GOLD & SILVER INVESTMENT

Bank of Korea Buys Gold

2011-08-02T20:44:00.000+08:00

According to the IMF, Bank of Korea is the fifth largest holder of international reserves. Bank of Korea has purchased $1.24 Billion worth of gold over the last 2 months. This is about 25 tons of Gold.

We are beginning to see more and more Central Banks joining in the GOLD bandwagon

So why are Central Bankers starting to buy gold?
They are all preparing for the Falling US Dollar!

Have you bought your gold & silver?

Gold & Silver Price Outlook

2011-08-02T10:30:00.000+08:00

Many have asked where gold and silver prices will go from here? Short term, no one knows!
Yes, US is on the verge of signing into law to raise the debt ceiling, thus avoiding a default. Will that lead to renewed confidence in the US economy and see prices of gold and silver to retreat?

However, the alternative view is then when all the euphoria of avoiding the default settles, investors will start to realise that more fiat currency would be printed. This in turn leads to higher gold and silver prices. I leave you a few links for your guidance:

Raising Debt Ceiling by $2.5 Trillion - Gold to Surge to $1950

Interview with James Turk
Part 1

Part 2

Have a good day!

Is Gold Money?

2011-07-14T15:43:00.000+08:00

Is Gold Money?

It was interesting listening to Ben Bernanke's testimony yesterday at Congress. The Chairman of the Federal Reserve Bank of USA do not think that gold is money!

Wait a minute! Why then do Central Bankers hold gold as reserves all these years? Mr. Bernanke thinks Central Banks of the World holding gold reserves is due to tradition! Watch his testimony here :

Silver has been used as money since the earliest civilisations. History has documented how gold has thrashed fiat currency time and time again. Currencies of the past has lost it value but gold is still accepted across land and time.

Former FED Chief Alan Greenspan, (Ben Bernanke's predecessor) had this to say :
"Fiat Money has no place to go but GOLD!"

So, my friends.....
GOLD is MONEY!!!

Are we going to see Silver Move Into Record Highs?

2011-07-13T23:29:00.000+08:00

This is the start of the next big leg higher in the precious metals. We’re at a new record closing high in gold today, that is extraordinary considering it is happening against the headwind of a stronger dollar. There is an important message here, money fleeing the Euro is not just going to the dollar, it’s flowing into the metal of kings.

People are recognizing that the only true safe haven is the precious metals. There are still so few people talking about gold and silver having an explosive summer. The fact that there is still so little bullish sentiment just reconfirms my view that gold and silver are ready to rocket higher.

Policy-makers on both sides of the Atlantic still don’t get it. They don’t understand that the problem is too much debt. You can’t solve a debt problem by piling on more debt. Greece is bankrupt, as is Ireland and half of the European countries.

Most of the big banks over there aren’t much better off given that their portfolios are chalked full of bad sovereign debts. But the same thing is true on the other side of the Atlantic Eric. Policy-makers in the US can’t even agree to make spending cuts in the future, let alone where they should be made which is right here and now in order to reduce government spending and the burden it places on the wealth-creating private sector.

We’ve seen yet again that support for silver at $35 was tested successfully. This is a huge and powerful base and with gold already probing record highs, silver won’t be far behind.....

One never knows exactly how the markets will unfold, but my sense is that we only have several more days of silver in the 30’s. Once silver clears $38 on a closing basis, you are going to get back into the mid 40’s in a heartbeat.

I am beginning to see the strength in the gold mining shares over the last few trading sessions. Both the XAU and HUI are within their multi-month trading ranges, but look for both of them to begin probing overhead resistance which would be the 225 area for the XAU and 560 for the HUI. It’s important to note that the HUI is only 3% away from that level, which could happen tomorrow if we have another big up-day like today.

The action in gold and silver so far this summer indicates that this is in fact poised to be explosive on the upside. Nobody is talking about this, but it could be a reality in short order. Here it is nearly 30 years after the breathtaking summer of 1982, and I think history is about to repeat all over again.

Why you should Buy and Hold Gold

2011-07-06T13:18:00.000+08:00

Growing Demand for Gold

2011-07-06T13:11:00.000+08:00

On June 13, the CEO of Newmont Mining (NYSE:NEM), the world’s second largest world gold producer, expressed his expectations of gold hitting US$1,600 this year, and higher next year. UBS Investment Research goes out on a limb with near-term projections: its one-month gold forecast dropped from $1,500 to $1,475, but its three-month projection is up from $1,400 to $1,600. GFMS projects that gold will reach around $1,620 by the end of this year.
Standard and Poor’s projections remain stubbornly lower, in spite of having been way off target for half the year; yet they did raise their forecast for the remainder of this year from $1,100 to $1,200 per ounce.
Overall, analysts and market players are quite optimistic about gold. Here’s why.
First, there’s robust jewelry and investment demand from Asia, China and India in particular. High inflation and lack of reliable alternatives to preserve wealth are directing financial flows of a burgeoning middle class into gold. In 2010, China and India accounted for 51% (around 1,570 tonnes or 50.5 million troy ounces) of the world gold consumer demand; this year it’s 58%. Investment demand for gold bars in China is flourishing as well. It more than doubled, from 41 tonnes in Q1 2010 (1.3 million troy ounces) to 93.5 tonnes (3 million ounces) in Q1 2011.
As a mental exercise, consider this: if the demand keeps growing at the same rate as it did in the first quarter of 2011, we may see overall 2011 growth at a surely market-impacting 20.9%.

Second, investors in the United States consider gold as a safe heaven, the need for which is driven by sovereign debt crises and loose fiscal policy in the U.S. According to World Gold Council data, bar and coin investment demand in the U.S. continues growing: from Q1 2010 to Q1 2011, it has surged by 54% (from 469,400 to 723,400 ounces). “Fear trade” is still the name of the game here as risk aversion borne by the fears over Greece’s default dominates global markets and European banks turn net gold buyers for the first time since the inception of the euro. In the U.S., jobless claims remain high, albeit somewhat lower than their April peak, the country’s current account balance demonstrates a widening deficit, and consumer confidence fell to a two-year low.
In this environment, betting on gold as a safe haven becomes the way to go. High demand for gold in Asia has roots both in culture and in the current economic conditions: inflation across developing economies and the overheating of Chinese real estate market specifically. As Chinese authorities try to battle the real estate bubble by putting price controls on housing, the sector becomes less attractive for investment, which spurs demand for other asset classes, including gold.
European and U.S. economies are far from overheating, as the factors we mention above constitute a rather dire economic picture. But whether fear comes from overheating or underperforming, fear drives people to gold.

Has The Silver Correction Bottomed?

2011-06-15T23:13:00.002+08:00

James Turk who is the founder of GoldMoney thinks that the silver correction has bottomed.

When asked about a bottom forming here Turk responded, “Eric you know from our previous discussion that I was looking for some more backing and filling and that is exactly what has happened over the last couple of weeks. More importantly gold dropped back to test $1,520, while silver probed support around $35 and both support levels held.”

“The sharp rally that occurred today off of those support zones suggests to me that the correction is over. In other words we are going to see silver back above $40 and gold above $1,550 within the next couple of weeks. Everything is all set for new record high prices in both metals this summer, which is going to surprise a lot of people.

I just think that people don’t really understand what can happen this summer. We’ve spoken before about the summer of 1982 when the gold price rose 50% from June to September, propelled back then by the Mexican debt default.

There are so many potential debt defaults going on today it is hard to figure out which one will be the tipping point. But whether it is Greece or Ireland or someone else it doesn’t really matter Eric, it will be a clear sign that today’s fragile monetary system of fiat currencies backed by nothing is imploding....

“When viewing December 2015 commitments to deliver, silver remains in backwardation and I want to let the KWN readers globally know that this physical silver market is extraordinarily tight.

This summer you could see a move higher in gold and silver that literally shakes the world, more than it was shaken when Lehman Brothers collapsed.

A lot of people ask if we get another Lehman style collapse, will gold and silver fall like they did in 2008? I say no they won’t. The reason is back in 2008 the primary driver after Lehman collapsed was a rush by investors, hedge funds and everyone else for liquidity. Most people learned a very valuable lesson from that event. Consequently, this time around you are not going to see a rush for liquidity, you are going to see a rush for safety. The safest haven of them all is physical gold and physical silver.”

Consider the silver chart below. Do you think James Turk is right?

The silver price has respected the upward trendline since the massive correction. We are seeing higher lows.

Strong support is seen at USD33.60/oz but immediate resistance at USD38.50/oz.

So, will we see an upward breakout in price as James Turk's call?

Have a Silver 2011!

2011-01-01T14:41:00.000+08:00

Happy New Year and have a blessed 2011!

Silver has reached new highs never seen in the last 30 years. What now? Do we

Sell now and take profits?
Accumulate more?
Hold your position?

I leave you with this video and then you make up your mind.

BUYING MORE SILVER?

Still Not Too Late to Get Into Silver?

2010-12-12T14:10:00.001+08:00

For you guys out there who are still have not invested in Silver.... fret not. We are still in the bull run as the fundamentals get even better!

Dare to think of $50/oz silver by the end of 2011?

2010-12-11T10:48:00.000+08:00

Welcome back to the Worldwide Fiat Currency Race to Debase!

At the close of third quarter 2010, it is clear for the world to see that all fiat currencies around the globe have been getting their paper back-sides kicked in by the true hard monies, silver and gold.

To all investors who have their human labor tied up in paper fiat currencies, we have this to say to you. Scoreboard.

RACE TO DEBASE

Year 2010 - Quarter 3

GOLD vs. Fiat Currency

+ 19.9%

SILVER vs. Fiat Currency

+ 29.8%

Fiat money has no place to go but gold. If all currencies are moving up or down together, the question is: relative to what? Gold is the canary in the coal mine. It signals problems with respect to currency markets. Central banks should pay attention to it.
- Alan Greenspan

Many people, like the aforementioned bubble maestro Alan Greenspan, mistakenly refer to fiat currency as fiat money. In order for a currency to also be money it must by definition be a store of value over a long period of time. Only two currencies are money, gold and silver.

Lets delve further into the numbers.

Here is a look at how real monies, gold and silver, have performed against 74 various fiat paper currencies thus far in 2010.

Fiat Currency vs. One Gold Ounce	1-Jan-10	30-Sep-10	% Gold Gain
Afghanistan Afghanis	53,343	57,162	7.2%
Albania Leke	104,997	132,216	25.9%
Algeria Dinars	78,965	95,891	21.4%
Argentina Pesos	4,171	5,161	23.7%
Australia Dollars	1,223	1,352	10.5%
Bahamas Dollars	1,097	1,303	18.8%
Bahrain Dinars	414	491	18.7%
Bangladesh Taka	75,662	90,340	19.4%
Barbados Dollars	2,195	2,606	18.7%
Bermuda Dollars	1,097	1,303	18.8%
Brazil Reais	1,914	2,212	15.6%
Bulgaria Leva	1,497	1,874	25.2%
CFA BCEAO Francs	502,190	628,614	25.2%
CFA BEAC Francs	502,190	628,614	25.2%
Canada Dollars	1,154	1,342	16.3%
Chile Pesos	556,850	631,042	13.3%
China Yuan Renminbi	7,493	8,722	16.4%
Colombia Pesos	2,244,898	2,347,464	4.6%
Comptoirs FranÃ§ais Francs	91,358	114,358	25.2%
Fiat Currency vs. One Gold Ounce	1-Jan-10	30-Sep-10	% Gold Gain
Costa Rica Colones	618,358	652,479	5.5%
Croatia Kuna	5,594	7,001	25.1%
Czech Republic Koruny	20,134	23,558	17.0%
Denmark Kroner	5,701	7,142	25.3%
Dominican Republic Pesos	39,642	47,760	20.5%
East Caribbean Dollars	2,853	3,499	22.6%
Egypt Pounds	6,018	7,420	23.3%
Estonia Krooni	11,979	14,994	25.2%
Euro	766	958	25.1%
Fiji Dollars	2,116	2,459	16.2%
Hong Kong Dollars	8,509	10,113	18.8%
Hungary Forint	207,032	265,249	28.1%
IMF Special Drawing Rights	700	837	19.6%
Iceland Kronur	136,181	147,371	8.2%
India Rupees	51,147	58,608	14.6%
Indonesia Rupiahs	10,315,100	11,630,461	12.8%
Iran Rials	10,869,251	13,347,991	22.8%
Iraq Dinars	1,265,793	1,524,275	20.4%
Israel New Shekels	4,136	4,754	14.9%
Jamaica Dollars	98,024	112,069	14.3%
Fiat Currency vs. One Gold Ounce	1-Jan-10	30-Sep-10	% Gold Gain
Japan Yen	102,084	108,834	6.6%
Jordan Dinars	779	925	18.7%
Kenya Shillings	83,234	105,293	26.5%
Kuwait Dinars	315	371	17.9%
Lebanon Pounds	1,650,963	1,967,079	19.1%
Malaysia Ringgits	3,758	4,025	7.1%
Mauritius Rupees	33,812	39,224	16.0%
Mexico Pesos	14,371	16,459	14.5%
Morocco Dirhams	8,666	10,744	24.0%
New Zealand Dollars	1,512	1,779	17.6%
Norway Kroner	6,332	7,685	21.4%
Oman Rials	423	502	18.6%
Pakistan Rupees	92,518	112,539	21.6%
Peru Nuevos Soles	3,168	3,635	14.7%
Philippines Pesos	50,741	57,240	12.8%
Poland Zlotych	3,128	3,808	21.7%
Qatar Riyals	3,997	4,744	18.7%
Romania New Lei	3,227	4,091	26.8%
Russia Rubles	33,265	39,881	19.9%
Fiat Currency vs. One Gold Ounce	1-Jan-10	30-Sep-10	% Gold Gain
Saudi Arabia Riyals	4,116	4,887	18.7%
Singapore Dollars	1,542	1,715	11.3%
South Africa Rand	8,108	9,121	12.5%
South Korea Won	1,277,096	1,486,002	16.4%
Sri Lanka Rupees	125,504	145,586	16.0%
Sudan Pounds	2,452	3,092	26.1%
Sweden Kronor	7,848	8,819	12.4%
Switzerland Francs	1,137	1,278	12.4%
Taiwan New Dollars	35,063	40,755	16.2%
Thailand Baht	36,597	39,531	8.0%
Trinidad and Tobago Dollars	6,949	8,301	19.5%
Tunisia Dinars	1,453	1,851	27.4%
Turkey Lira	1,646	1,891	14.9%
United Arab Emirates Dirhams	4,030	4,787	18.8%
United Kingdom Pounds	679	828	22.0%
United States Dollars	1,097	1,303	18.8%
Venezuela Bolivares Fuertes	2,359	5,603	137.5%
Vietnam Dong	20,278,046	25,352,451	25.0%
Zambia Kwacha	5,092,801	6,317,655	24.1%
Why do central banks and governments around the world continue to overprint and weaken the values of their respective fiat currencies? Countries need to export their products and trade. By having a weaker currency, a country can more easily sell and trade their products throughout the world. The quandary is that not every country can have a weak currency at the same time. Remember, fiat currencies trade in relative terms. Paper currencies are simply valued against one another therefore dollars are always priced in euros, yen, pesos, pounds, and so on. If one fiat currency weakens, one or more of the other fiat currencies strengthens. When nations battle to quicken debasement of their respective currency in the hope to bolster export demand (to perhaps maintain an economic status quo) this is what is called competitive debasement. In the 1930’s the term for this was "beggar thy neighbor."

Silver: The Undervalued Asset Looking for a Catalyst | FINANCIAL SENSE

2010-11-22T17:35:00.000+08:00

Silver: The Undervalued Asset Looking for a Catalyst | FINANCIAL SENSE

When I sat down to write The Perfect Financial Storm in the summer of 2000, my storm analogy was based on three storm fronts colliding with each other. Like the real storm on Halloween 1991, three economic forces were turning into storms fronts. The first and foremost storm was developing in the credit markets as a vast mountain of debt was being created. This ocean of money, which had ignited a boom, was now turning into a bust. In order to avoid the consequences of a deflating credit bubble, the Fed embarked on a massive monetary stimulus program. The Federal Reserve was using all of its powers in an effort to stave off the bust and bring temporary relief by manipulating the financial system with the creation of more credit. The result is that today interest rates are at historic lows and credit expansion within the financial system has accelerated even more.

The Fed is now pulling out all stops from lowering interest rates, monetizing debt and usingunconventional means to prop up the markets and the economy. It is believed that “unconventional” equates to intervening in the financial markets. In statements going back to 1989, recent research papers and comments made during FOMC meetings, the Fed has made reference to ”unconventional” measures in case current monetary policy becomes ineffective.

Unconventional in this case may mean buying or monetizing various assets. In the January 2002FOMC meeting reference was made to buying any kind of asset to pump up the system from US equities, government and municipal debt to real estate and gold mines. If one views the second storm front as a bear market in stocks where we have seen a decline for three straight years and despite twelve rate cuts by 2002, unconventional may also mean propping up the stock market. Injecting reserves into the financial system through Federal Reserve Repurchase Agreements is one method of achieving this. When the Fed purchases securities from primary government bond dealers, it pays for these securities with cash, thereby adding liquidity to the banking system. Member firms then have the available cash to carry out Fed intervention in the financial markets through major purchases made in the futures markets or through the purchase of select market weighted stocks that are included in all three major indexes such as Microsoft and Intel.

Mike Bolser, who contributes to The Golden Sextant, has documented this relationship between the increase in Fed repos and the movement of the markets in the charts below. Readers can follow the movement of the repo market at the Federal Reserve Bank of New York, where they are posted daily.

Source: G. Michael Bolser (click to enlarge)

THE FOUR-STEP RALLY PROCESS

I have written in the past how intervention takes place in my four-step rally process, which is repeated below. This pattern has been repeated consistently since last summer's July rally.

Intervene in the market (done by buying futures).
Higher stock prices through intervention forces short covering.
Stock prices that lurch higher bring in momentum players.
If the rally lasts long enough, John Q may move money into mutual funds. This happens just about the time the rally fades.

It is clear that the current market momentum is based on factors other then economics, earnings and valuations. The reason that intervention isn’t freely admitted—as in other countries like Japan where the government is buying stocks—is because the US professes to adhere to free markets. An English statesman in the 18th century expressed it best by saying,

“The moment that government appears at market, the principle of the market is subverted.”

~ Edmund Burke ~

The third and final storm front is the economy, which has weakened again. It is clear from recent economic reports that the economy remains anemic. It appears that another stimulus program and more credit and lower interest rates are necessary to sustain it. The recent cut in interest rates has stimulated another round of mortgage refis and it appears that abundant credit is still keeping the housing market inflated. Outside of housing and government spending, there are few catalysts out there to keep the economy propped up. (See Catalyst Part 1) Therefore it appears that more pump priming, more stimuli and other unconventional means will be necessary. The Fed and the government are now engaged in a multi-front program to keep the economy and the markets from collapsing. This includes lowering short and long-term interest rates, running budget deficits through increased fiscal stimulus—both spending and tax cuts—and eventually if necessary debt relief, debauching the currency and any other measure that is necessary to keep the economy out of a depression.

It is apparent from the current policy of pumping money, debauching the currency, and running massive budget deficits that more economic upheaval and financial disruptions are about to revisit us. The result is that all three storm fronts in credit, the economy, and the financial markets could either collide, batter us one after the other, remain contained or isolated, or unite to form one massive storm front. The monetary jet stream and the speculators and policymakers that drive it will determine the route and direction of these multiple financial storms. Whether all three-storm fronts collide to form The Perfect Financial Storm has yet to be determined. What is abundantly clear, however, is that we are experiencing no ordinary economic storm. The bursting of a stock market bubble, gyrating financial markets, a weak economy, rising unemployment and the failure of rate cuts to reignite the economy and markets is obvious. With conventional policy methods failing to achieve their objective, investors must now prepare for unconventional policy changes and the havoc they may bring.

STORM STRATEGY: PRECIOUS METALS

In writing my Storm Series, I touched upon investment strategies that would work under various storm scenarios. Prominent among them was precious metals. As currencies depreciate, especially the dollar, confidence in paper will evaporate. This will cause a flight to real money, which I define as gold and silver. While I believe that both gold and silver will do well under any storm environment, I believe that silver has far more upside potential. From a value perspective, silver has many attractive attributes that are hard to overlook. There are eight, which taken together, add up to explosive upside potential regardless of what happens to the financial environment. They are listed below.

Catalyst #1 Supply Side Deficit

Demand Outstrips Supply
One of the most astonishing aspects about silver as a commodity is that demand has outstripped supply for nearly fourteen years, including projected deficits for 2003. Annual silver deficits have run as high as 200 million ounces in boom years and as low as 40-50 million ounces in years of recession. Even in years of economic stress, as in the recession of 1991 or more recently in 2002, demand continues to outstrip supply.

Demand for silver in all categories of use has increased substantially since silver began running annual deficits back in 1990. The largest use of silver comes from photography, jewelry and silverware. Although photographic and silverware demand have edged lower due to a worldwide recession, this demand is still higher today than where it was in 1990.

During recessionary periods, demand for photography, jewelry and silverware may decrease, but supply can also decease since 80% of silver produced is a byproduct of copper, gold, lead, and zinc mining. A good part of last year's decline in mine production was the result of planned closures of copper, lead, and zinc mining operations. The production of these metals is influenced more by economic trends than the price of silver. Photographic demand also influences silver supply since much of the secondary scrap supply is refined from photographic film and chemicals. A decline in photographic demand would also impact secondary scrap supply.

Few Pure Producers
Another aspect about silver supply that is important is that there are very few pure silver producers. In fact you could count them on two hands. This handful of silver producers along with a few governments account for the other 20% of silver mine supply. With the exception of mines in Mexico, Peru and a very few other locations, it has simply been uneconomic to produce silver at these historic low prices. A few junior mining exploration companies have chosen to acquire silver properties and sit on them until such time that sustained prices make it economical and profitable to mine.

Silver Prices "Controlled"
I can think of very few other commodities, besides gold and energy, where low prices continue to persist despite rising demand. Under normal economic circumstances greater demand than supply would lead to higher prices. This has not been the case with precious metals. Precious metals are a political commodity with their price governed by government policy. Government has a vested interest in keeping precious metal prices controlled because gold and silver metals represent a challenge to government fiat currency. A gold or silver backed currency would limit the government’s ability to print money, expand credit and debase the value of the currency. Therefore, governments have a vested interest in keeping the price of silver and gold low and controlled. They do this through the outright sale or leasing of gold or through leveraged paper instruments known as derivatives. This can be viewed by the charts below on derivative issuance and dishoarding of gold by the UK/US and the price of gold.

At this point the reader may wonder why supply deficits have not produced higher prices for gold and silver. Outside government sale of gold and silver, the main reason is we have been living off accumulated stockpiles. A lot of the supply deficit in silver is made up by secondary supply that comes from old scrap and coin melt. Governments have also supplied silver to the market from accumulated stockpiles. The U.S. Treasury held 2.06 billion ounces in 1959. A good majority of this stockpile was sold off during the 60’s with the balance used in the minting of Silver Eagles coins from 1986 through 2002.[1] The U.S stockpile has now been depleted. As of 2002 the largest remaining government silver inventories are in India, which is estimated to hold around 87 million ounces.

The net result of 13 years of silver deficits is that through 2002 the cumulative deficit has been 1,525.5 million ounces.[2] This entire deficit was made up from above ground inventories. Silver inventories have fallen from around 2.2 billion ounces at the beginning of 1990 to less than 500 million ounces today. The cumulative draw down of inventories came mainly from investors during the 90’s who had bought their silver in earlier periods at much higher prices. The great equity bull market of the 90’s made many of these investors disenchanted with their returns on silver. As a result, these investors sold heavily throughout this period bringing more supply to the marketplace, which helped to offset silver production deficits. However, there has been a noticeable increase in investor interest in silver with the sale of Silver Eagles by the U.S. mint rising close to 19% last year.

Catalyst #2 Decreased Investor Selling

Buying and Holding
Since investors have been a key source of secondary supply over the last decade, a decrease in investor selling and an increase in investor interest in silver is a second factor that bodes well for silver prices in the years ahead. Investor interest is a key factor because, as stated above, investor selling has been an important supply source making up part of production deficits over the last decade. Although global investors continued to sell last year, the amount of silver sold has been gradually decreasing. In addition to reduced selling investment, demand shows signs of reviving with U.S. government Silver Eagle sales growing from 5.6 million ounces in 1998 to 10.5 million ounces last year.

Markets Changing Preferences
India, which is a major market for silver, is also experiencing a change in investor preference. The latest CPM report noted a change in investor interest moving from jewelry and decorative objects to a preference for buying bullion bars. Part of this may be the rise in silver prices in local currencies. The other reason may be a growing recognition of the investment merits of owning silver. This year the Indian government is willing to allow gold and silver to be traded on Indian futures exchanges. The government has yet to allow the export of silver and gold. However, when and if that happens, it would create both a greater supply of silver as well as a source of future demand by expanding and integrating India with world markets for precious metals. Investor demand for silver occurs mainly in North America, India, the Middle East, and Southern Asia.

In It For The Long Run
Another positive attribute about silver demand is that silver investors tend to be long-term investors. Silver was accumulated throughout the 60’s and in the 80’s. Dishoarding took place only after the U.S. equity mania had taken off during the mid-90’s. This demand may accelerate due to a bear market in equities that has the potential to persist throughout this decade. Debasing currencies around the globe (especially the dollar) and record low interest rates also make silver, along with gold, an attractive investment for hedging against a decline in paper assets. Recognizing that the bear market in equities is far from over, combined with central banks that are injecting vast amounts of liquidity into the world financial system, currency debasement will accelerate, thereby making precious metals more attractive as an investment alternative. In my opinion, this is the greatest wild card for precious metals—especially for silver. The return of investment demand could cause precious metals, in particular silver, to explode. The supply side of silver could not accommodate an influx of investor demand without the catalyst of higher sustained prices for silver.

Catalyst #3 Diminishing Silver Stockpiles

This brings up the third catalyst for higher silver prices, which is dwindling stockpiles. I have already made reference to the huge drawdown in above ground stocks as a result of the deficits of the past thirteen years. According to CPM Group, non-coin inventory is around 419 million ounces with an additional estimated coin inventory of about 487.5 million ounces. The difficulty of estimating silver inventories lies in the fact that much of the world’s silver is now in the hands of individual investors and consumers. Arriving at an exact estimate as to what that amount is can only be estimated.

What is clear from known data of annual deficits is that whatever that supply once was, it has certainly diminished as a result of continuous drawdowns. However, this amount has played a mitigating role in one form or another in making additional supply available to the marketplace. Unfortunately experts can only estimate what remains of that supply. Reported inventories held on the COMEX, Tocom, CBT, and U.S. and Japanese Industry have fallen dramatically over the last four years. These institutional inventories have fallen from 245.8 million ounces in 1996 to 144.4 million in 2002, a drop of 41.3%. [3]

Don't Count on Moms and Pops
Although individual inventories of coin, jewelry, silverware, heirlooms and religious treasures still remain substantial, they remain elusive as a source of supply to the markets. They cannot be marshaled as easily as COMEX inventory to make up shortfalls in supply. What would drive more individuals to part with their silver is not readily known. Suffice to say it would probably be substantially higher prices. This happened during the later stages of the great silver bull market of the 1970s when households brought silverware and other silver items to the market as the price of silver soared. Even then, silver jewelry and religious items may be price inelastic having more personal rather than monetary value.

Paper Market Dominates
What is clear is that the demand for silver continues to remain high with production supply deficits each year. Production has not been able to keep up with demand for several decades. Secondary scrap sales, coin melt and government stockpiles have made up the difference. Today there are no large government stockpiles of silver left in the world outside of India. Coin melt has diminished from its peak in the 1970s and secondary scrap sales are a two-edged sword because they are dependent on silver use. This has many experts asking “when” and not “if” silver inventories reach critically low enough levels to trigger a price reaction in the marketplace.

This drawdown in world silver supplies has been a sleeper and has gone unnoticed by the investment community. This is because the paper markets dominate the silver markets. This can be illustrated by the chart below, which shows the value of annual silver supply versus the trading in paper instruments. The total value of last year’s entire silver usage of 784.8 million ounces is only around $3.6 billion. By comparison, the value of all paper and derivative contracts had a value of $193 billion.[4]

Because most paper transactions are settled in cash, and not bullion, there has never been a need to take delivery or demand it. Most investors have been content to settle their transactions in cash instead of metal. This might not always be the case and remains one of the great vulnerabilities of the silver markets. There simply is not enough silver held in inventories to handle investment delivery should the trend in settlement change from paper to physical. For example, in 2002, 21.9 billion ounces was cleared through London silver markets and 15.7 billion ounces traded on the COMEX. This compares to total production and supply of around 800 million ounces. [5]

What if?
Imagine this. What might happen to the price of silver if investors gradually or suddenly lost faith in paper assets and demanded physical delivery? The fact that this may someday happen shouldn’t be casually dismissed. The value of paper contracts far exceeds the ability of any exchange to handle should physical delivery ever be demanded. As of this writing open interest in silver on the COMEX is 83,905 contracts. Long positions are 79,990 contracts and short positions are the same. It is the long contracts that pose the greatest danger because they could change their preference from one of settling in cash to one of settling in metal. Remember, short sellers have a choice of settling in cash or providing metal. These long positions represent 400 million ounces of potential silver demand. Against this amount there are only 107.2 million ounces of silver on the COMEX of which only 46 million are registered and available for delivery. The other 61 million ounces is in the eligible category and not available for immediate delivery. Many of these eligible ounces are held on the COMEX for storage purposes for either future use or as an investment. Although they could potentially move into the registered category and become available for delivery, it is unlikely all of this amount would do so.

The exchange does have a way out should demand overwhelm supply. There is a clause, which allows for cash settlement or payment for silver. This clause may provide a way out if silver ever gets squeezed. However, news of such a squeeze would certainly translate into higher prices in much the same way that the platinum squeeze did in Japan in the late 90’s.

Catalyst #4 Declining Interest

Besides dwindling supplies, the next positive catalyst and one of my favorites is declining interests in silver by the professional investment community. Over the last few years a growing characteristic of the silver market has been an erosion of the metals market structure.

More bullion and investment banks are exiting the business of providing trading, financing, credit, or storage facilities to the silver market. Last year two major European investment banks closed their Indian trading operations. The volume of contracts traded through the interbank market located in London has declined for the fifth consecutive year with the volume of ounces traded down by 70.6% from 1997. Withering interest can be seen in the chart on the left.

The Pros Are Getting Out
According to the latest CPM Group report, bullion and brokerage companies accounted for the majority of the decline in lost trading activity. More and more of the professional community have been exiting the business because of lack of interest. The market has simply become too small and unprofitable to remain in the business. In 2000 both Morgan Guaranty and Republic’s Delaware facility ceased to be registered as COMEX vaulting facilities.

Institutions have watched the steady decline each year in reported silver inventories from the 350-ounce range to today’s 100 million range. Besides Morgan, more banks are closing down their vaults because there isn’t enough silver available in inventory form to make it worthwhile. This is happening around the globe in money centers in New York, London, and Zurich to Hong Kong. Many of the larger investment banking firms have left or closed down their commodity market operations. Still others only keep a marginal presence. As more professional institutions exit the market, liquidity is reduced.

Rip Van Winkle
This to me is the perfect contrary indicator: professionals exiting the market due to their lack of interest and profitability. Combined with reduced liquidity, diminishing supplies, lingering deficits and few alternatives for investing—whether in bullion or equity—this translates into the potential for enormous opportunity. It might be better said by saying a lifetime opportunity.

Lack of Investment Alternatives
As the CPM Group points out in their recent silver report, investing in physical silver is extremely difficult in North America because there are few available outlets. Small investors, outside the COMEX, account for silver investments. They make their investments either through a local coin shop or by buying Silver Eagles through the U.S. mint. Large investors have found that investing in silver has become more difficult. CPM reported an anecdotal story about a number of medium sized and wealthy investors contacting the firm with an interest in making a $100,000 - $5,000,000 investment in silver. These clients reported difficulty in finding silver of this kind of volume at a reasonable price. The lack of silver investment alternatives from equities to bullion to finding competitive storage facilities has made it much more difficult to invest in silver. There are few outlets for making large silver investments and there are few equity alternatives as well. Add this to the fact that silver is consumed and it is not hard to see how this market can explode to the upside, especially if investor demand returns as confidence is lost in paper.

Catalyst #5 Large Paper Short Positions

Another catalyst for launching silver prices is the existing large short position in silver bullion on the COMEX. These short positions are a potential catalyst if silver prices suddenly move up. This will force short sellers to cover their positions. Silver has been kept within a narrow trading band for the last decade. Prices have been contained between $4-$5 an ounce range. Over the last year and a half that band has narrowed to $4.40 and $4.80. Technically, this reflects a horizontal or consolidation pattern. Since reaching a peak of $50 an ounce back in 1980, the price of silver has declined 90%. Silver has been a steady decline throughout the 80’s and mid-90’s until falling to within its present band of $4-$5 an ounce.

(click to enlarge)

One-Way Trading
The silver market has been a one-way trade for more than a decade. The only way to make money in silver has been to short the metal. The technique has been to go long when silver falls to the lower range of its band at $4. Then you go short as the price of silver heads up towards $5. This one-way trade has dominated the silver markets and remains to this day. Occasionally silver prices have spiked up when supplies are short or demand has increased or on news like when the markets learned that Buffett was buying silver. Besides these occasional forays into higher price zones, silver has been range bound for over a decade. There appears to be strong price support at the lower end of $4 and selling pressure at the upper end towards $5 an ounce. The narrow trading band appears to be edging upward over the last few years, but outside an occasional price spike, it still remains confined to within its narrow trading band.

Paper Versus Physical
A harbinger of what might happen in the future was demonstrated last year with the fall in the equity markets and the decline of the dollar. Investor interests returned briefly to the markets last spring as U.S. equity markets were imploding. Speculators rushed into the silver markets driving prices up quickly. These speculators were mainly momentum traders who started to buy silver on upside breakouts. Because this market is so thin, all it took was a small increase in trading volume to send silver prices skyward. Silver equities performed even better. In fact silver equities outperformed gold shares last year.

Source: www.stockcharts.com

Source: www.gold-eagle.com
Based on the price of silver & AEM, SIL, PAAS,
PENOLES, HL, SSRI & CD

The direction of silver prices is more determined by the paper markets than the physical markets. As mentioned, for a decade the price of the metal has been contained within a narrow trading range as traders and short sellers base their buying and selling decisions on technical price patterns. Because there is strong short selling, as silver moves up towards $5 an ounce, the buy and sell range has been ingrained with traders making shorting silver a one-way trade for the last decade. That this condition could exist during a period of large supply deficits demonstrates how paper—rather than physical—dominates and controls the price of the metal. The large silver supply deficits have been unable to act as a catalyst for higher silver prices due to the preponderance of paper silver in relation to physical silver and large above ground stockpiles. These large above ground stockpiles have been depleted by cumulative deficits over the last 13 years by 1,525.5 billion ounces.

At some point in the near future, these above ground stockpiles will fall to critical levels and the price is going to explode like a NASA space launch. It will explode for three reasons. The main one is that it will be in short supply and in the short run there are no large stockpiles to supply a sudden spike in demand triggered by a price rise. Inventories of silver in the form of jewelry, silverware, and religious objects are not the same as silver bullion. They are held for personal reasons and not sold and traded in the same way as the metal. As such they cannot be mobilized to meet demand in the same way that bullion bars held in warehouses can if market conditions change. The price will also explode due to the thin nature of the markets. The actual physical market for silver and silver equities is extremely small. There are less then 10 pure silver mining stocks and the physical market is less then $4 billion. This compares to the trillions that are traded in the currency markets and the hundreds of billions that trade each day in the stock and bond markets. The final catalyst for an explosive price rise is the large perpetual short position that exists on the COMEX, a short position that is 4-6 times the actual amount of silver that could be delivered if investors insisted on physical delivery. Currently, it is almost 10 times the amount of available silver for delivery. (See Five Smooth Stones)

Ripe Conditions
The short sellers have been able to control the markets for over a decade in a one-way trade. History teaches us that markets ignored and silent for decades can abruptly change. I would suggest that given all of the monetary and financial uncertainties that now exist and the fact that central bankers are hell bent on burning the value of their respective currencies, conditions are ripe for an abrupt sea change in the silver markets. The metal has been confined to within a narrow range in part due to the fact that silver is perceived as an industrial metal. With economic weakness prevalent around the globe, the price of silver is also range bound by its association with weak industrial demand. Besides the large perpetual large short positions, economic weakness and the belief that silver is only an industrial metal have kept the price from rising. It is often forgotten that although the primary demand for silver has been industrial—unlike gold—silver is consumed which reduces supply.

Catalyst #6 Expanding Uses For Silver

Another factor weighing in silver's favor is the number of growing uses for silver. The main uses for silver have been primarily for photography, jewelry, silverware, electronics and batteries. Much of this demand is price inelastic. The small amount of silver that is used in applications makes it an insignificant factor. The amount used in the manufacture of a battery, an automobile, a computer, and in jewelry is insignificant when compared to the price of labor and other materials. A doubling in the price of silver would not effect what GM uses in making a car, Energizer in a battery or even David Yurman in silver jewelry. If a highly refined piece of silver jewelry costs several hundred dollars, a $5 dollar jump in its price or a tripling of its price would be insignificant. More important to the price would be its availability.

Today the main use of silver is still photography, jewelry, and silverware. However, new applications are growing each year. Silver is now used as a biocide and as an electrical and thermal conductor. Because silver has unique properties such as malleability, strength and its sensitivity to light and ability to endure extreme temperatures, substitutions are difficult.

Others, such as Dave Morgan, have written extensively on the uses of silver. I will not attempt to elaborate here on the fine work done by others. To find out more about silver and its uses, the reader can go to The Silver Institute website and Dave Morgan’s Silver-Investor.

Catalyst #7 The Return of Silver as Money

The final catalyst for silver is a return of silver and gold to their real purpose which is money used as a medium of exchange. I would like to point out that since the U.S. and the world went off the gold standard by abandoning Bretton Woods and quit using silver as coin, there has been an attempt to treat silver as purely an industrial commodity. However, throughout time—and I’m referring to 5,000 years of recorded history—silver has been the prominent form of money. In fact, its use as money has been more prominent than gold. Emperors, kings and princes and merchants may have transacted business in gold, but the common man used silver. In trade, silver was the dominant monetary metal until the 20th century. It’s use as money has been recorded in the bible's first book of Genesis. Abraham purchased a burial site for his wife Sarah from Ephron the Hittite for four hundred shekels of silver. [6]

A Unique Commodity
Unlike fiat currencies or paper money, which can be created in unlimited amounts, silver—like gold—has all of the properties of real money. It is divisible, durable and utilitarian. It is tangible. Money is a commodity that differs from other commodities because of its use as a medium of exchange. In each country that has its own unit of money (be they marks, francs and now euros), the original use and function of money was always tied to gold and silver. It was only in the 20th century and briefly during the 17th century that countries deviated from the use of gold and silver as true money used as an exchange medium. Paper currencies were used merely for their convenience, but they were all backed and exchangeable for real money: silver and gold. It is only when money began to be viewed in the abstract that it became easier for governments to cast aside the properties that gave currency its monetary value.

The Depreciating Dollar
Since abandoning gold and silver backing of money, the U.S. dollar has steadily depreciated as seen in this chart above. As a result, we have gone from one monetary crisis to the next. What determines the value of money is the same force that determines all goods and services traded in the market. That is supply and demand. As central banks increase the supply of money into the economy and financial system, the value of its worth depreciates. This is an irrefutable law of economics: an increase in the supply of money will lower its value. Conversely an increase in demand for money will raise its value. In a book on money, Murray Rothbard tells us,

“What makes us rich is an abundance of goods, and what limits that abundance is a scarcity of resources: namely land, labor, and capital. Multiplying coin will not whisk these resources into being. We may feel twice as rich for the moment, but clearly all we are doing is diluting the money supply. As the public rushes out to spend its new-found wealth, prices will, very roughly, double—or at least rise until the demand is satisfied, and money no longer bids against itself for the existing goods… Thus we see that while an increase in the money supply, like an increase in the supply of any good, lowers its price, the change does not—unlike other goods—confer a social benefit. The public at large is not made richer. Whereas new consumer or capital goods add to standards of living, new money only raises prices—i.e., dilutes its own purchasing power." [7]

Loss of Confidence in Paper
In the future what will become a major catalyst for silver and gold is a loss of confidence in paper fiat money. As central bankers, in particular the Greenspan Fed, create vast quantities of credit, in the end it will destroy its value. Look at any place in the world where central bankers or governments are creating an endless supply of money or credit and you will find depreciating currencies, financial turmoil and impoverishment of the people. Monetary alchemists cannot create wealth artificially through fiat means. Real wealth comes only from savings, investment and the creation of capital stock. If it were otherwise, all nations on this earth would be rich and its citizens as well.

I believe the present attempt by central bankers to inflate their respective currencies, and especially the policies of the Greenspan Fed, are leading us closer to The Perfect Financial Storm. This is a topic that I will cover in just a moment. For now it is important that the reader understand that the most valuable property of silver is its historic use as money and not as an industrial commodity. Attempts by the silver and gold industry associations to continue to promote the industrial uses of silver or gold are ridiculous. It goes to show you how little is understood about the concept of money. In less than a generation a real understanding of what money “is” and what it "isn’t" has been completely forgotten and obfuscated by the jargon of modern day economics. People in the 19th century had a greater understanding of what money was and were the most arduous defenders of its value. Today fiat currencies are depreciated endlessly; while debate centers on whether the Fed should lower or raise interest rates or pump or siphon money into or out of the economy. No thought is ever given to the consequences of these actions. When crises erupt as a direct consequences of these actions, even greater cries are heard for more of the money narcotic.

A Great Misunderstanding
Today no attempt is made to understand or learn what money “is” or why fiat currencies have been such a dismal failure. The more crises we go through, the greater the financial turmoil. The growing impoverishment of people as a result of the unlimited creation of fiat money is swept under the carpet. Instead, each new crisis causes government and financial experts to try new forms or methods of financial alchemy. The greatest blame for these misfortunes lays squarely at the foot of our educational institutions which have perpetuated discredited economic theories. They have instead become a breeding ground for economic disinformation.

In the forward to Murray N. Rothbard’s "What Has Government Done to Our Money," Lew Rockwell of the Ludwig Von Mises Institute writes, "…government has always and everywhere been the enemy of sound money. Through banking cartels and inflation, government and its favored interests loot the people’s earnings, water down the value of the market’s money, and cause recessions and depressions. In mainstream economics, most of this is denied or ignored. The emphasis is always on the “best” way to use monetary policy. What should guide the Federal Reserve? The GDP? Interest rates? The yield curve? The foreign exchange value of the dollar? A commodity index?”[8] Rothbard’s book on money debunks all of these ridiculous theories and shows why in the end the fiat system of credit money will fail. Every investor should own a copy of this book if they want to gain a better understanding of what lies ahead as a major monetary storm front approaches.

Catalyst #7 The Dollar and Credit Crises

The Credit Market Storm is Brewing
This brings me to my final argument on the case for owning precious metals, especially silver. The world financial system is heading for a major crisis with the dollar-based monetary system at its epicenter. Since abandoning gold backing of the dollar in August of 1971, we have embarked on one of history's greatest experiments in fiat money. Since that fateful day in 1971, debt and credit of every kind has expanded at all levels of society. Just look at these dramatic charts below. Note the advance of debt after 1971.

Along with this expansion of credit, the value of all paper currencies have declined in purchasing power. During the 1970s, inflation was manifested in the value of “things” as in commodities. Investors and citizens lost all faith in government and paper money, which led to a preference for owning tangible goods, especially gold and silver. This can be seen in the charts of gold and silver from the 70’s below.

Transference of Inflation to Financial Markets
The regime of fiat money took a new twist during the late 70’s and early 80’s as governments turned to central banks for advice. That advice eventually led to the transference of inflation from the economy to the financial system. Central bankers used interest rates as a tool to restrain borrowing by individuals and businesses. At the same time they recommended a reduction of government borrowing and the substitution of financing government deficits through the selling debt instruments to domestic and foreign investors. Inflation from this point forward would manifest itself in the form of rising financial asset prices as money and credit found an outlet in the financial markets. A secondary result of this policy is that a greater portion of America’s debt now lies in the hands of foreign institutions.

Peter Warburton wrote in “Debt and Delusion,” this new system of finance led to a movement away from conventional bank lending towards capital market finance. As a result of this transformation, the most important centers for the creation of credit have now become the capital markets. [9]Today financial intermediaries, government sponsored entities and Wall Street Security firms have become the creators and distribution centers for expanding credit. The traditional form of lending rooted in the banking system was completely displaced by the capital markets. In that process the Fed and other central bankers lost a great deal of their authority to regulate credit.

The Rise of Bond Market Influence
The bond markets today have become the final arbiter. The Fed’s main function is to keep supplying liquidity to the financial system in its role of lender of last resort. The avoidance of a deflationary debt collapse has become the Fed’s main objective. The Fed has always worked to provide a safety net for the banking system. However, that role is inadequate given the proliferation of numerous financial entities today—each of whom are large enough to precipitate a financial collapse. The LTCM crisis in 1998 was just a prelude of things to come.

The concept of lender of last resort has expanded the moral hazard. Today’s financial institutions—whether they are financial intermediaries or hedge funds—have no regard for risk. The risk of loss or financial failure, which governed lending and investment decisions in the past, no longer holds sway over today’s billion-dollar financial bets. Central banks, especially the Greenspan Fed, have shown a greater degree of intolerance for financial failure of any kind. The bigger the institution and the greater the risk it takes, the greater chances are that any failure or mistake will be met by bailouts of one form or another. In the end, it is the taxpayer who pays and stands behind this risk.

Addicted to Debt and Leverage
”For the moment, anarchy in the global financial markets masquerades as an agent of national prosperity and personal freedom. It is a compelling disguise, underpinned by many clever arguments and supported by many persuasive advocates." [10] One of the underlying theses of Warburton’s “Debt & Delusion” is that citizens and governments have become heavily addicted to debt and no longer care about its consequences. This has become more clearer with each passing day as policymakers both in Washington and on Wall Street advocate even more credit and debt in order to solve America’s economic malaise.

Last year total credit in the U.S. expanded by $2.3 trillion. This enormous amount of debt was divided between nonfinancial credit (60%) and financial credit (40%), which compares to national savings of only $286.7 billion.[11] Credit is the fuel that drives the American economy. It is also what drives the U.S. financial markets. By driving down short-term interest rates, the Fed has engaged the whole spec community and driven them into a wild orgy of speculation in the carry trade. Hedge funds and speculators can borrow short at rates of 1% and then invest that borrowed money in higher rates from Treasuries paying 3-4% to junk debt paying over 10%.

This leveraged money employed in the carry trade is what drives the bond markets. Whereas in the past the bond markets reacted to short-term policy changes in short-term interest rates, today the bond market acts on behalf of itself. The Fed’s role has been relegated to one of moral suasion; trying to influence the participants towards a directed outcome. An example of this is the May 5th Fed meeting where the Fed announced it was worried about deflation even while real inflation of goods we need from food to energy heats up in the economy. The policy statement—which was nothing more than moral suasion—was an attempt by Fed officials to direct the spec community and herd them into playing the yield curve. The result was that money moved into the long-end of the market, driving down interest rates in an explosive bond rally that took 10-year rates down to the 3% level and drove the long bond into the 4% zone. This in turn ushered in lower mortgage rates, which led to another round of mortgage refis putting more debt money into the hands of consumers. The policy objective is to lower the carrying cost of debt in order that more debt can be accumulated (translation: additional consumer spending). Consumer spending now accounts for 90% of U.S. GDP. The U.S. economy has transformed itself from an economy that saved, invested and produced goods into an economy that borrows, consumes and trades off asset bubbles. (See Debt Valley and We Are Consuming All of Our Seed Corn)

Financial Speculation
In addition to the bond market bubble, which feeds off a continuous supply of cheap credit, a portion of that credit also goes into financial speculation in the stock market. It has become apparent that the Fed is once again trying to reinflate the stock market bubble along with keeping the real estate bubble inflated in order to avoid a deflationary debt collapse and another depression. Having expanded credit throughout the 90’s and now the 2000s, the Fed created a giant asset bubble first in stocks, then in real estate. The Fed is now in a fretful state because of the consequences of seeing these bubbles deflate. The result would be the possible collapse of the financial system and a depression. In trying to fight and prevent these two events from occurring, it is expanding credit, monetizing debt, intervening in the financial markets, debasing the currency and using every means of persuasion to direct the markets in an effort to achieve a certain outcome. In this one sense the U.S. economy and financial markets no longer operate freely, but are now centrally planned.

Funny Numbers
At the moment the Fed is trying desperately to keep asset bubbles in equities, bonds, mortgages, real estate and consumption from deflating. In order to do this, financial markets have taken on a whole new language that is divorced from fundamentals both in the economy and in the financial markets. Instead of earnings based on GAAP (Generally Accepted Accounting Principles) we now get CRAP (Cloudy Reporting Accounting Principles).

Any reference to earnings, valuations or any other measure of value is artificially inflated by using a whole new set of different metrics. I find it difficult to believe that economists, analysts, and investment strategists are incapable of comprehending what “is” and what "isn’t" earnings, what “is” and what "isn’t" an ordinary business expense, or recognizing that stock options are a payroll cost. I believe we have developed a whole new set of metrics for valuation. Why? If investors really understood what they were really paying for earnings, it would scare the hell out of them.

Just as “clicks” and “stickiness” were used to sell investors overvalued (and in some cases worthless Internet and technology stocks), pro forma numbers are used in the same way to sell investors an overvalued stock market. The same applies to the economic numbers which are now made up entirely of pro forma numbers from hedonically indexed technology sales, imputed rents, hypothetical income from no-fee checking accounts and slimmed down inflation numbers as a result of technology improvements, to seasonally massaged employment numbers capable of making lost jobs disappear. In a bubble economy based on credit, everything is an illusion—including wealth. We feel more "prosperous" as a result of inflating asset bubbles. However this too is an illusion. This wealth is all leveraged and not owned and it is subject to asset deflation.

We John Q's Just Don't Get It
This inability to comprehend what is money and distinguish it from fiat credit also blinds us from understanding inflation. By recognizing only inflating goods prices as inflation, it has kept us from recognizing asset bubbles when they occur. If financial assets such as stocks and bonds or real estate appreciate far beyond fundamentals, we see this in light of a bull market, not as another form or manifestation of inflation. Inflation has and always will be a monetary phenomenon. Again quoting Burton,

"…the policy obsession with inflation is paving the way for a crisis of immense proportions. In a cruel but familiar twist of logic, the only antidote to this forthcoming crisis will be a deliberate and coordinated reflation of the large developed economies. The crisis is destined to replace the inflation of the 1970’s as the defining economic event of today’s adult generations, just as the second Great Depression of 1929-39 became the dominant experience of the generations recently deceased."[12]

Is this not where we are today as Fed officials talk about reengineering a return of inflation and ramping up prices in the economy? The same tools that created asset inflation are now being redeployed in an effort to create goods inflation throughout the whole economy. Not recognized is that the surfeit of credit that grossly distorted asset prices also led to malinvestments and excess capacity in the economy. It is the main reason why capex spending has been so anemic. You aren’t about to build a new factory when existing factories run idle. The truth of the matter is this: what is really being attempted here is to keep asset bubbles inflated in the stock, bond and real estate markets. These inflated asset values provide the collateral that backs the credit and consumption bubble.

Read Between The Lines
All of this talk about deflation is a ruse. Real goods or things that we need are experiencing real inflation. All of that credit inflation in the financial sector is spilling over into the real economy resulting in rising prices. The cost of food and energy are up. Oil prices are near $30 a barrel—so much for lower oil prices after the end of the Iraq war. Natural gas prices are hovering over $5 and we haven’t hit the winter months when demand rises due to weather. Medical costs along with insurance premiums are soaring, tuition costs are up, the cost of entertainment is going up from the cost of admission to a baseball game to the cost of a movie ticket. Even more detrimental to the economy is the rising cost of government in the form of higher taxes. This is visible in the raising of income taxes, sales taxes, property taxes and fees by governors and mayors across the U.S. Here in California the governor by fiat just tripled the tax on motor vehicle registration. And even though the President just lowered income taxes, the Federal government will take back about a third of that tax decrease through the hideous and deceitful alternative minimum tax. This hidden tax will in the future ensnare more and more Americans by the end of this decade.

What is not clearly understood by policymakers, academics, economists or investment strategists on Wall Street is the precarious position of the world’s debt-based financial system. That financial system is heading straight into the path of a giant storm front. Like the Titanic on that fateful night, the financial system is steaming at full throttle right into a path of a wide swath of icebergs oblivious of any risk. Investors, consumers and citizens are the passengers on board that ship. They believe that it is unsinkable and that the ships captain, Mr. Greenspan, is infallible and capable of steering clear of any financial icebergs. Most don’t understand how quickly a ship can sink—or in this case—how quickly inflated asset bubbles can deflate. It is time to become financially prepared.

THE ROLE OF PRECIOUS METALS

Gold is Compelling
This brings me back full circle to the purpose of this essay, which is the role precious metals will play in surviving these storms. As the debt-based fiat money system begins to unravel with each new financial crisis, confidence in government and fiat money will evaporate. The interest in real money is picking up as reflected in the price of gold. The crossover of longer-term moving averages clearly shows that gold has begun a new bull market. Likewise, a crossover of the S&P 500 shows just the opposite. We are in the early stages of a new bear market in stocks.

(click to enlarge)

This disparity in values is also reflected in the Dow and the price of gold. Based on the closing prices on the day this essay segment was written, that ratio was 26.34 (Dow Industrial close of 9079.04 and a gold close of 344.70). This movement to under valuation as a result of gold’s long-term bear market and the Dow’s long-term bull market can be viewed in the charts of the Dow vs. Gold on the left.

This ratio of over valuation to under valuation reflects the movement of markets between bull markets in paper to bull markets in commodities or “things” as I like to call them. Eventually markets correct and reverse themselves, which is what the paper and precious metals markets are now doing. Eventually this ratio should approach 1:1. Many such as Richard Russell believe that this ratio will reach that point when the Dow and gold prices cross 3,000. This makes for a compelling case for owning gold and precious metals equities. Investors have done well over these past three years by buying gold bullion and investing in precious metals stocks. I believe that this new bull market in gold and precious metals is only in its formative stages. Investors would do well now to add to their current positions or to begin accumulating if they haven’t done so already. Various advisors recommend a minimum position of 5-10% in a portfolio. Given the nature of the monetary storm fronts ahead of us, a 20% weighting is preferable and even higher depending on age, risk tolerance and levels of wealth.

Silver is Even More Compelling
As convincing as the case is for gold, the case for silver is even more compelling. This can be viewed by the next graph that shows the ratio of the Dow and the price of silver. As of the close of June 26th that ratio was 2006.42 based on a 9,079.04 close on the Dow and a close in silver of $4.525. Gold and silver are clearly undervalued in relation to stocks.

(click to enlarge)

By far, silver is the more undervalued of the two precious metals. This is visible in the chart of the ratio of gold/silver on the left. Gold has appreciated and broken out from its bottom back in 2001. Meanwhile silver has been kept within a narrow trading range of $4-5 dollars for more than a decade. This is surprising given the fact that in between two recessions and a booming economy, silver has run continuous deficits. I can think of no other asset besides gold where this remains the case. The investor is led to believe that this present state of the silver markets is natural. Can you think of any other asset where this is so? If demand far exceeds supply, natural economic laws would dictate a rise in price until supply and demand are in balance.

Natural Laws Do Matter
The financial experts would now have you believe that the natural laws of economics do not apply to the silver markets. Anytime silver rises in price, it is kept contained through the use of derivatives or short positions. In other words, the price of silver is being managed. This is why we have supply deficits. The natural market mechanism of price is not allowed to work in the silver markets. Plain and simple: the price of silver is managed and controlled. If it wasn’t, silver prices would be a lot higher than they are today.

Market pricing mechanisms would work to lower demand and raise prices until supply and demand were back in balance again. I would challenge anyone to dispute this simple truth of economic law. I would also go a step further and challenge anyone in the financial community, especially bullion bankers, to explain how this apparent supply/demand aberration functions. Do they think people are this stupid? I guess they do. Demand increases each year with supply unable to meet demand and this results in annual deficits. Yet the price of the metal goes nowhere. It is kept confined within a narrow range and never allowed to break out of this range.

How "They" Combat The Price of Silver
Each time the price of silver rises, you will find a sequence of events taking place. The first thing that happens is that short positions on the COMEX go ballistic or the sale of options increase until the price of silver is capped or brought down. The size of these short positions is always larger than available silver supplies. Most of the time they are 4-6 times greater than available supplies that could be used to satisfy delivery. The size of these short positions is not limited by CFTC laws. This is because there are no limits on speculative positions except the current spot delivery month. Since there are no limits to the amount of silver that can be shorted or options contracts sold, they can increase in sufficient size and grow exponentially until the price of silver is capped or brought down.

The CFTC pays no attention to the amount of these short positions in relation to available inventory. The thought of large deliveries isn’t even considered or the fact that it could ever become a problem. Current CFTC rules favor the short sellers. In fact laws are in place that make it difficult to take delivery since delivery is limited to no more than 1,500 contracts a month or 7,500,000 ounces of silver. Even then this amount could be changed arbitrarily by the Exchange. There is an Exchange rule that says delivery is also limited to amounts that are “customary” or “ordinary.” For example in the month of July, if normal delivery is 500 contracts, in a period of crisis, they could in effect limit delivery in that month to 500 contracts.

Because most contracts are settled in cash and taking delivery has never been considered a problem, short sellers have been able to put in place large short positions without ever being squeezed. Most people would rather settle in cash rather then bullion. That may not always be the case as the value of cash evaporates with the depreciation of the dollar. As U.S. financial difficulties increase and the dollar loses more of its value, the movement out of paper will accelerate. This is going to lead to increased demand for real money and that means silver and gold. A large short position on the COMEX that goes well beyond the ability of the Exchange to deliver will then become a problem. The Exchange at this time might go to cash settlement without ever releasing available inventory. If that happens, we will be at the crisis stage—a time when demand for physical metals will be high.

The problem is that investors who are long may not be able to take delivery, since COMEX inventory levels are far below long positions. An example would be today’s 79,990 long silver contracts representing 400 million ounces of silver against only 46 million ounces that are held in registered form available for delivery. One can only imagine what open interest and long positions would rise to in a period of crisis or in a short squeeze. Suffice it to say that in any crisis where metal is demanded, there would be a problem getting delivery. One only needs to look at the platinum and palladium crises in Japan to see what will happen here. (See The Big Squeeze)

CONCLUSION

The Catalyst is Here
Throughout this essay I have identified several factors that build a strong case for precious metals, especially silver. The most important point to understand is that silver and gold represent real money that is not someone else’s liability.

Precious metals stand in sharp contrast to the fiat currency system that now dominates global finance. This system of credit and paper money—with nothing to back it—is now heading straight for a financial crisis with the dollar at its epicenter.

The Depreciating Dollar
The dollar's recent declines have been arrested through active intervention in the currency markets. However, history shows that planned intervention eventually fails. The markets always, and I say always win out in the end.

The present madness or delusion at the Fed that they can create prosperity through massive debt creation is about to be shattered. The trade deficit, the national and state governments' deficits and America’s total outstanding debt dramatically show that this giant mountain of debt is about to reach its upper limits. When consumers no longer have the ability to borrow money or extract equity out of their homes, when the housing bubble begins to deflate, when foreigners no longer buy our paper or even worse—refuse to accept it as payment—the crisis will be upon us.

America’s debt problem is so large now that the only way out is to inflate our way out of it. The appetite for government spending in this country is insatiable. We are running not only large current account balances with the rest of the world, but we are also incurring large budget deficits that could run as high as $400 billion and go still higher. At the same time we are also about to add a major new entitlement at a time we are at war. It is back to guns and butter again, although this time our debt levels are far greater. This means that with government revenues declining and government spending accelerating, the government is now actively printing dollars to finance its deficits. This is what is causing the dollar to depreciate.

M-M-Mania
There is plenty of talk about deflation today that strikes me as complete nonsense. Inflation is a monetary phenomenon. As the chartss of the M’s on the above right indicate, the money supply is increasing with M3 jumping by $140 billion last month, an annualized rate of $1.75 trillion! That amount of credit creation is inflationary. It is why the cost of everything you need from food and energy to services is escalating.

There is another aspect about the U.S. today that is much different than 1930 or Japan in 1990. Today the U.S. is the world’s largest debtor nation. In 1930 the U.S. was the world’s largest creditor nation as Japan is today. The fates of creditor nations are much different then the fates of debtor nations. The U.S. is fortunate to have its currency function as the world’s reserve currency. This allows the U.S. the ability to export its inflation to the rest of the world. We can simply print as many dollars as we need and use those dollars as payment for the goods we import. This system only functions as long as other nations are willing to accept our paper dollars in exchange for their manufactured goods or raw materials.

Global Financial Changes Coming
A movement has begun to shift away from the dollar. This movement is only in its formative stages. Countries in the Middle East are talking about changing payment for oil from dollars to the Euro. It began with Iraq. Saudi Arabia is considering it, along with Venezuela as well as Indonesia. Other nations in the Middle East and in Asia are considering going to a gold backed currency. Then there is the introduction of the Euro which now competes with the dollar. One of the reasons the dollar has fallen over the last 18 months is that institutional money is shifting into the Euro. Central banks have also begun a program of diversifying their reserves from dollars to the Euro and even gold. China’s central bank last year bought 200 tonnes of gold.

(click to enlarge)

This shift out of the dollar will accelerate as a flood of dollars hits the financial system. These dollars entering the world's financial system is the result of our burgeoning trade and current account deficit. At the moment, the dollar's fall has been temporarily arrested through the process of intervention. However, as the amount of debt increases in our economy, as the trade deficit gets bigger setting new records, as the government's own budget deficit expands and grows even larger, confidence in the dollar will evaporate. There will be a rush for the exit gates. I fully expect that when this happens, the U.S. will impose capital controls in an effort to contain the crisis and keep it from spreading. The capital controls could come in the form of different color money—one inside the country and one for outside the U.S. There will be an effort by the Fed to restrict the free flow of dollars out of this country as there will be an effort to keep dollars from returning.

Desperate Measures Are Coming
The New York Times recently published an article about the U.S. government seizing money in foreign banks. The government’s justification was that it was ill-gotten money. This was done without warning or the due process of law. [13]

There have been similar instances in our past where in a time of crisis, the government has seized assets. The most blatant example of this was the 1933 confiscation of gold by the Roosevelt Administration. [14] Many believe (just like they did back in 1932) that it could not happen here again. I believe that it will. Debtor nations always resort to policies of asset confiscation when they get desperate. They seize assets, put in capital controls and shut down banks. The recent example of Argentina should be fresh in everyone’s mind. When governments get desperate, they will do anything in their power to keep functioning. Capital controls never work. They only hasten the currency's collapse.

Who or What Will Be Their Scapegoat?
Despite the failure of these policies, they are repeated over and over again throughout history. Politicians are incapable of leveling with the people. They have a very hard time admitting that they have misspent and mismanaged the nation’s economy. Instead they look for scapegoats—anyone that they can blame for their own mismanagement. As the currency is debauched and spirals worthlessly downward in value, it will be blamed on currency speculators, foreigners or the owners of precious metals. In times of crisis, government always needs a scapegoat. The wrath of the people becomes too great and it needs to be assuaged. The scapegoat, whomever or whatever is chosen, becomes a deflection for politicians to use to distract citizens from thereal cause of the crisis which is too much money creation.

If there is one point that I hope to make in this entire essay, it is this:

The dollar is heading for a crisis never imagined before in this nation’s history!

The U.S. is no longer the nation it once was. The U.S. is no longer self sufficient in manufacturing, no longer self sufficient in energy and no longer self sufficient in capital. This will make the upcoming crisis that more severe. We can’t function without energy, so we have to import it. Many of the things we use from farm equipment to industrial machinery are no longer made here. Just look around your house and examine the labels of the things you buy and where they are made. You will see how dependent we have become on foreign manufacturing. Chances are that your TV, stereo, computer, printer, cell phone, clothes, tableware or car were manufactured overseas. We consume and don’t save. We must borrow money from the rest of the world to pay for our own consumption. What happens when the rest of the world says "No!"? We are not an empire as many would suggest. Our only form of tribute is getting foreigners to accept our dollars. We use gentle persuasion when necessary and overt persuasion when we are threatened. But the U.S. can’t place an army in every country to enforce the acceptance of our dollars.

The 1930s All Over Again?
Some believe that the next dollar crisis will bring war with the rest of the world. In a similar fashion, we seem to be following in the footsteps of the 1930s from trade wars and tariffs to giant government spending programs funded through credit and the inflating of the currency. It is hard to believe that after what we went through during the 1920s and 30’s, we would repeat the very same mistakes today. Yet that is exactly what we are doing now. The 1929 Crash and the Great Depression that followed were directly attributable to the expansionary credit policies of the Fed during that decade. The crash that resulted and the subsequent Depression that followed can be blamed on inept monetary and fiscal policies. It was the narcotic of credit that led up to the Crash. Let me repeat that thought. It was irresponsible fiscal and monetary policies that turned a stock market crash into a prolonged depression.

Here we are seventy years later doing the very same thing. It began with the Chairmanship of Alan Greenspan in 1987. Since his tenure at the Fed, money creation has known no limits. This can be seen in the chart of M3 Money Supply Index since his reign began in 1987. There has never been anything like it in world history. The only similar comparison would have to be John Law and 17th century France. Yet Greenspan’s money creation penchant makes John Law look prudent by comparison. It would be safe to say there has never been anything like this in monetary history. This is alchemy taken to the outer limits. What Greenspan has done and is now in the process of doing is the equivalent of creating a monetary Frankenstein. The only problem is that he does not know how to control the monster. Frankenstein is loose and traversing the monetary landscape wrecking havoc on anything he touches. We must now prepare ourselves for the consequences.

A Monetary Storm on The Horizon
What is coming is a monetary storm that, if met up with additional storms in the financial markets and in the economy, will collide to bring us the Perfect Financial Storm. When I began my Storm Series back in July of 2000, I still believed that we had a chance of avoiding the Perfect Financial Storm. If we had only let the bubble deflate, the malinvestments to be liquidated and market forces to restore balance, the Perfect Financial Storm might have been avoided. It might have been painful, but we could have worked our way through it. Instead the Fed has fought a credit bubble by creating additional bubbles with credit. So today we not only have a bubble in the stock market, but even bigger bubbles in the bond market, in real estate, in mortgages and in consumption. There is now way out of what is coming. There is no going back to the way things were. There is too much speculative capital in the financial system, too much debt in the economy and too many asset bubbles. Greenspan has taken us beyond the point of no return. The only thing left to do now is to get prepared.

IT'S TIME TO GET PREPARED FOR THE STORM

The best way to get prepared is to get out of debt and to start building an ark in order to ride out the coming storm of the century. This means owning and accumulating precious metals both silver and gold.

Accumulate Precious Metals
I would recommend owning both silver and gold with a greater weight given to silver. Silver has more upside potential given its scarcity and price decline. It has already lost 90% of its value since reaching its peak back in 1980. I would take physical delivery of your gold and silver purchases whether you are buying bars or coins. Avoid storing your gold or silver in unallocated form. When you store bullion in an unallocated form, you become an unsecured creditor of the bullion bank. This means you are subject to the bullion bank’s solvency. Under no circumstances let yourself be talked into taking delivery and title in either unallocated, pooled or certificate form. A gold or silver certificate is some else’s promise to pay you either gold or silver. It is in effect an IOU.

Another strategy to consider is keeping or storing your bullion outside the country. Avoid storage in U.S. banks or foreign banks that do business here in the U.S. Bullion held in U.S. banks could be subject to confiscation by the Fed when the monetary storm hits in full force. Why do you think Warren Buffett took delivery of his silver overseas?

Own Gold & Silver Equities
In addition to owning bullion, you should also consider gold and silver equities. Pure silver equities are in fact rare. I can count them on my two hands. In the financial storm that is coming, there is going to be a mass exodus out of paper with people looking for a safe haven that isn’t someone else’s liability. This will create an enormous demand for precious metals. There simply isn’t enough available silver and gold bullion to handle this demand. There are tens and tens of trillions of dollars invested in paper assets. Just imagine what will happen when some of this money moves into precious metals. The money will be moving into bullion first and then equities.

When the price of bullion skyrockets and becomes unavailable, there will also be a mad rush for anything associated with gold and silver. Equities would move even faster than the price of bullion. At some point during the crisis, all of that money is going to be looking for safety and there are very few safe choices. Most money will move into foreign currencies because it is the only market large enough to accommodate it. However, the big move will be in the metals market both in bullion and in the precious metal equities. If you are buying precious metal equities, you want to own unhedged companies with good properties, mines in safe jurisdictions and companies with good cash flow and a strong balance sheet.

Consider Foreign Government Bonds
There simply aren’t a lot of alternatives in a monetary and financial crisis besides silver and gold. There are foreign currencies, but they are merely a substitute for silver and gold. All countries are deprecating their currency. It is simply a question of how much and how fast they are doing it. If you are uncomfortable with too large a position in precious metals, then your next choice would be to own government bonds of a strong currency country—if there is such a thing.

GET OUT OF DEBT!
I might add that you don’t have to be rich to get yourself prepared. You can begin by doing your best to get out of debt or at least stop taking on more debt. However, if you are heavily indebted, I feel the time is running out for you unless you begin liquidating that debt now.

If in Cash, Consider a Small Investment
If you are just beginning to invest, you can start out by investing in coins or a precious metals mutual fund. If you are fortunate to be able to invest more, I would look at owning bullion in larger quantities. You can even invest in mutual funds that strictly own bullion, several which own that bullion outside the jurisdiction of the United States.

Begin NOW!
You must understand that the time for becoming prepared is running short. You must begin now without hesitation. Some people are perpetual procrastinators; while others are doubting Thomases. Not unless they can see the storm clouds directly overhead are they ever prepared to act. If you are one of these types, I don’t know what else to tell you other than to challenge you to think for yourself.

Do you believe that asset bubbles can continue forever or that debt can bring prosperity?
If you have a lot of debt, do you really feel secure or wealthy because of it?
If you are banking on the government or the Fed to bail you out of your problem, is bankruptcy and welfare a desirable option?
Look around you. Open your eyes. Read the headlines.
Ask yourself what is it that you see?
Become informed. Get educated.
In the final analysis, the only person responsible for your outcome is yourself.

I began this series of essays with the title “Catalyst.” I saw the precious metals market—especially silver—as a sleeping giant waiting for a catalyst to ignite it. That catalyst I believe will be a financial and monetary storm that is kindled by an unforeseen or unexpected event, either geopolitical or financial. Monetary authorities are desperately trying to keep the financial markets under control, but they are gradually losing their grip. That is usually how these maelstroms begin. Something happens that is unexpected that turns the tide of events. A bomb is dropped, an archduke is shot, a stock market crashes and suddenly the course of history changes. History has a way of repeating itself. The same mistakes are made over and over again as if to remind us of Santayana’s dictum that those who fail to learn from history are doomed to repeat it. Each generation must learn by making its own mistakes. It is human nature and hubris to think we are smarter then those who have gone before us. Human nature never changes. It is the same today as it was yesterday. All knowledge is folly unless it is turned into wisdom. Sadly, it is wisdom that we lack most both in Washington and on Wall Street. So history's same calamities are about to revisit us. It is time to prepare. ~ JP

http://www.cnbc.com/id/40007252

2010-11-06T11:48:00.000+08:00

http://www.cnbc.com/id/40007252

GoldSilver.com News Headlines "GoldSilver.com - Race to Debase - 2010 Q3"

2010-10-07T08:55:00.000+08:00

GoldSilver.com News Headlines "GoldSilver.com - Race to Debase - 2010 Q3"

2010-09-30T15:45:00.000+08:00

Mike Maloney - Russian Banker's Conference 2010

2010-09-29T17:35:00.000+08:00

Watch this videos of Mike Maloney giving a speech at the Russian Banker's Conference 2010. You might laugh now..... but do take notice of the price charts he highlights in Part 2.

The debasement of our monetary system continues ..... so what are we heading for?

Part 1

Part 2

How High Can Gold & Silver Go?

2010-09-29T12:15:00.002+08:00

Taking into account 11 key measurements based on historical movements and price ratios, gold is likely to exceed $5,000 and silver is likely to exceed $200 within the next 5 years. If silver reverts to its historical ratio of 16 to 1 with gold, then it could rise even higher. Let me explain. Words: 795

So says Chris Mack (tradeplacer.com) in a recent article* which Lorimer Wilson, editor of www.munKNEE.com, has reformatted into edited [...] excerpts below for the sake of clarity and brevity to ensure a fast and easy read. (Please note that this paragraph must be included in any article reposting to avoid copyright infringement.) Mack goes on to say:

In recent weeks gold and silver have broken through their multi-month consolidation levels, and investors are wondering where the precious metals are headed. On a short term basis both gold and silver are overbought and due for a correction that may retest the breakout levels of $1,250 on gold and $20 on silver.

$1,500 Gold and $30 Silver By 2011
On a longer term basis, gold is at an all time high and silver is at a 30 year high. These breakout levels were key because they removed any supply of sellers wanting to sell near their previous purchase prices. The result will be a vacuum in price discovery, because virtually any investor in gold and silver now has a profitable trade and the price will have to rise until enough of these investors decide to take gains. Projecting from the size of the consolidation in precious metals the next key level where sellers arise could be near $1,500 gold and $30 silver by 2011.

Gold and Silver Have MUCH Higher to Run
Gold has risen every year for 10 years in a row now, demonstrating a powerful bull market that began in 2000. Since gold bull markets tend to last 15 to 18 years, investors are wondering how much potential the precious metals have in them. Gold and silver have to move substantially higher to revert to their inflation adjusted highs. However further dollar devaluation could multiply the potential gains.

Gold
$10,226 – Current SGS inflation adjusted high 2015 with 6% inflation
$8,658 – Nasdaq 1995-2000, 6.66 factor
$7,949 – Gold 1975-1980
$7,689 – Current SGS inflation adjusted high
$7,240 – 1980 Dow to gold ratio of 1.5 to 1
$6,500 – 80% dollar devaluation
$5,430 – 1930′s Dow to gold ratio of 2 to 1
$4,719 – Nikkei 5yr 1985-1990, 3.63 factor
$4,697 – Adjusted by growth in money supply/gold supply
$3,618 – Current CPI adjusted high 2015 with 6% inflation
$2,382 – Current CPI adjusted high
$6,241.64 – Average

Silver
$594 – Current SGS inflation adjusted high 2015 with 6% inflation
$447 – Current SGS inflation adjusted high
$434 – 1980 Dow to silver ratio of 25 to 1
$410 – 80% dollar devaluation and return to 1/16 gold
$276 – Adjusted by growth in money supply/gold supply
$200 – Silver 1975-1980
$184 – Current CPI adjusted high 2015 with 6% inflation
$139 – Current CPI adjusted high
$136 – Nasdaq 1995-2000, 6.66 factor
$102 – 80% dollar devaluation
$74 – Nikkei 5yr 1985-1990, 3.63 factor
$272.36 – Average

The above analyses are in keeping with the projections of 102 other prognosticators, the majority of whom see gold reaching a parabolic price peak of at least $5,000 (see here for the 102 individuals and their projections and herefor comments on Jim Sinclair’s $1 million dollar bet that gold will reach $1,650 by January, 2011), and silver going as high as $712 (see here for the rationale for such an extremely high price based on $10,000 gold and here for the reasoning behind James Turk’s contention that silver is going to $400 by 2015 and gold to $8,000).

While most of these statistics use the 1980 highs in gold and silver as a proxy, there is much more potential for a greater move in precious metals now because currency and economic imbalances are not confined to the U.S. but are global. If the US dollar is devalued, it is likely that the Euro, Yen and other currencies would also be devalued. While the 1970′s bull market in gold and silver was largely driven by U.S. buyers, a panic to buy precious metals within the next 5 years will be driven globally.

Conclusion
As I said in the opening paragraph, “gold is likely to exceed $5,000 and silver is likely to exceed $200 within the next 5 years. If silver reverts to its historical ratio of 16 to 1 with gold, then it could rise even higher.”

Given what you have read above would you not agree that you should buy some (or more) gold and/or silver at the first sign of any temporary weakness in price? I certainly think so!

Gold's next hurdle is an inflation adjusted Peak

2010-09-28T11:14:00.001+08:00

Read the Article here

What Does $1300 Gold Mean for Silver?

2010-09-28T11:13:00.000+08:00

All eyes are on GOLD but the greater opportunity for percentage gains in in SILVER.

Alan Greenspan - Fiat Money Has No Place to go but GOLD

2010-09-17T00:42:00.000+08:00

Alan Greenspan spoke at the Council on Foreign Relations earlier today, and what was his advice? That central bankers should be doing what these columns, among others, have been rattling on about, namely that they should be paying attention to gold. “Fiat money has no place to go but gold,” the former Fed chairman said at the Council, according to economist David Malpass, who quotes Mr. Greenspan in one of Mr. Malpass’ emails on the political economy. Mr. Malpass writes that the former chairman of the Federal Reserve’s board of governors was responding to a question in respect of why gold was hitting new highs.

Mr. Greenspan replied that he’d thought a lot about gold prices over the years and decided the supply and demand explanations treating gold like other commodities “simply don’t pan out,” as Mr. Malpass characterized Mr. Greenspan. “He’d concluded that gold is simply different,” Mr. Malpass wrote. At one point Mr. Greenspan spoke of how, during World War II, the Allies going into North Africa found gold was insisted on in the payment of bribes.* Said the former Fed chairman: “If all currencies are moving up or down together, the question is: relative to what? Gold is the canary in the coal mine. It signals problems with respect to currency markets. Central banks should pay attention to it.”

To which, forgive us, one can only say, “Now he tells us.” The fact is that if Mr. Greenspan governed the Fed with an eye on gold, it wasn’t a particularly steady eye. He might argue that when he left the chairmanship of the Fed, in January 2006, he left a dollar worth a 400^th of an ounce of gold, slightly more valuable than the 461^st of an ounce of gold that it was worth when he came in nearly 20 years before. But in the first five years of the 21^stcentury, when he was in the last quarter of his years as chairman, the value of the dollar started its long collapse, plunging from the 282^nd of an ounce of gold that it was worth on January 4, 2000. In the years since, it has cratered to record lows once imagined only by such sages as Ron Paul.

Mr. Greenspan’s remarks at the council were not the first time he gave us a glimpse of his views on gold. He discusses gold on several pages of his memoir, “The Age of Turulence,” reminding that he once told a Congressional committee that “monetary policy should make even a fiat money economy behave ‘as though anchored by gold.’” He wrote that he had “always harbored a nostalgia for the gold standard’s inherent price stability.” But he confesses that he’s “long since acquiesced in the fact that the gold standard does not readily accommodate the widely accepted current view of the appropriate functions of government — in particular the need for government to provide a social safety net.”

The American people, he asserted in his book, have for the most part “tolerated the inflation bias as an acceptable cost of the modern welfare state.” And he claimed, “There is no support for the gold standard today, and I see no likelihood of its return.” We’ll hazard a guess that the statement makes him a man more of the past than of the future. But at least some politicians are hearkening to his advice about the price of gold. They’re people like Congressman Ron Paul and his son, Rand, who may yet be a senator, and Governor Palin, who was one of the first to warn about the gold price, and Congressman Paul Ryan, who asked Mr. Greenspan’s successor, Ben Bernanke about gold.

And, by the way, a few journalists, like Glenn Beck, who are students of history and just can’t believe their eyes that the dollar has plunged to the level it has with so few people raising an alarm. We are in a period when gold is more than a canary — to cite Mr. Greenspan’s bird of choice — it’s a full-throated rooster, cock-a-doodling at the top of its lungs. It was nice to see Mr. Greenspan mark the point at the Council. Would that he’d taken more of his own advice. And nice to see Mr. Malpass mark the Greenspan comments so prominently in his letter to his economic clients. He is more for a gold price rule in monetary policy than a gold standard, but we hope he makes another run for high office at the first chance, and presses the principle for all its worth. It’s what we need in the national debate, and none too soon

What Would $2000 Gold Be Worth?

2010-09-16T17:22:00.002+08:00

Today, one of our readers (Jim) made a great comment worthy of further comment. Jim said, "I'm not sure why you don't want to accept that gold is at a record high."

Let's imagine, Jim, that we are still on the gold standard and that gold is the money of commerce. Would an ounce of gold today buy more than it would have in 1980?

Let's refer to the example I made earlier. In 1980, 10 ounces of gold would have bought a new luxury mid-size car carrying a price tag of $8,000 or so. Today, you cannot buy a new luxury mid-size car for 10 ounces of gold, which when translated to dollars amounts to $12,500. Even a Mini-Cooper carries a price tag of $20,000 for the basic car to $30,000 for the luxury version.

Let's compare to another commodity. A gallon of gas in 1980 was $1.25, an ounce of gold would have paid for 680 gallons. Today at $3.00 per gallon, an ounce of gold would only buy 416 gallons.

Now let's compare to income. In 1980 the median income in this country was $17,710 per year. In January 2010 after taking a monster hit since the credit crisis, that amount is still $46,026. Or, in gold terms 20 ounces in 1980 against 37 ounces gold today.

Now let's work the numbers backwards. To once again buy a luxury mid-size car with 10 ounces gold, gold would have to be $2500 to $3000 per ounce.

To buy 680 gallons of gas, gold would have to be $2040 an ounce. And, finally, in order for 20 ounces of gold to once again be worth a year's wage, gold would have to be worth $2,301 per ounce.

So, I say, in order for gold to match its record high of $1980, gold would have to reach these levels when deonominated in dollars to just to make the claim that gold is once again at record highs.

I think it's a very important point to make precisely because all we hear is that gold is at record highs well above its previous record and that it cannot keep rising.

We will get into more discussions on this but for now, let's settle on this fact. Gold is not really an investment at all. Since the early days of man and commerce, gold was a constant store of wealth. It's not gold that fluctuates up and down in value, it is the currency against which gold is measured that fluctuates.

People look at gold as being measured in dollars. I look at dollars as being measured in gold. And right now gold has a long way to go to reach its own record worth.

As inflation drives down the value of the dollar which in turn drives the cost of goods and services higher in dollar terms, gold will effectively maintain a constant value over long periods of time. Right now gold is behind the constant value curve and in my opinion needs to play a little catch up to say it has reached a record value.

I believe this is the global perspective that is still driving gold demand at record levels. If you want to stay ahead of the curve, follow the example the smart money is setting and grab a few gold coins to put in your retirement accounts.

2010-08-31T21:50:00.002+08:00

By Lorimer Wilson
“Analyzing the long-term relationships of gold with other assets suggests that, in most instances, physical gold and silver and the shares of the companies that mine those precious metals have major upside potential – truly major – in the years to come.”
So said Ronald-Peter Stöferle in a 71 page report* on gold he recently released. In an e-mail** to me he implored that I “spread the (golden) word” which I have done below, in Part 2 (access Part 1*** below), in a reformatted and edited [...] version for the sake of clarity and brevity and to ensure a fast and easy read. Stöferle went on to say:

1) Dow/Gold Ratio Suggests Possible Future $10,400 Gold!
At 8.5x the Dow/gold ratio is currently slightly above the long-term median of 8x. This means that gold is still relatively inexpensive in comparison with the Dow Jones. Bull markets tend to end in euphoria and excess, however, which is why we expect substantially lower values.

In 1932 the ratio was 2x, and at the end of the last bull market the ratio was 1x. We think that values of 1-2x might be reached again as a result of the secular bull market. Under the assumption of a constant Dow Jones index, gold would therefore have to rise to USD 10,400/ounce.

2) Gold/S&P 500 Ratio Suggests Possible Future $6,000 Gold
Currently the gold/S&P 500 ratio is almost exactly on its long-term median of 1x. Looking at the development in the 1970s, we expect a dynamic increase. Bull markets do not end around the long-term median – they end in extremis. In order to reach 6x, gold would have to increase to more than USD 6,000/ounce given a constant S&P index.

3) Gold/Silver Ratio Suggests Future Price for Silver Somewhere Between $75 and $650
Currently the gold/silver ratio is about 65x and thus above the median of 55x albeit below the long-term average since 1970 of 68x. A low was hit in 1920, when 15 ounces of silver would buy 1 ounce of gold. 1940 saw a row of historical highs, when one ounce of gold bought 100 ounces of silver and we experienced similar values again in 1990.

Looking back over the centuries, we find that gold has been substantially more expensive since the beginning of the 20th century than in the previous three centuries. The long-term median (since 1687) is 15.7x. This also reflected the actual ratio of physical supplies: gold is about 17 times more scarce than silver. According to USGS, the measured and assumed silver resources are about 6 times as high as the ones of gold.

Therefore silver is at the moment clearly undervalued at a ratio of 65x relative to gold.

[Using a gold: silver ratio of 16:1 equates to a price of $75 per ounce for silver based on the current ballpark price of $1200 per ounce for gold and suggests a price of $650 ) if gold were to reach a parabolic top of $10,400!]

Silver is, like gold, a monetary metal, but the relevance for the industrial sector is much higher than that of gold. This is why silver tends to outperform gold in economic upswings, whereas gold usually outperforms silver in periods of stress.

4) World Gold Mining Index/Gold Ratio Suggests Much Higher Prices for Gold and Silver Mining Shares
Currently the World Gold Mining Index/gold ratio is 1.7x and thus above the long term median of 1.4x. A rise indicates that gold shares are outperforming gold. Since the beginning of the bull market shares gold mining shares have performed more or less in line with the gold price.

5) Gold/Oil Ratio Suggests Possible Future Prices for Gold and Oil in Excess of $3,150 and $250 Respectively
Oil and gold have a strong positive correlation with each other. Both commodities are traded in U.S. dollars and tend to increase when the dollar depreciates against the most important currencies. Also, oil is one of the most important indicators for inflation and thus also for the gold market. On top of that, the argument that oil production is about to see its peak (“peak oil”) can also be applied to gold along similar lines. The constant purchasing power of gold can also be measured in terms of this ratio. For example, one ounce of oil today buys the same amount of oil as in 1945, 1982, and 2000.

The current ratio of 15-16x is slightly above the long-term median. The all-time high was set in 1973, when one ounce of gold would have bought 42 barrels of oil. On the other hand, in 2008 the ratio hit its historical low at less than 6 barrels per ounce.

[Looking at the extremes if gold were to reach the $10,400 mentioned above a 42:1 gold:oil ratio would put oil at $250; the long term median ratio of 15-16:1 would put oil at an unbelievable $650-$700 per barrel; the extreme ratio of 6:1 would put oil at an astronomical $1,733.33 per barrel. Conversely, applying the 42:1 ratio to the current price range of oil between $75 and $80 would put gold at between $3,150 and $3,360 while, for what it is worth, a 6:1 ratio would put gold at between $450 and $480.]

Conclusion
The long-term comparison of gold and other asset classes paints a clearly positive picture. While many ratios are close to the median, this goes to show that the current valuation is certainly not excessive. It is therefore also very easy to rebut the heavily cited argument of the “gold bubble”.

Bull markets end in euphoria, and this substantiates our argument in favor of an imminent transition to an accelerated trend phase [- to somewhere between $3,000 and $10,400 per ounce for gold, between $75 and $650 per ounce for silver and in excess of $250 per barrel for crude oil.]

Courtesy: www.FinancialArticleSummariesToday.com

BUY GOLD NOW!

2010-08-30T13:11:00.001+08:00

By Jeff Clark, Casey's Gold & Resource Report

I get this question a lot: "Should I buy gold now, or wait for a pullback?"

It’s a valid question. For nearly two years, gold hasn't had a serious decline. There have been pullbacks, of course, but nothing assumption-challenging. In fact, since October 2008, gold’s largest price drop is 10.6% (based on London PM fix prices), and yet the average of all declines since 2001 is 13% (of those greater than 5%). The biggest pullback we've seen this summer is 8.2%. Technically the summer's not over, but I'll admit I'm surprised we haven't had a better buying opportunity.

So, is now the time to buy? It depends on your honest answer to another question: “Do you own enough gold?” By “enough” I mean an amount that lends meaningful protection on your assets. By ”meaningful” I mean that no matter what happens next – another financial blow-up, accelerating inflation, crushing deflation, war, a plummeting dollar, more reckless government spending – you won't worry about your investments.

Whether you should buy now is almost irrelevant if you don't already own a meaningful amount of gold. If you earn $50,000 a year, how is one gold Eagle coin going to protect you if the dollar plummets and sends inflation soaring? If your investable assets total $100,000, is your nest egg sufficiently protected owning two gold Maple Leafs? This is all akin to buying a $50,000 insurance policy for a $500,000 home.

Today we face the prospect of prolonged economic stagnation, and most governments are administering grossly abusive monetary policy as a remedy. While some of the consequences are already being felt, the full ramifications have not hit your wallet yet. But they will.

If you don't have at least 10% of your investable assets in physical gold, or at least two months of living expenses, you have your answer: Buy. Don't use leverage, don't borrow money, and don't buy with reckless abandon, but yes, get your asset insurance policy and tuck it away. And then start working toward 20% (we recommend a third of assets be in various forms of gold in Casey's Gold & Resource Report).

Back to the original question: should we buy now, or wait for a pullback?

The answer comes when you look at the big picture. If you pull up a 9-year chart of gold, what sticks out is that the price is near its all-time nominal high. One could be forgiven for thinking it looks toppy or at least ripe for a pullback. But I assert that the highs for gold have yet to be charted.

What will a gold chart look like after adding five years to it?

When projecting gold's potential price peak, there are many ways to measure it. Conservatively, gold reaching its inflation-adjusted 1980 high would have it topping around $2,400 an ounce. More radically, if the U.S. tried to cover its cumulative foreign trade deficit with its current gold holdings, gold would need to hit about $32,000/oz.

Let's take something more middle of the road, and apply the same trough-to-peak percentage advance gold underwent in the 1970s. (I think there's a greater than 50/50 chance it does more than that, given the precarious nature of the U.S. dollar.) Gold rose from $35 in 1970 to $850 in 1980, a factor of 24.28. Our price bottomed in 2001 at $255.95; multiply that by 24.28 and you get a gold price of $6,214 per ounce.

Sound too high? Well, would it feel high if you had to pay $12.50 for a Big Mac? At $3.39 today at my local McDonald's, that's about what it would cost ten years from now if we get the same rate of inflation we had in the late 1970s.

So if gold hits $6,214, what might it look like on a chart if you bought today around $1,200?

$1,200 doesn't seem so pricey, does it?

I'm not saying there won't be pullbacks or that you shouldn't try to buy at lower prices. Just keep a big-picture perspective. Let's say gold falls to $1,100 and you're kicking yourself for having bought at $1,200… if gold reaches $6,200 an ounce, the profit difference between buying at $1,200 and buying at $1,100 is only 1.6%. If gold gets whacked to $1,000 (at which point I’ll be buying with both hands) the difference is still only 3.2%.

Heck, even if gold peaks at $2,400, you still get a double from current levels. (But unless government monetary policies immediately reverse course, gold isn't stopping at $2,400.)

So there's my answer. Yes, you have to accept my projection of gold's ultimate price plateau. And you have to sell at some point to realize the profit. But if the final chapter of this bull market looks anything like the chart above, I don't think you'll be too upset having bought at $1,200.

Carpe gold.

Mineweb.com - The world's premier mining and mining investment website Is silver finally breaking through key resistance at $18.50 per ounce? - SILVER NEWS | Mineweb

2010-08-27T13:08:00.000+08:00

Mineweb.com - The world's premier mining and mining investment website Is silver finally breaking through key resistance at $18.50 per ounce? - SILVER NEWS | Mineweb

Gonzalo Lira: Hyperinflation, Part II: What It Will Look Like

2010-08-27T13:04:00.000+08:00

Gonzalo Lira: Hyperinflation, Part II: What It Will Look Like: "I usually don’t do follow-up pieces to any of my posts. But my recent longish piece, describing how hyperinflation might happen in the Unite..."

Gonzalo Lira: How Hyperinflation Will Happen

2010-08-27T12:58:00.000+08:00

Gonzalo Lira: How Hyperinflation Will Happen: "Right now, we are in the middle of deflation. The Global Depression we are experiencing has squeezed both aggregate demand levels and aggreg..."

THE CHINESE GOVERNMENT ADVISES CITIZENS TO BUY GOLD & SILVER

2010-03-02T17:39:00.000+08:00

China have been introducing silver bars for investment. The state-run China Central Television (CCTV) is running a campaign encouraging the population to invest in gold & silver. Physical gold and silver investing has begun in China.

China's largest bank, the Industrial and Commercial Bank of China, created a new department to serve investors seeking gold and silver. The bank told Reuters the Chinese have a custom of holding gold as a form of personal wealth and its gold market could soar as people get wealthier. The Chinese government by encouraging its citizens to buy gold and silver is now held responsible for the gold price & silver price.

First it banned exports of silver, and then it endorsed gold and silver as investments for its people.
If the gold price falls the politicians will lose face and that would be political suicide in China, as Susan Shirk relates in her book China: Fragile Superpower...
Dogged by the specters of Mao Zedong and Deng Xiaoping, and the revered leaders who preceded them, China's current leaders feel like midgets, struggling desperately to stay on top of a society roiled by economic change. These leaders can't afford to look foolish, so they'll back up their words with deeds.

Consider what they've done already...

China has become the largest gold producer in the world (they passed South Africa last year).

In April, China's Foreign-Exchange Agency announced the purchase of an additional 16 million ounces of gold for state coffers. They want to diversify their reserves, replacing some of their U.S. dollars that are being devalued by the U.S. government, with something tangible - like gold.

In short, the Chinese government wants more gold.

They realize gold is one of the only buy-and-hold investments in the world right now. And they've got a lot of money to invest, nearly $2 Trillion according to a recent report in The New York Times.
Recently The Chinese Ministry of Land and Resources has completely rewritten the country's mining laws (known as the Minerals and Resources Law) to encourage local and foreign companies to explore for and produce more gold.

Once the Chinese Government gets behind a foreign company the stock price can become a sight to behold!

The government recently created the Shanghai Gold Exchange, to allow anyone to trade gold, on the open market, without government interference. China has a lot of money to invest... nearly $2 trillion. So the followers of Mao are telling their folks to buy gold with a wink and a nod.

While the government buys a bit of bullion on the sly, gold goes up, and they look great. Gold being a global commodity, an increase of Chinese buyers will increase the price of gold in the U.S. too.

It might not be a bad idea to buy what the Chinese are buying. With 300 million people in the Chinese middle class this is especially significant ... when you consider the average savings rate in China is 30 to 40%..... That's a lot of buying power.

You may want to own gold bullion for protection from our own government's policies.
Inflation is coming and there isn't any way around it. The policies that pulled us out of the recent economic crash put trillions of new dollars into circulation. That makes all of our existing dollars worth less... but it increases the value of copper, oil, and especially gold and silver.

This is a good reason to own, physical gold and silver as part of one's investment strategy.

By the way, you will want to buy bullion-- pure gold--not paper.
Buying exchange-traded funds (ETFs) or other electronic investments that purport to invest in bullion is NOT the same. When you buy a share of one of those, all you own is a stock certificate...
You don't have the physical wealth in your possession. The government wants to limit speculation on commodities through these vehicles - and you can be sure the gold ETFs will not be spared.

China To Purchase IMF's Gold

2010-02-26T17:16:00.000+08:00

China has confirmed the intention to purchase 191.3 tons of gold from the International Monetary Fund at an open auction, Finmarket news agency said.

World central banks started to increase their gold reserves after prices on gold began to climb in 2001. The IMF sells gold within the scope of a program to diversify sources of income and achieve an increase in lending.

The IMF announced an intention to sell 403.3 tons of gold in accordance with the adequate decision made by the board of directors of the fund in September of 2009. India, Mauritius and Sri Lanka purchased about 212 tons of the amount at the end of 2009. India purchased most – 200 tons.

China’s interest in international trade is connected with the development of the nation’s economy, as well as with the growing consumer demand in the country.

“Chinese officials have confirmed previous announcements from IMF experts and said that the purchasing of 191 tons of gold would not exert negative influence on the world market. China is interested in the development of the domestic consumer market,” the agency reports.

Most of Chinese citizens believe that investing in gold jewelry is a good way to avoid inflation, Rough & Polished agency said.

The IMF has received the profit of $7.2 billion from gold sales. A part of the funds is to be used for crediting poor countries.

Source : www.pravda.ru

I Should Have Bought GOLD

2010-02-25T17:09:00.001+08:00

All should be moved by the following dramatic picture and eye-popping gold price charts. The first is an actual photo of currency traders in Sao Paulo, Brazil in early 1999.
The chart shows how the Brazilian currency (called the "real") price of gold soared nearly 80% in a two week period in January 1999. I believe the US dollar price rise of gold will be equally dramatic, violent and without notice sometime during the next 6-8 months.
Economic and monetary crisis overwhelmed Brazil - as it did a few years later to Argentina and twice in Venezuela...and is a 'preview' of what the US may well see during 2010
To use apropos Chinese cliché, "a picture is worth a 1,000 words"

--------BRAZIL JANUARY 1999
"Eu sabia que devia ter comprador ouro!"
"I KNEW I SHOULD HAVE BOUGHT GOLD"

This Brazilian picture will likely be replayed in a theater near you…in the not too distant future. ....around the globe in all countries.

--------VENEZUELA JANUARY 2002
Yo sabia que debia haber comprado el oro!
"I KNEW I SHOULD HAVE BOUGHT GOLD"

The price of gold denominated in Venezuelan Bolivars soared 800% in six years…that's +133% per year for 6 years.

--------ARGENTINA JANUARY 2002
Yo sabia que debia haber comprado el oro!
"I KNEW I SHOULD HAVE BOUGHT GOLD"

The price of gold denominated in Argentine Pesos soared 125% in less than TWO MONTHS.

--------VENEZUELA JANUARY 2010
Yo sabia que debia haber comprado el oro!
"I KNEW I SHOULD HAVE BOUGHT GOLD"

To be sure, the Venezuelan nightmare began 9 years ago. Since then the Bolivar value of gold has soared +1,240 percent, that's an average increase of +136% PER YEAR FOR NINE YEARS. See 9 year chart:

Consequently, one is either on-board...or left at the station with a bag full of fiat paper, wringing his hands and screaming his lungs out:
"I KNEW I SHOULD HAVE BOUGHT GOLD!"
"Yo sabia que debia haber comprado el oro!"
"Eu sabia que devia ter comprador ouro!"
However you want to say it, never leave home without some investment in precious metals. Your personal real wealth depends on it.
Unfortunately, by yearend some hapless investors who only listen to CNBC will be crying in their beer, mumbling, "I cudda, I wudda, I shudda..."

Einhorn Joins Billionaire Peers in Bets on Gold

2010-02-23T15:17:00.002+08:00

Count David Einhorn, the head of Greenlight Capital, among the hedge fund stars betting big on gold.

The stake puts him in the company of luminaries like John Paulson and George Soros, who both reported large year-end stakes in gold-oriented equities.

Einhorn has also reportedly been seeing opportunities in the financial space, where he has joined real estate developer Stephen Ross and other investors in an entity that intends to bid on failing banks, according to Reuters.

Gold Commentary

2010-01-27T18:40:00.004+08:00

John Embry, who is the Chief Investment Strategist of Sprott Asset Management reported the following in the Investor's Digest of Canada; vol 42 No.1:

US jobs report for December was manipulated; given false hope that the US economy was improving. This false reporting halted the rise in gold in December 2009.
US debt problem is much larger than the sovereign debt of Greece. So why was there a rally in the US Dollar?
Urban Myth : the idea that the US dollar and by extension, US financial assets continue to represent a safe haven
Appalled to see Ben Bernanke selected as Time Magazine's Person of the Year for 2009.

Read the full report here : Investor's Digest of Canada

The US Dollar - Where is It Heading?

2010-01-26T22:43:00.001+08:00

What has US Congressman Ron Paul have to say about the US Dollar?
What has famed economist Marc Faber have to say about the US Dollar?

They both agree about the fate of the currency...... so be warned....!!!

"Everybody knows that the US Dollar will crash but nobody knows when it will start...... this is frightening since the banks usually knows these stuff...."

FED Chairman Ben Bernanke's Re-Appointment

2010-01-25T23:17:00.001+08:00

So what does Jim Rogers think about Ben Bernanke - the Time Magazine's Person of the Year?

Economic Black Hole: 20 Reasons Why The U.S. Economy Is Dying And Is Simply Not Going To Recover

2010-01-25T23:02:00.000+08:00

Even though the U.S. financial system nearly experienced a total meltdown in late 2008, the truth is that most Americans simply have no idea what is happening to the U.S. economy. Most people seem to think that the nasty little recession that we have just been through is almost over and that we will be experiencing another time of economic growth and prosperity very shortly. But this time around that is not the case. The reality is that we are being sucked into an economic black hole from which the U.S. economy will never fully recover.

The problem is debt. Collectively, the U.S. government, the state governments, corporate America and American consumers have accumulated the biggest mountain of debt in the history of the world. Our massive debt binge has financed our tremendous growth and prosperity over the last couple of decades, but now the day of reckoning is here.

And it is going to be painful.

The following are 20 reasons why the U.S. economy is dying and is simply not going to recover....

#1) Do you remember that massive wave of subprime mortgages that defaulted in 2007 and 2008 and caused the biggest financial crisis since the Great Depression? Well, the "second wave" of mortgage defaults in on the way and there is simply no way that we are going to be able to avoid it. A huge mountain of mortgages is going to reset starting in 2010, and once those mortgage payments go up there are once again going to be millons of people who simply cannot pay their mortgages. The chart below reveals just how bad the second wave of adjustable rate mortgages is likely to be over the next several years....

#2) The Federal Housing Administration has announced plans to increase the amount of up-front cash paid by new borrowers and to require higher down payments from those with the poorest credit. The Federal Housing Administration currently backs about 30 percent of all new home loans and about 20 percent of all new home refinancing loans. Tighter standards are going to mean that less people will qualify for loans. Less qualifiers means that there will be less buyers for homes. Less buyers means that home prices are going to drop even more.

#3) It is getting really hard to find a job in the United States. A total of 6,130,000 U.S. workers had been unemployed for 27 weeks or more in December 2009. That was the most ever since the U.S. government started keeping track of this statistic in 1948. In fact, it is more than double the 2,612,000 U.S. workers who were unemployed for a similar length of time in December 2008. The reality is that once Americans lose their jobs they are increasingly finding it difficult to find new ones. Just check out the chart below....

#4) In December, there were also 929,000 "discouraged" workers who are not counted as part of the labor force because they have "given up" looking for work. That is the most since the U.S. government first started keeping track of discouraged workers in 1949. Many Americans have simply given up and are now chronically unemployed.

#5) Some areas of the U.S. are already virtually in a state of depression. The mayor of Detroit estimates that the real unemployment rate in his city is now somewhere around 50 percent.

#6) For decades, our leaders in Washington pushed us towards "a global economy" and told us it would be so good for us. But there is a flip side. Now workers in the U.S. must compete with workers all over the world, and our greedy corporations are free to pursue the cheapest labor available anywhere on the globe. Millions of jobs have already been shipped out of the United States, and Princeton University economist Alan S. Blinder estimates that 22% to 29% of all current U.S. jobs will be offshorable within two decades. The days when blue collar workers could live the American Dream are gone and they are not going to come back.

#7) During the 2001 recession, the U.S. economy lost 2% of its jobs and it took four years to get them back. This time around the U.S. economy has lost more than 5% of its jobs and there is no sign that the bleeding of jobs is going to stop any time soon.

#8) All of this unemployment is putting severe stress on state unemployment funds. At this point, 25 state unemployment insurance funds have gone broke and the Department of Labor estimates that 15 more state unemployment funds will likely go broke within two years and will need massive loans from the federal government just to keep going.

#9) 37 million Americans now receive food stamps, and the program is expanding at a pace of about 20,000 people a day. The United States of America is very quickly becoming a socialist welfare state.

#10) The number of Americans who are going broke is staggering. 1.41 million Americans filed for personal bankruptcy in 2009 - a 32 percent increase over 2008.

#11) For decades, the fact that the U.S. dollar was the reserve currency of the world gave the U.S. financial system an unusual degree of stability. But all of that is changing. Foreign countries are increasingly turning away from the dollar to other currencies. For example, Russia’s central bank announced on Wednesday that it had started buying Canadian dollars in a bid to diversify its foreign exchange reserves.

#12) The recent economic downturn has left some localities totally bankrupt. For instance, Jefferson County, Alabama is on the brink of what would be the largest government bankruptcy in the history of the United States - surpassing the 1994 filing by Southern California's Orange County.

#13) The U.S. is facing a pension crisis of unprecedented magnitude. Virtually all pension funds in the United States, both private and public, are massively underfunded. With millions of Baby Boomers getting ready to retire, there is simply no way on earth that all of these obligations can be met. Robert Novy-Marx of the University of Chicago and Joshua D. Rauh of Northwestern's Kellogg School of Management recently calculated the collective unfunded pension liability for all 50 U.S. states for Forbes magazine. So what was the total? 3.2 trillion dollars.

#14) Social Security and Medicare expenses are wildly out of control. Once again, with millions of Baby Boomers now at retirement age there is simply going to be no way to pay all of these retirees what they are owed.

#15) So will the U.S. government come to the rescue? The U.S. has allowed the total federal debt to balloon by 50% since 2006 to $12.3 trillion. The chart below is a bit outdated, but it does show the reckless expansion of U.S. government debt over the past several decades. To get an idea of where we are now, just add at least 3 trillion dollars on to the top of the chart....

#16) So has the U.S. government learned anything from these mistakes? No. In fact, Senate Democrats on Wednesday proposed allowing the federal government to borrow an additional $2 trillion to pay its bills, a record increase that would allow the U.S. national debt to reach approximately $14.3 trillion.

#17) It is going to become even harder for the U.S. government to pay the bills now that tax receipts are falling through the floor. U.S. corporate income tax receipts were down 55% in the year that ended on September 30th, 2009.

#18) So where will the U.S. government get the money? From the Federal Reserve of course. The Federal Reserve bought approximately 80 percent of all U.S. Treasury securities issued in 2009. In other words, the U.S. government is now being financed by a massive Ponzi scheme.

#19) The reckless expansion of the money supply by the U.S. government and the Federal Reserve is going to end up destroying the U.S. dollar and the value of the remaining collective net worth of all Americans. The more dollars there are, the less each individual dollar is worth. In essence, inflation is like a hidden tax on each dollar that you own. When they flood the economy with money, the value of the money you have in your bank accounts goes down. The chart below shows the growth of the U.S. money supply. Pay particular attention to the very end of the chart which shows what has been happening lately. What do you think this is going to do to the value of the U.S. dollar?....

#20) When a nation practices evil, there is no way that it is going to be blessed in the long run. The truth is that we have become a nation that is dripping with corruption and wickedness from the top to the bottom. Unless this fundamentally changes, not even the most perfect economic policies in the world are going to do us any good. In the end, you always reap what you sow. The day of reckoning for the U.S. economy is here and it is not going to be pleasant.

SILVER - The Undervalued Commodity

2010-01-25T22:08:00.000+08:00

Silver prices still have a long way to rise before reaching their top. From industrial applications to its relative value, it’s easy to make the case that silver remains one of the most undervalued commodities.

Industrial Silver Fundamentals
Industrial uses for silver are abundant. Ranging from electrical uses to photographic development, silver may be one of the most useful metals known to man.
However, silver prices have yet to reflect the growing applications and uses for the precious metal, despite so many fundamentals suggesting silver prices should rise. Silver’s low price is mostly due to a poor economy, which has seen consumer spending go into a drought. With consumers buying less big ticket items, such as washing machines, computers, and other consumer-grade electronics, which all contain silver, the amount demanded from the industrial sector is under its average.
Luckily, economies do not stay in recessions or depressions forever, and consumer spending, as well as industrial silver demand, should skyrocket with any rebound. Silver’s price should follow closely behind.

Relative Cost
2008 was a record year for virtually every commodity across the board. Oil soared as high as $147, gold pushed towards $850 per ounce, and agricultural commodities rode the rally as well.
However, silver remained behind the pack, moving only as high as $15 per ounce, which is roughly one-third of its all time high set in the 1980s. In fact, silver was the only commodity that had not beaten its previous highs in the last three years.
When compared to energy commodities, gold and even stocks, silver remains heavily undervalued, despite a belief among economists and financial analysts that it represents one of the best investments in 2010 and beyond.

Silver and Gold Relationship
Gold and silver typically trade within a range of 20-70 ounces of silver to the price of gold. Today, the ratio is roughly 62.2 ounces of silver to one ounce of gold, which is the highest it has been in years. This ratio is often used by traders as an oscillator to decide when it is best to move from gold to silver or from silver to gold. When the ratio nears 70, investors buy silver and sell gold. When it nears 20, investors are selling silver to buy gold. This ratio, which has long been important to commodity traders and long-term investors alike, suggests silver is ready for a rally.

Rounding it All Up
Even after rising nearly 350% from its 2000’s low, silver is still heavily undervalued when compared to a slew of other commodities, setting the stage for a continued explosion in price regardless of the changes in other commodity prices. Moving forward, silver has not only the fundamentals driving growth in consumption, but also investment, as more and more investors realize the untapped potential that resides in a healthy stock of silver.

There is little time to wait, as silver’s explosion could be just around the corner. Should silver prices make a modest move from 1/62 of the price of gold to 1/40, investors will be rewarded with a healthy 50% in returns. The time to invest is now, long before Wall Street realizes what a true bargain silver is.

The Fear Index

2010-01-23T14:08:00.003+08:00

By James Turk

The Fear Index remains within its decade-long bullish uptrend, so we therefore know as a consequence that gold also remains within an uptrend. But the Fear Index is also giving us another important message. It is that gold remains undervalued.

Gold’s valuation is indispensable information given its exceptional appreciation this decade. In other words, even though gold has risen nine years in a row against the US dollar, it remains relatively cheap. This conclusion is illustrated with the following chart.

The dashed horizontal line on this chart marks 2.63%, which is the average value of the Fear Index since August 1971. That is the date when President Nixon – with total disregard to the US dollar’s 180-year history – turned the dollar into irredeemable fiat currency, in effect declaring by presidential edict that the monetary requirements of the Constitution were null and void.

The Fear Index is presently 2.05%. Note that it is lower today than August 1976 when the Fear Index was 2.28% and gold was $104. Therefore, gold at $1106 – its December 31, 2009 price – is even more undervalued than it was at $100 back in 1976. How is that possible? How can gold be more than 10-times more ‘expensive’ today and still be better value?

Simple. A 2010-dollar is not the same as a 1976-dollar. The dollar’s name has not changed, but the dollar has been terribly debased over the past 34 years. It has lost much of its moneyness – its innate value as money – in two insidious ways.

It has lost purchasing power because of inflation.

Secondly, it also has 0.23% less gold-backing today than it did at the low point of the Fear Index in 1976. Even though dollars can no longer be redeemed for gold, dollars are still partially backed by gold. The Fear Index measures to what extent gold backs the dollar, assuming of course that the 261.5 million ounces in the US Gold Reserve really exist and have not been loaned out, encumbered or put in play as part of the gold price suppression scheme led by the US government.

What is clear from the above chart is that one cannot use the dollar price of gold to determine whether or not gold is good value. The purchasing power of the dollar and the extent of its gold-backing are ever-changing. So the dollar is not a good measuring stick. It is not a numéraire.

The important conclusion from the above chart is that gold remains relatively cheap. We should therefore continue to accumulate it.
-------------------------------------------
For reference, the formula to compute the Fear Index and the value for the Fear Index as of December 31, 2009 are as follows:

Russia’s Central Bank Boosts Gold Holdings

2010-01-22T15:20:00.000+08:00

Jan. 21 (Bloomberg) -- Russia’s central bank addded 800,000 troy ounces of gold to its reserves last month, increasing its holdings of the metal in dollar terms to $22.4 billion as of Jan. 1, Bank Rossii said on its Web site.

The bank’s gold reserves climbed to 20.5 million ounces from 19.7 million the previous month.

Source : Bloomberg News

Central Banks around the world are buying up gold. What about you?

You Can Buy Gold Here

MORE MONEY PRINTING - To fund An Unsustainable Economy

2010-01-21T22:29:00.001+08:00

By ANDREW TAYLOR, Associated Press Writer – Wed Jan 20

WASHINGTON – Senate Democrats on Wednesday proposed allowing the federal government to borrow an additional $1.9 trillion to pay its bills, a record increase that would permit the national debt to reach $14.3 trillion.

The unpopular legislation is needed to allow the federal government to issue bonds to fund programs and prevent a first-time default on obligations. It promises to be a challenging debate for Democrats, who, as the party in power, hold the responsibility for passing the legislation.

It's hardly the debate Democrats want or need in the wake of Sen.-elect Scott Brown's victory in Massachusetts. Arguing over the debt limit provides a forum for Republicans to blame Democrats for rising deficits and spiraling debt, even though responsibility for the government's financial straits can be shared by both political parties.

The measure came to the floor under rules requiring 60 votes to pass. That's an unprecedented step that could mean that every Democrat, no matter how politically endangered, may have to vote for it next week before Brown takes office and Democrats lose their 60-vote majority. Democratic leaders are also worried that Sen. Evan Bayh, D-Ind., who opposed the debt limit increase approved last month, will vote against the measure.

The record increase in the so-called debt limit is required because the budget deficit has spiraled out of control in the wake of a recession that cut tax revenues, the Wall Street bailout, and increased spending by the Democratic-controlled Congress. Last year's deficit hit a phenomenal $1.4 trillion, and the current year's deficit promises to be as high or higher.
Congress has never failed to increase the borrowing limit.

"We have gone to the restaurant. We have eaten the meal. Now the only question is whether we will pay the check," said Finance Committee Chairman Max Baucus, D-Mont. "We simply must do so."
A White House policy statement said the increase "is critically important to make sure that financing of federal government operations can continue without interruption and that the creditworthiness of the United States is not called into question."

China Buying Less U.S. Debt

2010-01-21T22:20:00.000+08:00

Jan. 20 (Bloomberg) -- China, which cut Treasury holdings by the most in five months in November, may scale back purchases of U.S. debt on concern the dollar will decline, said Liu Yuhui, an economist at the Chinese Academy of Social Sciences.

The Asian nation’s investors, the biggest foreign holders of U.S. government debt, trimmed holdings by $9.3 billion in November to $789.6 billion, a Treasury Department report showed yesterday. The decline came even as Chinese foreign-exchange reserves swelled $61 billion in the month.

“China may reduce purchases of U.S. Treasuries because there has been no sign the dollar’s long-term trend of weakness will change,” said Liu, director of the Center for Chinese Economic Evaluation in Beijing at CASS, a government-backed research body.

Gold Holdings of Countries

2010-01-21T19:13:00.001+08:00

We have been reading news of Central Banks buying up gold as they move away from the traditional safe haven; the US Dollar. This is a reversal of Central Bank policies in the 1980's where they sold away their gold, resulting in gold prices plummeting to about US$250 per troy ounce.

Look at the table below and look at the Gold Holdings as a percentage of the Nation's reserves. Look at the numbers for amongst the largest Creditor Nations of the word today; China, Taiwan and Singapore.

Given that the US government's policy of printing more dollars to fund unsustainable projects, more Central Banks are turning to gold, buying them up as and when they become available. Nobody wants to be left holding US Treasury Bills.

The buying of gold by Central Banks has started as they seek to increase their percentage of gold in their portfolio. As demand increases... the price of gold will rise too...

**WORLD OFFICIAL GOLD HOLDING (December 2009)**
Rank	Country/Organization	Gold (tonnes)	Gold's share of national forex reserves (%)
1	United States	8,133.5	68.7%
2	Germany	3,407.6	64.6%
3	International Monetary Fund	3,005.3	-
4	Italy	2,451.8	63.4%
5	France	2,435.4	64.2%
6	China	1,054.0	1.5%
7	Switzerland	1,040.1	28.8%
8	Japan	765.2	2.4%
9	Netherlands	612.5	51.7%
10	Russia	607.7	4.7%
11	India	557.7	6.4%
12	European Central Bank	501.4	19.6%
13	Taiwan	423.6	4.1%
14	Portugal	382.5	83.8%
15	Venezuela	356.4	35.7%
16	United Kingdom	310.3	15.2%
17	Lebanon	286.8	26.5%
18	Spain	281.6	34.6%
19	Austria	280.0	52.7%
20	Belgium	227.5	31.8%
21	Algeria	173.6	3.8%
22	Philippines	154.7	12.1%
23	Libya	143.8	4.6%
24	Saudi Arabia	143.0	10.2%
25	Singapore	127.4	2.3%
26	Sweden	125.7	8.6%
27	South Africa	124.8	10.5%
28	Bank for International Settlements	120.0	-
29	Turkey	116.1	5.2%
30	Greece	112.4	71.5%
31	Romania	103.7	7.4%
32	Poland	102.9	4.4%
33	Thailand	84.0	2.1%
34	Australia	79.9	6.0%
35	Kuwait	79.0	11.4%
36	Egypt	75.6	7.4%
37	Kazakhstan	74.5	12.0%
38	Indonesia	73.1	3.9%
39	Denmark	66.5	2.8%
40	Pakistan	65.4	15.8%
41	Argentina	54.7	3.7%
42	Finland	49.1	15.1%
43	Bulgaria	39.9	7.1%
44	West African Economic and Monetary Union	36.5	9.9%
45	Malaysia	36.4	1.3%
46	Peru	34.7	3.6%
47	Brazil	33.6	0.5%
48	Slovakia	31.8	60.3%
49	Bolivia	28.3	11.0%
50	Belarus

Source : http://en.wikipedia.org/wiki/Gold_reserve

FORMER TOP ACCOUNTANT OF USA: "AMERICAN ECONOMY UNSUSTAINABLE"

2010-01-21T18:55:00.010+08:00

Greece, Ireland and Spain are reported to be facing huge sovereign debt issues. Developed and sovereign countries going bankrupt? Who would have thought this was possible?

Who then is David Walker? ....
He was formerly the TOP Accountant of the US government. Therefore, his chilling revelations will make you think .... his findings and conclusion?
US is in massive debt trouble and The American Economy is Unsustainable.

The American National Debt Counter

GOLD vs US Dollar

2010-01-21T13:16:00.000+08:00

MAJOR HIGHLIGHTS

Spot Gold prices ended in the green on Tuesday despite strength in the dollar.

International demand for US assets rises on the back of record bond purchases.

MARKET RECAP

Spot Gold prices gained on Tuesday despite a stronger dollar as demand for the yellow metal as a safe-haven increased as markets became wary ahead a host of economic data releases in the later part of the week from the US and China. Gold prices could trade higher in this week as expectations of further weakness in the dollar could support an upside. Officials of the Federal Reserve Bank said yesterday that lending rates in the US may remain low for as long as two years.

The Federal Reserve has kept its target rate at zero percent to 0.25% since December 2008 to revive the economy. Lower interest rates in the US reiterate that the world’s largest economy is still struggling with the worst financial crisis. This concern over economic growth could trigger traditional safe-haven demand for gold. Economic data from the US has come on the negative side and indicates that the world’s largest economy is still fragile.

On the Currency front, the Euro weakened sharply against the dollar on Tuesday after German ZEW index came in much weaker than expected at 47.2 in January versus expectation of 49.5. The Indian Rupee depreciated on Tuesday as strength in the dollar put pressure on the currency. Strength in the dollar coupled with a decline in equities led to depreciation in the currency.

OUTLOOK

On expectations of lower interest rate in the US, the dollar is expected to weaken further. Weakness in the dollar will help gold prices as a weaker dollar will make the yellow metal look attractive for holders of other currencies. In 2009, the rise in gold prices was mainly backed by the weakness in the dollar. Gold prices could continue to witness an uptrend in prices and the bullish phase in the yellow metal could continue.

On intraday basis, Spot Gold prices have immediate support at $1130/$1123 whereas resistance is seen at $1143/$1150. Spot Silver prices shall find support at $18.45/$18.20 whereas resistance is seen at $18.90/$19.10.

Depression and HyperInflation.

2010-01-19T10:19:00.000+08:00

Where is the economy going?
Buy silver while it is still below US$20/oz.....

Ron Paul - Discussing Austrian vs Keynesian Economics

2010-01-19T10:14:00.001+08:00

Ron Paul spoke about impending housing bubble since 2003. Yet he was ignored! He says we are now building another bubble. Should we now listen to him?

Gold to Reach $5,000/oz by 2012

2010-01-18T01:51:00.000+08:00

Jan. 12 (Bloomberg) -- Robert McEwen, chairman and chief executive officer of U.S. Gold Corp., talks with Bloomberg's Erik Schatzker and Deirdre Bolton about the outlook for gold prices. McEwen expects gold prices to increase to $5,000 an ounce between 2012 and 2014 as rising U.S. government debt depreciates the value of the dollar.

The Fort Knox Gold Scandal - The Still Report

2010-01-18T01:27:00.000+08:00

The debt money system is the biggest Ponzi scheme in history and it is about to crash , we cannot pay our debt cause our money is debt itself , Gold based money is still a debt money explains Still , there are two major problems with gold Still explains , first Gols can be counterfeited , and second gold can be easily manipulated by few powerful on the top , a gold money system is still very easy to control from the top ...

Chinese Government Calling for Its Citizens to Buy Gold and Silver

2010-01-18T01:02:00.000+08:00

If the Chinese government is calling for its people to invest in Gold and Silver, what do you think will happen to prices if these precious metals?