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SilverAndGoldShop.com - News
The Dollar Bubble ~ National Inflation Association (NIA)

The Dollar Bubble
National Inflation Association

 
HyperInflation Nation ~ Part 1 ~ National Inflation Association (NIA)
 
HyperInflation Nation, Part 2 ~ National Inflation Association (NIA)

Hyperinflation Nation Part II
National Inflation Association

HyperInflation Nation ~ Part 3 - National Inflation Association (NIA)

Hyperinflation Nation Part III
National Inflation Association

A Brief History of Money by Jason Hommel
Article written in 2004
 
"Silver is money. Silver is wealth. The dollar is fraud -- a deception."
 
In all of history, wherever paper money has been issued, its value has eventually gone to zero. Its intrinsic value is nothing, and the dollar is no exception. The value of silver and gold is timeless, and cannot go to zero. They are metals that will always be precious and will hold value.
 
I will answer for you the key questions:
  • Why and how has the dollar gold price declined from $850/oz. in 1980 down to $400/oz. today in 2004, during a time of inflation?
  • Why and when is the silver and gold price going up?
  • Don't take my word for it; I'll give you proof.

    Do you understand the gold & silver markets?
    Do you understand money?
    Do you know the truth about silver, gold, money, and the U.S. dollar backed by neither?

    The U.S. dollar can only survive based on pretext. How much have you been misinformed? Are you aware of how this has taken place? Are you aware of how and why this will end? Have you been able to separate truth from propaganda? Should you pursue wisdom about money? You have come to the right place!

    A few facts about monetary history in the United States

     As America fought the War for Independence (the Revolutionary War), we issued paper money that turned out to be a disaster. Thus, a few years later, when the Constitution was written, it stated that silver and gold would be money. The coin Act of 1792, stated that those who debased the currency,"or otherwise with a fraudulent intent" were to suffer the death penalty:

      Penalty of Death for de-basing the coins. Section 19. And be it further enacted, that if any of the gold or silver coins which shall be struck or coined at the said mint shall be debased or made worse as to the proportion of the fine gold or fine silver therein contained, or shall be of less weight or value than the same out to be pursuant to the directions of this act, through the default or with the connivance of any of the officers or persons who shall be employed at the said mint, for the purpose of profit or gain, or otherwise with a fraudulent intent, and if any of the said officers or persons shall embezzle any of the metals which shall at any time be committed to their charge for the purpose of being coined, or any of the coins which shall be struck or coined at the said mint, every such officer or person who shall commit any or either of the said offenses, shall be deemed guilty of felony, and shall suffer death.

    President Andrew Jackson, our 7th president, was one of our nation's greatest monetary heroes. He recognized the evil of printing excess paper money. He saw a boom (bubble) in real estate, fueled by excess bank loans. He put a stop to it by passing a law that required all land sales to be in gold coin. Banks refused to loan gold coin, and only paper money, so the boom collapsed. He fought the banks, and refused to re-charter the central bank.

    In the Civil War, both sides issued too much paper money to pay for the War. Lincoln's paper money was called "greenbacks." Following the War Between the States, Lincoln was going to go after the banking industry. He was assassinated shortly after the end of hostilities.

    In 1914, during the presidency of Woodrow Wilson, the Federal Reserve was founded. Wilson, on his deathbed, admitted his error, saying that allowing the Federal Reserve to be founded was a betrayal of his country. The Fed quickly issued money to help pay the costs of WWI, and caused the boom of the roaring 20's.

    By 1929, the stock market crashed, and the nation entered the Great Depression.

    In 1933, gold was re-valued from $20/oz up to $35/oz by Franklin Delano Roosevelt. FDR made it illegal to own gold within the U.S. but allowed foreigners to redeem paper dollars for gold.

    By 1945, the end of WWII, the U.S. government was in debt by a total of $250 billion. Valued in gold at $35/oz., that would have been 7.14 billion ounces of gold, which is more gold than has been mined in the history of the world up until 2008, which is only about 5 billion ounces of gold.

    In 1963 Kennedy was assassinated, and 1964 was the final year of issuing 90% silver coinage. People claim that JFK passed an executive order to issue $4-5 billion worth of U.S. notes backed by the silver held by the U.S. Treasury. But that was an insignificant amount, compared to the debt of $250 billion in 1945.

    From 1965 to 1969, fifty cent piece coins were debased and adulterated by reducing the silver content to 40% silver.

    By 1971, Nixon closed the gold window, and stopped redeeming paper money for gold. Gold quickly rose in price over the next decade by an average of 34% per year, up to $850/oz. Some say Nixon really resigned (not over Watergate which was the smokescreen) but over the real embarrassment of selling off our nation's gold hoard while trying to defend the fraud of issuing too many paper dollars (inflation).

    In 1975, Americans were allowed to own real gold again. The day before, December 31, 1974, 'paper gold' began trading again. Except this time they were called "gold futures contracts." These were used to depress the price of gold substantially until the late 80's. Thus, people who bought physical gold were hurt badly as the value of physical gold was cut in half right in the middle of the ten year boom. Gold futures contracts are still used today to cap the price of gold.

    In 1980, bonds were used to lure people away from gold. Bonds were paying a high interest rate, and a nation-wide ad campaign was designed to get people to buy bonds instead of gold. And if you wanted gold, you were supposed to buy the paper gold of "gold futures contracts" for the increased rate of return. The nation was deceived and rushed back into paper money.

    In 2003, the U.S. Bond market is valued at over $20 trillion, which is $20,000,000,000,000. The measure of the money supply in U.S. banks is valued at about $8.8 trillion. The total paper money is $29 trillion. The U.S. gold hoard, 261 million ounces, at $400/oz. is valued at $104 billion, or $104,000,000,000.

    By 2008, M3 was valued at $14 trillion, and no numbers for the size of the bond market are available.

    If you divide $29 trillion, into the 261 million oz. of gold, there are $111,111 dollars for every oz. of gold. This is a price target for if we went back to using gold as money, and the fraud of the dollar, and the fraud of fractional reserve banking were destroyed.

    Gold Delivery Default

    There is one important point to make regarding the last two defaults in gold deliveries in 1933 and 1971. The inability to pay in gold came before the price rise. Gold deliveries stopped before the price rose. Clearly, there does not need not be a substantial rise in the gold price before the default hits. Delivery defaults occur when they run out of the gold to deliver. The rise in price comes after the delivery default happens.

    In all of monetary history, paper money always fails. It always goes to a value of zero. Don't forget the lessons of history.

In all of history, wherever paper money has been issued, its value has eventually gone to zero. Its intrinsic value is nothing, and the dollar is no exception. The value of silver and gold is timeless, and cannot go to zero. They are metals that will always be precious and will hold value.
Gresham's Law ~ Gary North
S&GS notes:  This week's post may be a little 'heavy reading' for many… admittedly, it's very academic in style, but, I came across this in my research travels this past week and thought it sufficiently interesting and noteworthy to share in our TP News. I found the concepts very apropos to what's happening in the US and World economies today…

Some links to other reading along these lines:

http://en.wikipedia.org/wiki/Gresham's_Law
http://www.lewrockwell.com/north/north771.html
http://eh.net/encyclopedia/article/selgin.gresham.law
http://www.columbia.edu/ram15/grash.html
 
Other articles:
 
Tracking the Re-Monetization of Silver
Dynamics Of The Silver Price Revolution
All I Really Ever Needed to Know About Money I Learned From A Silver Dime
 
Gresham's Law What is Money?
by Gary North
October 17, 2009

"Bad money drives out good money." This aphorism has been known as Gresham's Law for almost 500 years. Sir Thomas Gresham never said it exactly like this. The statement is wrong in its familiar form.
 
Bad money does not drive out good money in a free market. The free market rewards producers of customer-satisfying products and services. Good money drives out bad money on a free market. The definition of bad money is money that the free market refuses to use. Gresham's law, as stated, is incorrect. The opposite is true.
 
A correct version of Gresham's Law is this:
"In an economy with a government-legislated fixed price between two currency units, the artificially overvalued currency drives out of circulation the artificially undervalued currency."
This does not have quite the same ring to it as the more familiar version.
 
ONE MORE ROTTEN PRICE CONTROL
Gresham's Law is simply an application of the economic analysis of price controls to monetary units. There is nothing complicated about it.
 
From the early days of the republic, the United States government legislated a price control between gold and silver. At the time the law was first passed, gold was worth 15 times as much as silver was. The ratio of 15 to 1 became law.
 
In 1848, there was a huge gold discovery in California. For discussion's sake, let us say that the price of gold in silver on the free market subsequently fell to 10 to 1. But the government's law still holds. Banks are required to pay 15 ounces of silver to anyone who brings in an ounce of gold and asks for silver.
 
Let us say that you were there. You get a bright idea. You go to the bank with two ounces of gold. You demand 30 ounces of silver. Then you take your 30 ounces of silver and buy three ounces of gold. Where? Across the border in Canada or Mexico. (OK, it was a long ride on horseback. Maybe there were banking trading ships just off San Francisco.) You then take your three ounces of gold to the bank and demand 45 ounces of silver. You repeat the procedure until the bank has no more silver to sell at the price of 15 to one.
 
Of course, you would do this with ten times as much gold. Your competitors, currency speculators, would buy a thousand times as much gold. We call this "economies of scale." Sorry, Charlie.
 
The artificially overvalued currency (gold) remains in circulation. "One ounce of gold is worth 15 ounces of silver. The government says so." The artificially undervalued currency (silver) disappears. "One ounce of gold is worth 10 ounces of silver. The free market says so." So, people start buying 15 ounces of silver with an ounce of gold in the government-rigged market in order to buy an ounce and a half of gold with silver in the free market.
 
Meanwhile, anyone in the know who receives a silver coin in exchange sets aside the coin. Silver coins go out of circulation. Mexico and Canada wind up with America's silver coins. The U.S.A. winds up with gold coins.
 
Trade between Canada and the U.S.A. then falls. So does trade with Mexico. The foreigners don't want to accept gold from Americans at the fixed rate of 15 to one, since it is worth only 10 to one. Signs go up: "For sale to Americans: for silver only." But Americans cannot get their hands on much silver; it has already been transferred to Canada and Mexico, or it is in coin hoards in Americans' homes. So, Americans cannot buy goods from Canada and Mexico.
 
Throughout American history, right up until gold was declared illegal in 1933, either gold coins or silver coins were driven out of circulation at any government-mandated price. The 15-to-one price was used for decades. This system was called bimetallism. It did not work. It was monometallism operationally.
 
This is another case of the economics of price controls. The process is not limited to money. If the government says it is illegal to sell gasoline above $4.00 a gallon in order to avoid a fine for price gouging in a time of crisis, and the free market price is $5.00 a gallon, expect to spend lots of time in gas lines.
 
This happened in Nashville and Atlanta in September of 2008. People could not buy gasoline. The pumps were dry. When a gasoline truck drove into town, it was soon followed by a line of cars, rather like a mother duck and her ducklings. Drivers did not know where the truck was heading. They followed it, so they could line up as soon as it unloaded its cargo.
 
FLOATING EXCHANGE RATES
Let us assume that Congress passes a new law. The exchange rate between gold and silver is no longer fixed by the government. People can buy and sell gold for whatever price they can get.
Nobody is sure what the gold/silver ratio will be after the law is passed. But speculators expect gold's price to fall toward ten ounces of silver - the free market's price.
 
As soon as speculators think that this new law will pass, they start selling gold - "Get rid of it; it's overvalued" - and start buying silver. They know that gold will not be artificially overvalued much longer. Better to start buying silver in Canada and Mexico and hold it across the border until the law passes. It will not take long for the new ratio to be established. At that time, gold and silver coins will circulate side by side in the United States. The government does not set a price. There is neither overvaluation by law - fiat valuation - nor undervaluation. Supply and demand jointly establish the exchange rate, moment by moment. No problem. No glut of gold coins. No shortage of silver coins.
If both gold and silver coins are called dollars, these dollars will buy varying quantities of goods and services, moment to moment. A gold dollar is not worth what a silver dollar is.
 
Back in the 1960s and 1970s, there was a debate between those who advocated fixed exchange rates for the currency market - the Bretton Woods system - and those who advocated floating exchange rates. Milton Friedman was the best-known advocate of floating rates, meaning market-established rates. Friedman always had the advantage conceptually. He stood for free-market pricing. The fixed-rate people were in favor of price controls. They never used that language, however. Had they been forthright in this regard, they would have lost the debate much earlier in free-market circles.
 
The debate ended after December 1973. That was a year and a half after Nixon took the country off the international gold-exchange standard, i.e., the Bretton Woods agreement. From late 1973 on, the dollar has floated. Defenders of the old fixed-rate system are few and far between.
 
The fixed-rate system was a Keynesian-like imitation of the international gold standard. It began in 1922. Prior to World War I, when a nation's currency was defined as a specific quantity and fineness of gold, and when the central bank or treasury redeemed gold on demand, there were fixed exchange rates between gold-backed currencies. The free market adjusted the rates. Because the exchange was in fact gold for gold, ounce for ounce, the currency exchange rates remained fixed. These rates were definitional. They were rates of exchange between quantities of gold.
 
It is 1875. A British citizen walks into an American store in New York City. He sees something for sale for an ounce of gold. He hands the store owner four British gold sovereigns. He walks out with the item. Some critic might exclaim: "But the sovereigns have a dead king's face on it. This face is not like the goddess of liberty, whose face is on a $20 gold piece." "His money's good in this store," declares the owner.
 
The money was good because it was gold. The pictures on the coins were irrelevant to the store owner. He did not honor any British king. He also did not worship a goddess. He just wanted the gold. Dollars. Pounds. Who cares? He wanted the gold.
 
The modern gold-exchange standard (1922-1971) was a statist imitation of the gold coin standard. The rates of currency exchange were set by governments and their agencies. The currencies were no longer redeemable in gold after World War I broke out in 1914. The Bretton Woods system of 1944 extended this system. The results were predictable: foreign currency shortages, then announced devaluations by governments, which in turn forced operational revaluations of the other currencies in relation to the devalued currency.
 
Price controls do not produce markets that balance supply and demand. Price controls are a government's assault on free-market pricing. They create gluts (overvalued item) and shortages (undervalued item). This does not change merely because the items are called national currency units.
The problem with floating exchange rates is not floating exchange rates. It is the lack of any fixed exchange rate between a nation's currency and gold.
 
The modern floating exchange rate system is comparable to floating exchanges between the currency units of two rival gangs of counterfeiters. By "comparable" I mean "identical." There are still a few defenders of fixed exchange rates who decry floating exchanges between currencies because the system leads to monetary inflation. The problem is not the floating exchange rate system. The problem is the counterfeiting.
 
Milton Friedman was not wrong for his defense of floating exchange rates and a system of free market currency speculation. He was wrong because he was a defender of government counterfeiting. He attacked the gold coin standard. So do his followers. He thought that a hypothetical system of automatic, fixed-rate monetary expansion was preferable to a gold standard. But there is only one way to get the central bank counterfeiters to pick a monetary expansion figure and stick to it. That way is called the full gold coin standard.
 
GOLD, PAPER, AND THE GUN
There were two gold standards: the gold coin standard and the gold exchange standard. To understand the two gold standard systems, think of paper money, gold coins, and a gun. The government holds the gun.
 
In a gold coin standard, a bank issues paper money: banknotes. A banknote is a legal IOU. Each piece of paper promises to deliver an ounce of gold upon presentation of the paper. Think of the paper as pre-1933. The paper says $20. It promises one ounce of gold.
 
The government holds the gun. It is pointed at the banker. "Fail to deliver an ounce of gold for each $20 warehouse receipt, and you go to jail."
 
This analysis also applies to checking deposits. But it is easier to imagine when we talk about bank notes. They are IOUs.
 
In a free banking system, the government does not check to see if a bank has enough gold to meet all demands. In a 100% reserve system, it would. In a free banking system, rival banks and a bank's depositors serve as the executioners. Ludwig von Mises favored free banking. Murray Rothbard favored 100% reserves.
 
Step two: the issuing bank is the central bank. Does the government hold a gun on the central bankers? In theory, yes. In practice, it depends on how dependant the government is on loans from the central bank.
 
After World War I broke out, every European government except the Swiss holstered its gun. The commercial banks were allowed not to redeem gold on demand.
 
Then, within weeks, there was a new rule. The central banks demanded the gold held by commercial banks. Each government unholstered its gun. "Fork over the gold," they said.
 
In the gold exchange standard, central banks and governments held British and American debt certificates instead of gold. The British and the American governments promised to redeem their debts in gold on demand. The British went back on the gold standard in 1925, but at the pre-War rate of exchange. It had to shrink the money supply. This reversed the boom. Then they inflated. Gold began flowing out to the United States. The head of the Bank of England persuaded the head of the New York Federal Reserve Bank, Benjamin Strong, to inflate the dollar, in order to take pressure off the Bank of England's gold outflow. The NY FED did as Strong asked. This inflation was the origin of the U.S. stock market bubble. The FED reversed course in 1929, the year after Strong's death. That caused the crash.
 
In 1931, Great Britain went off the domestic gold coin standard. It continued to redeem gold for other central banks. The U.S.A. followed this lead in 1933.
 
Busby Berkeley unknowingly launched a fond farewell to the gold coin standard in "Gold Diggers of 1933." That was the first and last time any movie chorus line was decked out in Liberty head $20 gold pieces. Ginger Rogers sang "We're in the money!" (http://tinyurl.com/ylekr7e) That same year, Roosevelt pointed the gun at every American and every resident in the United States. "Turn in your gold." The next year, the government hiked the dollar-gold exchange rate of gold to $35 per ounce. It let the Federal Reserve System issue currency against this gold.
 
In 1971, Nixon took the nation off the gold-exchange standard. Not a shot was fired.
 
Conclusion: civil government points its gun at private citizens. It does not point it at itself. Cleavon Little's scene as the sheriff in "Blazing Saddles," where he points his gun at his own head, threatening violence, was good for laughs. It was not good political theory.

CONCLUSION
Gresham's Law, properly understood, is a real phenomenon. When a government threatens violence against currency traders for daring to make an exchange at a rate not mandated by the government, there will be a glut of the overpriced currency and a shortage of the underpriced currency in that jurisdiction. The result will be decreased trade across borders. There will be shortages of goods on both sides of the border. Most people's wealth will decline as a direct result of reduced trade.

Gresham's Law for centuries was observed in action, but it was not analyzed in terms of the economics of price controls. This was true in the pre-Nixon era. The discussion of fixed exchange rates by those favoring fixed rates was never discussed in terms of the controls' legal status as price controls, any more than a tariff is ever discussed by its proponents as a sales tax on imported goods and, necessarily, as an export restriction. The problem with people's incomplete understanding of Gresham's law is that they treat money as arising from government rather than from the free market. They imagine that there is a failure of the free market: "Bad money drives out good money." There is no failure of the free market. There is a failure of a government-imposed price control. People see government as sovereign over money. It is not. Here is why bad money drives out good money: a bad law forces people into capital-defense mode.
 
Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also author of a free 20-volume series, An Economic Commentary on the Bible.
 
Dynamics Of The Silver Price Revolution ~ Vincent Bressler
Related Articles:
Gresham's Law
Tracking the Re-Monetization of Silver
All I Really Ever Needed to Know About Money I Learned From A Silver Dime
 
Dynamics Of The Silver Price Revolution
by Vincent Bressler
June 14, 2008

Recently, when silver was topping out at around $21 per ounce, there was an acute shortage of silver available for investing. This investment demand problem threatened to kick silver into an industrial deficit driven price revolution. The problem was resolved via unofficial rationing. New silver eagles and new 100 ounce bars have become increasingly unavailable since that time. In fact the time required to get new 100 ounce silver bars continues to increase. However, as the futures market price of silver went down from $21 dollars per ounce, weak hands holding silver once again have come forward to sell. The weak hands fear further price declines and are unable to wait because of financial stress. I monitor this by watching the prices on ebay. These prices have begun to converge with the futures price for the nearest delivery month. Smart, strong hands are buying this cheap silver. The silver price at this point in the cycle (illustrated below) is the Optimal Point, the point where Maximum Surplus of silver is available to investors beyond that which is consumed by industrial demand.

Over the last several years, the Maximum Surplus amount of silver available to investors at the Optimal Point has declined as the weak hands become extinct and the strong hands more certain of the coming price revolution. This game will be over when there is no more Maximum Surplus, no Optimal Point, and the only thing that can happen to free up more silver for industry is a price revolution. By forestalling the price revolution for so many years, the price managers of silver have battle hardened the strong hands. Industrial silver users and consumers will be big losers, and presumably, the price managers will be big winners, if that they own a lot of silver.
This last point inspires me to speculate about short of silver position on COMEX:

Let's assume that the immense short position on COMEX is not naked, but that it is held by an entity that is beyond the reach of the law or in some sense exempt. When the price revolution happens, what is the chance that this short of silver entity will deliver actual silver to the longs? The chance is approximately zero. First, there are strict delivery limits on COMEX right now and their rules are "flexible" to say the least, second, since the entity is exempt, who can make them deliver?

Those short of silver contracts will be settled in cash or not at all, depending on who the entity on the short side is and whether they have access to the FED begging bowl or printing press. So in the end, it really does not matter at all whether the short position on COMEX is naked or not. I believe that even Antal E. Fekete would agree with this, although I suspect that he would characterize the default as the end of the world, whereas I would call it business as usual.
 
 
Tracking The Re-Monetization of Silver ~ Vincent Bressler
S&GS Notes:    See also
Gresham's Law
All I Really Ever Needed to Know About Money I Learned From A Silver Dime
Dynamics Of The Silver Price Revolution
 
Tracking The Re-Monetization of Silver
by Vincent Bressler
July 2, 2008

Silver has been thoroughly de-monetized. The best way to observe this phenomenon is by looking at the above ground stock of silver. Many words have been written on this subject over the last ten years by Ted Butler and others. Let me simply state that that there is very little above ground silver left in the world, perhaps less than 1% of what there used to be.

In order for anything to effectively act as money, there must be a stable supply. Today annual mine supply is about 900 million ounces and above ground silver supply is about 1/3 of that. This is not a stable situation, not the situation that existed 100 years ago when silver really was money. In order for a metal to function as money, the above ground supply should be equal to the mine supply for the last several decades at least! This is certainly the case with gold.

The second best way to observe the level of monetization of silver is via the silver/gold price ratio. When silver is a monetary metal, the silver/gold price ratio should be equal to the relative abundance of silver vs. gold in the Earth. When both silver and gold are money, mining each metal is a form of direct money creation. Capital will compete to create the most money for the least cost. The cost to produce an ounce of new silver will track the relative abundance of silver in the Earth, as will the cost to produce an ounce of gold. Therefore the natural silver/gold price ratio will settle in at about 1 to 15.

Now that I have given you some tools to track the re-monetization of silver, the big question is, will it happen?

I think that we don't know the answer to this question yet. The critical point in this process will occur when the silver to gold price ratio crosses the 1 to 15 line in a few years time. At this time, investor demand for silver will be running wild. Silver is bound to overshoot the 1 to 15 ratio this time (in 1980 the 1 to 15 ratio was the peak). If the silver to gold ratio continues to go up and stay up above 1 to 15 for several years while the above ground supply increases year after year after year for a decade, then silver will have been effectively re-monetized. Only monetary demand can support the price of silver at 1 to 15 as the above ground supply grows. This will be a natural process which will play out over decades, if it happens. My suggestion to the investor today is to load up on physical silver and start selling it for gold as the 1 to 15 ratio is breached.
 
China: The World of Gold and Silver Demand Is Changing
Note from SG&S:
I've compiled a couple of articles together from this source this week because I felt they were both informative and apropos to the rise/fall/rise of silver spot we've seen in the last week. Many of you have commented on this; and, as investors, we all scratch our heads and say, "What's going on here?".
 
From my readings, it's clear the volatility is a reflection of 1) what's happening with US currency devaluation 2) what's going on in Asia, and more specifically, China and 3) what's happening with the manipulators (short-sellers) of precious metals in this country. (I will provide more info about this manipulation next time).
 
Without going into a lot of detail, let me summarize most expert writings of the last week: gold and silver are showing a lot of volatility, which is to be expected due to the issues of destabilization & devaluation of US currency, and we may still see some downward trend for the short term. However, longer term, there will be an upturn of price again and a climb to new heights… hang on for the ride! Silver will follow Gold… and often out-perform it.
 
As for my observations since I've been in this business: People tend to purchase NOT when price is low but when price rises. I find this inexplicable and counter to what conventional wisdom would dictate. Let me speak frankly when spot rises, Tea Party Silver will be forced to increase our prices as well. (We've had to do this in the past week, but have dropped prices back to previous rates now as spot has dropped back). The prudent thing to do would be to purchase on these down-turns… and on upcoming sales and introductory rates.
 
China: The World of Gold and Silver Demand Is Changing
Aug. 31, 2009
Darren Long
 
When the Chinese decide to invest, it causes ripples across the world...
 
TWO YEARS AGO on August 21 2007, China's government allowed its citizens to invest in an entirely new asset. It allowed them to invest in Hong Kong-listed stocks.
 
Hong Kong is a special region of China. It's one of the most dynamic, capitalistic places on Earth. The move from the government was a move toward "investment freedom" for the Chinese people.
 
On that day, Hong Kong's benchmark stock index rose 8.74%. Over the next two and a half months, it skyrocketed from 11,000 to over 20,000. It was a chapter in a story that you should get used to over the coming years; when the Chinese decide to invest in something, it causes giant ripples across the world. And this sort of situation is starting to happen again, this time in Precious Metals, and especially Silver.
 
The Chinese have a centuries-old affinity with Silver. It began in the 1500s with the explosion of trade with Mexico via the Spanish galleons. These sailing ships were the super-tankers of their age. They made one voyage per year, carrying tea, silks, and spices from Asia to Mexico. The ships returned to Asia with Gold and Silver. After the Chinese threw off imperial rule in 1912, the country used Silver money. Today, the Chinese word for "bank" (Yin Hang) means "Silver Okay". And now that China is becoming one of the richest, most dynamic capitalistic countries on Earth, this story is about to take a modern twist. The Chinese want Silver again.
 
Thanks to a decade of wealth accumulated by regular Chinese citizens, there is plenty of cash to chase good investments. As the famed global investor Jim Rogers points out, these people are the best capitalists in the world. They are great savers. Chinese people want their money to work for them...so they invest.
I recently watched a China Central Television piece on Gold investing. According to the program, there are some 400 million households in China, with an average ownership of about 0.1 ounces of Gold. The average Gold ownership in most emerging countries works out to about 1 ounce per household. The Chinese are beginning to make up that gap. From 2006 to 2007, domestic demand for Gold rose 60% to around 700,000 ounces. Experts continue to urge citizens to put 3% to 5% of their net worth in Precious Metals; and that is a conservative suggestion. Chinese government statistics show the average urban Chinese household has about $1,300 in disposable income to invest. While that doesn't seem like much, when you add up all those households, there's about $36 billion that could move into the next big investment opportunity - Precious Metals.
 
The government is now actively encouraging its citizens to Buy Gold and Silver. They recently unveiled Silver bullion for investing. The premise is that Gold was approximately 50 times more expensive than Silver in 2007...but is now 65 times more expensive. Silver is a bargain. The government is promoting Silver bullion as an investment for regular citizens. And remember, a bunch of Chinese students laughed at US Treasury Secretary Tim Geithner this year when he claimed the dollar was safe. The Chinese know the value of real assets...real money like Gold and Silver.
 
What does this mean for Silver prices? It's impossible to say. But here's a little math that interests me. According to the Silver Institute, demand for Silver in 2008 (for industry, jewelry, and investing) was 832 million ounces. At today's price, that's an $11.5 billion market...or about one-third the annual discretionary capital available in China alone.
 
The most important thing to understand about this situation is the Chinese people become freer every time the government loosens up a restriction. These people couldn't legally buy Silver bars before. Now, they can. They're becoming richer...and they will continue to do so for decades.
 
Add this to a world already waking up to the grand currency debasement of the West, and you have a recipe for the continuation of the big bull market in Silver and other Precious Metals.

Don't Take Our Advice …
Darren Long
Sept. 21, 2009
 
The last time I signaled a major move pending, short-term technical indicators pointed downward, entirely contrary to a long-term bullish fundamental outlook that has only gathered strength in the meantime. After dipping to $870 per ounce in the weeks that followed, Gold held the $900 line throughout the notoriously weak summer months, and now has forged ahead to over $1000 Oz testing it all time highs while Silver has delightfully moved up some 20% plus in the same period of time. Both metals are well positioned to forge new all-time highs.
 
Precious-metal investors are tracking a hurricane, with a deteriorating U.S. dollar as its eye, a destructive wind of toxic derivatives swirling about, and a downpour of continuing reverberations for the economies in its path. It doesn't look so good from our perspective for the more traditional markets.
While the degree of certainty over a hurricane's track decreases as one projects further into the future, I believe the opposite holds true for Gold and Silver. I claim no prescience over tomorrow's Gold or Silver price, but my research continues to support an expectation that gold will surpass the $2,000 mark before this storm subsides and Silver will reach its all time high, well over $50 Oz.
 
I could point to technical analysis of Gold and Silver's contracting Bollinger bands and inverse head-and-shoulders formation, or the fascinating discussions and Elliott wave analysis that suggest an imminent breakout for both, but in truth Gold and Silver are about as predictable in the near term as Robin Williams with a movie script. Still, the irreverent speculator inside me can't help agreeing with John Embry, chief investment strategist for Sprott Asset Management:
"I think there is a very small probability that Gold will fall below $900 in the very near term. Monetary debasement is driving investment demand, western central banks are running out of available supply, eastern central banks, who are awash in dollars, want to buy and mine supply is cratering. We are close to lift off and the Gold price at worst will trade at several multiples of the current price."
 
Seasoned precious-metal investors maintain a staunchly long-term focus, and constantly hone their fundamental understanding to inform and tweak price expectations as the bull market roars onward. Choosing price targets will always be an exercise in speculation, and as with any storm those forecasts will remain subject to change, but that long-term focus is instrumental to success the way satellites are indispensible to meteorologists.
 
The truth is folks that you just 'gotta' step up to the plate and get involved. Buy into this market and create yourself a little sense of urgency. Fire all the guns up and begin to get motivated about the transfer of wealth that is occurring right now in front of your eyes. Silver and Gold are at the forefront of that transfer of wealth and I want you to take advantage of that.
 
 
The Many Uses of Silver ~ The Silver Institute
Note from SG&S:  One of the things that all precious metals experts agree upon is the fact that apart from being a precious metal, silver is a valuable investment for its industrial use alone. Ted Butler referenced this in his speeches at the Phoenix Silver Summit this past spring, "Silver: Past, Present & Future" (ref. http://www.teapartysilver.org/news/TPNews10.html & http://www.teapartysilver.org/news/TPNews11.html .
Another feature that enhances the value of silver as an industrial metal is its increasing scarcity. We are not seeing this visibly yet in the investor marketplace, but the experts are watching this and commenting on it with increasing frequency.
The following information from The Silver Institute details the many ways in which silver is valuable as an industrial metal. As an investor, you may draw your own conclusions.
 
The Many Uses of Silver
 
Pharmaceuticals
Silver is leading a revolution in technology and medicine. The white metal's unique bacteria-fighting qualities are becoming more and more critical in healing conditions ranging from severe burns to Legionnaires Disease. In fact, the most powerful treatment for burns is silver sulfadiazine, which is used in every hospital in North America to promote healing and reduce infection. Everything from surgical threads to bandages and dressings to doctors' coats and catheters are utilizing silver. In hospitals and homes, silver in ductwork provides maximum sterile atmosphere.
 
Electrical
Silver is the best electrical conductor of all metals. Because it does not corrode, its use in electrical and motor control switches is universal. A fully-equipped automobile may have over 40 silver-tipped switches to start the engine, activate power steering, brakes, windows, mirrors, locks and other electrical accessories
 
Chemical Catalyst
Silver is also one of the few elements that improve the efficiency of chemical reactions. It is the only catalyst that will oxidize ethylene gas into ethylene oxide, the building block for polyester textiles used for clothing and specialty fabrics, and melded items like computer keyboards, electrical control knobs, domestic appliance components and Mylar tape used for all audio, VCR and recording tapes. Nanotechnology applications using silver are growing -- in computers, communications, miniature motors and switches.
 
Reflectants
Silvered windshields in homes, cars and office buildings reflect away some 70% of the solar energy that would otherwise pass through, thus reducing the load on air conditioners. The U.S. Department of Energy's Energy Star Program has spurred 50% increase in silver-coated glass in past six years, translating to 350 million square feet of glass, or five million ounces of silver per year.
 
Industrial
Silver is the ideal industrial material. No other metal has silver's combined strength, malleability and ductility, or facilitates electrical and thermal conductivity as well, or can reflect light and endure such extreme temperature changes. Jet engines of today and tomorrow can depend on silver-coated bearings for their performance and safety. All major jet engine manufacturers utilize these high-performance silver bearings, which provide critical fail-safe lubrication required by the Federal Aviation Administration.
 
Printed Circuitry
Printed circuit boards (PCBs) use silver for connecting paths of electronic circuitry. PCBs are essential to the electronics that control the operation of aircraft, automobile engines, electrical appliances, security systems, telecommunication networks, mobile telephones, television receivers. Most computer keyboards use silver membrane switches.
 
Superconductors
These low-current switches are also found in control panels of cable television, telephones, and devices using digital electronics. Superconductivity is the power transmission of the future and silver makes it faster and more effective. Silver-jacketed superconducting oxide wires can carry more than 140 times the electric load of copper wire with less than 1 percent of the weight. This wire utilizes about 1,000 ounces of silver per mile. Silver already improves performance at lighter weights and size in cables, motors, generators and transformers. Silver oxide-zinc batteries provide higher voltages and longer life for such consumer goods as quartz watches, cameras, and electronic tools.
 
Electroplating
The ease of electrodeposition of silver accounts for silver's widespread use in coating. The plating thickness of some items, such as fuse caps, is less than one micron although the silver then tarnishes more easily. Coatings of two to seven microns are normal for heavy duty electrical equipment. Silver plating is used in a wide variety of applications from Christmas Tree ornaments to cutlery and hollowware.
 
Brazing & Soldering
Silver facilitates the joining of materials (called brazing when done at temperatures above 600oCelsius and soldering when below) and produces naturally smooth, leak-tight and corrosion-resistant joints. Silver brazing alloys are used widely in applications ranging from air-conditioning and refrigeration equipment to power distribution equipment in the electrical engineering sector. It is also used in the automobile and aerospace industries.
 
Coins
Silver, being a rare and noble metal, was a more desirable medium of exchange than beads, feathers, shells, and the like. Its use as a medium of exchange is known throughout all recorded history. Coins, in the sense of having an authenticating stamp on them, began to appear in the eastern Mediterranean during 550 B.C. By 269 B.C. Rome adopted silver as part of its standard coinage. Silver became the trading medium for merchants throughout the civilized world. (Gold being reserved for governments and the wealthy.) Today silver coins continue to be the medium of exchange wherever paper is not acceptable, for example, in parts of Africa and the Middle East. One example of a trade coin is the Empress Maria Theresia Taler, first minted in Austria in 1741. It was standardized in 1780 as 28 grams and 833/1000 silver (the remainder copper). Some 370 million of these 1780 dated coins have been minted up to 1996 and a large proportion remain in circulation today.
 
Photography
Although a wide variety of other technology is available, silver-based photography will retain its pre-eminence due to its superior definition and low cost. From it's very outset, silver halide has been the material that records what is to be seen in the photograph. As little as 4 photons of light activate silver halides which amplify that incident light by a factor of one billion times. In today's photography, silver halides are coupled with dyes that bring the color of the world around us into permanent record. An estimated 196 million troy ounces of silver were used worldwide in 2003 for photographic purpose.
 
Silverware & Jewelry
Silver possesses working qualities similar to gold but enjoys greater reflectivity and can achieve the most brilliant polish of any metal. To make it durable for jewelry, however, pure silver (999 fineness) is often alloyed with small quantities of copper. In many countries, Sterling Silver (92.5% silver, 7.5% copper) is the standard for silverware and has been since the 14th century.
 
Mirrors & Coatings
Silver's unique optical reflectivity, and its property of being virtually 100% reflective after polishing, allows it to be used both in mirrors and in coatings for glass, cellophane or metals. Everyone is accustomed to silvered mirrors. What is new is invisible silver, a transparent coating of silver on double pane thermal windows. This coating not only rejects the hot summer sun, but also reflects inward internal house heat. A new double layer of silver on glass marketed as "low E squared" is sweeping the window market as it reflects away almost 95% of the hot rays of the sun, creating a new level of household energy savings. Over 250 million square feet of silver- coated glass is used for domestic windows in the U.S. yearly and much more for silver coated polyester sheet for retrofitting windows.
 
Solar Energy
Silver paste is used in 90 percent of all crystalline silicon photovoltaic cells, which are the most common solar cell, according to the Photovoltaic Technology Division of the U.S. Department of Energy. And all silicon cells used in space to power satellites use silver in the form of evaporated metal to make the electrical contact. The electricity generated by photovoltaic cells is highly reliable. As soon as sunlight strikes, power begins to flow. Sunlight striking silicon cells generates electrons, which the silver conductors collect to become a useful electric current. The conductive silver, which also enhances reflection of the sunlight, is applied in the form of a glass paste with a minimum of 90 percent silver along the top and across the bottom of the silicon crystal. When fired, the silver forms a complete circuit collecting solar energy and conducting it to the power supply line. A group of roofing-tile solar cells can generate sufficient power to provide a house and also fill batteries to supply power after dark. Silver plays yet another role in the collection of solar energy: efficient reflection of solar heat. Silver is the best reflector of thermal energy (after gold).
 
Water Purification
An increasing trend is the millions of on-the-counter and under-the-counter water purifiers that are sold each year in the United States to rid drinking water of bacteria, chlorine, trihalomethanes, lead, particulates, and odor. Here silver is used to prevent the buildup of bacteria and algae in the filters. Of the billions of dollars spent yearly in the U.S. for drinking water purification systems, over half make advantageous use of the bactericidal properties of silver. New research has shown that the catalytic action of silver, in concert with oxygen, provides a powerful sanitizer, virtually eliminating the need for the use of corrosive chlorine
 
 
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