Regular readers are excused for being confused by this title, or perhaps even suspecting a misprint. After all, having written numerous commentaries documenting the activities of the bullion banks in suppressing bullion prices, at first glance the title appears nothing less than perverse.
At the same time, I have previously observed that what the banksters are able to accomplish in depressing prices over the short-term must lead to a boomerang higher in prices over the longer term. In our markets we see yet another example of the principles of economics mirroring the laws of physics: for every action, there is an equal and opposite reaction.
There is a particular reason for me to raise this issue at this particular time. While the predatory actions of the bankers in the bullion market are frequently highlighted by precious metals commentators, much less often discussed is the even more rabid suppression of the gold and silver miners.
To understand why the bankers are terrified of seeing gold and silver miners valued at fair multiples, we must first understand what those rational valuations imply. First of all as I have explained in previous commentaries, commodity producers provide natural leverage on the price of the commodity they produce (for better or worse). A rising price makes these companies more profitable in multiples of the increase in the price of the commodity, and similarly decreasing prices exert a greater than 1:1 impact on the way down as well.
Thus with gold prices having risen by roughly a factor of six from their absolute bottom, and silver prices having risen by roughly a factor of ten; we should see these miners sporting fantastic valuations to reflect their record (and rising) profitability. In reality, at current valuations many of these miners have not even matched the rate of increase in bullion prices – and in fact there are plenty of actual laggards.
Because of the fact that commodity-producers provide natural leverage on the price of the commodity they produce, rising prices for the producers are seen as a bullish indicator for the sector. Immediately we see the primary basis for the bankers’ hatred of the miners: allowing them to rise to their fair market value would be like a neon sign for investors, highlighting the stellar returns from investing in gold and/or silver...
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