first majestic silver

Bread and Circuses

April 1, 2005

Bread and Circuses is defined as "Offerings, such as benefits or entertainment, intended to placate discontent or distract attention from a policy or situation". In order to keep the people of Rome from becoming too unhappy with their lives, the government provided them with enough food (bread) so they wouldn't starve and enough entertainment (circuses) so they would be amused. The most famous of all the circuses in Rome was the Circus Maximus. Here chariot races were held before nearly 250 000 cheering fans. Teams of horses raced around the track seven times. If the chariots ran into each other, men and horses were likely to be killed. It was a dangerous but exciting sport.

Similar to previous attempts to calm the masses we have extremely dumbed down TV coined "Reality TV". The movie with Jim Carey titled "The Truman Show". Everyone thought " How could anyone watch a reality TV show, that sounds stupid?". Now reality TV shows are on from anything one can think of. CNBC and other financial shows news shows etc. numb people's minds so the true nature of the current economic situation is kept hidden.

Have a gander at the article below before delving

The US gave China 180 days to revalue their currency or imports would be slapped with a 28% tariff. The Chinese are inflating their currency at 17-20% annually. The US and other countries must do the same or face economic wrath from China devouring the global supply of world oil.

I just think with gold and silver that are both political metals, they are manipulated, so Elliott Wave analysis is null and void for these metals (manipulation does not make for a good count anywhere). Take silver. Where else would you find a commodity that short in supply and not at least see it triple? Molybdenum went up $10 out of the blue from $25/pound to $35/pound.

When I get more free capital, I likely will buy more silver bullion. Given the historical gold/silver ratio is 16:1 and was at 80:1 during the biggest stretch, I am looking for the ratio to hit 10:1. SO..............when gold hits $4000-$6000/ounce in the coming years, that puts silver between $400-600/ounce. What would drive such a craze?

  1. There is virtually no above ground silver left. China was exporting excess silver last year, but has now become a net importer.
  2. Low prices for gold and silver did not drive exploration for over 20 years. Exploration is just starting to happen, and it takes 6-8 years to make a discovery, quantify it and drop a shaft.
  3. Silver is used for numerous industrial applications and growing. It is critical for electronics.
  4. The current trend is inflationary, but the trend is being set for a deflationary dip prior to a big inflationary move. Gold and silver generally do well in periods of inflation.

Inflation is due to currency expansion, but I believe it is also a function of the commodity supply. If there are for example 83 million barrels of oil are consumed globally each day. At $50/barrel, that equates to $4.15 billion dollars spent each day Now assume currency expands to twice that, then there are theoretically $8.30 billion dollars globally competing for oil.

Assume a bit of deflation (contraction in the money supply) globally by 50%, then 4.15/2 =2.075 billion dollars available for oil or $25/barrel.

Factor in peak oil and the results are interesting: Assume 83 million barrels decreases by 5% YOY. Deflation will not knock out 50% of the money printed currently, but even assuming a 5% reduction YOY, that still translates into oil prices remaining where they are. The Chinese government is forced to keep their growth at 7% to prevent civil unrest...i.e. currency expansion. In order to prevent the Chinese from securing all the global oil supplies everyone on the planet who wants to survive must participate. Therefore, currency expansion. Money for buying oil is inversely correlated to the supply, as the supply decreases the price will rise.

Commodity inflation will just act as a "sink" for money flows the coming decade. So, given the fact currency expansion is required to secure oil supplies and coupled to peak oil, it just translates into rapidly rising prices all around.

All charts presented in this article are from Normally I use personal software for doing analysis, but use of longer-term data charts were needed to show the "scenery" of the past 100 years.

Figure 1 illustrates the total consumer credit debt since 1943. The consumer credit has been expanding logarithmically like the markets and commodity prices. The Consumer credit will not just drop off a cliff. Rather, it will slowly start to curl down and roll over, followed by a severe credit crunch. I expect that 2009-2010 will see a bad credit crunch occur.

Figure 1

What causes inflation? Why expansion of ones currency. The chart below shows the decline in the purchasing power of the US dollar since the Federal Reserve was created in 1913. With over 95% of the original value eroded, it has been kept to equivalent terms with the expansion of currency.

Figure 2

The Producer Price Index since 1914 is shown below. The latter PPI statistics since 1995 are heavily skewered, so I do not know how much to trust them. The trend is currently pointing up however.

Figure 3

The price of oil since its discovery in 1869 is shown below. It just goes to show that some things that are new often have their importance not realized until later on. Oil bottomed at 25 cents/barrel in 1924 (Yes, 25 cents/barrel). The price of crude oil appears to have a terminal Elliott Wave pattern present. Wave I lasted 5 years, while wave III lasted 11 years. Wave I had an overall price increase of 5.6 fold, while wave III had a 13.3 fold increase. In terms of price or time duration, wave III divided by wave I were both over 2.2 fold. If this ratio were to double again, then the price of oil could top out at $260/barrel, some time in 2017-2019. Once the price of oil hits that level, this would imply a civilization peak with a war outbreak likely or a severe civilization crash (death of 2-4 billion people (2005 population or 30-66% of the population at that point in time).

The only method for survival really is to invest in natural resource stocks and ensure enough money has been collected to survive an economic collapse.

Figure 4

The price of gold since 1914 is shown below. The US dollar was on a gold-backed currency until 1933 and was fully taken off the gold standard in 1971. For this reason, the price of gold was relatively controlled in price until 1971. Afterwards and ever since, inflation has been increasing logarithmically. The best actual net incomes for people were made in the 1970's. Today, people have a higher standard of living, but it is mainly attributable to debt. The price of gold is likely going to $2500/ounce minimally, but likely to spike up to $6000-8000/ounce. At that point, it will not be worth owning any gold stocks, instead the metal will be better. Countries at those prices will likely be nationalizing mines to grab the money.

Figure 5

The Goldman Sachs Commodity Index since 1969 is shown below. The 1970's had a double top in commodity prices, while the latest move up has bust right through those levels. There is still a long ways to go before we get anywhere near the inflation rates of the 1970's. Oil would have to first go to $120/barrel.

Figure 6

These charts basically show that decoupling off the gold standard forced commodity prices higher. I believe however that currencies evolve from a gold standard to pure fiat in an evolutionary cycle that is linked to the supply of available commodities present at a given time. The US was forced to decouple from the gold standard due to the growth profile of the nation and the globe. As the availability of commodities tightens, countries are and will be forced to cheat by printing more paper in order to ensure they can secure enough basic commodities to continue their economies smoothly i.e. China. Failure for any nation not to participate is economic suicide, so every country is brought along for a lemming ride, whether they like it or not. Supply/demand, and stages of an economic community are delicately interwoven so that their end result may seem like single finished item, when really there are many different internal stitchings that ultimately hold it together.

So, if the media seems to be feeding us a modern dosage of "Bread and Circuses", it should now be quite evident why now. Turn off the TV, give to charities, spend time with your family and try to learn as much as possible about the resource sector and alternative energy sources, since they will become important facets of life in the next 15-20 years and beyond. I have a BScH and MSc in Science, so my views about the evolutionary processes may be slanted not be shared by some. One advantage earth has had with man setting foot on her delicate surface for a flash in time has been the release of large quantities of organic carbon that can be used to provide the necessary skeletal background for life going forward the next 400 million years. As each day passes our sun loses an incredible mass, yet nothing compared to its total. In 1 billion years however, our sun will expand to engulf the earth and then contract. As Tennyson stated, "Ah we human have mortal coils". Do your best to help conserve energy and save the planet, but something just as important, spend time with your family and love your wife/husband/significant other. Time is too short and the present quickly becomes a memory.

Normally the format of articles are one editorial per week, with the HUI, USD, S&P, XOI and TNX updated Monday through Friday with 4-6 charts per index. Refer to earlier articles I have written to see the typical chart format. Captain Hook publishes 3-4 times per week on the macro picture. If one is inclined to have accurate market analysis using Elliott Wave Analysis and Fibonacci spreads for stochastics and Bollinger bands, excellent macro analysis and stock picks we are located at

David Petch is a cofounder of which has been in existence since 2003. His technical analysis focuses on Bollinger bands, stochastics (using daily, weekly and monthly charts), as well as extensive Elliott Wave analysis. His recent discovery of the Contracting Fiboancci Spiral the broad stock market indices are trapped in has indicated every major top since its inception in 1932. The CFS cycle also identifies expected major tops between now and 2020. David holds a BScH and MSc in Microbiology.

One cubic foot of gold weighs more than half a ton (1,306 pounds).
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