The LBMA and COMEX markets face severe shortages and systemic risks, with only 36M oz of silver available for delivery out of 279M oz stored on paper, resulting in a 10x leverage on deliverable contracts.
Exchange for Physical (EFP) contracts at COMEX and LBMA have seen record gold and silver deliveries, with 70 million ounces of silver drained from the LBMA in January alone, an all-time high of 20% of the float.
Since November 2020, the US has become a net importer of 20M oz of gold and 50M oz of silver, with the largest COMEX delivery in history in February 2021 of 5.93M oz.
40 central banks have been repatriating gold from the Bank of England and New York Fed since 2017, including the Bank of India repatriating 100 metric tons from 1991.
Gold was reclassified as a tier one reserve asset by the Bank of International Settlements in 2019, alongside US dollars and treasuries, leading to massive accumulation by central banks.
Countries like Saudi Arabia and China are secretly accumulating gold beyond official IMF reports, with China buying doré and concentrate directly from miners at twice the Western price.
The silver market faces a 240-265 million ounce annual shortfall in 2021-2022, making it potentially the most undervalued asset.
The LBMA silver stockpile experienced an 88.6% monthly decline in March 2021 to 270M oz, while trading 2.9B oz per day, 3.5x the annual global mine supply.
India has been importing 800M+ ounces of silver in 4.5 years, challenging the LBMA/COMEX illusion of silver abundance.
Gold and silver are crucial for wealth preservation amid global shifts, having outlived hyperinflation, depressions, pandemics, and geopolitical crises as a store of value for centuries.
ETFs like GLD and SLV have counterparty risk as they trade futures, not physical; JP Morgan, fined $920M for manipulating the gold market, is the custodian of these ETFs.
Western banks, including Bank of America with a billion-ounce short in silver and 30-40 million ounces in gold, have manipulated gold and silver prices, creating systemic risks.
Revaluating and auditing U.S. gold reserves could offset liabilities; gold is currently valued at $35/oz in the West and $4,222/oz in the U.S. since Nixon’s 71 closure of the gold window.
A Bretton Woods 3 system may emerge, integrating gold, silver, and other commodities with digital technology for transparency, to restore trust in the financial system.
Gold-backed 50-year treasuries, redeemable in gold, could inspire confidence in the U.S. treasury market; every $4,000 increase in gold price would add $1 trillion to the treasury general account, assuming 40% gold backing of M1.
21 billion worth of gold left the COMEX in just one week, signaling massive distrust in the US dollar and a shift towards physical gold as a strategic reserve asset.
45 countries are now transacting trades outside the US dollar, 30 countries are repatriating gold, and central banks have tripled gold purchases since the US weaponized the dollar in 2022.
The US could potentially gain $800 billion to $1 trillion in liquidity by revaluing gold, but this would be a desperate measure against much larger economic issues.
Rising geopolitical tensions, particularly with China and Russia, and the potential for a global economic reset are driving increased demand for gold as a safe-haven asset.
US debt levels at 140% of tax receipts, with entitlement costs, military spending, and interest on debt far exceeding revenue, make gold revaluation an ineffective solution.
Fort Knox gold reserves are likely much lower than reported, while China and Russia potentially hold more, meaning a US gold revaluation could backfire.
Silver, up 48% year-over-year, remains one of the most undervalued assets with potential for massive gains, especially if the gold-silver ratio returns to historical levels.
Mining stocks offer speculative opportunities but require careful selection of companies with strong fundamentals due to the sector’s history of poor management.
Patience is crucial for investors, waiting for mean reversion in overvalued markets and deflationary moments in US equity markets for attractive entry points.
Assessing geopolitical events and their impact on markets, currencies, and gold prices is important for informed investment decisions.
Jeffrey Sachs argues that the US bullied Ukraine out of a neutrality deal with Russia in 2022, leading to a tragic war by acting like a unipolar power.
Sachs suggests the US has started wars in the last 40 years primarily for financial reasons, not for spreading democracy, in countries like Sudan, Syria, Libya, and Iraq.
The economic costs of the Ukraine war are reportedly worse for the West, especially Germany, than for Putin, with ripple effects causing significant challenges for Western economies.
Passive investing, popularized by John Bogle in 1974-75, now accounts for 45% of US equity markets and 100% of marginal capital, influencing markets by overweighting large companies and concentrating the market.
The dominance of passive flows has made shorting increasingly dangerous, allowing marginal firms to persist without mechanisms to stop, creating a perception of disconnection from fundamentals.
The 2006 shift to opt-out 401(k) participation has led to uninterrupted flows into passive strategies, potentially causing disorderly market reversals when these flows stop.
The GameStop phenomenon exemplifies how passive investing can destroy price discovery mechanisms, as shorting becomes dangerous and fewer investors determine overvalued securities.
Passive investing can lead to overvalued companies, resulting in agency costs like excessive spending on perks, as management teams attribute their wealth to unique genius rather than market mispricing.
Index funds can distort price discovery by forcing active managers to sell undervalued stocks early to momentum investors, who benefit from later price increases.
Many 401(k) plans offer only target date and low-cost index funds due to liability protection for employers, guiding employees into the same passive investment approach.
While foreign stocks and alternative assets may provide some relief, passive strategies are also growing in foreign markets, and commodities remain a small portion of total financial assets.
Rebalancing between asset classes is hindered by passive investing, making it harder for new companies to go public and raise capital, potentially hollowing out capitalism.
Gold’s value as a non-productive asset lies in its ability to be sold later for a higher quantity of productive assets, despite being non-productive itself.
Fiat currency, when used to fund attractive investments like infrastructure and healthcare, can increase aggregate wealth enough to offset the dilution from printing more money.
Gold’s discipline in a monetary system may be its most valuable component, similar to the discipline Bitcoin could provide if it became a strategic reserve asset.
Gold’s relative scarcity and historical association with royalty contributed to its status as a monetary asset, but this is largely a mythology in today’s world of individual wealth.
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