Rafi Farber: This Is Not A Silver Rally That is Yet to Come

➡ This article talks about the current state of gold and silver markets. Despite appearances, there hasn’t been a real rally in gold and silver, but rather a general increase in all commodities. The author suggests that the real gold and silver rally is yet to come, and when it does, mining companies will see significant growth. The article also discusses the impact of the Federal Reserve’s losses and the increasing amount of unbacked dollars being used to pay real yields.
➡ Mining stocks aren’t rising much because if all commodities go up, mining profits don’t increase much. When gold and silver rise more than other commodities, mining stocks do better. The repo market, where banks lend and borrow cash overnight, can’t keep growing because there’s less money in the system. The Federal Reserve might have to cut rates to zero again when the next financial crisis hits. The value of gold and silver compared to other commodities is at the same level as it was at the peak of the bull market in 1980.
➡ Rafi, the endgame investor, warns that something big is about to happen after Passover that could shake the world. He advises everyone to prepare and stay calm. He also mentions his free substack for more updates and ends with a surprising comment about a TV comedian using space travel as a metaphor for domestic abuse.

One of these days, Alice. Bang. Zoom. Straight to the moon. Ten, nine. Okay, we’re here. 8765-4321 blast off. The land of Arcadia. Well, hello there, my friends. RAF here from the endgame investor with this week’s silver report for Arcadia Economics. And what a difference two weeks makes. It suddenly seems that gold and silver can’t go down. They keep going up day after day after day. The world is coming apart at the same as people are asking me what the situation is here in northern Israel.

Well, it’s pretty quiet where I am now, though. I don’t know when or if Iran is going to bomb here, but so far so good. Nothing going on. And then I want to sound like I’m ruining the party, and I hope I’m not. But there hasn’t actually been a gold and silver rally. There has been a commodity rally, which explains why the miners, save for a few, including our sponsor, fortune and silver mines, are not really that up.

There’s another question to ask. Why haven’t positive real yields brought gold and silver way down? Because that’s what usually happens. And I’ll show you a very simple chart that explains why it’s not happening this time, because the real yields that are being paid are actually being paid out of totally unbacked dollars, meaning Federal Reserve losses. And so I’ll show you why. There has been no gold rally, no silver rally, but that is yet to come.

And when it does, the miners will take a giant leap forward. I really shouldn’t use that term. It sounds like Mao. They’ll go up. They go up. The repo market broke $2 trillion on the quarter turn, and it’s not going down. It’s still about $1. 95 trillion a day that are being shuffled between banks every night. And the money supply is still decreasing. And so the wall of monetary clog should get hit pretty soon.

And when it does, the Fed will cut back to zero, which is what Jared blickery, the only good guy in Yahoo finance, is speculating might actually happen pretty soon. I’ll show you that article. Jared blickery actually is sympathetic to the Austrian School of Economics. So if you’re going to trust anyone on that site, it would be him. Bills gone wild. The amount of treasury bills outstanding up to one year maturities has broken the $6 trillion mark for the first time ever.

And I’ll show you the chart that shocked me. There is a metric by which silver is actually higher than it was in 1980. And believe it or not, it is actually true, which is just another piece in the puzzle that proves that silver is still money, even though it doesn’t quite feel like it yet. Anyway, on with this week’s silver report, sponsored by Fortuna Silver Mines, symbol FSM.

And we’ll get to them as we go along with this week’s silver report. All right, the first shot we have today is a chart of caution. Open interest in silver futures is up to a. Looks like a three year high. We haven’t been this high in open interest. The amount of futures contracts open on the Comex since mid 2021, with silver around $30, that is going to have to clear.

I can’t predict whether it will clear with the price going up or the price going down. If it clears and open interest falls and the price rises, that means we’re in a little bit of a short squeeze. I can’t guarantee that. So we got to be careful here. We’re at this line here. I think it’s 170,000 or 171,000. This is 166,823. But there’s a one day lag here.

So we’ve broken through this line over here, this bottom black line. And the top back in 2021 was still quite a ways. Where we are now is about 200,000 contracts. So there is room to move up here. But you got to be careful here and be careful of a sudden sell off. So I would just say stay out of leverage right now and leverage silver vehicles. I don’t think that will be good for your emotional balance.

But technically speaking, there is some room to run here if we’re going to go to those old highs in open interest, around 200,000 contracts, which is pretty slim, but it’s possible. And I wanted to address the question that was raised by zero hedge. In an article on April 4, I’ve screenshotted the homepage capture of it here. It says, gold’s defiance of real yields can’t last unless trouble brewing gold surge to record highs is extraordinary, coming as it does in the face of elevated real yields, that would normally bring it crashing down.

And so I put another chart here of the Federal Reserve losses, net losses versus the real interest rate. And you’ll see what I’m getting at in a second. So this blue line is the Federal Reserve loss, as you see here. This is actually the zero line. If you look at the right axis here. So this is where zero Federal Reserve losses, and they were remitting all of their extra income to the treasury as they had done since 2008.

And here we start. The Federal Reserve losses. Losses means they’re printing dollars that are completely unbacked, not even by debt. And as these losses accelerate, it means they’re paying out interest of totally unbacked dollars. And this is precisely when interest rates, real interest rates, headed positive in real terms. So, yes, interest rates are positive in real terms, meaning the yield in the ten year is slightly higher than the inflation rate as they calculated.

But that might be b’s, depending on what you actually buy. So this is really an artificial calculation, but let’s just give it to them. So real interest rates are now positive, whatever that means. Precisely. But why are they positive? Because the fed that’s paying that interest and losing money, so the dollars that are being created to pay that interest are not backed by anything. And therefore, gold and silver are still climbing.

This is going to get worse because Federal Reserve losses are going to keep getting worse as they need to keep interest rates high until, of course, the next financial crisis, which is coming very soon, to a theater near you. And we are the theater. Let’s get into why exactly there really has been no gold rally, even though it feels like there is. And I don’t mean to be negative, I mean to be positive by saying that, because I mean to say that the gold and silver rally is still ahead of us.

And this is really nothing. What this is, is a commodity rally. And here is the proof. This is the gold to the CRB ratio. The CRB is one of the oldest commodity indexes. We’ve had it since, I don’t know, the fifties, sixties, seventies, one of those things. So we see here that we are at a major pivot point in the gold to CRB index, and we’ve only really climbed significantly above this ratio one time in the 2020 crisis, which is when gold was at its all time high in real terms relative to other commodities.

So we were at this level, actually, at the peak of the 2016 rally, not even at the peak of the 26 rally, the beginning of the 2016 rally, when gold blasted out of its four year bear market here. In nominal terms, at least in dollar terms, we were at the same level in early 2020, before the lockdowns. And we were also at it here at the end of 2023.

And we’ve been at this levels for all of 2024. Basically. We haven’t broken above it yet. So what this is, is really a commodity rally. And I’ll show you more evidence of that in a second. There has been no silver rally either. I’ve put these convenient little labels here of what a silver rally looks like in real terms. And this has a lot to do with gold and silver miners, and I’ll get to that in a second.

So from April to April, April 2019 to April 2020, that was a huge silver rally in real terms, meaning silver was outperforming other commodities because people were worried about monetary disasters. And we had here a major high in July of 2020 with silver really outperforming other commodities. And then from then, from July 2020 until July 2022, for two years, we had a major silver decline from 0. 2 to about 0.

06. That’s a huge silver decline. And from there, since 2023, we’ve been pretty stable. It has not moved. We have not been in a silver rally at all for 2024. We’ve had a little bit of a bump here in this little pathetic candle. We have a long way to go. What we are in right now is a commodity rally. This is the CRB index. This was a major low in the CRB index at April 2020.

During the lockdowns at 100, we reached a high of 325 or 330 or whatever that is up there in 2022. And since then, the CRB has pretty much been going sideways. Until recently, we made a new high at about 295, very close to 300. So we’ve been in a minor commodity rally, which includes gold and silver. Now, this is why mining stocks are not rallying so much. People have been asking me, why aren’t the mining stocks really participating in this rally? And some of them are, and they have risen, but not really significantly.

If you look over a five year period, it’s not really that impressive, but it’s going to become impressive when this ratio changes, when it actually goes up. So if we’re going back here, the reason that mining stocks have not rallied so much is that if all commodities are rallying, then minor profits don’t rise much, or at all. If mining companies have to pay more to mine the silver or the gold out of the ground, then their profit margins won’t go that much higher and the stocks won’t perform that well.

When gold and silver rally relative to other commodities, that’s when mining stocks really outperform. Meaning when people go after gold and silver, but not other commodities, because they’re worried about the money, that’s when the metals really start to move, and commodities don’t go up as much, or maybe they even go down relative to gold and silver. And that’s when the profit margins really start to move, and gold mining stocks really outperform well.

Which reminds me, this week’s silver report is brought to you by Fortuna silver mine symbol FSM. And we can see here on a quick chart that we’ve broken through the 200 week moving average up here. It was at 440. We’re now at 453. It could be slightly different by the time you see this because the stock is very volatile out of the gold and silver markets right now.

But we’re at a new two year high here, and it looks encouraging. We’ll see where it goes. But I wanted to show you this. This is Fortuna’s cash flow from its recently filed annual report for 2023 versus 2022. We have an increase in cash flow of about 53%, $297 million versus $194 million. We can see here that cash flow is doing really well, and I expect that to continue into 2024 as we have a full year of accretions or accretive earnings from the new projects in Africa.

And I personally do not trade this stock. I own it for the long term. And let us continue with this week’s silver report. I want to go to the repo market for a second here. This chart. You see a black line and a blue line. Black line is the amount of volume in the repo market. We see here. We hit an all time high of $2. 023 trillion on March 31, 2024, on the quarter earn, which was expected.

And here we have the secured overnight financing rate, which is the repo rate, what banks charge each other to borrow and lend cash overnight. Here was their apocalypse over here. And we see. What do we see here? We see that the volume in the repo market does not go down until and unless the Fed cuts rates. And these are basically the Fed rate. The repo rate is the overnight rate, more or less.

It’s not exactly the same, but it’s pretty similar. So we see here that the repo volume, right, it reached a fever pitch over here, which was a record in 2019, right before the apocalypse. Then the Fed started cutting rates after apocalypse, and that only then did volume fall in the repo market. And it started rising again because they kept red steady here, and it hit a fever pitch over here, and then they cut rates again to zero.

And this was the lockdown crisis, et cetera. And then the volume stayed pretty steady as rates stayed at zero. But then they started raising rates, and then the repo volume started to spike. But the problem is the money supply is still shrinking. So this repo volume can’t be sustained for much longer because dollars are running out, and there aren’t as many dollars in the system now as there were back here.

So we’re going to hit a brick wall over here. And when we do, they’re going to have to cut down to zero in order to get this volume down because the dollars don’t exist to sustain it. And from there, I’m going to go to an article from Jared Blickery, the only guy I trust on Yahoo finance, why the Fed is wading into uncharted waters. Morning brief, a little bit of a correction on that.

The Fed waded into uncharted waters in 2008. So they’ve been in uncharted waters for what, 16 years now? Something like that. So Jared, Brooklyn says down here, and this is what I wanted to highlight, Powell’s big headache right now is an economy that reaccelerates, meaning price inflation. That’s what he’s talking about, requiring further rate hikes. This is the so called no landing scenario, right? Not hard landing, not soft landing.

This is the no landing scenario. An economy that ran too hot and stayed. There was the fate of Paul Volcker, who led the Fed in the late 1970s and early 1980s, which is when gold and silver made their moonshot. Volcker presided over a double dip recession as he tamped down inflation that at one point spiked to 15% annually. It would be supremely ironic. Actually, it would be pretty likely if the same fate befell Powell, forcing another round of uncomfortable rate hikes just as rate cuts are on the horizon.

Now, there’s two things I wanted to emphasize here, is that, first of all, rate hikes will make price inflation even worse because they will come at the expense of the Fed’s earnings. And I’ve already showed you that when earnings get negative, real interest rates don’t impact gold and silver prices. And gold and silver keep going up. Anyway, second thing I want to mention is that Paul Volcker could theoretically, and did get control of the situation because the debt was in principle payable back in 1979 and 1980.

Now it is not. So there is no way they can hike rates. Hiking rates will bring gold and silver even higher. And so the only move the Fed has from here is to go back to zero when the next financial crisis hits. Which in my opinion, though I could be wrong, will happen this year when the plumbing hits a wall. But there’s two more charts I want to show you before we close this week’s silver report.

One is bills gone wild. The new SiFMA report came out, which crunches all the numbers of the outstanding treasury. So we see here in the bottom left corner, February 2024 bills outstanding. That’s one month to one year maturity. Short term treasury bills, where the money markets are invested in outstanding, has now broken the $6 trillion mark, $6. 0112 trillion. So they’re still raising money on the short end.

They haven’t converted much of it to notes yet. You can see that notes have not changed since January. They haven’t changed much since 2023. A little bit, but not that much. We still have a lot to move over to the notes. But the problem is, if they make the notes auction is that really much bigger. You could upset the bond market because dollars are running out and you might not have enough to sustain humongous auctions.

And this is finally the chart that shocked me. This is really for academic purposes. Take of it what you will. This the spot gold to crb index ratio going back all the way to 1980. How gold? I couldn’t find the one for silver, but I found one for gold. How gold was performing relative to other commodities. The higher this line is, the better gold and silver are performing relative to other commodities.

So at 1980, we were at this line at about, what is it, 3. 0? Let’s just say it almost hit this cross line at 3. 03. So where are we now? We’re at the same level. So silver, gold and silver relative to other commodities at the same level as it was at the peak of the bull market in 1980. Doesn’t that freak you out? It’s very surprising, but it is true.

And it shows once again that gold and silver are money, that they’ve been outperforming commodities, especially since 2008, when the real inflationary engines started over here, and they’ve been going up and up and up and up, trending. And we had a big spike over here from the lockdowns, of course, and this was the big retracement. But we’re on our way up again and we’re going to go to new all time highs and higher as the dollar dies and as gold and silver revealed as money, even to the layman.

And finally, I just wanted to share this hebrew headline that a friend sent me from. I think it’s caucus magazine or something, and so I’ll just translate it. It says, bank of Israel is in a secret message to the banks to prepare for a raid on the ATM’s. So it looks like bank of Israel is preparing for war, telling the banks to stock up on cash, because there’s going to be a run in ATM’s as there’s going to be a media blitz for israeli citizens and residents to stock up on supplies as it looks like the Lebanon invasion.

The invasion of Lebanon is imminent. I don’t know exactly what’s going to happen. Maybe before, maybe after Passover. But things are heating up and it looks like it’s going to upset the world. So just everybody prepare however you do that and stay calm. And I’m talking to myself. Thanks for watching this week’s silver report. You can sign up for my substack at Endgame investor dot substack. com for free.

This is Rafi, the endgame investor. And I’ll see you next week, maybe if I still have Internet access. That’s not an astronaut. It’s a tv comedian. And he was just using space travel as a metaphor for beating his wife. .

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