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Time To Make Money

Time To Make Money

The 7 year slump in the precious metals markets are coming to an end. The time to make money is upon us. The question now is ….. what must happen for the precious metals markets to finally move into a raging bull market?

I strongly believe that the following events will trigger the new gold and silver bull markets.

Supply Shortages

Silver production for Q1, 2019 at the world’s leading silver mine, Fresnillo PLC, has dropped 15% to 13.1 million¬† oz compared to Q1 2018. The company’s Saucito and San Julian mines also showed significant declines. The leading cause is declining ore grades and less ore being processed. This problem also applies to the Peru mines who are the second highest producing silver mines in the world. The very low silver price has the added effect off much less second hand silver being processed. The silver paper trade currently trades 577 paper oz of silver for every 1 oz physical silver. This huge ratio tells me the demand side is far outstripping the supply side.

The demand side on the other hand is looking particularly robust compared to previous data. In November 2018, the Silver Institute published a forecasted drop of 12% for 2018. When the actual report came out it reported an increase of 20% in silver bars and coins. Investors actually purchased 181.2 million oz of bars and coins which is 45% higher than the forecast for November last year. The below graph, courtesy SRSrocco report, shows the increase clearly.

It is perfectly clear from the above information that either the supply must increase, or the price of silver must increase. The supply side is definitely not going to produce more silver in a hurry. It takes years to develop new mines or increase production and requires huge capital which the silver mines do not have due to the low silver price. A huge price increase is the only way!

Precious Metals Must Get Stock Market Money

Gold and silver will not go up unless investors start to switch out of stocks into safe heaven assets like they did in 2008 when we had the sub-prime market crash. It is therefore imperative that we understand the state of the major US markets like the Dow Jones and the S&P 500. People invest in stocks because that is where they make the best returns. This is called earnings in market speak. If markets produce good earnings, people invest. If the earnings dry up, investors take there money out. It is as simple as that. So, how do we determine if the earnings are good? It is therefore prudent for us to look at a graph that tell us the historic earnings. One of the most reliable graphs is called the The Shiller P/E Ratio.

If we match the historical Shiller P/E graph to market cycles, we can see when the market is about to correct. See the graph below.

From the above graph one can clearly see that when the Shiller is high, we often have a correction in the market. In 1929 we had the huge 95% market crash and was followed by a depression. In October 1987 we had the biggest market crash in history. We can see how high the Shiller went in 2008 just before the crash. It is also clear for everyone to see where the Shiller is right now at 29.64. Fasten your seat belts folks. We are heading for a correction! Which brings us back to where the money will go once the markets start to go down. The money will go to gold and silver as it did in 2008, just in a bigger way. Look at what happened to gold in 2008.

Gold went up 157% and silver went up 380% just after the 2008 market crash. We have a great opportunity here to benefit from the adverse market conditions that is bearing down on us. Just last night the Dow Jones dropped more than 600 points. One of these days it will not stop and recover.

Make sure you have physical gold and silver in your possession because now is the time for us to make money.

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