David Schectman

January 9, 2015 

The bull market we're in now (which is in sort of a hiatus) began around 2001. It has had a few corrections, one certainly being the Global Financial Crisis in 2008. We've been through a tough period, but basically it moved from the high $200s - to over $1900 in a ten-year period.

At that point, over three years ago, I believe there was a concerted effort to knock gold back down (which I think has been the central banks in particular) and discourage people from holding it. It has worked. We've gone through another horrible correction that has lasted over three years now, seeing the price fall from $1900 to under $1150 at one point.

The sentiment here is kind of like it was at the '76 bottom and in 2000-2001. Just those two periods were precursors to huge moves in gold and I think this one is the precursor to the biggest move of all, so I would encourage people to hang in there. - John Embry

Question: John, what has been your preferred method of playing either the metals themselves or the respective equities? Do you have a buy-and-hold approach, or do you look to play the "cycles" in natural resources?

Answer: Well, I think if you believe in gold being "real money" as I do, you always have a basic position in the physical bullion, and you can trade around that basic position but you never get out of it altogether because it is a real asset which I think should be the core of any portfolio. - John Embry

The U.S. Added 252,000 Jobs in December; Unemployment Fell to 5.6%... The good news was tempered by the fact that not only did wages fall 0.2% last month, but the wage gain of 0.4% in November was revised down to 0.2%.

What it means - The Employment Situation report for December nicely illustrates what we have been highlighting in the Dent Research Employment Index over the last year - yes, there are more jobs, but the quality of those jobs as measured by income is poor. We are not generating middle-income employment at a pace that will grow the economy.

With the full year of employment on the books, we can discuss our old friend, the birth/death adjustment, which the Bureau of Labor Statistics (BLS) uses to guess at how many new jobs were created at small businesses.

After removing all seasonal adjustments, the BLS reported 2,987,000 new jobs in the economy last year, which works out to 249,000 per month. That's not bad. But the BLS also reported 1,040,000 new jobs through their mystical birth/death adjustment. If the guessed-at jobs are taken out, then the economy created 1,947,000 jobs last year, or just 162,000 per month. - Harry Dent

"The Fed is in total denial...(it) hasn't learned the lessons of what it put the world through a decade ago."

Stephen Roach via CNBC, 01/09/2015

"When the year is done, there will be minus signs in front of returns for many asset classes. The good times are over."

Bill Gross  Founder & former CEO, PIMCO

One lesson of all this is that if the system needs to deflate, the bankers and politicians who think they are in control can delay it, but not stop it. A little over four years later, we have picked up where we left off.

I would expect the central bankers of the world will try for another inflationary push at some point in the future. Maybe they will let deflation to run for a time to ratchet up the pain enough for the public to scream for more stimulus. I can't help but think that they decided to let deflation run for a bit just to chase out some of the 99.9% who were perhaps betting on continued inflation.

Deflation's the same in a relative way, but you're older; Shorter of breath, and four years closer to death. - Michael Gipp

The ongoing increasing use of currencies other than the $US in International Transactions could spell a Sooner Doom for the $US (as World Reserve Currency, especially if increased significant Volumes of Crude Oil begin to be traded for Non $US Currencies. The West is driving Russia into the hands of China, and this is Bad News for the $US and Western economies.

And when the $US Dramatically Tanks, the Precious Metals will Soar and Western Equities Markets Crash. This scenario could possibly launch at any time (but is probably still a few months away), on Black Swan Geopolitical Events. This $US Crash will shake Economies and Markets to the core, as the Economy transitions to a Yuan/BRICS based Gold Backed World Reserve Currency.

And when the $US Tanks, that will also be accompanied by a loss of credibility of U.S. Treasuries as a store of wealth soon after. Thus they will tank too ... ending in "a very bad way" according to Investment Legend, Julian Robertson, with whom Deepcaster agrees. - Deepcaster

Shadowstats.com

Annual U.S. Consumer Price Inflation reported December 17, 20141.32% / 9.02%

U.S. Unemployment reported January 9, 2015, 5.56%  / 23.0%

U.S. GDP Annual Growth/Decline reported December 23, 2014, 2.70%  / -1.73%

U.S. M3 reported December 15, 2014 (Month of November, Y.O.Y.) No Official Report  / 4.81% (i.e., total M3 Now at $16.217 Trillion!) - Shadowstats

What to expect in 2015?

Foreign Affairs

More American troops will be sent overseas to places like Iraq, Afghanistan, Syria, and Ukraine. There will be no military victories to brag about. More American military personnel will be killed in 2015 than in 2014. Military contractors will be used in growing numbers and their casualties will not be counted as military casualties.

The Ukraine civil war will not end, and the United States will be further bogged down in this conflict. Relations with Russia will continue to deteriorate. The neocons in Congress will gain even more influence over our foreign policy. Punishing sanctions will continue to be made more severe and push Russia further into China's sphere of influence. Gold will gain credibility as we isolate the Russians from the financial markets. - Ron Paul

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LeMetropole Caf� (Silver seems to be making a base)

Bill Holter

Last week I tried to explain how systemically there is one giant and global margin call occurring.  Today, I would like to take a step backwards to explain some of the mechanics.  Though this is very basic, you must fully understand the "how" in order to get to the "why".

Everyone knows the U.S. went off the gold standard completely in 1971.  Since then, (other than the Swiss until 1999), no nation has had any gold backing (or ratio backing) for their money.  All currency has been "fiat" and was accepted on faith alone.  Until the 1980's we lived in a world where the "West" for the most part had clean balance sheets.  You could say it was a lingering hangover from the Great Depression, debt, or too much of it was feared.  From individuals to corporations, from local government to the federal government, debt, or too much of it was not really a problem.

The other side of the coin so to speak, "dollars", were over issued which is why foreign governments were turning in their dollars and requesting gold in return.  During the 1950's the Federal Reserve issued more dollars than we had gold (at $35) to back them.  This is why the world "ran" our gold reserves which were over 20,000 tons at one point until Nixon closed the gold window.  We were left with 8,400 tons and the Fed was free to issue as many dollars as they chose.

Our economic world then changed along with "sentiment" or mentality.  The lasting "prudence" from the Great Depression was gone, taking on debt was no longer a scary thing.  It was no longer scary because the Fed was creating inflation which made asset prices go up and made existing debt "worth" less and easier to pay off.  This is all basic economic history but it is imperative to know in order to understand what has happened. What has happened is that debt has essentially become money.  The currencies themselves are debt based and you could say bonds which basically carry no interest are now considered money or even currency. 

We have gone full circle from the depression days and are now back to 1929 on steroids.  Debt is everywhere, and too much of it across the whole spectrum.  The problem in a nutshell is this, there is too much debt and interest rates cannot be pushed down any further to make it serviceable.  Add to this the very real situation that very little unencumbered collateral exists and you then get the full picture.  You see, our system is set up as a Ponzi scheme on many levels.  First, in order to pay off debt, more new debt must be taken on.  Look at the U.S. Treasury for example, they have not paid ANY "net" debt down since 1960.  Each and every year, new debt is issued to pay off old debt plus an additional amount to pay for the current year's overspending.  Going further and further into debt for the U.S. has never "been" (past tense) a problem.  The logic goes like this ..."it is not a problem and has never been a problem because ...it has never been a problem".  But, it IS a problem.  Actually, it is THE problem!

The U.S. "admits" to having over $18 trillion worth of debt (the reality is we owe, and have future promises of close to $200 trillion)!  Our economy, even with fudged numbers, double counting and including "hookers and blow" ...is only $17 trillion in size.  You can go back into history to see time and time again, once the debt owed by a nation becomes larger than their total economic output, the country soon goes "banana republic".  This is not speculation, this is historical fact.  The U.S., even with understated debt and overstated economic activity now has 105% debt to GDP.  Simply put, we are now in banana republic land!

It is also important to understand "debt" from another angle than just government debt.  Another part of the Ponzi scheme has come from the private sector, individuals and corporations.  When plant and equipment is built out or acquired, often debt is what funds the action.  Individually, when people buy a house or a car (or even go to McDonald's), they borrow money.  We reached a level back in 2006 that I termed "debt saturation".  The world collectively could not take on any more debt.  Either the debt could not be serviced, or there was no collateral (unencumbered) to borrow against.   This of course led to the markets dropping, real estate dropping and the economy faltering.  In fact, one Sunday in September of 2008 we were only mere hours away from the markets and banking systems not opening.  What actually happened?  The Ponzi scheme ran out of "new money", plain and simple!

In came Hank Paulson with his $700 billion "bazooka" called TARP.  This, we were told is what saved the day.  The reality is the Federal Reserve secretly lent out $16 trillion (created out of thin air) all over the world to financial institutions.  This money was used to make sure "confidence" did not break.  Financial institutions were losing trust in each other so the Fed stepped in and basically said "we will guarantee everything and everyone, if you trust 'us' then you can trust your counter party".  It worked.  Bank A trusted bank B who in turn trusted bank C, all because everyone still trusted the Federal Reserve.

There was still a problem though.  Ponzi schemes all need two things, confidence (which the Fed just took care of) and "new money".  Where would this come from?  This came from central banks themselves AND sovereign treasuries around the world.  The U.S. Treasury for example has gone $7.5 trillion further into debt over just these last six years. 

The ECB and Bank of Japan have also exploded their money supplies.  The treasuries of many European nations, Japan, Britain and nearly all Western nations have also gone heavily into debt.  All of this new money supply and newly borrowed money has worked its way into and through the financial systems.  Very little of it has reached the real economy nor Main St..  This is why it "still feels bad".  Not much of this "financial help" has made it into the hands of the public.  In fact, "velocity" which is the turnover of money is making historic lows.  On the one hand, the Fed is issuing money at breakneck speed and the Treasury is borrowing at historic levels.  On the other hand, the turnover of money on Main St. is collapsing. 

The problem is this, the Fed and Treasury cannot push the cart any further.  The Fed has their balance sheet leveraged at over 80 to 1.  This means they own $80 worth of assets (bonds) for every $1 they actually have as equity or net worth.  This means a 1.25% drop in the value of their holdings is enough for the Fed to lose ALL of their equity!  (Another way of saying this would be to use the word "insolvent")

As for the U.S. Treasury, they are at the point where continuing to borrow at the current pace will mean tax revenues will not be enough to pay the interest.  This is similar to a credit card borrower who cannot make the minimum payment.  You see, interest rates were pushed downward not just to help business and individuals to borrow money.  If interest rates were now just six or seven percent, the Treasury would be stretched to just pay the interest!  Simply put, interest rates were pushed down so the Treasury could continue to borrow more but not pay more.  This situation is now coming to a head because even at  one or two percent interest rates, we are now paying as much interest as we were 10 or 15 years ago when the total debt was only a quarter of what it is now!

What I did above was point out the fact that the Federal Reserve is the biggest hedge fund in the world with well over $4 trillion in assets and the U.S. Treasury is the biggest bankrupt with over $18 trillion in debt.  It is important to understand, foreigners are no longer buying U.S. Treasuries with the exception of the Bank of Japan.  The Fed and BOJ are now by far the biggest buyers of Treasury bonds.  The situation has become "circular" if you will between the central banks and their treasuries.  The central banks are printing the money (monetizing) out of thin air in order to buy bonds from the Treasury in order to pay interest and pay back previous borrowings.

  Let me wrap this up by explaining what a Ponzi scheme is and how they work ...until they fail.  All Ponzi schemes start with "confidence" (and thus the word 'con-man').  The investor is promised a return on his money.  The conman "uses" the investor's money, in order for the conman to pay the fist investor he must find another investor.  In order to pay these two investors, he then must find two more investors.  Then four, then eight, then 16 and so on.  The scheme grows and grows until there are not enough new investors left to pay off the existing investors.  This is when the scheme fails publicly and everyone finds out they lost their money.

This is exactly what our banking and financial systems are, Ponzi schemes.  We are told all sorts of lies to keep our confidence.  We are told there is no inflation and in fact we "need" more inflation.  We are told unemployment is at multi year lows.  The problem is, more and more "marks" are figuring out the lies, confidence is waning.  On the other hand, the ability to expand the Ponzi is also strained as the world had reached debt saturation in 2008.  Sovereign governments stepped up and began to borrow heavily in order to keep the game going.  Now even treasuries themselves have reached debt saturation and can borrow no more.  Both necessities to a successful Ponzi scheme are now faltering, "confidence and new money".

If you doubt this, then ask yourself "why"?  Why have nearly ALL Western governments passed into law "bail in" provisions to their banking systems?  A "bail in" is where you as a depositor lose part or all of your savings if the bank goes broke.  In 2008 it was the government that stepped in and "bailed out" the banks, this time it will be YOU (and your money), the depositor who will bail out the banks.  The legislation has been put in place over the last year to 18 months.  Do you really believe there would be this type of legislation if they did not intend to use it?

Lastly, what can you do about all of this?  I've shown you the government has crossed the banana republic threshold, the central bank has gone as far as is practically possible and the banking system has been prepared for a collapse ...get out of "it"!  "It" being the entire system because it is a Ponzi scheme.  "It" being dollars issued by an insolvent central bank and lent to a bankrupt Treasury to borrow.  "It" being these dollars held by you and held at a bank within a system which already has contingency plans for how to handle their collapse! 

I tried to write this piece in as most basic terms as I could.  Most who will read this will say to themselves "this is nothing new, even boring".  To this I say yes, you are absolutely correct but you now have a tool.  The next time someone tells you, "you are just a tin foil hat nut job", ask them one question.  Ask them "do you believe the government is broke?".  Overwhelmingly you will hear words of agreement.  Then, please copy and paste the above or just forward this to them.  Facts are facts and there is no arguing with the above logic.  Of course, you might hear the words "but, it's different this time" ...it never is!

For tomorrow I will do another very basic exercise using just three charts for those who are "visual".  As I mentioned above, please use this and the next piece as a teaching tool for those you love and care about because financial wreckage is coming as sure as tomorrows sunrise!  Regards,   

Bill Holter

A UNIQUE PERSPECTIVE ON DEFLATION

January 12, 2015 

I wasn't planning to write this morning (Friday); and in fact, will have completed this article before the December NFP payroll report is released. Regarding said report, my advice is the same as always regarding the "island of lies" reporting of the nation's most politically-sensitive statistic. Which is, to ignore the fraudulent headline numbers - even if "worse than expected" - and look into the internals; which unquestionably, will reveal a true unemployment situation, at best, on a par with the 1930s. Last month's "headline numbers" set a new "high bar" for government lying (putting it on a level ground with thieving American corporations); making it more likely than ever that "the glaring weakness in true U.S. unemployment will become widely understood" - per a prediction I made last year. Which, for that matter, will be the case with all nations that pretends "employment" is strong; such as Germany, which "coincidentally," is the chief steward of the world's second largest currency.

As we head into today's meaningless "employment report"; which in a world of collapsing currency, commodity, and crude oil markets is already as "old news" as the buggy whip, here are some of the headlines I see. For one, it was reported that in November, U.S. credit card debt growth had its biggest decline in over a year. In other words, people are no longer spending - and this, just as the holiday spending season commenced. Thus, given that nearly all the "jobs" the BLS reports are in the retail sector, is it even possible that employment rose in December - at all?

Or how about the Baltic Dry Index falling yesterday to its lowest-ever level in early January? Yes, lower than even January 2009, at the height of the worst economic crisis (until now) of our lifetimes? Or, switching gears; to Asia, where Japanese corporate bankruptcies exploded to an all-time high, Abenomics notwithstanding; and ditto for the number of Japanese households receiving welfare, which hit an all-time for the sixth straight month.

Or better yet, how about in the soon-to-collapse financial hell that is Europe; where yesterday, the continent's largest bank, Banco Santander of Spain, had its stock suspended because due to a desperate need of $9 billion of capital to stay solvent? Yes, my friends, the entire European (and Western) banking system is dead in the water - afloat only due to ECB QE and covert Fed "swap agreements" that hand them free, perpetual loans of freshly printed currency to use as collateral against their rapidly collapsing portfolio of toxic loans.

This morning, Santander announced an overnight, heavily dilutive equity financing - no doubt, "aided" by Central bank bids, that chopped 15% off the stock's valuation. Sadly, as Bill Murphy would say, that's just "jacks for starters" for the dying European banks, particularly if the "GrExit" I have predicted for two years comes true - as it certainly appears it will. Remember, the Greek elections are just 16 days from now; and the leader of the sure-to-win Syriza party, Alexis Tsirpas, just last week said "Germany had most of the nominal value of its debt written off in 1953, so the same should be done for Greece in 2015." Greece has roughly €400 billion of debt. Gee, I wonder how the Banco Santanders of Europe will handle most of it being written off.

Here in the States, we're in the aftermath of the second FOMC-related, PPT-aided equity explosion in three weeks - and the third in three months); based on absolutely NOTHING incrementally positive emerging from the "minutes." To the contrary, the FOMC minutes were wildly Precious Metal bullish, given the Fed's obvious fears of global economic contagion and reluctance to even consider rate hikes (gee, could the fact that Treasury yields are plummeting toward record levels have something to do with said reluctance?).

Better yet, yesterday's equity hyper-drive was attributed to FOMC voting member Charles Evans saying that raising rates would be a "catastrophe"; in other words, validating exactly what we have said all along - that interest rates can never, ever be raised. Heck, just last night, non-voting FOMC member Narayana Kocherlakota claimed a rate rise in 2015 would "retard inflation recovery." And better yet, in the category of things difficult to believe, he also claimed - I kid you not - "if we have 2% inflation, we'll have maximum employment." Yes, this is how dimwitted the people making our nation's financial decisions are - which is why a decision to NOT buy Precious Metals is utterly insane.

And by the way, if he is in fact correct that 2% inflation is required to materially increase employment, he'd better not read my articles from earlier this week - "the direst prediction of all," and "death by deflation." To wit, now that the entire world is heading into an unprecedented Depression, with unprecedented excess capacity, prices of nearly everything will likely plunge for years to come. Except, of course, prices that will need to rise to pay for the insolvency of governments and the financial institutions - like taxes, insurance, and fees. Not to mention, the cost of protectionism, like import tariffs.

Which brings me to today's topic, which is something that has bugged me for the past week. Which is, the fact that when deflation truly kicks in, everything will decline in value - except money itself, i.e. physical gold and silver. The fact that nominal values will eventually explode when hyper-inflation arrives is immaterial, as real values will continue to plummet irrespective - just as they did in Weimar Germany and 1990s Zimbabwe, to name a few examples. Yes, everything that can't maintain its purchasing power will plunge; and what "asset" will lose more purchasing power than U.S. Treasury bonds?

Yes, I know - "QE" has supported them for six years; and currently, despite the so-called "end of QE," Treasuries continue their historic "bull market" due to "front-running" of anticipated "QE to Infinity." However, like stocks - and in many cases, real estate; valuations are at all-time high levels, whilst fundamentals are at all-time lows. After all, who on Earth would voluntarily lend money to the most heavily indebted, insolvent entity in history? The answer, of course, is NO ONE. And thus, once the inevitable "Yellen Reversal" yields QE4, 5, and "Infinity" - driving Treasury yields close to zero - the "deflation" of Treasury bonds will be historic, not just in the U.S. but the entire Western world. Sovereign debt deflation has already started in nations that don't have "reserve currencies" backing them - think Greece, Venezuela, and Russia; and eventually, the Western Treasury implosion will be the most damaging economic event in history, compounded by the horrific derivatives underlying them.

And while this happens, gold and silver will just sit there doing what they always do; i.e., maintaining their purchasing power, whilst that of all else collapses. With it, you and your financial kin will be spared the financial purgatory that is coming. And without it, it's entirely possible that most, if not all of your life's savings will, at the least, be "severely discounted."

PROTECT YOURSELF, and do it NOW!

Call Miles Franklin at 800-822-8080, and talk to one of our brokers.  Through industry-leading customer service and competitive pricing, we aim to EARN your business.

ZeroHedge

(David's comments: This implies a rise in the price of gold by 20% in currency valuation alone. It would seem that Europeans including the Swiss would find reason to move funds into gold. And when the price of gold start to rise in addition to the currency loss (euro and SFR), gold will become even more important to them.)

Goldman Slashes EURUSD Forecast To Parity

Tyler Durden on January 1, 2015

Goldman last made a meaningful downward revision to their EURUSD forecast in August, just after ECB President Draghi's speech at Jackson Hole. At the time, the message was that EURUSD has begun a protracted weakening trend, reflecting cyclical underperformance vis-�-vis the US and a more activist ECB, which would take the single currency to parity versus the Dollar by 2017. Today, Goldman further revises down their longer-term forecasts, bringing the end-2016 forecast to 1.00 (from 1.05) and that for end-2017 to 0.90 (from 1.00).

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Money, Gold And Liberty In 2015 & Beyond

Tyler Durden on January 8, 2015

If we review the events of 2014, it seems the situation has intensified: governments are still overwhelmed with debt, our fiat money system is unsupported, our central banks insist on accumulating debt and making money valueless. Will someone realize we have to pull the plug? And when we do, because it will happen whether we want it or not, how can we hedge against the damage that we will all be exposed to? Owning physical precious metals stored outside the banking system is a proven and essential form of monetary insurance against the uncertainties and negative surprises we see in our world today.

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Obama's Latest Handout: Two Years Of Free Community College For Everyone

Tyler Durden on January 8, 2015

With the number of college graduates working minimum wage jobs nearly 71% higher than it was a decade ago, and the average graduate leaving college with $29,400 in debt (crushing their hopes of leveraging up to buy that American Dream-creating house), President Obama has unleashed a double whammy of ideas in the last few days. Reducing mortgage insurance and cutting down-payment restrictions for FHA loans (i.e. providing huge leverage to segments of society to repeat the mistakes of the last housing bubble); and now, as The LA Times reports, President Obama says he is rolling out a plan to make two years of community college free, or nearly so, to every student across the country. Because it's "fair"?

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Ron Paul: "Reality Is Now Setting In For America... It Was All Based On Lies & Ignorance"

Tyler Durden on January 11, 2015

   If Americans were honest with themselves they would acknowledge that the Republic is no more. We now live in a police state. If we do not recognize and resist this development, freedom and prosperity for all Americans will continue to deteriorate. All liberties in America today are under siege. Reality is now setting in for America and for that matter for most of the world. We should not be discouraged. Enlightenment is not nearly as difficult to achieve as it was before the breakthrough with Internet communications occurred. I smell progress.

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Labor Participation Rate Drops To Fresh 38-Year Low; Record 92.9 Million Americans Not In Labor Force

Tyler Durden on January 9, 2015

 

Another month, another attempt by the BLS to mask the collapse in the US labor force with a goalseeked seasonally-adjusted surge in waiter, bartender and other low-paying jobs. Case in point: after a modest rebound by 0.1% in November, the labor participation rate just slid once more, dropping to 62.7%, or the lowest print since December 1977. This happened because the number of Americans not in the labor forced soared by 451,000 in December, far outpacing the 111,000 jobs added according to the Household Survey, and is the primary reason why the number of unemployed Americans dropped by 383,000.

  

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Steen Jakobsen Warns "Things Are About To Take A Different Turn In 2015"

Tyler Durden on January 11, 2015

  People are becoming more critical of our current monetary system. In the past six years, central banks have promised us growth within six months' time. They and the whole monetary and financial system have lost credibility. The banks' profit to GDP is the highest in history in an economic environment where we have the highest amount of unemployment since WWII. There is something very wrong with the way the system works and this is all due to the overemphasis on trying to minimize the business cycle. The real conclusion of QE can only become visible if we experience the full business cycle. In Jakobsen's view, we have never been allowed to have a down cycle since 2008. But now, there is finally going to be a down cycle because central planners can't print more money. As Jakobsen puts it: "Now is the time for the real economy to take over".

We can see elevated gold purchases on wholesale level (SGE withdrawals) of late, rapidly being sold to end consumers in the shops at the moment. China Gate News Channel reported on January 3rd a "stampede phenomenon" in a shopping mall in Beijing, were gold was sold at a rate of 400,000 yuan per minute.

Reporters saw hundreds of people this morning to appear in a stampede phenomenon. To prevent congestion stores set up a special security tower, have someone on the lookout, to control the shoppers....

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Mineweb

Should investors take the silver gamble?

Lawrence Williams on January 7, 2015

Silver has underperformed the other generally considered precious metals over the past year. Is it due for a comeback?

Silver's fundamentals look to be good.

Last year silver hugely underperformed gold. While the yellow metal ended the year at approximately the same level as it had ended 2013, silver plunged 18% from $19.50 to $15.97 over the period.

See: Gold great value protector in 2014 - silver not

Not for nothing is silver referred to as the 'Devil's metal' or 'gold on steroids'. It is hugely more volatile than its sibling - however, last year's underperformance was remarkable even so. Indeed during the year silver reached over $21 in July but the metal's performance down to the year-end was, to say the least, dismal - falling as low as $15.28 in early November. Silver is always reckoned to underperform gold in a downturn, but given gold was pretty well flat over the full year the drop in silver was far greater than investors might have expected. (Prices are London silver prices as recorded by the London Bullion Market Association).

While silver tends to underperform gold on the downside, it conversely tends also to outperform gold on the upside and gold's start to the year will have been giving silver bulls a little hope. But the almost unanimous thumbs downs for the year for silver from mainstream precious metals analysts may be putting something of a damper on such hopes.

There were, however, a major anomaly in silver's poor price performance over the year in that sales of American Eagle silver coins hit a new record in 2014 at around 44 million, eclipsing the previous record of 42.7 million in 2013, while reports of Chinese and Indian consumption have suggested that investment and industrial demand is at very high levels in both the East and the West which flies in the face of the price performance. There is also the suggestion that silver supply will be in a fairly substantial deficit in 2015 (assuming the largely unpredictable investment off take remains strong). Silver's fundamentals thus look to be good BUT in today's precious metals markets real fundamentals seem to have little impact on prices, which appear to be increasingly being driven by speculative trading on the futures markets.

On this latter point, there is certainly the possibility that some banks and financial institutions have been buying physical metal against the day that futures and physical markets turn strongly positive. The potential profits could be enormous if there is a strong market turnaround, which many feel is a probability, in the medium to long term.

On the other hand the strength in the general stock market, up until the last couple of days has made precious metals investment look a poor choice in comparison. Markets have been boosted by the unprecedented amount of liquidity being pumped in to try and ward off recession through 'Quantitative Easing' type programmes. While the U.S. Fed has effectively ended its most recent easing programme it is still obviously nervous that the markets will stutter and dive once the full effects of ending the easing programme begin to impact and consequently is not yet prepared to allow interest rates from their exceedingly low levels in case rate rises coupled with the end to monetary stimulation really spook the markets.

The Fed is also aware that the stock market is precarious and may have risen too far too fast (i.e. in a potential bubble situation) and is playing an exceedingly cautious game so as not to rock the boat. If markets do start to fall they could drop dramatically - the current six-year bull market may well have run its course and bull markets usually end with some very sharp falls indeed.

An end to any bull market is, of course, inevitable at some time and if a feeling becomes apparent that the bull market is indeed at or close to its top this could precipitate a move into precious metals as an asset class providing some investment insurance. And a move into gold, and a consequent rise in the gold price, could be all that silver needs to take off. If this should happen we could see some very sharp gains indeed. Even a rise back to $20 would be a 20% plus increase from current levels. Some may well see that as a gamble worth taking.

Silver bulls, of course, are still looking for a return to its 2011 high of close to $50, and perhaps more. Some talk of a return to what they see as the historic gold:silver ratio (GSR) of 16:1 but, despite all the arguments to the contrary, ever since silver largely lost its monetary role a return to this level seems unlikely. There have only been two occasions in almost the past 100 years when silver did indeed return to this kind of level - in 1968 and 1980, and in both cases it was very short-lived. Otherwise the GSR has fluctuated between a little over 30 and 100, averaging around 50 plus and is currently near 74 - a high level which many feel suggests that silver is indeed due for a sharp price boost and bring the ratio down. Should the gold price make a sharp recovery, a return to a GSR of 50 or a little lower could be on the cards as the more volatile silver price gains traction.

So what are the prospects for this kind of upward performance in 2015? Downside in the gold price over the year is generally seen as somewhat limited, although a further fall before a major recovery cannot be ruled out. This suggests that silver may well provide an interesting gamble (and a gamble it would be) on a gold price rise during 2015. The downside in silver is fairly limited, although some observers still see a drop to around $13 if gold doesn't pick up, but the upside potential if gold does improve in price looks as though it could be very positive. But be warned, silver has burnt many investment fingers in the past and no doubt will again in the future.

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