Spot on! “Mayans Forecast 2012” as “End of Era”, Says Prominent Swiss Money Manager

By Dominique de Kevelioc de Bailleul

It’s all too clear to long-time gold and silver investors, the finally days have come for a collapse of the global financial system.  No doubt about it, this time.  Gold and silver will take its rightful place as money whether the global monetary magicians like it, or not.

In a striking interview on King World News, Egon von Greyerz of Switzerland-based Matterhorn Asset Management told Eric King the financial world is in collapse—right now—in 2012—just in time to vindicate the Mayan prophecy buffs who have been repeatedly ridiculed as ‘unsteady’ throughout the year of financial turmoil.

With Cyprus, Greece, Spain and Italy (now Slovenia) collapsing at once, “it’s incredible that the Mayans forecast 2012 would be the end of a major era,” said von Greyerz.  “It looks, today, like we are standing on the eve of massive changes in the world that will have consequences for a long, long time to come.”

Time is on the side of every gold and silver stacker.  The trend is up, and any steep drop in the paper price (albeit from a JP Morgan takedown or industrial buyers slacking of purchases from bad economic news) has triggered the Pavlovian response from accumulators of physical to ‘back up the truck’ and drain inventory from the Comex.  That knee-jerk reaction, buying on paper market dips as well as buying truck loads on crashes is a relatively new phenomenon in the precious metals markets.

That patience and forthrightness throughout the 11-year precious metals bull market may be well rewarded soon, according to von Greyerz.

FOCUSING UPON THE PHYSCIAL SILVER MARKET AND GLOBAL QE PACKAGE

Not only are fiscal budget deficits and sovereign debt levels unsustainable, so is the rate of physical silver leaving inventories.  To put the silver market into a proper prospective, especially to newcomers, here’s a recap of Eric Sprott’s interview with FinancialSense Newshour of October 19, 2011.  It’s worth repeating a spot-on interview with a dealer who has his ear to the ground on a daily basis.

It’s all about the physical market.

“There’s a paper market; there’s a physical market.  The physical market is what I analyze more than anything else.  And all I see is buyers.”

The markets recognize gold as a reserve currency, and silver cannot be far behind.

Sprott: “One of things I believe, sort of, on a longer-term prospective, is that, the markets have made gold the reserve currency . . . it’s gone up hundreds of percent against every currency in the world, so it is the world’s reserve currency as far as the markets go.  And, as an offset to that, gold is not going to be a reserve currency without silver playing a hand, here.”

Historically, silver trades at an ‘equilibrium’ price of 1/15th the cost of gold.  Today, gold trades at more than 50 times the price of silver’s price.

Sprott: “Give it three to five years, we’re going to get back to ratios which are way more appropriate to the underlying fundamentals of gold and silver.”

The global banking crisis will drain cash from the monetary system into gold and silver.

Sprott: “If you think it’s bad for banks, today, wait until you deal with a couple of years of negative GDP growth and what happens to the value of those [tier-3] paper assets that they own, because it will get worse.  One thing I’ve always imagined . . . the ultimate destiny for gold and silver is that, people will prefer to own those investments rather than have their money in the bank.”

See BER article regarding future GDP, Jim Rogers’ Most Dire Warning, Please Get Worried

Conventional commentary on the state of the banking system is completely wrong.  Ignore it.

Sprott: “Three months ago (July 2011), when they did the European stress test, Dexia bank was considered to be the most well-capitalized bank.  And three months later, they were . . . I don’t the word, broke, or taken over by respective governments.”

Fund managers haven’t discovered the silver market yet.

“You go to some of the biggest names that even own gold and you ask them: Have you looked at silver?  They haven’t even looked at it.  So, I think we’re in the early days to people moving into silver, both in the sense of owning physical silver and of course in the sense of owning silver stocks. . .”

Fast forward back to von Greyerz’s latest KWN interview. Everything Sprott spoke of in the October 2011 interview may be coming to a head right now, according to von Greyerz.

“What we know is that the euro will collapse, and it doesn’t matter whether it collapses by being printed into oblivion or because many countries desert it such as Greece, Spain etc.,” von Greyerz said.  “We also know that other major currencies will collapse.  The consequences of these (eventual) collapses will be horrible because we will have a hyper-inflationary depression.

“Gold is on the verge of a major breakout here.  I agree with James Turk that this summer we could see a major move starting.  I could see a 12 month rise of major magnitude.  Gold will reflect the destruction of the world economy.”

And silver’s ratio should shrink dramatically during a summer rally, giving investors of the white metal more bang for the buck against gold on the way up during a catchup feeding frenzy from fund managers and retail public caught off guard.  Maybe the Mayans were right after all.

Silver Price: Sprott Hatches an OPEC for Silver Industry

In a gesture of highlighting the glaring impediments and equally exciting opportunities facing the silver industry today, Sprott Asset Management CEO Eric Sprott issued a “A Call to Action” letter to 17 of the world’s largest silver producers, posted on one the world’s leading sources of breaking news in the bullion markets, King World NewsSign-up for my 100% FREE Alerts
As a synopsis of the 1,876-word letter, Sprott outlines a compelling case for producers to hold back inventory for the sake of supercharging its balance sheets as well as maximizing future profits in the wake of drastically changed global market conditions from years past—namely, an environment, in which:

1)   The dollar’s value is expected to decline more rapidly than it did during the 1970s.  Through the Fed’s policy of negative real interest rates, the CRB Index has risen at a 10.3 compounded percent rate since 2002, already rivaling the decade of the 1970s and expected to get worse, as Bernanke has stated that ZIRP rates will last through June 2013, at least, in an effort to mitigate the effects of the crisis in Europe to liquify U.S. banks;

“Fitch Ratings recently warned that the U.S. banks may face severe losses from their exposures to European debt if the contagion escalates,” Sprott stated in his letter.  “There’s very little at this point to suggest that it won’t. The roots of the 2008 meltdown live on in today’s crisis.”

2)   A U.S., European banking and sovereign debt crisis, which has many years left to monetize, already shows signs of systemic failure, post QE2.

“Given the current environment, we see much greater risk holding cash in a bank than we do in holding precious metals,” stated Sprott,   “And it serves to remember that thanks to 0% interest rates, banks don’t pay their customers to take on those risks today.”

3)   And to the backdrop of currency destruction of the West lays a top a eye-popping emergence of demand for silver from a combined additional population of 4.3 billion people of Asia and South America for both industrial applications for silver and as an investment.

“During the month of September, the U.S. Mint reported the second highest sales of physical silver coins in its history, with the majority of sales made in the last two weeks of the month,” stated Sprott.  “Reports from India in early October indicated that physical silver demand had created short-term supply issues for physical delivery due to problems with airline capacity.

“In China, which reportedly imported 264.69 tons (7.7 million oz) of silver in September alone, the volume of silver forward contracts on the Shanghai Gold Exchange was more than six times higher than the same period in 2010.” See BER articles on China here and on India here and here.

So far, nothing new here—just a recap of the known demand profile of silver.  But what is new and mighty interesting about Sprott’s Call to Action letter is his solution to the CFTC’s obvious delay tactics regarding a resolution to the silver price suppression scheme still in progress at the CME—a solution to a similar problem that the Saudis have already implemented as a response to an artificially high US dollar against its sacred and depleting commodity, oil.

From Reuters, April 13, 2008:

Saudi Arabia’s King Abdullah said he had ordered some new oil discoveries left untapped to preserve oil wealth in the world’s top exporter for future generations, the official Saudi Press Agency (SPA) reported.

“I keep no secret from you that when there were some new finds, I told them, ‘no, leave it in the ground, with grace from god, our children need it’,” King Abdullah said in remarks made late on Saturday, SPA said.

Though the Reuter’s article received nearly no play in the U.S., the gravity of King Abdullah’s decision to retain his kingdom’s oil inventory in the wake of global peak oil production and a declining dollar is a natural and understandable business move by him.  Why would the Saudis want to give away oil so cheaply when discounting today’s present value of the dollar is so artificially low.

“Local leaders [of Saudi Arabia] have repeatedly said that they feel an obligation to preserve some of their natural resources,” said Jeremy Gilbert, BP’s retired chief petroleum engineer, in response to the Saudi announcement.  “These feelings must be intensified when their recent production has been sold for U.S. dollars which have depreciated by 25% or more against other strong world currencies over the last four years.”

Sprott’s call for silver producers to retain more of its inventory is akin to King Abdullah’s decision to inventory Saudi oil, and is exactly what silver producers should do to protect silver, a resource that prolific financial author and researcher Dr. Steven Leeb has said is so “critical” to the alternative energy market that governments may at some point panic in response to its depletion rate.

“I emphasize this, [silver is] a critical . . . the best thermal conductor in the world, the best electric conductor in the world, and one of the best reflectors in the world,” Leeb told GoldSeek Radio in a Sept. 2011 interview.  See BER article here.

“And as a result, silver is a critical ingredient in solar panels . . . so silver is critical to making the transition to renewable energy . . . in computers . . . it’s critical in many, many areas,” he added. “So silver has the potential to truly go exponential.

“My prediction is that silver will go high enough [in price], and if we recognize it’s so critical, that the government may even ban public ownership of it, like the government banned public ownership of gold during the Depression,” Leeb concluded.

Silver is today’s monetary metal and tomorrow’s oil; it, too, has had its present value artificially discounted severely via government schemes hatched by the Western banking cartel.

Spott’s idea, not only makes sense from a longer-term business standpoint, but it’s also a righteous one for investors.  Who can forget Barrick’s final capitulation to unwind its hedge book due to its shares being shunned by investors?  Sprott’s telling silver producers it’s time to take the next logic step—keep more silver as an asset on its books.

“Silver miners need to acknowledge that investors buy their shares because they believe the price of silver is going higher,” stated Sprott.  “We certainly do, and we are extremely active in the silver equity space. We would never buy these stocks if we didn’t. Nothing would please us more than to see these companies begin to hold a portion of their cash reserves in the very metal they produce. Silver is just another form of currency today, after all, and a superior one at that.”

Moreover, Sprott’s idea kills more birds with his one stone.  Unlike other businesses, mining companies’ inventories deplete, warranting a discount to book value.  Carrying mined silver onto its books during a bull market mitigates that book value erosion over time in addition to the virtuous cycle of higher silver prices and stock prices the new paradigm would foster within the industry.

Unlike the oil price, whereas crack spreads at refiners become tiny and unprofitable as crude input costs rise but cannot be passed on to the consumer so easily, the silver price is somewhat elastic to fabricators.  But to investors, it’s an asset whose price paradoxically benefits from the rise as investors seek a bull market in something . . . anything . . . to flee the Fed’s ZIRP policy.  Right now, silver producers are playing the role of oil refiner.  But it doesn’t have to be that way.

Sprott merely suggests, and rightfully so, that instead of silver producers taking a big hit on the price of silver, like the refiners take one in the oil industry, come together and take charge of your inventory—the Saudi way.  Investors are sure to like it.