If I had to condense everything I've ever sought to convey about gold and silver into one quick article, it would look something like this.
The game is rigged
I have watched the daily dynamics of gold and silver with uninterrupted focus for nearly a decade, and the one overarching conclusion I have personally drawn with the greatest degree of certainty is that the gold and silver markets have been systematically and intentionally manipulated by too-big-to-jail financial interests. CFTC Commissioner Bart Chilton has himself declared that "there have been fraudulent efforts to persuade and deviously control" the price of silver. Now, after dragging its heels for more than four years with its investigation of misconduct in the silver market, the CFTC is reportedly examining whether banks have colluded to manipulate gold prices.
A word to the wise: Don't hold your breath awaiting some consequential outcome here. In an age when an Assistant Attorney General to these United States can be heard conceding that "the entire banking system would have been destabilized" if the Justice Department had brought criminal charges against HSBC for laundering money for drug cartels and terrorists, we mustn't remain so naïve as to presume that truth, transparency, or justice will prevail in this deeply compromised financial system of ours. What gold and silver investors can do, meanwhile, is ensure that they do not select investment vehicles for gold or silver where these major banks are the declared "custodians" of reported physical bullion holdings. For the record, HSBC is the custodian for reported gold holdings of the SPDR Gold Trust (NYSEMKT:GLD), while JPMorgan Chase is custodian for the iShares Silver Trust (NYSEMKT:SLV).
Paper is not bullion
Ultimately, I believe that suppression of gold and silver prices will fail, and that one likely mechanism for that failure lies in enhanced demand for physical bullion as opposed to the leveraged financial instruments that are routinely mistaken as bullion equivalents. If a financial professional tried to convince you today that mortgage-backed securities are a viable cash alternative, you'd turn around and walk out the door, right?
But the same ruse persists in the markets for gold and silver, where opaque derivative markets, leveraged as high as 100-to-1 over the available supply of physical collateral, underscores the dangerous house of cards that most investors mistake as the markets for physical gold and silver. The Gold Anti-Trust Action Committee (GATA) has been educating the investment world about this important distinction for years, and for every investor considering a position in gold or silver, this remains a story that must be told. Germany's bold move to repatriate a portion of its gold holdings was, I maintain, emblematic of a resurgent distinction between actual gold and gold-related IOUs. CNBC's Rick Santelli gets it. In this latest classic Santelli rant, he stated this week:
Gold's been securitized. I don't even look at gold as gold anymore. Gold is just another piece of paper. They securitized it. Listen, if things go badly in the world that I used to observe as the gold bugs, the gold would end up in the hands of the gold bugs. If things go badly now, they're going to end up with checks from ETFs! Sorry, it's not the same. The reign of gold as the Ayn Rand end product; to me, that's over. Game, set, match.
But there's still one form of gold that's still gold, and that's, well ... gold; the actual physical metal you can hold in the palm of your hand. The relative weakness we see today in gold and silver prices is a product of that securitized paper market, which treats fictional bullion supply as if it were the real deal.
Ancient monetary roles reasserted
I have intentionally sidestepped over the years the grueling and hopelessly speculative debate over whether the global financial crisis is destined to force the world's currency markets back to some kind of modified gold standard or commodity-basket approach to setting units of value. The answer to that question is one I do not have, but I do know this: The time-tested significance of gold and silver as the ultimate barometers for measuring the devaluation of unbacked paper currencies remains in a powerful trend of resurgence.
And that, my fellow Fools, is precisely why I believe that gold and silver present an irresistible target for manipulation by the same Western banking system that has a vested interest in downplaying the true extent of currency devaluation through the highest-stakes experiment in monetary-policy largesse that this world has ever known. I urge readers to review my June 2012 article, "The Slow Demise of the Almighty U.S. Dollar," for a discussion of how the ongoing practice of competitive devaluation by the world's major central banks creates a distorted frame of reference from which to discern the real consequences of those policies. Because I believe these policies will continue -- despite the predictable whirlwind of rhetoric about a looming cycle of monetary tightening that has recently come into vogue -- I remain 100% undeterred from my long-standing bullish outlook for gold and silver prices. Legendary gold trader Jim Sinclair knows the score and, ultimately, I maintain that his $3,500 price target for gold will be vindicated before the dust finally settles on this huge secular bull market for precious metals.
The miners have failed miserably, but the survivors will be back with a vengeance
I've grown admittedly weary of documenting the horrific and widespread failure of the precious metals mining industry at large to deliver for their investors the value accretion that would reasonably have been expected for bull market advances like the ones we've already seen for gold and silver. But there's just no way to sugarcoat it: These stocks have been a colossal disaster! Careless capital allocation, poor project execution, and non-existent cost controls have combined with legitimate externalities like shortages of skilled labor, and worsening ore grades, to yield this wholly unacceptable outcome. But the final and most critical point I would like to make here is that these stampeded and tattered remains of the precious metals equity patch currently offers the single greatest investment opportunity I have perceived since the absolute depths of the 2008 debt-crisis plunge!
In the wake of all the trailing asset writedowns, CEO replacements, and embarrassing capital-cost overruns, a remarkable sea change has begun to take hold that has yet to be reflected in these equity valuations. Important reforms have emerged, including a renewed focus upon all-in margins, and ROI in place of the careless quest for production growth at any cost. Carefully selected mining stocks have the capacity to yield powerful multi-bagger gains, as investment capital returns to this deeply unpopular industry. Ultimately, their unique access to a very real, unencumbered physical bullion supply -- the critical and relatively minuscule segment of the broader supply myth perpetrated by the leveraged financial markets for silver and gold -- will set the miners apart in terms of valuation from the instruments of paper gold and silver. When the prices for paper gold and physical gold begin to diverge, as I believe they inevitably will, investments in the top-quality miners are bound to pay off in spades.
Finally, if I had to condense the broad array of remarkable value opportunities I perceive among the miners of gold and silver today into just a couple of picks, those picks would unavoidably gravitate toward silver. Specifically, Endeavour Silver (NYSE:EXK) and First Majestic Silver (NYSE:AG) are the two stocks that I see as having suffered the most dramatic -- and patently unwarranted -- degrees of decline in recent months. I have visited both companies' silver mining operations in person, and have developed very considerable admiration for the impressive track record of both companies' management teams in delivering the kind of consistent quality of growth execution over the entire course of their respective corporate paths. I give both of these stocks my highest possible endorsement as astonishingly low-risk investment vehicles within an industry that's rightfully notorious for risk. And that, dear Fools, is everything you need to know about gold and silver.
Fool contributor Christopher Barker owns shares of Endeavour Silver. (CAN) and First Majestic Silver. The Motley Fool owns shares of JPMorgan Chase & Co.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.