June-July-August 2022 Update – Markets, Politics and Collectables

Intro

It’s been a crazy summer and your’s truly has had to adapt to it as best as possible. When not working 50 hours a week as a Defence contractor, I find a little time to reflect on the state of affairs that seems to be channeling the world into malaise and likely conflict in the next 1 – 2 years. Unravelling this in a single blog post is not easy, but I’ll endeavour to explain it as best I understand.

Markets & Politics

Let’s go back to 2019. I was observing the repo market which the Federal Reserve had to start supporting with liquidity. The reason was simple. No one would deal with European financial entities. Madame Merkel had said “verbotten!” to more public money for ailing financial institutes and the Americans ceased doing business. The fear was that if a German or French entity went under, then the money lent by American financial interests would disappear with it. That evidence can be observed here and it of course involved the same derivative trading that created the GFC:

By the way, if you don’t understand the destructive nature of derivatives, I highly recommend The Big Short.

Covid

The next dubious financial transaction made by American interests was Covid. The world needed to be locked down, businesses needed to go under and experimental injections needed to be mandated upon much of the OECD populations of the world. Good or bad; right or wrong – this event has clearly served as the trigger to destroy the globalisation that created such prosperity we’ve enjoyed these past 70 years. I will leave this subject for the history books to reflect upon and say no more. Except that other leaders were waiting in the wings for this moment to act.

The World According to Machiavelli and Sun Tzu

Perhaps this author might take up post-graduate studies in what is transpiring in Russia and China, to follow up the degree in International Relations. The Italian author advises on the state of good governance in a period of autocratic rule while the classical Chinese texts studies the state of war. These texts are likely influencing both Vladimir Putin and Xi Jinping and both leaders clearly articulate a cyclical view of the world. They understood that the West had severely weakened itself through the course of these repeated crisis’s over the past decade and a half.

I’ve had good arguments with a Ukrainian national over the state of affairs in Russia & Ukraine and learned a good deal about Vladimir Putin and the Ukraine. Where we disagreed was on the eventualities of the present conflict. My friend affirmed that quick action in supplying Ukraine with heavy weapons would end the war and possibly push Russia to a crisis and revolution. I’m of the observation that corrupt and inept Western political institutions will half-heartedly draw the crisis out over months (possibly years) and probably enlarge the field of conflict to greater Europe. What is clear is that the concept of military conflict as an extension of politics is becoming a hybrid of conflicts. Energy, finance, currency and trade have all been weaponised.

Markets

I sub-titled the above thoughts as Markets & Politics, as it is (in my mind) difficult to tease apart some of these actions. I don’t fully understand where the politics of Covid ended and the markets of Covid vaccine domination by American corporations began. It reminds me of playing Civilization IV; where I’d clobber an opponent with my corporate entity force to extract money for my own coffers. However, what has become clearer with recent reading is the game being played in silver and gold markets. This is what this blog post is leading to:

Silver

Click on the image above to read a concise article on how the price of gold (and silver) is determined. Long story short as quoted from the article:

The London OTC gold market predominantly involves the trading of synthetic unallocated gold, where trades are cash-settled and not physically delivered (i.e. no delivery of physical gold). These synthetic gold transactions have little connection to any underlying gold holding, hence they are de-facto gold derivative positions.

There’s that D word again – derivatives. The same ticking time bomb on the world’s financial markets is also used to control the financial market. I’ve spent the last week digging through the excellent articles authored here. The most important article I stumbled across was an analysis on the state of physical bullion silver held in the primary silver marketplace – London.

London Controls the Silver Market

Click on the image below to read the article, but the gist of it is that physical bullion bars had dropped to a level where in early 2021, iShares Silver Trust ETF quietly changed its prospectus to say:

“The demand for silver may temporarily exceed available supply that is acceptable for delivery to the Trust, which may adversely affect an investment in the Shares”, and that “Authorized Participants [market makers of the Trust] may be unable to acquire sufficient silver that is acceptable for delivery to the Trust… due to a limited then-available supply coupled with a surge in demand for the Shares.”

As the author of the article noted, the LMBA releases data on the 5th working day of each month to update its holdings. That was the 5th of August and the LMBA has not yet published that information. I’m waiting with keen interest for that updated data. Why? Because if you have read the first article, you’d know that there are some 15,000 more cash contracts traded in gold each year than trade in actual physical bars for delivery. I’d like to know how many bars are left cover the actual demand for physical bullion bars. It’s a game of musical chairs and it appears there are more contestants than chairs available.

The Derivative Price of Silver

With the price of silver at the cusp of breaking out as I pointed out in Facebook some weeks ago, I then watched price head south and retest support. While I am a market trader that accepts the reality of a price chart, I now understand that the extremely limited availability of PHYSICAL SILVER may have forced certain hands to sell off the price of silver, so as to avoid a default of delivery. Such an event – had it been communicated to the global market – would have triggered a much bigger panic buy of physical bullion. Thus I present below the chart of silver in Great British Pounds, because I see now that London moves this market. This chart is a perfect technical illustration of price movement that reflects the underlying currency price and I suspect its largely bot driven today.

Who are the Derivative Traders in Precious Metals?

Lo and behold, an accounting change at the Office of the Comptroller Currency created the following chart. Precious metal derivative holdings – primarily at US “banks” (i.e., trading firms pretending to be banks) JPMorgan and Citibank were suddenly flushed out into public view. From the article (click on the image below to read):

According to the Federal Deposit Insurance Corporation, as of March 31, 2022, there were 4,796 federally insured banks and savings associations in the U.S. Combine that figure with the latest report from the OCC and it means that just two banks, JPMorgan Chase and Citibank, control 90 percent of the precious metals derivatives of all 4,796 insured financial institutions in the U.S.

We checked the previous OCC report for the quarter ending December 31, 2021. It showed that at year-end 2021, JPMorgan Chase had reported only $28.182 billion in precious metals derivatives versus $330.123 billion three months later – a staggering increase of 1,071 percent.

This is the same JPMorgan and Chase that was successfully indicted on criminal charges for fraud in precious metals markets. The more things change, the more they stay the same.

My advice for collectors and investors – don’t worry about the market price of silver and gold. The fraud is so bad that when this music stops then you’ll be glad you held something of physical value. Our currencies will be worth as much as Venezuelan Bolivars by the time a global currency and trade reset is put into place.

Collectables

This leads me to my thoughts on collectables – silver pre-decimal coins. Bullion value 50% post war silver would be the most conservative route as I know they’re not popular with collectors/investors. The cost of sending such coins to the smelter is not insignificant and adds cost to the refined bars that are returned. They are the safest bet. Sterling is preferred by collectors and investors alike, but expect to pay a premium on such product. However, Australian pre-decimal coins are still legal tender and that may be its saving grace in a world that might find itself in a deficit of physical silver in the not too distant future.

I try to think like a politician. If I am in a protracted war or scenario of conflict that requires technology – and thus inputs like silver into that technology – do I allow the population to hoard their silver or do I convince them to hand it in for the greater good? Do I make bullion illegal and order the ATO to rat out the retail buyers and forcibly sell on favourable conditions (to government)? That’s why I purchase high grade, highly collectable and numismatically important early Australian pre-decimal currency like the following:

Cheers, Les.