For more on the potential for a growing imbalance in the supply-demand dynamic for silver and other important developments in the markets, let’s get right to this week’s exclusive interview. Steve St. Angelo talks about some promising developments with states reasserting their rights to make gold and silver legal tender.
Mike Gleason: It is my pleasure now to be joined by Steve St Angelo of the SRSRocco Report. Steve is an independent researcher and investor who follows the precious metals and energy markets like few others and has one of the very best content-based websites in our industry and it’s great to have him on. Steve, welcome back. It’s good to talk to you again.
Steve St Angelo: Mike, it looks like events are heating up in the market so it’s great to chat about some of these things that are taking place.
Mike Gleason: Certainly. Well we do have lots to cover so I’ll dive right in. First off, I wanted to ask you about the recent announcement by the state of Texas that they’re going to build their own depository and store the state owned precious metals themselves versus leaving it in the hands of the New York Fed. What do you make of that? What does it say about the trustworthiness of these major financial institutions?
Steve St Angelo: It actually says a lot. Kyle Bass who made a fortune betting against the sub-prime market. He was very early. I found out about … Actually, the story behind him … He is the one that actually convinced Texas to … the school system to have their gold and purchase gold. It’s been up in New York. It was at the New York Fed, but it has been moved to a private vault in New York, but they’re going to build, and what was interesting, Mike, was not only did Governor Abbott of Texas announce they’re going to build a new depository, he made sure in his press release, he said a gold and silver depository. That’s important because silver is mentioned there, not just as an industrial metal, but it’s in the same vein as a monetary metal. Texas has always been a little bit different, but I think different in a good way, because they believe in rights. Not only do they want their gold, they want their gold back on their own ground and they also stated that they’re going to put some kind of bill where it cannot be confiscated from the federal government.
This is interesting because Utah passed gold and silver as legal tender, I believe it was in 2013 or beginning of … 2012, 2013. Arizona did that last year. They also passed a bill that makes gold and silver legal tender. So if you wanted to pay your taxes to Utah or to Arizona, you could do it in gold and silver and if you could find people to trade with goods and services and they would take gold and silver, you are legal to do that in those states. We’re seeing the states now take control in getting back to a more sound money. I think what Texas is doing, you may see this increase in other states.
Mike Gleason: Switching gears a little bit. India has certainly been making news for the amount of silver it’s been importing of late. The Indians have certainly been known for their affinity for gold for centuries, but their appetite for silver seems to have really expanded. Talk about that. Why do you think that’s happening?
Steve St Angelo: India is on track to import 9,000 metric tons. They’ve already imported 3,000 in the first 4 months of the year. This is actually up from 7,000 last year. Now the United States has been one of the largest importers of silver in the world and the reason why is we have a lot of industrial applications. We imported about 5,000. In certain years it’s 6,000, especially during 2011. It was 6,000 because there was a lot of silver investment demand. India tends to be more of a roller coaster ride. When they import a lot of silver bullion, they imported a record 108 million ounces of silver bar in 2008 during the crisis. They had a very high imports back then. In 2012, when silver actually plummeted, imports fell as well. They see silver as a steal at this price. Some say, because the gold taxes are high. They were purchasing a lot of silver bullion back in 2008 when there wasn’t any gold taxes.
So when you look at the top 3, which are India, 9,000 metric tons. The United States has actually increased its silver imports and I think I’ve mentioned in several interviews and articles, that we really don’t have the extra demand for silver. Somebody is acquiring this extra silver that’s coming into the country. We’re on track to import 6 and China is going to import 3,000 (are on track too). That’s 18,000 metric tons. There’s only 27,000 metric tons of mine supply. China is holding on to all their silver that they mine. Really, if you minus them out, there’s only 5,000 metric tons Mike, for the rest of the world. So India is putting severe stress on the wholesale demand for silver and I think if we see fireworks coming toward the 3rd, 4th quarter of this year, we could actually see their imports increase, which would cause even more stress.
Mike Gleason: Meanwhile, here in North America, we continue to see sustained demand for government minted coins. June sales for both the Eagles and the Maples have been way up as you just reported on your site this week. The Royal Canadian Mint had record sales on silver Maples in the first quarter, so I guess that means JP Morgan is buying Maples now instead of Eagles. I say that in jest of course, but talk about this and also comment on the rumors that JP Morgan is behind all the silver Eagle buying because I know you have a thing or two to say about that.
Steve St Angelo: Sales right now of silver Eagles, if we have another strong week, they’ll be about 21 million. So we’re only a million off of last year’s half year sales, which is very good because things have been a little bit light in the first 3-4 months. So we’ve picked up again and I think people sense there’s something going on in the markets so we’re seeing a big increase in demand for Gold Eagles as well as Silver Eagles in June.
I’ve mentioned in a few articles, that yes, silver imports in the United States have increased significantly. It’s like 35% compared to last year. The market demand really doesn’t dictate that. So somebody is acquiring it. It could be … JP Morgan could be one of the big buyers. I’ve talked to many people in the industry and they know a lot of the authorized dealers who actually purchase the Silver Eagles from the US Mint. None of them have heard anything that JP Morgan is buying Silver Eagles or Silver Maples. It doesn’t behoove them to purchase silver Eagles. It makes much more sense for them to purchase silver bullion bars, so I think it might be hedge funds buying Silver Eagles. They could be. I think most of it are large buyers and individuals who are ramping up because they sense something is going to happen at the end of this year. That’s why I think silver sales are still very strong in the retail market.
Mike Gleason: You make a compelling case for higher energy prices and higher metals prices over the long run. There’s a real frustration in both the metals camp and the peak oil camp that markets just aren’t reflecting reality. We know markets aren’t always rational, but we also know that they can’t remain irrational forever. Are you seeing clues to indicate reality is about to reassert itself?
Steve St Angelo: Excellent question. As you know, on my site, I started investing the precious metals in 2002. It wasn’t until 2007-2008, I realized that no one was talking about energy. You cannot mine gold or silver without energy. Now the top gold producers, they’re mining gold at 1.2 grams per ton. So it takes a lot of energy to remove, to process just 1 ounce of gold.
I started looking at how energy was going to impact the precious metals, the mining and the overall economy. I found out that peak oil is here. We haven’t seen peak yet. But we have been in a plateau for conventional inexpensive oil production since 2005 — 10 years. The only thing that has increased is unconventional and other liquids that really don’t count as oil. Matter of fact, natural gas plant liquids have been increasing significantly since 2005, but when oil was $100 per barrel, you could only $40 for natural gas plant liquids. That is counted as liquids in the overall number.
Anyhow, to me, I see the severe stress on the system when we start to see a peak and decline of cheap oil as well as unconventional. And the market is being propped up by a lot of leverage and a lot of paper. Mike, that’s only possible if you have a stable or growing energy supply. Well, because we’ve had a stable cheap energy supply for the last 10 years, that’s the reason why we have seen all this additional leverage put on the market to give the illusion of growth where the GDP growth has actually been inflation. When we start to see the downside of this peak oil, it will put a lot more stress on the system and it’s doing it already. That’s why we’re seeing all this volatility in the markets. The system could go at any time. Each 6 months, each year that the situation will get even more dire in the energy situation. It will pull the plug on the Fed and central banks propping up the markets. That’s when we’ll see a mad rush into physical assets such as gold and silver.
Mike Gleason: People are starting to talk about another financial crisis, stock prices are sky high based on PE valuation and there’s more debt and leverage in the financial sector than ever. I want to hear your thoughts on what might happen to metals prices if we get a scare on Wall Street. Now back in ’08 we saw a massive liquidation of all assets and metals weren’t immune, although they did bounce back much quicker than the mainstream financial assets. But this time around we’re looking at metals and commodity prices at much lower levels than they were leading up to the last financial collapse. How do you see things playing out here for gold and silver in such a scenario?
Steve St Angelo: It seemed when QE started, when they started propping up the markets in 2009, and then onwards, precious metals and commodities tend to, and the stock market, the broader stock market, all went up in unison. When QE3 came out, I think the Feds and central banks, especially the Feds, figured out a different way, a different approach, unfortunately, the precious metal community, as well as I, thought that when QE3 came out at the end of 2013, actually 2012, we would see continued higher prices in gold and silver. We got the exact opposite. What happened was, money went into the bonds, money liquidity went into the stocks, and actually the precious metals and commodities were sold off.
So what we have now, we have a total disconnect. We have a huge hyper-inflated stock market that is forming a top. Then we have a very oversold bottoming precious metal market. People that say, well if the stock market does crash in September or October, we would see a crash in the precious metals. I don’t think that will occur. I think we will see quite the opposite. The precious metals have bottomed out already. I’m not saying they couldn’t go any lower. I actually think, and we’re starting to see it now, as people are sensing financial turmoil in the bond markets as well as the event in Europe and Greece, I think we will see the exact opposite. I think the prices of the stock market will fall but we will see precious metals actually, they could jump significantly higher.
Mike Gleason: It’ll be interesting to see if they do serve as the safe haven in that scenario. I agree with you. I do think that is a very real possibility. Touching on Greece, European officials and the Greek government have elevated can kicking into an art form it seems. Greece is bankrupt. The government has more obligations than they can possibly meet. Negotiation with creditors are yet another example of irrational behavior that cannot continue forever. Any chance of officials admitting a default this year?
Steve St Angelo: Yes. Anything is possible and we’re seeing, and even on Zero Hedge today, it looks like there was no agreement. It’s because of the pension plans. The Greek people, they put into power these new officials because they did not want to go down the same path that they had been on for the last 5-6 years. They wanted to get out from underneath, just like the folks in Ireland did, basically they gave a middle finger to the bankers. I think the Greek people want that. Unfortunately, I think there’s been a lot of pressure on these officials from the United States and the European Union, that they can’t fold.
However, Russia offers the Greek people, as well as the nations, a much better deal, especially putting a pipeline through there, helping them out with billions of dollars in aid. I think the problem is, once Greece goes to Russia, if they take that option, then why can’t Italy do that? Why wouldn’t Spain or Portugal? Also, if they do get another bailout, then Italy may say the same thing. Well, if you’re bailing out Greece, why don’t you help us out? It’s a very tough situation and I think even though they make kick the can down a little further with some sort of settlement that’s just lasts for maybe a few more months.
The situation will be a Greek exit. It’s for the best interest of that country. I actually think we’re going to see more of the European countries move towards having relationships with Russia because they want to do trade. It’s in the best interest for the European countries to do trade with Russia. We may see a Greek exit this year. If not, I would imagine it will come. It just may take a little bit more time.
Mike Gleason: I know you prefer to take a longer term and more fundamentals based approach with the metals when giving your outlook or forecast, but what are you looking at as we sit here mid-year 2015, are we nearing the end of the consolidative phase in the metals? What are your thoughts there? In your very studied view, what are the reasons behind your long term outlook?
Steve St Angelo: Mike, that’s a good question. I think the precious metal analysts on a whole … I think we’ve done a little bit of a disservice trying to guess where the prices are going to be in 2013 at the end and 2014. We’ve done a disservice to people who are trying to figure this all out. Either the experienced investors, precious metal investors, or even new ones. It’s hard to put a number on how things are going to unfold, when they’re going to unfold. I will tell you this. As time goes on, the leverage against the precious metals just increases. It’s kind of like pulling a balloon, a big balloon under the water. The further you go down, the more the price gets pushed farther down and stocks tend to just keep elevating higher. I think the Nikkei hit a new record. It’s insanity.
The markets are completely insane. Just to give you an example, we didn’t chat about this, but I put an article out. The top banks in the world paid fines and settlements since 2009 of $128 billion. Now, Blank of America, and I call them Blank because there’s nothing there, they paid $61 billion in fines. Then we had JP Morgan and that’s the morgue where all the dead bankers have been going to. They paid $31 billion in fines. CitiCorpse, I call them Citicorpse because there’s nothing but corpse there. They paid $10 billion. So out of all the banks in the world, the US are on top with fines. And if you add up all that money, just the fines that the banks paid, in the last 5 years, they could’ve paid for all global silver production since 2007. In just the fines. It tells you just how messed up the system is.
I don’t see the prices of silver falling too much from here because I’m looking at the primary silver miners and they have cut as much as they can and right now they’re estimated breakeven is $17. Could we go a little bit lower? Sure. If we do, India’s just going to buy more silver. They’re going to import more silver. I think we’re bottoming here. I do believe even though we saw a huge increase in the price of silver in 2010-2011, it went from $17 in September, 2010, to $49 in April, 2011, six months. I think this time around, Mike, it won’t take six months. I think we could see that kind of move in weeks because the leverage now in the system is so tight, it’s so extreme. When you have extreme leverage you have extreme moves in either direction.
I think, and I’ll conclude here, even though precious metal investors have become a little complacent now that the prices continue to be lower, I think if you don’t have a good holding of precious metals, it’ll happen so quickly it’ll be hard to acquire the physical metal.
Mike Gleason: We definitely have seen situations in the past where things get very interesting when it comes to supply and productions bottlenecks. If we do see some sort of black swan event, I’m sure it’s going to get crazy. It is going to be hard to obtain metal at that point without any significant lead time. It will be quite interesting for sure. Well before we let you go Steve, tell our listeners how they can learn more about the SRSRocco Report and what they’ll find there on your site and also about the new silver report you’ve been working on.
Steve St Angelo: Thanks Mike. I try to look at the precious metal industry, supply and demand, the mining industry, as well as certain factors of the overall economy and energy and how they all kind of intertwine.
I’m finishing up my first paid report, very modestly priced report called the Silver Chart Report. It has 48 charts just on silver of some of my work over the past 6 years, all updated, including many new ones no one has ever seen before. I have one chart that I would almost guarantee, Mike, 99.9% of the people in the precious metal community have never seen this chart before. If you look at it, it’s a silver oil price chart from 1900 to 2014. When you look at the chart, it’ll take all doubt out of your mind as to why the price of silver has reacted and traded a certain way over the past 100 years.
However, even though the price of silver corresponds to be price of energy, that will change in the future when we see a collapse of net present value and paper assets. The price of oil really won’t dictate what the price of silver or gold are doing anymore. It will be a massive rush of people out of paper, increasingly worthless paper assets, and into physical assets. That’s when we’ll see this transfer of wealth from a commodity stance of silver to a high quality store of value of silver. I see that happening within the next several years.
Mike Gleason: That’s exciting. I can’t wait to see that myself and I certainly love your site. I always get great information there that I’m using all the time in conversations and the own research that I do. I really hit your site first and appreciate you coming on with us. It’s great chatting with you as always. I look forward to catching up with you again real soon. Have a good weekend.
Steve St Angelo: You too Mike. It’s been a pleasure.
Mike Gleason: That will do it for this week. Thanks again to Steve St. Angelo
Courtesy: Mike Gleason
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