China’s Golden Feast On Western Folly

Low prices lead to high prices.

The (latest) two-year price-suppression campaign from the banking cabal targeting the precious metals sector provides a text-book illustration of this economic principle. When you cripple the supply-chain, stimulate demand to record levels, and decimate inventories; much, much higher prices are the only possible result – higher than if there had been no price-suppression in the first place.

This is an inevitable fact of arithmetic. The inventory-destruction which must accompany all price-suppression can only be repaired through (simultaneously) stimulating supply and restricting demand. And the only possible mechanism to accomplish this is higher-than-equilibrium prices. However, this marks only the beginning of the causality-chain set in motion by any/all campaigns of price-manipulation.

Actions have consequences. It is with particular respect to the actions of malevolent Actors that the Law of Unintended Consequences is most-likely to rear its head. In other words, benign actions tend to produce benign consequences (intended or otherwise). It’s only when one intends evil that those Unintended Consequences can be virtually certain to bite one in the ass.

The minions of the One Bank are Poster Boys for this truism. And the precious metals sector provides us with an abundance of empirical examples; with many of those “empirical examples” translating directly into good fortune for China.

When China saw clearly that the Western-based financial system was doomed and heading for a crash – and that it was the best candidate to establish a new, economic order – it immediately made acquiring a massive, national gold reserve an obsessive priority. How have the price-suppression machinations of the Bullion Banks meshed with this national obsession?

The Banksters have been doing everything in their power to make sure that all the bullion that China’s government has been accumulating has cost it the absolute minimum amount of wealth. You’re welcome. But that only begins the largesse of the One Bank toward China, when it comes to “stocking” China (and much of the Eastern world) with bullion.

With the thousands of tons of bullion China has vacuumed-up costing it so little; it finds it still has huge amounts of capital left over – capital with which it has decided to start accumulating gold miners, future supply to the global gold market. Here again the Banksters have gone out of their way to accommodate China’s ambitions.

A little context is in order. Producers of any commodity provide natural leverage with respect to the commodity they produce. This is not some “economic theory”; it is arithmetic, and is explained in simple, unequivocal terms in a previous commentary. Thus in any bull market, commodity-producers will automatically “outperform” the commodity they produce, in terms of the potential for price-appreciation.

As a result of this tautology, rising share prices for commodity-producers are seen as a “bullish indicator” for the sector as a whole. Thus with the psychopath bankers having their own obsession (bullion price-suppression), attacking the miners to sabotage this bullish indicator  – through various legal and illegal operations – has been a constant tactic of these market Thugs.

Indeed, it is here (more than anywhere else) where the Banksters demonstrate their psychopathic tendencies. The share prices of the miners haven’t merely been suppressed to an equal degree with bullion itself; rather, the mantra has been simple: Scorched Earth.

What we have seen over the past two years is nothing less than precious metals mining genocide. CEO’s of these companies would regularly report “record profits” while watching their share prices plunge straight down. In a sector in the midst of a 13-year bull market, the miners have experienced two, severe Depressions in just five years.

The share prices of these mining companies weren’t driven to such microscopic fractions of their real value because the Banksters needed to drive them so low; this mining-genocide was conducted simply because the psychopaths could do it. Indeed, as we see clearly with numerous companies now closing mines, this mining-genocide has been counter-productive to their long-term aspirations.

In destroying future supply to precious metals markets; the Banksters have literally made precious metals more “precious”. As noted at the beginning of this commentary; that directly implies higher prices – not lower prices. Only psychopaths become so rapacious that they undercut their own long-term objectives with their own savagery.

Thus it is in the Realm of the Psychopath where the Law of Unintended Consequences will especially flourish, and we now have our context for China’s newest Golden Feast: buying-up gold miners with large resource deposits for pennies on the dollar. Here we’re not talking about mere “mining projects”; requiring $billions in financing and several years of construction time before they begin to yield a single ounce of gold.

No. Thanks to the One Bank; China can scoop-up established, producing mining companies – for only a tiny fraction of their net asset value. Indeed, the management of many of these companies have already resigned themselves to their Fate. As is frequently the case, Bloomberg does a wonderful job in (inadvertently) illustrating the delicious irony as (once again) the One Bank meets the Law of Unintended Consequences:

…Perseus [Perseus Mining Ltd] has fallen 62 percent this year, meaning it’s “not surprising that some consider us to be a takeover target,” the Perth-based producer’s CEO Jeff Quartermaine said in an e-mailed statement. Papillon Resources hasn’t yet received approaches, CEO Mark Connolly said by phone. “We could be a potential target. Any decision would be for the shareholders to make.”

Let’s focus on the number above for a second. A gold-mining company producing gold profitably (despite the depressed price), and at a time of record gold demand has seen its share price fall 62% just in the past seven months (to say nothing of the declines over the remainder of the last two years). Obvious evidence of a crime.

But the consequences of this One Bank crime-spree against precious metals miners means that China can now go around plucking these golden “cherries” at fire-sale prices – during a period of record demand. The level of perversity here is so great that this deserves repeating: gold-mining companies are trading at an absolute 13-year trough, at a time of record demand for the commodity itself.

The primary benefactor here, of course, is China. But as we see China basking in the windfalls generated by the Law of Unintended Consequences (and the psychopathic bankers themselves), precious metals investors need to ask themselves (honestly) whether we too have also been net-beneficiaries of the constant malevolence directed at the precious metals sector.

Unless one was among the few Visionaries who “saw” this bull market emerging back around 2000, and already had all the bullion they needed by 2004 or 2005 (I wasn’t among them); then we have also been able to Feast (alongside China) on bargain-bullion. Indeed, as we watched silver soar above $40/oz in 2011; how many precious metals investors secretly wished for “one last chance” to buy silver at $20/oz?

Similarly, as we now see the government of China (via its state-sponsored corporations) Feasting on gold mining companies; we should do more than merely gaze enviously as they profit from the One Bank’s predation, we should copy them. While few of us can buy entire mining companies; most of us have “a little tucked away” which we can/might (should?) deploy in buying the dirt-cheap shares of these companies ourselves.

The flip-side to what we have endured through two years of constant, savage assaults on this sector is identical to what we faced at/near the trough after the Crash of ’08: last-chance prices. With the shorter, but equally savage assault on precious metals markets in 2008; gold was driven as low as $700/oz, while silver was knifed all the way below $10/oz – prices never to be seen again.

Undoubtedly, a couple of years from now we will be the saying the same thing about the present trough; irrespective of whether we are now past the bottom, or whether (perhaps) the One Bank has one “final surprise” awaiting us – a Kamikaze attack on these markets, precipitating near-term bullion-default or Decoupling.

Our Golden Feast nears its end, and (if we follow China’s example) a little gorging is in order.

Jeff Nielson

www.bullionbullscanada.com