Perspective In Precious Metals Markets by Jeff Nielson, Sprott Money

Readers of these commentaries know that the analysis presented is almost always exclusively framed in terms of “the big picture”, which usually (but not always) implies the long term. Why? The most general answer to that question is that examining issues from a Big Picture standpoint provides the best perspective.

This answer can also be framed in mathematical terms. In any form of statistical analysis, the longer the timeframe incorporated into the data, the greater the certainty in analysis based upon that data. This is why readers rarely see any short-term charts used as reference sources, because (with rare exceptions) they show nothing more than statistical “noise” – i.e. the degree of uncertainty is so large that incremental changes in the chart become statistically insignificant.

This reasoning is counterintuitive to many readers. To their thinking, the best way to get a clear picture of what is happening now is close up: via scrutinizing short-term charts, short-term data, and the short-term analysis based upon that. But we have an axiom which exposes the flaw in such pseudo-logic.

You can’t see the forest for the trees.

If one wants to see (and thus comprehend) a forest, the best way to do so is not close up, standing amongst the trees. Rather, if one wants to be able to view a forest, one must step back, away from the trees, in order to get a clear look at the forest as a whole, and not merely individual trees.

Close up, it is impossible to see the forest, only trees. This allegory fully applies to analysis of markets. If one studies (only) near-term data, it only shows what is close up, the short term. One sees only a handful of trees, not the forest. The problem with studying anything from a short-term perspective is that the short term is analytically irrelevant.

Here it is important to understand that there is no such thing as “a short-term trend.” Over the short term; there are only deviations from the mean. It is impossible to discern whether a short-term deviation from the mean is the beginning of a trend, or merely more statistical noise. Analysis which attempts to form such conclusions is only guesswork. This is not opinion. It is a restatement of the mathematical principles of statistical analysis.

The purpose of this preamble is to provide a clearer explanation of why these commentaries continue to reflect the theme that the modest upward movement in previous metals prices over the past six months is not a rally, but merely an upward price-fixing operation by the banking crime syndicate which readers know as the One Bank .

The purpose of this price-fixing operation has been explained many times. The Next Crash is extremely imminent. The Crime Syndicate wants to “crash” precious metals markets along with other markets, but (at the beginning of this year) gold and silver were already at rock-bottom prices. Thus those prices had to be elevated before these markets could be “crashed.” No more will be said on that subject here.

Instead, focus will remain on the market evidence which supports this hypothesis. Previously, a reader asked “what would it take?” to provide convincing evidence that there was actually “a new rally” in precious metals markets, and not merely more contrived price-fixing. The reply was simple: new highs in precious metals prices.

There are two manners in which we can engage in analysis of precious metals markets. The first manner in which we can do so is to treat the data reflected in the charts above at face-value. Even then, the automatic question which comes to mind in viewing either chart is “where’s the rally?”

In the case of both gold and silver, all we see is prices having recovered some of their losses, and returned to 2013 price-levels, which were deemed outrageously low at the time. Indeed, in the case of gold, even after six months of this so-called rally, the price is still (far) below the break-even mark for the industry as a whole, as was thoroughly explained in a previous commentary . What kind of rally is it, when after six months of this “new, bull market” the price for gold has not even come close to reaching a break-even level for the industry?

Many readers are unfamiliar with analysis of this nature. It concerns a concept which they rarely encounter: “fundamentals.” The premise in this radical mode of analysis is simple: any industry where its product is priced at a net money-losing level is not in “a bull market.” To be in a bull market, the industry must be (at least minimally) profitable.

The scenario in the silver market is even more absurd. When the price of silver was taken to a 600-year low (in real dollars), this naturally bankrupted more than 90% of the world’s silver mines (and silver miners), and most of these operations have never resumed production, to this day. Even the somewhat legitimate rally in the silver market between 2009 and 2011 was too short and too modest to allow more than a handful of these mines to be resurrected.

Thus while the silver miners in production today are profitable with silver priced at \$20/oz (USD), these companies represent the richest-of-the-rich in terms of the quality of the silver deposit being mined, as the price is too low to allow more than 90% of the world’s silver deposits to even start production. For those readers who subscribe to the radical concept of “fundamentals”, it is impossible to refer to the modest, upward price-movement in recent months as a silver rally.

However, this mode of analysis is based upon the nominal prices of these metals. It totally excludes discounting these pathetic, nominal prices for inflation (the “inflation” which the central bank criminals insist does not exist). Gold and silver are monetary metals. Thus another one of their “fundamentals” is that gold/silver prices must reflect all increases in the supply of (paper) money: the medium of exchange in which we price these metals.

Those readers with better memories may still remember the Bernanke helicopter-drop. Ultimately, it resulted in a quintupling of the U.S. monetary base. As monetary metals, the prices of gold and silver had to reflect the insane/fraudulent/criminal increase in the U.S. monetary base. At a minimum, this would have required the price of gold to reach \$4,000/oz (USD), the nominal price required to suitably reflect the dilution/debasing of the U.S. dollar.

With the price of silver having been more grossly perverted than the price of gold (as seen above), it is not even rational to engage in similar, straight-line analysis. Rather, we can only state a rational price for silver in relation to a rational price for gold. Even at a conservative 15:1 ratio , the price of silver would have had to rise to well over \$200/oz for this market to properly reflect the Bernanke helicopter-drop. As a side