Everything You Need to Know About Gold and Silver

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.

A mound of weighty silver doré bars poured at one of First Majestic Silver's silver mines in Mexico serves as a timely reminder that the forlorn mining stocks now seem to trade as though they produce reams of leveraged paper bullion-related securities rather than the tangible physical metal that's in far tighter supply.

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.

Goldcorp is one of the leading players in the gold mining market. For the last several years, investors have been the beneficiaries of several successful acquisitions and strong organic growth. Goldcorp's low-cost production of one of the most sought-after metals in the world continues to make this stock an attractive choice for long-term investors. To learn everything you need to know about this mining specialist, you're invited to check out The Motley Fool's premium research report on the company, which comes with a full year of ongoing updates and analysis to keep you informed as key news breaks. Click here now to claim your copy today.


Read/Post Comments (7) | Recommend This Article (43)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 29, 2013, at 6:49 PM, awallejr wrote:

    Personally I think all the games are rigged. You do make a good point about the securitizing of gold with the ETFs. There is nothing like holding a good Morgan silver dollar or Liberty head gold coin and imagining what the world was like when they were in circulation.

  • Report this Comment On March 30, 2013, at 8:13 AM, skypilot2005 wrote:

    Sinchi,

    Do you still like Alexco?

    http://www.fool.com/investing/general/2012/12/31/the-top-5-s...

    The Top 5 Silver Stocks for 2013

    “2. Alexco Resource (NYSEMKT: AXU )

    I'm very excited about the position of this stock as we head into 2013, and consider Alexco among the clearest and lowest-risk investment opportunities in the industry. Here under $4, these shares are simply being given away.”

    Thanks,

    Sky

    F. Y. I. :

    Fellow Fools,

    Be sure to check out Sinchi’s blog this month:

    http://caps.fool.com/Blogs/ViewBlog.aspx?t=01006124249416869...

  • Report this Comment On March 30, 2013, at 8:15 AM, skypilot2005 wrote:
  • Report this Comment On April 01, 2013, at 12:23 PM, rushbb wrote:

    “Specie [gold and silver coin] is the most perfect medium because it will preserve its own level; because, having intrinsic and universal value, it can never die in our hands, and it is the surest resource of reliance in time of war.” ~Thomas Jefferson to John Wayles Eppes, 1813

  • Report this Comment On April 02, 2013, at 3:00 AM, DarthMaul09 wrote:

    Who is John Galt?

    Steve Jobs? Without him where is Apple?

    Markets are manipulated because they have to be.

    The big governments and banks can't survive with bank interest rate of 5% or gold at $10,000/oz.

    The financial fix of 2008 cost us the soul of the system, which is silver and gold. The transfer of real wealth from the west to east has been documented for years by GATA, KWN, ZeroHedge and many others, but the implications won't be found in the WSJ.

    Sinclair is probably right about Cyprus. Why rely on trust when you can choose to own real money and not worry about counter party risk?

    And finally, Grant Williams: Risk - It's Not Just a Board Game.

    The secrets of the financial market are not hidden, they are just being ignored.

  • Report this Comment On April 18, 2013, at 1:14 PM, goodresevoir wrote:

    Somebody said you retired . . . is it true? Are you still going to stand behind your analysis and recommendations and share some perspective on this miserable episode in precious metals investing with the people who have been following your advice?

  • Report this Comment On February 05, 2014, at 10:41 PM, mrudolph72 wrote:

    I think it's time to bring Sinchi back. If this isn't the bottom for PMs, it is surely close. I've been considering taking a small position in a miner but there are so many and it's terribly hard to discern the best from the rest. Gold and silver miners were ravaged in 2013, especially if you look at the losses compared tot the big gains in other equities. Let's get a pick out there and see what happens. I remember Sinch picking the winner in what 08,09? People made a fortune off of those picks. Let's see what he thinks is the pick of the litter for 2014.

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