Several countries are making proclamations that state all new cars shall be electric by a certain date.  Who decided on electric cars?  I know they sound “clean” but where does that electricity come from?

About 30.4% of electricity in the United States is generated from coal.  About 19.7% is generated from nuclear.  So over 50% of the US power is from coal and nuclear.  The remaining is as follows:  natural gas = 34%, hydro = 6.5%, wind = 5.6%, biomass = 1.5%, solar = <1% plus other misc. sources.

While there are more engineers alive today than all during history there are several problems with electric cars that have to be overcome.  Of course everyone knows that batteries are a problem.  They are heavy, do not hold enough charge for long trips, are expensive and they are a problem to dispose of at the end of their service life.  The electric motors themselves require rare earth magnets for high efficiency.  You can induce an electric field without them but the efficiency suffers.  Most rare earth magnets are mined in China.

One very big problem with mandating that all cars be electric is the grid.  If everyone charged their cars at home at night the existing grid would not be large enough to handle the additional load.  Not only would we have to burn more coal or build more nuclear power generating plants, we would have to upgrade the existing electrical distribution system (the grid) to service all the additional electric load that the EVs would require.  Most older home electrical services would also have to be upgraded as well.

Government decrees seems to have decided things, however, decrees from on high are not engineered solutions.  What happened to free market solutions?  The government did not decide for people to turn in their horse and buggies for cars; market forces did so because they were more efficient.  Even so the transition took many years to completely phase out animal power.  In spite of all the movies showing the latest in German tanks during WWII most (about 80%) of the logistical “beans and bullets” were still moved by horses and wagons even as late as 1944.  This was 40 years after Ford’s model A was introduced onto the market.   A shift from IC (internal combustion) engine powered vehicles to EVs will take longer than anyone in government thinks right now.  Until some “magic” is discovered soon to make batteries hold more power in a smaller package that is lighter and costs less and charges faster, there is going to be trouble talking people into buying them.   

Whatever happened to natural gas powered cars?  The existing internal combustion (IC) engines can run on compressed natural gas (CNG) with minor modifications.  Fueling stations are not too difficult to build and natural gas is already distributed around the country.  Regular gasoline fueling stations could offer natural gas with the addition of a compressor and metering system.  Fueling at a commercial fueling station could be done in about the same time it takes to fuel a gasoline car.  While people state that compressed natural gas (CNG) is dangerous to handle, I counter that gasoline is equally dangerous and we seem to manage.  Finally, we have an abundance of natural gas in the United States so it makes sense to use it here.  Regular IC engines that burn natural gas would allow for long trips, which are the main problem with electric cars.  Natural gas also burns cleaner than gasoline.  Engines also last about twice as long when burning CNG.  The cost for CNG per mile is also much less (about half) the cost of gasoline with the present pricing.  There are several production cars now that run exclusively on CNG and some that run on both CNG and gasoline.  The Honda Civic GX runs on CNG and has almost zero emissions except for carbon dioxide which is the same thing that we breathe out and that trees require for life.

There are over 1 billion (1,000 million) passenger cars and light duty vehicles in service around the world today.  Currently there are only about 2 million electric vehicles (EVs) in service around the world.  That is only 0.2% of the total of passenger light duty vehicles.  There are currently 24.4 million CNG vehicles in use.  There are about 5 million CNG vehicles in China, 4 million in Iran, 3 million in Pakistan, 3 million in India, 2.3 million in Argentina but only 0.16 million in the United States.  Most of the current growth of CNG vehicles is in the Asia-Pacific region of the world.  Right now it appears the problem is that gasoline is just too cheap.  If there were more CNG fueling stations and there were tax incentives for CNG cars like there are for EVs then I feel CNGs would be much more popular.  I can remember in the early 1960s it was quite common for most light farm trucks to run on butane that is similar to CNG.  Most could run on either butane or gasoline and would start on gasoline until the engine warmed up and then would switch over.

Fuel cells that run on hydrogen are not a realistic alternative.  Hydrogen and oxygen can be made from water through electrolysis.  The process requires electricity and is not economically efficient.  Offshore platforms with wind generators can convert seawater to hydrogen and then pipe the hydrogen to shore easier than sending the electricity to shore.  Even so, a distribution system would have to be set up to use it in automobiles.  It would make more sense to store this hydrogen and use it in power generation to be distributed through the existing power grid than to try to construct a hydrogen distribution system.

Many people have no idea that most natural gas was simply flared off at oil well sites since the discovery of oil to as late as the 1940’s in many parts of the US.  The natural gas was a nuisance in most instances and it was flared so the oil could be produced.  There was no infrastructure to collect the gas and distribute it for sale.  Oil could be easily collected in tanks and hauled to a refinery in trucks or rail tank cars.  Natural gas was a bigger problem to collect and transport.  Much of the commercialization of natural gas was pioneered in Shreveport.  Companies such as United Gas Pipeline Company and Texas Eastern Transmission Company were built upon harnessing the natural gas and bringing it to market.  After WWII the Big inch (24”) and Little inch (20”) pipelines were purchased from the US government as war surplus and converted from oil pipelines to natural gas carrying product from the East Texas fields to the Northeastern US for a distance of 1,200 miles. It took unheard of fortunes to slowly create the infrastructure of compressors and pipelines and right-of-ways to make it all happen.  Then markets had to be developed to use the natural gas.  It is doubtful that it could even be done again in today’s regulatory environment.  The fact that we have such a collection and distribution system for natural gas is just one more reason to use it as a fuel for transportation.  Not to mention that we currently have such a glut of natural gas that we are trying to send it around the world as we cannot use it all domestically.

I believe that there is not a single solution to the problem of automobile propulsion in the near future.  City buses, postal carriers, local UPS delivery vehicles could easily run on compressed natural gas (CNG) from a single central fueling station.  Trains could also easily run the on board electrical generators on natural gas instead of diesel to power their electric motor drives.  Commuter cars could easily be electric since they have limited range but the real workhorse vehicles that need longer range capability could be a combination of CNG, gasoline and diesel fuels.  The true answer is to let the markets decide.  Fuel taxes or road use tax could be adjusted based on how clean each fuel burned.  Diesel fuel would probably have the highest fuel tax, followed by gasoline, and then natural gas.   Right now there is no fuel tax (or road use tax) on electric fuel for electric cars.  This probably needs to be adjusted somehow based on miles driven and type of fuel used to produce electricity in your area.  If most of the electricity is generated by coal in your area then your indirectly coal fired EV probably pollutes more than you imagine.  After all, the road use tax is supposed to be used to build and maintain the highways and should be paid for by those who use the roads.  Those who travel more use more fuel and therefore pay more road use tax.  Somehow electric cars must be taxed as well to pay for the roads on which they also drive. 

Unleash the engineers on the problem and keep the government decrees out of the picture if you want the best solutions.  One size doesn’t fit all and multiple solutions for different applications in different areas will present themselves.  Top down central planning never works best.

The same can be said of money.  Government decreed digits in a computer might not be the best way to store wealth and transact business.  Crypto-currencies, gold and silver coins, and other forms of money might work much better.  Because of government decree only FRNs (federal reserve notes) qualify for payment of taxes.   FRNs are issued by a private bank that was given a license to conjure up money out of thin air.  It’s hard to compete with that type of government subsidy.

The government mandarins should get out of the way with their tax credits, subsidies and special privileges’ and let the market decide what works best in both cases.

Larry LaBorde

Larry LaBorde sells precious metals through Silver Trading Company LLC. Since 2001, Silver Trading Company has offered high volume sales of gold, silver, platinum and palladium to serious investors around the world. It also offers guidance about storage options for metals. Please visit Silver Trading Company’s website at www.SilverTrading.net. 

Precious metals investors need to understand the coming silver price surge will not occur due to the typical supply and demand forces.  While Mainstream analysts continue to generate silver price forecasts based on supply and demand factors, they fail to include one of the most important key factors.  Unfortunately, the top paid Wall Street analysts haven’t figured it out that supply and demand forces don’t impact the silver price all that much.

For example, I continue to read articles by analysts who suggest that industrial demand will impact the silver price in the future.  They believe that rising industrial silver demand should push prices higher while lower demand does the opposite.  However, according to my research, I don’t see any real correlation.  So, why should industrial demand impact the silver price in the future when it hasn’t in the past?

If we look at the following chart, there doesn’t seem to be a correlation between global industrial silver demand and the silver price:

Here we can see that industrial silver demand only increased 17 million oz (Moz) in 2011 compared to 2008. However, the price more than doubled from $14.99 to $35.12.  On the other hand, as the silver price fell in half in 2015 versus 2012, industrial silver demand only declined by 30 Moz (600 Moz down to 570 Moz).  Thus, rising or falling industrial silver demand isn’t a factor that determines the silver market price.

Also, many analysts have suggested that a falling silver price would generate more industrial consumption.  Unfortunately, as the silver price peaked and declined in 2011, so has industrial demand.  Now, some readers may believe that the decline in industrial silver consumption is due to less silver being used in photographic applications.  While this is partially true, if we remove photographic silver usage from industrial demand, we can plainly see that industrial consumption of 529 Moz in 2007 was higher than the 517 Moz in 2016:

Regardless, forecasts for industrial silver consumption have been consistently wrong.  In an article I wrote back in 2014, I stated the following on industrial silver demand:

I have always stated that industrial silver demand, especially solar power demand, will not be much of determining factor in setting the price in the future.  Wall Street analysts continue to regurgitate that industrial silver demand will grow for the next 5-10 years.  Hogwash.

When the peak of global oil production takes place within the next several years, this will impact Global GDP growth.  Matter-a-fact, world economic activity will contract along with the decline in global oil production.  Which means, demand for silver in industrial applications will decline as well.

Here is a chart showing the forecasted growth of industrial silver consumption from a report by GFMS done in March 2011, for the Silver Institute:

GFMS Analysts projected that industrial silver demand would rise to 650 Moz by 2015.  However, If we look at the first chart above, global industrial silver fabrication declined over the past five years falling to a low of 562 Moz in 2016.  Even though silver consumption in Solar PV manufacturing may increase for a few years, I believe overall industrial silver consumption will continue to decrease, especially when the markets crack and U.S. and global oil production decline.

Global Silver Scrap Supply Running Low Even At Higher Prices

Global silver scrap supply has hit the lowest level in a decade.  According to the data in the 2017 World Silver Survey, global silver scrap supply peaked in 2011 at 260 Moz and fell to a low of 140 Moz last year.  That’s a 46% decline in just five short years:

The last time global silver scrap supply was this low was in 1990 when the market only recycled 135 Moz of silver.  And get this… the price of silver was $4.82 in 1990.  So, with a price nearly four times higher in 2016, silver scrap supply is about the same as it was in 1990.  Which suggests, the market has already recycled a lot of its easy and accessible silver scrap supply.

Understanding the changing dynamics of industrial silver consumption and silver scrap supply is essential for determining long-term valuations of the metal rather than short-term yearly price signals.  Which means, industrial silver consumption and scrap supply haven’t really impacted the silver price as much as the price of oil.

As we can see in the chart above, the price of silver paralleled the spikes in the oil price.  Thus, the silver price was based more on the volatile oil price rather than supply and demand fundamentals in the silver market.  However, it is important to know how the individual silver supply and demand fundamentals are changing over an extended period.

For example, Net Government silver sales supplemented the market for many years:

While Central Banks sold a lot of silver into the market, the extra supply didn’t impact the silver price as much as the surging oil price.  Although, the important factor to understand about the liquidation of Central Bank silver stocks is that most of this supply has already been sold into the market.  According to the data from the 2017 World Silver Survey, Central Banks didn’t sell any silver into the market over the past three years.

Here are three important takeaways from the chart above:

1. Central Banks supplemented the market with much-needed silver, but this supply is now mostly depleted
2. Central Bank silver sales should not be a fundamental used to determine a short-term silver price, rather how the lack of future government supply will impact the market.
3. Central Banks held a great deal of old official silver coins as stocks for decades.  The United States had the most, but this was liquidated decades ago.  The remaining official stocks were held by a few Central Banks, such as China, Russia, and India.  These three governments were the primary source of Central Bank silver sales for the past two decades.  However, that supply has been severely depleted and will no longer supplement the market in the future as it did in the past.

Again, I look at Central Bank silver sales as a fundamental that provides information about the long-term dynamics of the overall market, not to be used for short-term price movements.

Putting Silver Market Fundamentals Into Perspective

To understand what will happen to the future silver market and price, we need to analyze the role that the fundamentals play correctly.  While most Mainstream analysts focus on supply and demand factors to determine short-term silver prices, I study them to figure out how the entire market is changing over the long-term.

As I have stated in many articles in the past, industrial silver consumption is not a fundamental that determines the silver price; rather it reveals to me how the global economy is disintegrating.  Furthermore, Central Bank silver sales and scrap supply should not be used to forecast short-term silver price movements.  On the other hand, these two fundamentals provide data that suggests silver supply from reliable sources have been seriously depleted.

Unfortunately, some of my readers are frustrated that these fundamentals haven’t pushed silver much higher prices already.  So, when I continue to write articles showing how these silver market fundamentals are changing, they criticize by saying,” those fundamentals don’t mean anything or impact the price.”  While that may be true currently, it won’t be the case in the future.

Frustrated precious metals investors need to realize the following three important key factors:

1. The Silver Market fundamentals are pointing to a perfect storm in the future as reliable past supplies can’t be counted on in the future.
2. Most of the physical silver investment is held in tight hands.
3. The disintegrating Energy Industry is the most critical factor and the UNKNOWN fundamental that will impact the value of silver in the future.

Of the three key factors above, the third one (the UNKNOWN Disintegrating Energy Industry) will impact the future value of the silver the most.  However, most of the individuals in the precious metals community are still unaware of how energy will affect the silver price and market in the future.  Instead, many in the Alternative Media continue to focus the silver market in regards to the economic and financial industry.

I will be putting out some articles shortly showing just how bad the situation in the U.S. and Global Oil industry has become.  When the U.S. and Global Oil Industry really starts to disintegrate, it will destroy the value of most Stocks, Bonds and Real Estate.  Thus, the precious metals, especially silver…. will experience a price rise never witnessed before in history.

Check back for new articles and updates at the SRSrocco Report.

Oil prices edged higher during Tuesday’s trading session, as investors pondered over what “extraordinary measures” OPEC may implement to rebalance oil markets in the medium to long-term.

Although the commodity got off to a rough start last week, after traders questioned the sustainability of the rally, recent comments from OPEC stating that there are clear signs that markets were rebalancing, have supported WTI crude. With OPEC’s Secretary General Mohammed Barkindo almost pleading for U.S. shale oil producers to help reduce the global supply glut, could the tough tug of war between U.S. shale and OPEC be coming to an end?

It has certainly been a tricky year for OPEC, especially when considering how U.S. shale production soared nearly 10%, despite the cartel’s valiant efforts to cut supplies to prop up prices. Although Saudi Aramco plans to make “the deepest customer allocation cuts in its history” by cutting 560,000 bpd next month, its impact could be diluted if the U.S. shale producers see this as a Christmas gift.

As we head deeper into the final trading quarter of 2017, investors will continue to scrutinize markets for any fresh details on the “extraordinary measures” and signs of OPEC extending its production cuts beyond March 2018.

From a technical standpoint, WTI crude has staged an impressive rebound from the $49.08 level. A decisive breakout above $51.00 should encourage a further incline towards $52.40. In an alternative scenario, sustained weakness below $49.00, which is also under the 50-day Simple Moving Average, may open a path towards $47.80.

Catalonia independence in focus

A sense of caution was felt across the European markets on Tuesday, as investors waited to see whether Catalonia would push for independence from Spain later in the day.

Catalonian President Carles Puigdemont will be in the spotlight as he addresses the region’s parliament in Barcelona on the independence referendum this evening. Markets will be paying very close attention to his tone and choice of words during his speech. The euro is likely to find itself under immediate selling pressure if Puigdemont makes a unilateral declaration of independence; it appears that many are predicting this move.

Technical traders will be observing how the EUR/USD reacts above the 1.1680 support level and 1.1850 resistance level. Sustained weakness back below 1.1680, should open a path towards 1.1600 and 1.1500.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.