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Will the CFTC Actually ACT to Protect Silver Investors? ~ Tradeplacer.com
October 29, 2010 
Issue 83

S&GS Notes: There has been more developing this week on the issue of manipulation of the gold & silver markets. While we've covered this topic in the past, we felt it best to devote this week's newsletter to an update on what is happening on this scene to keep our subscribers informed.

What does this have to do with silver investing you may well ask? Well, it's been driving the price points for some time now; and the more pressure is brought to bear on the guilty parties, we may well see significant spikes in the pricing as they try to cover their short positions, and the downward manipulation of price ends due to public pressure and possible CFTC regulatory activity. Grab your silver and hang on for the ride…

Will the CFTC Actually ACT to Protect Silver Investors?
from Tradeplacer.com

The silver market has seen a lot of surprises this year, and the statement today made by CFTC Commissioner Bart Chilton is probably the most unexpected yet. After more than two years of "investigation" into the silver market with no acknowledgment of structural issues, Chilton gave a public meeting in which he was quoted as saying "There have been fraudulent efforts to persuade and deviously control that price... the public deserves some answers to their concerns that silver markets are being, and have been, manipulated." He went on to state that the CFTC would be introducing new regulations to curb manipulation in the precious metals markets. Silver rose nearly 80 cents from its intraday low on the news.

Silver analyst Ted Butler has been writing letters and warning the CFTC of the consequences of manipulation in the silver market for more than 20 years. Not many people would bother to warn of these issues when ignored and ridiculed, however Butler persisted with his call for action to remove manipulators from the market. Up until recently, these warnings have been completely ignored.

As Butler and others have documented, a concentrated group of four to eight traders have been responsible for nearly 70 percent of all short positions in silver on the COMEX. These traders have consistently traded in unison to move prices while collecting large profits along the way. It is suspected that JP Morgan holds the majority of these short positions; however the CTFC has refused to acknowledge this and trading positions are not publicly disclosed.

Why Now? What does the CFTC and the short commercial banks know that we don't?

It doesn't take 20 years, or 2 years for that matter, to realize that there are obvious structural problems with the silver market - especially when the issues are spoon fed by letters from thousands of individuals. Given the reactive nature of the CFTC, it is unlikely that Chilton is acting preemptively to protect the small investor. It is more likely that the CFTC position is changing due to the structural change in the silver market. In 2008 weak long speculators were categorically replaced with blood thirsty hedge funds, wealthy investors, and developing nations who buy in cash.

(click to enlarge)

As previously documented on Tradeplacer.com, the commercial banks began to cover their short positions in a rising market about four weeks ago which is highly unusual. While silver has oscillated between $23 and $25 over the last month, the banks have continued to quietly cover. Perhaps Chilten means what he says and the banks began to cover in anticipation of further regulation by the CFTC.

Is it too late?

As of October 19th, the commercial traders were still net short 58,150 contracts - roughly 290 million ounces of silver. There are currently only 52 million registered ounces and 59 million eligible ounces held in COMEX warehouses. It would not be possible to remove the short commercials from the silver market in an orderly fashion. The majority of contracts would have to be settled in paper at much higher prices. As pointed out by Butler, the worst case scenario - and increasingly likely - would be a closure of the paper precious metals markets. If that occurs physical silver would likely trade in multiples of its previous paper price and would be unavailable to most buyers. The apparent choice by the CFTC to act is most likely no choice at all. It is a desperate move to maintain the status quo and a reaction to an eminent emergence of either physical shortages or dollar devaluation instigated by a wave of quantitative easing.

Jeff Lewis, of Silver Coin Investor, has the following perspective on this week's announcement by Bart Chilton:

"Almost every major financial media entity ran the story about CFTC regulator, Bart Chilton's statement regarding silver manipulation.

This is quite a remarkable event for our small, yet growing community. 

But given the fact that governments have little incentive to prevent a crisis, I believe this was a very well-crafted and strategic announcement.

Yes, I'm feeling a bit cynical about it.
 


Other Articles of Interest

Commercials Begin To
Cover Silver Short Position
s

Tradeplacer.com

Could This Be It?
David Bond, Publisher

Traders Accuse HSBC,
JP Morgan
of Silver Manipulation

Forbes Magazine

Silver to 30 In 18 Days
James Turk

The Return to Good Money
Jeff Nielson


Free Service

SGS: We saw a 'correction' briefly this past week in the price of silver/gold… this was more likely the combination of manipulative activity plus the drop that usually accompanies the gold/silver options expiration date each month (Oct 26). We see this over and over… when these dips happen, buying RETRACTS… it is the old 'loss of confidence' phenomenon… wise investors don't let themselves get caught by this…. BUYING SHOULD SURGE on the price dips…

SGS Volume Discounts

SGS has received several inquiries of late regarding our volume discount program. Our volume discounts apply only to non-numismatic rounds and begin with quantities of 200 ounces or more as follows:

200 -500 oz - $1.00 / oz discount
501 - 1000 oz - $1.50 / oz discount
1001 or more - $2.00 / oz discount

Volume orders will need to be placed by phone at present. We welcome individuals to enlist acquaintances to join them in a group order to take advantage of these discounts.

 



 

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"This fiat currency experiment will end badly in a currency crisis, and when that happens, as it surely will, gold will go parabolic and silver along with it but even more so as the gold/silver ratio adjusts itself to a more historical correlation. The wealthiest people in the world will be those who put 10% to 15% (or perhaps more, much more!) of their portfolios into physical silver today."

Lorimore Wilson
Editor Financial Article Summaries today


 


 

Dollar, Silver, GDP, QE2, elections
Peter Schiff - Schiff Report

 


On the surface, The Wall Street Journal's 'C1' article provided one of the most compelling and in-depth accounts:

http://online.wsj.com/article/SB10001424052702303341904575576203310056046.html

There was mention of the concentrated short position.
They named the major players -- HSBC and JP Morgan.
Many of the other reports were phrased in such a way that it almost sounded like prices were being manipulated higher, not lower.

But not this one.
And to top it all off, we are now considered 'manipulation theorists', rather than 'conspiracy theorists' - which has a more credible sounding ring….
I don't mean to diminish the significance of this event, but...

Below the surface of this news, I believe we are witnessing a political announcement meant to create the sense that we are being protected by regulators.

If and when the price of silver explodes, the noise from this statement may serve to position blame in such a way that the call for more regulation will once again have the political will of the people behind it.
Recall the politics surrounding the formation of the Federal Reserve Act.

The bill was presented as a way of protecting the people from a crisis caused by banks.
Look what that got us.
I want to believe this is a step in the right direction in terms of the general awareness created in the mainstream.
However, the reactionary nature of governments to form committees after the fact leaves me suspicious.
And the natural laws of supply and demand will come to pass, despite efforts to interfere - for or against. "

Contact us at info@silverandgoldshop.com
Phone: 888-203-2232 x 1
An Encore Presentation ~ Art Cashin
October 22, 2010 
Issue 82

An Encore Presentation
by Art Cashin 10/12/2010

(Today we will revisit one of the most devastating economic events in recorded history.It all began with the efforts of a few, well-intentioned government officials.)

Originally, on this day (-2) in 1922, the German Central Bank and the German Treasury took an inevitable step in a process which had begun with their previous effort to "jump start" a stagnant economy. Many months earlier they had decided that what was needed was easier money. Their initial efforts brought little response. So, using the governmental "more is better" theory they simply created more and more money.

But economic stagnation continued and so did the money growth. They kept making money more available. No reaction. Then, suddenly prices began to explode unbelievably (but, perversely, not business activity).
So, on this day government officials decided to bring figures in line with market realities. They devalued the mark. The new value would be 2 billion marks to a dollar. At the start of World War I the exchange rate had been a mere 4.2 marks to the dollar. In simple terms you needed 4.2 marks in order to get one dollar. Now it was 2 billion marks to get one dollar. And thirteen months from this date (late November 1923) you would need 4.2 trillion marks to get one dollar. In ten years the amount of money had increased a trillion fold.

Numbers like billions and trillions tend to numb the mind. They are too large to grasp in any "real" sense. Thirty years ago an older member of the NYSE (there were some then) gave me a graphic and memorable (at least for me) example. "Young man," he said, "would you like a million dollars?" "I sure would, sir!", I replied anxiously. "Then just put aside $500 every week for the next 40 years." I have never forgotten that a million dollars is enough to pay you $500 per week for 40 years (and that's without benefit of interest). To get a billion dollars you would have to set aside $500,000 dollars per week for 40 years. And a…..trillion that would require $500 million every week for 40 years. Even with these examples, the enormity is difficult to grasp.

Let's take a different tack. To understand the incomprehensible scope of the German inflation maybe it's best to start with something basic….like a loaf of bread. (To keep things simple we'll substitute dollars and cents in place of marks and pfennigs. You'll get the picture.) In the middle of 1914, just before the war, a one pound loaf of bread cost 13 cents. Two years later it was 19 cents. Two years more and it sold for 22 cents. By 1919 it was 26 cents. Now the fun begins.

In 1920, a loaf of bread soared to $1.20, and then in 1921 it hit $1.35. By the middle of 1922 it was $3.50. At the start of 1923 it rocketed to $700 a loaf. Five months later a loaf went for $1200. By September it was $2 million. A month later it was $670 million (wide spread rioting broke out). The next month it hit $3 billion. By mid month it was $100 billion. Then it all collapsed.
Let's go back to "marks". In 1913, the total currency of Germany was a grand total of 6 billion marks. In November of 1923 that loaf of bread we just talked about cost 428 billion marks. A kilo of fresh butter cost 6000 billion marks (as you will note that kilo of butter cost 1000 times more than the entire money supply of the nations just 10 years earlier).

How Could This All Happen? - In 1913 Germany had a solid, prosperous, advanced culture and population. Like much of Europe it was a monarchy (under the Kaiser). Then, following the assassination of the Archduke Franz Ferdinand in Sarajevo in 1914, the world moved toward war. Each side was convinced the other would not dare go to war. So, in a global game of chicken they stumbled into the Great War.

The German General Staff thought the war would be short and sweet and that they could finance the costs with the post war reparations that they, as victors, would exact. The war was long. The flower of their manhood was killed or injured. They lost and, thus, it was they who had to pay reparations rather than receive them.
Things did not go badly instantly. Yes, the deficit soared but much of it was borne by foreign and domestic bond buyers. As had been noted by scholars….."The foreign and domestic public willingly purchased new debt issues when it believed that the government could run future surpluses to offset contemporaneous deficits." In layman's English that means foreign bond buyers said - "Hey this is a great nation and this is probably just a speed bump in the economy." (Can you imagine such a thing happening again?)


SGS Volume Discounts

SGS has received several inquiries of late regarding our volume discount program. Our volume discounts apply only to non-numismatic rounds and begin with quantities of 200 ounces or more as follows:

200 -500 oz - $1.00 / oz discount
501 - 1000 oz - $1.50 / oz discount
1001 or more - $2.00 / oz discount

Volume orders will need to be placed by phone at present. We welcome individuals to enlist acquaintances to join them in a group order to take advantage of these discounts


Free Service

 

Other Articles


One Hellish Predicament
BY Jim Cook

The World According to Gold
James West, Midas Letter

Don't Worry About A
Gold Correction


How High For Gold & Silver
Part I & Part II

Jeff Nielson


New CFTC Whistleblower

 



 

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"True individual freedom cannot exist without economic security and independence. People who are hungry and out of a job are the stuff of which dictatorships are made."

Franklin D. Roosevelt
 


Warning! The Bullion Banks
Are Losing Control

 

When things began to disintegrate, no one dared to take away the punchbowl. They feared shutting off the monetary heroin would lead to riots, civil war, and, worst of all communism. So, realizing that what they were doing was destructive, they kept doing it out of fear that stopping would be even more destructive.

Currencies, Culture And Chaos - If it is difficult to grasp the enormity of the numbers in this tale of hyper-inflation, it is far more difficult to grasp how it destroyed a culture, a nation and, almost, the world.

People's savings were suddenly worthless. Pensions were meaningless. If you had a 400 mark monthly pension, you went from comfortable to penniless in a matter of months. People demanded to be paid daily so they would not have their wages devalued by a few days passing. Ultimately, they demanded their pay twice daily just to cover changes in trolley fare. People heated their homes by burning money instead of coal. (It was more plentiful and cheaper to get.)

The middle class was destroyed. It was an age of renters, not of home ownership, so thousands became homeless.

But the cultural collapse may have had other more pernicious effects.

Some sociologists note that it was still an era of arranged marriages. Families scrimped and saved for years to build a dowry so that their daughter might marry well. Suddenly, the dowry was worthless - wiped out. And with it was gone all hope of marriage. Girls who had stayed prim and proper awaiting some future Prince Charming now had no hope at all. Social morality began to collapse. The roar of the roaring twenties began to rumble.

All hope and belief in systems, governmental or otherwise, collapsed. With its culture and its economy disintegrating, Germany saw a guy named Hitler begin a ten year effort to come to power by trading on the chaos and street rioting. And then came World War II.
We think it's best to close this review with a statement from a man whom many consider (probably incorrectly) the father of modern inflation with his endorsement of deficit spending. Here's what John Maynard Keynes said on the topic:

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some…..Those to whom the system brings windfalls….become profiteers.

To convert the business man into a profiteer is to strike a blow at capitalism, because it destroys the psychological equilibrium which permits the perpetuance of unequal rewards.

Lenin was certainly right. There is no subtler, no surer means of over-turning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose….By combining a popular hatred of the class of entrepreneurs with the blow already given to social security by the violent and arbitrary disturbance of contract….governments are fast rendering impossible a continuance of the social and economic order of the nineteenth century.

To celebrate, have a jagermeister or two at the Pre Fuhrer Lounge and try to explain that for over half a century America's trauma has been depression-era unemployment and deflation while Germany's trauma has been runaway inflation. But drink fast, prices change radically after happy hour. And, tell Fed Chairman Bernanke that it was the "German Experience" that caused many folks to raise an eyebrow when he alluded to the power of the "printing press" a few years ago. But, rest assured that no one would let it happen again.
 

Contact us at info@silverandgoldshop.com
Phone: 888-203-2232 x 1
The Long And Short Of What's Happening With Silver by Chris Mack
October 15, 2010 
Issue 81

SGS Notes: Wow! There's so much happening in the precious metals marketplace in the last 2-3 weeks, it's hard to just give you 4-5 articles…  October 13 (yesterday) silver started off at $23.47… and today (Oct. 14) as I write this spot silver is at $24.63. The gold:silver ratio is down to 56:1… from its high of 65:1… and still has lots of room to go. This means that silver is still at LOW PRICES… and investors who take advantage of them still have lots of room for making profits. Remember, the historical ratio is 16:1. At today's gold price of $1381, that would price 1 oz of silver at $86.

The Long And Short Of What's Happening With Silver
by Chris Mack
10/12/2010 - FinancialArticleSummariesToday.com

Things appear to have changed in silver trading with the bullion banks nearing a position where they may have lost control of the markets.
Something has drastically changed in the silver market. The banks that once controlled the price of silver are now closing positions at a loss. The commercial shorts have begun to bleed money - and when blood spills sharks will circle. Hedge funds and traders that never even thought of silver before will begin to squeeze the shorts. If the big banks don't quickly regain control of the silver market they may lose it forever.

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

Anyone following the futures market for silver knows that the large commercial traders, banks such as JPM, always win. That is until now. Let's look at the history of short selling as it related to silver in the past, what has been occurring recently and what may unfold in the very near future, as follows.

THEN

During the bull market in silver that began in 2001, a pattern of trading similar to the "Martingale Betting Strategy" emerged in which 8 trading institutions sold short increasingly larger amounts of contracts into rallies until their sales volumes overwhelmed the market into a freefall. After the freefall they then repurchased those short positions at a profit and the rally process began again. This process of taking money from precious metals investors has been well documented by analysts such as Ted Butler, David Morgan, and others. The strategy was so successful that some futures traders began to front run the banks on their own using tactics such as the COT report and other sentiment indicators. As a result of their actions it has been argued that these large short positions have suppressed the price of silver by a multiple of itself. This may be proven sooner than many expected.

RECENTLY

Over the last 6 weeks all was going according to plan. Silver rallied and the commercial banks shorted an ever larger amount of contracts as the open interest swelled to the point at which most silver analysts were expecting a correction. In the last 2 weeks silver rose by nearly $2 dollars and most were expecting to see an even larger commercial short position reflected in the COT report. Instead, the commercials actually covered 2297 contracts, and bought an additional 989 long contracts during the week of September 28th to October 5th when the price of silver rose by $1. The covering was down at what appeared to be a short term top to many.

THE NEAR FUTURE

While it can be speculated on how short covering could impact the market, a short squeeze could feed upon itself as it attracts capital. In five trading days of buying a net 3,286 contracts the price of silver rose by $1. However the commercial banks are still a net 62,127 contracts short so at that linear rate it would take them 94 trading days to cover with a silver price of roughly $117. The resulting losses would be around $15 billion. Of course markets aren't linear and after the second or third week of covering traders would begin to purposefully front run and squeeze the commercial shorts so it is unlikely that the positions could be covered that low or if at all.

CONCLUSION
Unfortunately, those of you who were hoping for a correction to accumulate more silver may not get it here as a price reset may be on the horizon.

http://tradeplacer.com/blog/2010/10/08/1286584740000.html

US Mint Raises Premiums

Effective October 1, 2010, the United States Mint has increased the premium charged to their network of authorized purchasers for American Silver Eagles from $1.50 to $2.00 per coin. SGS, consequently, has had to also raise our prices accordingly.

SGS Volume Discounts

SGS has received several inquiries of late regarding our volume discount program. Our volume discounts apply only to non-numismatic rounds and begin with quantities of 200 ounces or more as follows:

200 -500 oz - $1.00 / oz discount
501 - 1000 oz - $1.50 / oz discount
1001 or more - $2.00 / oz discount

Volume orders will need to be placed by phone at present. We welcome individuals to enlist acquaintances to join them in a group order to take advantage of these discounts


Free Service


Other Articles


Why The Coming Option ARM
Crisis Will Send Gold Higher

 Investing In Gold & Silver
Is a 'No Brainer'…

 How Dare You Take My Pension Becomes Refrain

Trader Dan Says Silver
Target of $25 has been
'effectively' reached

 FED Says it 'MUST'
Create Inflation…

 Debt Market Strips US
Of AAA Rating…

(One of the reasons for this week's dramatic rise in silver and gold prices!)



 

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"Gold would have value if for no other reason than that it enables a citizen to fashion his financial escape from the state."

William F. Rickenbacker

 

 
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Fragging Your Own Money ~ by Bill Bonner

October 10, 2010

Issue 80


Fragging Your Own Money

by Bill Bonner
10/01/10 Baltimore, Maryland

"Monetary warfare!" says The Financial Times. In North America, the US is pointing its heavy guns at China… The US Congress has proposed a bill naming China as a "currency manipulator." How, exactly, is China manipulating the renminbi? It is holding steadfast to the dollar! This, says US Speaker of the House, Nancy Pelosi, "translates into a significant subsidy, artificially making US products more expensive, and jeopardizing efforts to create and preserve manufacturing jobs in America."

In South America, Brazil fires salvoes at Japan, South Korea and Taiwan. "We're in the midst of an international currency war," said Guido Mantega, Brazil's finance minister, on Monday. What makes the Asian countries a target of Brazil's artillery? They intervened in the currency markets directly, selling their own currencies and buying, among other things, Brazil's real.

The remarkable thing about these battles is that admirals scuttle their own ships. Generals spike their own cannon. All the combatants send out their currencies like foot soldiers - and then shoot them in the back. They are all trying to "manage their currencies down," the FT explains.

Meanwhile in Europe, Ireland cannot assassinate its own homegrown currency. It doesn't have one. It signed on to the euro. For the moment at least, the euro managers hesitate; Ireland will have to cheat its people and its creditors flagrantly rather than surreptitiously. On Thursday, it put another 5 billion euros into Anglo-Irish Bank.

These strange facts incite the following reflection on the whole scammy system. The trouble with today's capitalism is that there is little honest capital left in it. It has been drained away by quackery, debt and fraud. Real capitalism requires solid capital - money you can trust. But real money disappeared nearly 40 years ago. That was when the last traces of gold were removed. Since then, all currencies have been "managed." No longer fixed measures of real wealth, they have become tools…supposedly used by the authorities to promote full employment and growth…but in fact little more than monetary felonies.

From the end of the Napoleonic wars until the beginning of World Wars of the 20th century, the world's money system was backed by gold. You couldn't "manage" it. You couldn't devalue it. You couldn't talk it up or talk it down. You couldn't beggar thy neighbor by cheapening it or enrich him by making it more dear. It was what it was. The new experimental money system began in the Year of Richard Nixon, 1971. Thereafter, the supply of money could increase much faster than the supply of goods and services. US money supply (M2) rose 1,314% between 1970 and 2008, from $624 billion to $8.2 trillion. What did all this ersatz new money do? First it flattered…then it corrupted…and finally, it robbed.

America's working stiffs were the first to get whacked. Inflation made them feel like they were earning more; but they haven't had a real, hourly raise since the system was put in place 4 decades ago. And now, America is struggling to make sure they get none in the future either. Lowering the dollar against the renminbi increases the cost of probably 90% of the goods in Wal-Mart and Costco - where the working classes shop.

But this has been going on ever since the managers began taking liberties with the dollar. In the 1960s, the working man - 90% of the population - got 60% of the income gains of the period. By the end of the bubble years - 2001- 2007 - he got just 11%. This has resulted in a "record income gap," says this week's news. Half the nation's income goes to the top 20% of the population, nearly twice as much, compared to the bottom 20%, as in 1967; it's the biggest gap since they began keeping track.

Consumer prices rose 5 times over the last 40 years. The stock market went up 15 times - from 800 in January 1970 to over 12,000 in 2008 - roughly in line with the increase in the money supply. But the phony money betrayed the rich too. Investors were misled. Capitalists erred. Trillions of dollars went down rat-holes. Consumers were spent out, but the capitalists kept building shopping malls. Now, stock market prices have gone nowhere for more than a decade. And household net worth - most of it in the hands of the wealthy - has declined $12.3 trillion from the peak. When the mistakes are finally flushed out, they could be down another $12 trillion.

The horns have sounded and bells have been rung. It is 1939 in the currency war - just the beginning. When it is over, every managed currency in the world will be dead or wounded. But we will be wiser, too. When the new managed dollar was introduced in the "Nixon Shock" of August, 1971, nobody knew what it was worth. When the end comes, everyone will know.


Why Precious Metals Have Intrinsic Value

Announcing New Launch!

My Trading Post (.org) has been created to facilitate trade between owners of precious metals who wish to barter for goods / services, and sellers who wish to trade their goods and services for precious metals.

MTP is a FREE barter classified service, newly launched and just waiting for your input. So spread the word to your networks… and help build this resource so that we all can benefit if/when we have an economic crisis. Please drop in and place an ad.


Other Articles of Interest

Are Corporate Insiders
Ditching Their Firms
or Precious Metals?


Swapping Gold For Silver
Has Historical Merit


The Comedic Value of
Naked-Short Paper Gold


1099 Supply Shock
For Small Coinage


Do Gold And Silver ETFs
Make Good Investments?


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Quote of the Week

"God will not suffer man to have a knowledge of things to come; for if he had prescience of his prosperity, he would be careless; and if understanding of his adversity, he would be despairing and senseless."

Augustine of Hippo


This Week's Video

Why precious metals are best hedge

 

 

Countdown to Gold And Silver Blastoff ~ Sean Broderick


Issue 79


Countdown to Gold & Silver Blastoff

Sean Broderick - Sept. 24. 2010


Last November, I wrote a story titled "6 Reasons Why Gold Is Going to $1,300 an Ounce." Now, we've hit that target. And you know what? I think there's much, much more to come. And you can make a bloody fortune if you position yourself right for the next move … a move that could be PARABOLIC!

What's more, there may be an even better way to play the precious metals bull market than gold!

Why? Well for one reason, it's happened before. The last bull market in gold and silver saw ENORMOUS price gains that put the current bull market to shame. Take a look …

So when the babbling heads on TV and radio try to tell you that "gold is overvalued," tell them to go jump in a lake. Heck, when compared to the ballooning money supply, gold prices are still low by historic standards.

Looking at the previous price appreciation in the last gold and silver bull market, I think both metals have a long, long way to go. Here are some other things you may not know …

#1) Central Banks Are Buying Even More Gold. We've known that central banks have been buying gold for some time. Now the shift in the role of Central Banks has been confirmed by GFMS, a London-based consultancy that tracks the gold market.

GFMS says that thanks to buying by Russian and several Asian central banks, central banks would be net buyers of gold by about 15 metric tons of bullion this year. The last time that happened was 1988.

#2) Gold Is Nowhere Near Its All-Time Peak Price in Real Terms.

In January 1980, the yellow metal reached $873 an ounce. Last week saw gold close at a new record of $1,277.50 an ounce, and adjusted for inflation, it was still under $460 in 1980 dollars.

Gold would have to rise above $2,435 an ounce to exceed its high from three decades ago, based on the CPI's current reading. And I think it could go a lot higher than that.

#3) The Squeeze Gets Worse in Mining Costs.

Mineweb.com quotes the ABN AMRO Gold Mine Cost Report Q2 2010, produced by VM Group/Haliburton commodity research, as saying that gold mine cash costs continue to rise, hitting $558 per ounce in the second quarter of this year.

The good news is that the profit margin on each ounce of gold is widening because gold prices are rising faster than costs. Interestingly, costs are rising faster for low-cost producers. That may be because they are exhausting current deposits of high-grade ore, so they move on to lower-grade, higher-cost ore.

#4) AngloGold Ashanti Ends Its Massive Gold Hedge.

Last week, AngloGold Ashanti (AU) bought back its gold hedge book for $1.58 billion.

The move will "give us full exposure to the gold price," Chief Executive Officer Mark Cutifani said.


Announcing New Launch!

My Trading Post (.org) has been created to facilitate trade between owners of precious metals who wish to barter for goods / services, and sellers who wish to trade their goods and services for precious metals.

MTP is a FREE barter classified service, newly launched this Labor Day weekend. So spread the word to your networks… and help build this resource for the benefit of everyone. Please drop in and place an ad.


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Quote of the Week

"What we obtain too cheaply, we esteem too lightly: it is dearness only that gives everything its value."

Thomas Paine, The American Crisis,
No. 1, December 19, 1776

 

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Gold is the Final Refuge Against Universal Currency Debasement


This Week's Video

 

 

So what does that tell you? It certainly tells me that AngloGold's management thinks gold prices are going higher. Ask yourself: What does one of the world's biggest miners know that we don't know?

So, I think gold could easily go to $1,400 next year and $1,600 the year after that. But it may go higher yet, to its inflation-adjusted peak of $2,435 and beyond.

And you know what? I'm even more bullish on silver!

Why Silver Could Lead the Next Leg of the Bull Market

Silver lagged gold for quite some time. But that's changing. Now, silver is leading (in percentage terms) the breakout to the upside.

In fact, my intermediate term target for silver isn't $25 … or even $27. It's over $31 an ounce

As this chart shows, silver has broken out of an ascending triangle. This gives us my new price target. Maybe it will take its time getting there - after all, nothing moves in a straight line. But as many of my friends in the business have been reminding me this week, when gold and silver take off, they can punish patience. The metals can head so high, so fast, it can make your head spin - and leave late-comers weeping with envy as the profit train pulls away from the station!

Longer-term I think $31.39 is only a milepost on the road to higher prices. I think silver is going back to its old high near $50 an ounce. That's more than DOUBLE recent prices. That's like gold moving to $2,580 an ounce.

And you know what? Gold CAN go to $2,580 an ounce! The fundamentals for gold AND silver are there, simmering explosively as they wait to ignite.

Here are three forces driving silver that you should be aware of …

#1) Industrial Demand for Silver in China Is Soaring! Slightly more than half of silver's annual demand is for industrial uses. Silver is used in everything from small electronics and computers (silver is the best metal for making electrical connections) as well as batteries, chemical catalysts, silver plating, mirrors, even nanotechnology. Silver paste is used in 90% of all crystalline silicon photovoltaic cells, which are the most common type of solar cells. So, it's no wonder that demand for silver in China, the factory to the world, is roaring higher.

Net imports of silver into China quadrupled in the first seven months of 2010. That is putting pressure on global silver supplies even as investors demand more of the metal.
#2) New and Growing Silver Investment Demand. We've already seen the silver ETFs buying silver hand over fist. The iShares Silver ETF represents over one-third of the global market for silver.

Now, two new silver funds joining the party!

In Canada, Sprott Inc. filed a preliminary prospectus for Sprott Physical Silver Trust, a closed-end silver bullion fund to be listed in Canada and United States, possibly as early as this fall. And Bullion Management Group Inc. plans to roll out a silver-bullion mutual fund early next year.

As gold gets more expensive, investors are taking another new look at silver. The end result could be an explosive move in silver prices.

The Gold-Silver Ratio Is Out of Whack. The current gold-silver ratio - or how many ounces of silver it takes to buy an ounce of gold - is about 61 to 1. That is much than the historical ratio of 16 to 1.

And if you don't like looking back at the long term, just look at the ratio in the last precious metals bull market. In 1980, the price of silver to gold - how many ounces of silver it would take to buy an ounce of gold - never got higher than 38 to 1.

The gold-silver ratio is dropping, as silver starts to catch up with its flashier cousin. If we went back to a 38-1 gold-silver ratio, silver would cost over $33 an ounce. If silver did move toward the historical ratio of 16 ounces per ounce of gold, silver today would cost $80 an ounce. And that's without gold budging another dollar. And gold's trend is up - way, way up.

So is it time to sit on your hands, the way some analysts are suggesting? No. Heck, NO!