of the world's silver was produced via "primary mining" -- i.e., "silver mines," which produce silver just like gold mines produce gold and copper mines produce copper. Then, in the 1980's and 1990's, relentless price suppression in the silver market drove the price of silver down to (in real dollars) a 600-year low.

This bankrupted more than 90% of the world's silver mines (naturally), and most of those mines remain shuttered to this day. Since that time, most of the world's silver (as much as 80%) has come from the byproducts of other mining. And despite the (current) eight-fold increase in price off of the absolute low, most of the world's silver continues to come from this secondary mining.

Has anyone (even in the corporate media) claimed that we are "running out" of silver? Has the phrase "peak silver" been cropping up, the way that "peak oil" is inevitably discussed in the oil market? Of course not. There is plenty of silver to mine. We only need fair (i.e., non-manipulated) silver prices to allow all the (viable) old mines to re-open and new silver deposits to be developed.

In the meantime, serial price-suppression means that the world's silver deficit remains very large, and totally unsustainable. Investment icon, Eric Sprott of Sprott Asset Management quantified just one aspect of this unsustainable silver deficit in a recent interview.

He noted that while the incremental supply of silver (mine supply) was coming onto the market at only 11 times the rate of gold, that (primary) incremental demand for "physical" silver -- investment demand -- was 50 times as great as that for gold (by quantity). This comes in the context of a 90% collapse in global, silver inventories from 1990 to 2005. I believe any reliable inventory numbers since that time have been completely hidden by the banksters (to support their price-suppression).

As with any/all markets for hard goods, there is only one remedy for a supply deficit: Higher prices. In the case of the longest and most-extreme episode of price suppression in history (which continues to this day), the only possible outcome is a price-spike of commensurate severity.

The "third leg" of the precious metals bull is multi-faceted, and given that some of those aspects have not been covered in previous commentaries, deserves an installment of its own. Readers will see this for themselves in Part II.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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