Paper Markets That Mislead Will Eventually Fail

In this episode of Finance U, Paul Kiker and I discuss the recent gold and silver smackdown, the looming copper shortages, European economic thrashings about, and how Private Equity and the Subprime debt bankruptcies may be indicating that things are breaking down “from the outside in.”

As you probably know, gold and silver have been vaulting to new highs for weeks, seemingly without any down days.  While due for a correction, or at least a consolidation, the way they both tumbled in the dead of night was highly suspicious, to say the least.

For example, silver saw an absolutely massive 42,320,000 ounce dump in a single 15-minute window at 4 in the morning

It was the same for gold.

This is typical bullion bank paper shenanigans, a routine I’ve seen play out dozens of times over my career as an astute and diligent watcher of their gold and silver antics.

But we speculated that perhaps this time there was a whiff of true desperation in the air.  A last gasp attempt to regain some level of pricing power and control.  But, as is typical of the amoral and immoral financial engineers of London and Wall Street, they did not attempt to do this honestly by accumulating or selling actual gold or silver, but dishonestly by dumping unlimited quantities of paper gold and silver derivatives, a.k.a. “futures.”

The problem?  Those futures come with an obligation to deliver if the counterparty ‘stands for delivery.’  That delivery month is December 2025, so we’ll be watching that very closely to see if these recent paper shenanigans backfire on the bullion banks or not.  I’m leaning towards ‘yes’ on that front…but they’ve been pretty good at avoiding that outcome for decades so it’s not a sure thing.

One clue as to the predicament of the Bullion banks, such as JP Morgan, is that even as they are busy driving down the price of silver with their blizzards of paper contracts,  creating the appearance that silver is unwanted and in abundant supply, they are quietly telling their largest customers that there’s none that can be delivered “until November.”

Which is it?  Are there 42 million ounces suddenly available at 4 in the morning, or none that can be actually sourced until November?

Also of note, we discussed this potential bombshell where India’s banks and financial system can now issue loans against physical gold and silver held as collateral, which effectively (re)monetizes both metals:

(Source)

With silver now operating as money in India, at least partly, this places yet one more source of demand on a perilously stretched silver supply chain that is already running large and persistent supply deficits.

So, yeah, I consider the paper dumps to be last-ditch efforts to clear out as many weak hands as possible before the jig is up.

Speaking of which, the same dynamics of paper contracts dominating and distorting markets can be seen all across the entire commodity complex.  One of the consistent features of a commodity that is dominated by futures contracts is that the price for the commodity always remains ridiculously low, for far too long,  and eventually you end up with a situation where a rather severe shortage finally emerges.

Copper tells that tale as well as any other commodity.  Note that total copper discoveries totaled just 11 between 2013 and 2023:

As we can see in the above graphic, discoveries really fell off a cliff right around 2008.  Looking at the futures dominated price for copper, it’s price rose in the vicinity of 25% between 2008 and 2023…but collapsed by 50% between 2008 and 2016, from $4/lb to just $2/lb.

Was $2/lb the ‘right’ price for copper in 2016?  I don’t think so,  and the evidence is in the absolute paucity of interest in discovering and bringing on line new copper mines, which is going to be a huge problem in the not-too-distant future.

As for Europe, Germany is a very sick country having followed the WEF/Brussels green energy playbook to its bitter end.  Rapidly deindustrializing, all Germany’s leaders can think to do is more of the same things that got them into this mess in the first place.

Martin Armstrong sees this clearly and warns Europeans that they have a limited time to move capital out of Europe and out of the rapidly approaching digital; CBDC system that has just been rolled out:

(Source)

Taken together, the above suggests that having a risk-managed portfolio strategy is more important than ever, as is having a financial advisor who sees these larger risks the same way that you do.  To schedule your free, no obligation portfolio review and wealth strategy session with Kiker Wealth Management, just click this link, fill out the simple form, and someone from KWM will get in touch with you within 48 business hours to schedule your session(s).