first majestic silver

Re-Awakening PIFIGS

February 3, 2015

I know I’m ahead of myself, as this article is being written Monday morning – to be uploaded to the blog Tuesday, and distributed in our Wednesday newsletter. However, there is simply too much to talk about – and frankly, I can’t wait to do so. And by the way, thanks for all the feedback regarding the additional audio blogs – which I assure you, is taken seriously. Here at the Miles Franklin Blog, we continually seek to refine our product – which we remind you, is FREE – to accommodate as many readers and listeners as possible, whilst attracting new followers as well. And of course, to provide the highest quality information available.

Back to today’s article, I normally start out by discussing the day’s “horrible headlines,” and particularly the “topic of the day”; which inevitably, leads to discussions of Precious Metals. However, today I’m going to start with the startling combination of surging demand and plunging supply that with each passing day, dramatically reduces the odds that the “New York Gold Pool” can maintain control of gold and silver prices – and monetary perception – for much longer.

I mean, try to get your heads around the astounding fact that in the first three weeks of January alone, withdrawals of physical gold from the Shanghai gold exchange were a staggering 201 tonnes, worth more than $8 billion. In 2013, global gold production was roughly 3,000 tonnes; so based on the weekly withdrawal rate of 58 tonnes, Chinese demand in the first three weeks of January was more than the entirety of global production. And better yet, since the Beijing free trade zone launched in September, additional gold has been imported that doesn’t make it into official statistics – which, consequently, now chronically understate demand.

Putting the January 2015 demand surge into further perspective, 2014′s final demand numbers appear likely to roughly match 2013′s record level of 2,200 tonnes – of which, the early 2015 demand levels are running at a pace 58% higher. In fact, as noted in yet another fine piece by our friends at Smaulgld, Shanghai gold withdrawals in just the past three weeks were nearly one-third of all the gold Eagles sold by the U.S. Mint in the past 28 years! And thus, we can’t be more emphatic in our entreaties to ignore whatever remains of the fraying anti-gold propaganda campaign, and focus on protecting your financial assets whilst you still can.

Conversely, we are but weeks from PM miners reporting year-end losses earnings – as well as what will likely be massive write-downs, reserve revisions, and capital expenditure reductions. In my year-end predictions audio blog, I forecast 2015 to be a year of PM mining paralysis, as major miners finally “give up” on hopes of salvaging an unsalvageable situation, by dramatically reducing production, spending, and expansion plans. To wit, this weekend I read that a whopping 83% of silver mining operations in Mexico’s prolific Zacatecas region had been shut down due to low prices; and my guess is this same trend is ongoing worldwide, particularly as base metal prices like copper and lead have recently plummeted as well. In other words, the perfect storm of rising demand and plunging supply is hitting just as the global economy plummets into a generational depression – yielding intensified currency wars that will cause PM demand growth to go parabolic.

Speaking of global recession, this week started with extremely weak Chinese economic data – including a PMI manufacturing reading of 49.8, connoting outright economic contraction (despite the comical “7.2%” GDP growth the government reports – which in and of itself, is the weakest figure in 25 years). Subsequently, the Yuan fell to its lowest level in two years, with the “offshore Yuan” trading at its largest ever discount to the officially pegged “onshore Yuan.” In other words, the PBOC is facing the same issue the Swiss National Bank was defeated by last month – as with the Yuan trading right at the lower band of its dollar peg, the PBOC will have to dramatically intervene shortly, or allow the peg to be breached. Recall, I have been all but screaming how the Yuan’s fundamentals are falling apart; and with a Chinese government desperate to “save its economy,” it shan’t be long before a significant devaluation is pondered, if not executed. And when it inevitably is, the shock waves felt throughout the global economy will be the equivalent of a 10.0 on the financial Richter scale – such as the impact of the associated, dramatic upward valuation of Yuan-priced gold.

At this point, it’s becoming difficult for anyone to dispute my claim that the global economy, as I write, is at its low point of our lifetimes; as depicted by this morning’s 28-year low reading of the Baltic Dry Index, as global trade volume growth slumps to a 35-year low. Here in the “Recovering” States of America, where the world’s most advanced data and market manipulation tactics are utilized, 87% of all companies have reduced earnings guidance, setting up the first quarter of 2015 to actually experience lower year over year earnings – as validated by this morning’s news that January consumer spending declined 0.3%, to its lowest level since 2009; not to mention, lower than expected, barely positive construction spending, and a larger than expected plunge in the ISM manufacturing index. Sadly, these ugly trends will only accelerate as the global commodities crash is fully integrated into capital spending and operational plans; and if the dollar continues to surge, it will only turbo-charge said earnings plunge. Let alone, if Obama’s new proposal to charge a one-time, 14% tax on cumulative offshore earnings becomes law. But don’t worry, the “Wall Street consensus” is that all will be well, with the first quarter plunge likely to be offset by surging earnings later on.

Anyhow, part and parcel of economic collapse is the social and geopolitical unrest it fosters – as bankrupt nations and citizens alike struggle for survival. And nowhere is this perfect storm more prevalent than in Europe, where not only is the continent flat broke – whilst its Central bank overtly hyper-inflates its currency – but the political union in tatters, on the verge of collapse. Few people realize the Euro currency is only 15 years old; and in my view, destined to die within the foreseeable future. To that end, in August 2011 I predicted it would break apart within 12 months; and if not for Draghi’s “whatever it takes” speech exactly 12 months later, it likely would have already. Of course, his “ultimate can kicking exercise” did nothing but make things worse; and here we are today, with Europe indisputably in its worst economic condition since World War II, and most dangerous political environment in centuries.

As usual, Greece gets the lion’s share of attention, as clearly it is “first in line” to collapse. To wit, this weekend’s troika ultimatum for Greece to either agree to a new deal by February 28th or be cut off from bailout funds sets the stage for terrifying, volatile month of financial market uncertainty. However, no matter how it’s resolved, it couldn’t be more obvious that Greece is economically dead – with its only hope of survival for its debt to be massively written off, and link with the European Union severed. Mathematically, this must happen; and if the “troika” agrees to extend Greece’s loans to perpetual zero coupon mode – in other words, with no requirement to ever be repaid – I assure you, the global financial community will realize this immediately. And not just regarding their valuation of Greek sovereign bonds, but all PIIGS bonds. And possibly France’s as well, as its political, economic, and financial situation is so weak, I long ago deemed Europe’s worst economic bloc not the PIIGS, but the PIFIGS. In other words, the new Greek crisis has re-awakened what Draghi’s July 2012 bluff attempted to mask; and in fact, did so for roughly two years, whilst dramatically weakening the quicksand foundation the PIIGS house of cards stood atop. And no, it’s not just Greece, but all five PIIGS – or if you will, all six PIFIGS.

In November’s “revenge of the people” Audioblog, I predicted 2015 would extend the trend of global social uprisings – as exemplified by the September 2014 Scottish secession vote, the November 2014 Catalonia secession referendum, the November 2014 “save our Swiss gold” referendum, the December 2014 Japanese snap elections, and the January 2015 Greek snap elections. I mean, think about it. I don’t recall a single such vote in my 44 years of life; and yet, we’ve now seen five in the past four months – two of which emphatically passed (although in Catalonia’s case, the Spanish government deemed the 81%-4% secession landslide “unconstitutional.”)

To that end, it’s only a matter of time before additional votes cause the same upheaval as in Greece; and ominously, nowhere is this more likely than Catalonia’s home nation of Spain – which an economy six times larger than Greece, and €1 trillion of debt compared to Greece’s €330 billion. To wit, in just one year, the newly formed Podemos Party is surged ahead of Spain’s two traditional parties in the polls, making it likely that it’s charismatic leader, Pablo Iglesia, will be elected President in December. I mean, just think about it. Can you imagine if a party formed in the U.S. today, and by next year, led both the Democrat and Republican Presidential candidates? Anyhow, just this weekend, tens of thousands of Podemos supporters rallied in Madrid, supporting essentially all the policies of Alexis Tsirpas’ Syriza Party in Greece. Throw in the fact that the Catalonian secession movement will unquestionably intensify as well, and it’s quite easy to picture an all-out implosion of the once great Spanish nation.

Then you have Portugal, which on Friday the IMF warned is not on track to meet its “austerity” targets, with further “reforms” required to do so. And this, with a major Portuguese legislative election scheduled in September. Not to mention, this weekend’s mass protests against new taxes in Ireland; and the ongoing instability in Italy, where Beppe Grillo’s Five Star movement, organized in 2009, has taken nearly a quarter of all Parliamentary seats. Five Star, like Syriza and Podemos, has an “anti-austerity” platform supporting secession of the Euro; and if you think Spain would be a significant loss to the dying European Union, Italy’s economy is nearly twice as large as Spain’s, and its debt €2.1 trillion, compared to €1 trillion for Spain.

Of course, the “big Kahuna” of the PIFIGS is France, which also has roughly €2 trillion of debt. In my view, the world’s most glamorous nation is, pound for pound, its worst economic basket case – mixing a lethal cocktail of progress-killing socialism, London/New York-style financial engineering, and a clueless government that has garnered all-time low approval ratings. Thus, it’s no surprise that Marine le Pen of the resurgent National Front Party has become the undisputed front runner to unseat Francois Hollande in the 2017 Presidential election. Clearly, the French social mindset is collapsing as rapidly as its economy; and if Europe’s second largest economy, too, succumbs to the “revenge of the people,” the ill-fated union will, with absolutely certainty, collapse. And by the way, Marine Le Pen may well be the continent’s biggest “gold bug” – in recently demanding the repatriation of all of France’s gold reserves, and cessation of Bank of France gold sales.

Well, that’s enough for today – other than to note my incredulity at just how blatant the Cartel’s attempts to slow the expanding Precious Metal bull’s progress have become; as well as the PPT’s frantic attempts to reverse U.S. equities’ decline; the Fed’s desperate attempt to slow the relentless Treasury yield plunge; and of course, the Exchange Stabilization Fund’s near hysterical efforts to slow the dollar’s rise. Of course, all such manipulative attempts will end in tears – at least, for anyone that hasn’t protected themselves with the time honored insurance that real money provides.


Courtesy of

Andrew ("Andy") Hoffman, CFA joined Miles Franklin, one of America's oldest, largest bullion dealers, as Media Director in October 2011. For a decade, he was a US-based buy-side and sell-side analyst, most notably as an II-ranked oil service analyst at Salomon Smith Barney from 1999 through 2005. Since 2002, his focus has been entirely on precious metals, and since 2006 has written free missives regarding gold, silver and macroeconomics. Prior to joining the company he spent five years working as an investor relations officer or consultant to numerous junior mining companies.

In the Aztec language the name for gold is teocuitlatl which means "excrement of the gods."
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