The Agora Telegraph » Gold & Silver

Libertarian Austin Petersen educates Socialists

afreeman — Tue, 08 May 2012 04:55:15 +0000

Peter Schiff’s Gold Report

afreeman — Tue, 06 Mar 2012 01:33:03 +0000

Dear Gold Investor,

Welcome to the March edition of my monthly Gold Report.

Gold started strong in February with news that the eurozone would relent and start the printing presses to bail out Greece again, yet the yellow metal finished lower as Fed Chairman Bernanke threw investors off the scent of QE3. Many investors seem to be numb to the inflation already created and are waiting for even more as a signal to buy gold. That means it’s a good time to buy for those who know that inflation is coming.

Gold settled at $1,770 as February closed, after touching a high of $1,783, yielding a 1.72% gain for the month. It has since corrected to $1,705 on misplaced optimism for economic recovery. Silver peaked at $37.23 to close out the month, a 10% increase, but has since dropped to $34.11 in the early days March. Again, I think this dip will be temporary.

Warren Buffett continues to make headlines in opposition to gold and in favor of punitive taxes on the wealthy. In my commentary, I take a closer look at Buffett’s worldview. Is he an impartial sage looking out for the best interests of his fellow citizens, or is he really looking for his next government handout?

Meanwhile, Jeff Clark’s article tells us another secret about sound money – it has a message for all investors, if they choose to listen.

And Mark Motive of Plan B Economics examines gold compared to the S&P 500 as one way to gauge how far this bull has left to run.

Finally, this month, I am proud to introduce a new feature in which we answer our customers’ questions about buying and owning physical precious metals. If you would like to submit a question for a future issue, please email me at info@europacmetals.com.

Cordially,

Peter Schiff

CEO

Euro Pacific Metals, LLC

This report is designed to give you an edge when buying or selling, and, of course, we hope to have your business. To speak with a Precious Metals Specialist, call 1-888-GOLD-160.

BUFFETT’S BURSTING BUBBLE
by Peter Schiff, CEO of Euro Pacific Precious MetalsThe gold doomsayers have found their champion in the media’s favorite financial advisor and one of the world’s richest men. Warren Buffett, the man dubbed the “Oracle of Omaha,” has repeatedly and publicly denied that gold is an investment, and called gold buyers “speculators” and people “who fear almost all other assets.” In fact, Buffett claims that gold’s rise has the same characteristics as the housing and dot-com bubbles, and it is only a matter of time before it reverses course. He doesn’t mean that the price will decline because of austerity measures and a free-market interest rate, mind you. He just asserts that because he’s deemed it a bubble, it will inevitably burst.The financial world by-and-large views Buffett as an objective observer, a rare investor who still considers the best interests of common man when he speaks. Each year, there is much hullabaloo over the letter Buffett writes to the shareholders of Berkshire Hathaway. When Buffett makes a claim, the financial world coos and repeats it without question.I concede that Buffett is a talented investor and a great communicator. He clearly has had great success and has much to offer. But that shouldn’t blind anyone to the fact that Buffett is not a trusted observer. He’s a crony capitalist who bends the truth to serve his long-held ideological commitment to big government.In the early stages of the financial crisis, when I was writing and promoting my first book Crash Proof to warn private investors about trouble ahead, Buffett was accumulating shares in companies such as Goldman Sachs, Wells Fargo, Bank of America, and General Electric. I knew these companies were insolvent, so I wouldn’t touch them with gardening gloves on. When the credit markets seized up, Buffett worked behind the scenes and in public to make sure each of his pet companies were bailed out. This was not by coincidence. Buffett actually stated in September 2008 that he would not have invested in Goldman Sachs if not for the implicit guarantee of federal assistance. As a result, he profited at the expense of taxpayers at the very time when they were losing their savings in the markets. Meanwhile, many “in the know” politicians bought Berkshire stock during the height of the crisis, making a profit from their votes, and giving them incentive to revere Buffett all the more. Buffett once said if that if the government didn’t bailout failed companies, he would be “having my Thanksgiving dinner at McDonald’s instead of having a big dinner at my daughter’s.” Seems like there were two bloated turkeys at that meal.If Buffett were a true capitalist, he would be in favor of gold. He has noted that the value of the dollar has fallen 86% since he took over Berkshire Hathaway in 1965 and even said in his latest shareholder letter that investors are “right to be fearful of paper money.” But he continues to harp on gold. It seems the only unit of account Mr. Buffett approves are shares of his own company!

The adoption of an independent measure of value like gold presents two problems to Buffett. First, it would reduce the nominal returns of his dollar-based investing strategy. Second, it would restrict Washington’s ability to goose the financial system in his favor.

In the 19th century, when gold and silver were legal tender, the outsized returns to which Buffett has become accustomed were much harder to earn. Most people kept their money in physical bullion or bank deposits – and earned a real rate of return. Now, under the fiat system, working folks are forced into the more complicated world of equity investing. This, too, can generate real returns, but it’s a tougher playing field for the inexperienced.

Also, the fiat system artificially balloons the financial services portion of the economy. In the 19th century, fortunes were made more often by business owners than simple equity investors. People were more likely to rewarded for providing a productive service than having direct access to the Fed’s discount window.

A quick look at Berkshire’s performance verses gold since the Credit Crunch goes a long way to explaining Buffett’s antipathy toward the yellow metal:

Source: Google Finance

But Mr. Buffett’s lack of credibility goes deeper than a differing monetary philosophy. He has been in the press since last August claiming that he pays less taxes than his secretary – and urging Congress to pass a “Buffett Rule” mandating a 30% minimum tax on millionaires. The natural reaction is to say, “If you want to pay more, go ahead.” But Buffett has gone on record saying that it’s not enough for him to lead by example, and demanding that all of America’s well-off bear the burden of Washington’s reckless spending binge.

The problem is that Buffett’s entire argument is constructed on deception. Buffett is rated as the third richest man in the world for managing the nearly $393 billion in assets, and he highlights that he pays only pays 17.4% of his income in taxes. But this is because he earns less than 1% of his annual wealth from his salary, while over 99% is earned as the largest shareholder of Berkshire Hathaway. Buffett claims that he discounts his Berkshire holdings because he plans to give it all to charity when he dies. So, it’s not that the tax rates are so low, it’s that Buffett plans to give away 99% of his wealth.

But even accounting for this clever accounting trick, Buffett is still grossly understating his personal tax burden. He owns roughly 1/3 of Berkshire’s outstanding shares, the profits from which are subject to a 29% corporate tax rate. Last year, Berkshire paid $5.6 billion in taxes – and the IRS says they owe $1 billion more! In addition to corporate taxes, Buffett is also subject to an additional 15% capital gains tax on his stock when he cashes out, not to mention any future estate tax, leaving many to conclude that his share of taxes is certainly higher than his secretary’s.

You might wonder what Buffett would hope to gain by understating his own tax rate. To answer that, you have to understand Buffett’s ideological background. His father, Howard Buffett, was a US Congressman known for his staunch libertarianism. As has been recounted by biographers, Buffett resented being uprooted from his Omaha, NE home to move to Washington, DC and felt estranged from his stoic father. That is to say, Buffett’s commitment to the nanny state runs very deep.

But also, as mentioned earlier, Buffett personally benefits from the current corrupt state of affairs. He gets prestige from nominal gains in his stock price. He gets bailout money to guarantee the insolvent companies in which he invests. Even that estate tax that will hit him when he passes currently allows him to buy out other businesses at a steep discount.

It also shouldn’t be a surprise that humble Howard was a staunch advocate of gold and silver as money – nor that wealthy Warren rejects precious metals as having “no utility.”

The media has built Warren up to be a demigod, a straight-talking Nebraska boy that can hold his own against the vipers of Wall Street. But he is just a man with a talent for making money, and his motives should not be beyond reproach. Is he advocating the use taxpayer money to bailout his business interests so he can profit? Is he being honest about what money is? Does he even understand the business cycle?

Gold prices will only go down when governments change course and make significant cuts. Until then, gold is not in a bubble. It’s the only way to protect your wealth; and in the current economic condition, it’s poised to go much higher. I think it’s high time Buffett takes to heart his father’s wise words: “For if human liberty is to survive in America, we must win the battle to restore honest money.”

Peter Schiff is CEO and Chief Global Strategist of Euro Pacific Precious Metals, a gold and silver coin and bullion dealer offering honest products at competitive prices.

If you would like more information about Euro Pacific Precious Metals,click here or go to our website, www.europacmetals.com. For the fastest service, call 1-888-GOLD-160.

HOW HIGH CAN THE GOLD BULL CLIMB?

by Mark Motive of Plan B Economics

Gold is once again above $1,700 and eyeing its all-time high. Yet, the same two camps are saying the same things they have since the yellow metal was at $600: either this is a bubble, or it’s headed much higher. While the gold bulls have clearly been right for over ten years, that doesn’t mean they will always be right. There are many ways to determine whether gold will continue its historic climb. In the past, I have looked at gold fundamentals – such as monetary inflation, increasing government deficits, and an unsustainable debt – all which indicate a bullish future. Today, I am examining a technical bellwether which has been used for decades to analyze the relative performance of stocks vs. gold.

The S&P 500-to-gold ratio measures the value of the stock market relative to gold. When the ratio is high, stocks are considered expensive relative to gold, and vice versa. This is used as an “adjustment factor” that isolates stock market performance from the effects of monetary expansion. In other words, if the S&P 500 were rising in nominal terms but the ratio to gold were falling, investors holding the S&P 500 would be losing wealth in real terms.

As you can see in the chart below, between 1980 and 2000, the S&P 500-to-gold ratio rose from 0.17 (stocks cheap) to 5.46 (stocks expensive). This rise in stocks vs. gold was led by an American business renaissance and real wealth creation, fueled by deregulation, technological progress, and globalization. Unfortunately, the US government chose to squander this progress with massive printing, borrowing, and bailouts.

Data sources: Plan B Economics, Measuring Worth,
World Gold Council, and Robert Shiller

By 2000, Washington’s bad habits finally caught up to the private sector and the S&P 500 tipped into a colossal decline relative to the price of gold. This period, which is still unfolding, is marked by eroding real wealth, systemic financial stress, and inflationary pressures. Since 2000, stocks are more-or-less flat in nominal terms, but this falling ratio implies that the real value of the S&P 500 has plummeted. During this period, investors who owned gold saw their purchasing power rise relative to those who held stocks.

By looking at the historical range for the S&P 500-to-gold ratio, one can infer the extent to which a gold bull market can run. The question I often get is, “Gold has rallied for over a decade - how high can it go?” While there isn’t a ‘correct’ S&P 500-to-gold ratio, historical bounds provide a useful guideline:

The current S&P 500-to-gold ratio is about 0.778. To hit the ratio’s post-war low of 0.17, witnessed in the summer of 1980, the S&P 500 would either have to fall by about 78% or gold would have to rise to approximately $7,850/oz (or some combination of the two).

Looking back at the entire history of the S&P 500 and its predecessor indices (see chart below), the ratio was as low as 0.156 in 1878 and was consistently under 0.5 for half a century. To reach the 1878 low, the S&P 500 would either need to fall by over 80% or gold would need to rise to roughly $8,800/oz (or some combination of the two).

Date sources: Plan B Economics, Measuring Worth,
World Gold Council, and Robert Shiller

The S&P 500-to-gold ratio is just one of many ways to evaluate the gold bull market. While I can’t predict the future prices of the S&P 500 or gold, this short historical analysis illustrates that today’s ratio is not even close to treading on new territory. Until the gold fundamentals change, I believe that the yellow metal will continue to outperform stocks.

Mark Motive is the pen name of a respected business journalist. He is the publisher and chief author of Plan B Economics, a premier source for market insights overlooked by the mainstream media. Follow Mark on Twitter for free eBooks, research, documentaries and more:@planbeconomics.

IF GOLD COULD TALK
by Jeff Clark of Casey ResearchHave you ever had any doubts about gold? Does it sometimes feel like it should be performing better? Are you concerned about its volatility? Do you worry about how it might perform in the future? Have you ever wondered about its true purchasing power? Maybe you’re nervous about a big drop in price again? I decided to go directly to the source to address these concerns: Gold himself. He put his arm around me and asked me to tell you a few things… I hear that you’ve had some worries about me. I understand. Your world is a very uncertain place right now. And when it comes to money, it looks as though your leaders don’t understand some basic monetary principles, making things even more unsettling.But I want you to know that the problems you’re experiencing are actually nothing new. I’ve seen these monetary, fiscal, and economic difficulties many times before. And I can tell you this: you’re safe with me. That’s a bold proclamation, but I’ve provided monetary protection numerous times throughout history – too many to count, in fact. I’ve served all kinds of people over the centuries, from kings and counts to serfs and servants.To put your mind at ease let’s review my core characteristics, along with some history, to show how I can protect you against the monetary danger that’s likely to worsen in your near future. We’ll also take a look at your peculiar set of circumstances to see how I can be of service. By the time we’re done, I think you’ll feel much better about my ability to help your portfolio withstand whatever is thrown its way.

ENDURING CHARACTERISTICS

Let’s start with the basics. I have some characteristics that no other matter on Earth has…

I cannot be:

Printed (ask a miner how long it takes to find me and dig me up)
Counterfeited (you can try, but a scale will catch it every time)
Mistaken (how many metals are bright yellow?)

I cannot be destroyed by:

Fire (it takes heat at least 1945.4° F to melt me)
Water (I don’t rust or tarnish)
Time (my coins remain recognizable after a thousand years)

I don’t need:

Feeding (like cattle)
Fertilizer (like corn)
Maintenance (like printing presses)

I don’t have:

Industrial Dependence (keeps my volatility lower)
Counterparty Risk (remember MF Global?)
Shelf life (I never expire)

As a metal, I am uniquely:

Malleable (I spread without cracking)
Ductile (I stretch without breaking)
Beautiful (just ask a bride)

As money, I am:

Liquid (easily convertible to cash worldwide)
Portable (you can conveniently hold $50,000 in one hand)
Divisible (you can use me in tiny fractions)
Consistent (I am the same in any quantity, at any place)
Private (no one has to know you own me)

“GOLD IS MONEY”

You’ve heard that statement before – but do you know what it really means? Money is a medium of exchange and a store of value. Almost anything can be used as money, but obviously some things work better than others. It’s hard to exchange things people don’t want or don’t store well. Over thousands of years, I have emerged as the best form of money (along with silver).

The paper dollars in your wallet are technically just a currency, not real money. In other words, they are a government substitute for money. Money must be durable, divisible, consistent, convenient, and have value in and of itself.

It must be durable because you can’t have it disintegrating in your pocket or bank. That’s why you don’t use wheat; it can rot or be eaten by insects.

It must be divisible, which is why you don’t use diamonds or artwork; they can’t be split into pieces without destroying the value of the whole.

The lack of consistency is why you can’t use real estate. One property is always different from another.

It must be convenient, which is why you don’t use other metals like iron. The coins would be too big to handle easily.

It must have value in and of itself. This is why you shouldn’t use paper as money.

And one more thing: it must not be easily duplicated. Not even the kings and emperors who clipped and diluted gold coins dared to use paper as money.

My function is as money and a store of value, so the proper comparison is to your dollars or Treasury Bills (of similar nominal value). And here is where I excel and serve my purpose: since 1913, the US dollar has lost 96% of its purchasing power. I have lost none.

Remember, I am the only financial asset that is not simultaneously someone else’s liability. I don’t require the backing of any bank or government.

THE HISTORY LESSON

Because I am eons old, I’ve observed something throughout history that you may not be aware of: government fiat currencies are a relatively new invention, and none have held up. Eventually, they have all failed. Me? I’ve never defaulted. Remember this the next time you have any doubts about my long-term worth.

Another of my roles is to protect your purchasing power. Here are a few examples of how I’ve kept my word:

During the time of Christ, an ounce of me purchased a Roman citizen his toga (suit), a leather belt, and a pair of sandals. Today, one ounce will still buy a good suit, a leather belt, and a pair of shoes.

In 400 BC, during the reign of King Nebuchadnezzar, an ounce of me bought 350 loaves of bread. Today, an ounce still buys about 350 loaves ($1,700 divided by 350 = $4.85/loaf).

In 1979, my average price was $306.68. This bought an average-priced full-size bed. Thirty-three years later, $1,700 would still buy you a nice full-size bed (and then some).

You can rest assured that over time, I will hold my value. And when you near the end of your life, you can pass me on to your loved ones, knowing full well they will have something that cannot be devalued, debased, or destroyed.

WHAT COLOR IS YOUR MONEY?

Like you, I’m concerned about the current state of fiscal and monetary affairs. It seems your government leaders have boxed themselves into a corner. They’ve incurred too much debt and are spending too much money . It’s important that you understand some lessons from history about this kind of behavior so that you’re certain of what I can do for you.

The common denominators that lead to the downfall of every fiat currency are the two big Ds: debts and deficits. With that in mind, consider the following:

Morgan Stanley reported that there is “no historical precedent” for an economy that exceeds a 250% debt-to-GDP ratio without experiencing some sort of financial crisis or high inflation. US total debt currently exceeds GDP by roughly 400%.

Detailed studies of government debt levels over the past 100 years show that debts have never been repaid (in original currency units) when they exceed 80% of GDP. US government debt will exceed 100% of GDP this year.

Investment legend Marc Faber reports that once a country’s payments on debt exceed 30% of tax revenue, the currency is “done for.” By some estimates, the US will hit that ratio this year.

Peter Bernholz, a leading expert on hyperinflation, states unequivocally that “hyperinflation is caused by government budget deficits.” Next year’s US budget deficit is projected to be $1.3 trillion.

The solution many of your leaders pursue is to print more paper money . Here’s an updated picture of the increase in the US monetary base vs. my rise in price since 2008, when your problems starting surfacing.

The monetary base has grown 205.8%, while my price is up 65.8%. This alone implies that my price in dollars is likely to climb much higher.

This is also the reason why I’m not in a bubble, as some have tried to claim. It is your central banks and bond markets that are in a bubble. The fact that my price is rising is a warning that what your leaders are doing is unsustainable and potentially dangerous to your currency.

Think about this: the US has debt backed by debt, based on debt, dependent on debt, and leveraged with debt. You can, for example, buy a bond (i.e., lend money) on margin (i.e., with borrowed money). This is not a sound way to run financial markets.

Meanwhile, the warning bells continue to sound regarding Europe’s debt crisis. In just the past month:

Moody’s cautioned that it may cut the AAA status of France, Austria, and the UK; and it downgraded six other European nations including Italy, Spain, and Portugal.

Standard & Poor’s cut the AAA status of France and Austria, while Italy, Spain, Portugal, Cyprus, Malta, Slovakia, and Slovenia were downgraded.

Fitch downgraded Belgium, Cyprus, Italy, Slovenia, and Spain, and stated there was a 50% chance of further cuts in the next two years.

Standard & Poor’s downgraded 34 of Italy’s 37 banks.

Moody’s warned recently that it may cut the credit ratings of 17 global financial institutions and 114 European ones.

The European crisis is far from over; and the path of least resistance for politicians is to create more paper money. This action can and will have clear and direct consequences: currencies will devalue, and inflation – perhaps hyperinflation – will result.

Once again, I encourage you to use me to protect some of your wealth.

HOW MUCH IS ENOUGH?

Given the state of your monetary system, you should accumulate me (and my cousin silver) on a regular basis. Just buy some every month and put us in a safe place. After what I’ve witnessed throughout history, and based on the current path your government leaders insist on pursuing, I suggest using me as your savings vehicle instead of putting dollars in a bank.

If you don’t own enough of me when these fiscal troubles really accelerate, I fear you will regret it. I’ve warned many in the past about the dilution of nations’ currencies, and those who didn’t heed my warnings experienced severe financial pain. Excuses won’t pay the mortgage nor feed the family when the effects of currency debasement hit your home and pocketbook.

Make sure you own enough of me to make a difference to your portfolio. This means having more than a couple coins or a few shares of GLD, the latter of which is only a proxy for my price.

How do you know if you own enough? Ask yourself:

If inflation returns, or even hyperinflation hits…
If the economy is flat…
If uncertainty and fear continue around the globe…
If stock markets languish…
If stimulus from the world’s governments proves futile…
If government interference in the economy continues to increase…
If the value of the US dollar takes a major fall…
If the world enters a recession or depression…
If the world enters a recession or depression…

… would you feel that you own enough of me?

Buy a sufficient amount so that as your currency continues to lose value, your portfolio won’t. If you do your part, I promise I’ll do mine.

Yours Truly,

Gold

Jeff Clark is the editor of BIG GOLD, Casey Research’s monthly advisory on gold, silver, and large-cap precious metals stocks.

For ongoing guidance about physical gold and silver, as well as the large-cap precious metals stocks, try BIG GOLD today for just $79 per year, with 3-month money-back guarantee.

QUESTIONS FROM OUR CUSTOMERS

WHAT KINDS OF PRODUCTS DOES EURO PACIFIC PRECIOUS METALS SELL?

Euro Pac Metals offers various sizes of gold, silver, platinum, and palladium in bullion coins and bars from both government and private mints.

Government-minted coins tend to be the first choice of gold buyers as they are recognizable worldwide. Euro Pacific Precious Metals sells industry-standard American Eagles, Canadian Maple Leafs, Australian Kangaroos, Austrian Philharmonics, and the South African Krugerrands. Although coins are typically more liquid, there is normally a higher premium because they are being produced by a government instead of a private mint. Bars, by contrast, offer lower premiums and come in higher denominations, including 10 ounces, 1 kilo (32.15 ounces), and up. Our bars are minted by the world-renowned Perth Mint in Western Australia.

As gold continues to increase in price, some buyers are also seeking smaller denominations than the 1 ounce bullion coin. These products are known as fractional gold coins. We carry Gold American Eagle and Canadian Maple Leaf coins in 1/2, 1/4, and 1/10 ounce weights. Their appearances are identical to their larger coin siblings, except for the relatively smaller size.

There is a more variety in the silver market. We sell government-minted American Eagles, Canadian Maple Leafs, and Austrian Philharmonics, but also carry privately minted rounds (the government reserves the word “coins” for its own products), as well as 10 ounce, 100 ounce, and 1000 ounce bars. In silver, there is less of a price difference between government and privately minted products. Private rounds and bars carry a lower premium and are popular for bartering.

For the truly cost-conscious, we also offer bags of junk silver. These are previously circulated US dimes, quarters, and half-dollars minted before 1964 – back when each of these US coins contained 90% real silver. The real junk is what’s in your change purse now, but “junk silver” got its name because it’s less-fine alloy of silver than coins minted for storage. You actually get more silver overall for your dollar, but there is less in each particular coin.

Lastly, we sell platinum and palladium 1 ounce American Eagle and Canadian Maple Leaf coins, as well as 1 ounce and 10 ounce bars. These are less common precious metals, but have their own attractive attributes.

The most important decision is not which product you choose but whether you want to preserve your capital from a collapsing US dollar. Any of these metals will help you do so. To find out which is the best choice for you, call one of our Precious Metals Specialists at 1-888-GOLD-160 to start the conversation.

THIS MONTH IN GOLD

South Africa’s Largest Bank Eyes $2,500 Gold

Bloomberg - Walter de Wet, Head of Commodities Research at South African giant Standard Bank, says gold at $2,500 an ounce is possible in the near term due to forecasted low interest rates over the next 12 to 24 months. “Gold these days is trading as a quasi-currency,” de Wet said, and the current spot already prices in some expectation of additional quantitative easing (QE) in the US. Even without more QE in the US, de Wet says gold would still find major support at around the $1,600-$1,650 an ounce level. See video >>

China Set to Become Biggest Gold Market

Financial Times - The World Gold Council forecasts that China will overtake India to become the biggest gold market in the world in 2012. Marcus Grubb, Managing Director of Investment at the Council, says that as growth and inflation remain relatively high in China over the coming year, Chinese consumers will increasingly move their savings into gold to safeguard their wealth in an economic environment offering few alternatives. Grubb expects Chinese gold consumption in 2012 to increase at approximately the same rate it did in 2011, an encouraging 20 percent. Read full article >>

Emerging Market Central Banks Driving Gold Higher

CNBC - Mark Bristow, CEO of Randgold Resources, a miner with operations in western Africa, says that emerging market central banks are underpinning today’s elevated and rising gold price. In a financially volatile world, Bristow maintains, emerging market central banks are using gold to mitigate their foreign exchange risks and as a general hedge. Bristow also thinks this will drive the yellow metal for years to come.

Read full article >>

CitiBank: More Printing to Boost Gold in 2012
Bloomberg - David Wilson, Director of Metals Research and strategy at Citigroup, says more central bank quantitative easing (QE) in 2012 will boost the price of gold. Wilson sees bullion climbing to $1,800 an ounce or more by the end of the year. “The key driver behind gold is risk. And there’s a lot of risk out there… Everywhere you look there is potential support for gold,” Wilson remarks. Wilson goes on to stress that the risk of inflation only grows with QE – making this a good time then to invest in the ultimate hedge with upside potential aplenty and zero counterparty risk. See video >>

More States Mull Gold and Silver as Alternative Currencies

CNN Money - Utah got the bullion rolling last March. Since then, 13 other states are legislating gold and silver as legal tender for good and services. South Carolina, Washington, Minnesota, Iowa, Georgia, Idaho, and Indiana are among the states considering proposals to make specie legal tender. For lawmakers backing the proposals, Article I, Section 10 of the US Constitution provides the legal authority: “No State shall…make any Thingbut gold and silver Coin a Tender in Payment of Debts.”

Read full article >>

Miner: Fantastic Opportunity in SilverCNBC - High-beta silver is the place to be to outshine the competition, Gavin Thomas insists, CEO of Australian gold miner Kingsgate Consolidated. Thomas sees silver climbing to $50/oz over the next 24 months, calling it a “fantastic opportunity” due to the failure of supply to keep up with surging demand. Thomas points out that diminishing stocks of lead and zinc, the raw materials that yield most of the world’s silver as a byproduct during processing, are squeezing supply. Moreover, Thomas notes, Chinese and Indian consumers are increasingly turning to silver as gold becomes more difficult to obtain due to scarcity and price.

Read full article >>

The Coming Paradigm Shift in Silver

afreeman — Thu, 02 Feb 2012 08:06:36 +0000

BY STEVE ST. ANGELO

The biggest problem for investors today in trying to forecast the future price of silver is the enormous amount of contradictory analysis on the Internet. There are bulls, bears, paper traders, physical buyers, technical analysts, hedge funds, commercial banks and silver manufacturers all trying to play a part in this highly volatile silver market. Trying to sift through the huge volumes of silver analysis on the internet can be extremely frustrating. In addition, some of this information is not meant to inform, but rather to confuse or mislead the investor.

There is a great deal of misinformation on the internet when it comes to silver. I find it ironic that one of the so-called “bullion specialists” seems to give bearish commentary whenever the price of gold or silver rises to new highs. This is akin to a CEO of a corporation telling the media and shareholders that the company’s s
tock price is too high and needs to drop down to more sustainable levels. What CEO on Earth would say something as stupid as this with the best interest of the company and shareholders in mind? Furthermore, how many CEOs would keep their job if they repeated this over and over for the past several years, and got it wrong time and time again?

Unless you have been in the precious metals markets for quite some time, it is easy to be misled by this type of information. This is the very reason behind the motivation that I had to write this article. In it, I will attempt to give the reader-investor a more detailed and fundamental comparative analysis of the future price of silver, rather than the typical fly-by-night technical charting or bull-bear rant. This should give a more commonsense methodology in forecasting the future path of silver and its eventual paradigm shift.

Paradigm Shift: —n, a radical change in underlying beliefs or theory

The coming paradigm shift in silver will not happen due to technical analysis, fundamentals, or supply & demand forces, but rather due to a change in mass psychology of investors. Even though fundamentals and supply-demand forces will play a part in this shift, they will not be the ultimate cause. I believe technical analysis as it is used today, only charts the amount of manipulation and mass psychology in the silver market.

Throughout history, a paradigm shift occurs in rigged markets when the manipulation of the financial system and economy is no longer sustainable. This occurred in the banking and housing markets in 2007-2008 when we had what I call a “Negative Paradigm Price Shift”- a trend where prices or values are declining.

Negative Paradigm Price Shift in Housing and Banking

Prior to 2007, the real estate market was kept alive by the work of clowns and magicians in the mortgage industry and banking system. For several years everyone was having a great time. As housing prices and sales continued towards the heavens, bank profits hit all-time records. Everything was going along just fine until the market realized one day that there was nothing left after “Liars Loans” were levied to keep the Ponzi going. Once the housing market collapsed, so too did the banking system. Like two twins attached at birth, one could not live without the other.

In true waterfall fashion, investment banks, commercial banks, government-sponsored entities and insurance companies went bankrupt, were either taken over or became a mere shadow of their former selves.

Here we can see several examples of a Negative Paradigm Shift:

As you can see from these 10-year charts, the prices of these stocks were range bound prior to 2007. All of a sudden, in the middle of 2007, the bottom fell out and the prices of these stocks suffered exponential losses. Other examples of companies that have experienced similar Negative Paradigm Shifts include Lehman Brothers, Bear Stearns, Merrill Lynch, Washington Mutual and Freddie Mac.

How could all of these institutions collapse in this fashion? It was due to policy deregulation as well as the manipulation of financial products, assets and information. Thus, the banking system and these institutions were functioning and supposedly solvent a great deal longer than a free market would have allowed. The act of misleading the market gave false values and elevated stock prices.

This is a perfect example of the mass psychology of the public investing in highly inflated assets based on superficial and bogus technical analysis. As the housing and financial markets were reaching their peak in the 2007, fundamentals played no part in their real market values— it was based entirely on mass psychology instead; the false belief projected by investors and the corporations themselves that these companies were actually of high value.

This disintegration of the housing market and banking system was not an isolated episode; rather it was part of the events that take place in STAGE 1 of what Dmitry Orlov calls the Five Stages of Collapse.

Stage 1: Financial Collapse
Stage 2: Commercial Collapse
Stage 3: Political Collapse
Stage 4: Social Collapse
Stage 5: Cultural Collapse

According to Orlov:

STAGE 1: Financial collapse. Faith in “business as usual” is lost. The future is no longer assumed resemble the past in any way that allows risk to be assessed and financial assets to be guaranteed. Financial institutions become insolvent; savings are wiped out, and access to capital is lost.

Here we can see that the majority of these conditions in the Financial Collapse have already taken place. The only reason why the U.S. banking system is still functioning today is due to the ability of banks to mark to model their assets giving the impression that they are still solvent. Furthermore, the increased guarantee of FDIC deposit accounts to $250,000 as well as a temporary unlimited coverage for noninterest-bearing transaction accounts until Dec 31, 2012 have kept a major bank run on the banking system. These changes of policy have postponed the United States from entering into STAGE 2 or the Commercial Collapse. This will be discussed at the latter part of the article.

If this wasn’t bad enough, the current U.S. banking system is based on a fractional reserve requirement of 10% in fiat money; basically paper backing paper. This wasn’t always the case. To get a better idea of how disastrous the present banking system has become, we need to take a look at fractional reserve requirements of the past.

From an Historic Gold-Backed Fractional Reserve System to a Paper Farce Today

Eric Sprott made a recent comment posted in an article on Zerohedge.com, stating that “The financial system is a farce”. He couldn’t be more correct in his assumption.Not only is the present U.S. banking system based on a financial debt instrument called a Federal Reserve Note, but its fractional reserve ratio is virtually nonexistent.

In 1932, the United States had a fractional reserve banking system backed by gold. The member banks had different reserve requirements: central reserve city banks (13 percent), reserve banks (10 percent) and country banks (7 percent). All member banks had a 3 percent reserve requirement on time deposits. Even with these official reserve ratios, the total paper dollar claims to gold were much higher. For this analysis, we are going to compare the M2 money supply to the amount of U.S. Treasury-held gold.

In 1932, the U.S. Treasury held $2.95 billion in gold, there was $5.60 billion in currency in circulation, $36 billion in M2 money supply, and $19 billion in U.S. Treasury debt. The fractional reserve of gold to the M2 money supply was 8.3%.

Despite the terrible conditions during the “Great Depression”, at least the country had two positive factors going for it: 1) A banking system backed by gold and 2) vast resources of energy, metals and minerals to tap into to pull itself out of its current market ills.

Today, the banking system is on the verge of collapse and the country has consumed its best resources which peaked 40-50 years ago. After Nixon dropped the dollar peg to gold in 1971, the world has been on a floating exchange rate fiat monetary system. The present fractional reserve banking system we have today is based on a fiat paper reserve.

This graph shows that no gold whatsoever is backing up the banking system. As the U.S. banking system stands today, its currency— the Federal Reserve Note— is backed by $15.2 trillion worth of U.S. Treasury debt. The system is even weaker when we look into the makeup of the banks’ fractional reserve ratio.

For starters, the official 10% minimum reserve requirement set by the Board of Governors at the Federal Reserve applies to mainly checking accounts. Effective December 27, 1990, CD’s, savings accounts, and timed deposits owned by entities other than households were not included in this 10% reserve requirement. Additionally, in 1994 the Federal Reserve Board passed a “Deposit Reclassification” for financial institutions to help lower reserve requirements even further. Eric DeCarbonnel explains this in his article “US Banks Operating without Reserve Requirements”:

Deposit reclassification is an accounting trick, used by virtually the entire financial sector, which allows banks to eliminate nearly all their reserve requirements. Deposit Reclassification splits a checking account into two separate subaccounts, a transaction (checking) subaccount and a non-transaction (savings) subaccount. This distinction only exists on the bank’s books: you will never see these subaccounts on your bank statements.

Deposit reclassification means that, at any point in time, most of the money in American checking accounts sits in invisible savings subaccounts. These savings subaccounts pay no interest, but allow banks to avoid reserve requirements. The public is completely unaware of this financial engineering.

It is now apparent that the so-called official 10% fractional reserve ratio of the U.S. banking system is just a mere figure to delude the public into believing it has a working cash reserve ratio, whereas in reality, the system is a complete farce.

The public has no clue just how weak and vulnerable the U.S. banking system has become. At one time, the United States had a fractional reserve banking system backed by physical gold money. Today, its financial system is entirely based on a fiat monetary regime with practically no fractional reserve ratio whatsoever.

Gold & Silver Money Contain Intrinsic Value; Federal Reserve Notes Have None

Not only is the majority of the public ignorant to the amount of dangerous leverage in the U.S. banking system, most have no understanding of real money. I have had several debates on various websites with highly educated individuals on the subject. Some have replied by stating, “The U.S. Dollar is backed by the GDP of the country”, while others have insisted that, “Gold & silver have no intrinsic value whatsoever.” It is no wonder this country is heading full speed over the cliff.

In historic times, the value of gold and silver was tied to their rarity as well as the amount of labor needed in extracting and producing the metals. As time went by, capital became a larger percentage of this value while human labor was replaced by energy-consuming machinery. Each gold and silver coin produced today contains a certain amount of this capital investment, energy and labor cost. Thus, these precious metal coins do hold a certain amount of intrinsic value.

On the other hand, a Federal Reserve Note today has no intrinsic value at all— except for its printing cost. It is only a promise to pay. The Federal Reserve Note is not redeemable by gold, but Uncle Sam will give you some of its $15.2 Trillion of U.S. Treasury debt in exchange. It is due to this very reason why we see an increasing amount of Americans buying Gold and Silver Eagles.

The U.S. Mint does not provide the public with annual records of exact dollar sales of their Gold and Silver Eagles. To get the figures below, the annual sales of silver and gold eagles were multiplied by their respective average yearly price reported by Kitco.com.

In times of worry in the financial system, the public regains confidence through buying gold and silver assets. During the Y2K scare, we can see that Americans were putting a great deal more money in Gold Eagles over Silver Eagles. In 1999 the public was buying 12 times the amount of money in gold than silver. Today, we see that investors are spending almost the same amount of money in both precious metals.

The graph above only reveals part of the story. According to kitco.com, the average price of silver in 2011 was $35.11 and the average price of gold was $1571.52. This gives us a gold-silver ratio in 2011 of 45 to 1. If we look at the next graph below we can see just how much more Silver Eagles over Gold Eagles the public is buying.

It is hard to tell from the graph above, but Gold Eagle sales have increased tremendously since 2007. Here are the exact figures for both:

During the Y2K scare in 1999, Americans bought a record 2 million ounces of Gold Eagles and only 9 million ounces of Silver Eagles. This was at ratio of 4.4 to 1. In 2011, the ratio increased nearly 10 times as investors bought almost 40 million Silver Eagles while only purchasing 1 million in Gold Eagle ounces.

Very few individuals have comprehended the amazing trend taking place in the Gold and Silver Eagle’s market. In 1999, Gold Eagle sales hit a record of 2 million ounces. Last year, investors only bought half that amount. However, Silver Eagle sales have increased more than fourfold from nine million oz in 1999 to nearly 40 million ounces in 2011.

Even though these two graphs give overwhelming evidence on how much more investors are buying Silver Eagles over Gold Eagles, it is only part of the story.

Comparing U.S. Domestic Gold-Silver Production vs. Gold-Silver Sales

In my previous article, First Time Ever, Silver Sales Surpass Domestic Production, I explain how Silver Eagle sales are forecasted to be higher than the total 2011 U.S. domestic silver production output (full data on U.S. silver mine production will not be out until April-May of 2012). This is a graph from the article that shows Silver Eagle sales will be approximately 5 million oz greater than U.S. domestic silver production:

While it is true that the U.S. imports silver to meet its industrial and investment demands, this amount was two and a half times its 2010 mine production. According to the USGS 2011 Silver Mineral Summary, the United States had a net import of 3,240 metric tons of silver in 2010. Compare that to its mine production of only 1,280 metric tonnes the very same year.

On the other hand, if we look at the USGS 2011 Gold Mineral Summary, the United States had a net import of 160 metric tonnes of gold in 2010 while its domestic mine production was 230 metric tonnes. Here we can see that the U.S. gold mines produce one and a half times more gold than it imports from foreign sources.

In 2011, the United States is estimated to produce roughly 7.5 million oz of gold (233 metric tonnes) along with one million oz of Gold Eagle Sales:

Looking at these two graphs the difference becomes extremely obvious. Silver Eagle sales consumed 114% of U.S. domestic silver production in 2011, whereas Gold Eagle sales accounted for only 13.5% of domestic gold production.

The public is beginning to understand that silver offers a much more affordable way to protect one’s wealth than gold. This realization has now taken a bigger bite out of the U.S. domestic silver production pie than is available. Even though the United States can import silver presently to supply its investment and industrial demand, this situation will change when the U.S. economy enters into STAGE 2 of the collapse.

When Will the Paradigm Shift in Silver Occur?

For the most part, Americans are completely oblivious of just how close the country is to a total disintegration of its fiat monetary system. As I mentioned in the beginning of the article, the United States financial system died in 2008. It has been kept alive by policy deregulation, monetary printing, and market manipulation (including derivative manufacturing such as interest rate swaps). These collaborative short term machinations have a lifespan that is diminishing every passing day, while investors who have made the wise decision to exchange fiat money for gold and silver keep wondering how long this manipulation can continue.

I remember watching Peter Schiff on CNBC and Fox Business between the years of 2005-2007 debating about the upcoming collapse of the mortgage and housing markets. On several occasions, Schiff was the laughing stock on the set as anchors and other guests thought he was simply crazy in his forecasts. By 2008, the laughs had stopped while the country watched as the U.S. housing values began their rapid decline that would eventually surpass the disastrous records set during the 1930’s Great Depression.

The answer I give to individuals and investors who ask me the question “when will the manipulation end?” is that it will end when the U.S. enters into STAGE 2 or the Commercial Collapse.

Again, according to Orlov:

Stage 2: Commercial collapse. Faith that “the market shall provide” is lost. Money is devalued and/or becomes scarce, commodities are hoarded, import and retail chains break down, and widespread shortages of survival necessities become the norm.

Despite the forecasts of many analysts of what the U.S. Dollar index or government deficits will look like in the next decade, the U.S. economy will enter into STAGE 2 more likely than not in the next few years. The commercial collapse as described by Orlov is when the whole country will feel the impact of the ongoing economic disintegration.

This article is long enough and does not have time to go into the three other stages of collapse described by Orlov. It is recommended that the reader go to the link provided at the beginning of the article to get additional information on the five stages of collapse.

Briefly, Orlov witnessed firsthand the collapse of the Soviet Union in 1989 and then wrote a book titled Reinventing Collapse: The Soviet Example and American Prospects describing these different stages. According to Orlov, a country does not have to systematically go through all five stages of collapse. But when the financial collapse occurs, the commercial collapse is sure to follow. With all things considered, Orlov believes the overall conditions are far worse in the United States today than they were for the U.S.S.R in 1989.

Currently, an overwhelming majority of the public has not learned its lesson since the collapse of the banking and housing markets in 2008, as they are still heavily invested in the U.S. Treasury and retirement markets. They still cling onto the belief that their paper investment wealth will be safe and provide for them well into the future. The graph below compares the amount of precious metal investment to the total amount of money held in U.S. retirement assets.

Since the American Eagle program started in 1986, there has been roughly $13.4 billion worth of these gold and silver coins purchased. Currently, the total market value of the GLD & SLV ETF is $76 billion. Furthermore, if we assume a 1% ownership of precious metals by the investment community in the United States, taken from information provided by the CPM Gold Yearbook 2011 (based on 0.7% gold as a percent of global financial assets and adding an estimated 0.3% for silver), we would get a figure of approximately $170 billion in these assets.

The total value assigned to the GLD & SLV is given as a form of reference and not as a recommendation for investment purposes. All paper claims on gold and silver are not a guarantee of owning the actual physical metal. Some vehicles such as the PSLV and PHYS enable the investor to trade in shares for actual metal (under certain guidelines).

According to the Investment Company Institute’s third quarter news release in 2011, the total value of U.S. retirement assets was $17 trillion. The breakdown was as follows: $4.6 trillion in IRA’s, $4.3 trillion in defined benefit plans, $4.2 trillion in govt. pension plans, $2.3 trillion in private sector defined-benefit plans, and $1.6 trillion in annuities.

All retirement plans are based on a continued income stream from the market. There is really nothing backing these assets except the faith that the market will continue to grow and function providing the returns to pay its investors when they retire. However, the financial system already experienced its Negative Paradigm Shift in 2007-2008, rendering growth at its necessary rate to perpetually sustain an income stream under a fiat monetary system now impossible.

The graph above indicates the degree of mass psychology in the different investments. Presently, the overwhelming majority is invested in the $17 trillion retirement market. Unfortunately, these retirement assets will go the same way that the housing and financial markets did in 2008-2009. It is only a matter of time.

Gold has been called the “Barbarous Relic”, time and time again on CNBC and Fox Business. There is a certain amount of hubris and ego attached to our present financial house of cards— a paradigm that is coming to an end. Those who believe that gold is a barbarous relic are still drinking that barbarous water, or breathing that barbarous air, or eating that barbarous bread or still cleaning with that barbarous object called a broom. All these so-called barbarous items listed above haven’t changed much since the Roman and Medieval times.

The constant negative rhetoric of gold in the main stream media keeps the mass psychology of the public away from investing in the precious metals and into increasing worthless paper retirement assets.

The Coming Positive Paradigm Shift in Silver

As mentioned before, the paradigm shift in gold and silver will occur when the United States enters into Stage 2, the commercial collapse. This article focuses on silver due to the fact that the majority of gold that has ever been mined is still stashed away nicely in vaults across the world. However, due to silver’s dual role as an investment and industrial commodity, a large percentage of silver that has been mined has been consumed in industrial fabrication and lost forever— continuously diminishing its supply and raising its value.

When silver performs its paradigm shift, it will behave in the opposite fashion as the first three charts in this article. While AIG, Fannie Mae and Citigroup suffered negative paradigm price shifts, silver will be awarded a positive one. The graph below gives a possible representation of this paradigm shift. Repeat… a representation of this paradigm shift:

The $150 Free Market Price of silver was calculated by inputting the Jan. 1980 high price of silver into the inflation calculator at Shadowstats.com. I realize there will be a great deal of backlash on this $150 figure… so here is the rationale behind it:

This figure was based on the “official CPI statistics”. John Williams at Shadowstats.com has an alternative SGS calculation using older inflation parameters which would make the price much higher.
The manufacturing of trillions of dollars of derivatives has siphoned investment money away from physical assets such as silver, keeping their prices artificially low.
The overwhelming number of paper claims (100+ to 1) on every physical ounce of silver has also sucked investment money away from the physical metal, also depressing its actual price.

Even though the last two reasons above can overlap in definition, they were separated due to the type of derivatives experienced in the market. The second reason focuses on the tremendous amount of financial derivatives such as interest rate swaps and retirement accounts. The third deals with the silver derivatives themselves— options, futures, pool accounts, silver certificates and silver ETF’s. The possible paradigm price shift of silver shown above represents a trend when the mass psychology of the market becomes increasingly aware of the true fundamentals of physical assets such as silver. The higher the price goes, the more fundamentally aware the market becomes.

The fact of the matter is that the stocks of AIG, Fannie Mae and Citigroup were garbage and worthless well before 2007. If we were to look at their charts above and draw a straight line from where their current stock prices are today and go back all away across the chart to the year 2002, we would see a fair indication of a free market value.

Yet, the majority of investors today are still suffering from the same mass psychology that kept the financial and housing markets elevated several years ago. Today, the investor’s confidence is placed firmly in the U.S. Treasury and Retirement markets. These are the two final greatest bubbles in history.

The U.S. banking system has no real fractional reserve to speak of and its monetary unit called the Federal Reserve Note is backed by $15.2 trillion in U.S. Treasury debt. The global oil supply is peaking and there will not be the available cheap energy in the future to fuel the U.S. economy to be able to pay back these debts or fulfill the obligations of the current $17 trillion retirement market.

While, the U.S. Govt. and Wall Street may be able to postpone the inevitable for a while longer by printing more dollar digits, issuing more paper treasuries and manufacturing more derivatives, these are temporary solutions. There are other alternatives that the U.S. could opt to take, such as backing the dollar with gold or erasing all the debt and starting over. Unfortunately, these are not the choices that are being considered by the leaders in government.

The paradigm shift in silver shown above is a representation of a possible trend in the future. Anything can change its outcome in time and price. That being said, when global markets cannot avoid heading into an unavoidable negative exponential trajectory as they presently are, (including the U.S. economic system) changes in price or value move up or down quickly and violently.

A change in mass psychology will play a big part in the market realization of the true fundamental price of silver. Silver will outperform gold in percentage terms as it will be more affordable to the masses. The majority of technical charting and a great deal of analysis on the internet are nothing more than white noise to confuse and frustrate.

Lastly, to all the silver investors who are purchasing physical bullion on the dips, remain patient— the silver paradigm shift is coming.

Americans Will Flock Into $5,000 Gold and $500 Silver

afreeman — Sat, 01 Oct 2011 21:27:18 +0000

The Doug Casey Interview: How to Prepare for When Money Dies

afreeman — Sat, 01 Oct 2011 03:31:25 +0000

If dollar-dumping turns from a trickle into a flood, look out. Exploding prices (aka exorbitant inflation) resulting from the devaluation of the dollar will compound the problems we saw in 2007-2009. Catastrophe will come when everybody realizes that the dollar is an “IOU nothing.” That’s the downside in the decade(s) ahead, according to Casey Research Chairman Doug Casey. But an optimist at heart, in this interview with The Gold Report, Doug also identifies some reasons to be hopeful.

The Gold Report: You’ve been talking about two ticking time bombs. One is the trillions of dollars owned outside the US that investors could dump if they lose confidence. And the other is the trillions of dollars within the US that were created to paper over the crisis that started in 2007. Are these really explosive circumstances that will bring catastrophic results? Or will it just result in a huge, but manageable, hangover?

Doug Casey: Both, but in sequence. One thing that’s for sure is that although the epicenter of this crisis will be the US, it’s going to have truly worldwide effects. The US dollar is the de jure national currency of at least three other countries, and the de facto national currency of about 50 others. The main US export for many years has been paper dollars; in exchange, the nice foreigners send us Mercedes cars, Sony electronics, cocaine, coffee – and about everything you see on Walmart’s shelves. It has been a one-way street for several decades, a free ride – but the party’s over.

Nobody knows the numbers for sure, but foreign central banks and individuals outside the US own US dollars to the tune of something like $6 or $7 trillion. Especially during the recent crisis, the Fed created trillions more dollars to bail out the big financial institutions. At some point, foreign dollar holders will start dumping them; they are starting to realize this is like a game of Old Maid, with the dollar being the Old Maid card. I don’t know what will set it off, but the markets are already very nervous about it. This nervousness is demonstrated in gold having hit $1,900 an ounce, copper at all-time highs, oil at $100 a barrel – the boom in commodity prices.

Some countries are already trying to get out of dollars, but it could become a panic if the selling goes from a trickle to a flood. So, yes, it’s a time bomb waiting to go off, or maybe a landmine waiting to be stepped on. If a theatre catches fire and one person runs out, soon everybody rushes toward the door and they all get trampled. It’s a very serious situation.

TGR: You warned early on in the 2008-2009 economic crisis that it would really be more of a hurricane. In the last year or so, we’ve been in the eye of the hurricane and there’s more turmoil to come. Will the other side of the storm be worse than the first? And given the recent economic news, do you think we have moved out of that eye?

DC: Yes, I think we are moving out of the eye and going into the other side of the storm. This storm will be much more severe because we haven’t solved any of the problems that caused the hurricane in the first place. The fact that governments all over the world have created trillions of currency units has only aggravated those problems. Now, I expect exploding prices to compound the problems that we saw back in 2007, 2008, and 2009. That will devastate the prudent people in society who saved money. They saved it in the form of currency, and wiping out their savings will be catastrophic.

TGR: That’s something you’ve been saying for years – about this being the “Greater Depression.” We are now four years into it, based on your 2007 start date.

DC: Actually, depending on how long a historical scale you look at, you could say that, for the working class in the US anyway, the depression started in the early 1970s. After inflation, after taxes, their take-home pay hasn’t risen in real terms for 40 years. But the definition of a depression that I use is “a period of time during which most people’s standard of living drops significantly.”

Net savings shows that you’re living within your means and putting aside capital for the future. In the US, people have been living above their means for many years – that is what debt is all about. Debt means that you are borrowing against future production, which is exactly what the US has been doing.

TGR: So, how long will this Greater Depression last?

DC: It doesn’t have to last long at all. It could be quite brief if the US government, which is basically the root cause, retrenches vastly in size and defaults on the national debt, which is essentially an enormous mortgage, an albatross around the neck of the next several generations of Americans. The debt will be defaulted on one way or another, almost certainly through inflation. I simply advocate an honest, overt default; that would serve to punish those who, by lending to the government, have financed its depredations. Distortions and misallocations of capital that have been cranked into the economy for many years need to be liquidated. It could be unpleasant but brief.

The government is likely to do just the opposite, however. It will try to prop it up further and make it worse – compounding the problem by expanding the wars. So, it could last a very long time. In that sense, I’m not optimistic at all. I think there is little cause for optimism.

On the other hand, I’m generally optimistic for the future. There are only two causes for optimism. First, smart individuals all over the world continue, as individuals, to produce more than they consume and try to save the difference. That will build capital, which is of critical importance. Second, expanding and compounding technology will increase the standard of living. Remember that there are more scientists and engineers alive today than have lived in all previous history combined. Those two factors countervail the government stupidity around us. Whether they will be overwhelmed and washed away by a tsunami of statism and collectivism, I don’t know.

TGR: You say that the US government is the root cause of this problem. Isn’t that putting too much blame for a worldwide problem on one nation?

DC: The institution of government itself is the problem, and the problem is metastasizing like a cancer all over the world. But, sad to say, the US is the most serious offender because it is currently both the most powerful and the most aggressive nation-state. It has been greatly abetted by the fact that the US currency has been accepted globally. The US dollar is, in effect, the reserve that backs all the other currencies in the world. That is why the US government has been the most destructive from an economic point of view. Furthermore, military spending – which in the US equals that of all the other militaries in the world combined – is purely destructive. It serves no useful economic purpose at all. The military is no longer “defending” anything – least of all liberty. It’s actively creating enemies and provoking conflict. So, yes, I think the US government is actually the most dangerous force roaming the world today.

TGR: Do you see that changing after the next election?

DC: No. I think the chances of Obama being reelected are high, simply because more than half of Americans are big net-recipients of state largesse. The US has turned into a larger version of Argentina politically, where the electorate is effectively bribed to vote for the biggest thief. It is likely to turn out much worse than Argentina, however. Unlike the Argentines, the US government is fairly efficient. And, unlike Argentina, the US is rapidly turning into a police state.

Electing a Republican might be even worse, though. With the exceptions of Ron Paul and Gary Johnson, the potential Republican candidates absolutely make my skin crawl. So, no, there is no help on the horizon. The US government is spending about $1.5 trillion more this year than it takes in, and it is not going to cut that. In fact, foolish spending to bail things out will increase. And, worse than that, the Fed has artificially suppressed interest rates for three years. Interest accounts for roughly 2% of $15 trillion official national debt, or $300 billion per year. As interest rates inevitably rise, that interest amount will grow. At 12% – and I’m afraid they’ll have to go even higher than that – it would add another $1.5 trillion just in interest payments.

I absolutely see no way out without a collapse of the US currency and a total reordering of the US economy.

TGR: When Money Dies, the title of your latest summit, implies some return to a gold standard. How do you see that playing out?

DC: Nothing is certain, but when the dollar disappears – and it’s going to reach its intrinsic value soon – what are people going to use as money? Will we gin up another fiat currency like the euro? The euro is likely to fail before the dollar. My suspicion is that people will want to go back to gold. It’s not because gold is anything magical, but simply the one of the 92 naturally occurring elements that – for the same reasons that make aluminum good for planes and iron good for steel girders – is most useful as money. In fact, the reason that gold has risen as high as it has is that the central banks of third-world countries – places that don’t have large gold reserves, such as China, India, Korea, Russia, even Mexico – have been buying the stuff in size.

TGR: The concept of going to a gold standard seems impossible in the sense that there is only so much gold above ground – 6 billion ounces? Maybe $11 trillion worth? But it’s only a fraction of the US GDP. Even with gold at $2,000 an ounce, that leaves an immense gap. In that scenario, how do you convert to a gold standard?

DC: In terms of today’s dollars, gold should probably be a lot higher than it is. I don’t know what the number will be, because a lot of those dollars will disappear in bankruptcies; they will dry up and blow away. It’s like a real estate development that was worth $1 billion on somebody’s books; when it fails, that’s $1 billion destroyed. It’s a question of the battle of inflation (with the government creating dollars to prop things up) against deflation (where businesses fail and wipe out dollars). But put it this way: the US government reports it owns about 265 million ounces. Its liabilities to foreigners alone are at least $6 trillion. If they were to be redeemed for a fixed amount, that would require roughly $22,000/oz gold. And that doesn’t count dollars in the US itself.

I’m a bargain hunter and a bottom fisher, and bought most of my gold at vastly lower prices. But I think gold is going much higher because most people still barely even know that the stuff exists. As inflation picks up, they are going to want to get rid of these dollars – but what other monetary commodity can they turn to? So, gold is going higher. I’m still accumulating gold.

TGR: Thank you for the tips, Doug, and as always, for your thoughtful insights.

Doug Casey is Chairman of Casey Research. He is a highly respected author, publisher, and professional investor who graduated from Georgetown University in 1968.

At the sold-out Casey/Sprott Summit When Money Dies, more than 20 seasoned investment pros, economists, and freethinkers provided their insights and advice on the coming currency collapse… and what investors can do to protect their assets. Listen to the timely investment advice of North America’s top financial experts from the comfort of your home-in over 20 hours of power-packed audio recordings on CD (or MP3). Click here for more details.

Peter Schiff’s Gold Report – On The Recent Gold Pullback

afreeman — Sat, 01 Oct 2011 03:05:20 +0000

by Peter Schiff

The past couple weeks have seen a strong pullback in both commodity prices and stocks. Gold fell sharply off its peak after soaring just past $1,900. Volatility in commodity, currency, and equity markets has been very high recently, and these short-term price movements have Wall Street pundits in an uproar.

As gold prices soared, many advisors recommended investing in the yellow metal with appeals to the “bandwagon effect”. A rising price, they argued, indicated changing sentiment, and thus future appreciation. For those who bought on this reasoning, a falling price is a bad omen.

In addition, for a while, gold prices were rising even as stock prices were falling. As a result, some investors bought gold to hedge stock market risk. When gold eventually followed equity prices lower, these trades were unwound.

But as my readers know, following the crowd has never been the reason to buy gold. After all, that same logic would have recommended buying a house in Phoenix five years ago. Since the fundamentals still point to gold’s long-term viability, our phones have been ringing off the hook with customers smartly seeking to take advantage of the dip.

UNCHANGING FUNDAMENTALS

It’s important to understand the fundamental reasons for owning gold, and those reasons have not changed. The US government embarked on a decades-long spending spree of historic proportions. To finance the resulting debt, the Federal Reserve is printing money furiously. Because most every central bank governor appears indoctrinated in the Keynesian economic philosophy, foreign central banks are simultaneously printing euros, yen, francs, yuan, and pounds to “keep up.” Of course, this competitive devaluation actually represents countries shooting themselves in the foot.

Don’t expect any abrupt changes either. The Fed’s philosophy – a resolute faith in central planning and debasement – has been unchanged since Paul Volcker stepped down as Chairman in 1987.

Rather than considering any change of direction, the Federal Reserve Board is likely asking itself: “Should we print $50 billion or $500 billion in our next round of stimulus?” “Can the ECB bailout Greece now or do we first need to bail out the ECB?” “Should we call our money-printing’liquidity assistance’ or ‘quantitative easing’?”Or perhaps, “Do we have enough ink refills for all those printing presses?”

You may think I’m joking, but this is quite serious. While monetary policy was bad under Greenspan, Ben Bernanke has literally instituted a revolutionary devaluation program for the dollar. And gold is the only way to avoid his guillotine.

TRUE VALUE VS. SPOT PRICE

Let’s remember that it is the fundamental value of an asset which dictates its long-term market price. Yet for some reason, many see this relationship backwards – they use the short-term market price to extrapolate the fundamental value. Consider a car on the dealer’s lot: if the price of the car falls tomorrow, it becomes a better deal. If the price rises tomorrow, the car has becomes less attractive.

This principle is equally true in long-term investments. I believe that gold’s fundamental value is far higher than $1,600, and far higher than $2,000. So, while it may be unsettling for some of those who own gold to see steep short-term price declines, remember to focus on the fundamental value of the asset, not the spot price on the market today.

Has the fundamental value of gold fallen in these past two weeks? Quite the opposite.

A DEBT-LADEN HOUSE OF CARDS

The Fed is still trying to find ways to manipulate the bond market with the newly announced “Operation Twist.” This is yet another plan to suppress yields, encourage spending (as if too little spending was America’s problem), and paper-over the untenable interest payments hanging over Washington. The manipulated US bond market is perhaps the greatest bubble in existence. Further manipulation only makes it more unstable in the long-term, and when that bubble bursts, gold should skyrocket.

Meanwhile, the European debt crisis is quickly spreading to Italy. On Sept. 28^th, Italy was selling bonds at yields twice as high as the previous sale at the beginning of the year. The ECB may be able to keep Greece afloat, but Italy is the eurozone’s third largest member. That’s a load too heavy for the ECB to bear.

This is especially true in the wake of Moody’s downgrade of two of the largest French banks – Societe Generale and Credit Agricole. As reported in the Wall Street Journal, “[Moody's] said its decision to downgrade the banks included the assumption of debt restructuring that would cost investors up to 60% on Greek sovereign debt, 50% on Portuguese and Irish debts, 10% on Spanish debt and 7% on Italy’s debt.”

In other words, the Western financial system is a debt-laden house of cards. This is the root of the current market panic. But what’s harder to explain is why investors are responding by selling gold and buying dollars and euros. Then again, I was always told not to look a gift horse in the mouth.

KEEP CALM AND CARRY ON

Do not get caught in the exuberance or pessimism of short-term movements, even if they’re sharp. Observe the fundamentals – the events in Europe, the looming budget calamity in the US, central bankers’ steadfast strategy of debasement, and emerging markets’ continued diversification into precious metals. These are the main drivers for gold’s long-term appreciation.

To my readers who may have purchased metals just before this pullback, your concern is understandable. But I believe this bull market has a long way to run, and the rise up ahead looks even steeper from these levels.

Peter Schiff is CEO and Chief Global Strategist of Euro Pacific Precious Metals, a gold and silver coin and bullion dealer offering honest products at competitive prices.

If you would like more information about Euro Pacific Precious Metals,

click here or go to our website, www.europacmetals.com. For the fastest service, call 1-888-GOLD-160.

Ed Steer’s Gold and Silver Daily 9-27-2011

afreeman — Thu, 29 Sep 2011 00:25:40 +0000

By: Ed Steer

Yesterday in Gold and Silver

Gold sold off a hair at the open…and then recovered its losses by 9:00 a.m. Hong Kong time on Monday morning…which was 9:00 p.m. Sunday night in New York. Then the selling started…and by the time the bloodshed ended just minutes before the London open, the bullion banks had peeled another $120 or so off the spot gold price.

The subsequent [short covering?] rally took gold back up to around the $1625 mark by 10:00 a.m. in London. From there it traded sideways until the London p.m. gold fix at 3:00 o’clock local time…10:00 a.m. in New York. Once the ‘fix was in’…gold got sold down to around $1,600 spot..and stayed there until about 2:30 p.m. Eastern time in the New York Access Market.

Gold then rallied to close at $1,628 spot…and down ‘only’ $29.20 on the day. Net volume was monstrous again…around 350,000 contracts…a hair higher than Friday’s volume.

Silver’s price path was just about the same as gold’s. The low price print [around $26 spot] came minutes after 2:00 p.m. Hong Kong time on Monday afternoon…about an hour before London opened at 8:00 a.m. British Summer Time.

From there, the price rallied back [bullion bank short covering?] about four bucks to $30 spot by 9:30 a.m. in London…before getting sold down two dollars by 9:30 a.m. Eastern time…which was the New York low . From there it rallied about $2.50 by mid-lunchtime.

By the time that trading ended in the New York electronic market, silver was only down 18 cents from Friday’s close…but what a wild ride in the interim! Volume was monstrous once again…around 102,000 contracts net.

Despite the fact that gold was down more than $60 when the equity markets opened at 9:30 a.m. Eastern time, the shares actually spent some time in positive territory in early morning trading. The HUI kept chugging higher from it’s post-p.m. London gold fix low at 10:15 a.m…and shortly before 2:00 p.m. really caught a bid…and climbed to close up 2.04%. This was a magnificent performance considering the fact that the gold price closed down about $30 bucks on the day.

With some exceptions, the silver stocks did very well for themselves…and Nick Laird’s Silver Sentiment Index was up 1.96%

(Click on image to enlarge)

The CME’s Daily Delivery Report showed that 23 gold, along with 28 silver contracts were posted for delivery on Wednesday. There’s not a lot to see, but if you wish to check out the action, the link is here.

Well, I was mentally braced for the worst when I checked GLD and SLV yesterday. Yes, GLD was down 175,189 ounces…but the big surprise was SLV, where 2,774,799 troy ounces were added! You could have knocked me over with a feather. Maybe there will be a big withdrawal today.

It was no surprise to me to see a big sales report from the U.S. Mint yesterday. They sold 15,500 ounces of gold eagles…2,500 one-ounce 24K gold buffaloes…and a very chunky 1,025,000 silver eagles. Month-to-date sales are as follows…65,000 ounces of gold eagles…10,000 one-ounce 24K gold buffaloes…and a whopping 3,325,500 silver eagles. Based on retail bullion sales that I know about in various parts of North America, September will be another strong month for the mint…but it certainly didn’t start out that way.

Friday was a busy day over at the Comex-approved depositories. They reported receiving 1,488,872 troy ounces of silver, but only shipped 26,907 ounces out the door. The link to that action is here.

Here’s an interesting comment that I got from my friend Bron Suchecki over at The Perth Mint yesterday. I’d sent him an e-mail on the weekend asking him how sales were both on Friday…and their Monday, which started Sunday night here in North America. This was the reply that I got…

“The Perth Mint has been very busy this Monday morning with a lot of buying [but also some selling], however buying is outweighing selling by a fair margin [pun intended]…and the decrease in the AUD/USD has taken some sting out of the drop for Aussie investors.

“I see this sell-off driven by leveraged “weak hand” money. In contrast, average investors [the real smart money] are looking at this as an opportunity to buy in or top up at cheaper prices. These buyers are “strong hands” and have been the ones who have been driving the trend all these years.

My bullion dealer here in Edmonton had another record day in bullion sales on Monday…even larger than the record day he had on Friday. It was wall-to-wall buyers all day…and the phone was ringing off the hook. Nobody sold an ounce of anything.

Here’s anther piece of technical analysis on the gold price by reader Scott Pluschau. The ‘Subject’ line of the e-mail read “Hammer Reversal on Gold Futures”.

Hi Ed…

The Gold Futures today formed a single candle called a “Hammer” on the Daily chart. This is a well known and popular reversal pattern in Japanese Candlestick analysis. The hammer shows strong demand at lower prices in the auction. The lower wick of the candle has to be multiple times the size of the body of the candle which can be seen in the chart where I drew a blue oval. It would be even more bullish if the closing price was higher than the open.

The hammer in theory represents a turning point, since the Bears tried to push lower but got rejected, weakening them…and now there’s potential for the Bulls to start a short squeeze. This single candlestick pattern needs confirmation.

I attached the chart in case you can’t visualize it in the text. Scott

Here’s the 1-year Gold/Silver Ratio

(Click on image to enlarge)

I have a lot of stories today…and I hope I can get them all posted before I run out of time.

Physical Versus Paper

afreeman — Wed, 28 Sep 2011 00:37:43 +0000

By: David W. Young

It is the age-old question posed by virtually every prospective precious metals buyer, “What form should my allocation to the precious metals asset class take?”. As a tangible asset broker who only deals in the physical metal for delivery to clients or their designated depositories, of course, I am prejudiced as to which form I prefer. However, there are some very good reasons why the vast majority of your financial allocation to gold, silver, and possibly the platinum group including palladium should primarily be in the form of physically possessed bullion coins and bars. It is all a matter of control and accessibility when an investor chooses to own precious metals as a hedge against a myriad of economic and financial disasters that are more than 50% probabilities in today’s world.

I will attempt to construct a chart that grades the four major forms of precious metals ownership: Physical Metal, Depository Certificates, Mining Stocks, and Exchange-Traded Funds (ETF). I do not include commodity futures contracts in this comparison because this is such a risky way to take a position in Precious Metals due primarily to the extreme 10:1 leverage employed AND the inherent volatility in the underlying assets that only a handful of extremely skilled traders will ever consistently make money using this avenue. I am also ruling out Open-End Mutual Funds, the garden variety that most investors are familiar with, due to the gross inefficiency of these vehicles for long-term holders; the constant payment of taxes on short-term and long-term capital gains due to the trading activities of the fund manager that significantly reduces the net after-tax return of mutual funds over 5-year and 10-year holding periods. And monies to pay these taxes must come from outside of this precious metals holding vehicle because mining stock dividends contained within the portfolio are more than likely to be insufficient to cover annual taxes due. Closed-end funds or the now emerging Exchange Traded Funds (ETF’s), a hybrid Closed-end Fund, are not as offending in total distributions, especially bullion related ETF’s; but they are not the model of tax efficiency either as shown below.

Feel free to comment on this comparison chart, but I think that I have been very fair in my ranking of each potential form of bullion ownership, and this comes from 32 years of hands-on investment experience, both personal and professional to include 20 years as a Registered Investment Advisor:

Respectfully,Draw your own conclusions from the table above, but there is no substitute, period, for the actual, physical ownership of Gold, Silver, Palladium, and Platinum. No one ever got rich by buying the easiest asset to own. Handling and storage of precious metals are minor inconveniences compared to the total security and control that your personal, first-hand ownership of these assets offer. All other forms of ownership are merely differing forms of “Promises to Pay”, based upon the “full faith and credit” of the issuer. A bird in the hand is worth many in the bush.

David W. Young, President
Wexford Capital Management

Additional Negative Considerations on Precious Metals ETF’s from Jim Willie CB, editor of The Hat Trick Letter, February, 2007 issue at:

http://www.GoldenJackass.com

AND you may want to consider subscribing to his very informative newsletter at:

http://www.GoldenJackass.com/subscribe.html

Financial Cataclysm and Gold Unimaginably Higher: Nigel Farage

afreeman — Fri, 23 Sep 2011 12:20:37 +0000

YESTERDAY IN GOLD AND SILVER

By: Nigel Farage

Almost from the Far East open, gold was under pressure…but the real selling began at 9:30 a.m. in London. Starting from that time, gold got sold off in many separate bouts of selling, with distinct rallies in between. The most interesting part about yesterday’s sell-off was the fact that the vast majority of it occurred before the Comex open at 8:20 a.m. Eastern time.

The low for the day came shortly after 11:00 a.m. in New York. The subsequent rally got sold off…and every small attempt to rally after that got sold off as well. Gold closed down $44.30…and net volume was a fairly chunky 260,000 contracts.

As bad as it was for gold, it was silver that really got it in the neck. By the time the real selling in London got under way at 9:30 a.m. BST…silver was already down around 40 cents. And by the time the absolute low of the day [$35.41 spot] was printed at 3:20 p.m. in the New York Access Market, silver was down $4.21 spot. The silver price recovered a bit into the close, but still finished down $3.78 spot on the day. Net volume was immense at 82,000 contracts.

Of all the precious metals, gold was down the least…2.49%. Platinum was down 4.49%…palladium was down 6.64%…and silver was down 9.54%. Silver was down more than 10% on the day at one point.

Although the dollar was up, it certainly wasn’t the driving force in yesterday’s decline in the precious metals, as it hit its peak and was on its way down long before the decline in the precious metals ended.

The precious metals shares turned out to be just another stock on Thursday, as the gold and silver shares got crushed along with the general equity markets. They gapped down more than 5% at the open…and never got off the mat for the rest of the day. The HUI finished down 7.71%

Needless to say, the silver shares were obliterated…and Nick Laird’s Silver Sentiment Index[along with the HUI] took it’s biggest 1-day percentage hit that I can remember…down 11.49%.

(Click on image to enlarge)

The CME’s Daily Delivery Report had no action in either gold or silver worth mentioning, but if you want to look anyway, here’s the link.

The GLD ETF showed no change…but SLV showed a withdrawal of 1,703,997 troy ounces.

The U.S. Mint had a smallish sales report yesterday. They sold another 7,000 ounces of gold eagles…500 one-ounce 24K gold buffaloes…and 46,000 silver eagles.

The Comex-approved depositories reported receiving 612,497 ounces of silver on Wednesday…almost all of it went into Brink’s, Inc.

Here’s a chart that Nick Laird over at sharelynx.com sent my way late last night. The title to the chart is self explanatory…and I suggest you use the ‘click to enlarge’ feature as this is a monstrous chart. My good friend Ian Gordon over at the longwavegroup.com has always said that before this bear market breaths its last, we’ll see the Dow back at 1,000 points.

(Click on image to enlarge)