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Watch the Gold/Silver Ratio ~ James Turk
March 25 , 2011
Issue 92
Today's Gold/Silver Ratio: 38/1

Issue 101

Gold: $1430.90/ Silver: $37.42

SGS Notes: There's a lot that's happening this week in the silver market and in the coming 2 weeks for SGS… once again, it's been a difficult task to select only a few articles to share from the many excellent ones published this week. Those we can't fit in the newsletter are posted to our Facebook page… another good reason to 'Like' the SGS Facebook page!

We've recently re-designed the format of the SGS Newsletter and are now posting the gold/silver ration and closing spot prices. This is because as a silver or gold investor it is important to watch these two numbers. When we began SGS in 2008, the gold/silver ratio was 65:1. As of today, it has narrowed to 38:1. This week's article explains why this ratio is important.

Watch The Gold/Silver Ratio
James Turk (February 12, 2011)

In precious metal bull markets, silver outperforms. Its price climbs at a faster rate than gold's price. The reverse happens in bear markets. Silver's price drops at a faster rate than gold's price. The following chart of the gold/silver ratio illustrates this phenomenon.

At the peak of the last precious metal bull market in January 1980, it took 17.4 ounces of silver to buy one ounce of gold. Thereafter, the ratio turned and started climbing higher. By February 1991, 101.8 ounces of silver were needed to exchange for one ounce of gold. Silver was trading at only $3.50 per ounce, down 93% from its previous bull market peak.

Silver back then was "dirt cheap", but it would not get any cheaper. Silver turned the corner as value oriented buyers recognized a bargain. Since then the price of silver has been generally rising, and has been doing so faster than the spectacular rise in the price of gold. The result is a long-term downtrend in gold/silver ratio. In other words, since 1991, silver has outperformed gold.

Last week, the ratio touched 45.0 and ended Friday at 45.3. It was the lowest weekly close for the ratio since February 1998, which is a significant date. That is the month Warren Buffett announced that he had acquired 130 million ounces of silver. His footprint is visible on the above chart.

We know from his disclosures that he began buying silver around $4 in July 1997. The ratio then was in the mid-70s. But note what happened to the ratio as Buffett accumulated his hoard over the next several months, culminating with the announcement of his purchase. The gold/silver ratio fell by nearly 50%, so that only 41.3 ounces of silver were needed to buy one ounce of gold. Silver was clearly outperforming gold, just like it has been doing over the last several months - as shown in the above chart by the remarkable drop in the ratio.

The ratio has now reached an important point. It is breaking through support, which is illustrated by the lower red line on the above chart.

Several previous attempts to break through support have failed, with the result that for many years the ratio has continued marking time within a trading range bounded by the parallel red lines. That trading range now looks mature and 'ripe for picking'.

One never knows of course how the markets will unfold in the future. But I expect that the ratio will finally break through support, which is an event that I have been looking and waiting for patiently over many years.

If I am right and the ratio knifes through the low 40s and below the Buffett point, there is no clear short-term target. Given the momentum evident in the above chart and the bullish fundamental factors impacting silver at present - like its unprecedented backwardation - a drop to at least the low 30s seems highly likely, but I don't rule out the possibility of the ratio falling even lower.

My long-term target for the ratio is 17. It is approximately the average level at which the two precious metals were exchanged for hundreds of years prior to the arrival of fiat currencies in 1971. It has been my view that a 17-to-1 ratio is attainable by 2013-2015, but given what seems to be shaping up, we probably won't need to wait that long.

The unprecedented backwardation in silver has one clear signal. The potential for a massive short squeeze is building. If one occurs - as I believe is becoming increasingly likely - there is no telling how quickly a 17-to-1 ratio could be achieved.

Transitions at Silver & Gold Shop                   

Beginning this week, please join me in welcoming David & Jodie Bowen to a new role with the SGS family. David and Jodie have been in a behind-the-scenes role with our order fulfillment department for the last year; but going forward, will be taking on a more active customer-facing role in sales, service, and handling special orders.

Mary Beth, who many of you are familiar with, will be changing her role to give attention to more of the behind-the-scenes administration and development of S&GS. Mary Beth, Jodie and David will be working together to provide a smooth transition in the coming weeks ahead. We believe these changes will only bring positive improvements to your ongoing experience at SGS.

Quote of the Week                               

Other Articles      


Silver Review & Outlook
Ted Butler Speech from
Silver Summit

Transition 2011 & The Tree of Liberty
Bix Weir

Sprott Says Silver Will Keep Outshining Gold
Reuters

Gold and Silver Break Records on Libya, Japan, Portugal
James West

Chinese Silver Investors Bring Suitcases of Cash and Leave in Moving Vans
Dan Collins


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FutureMoney Trends

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Disinformation and Silver Confiscation: Opinion ~ Jeff Nielson
March 18 , 2011
Issue 92
Today's Gold/Silver Ratio: 40/1

Issue 100

Gold: $1419.70/ Silver: $35.28

SGS Notes: Be sure to read the entire article in this week's main editorial…
The title is misleading and you may be surprised at what they author is actually saying… Nevertheless, we took the 'risk' of presenting it because we want you to be well informed.

Disinformation and Silver Confiscation: Opinion
Jeff Nielson, BullionBulls , Canada

VANCOUVER (Bullion Bulls Canada) -- There have been two trends in precious metals markets in recent weeks that I find very alarming. On the one hand, we see the large "shorts" (JPMorgan and HSBC) in the bullion market ratcheting up their short positions again.

Understand that these short positions are tremendously underwater, and once the 100:1 paper-leverage of these financial terrorists is factored in, their short positions already represent large enough losses to ensure the bankruptcy of both of these vampires. Thus the fact that these "life-threatening" short positions are increasing (and being allowed to increase) tells us two things.

First, it is confirmation that the hopelessly corrupt U.S. Commodity Futures Trading Commission is simply going to defy the law, which requires these banker-slaves to institute "position limits" against the very Oligarchs they have dedicated their careers to serving. It is also apparent that JPMorgan and HSBC are now openly charging toward their own bullion-Armageddon: default events in the silver market (and possibly the gold market as well) which would lead to their financial annihilation -- in the absence of any government intervention.

Obviously the key phrase in that paragraph is "in the absence of government intervention." I will return to that point later.
The other recent trend which I find equally disturbing is the sudden explosion of rhetorical rants on the internet, which specifically revolve around the battle-cry of "taking down JPMorgan" or even the entire U.S. financial system. As a silver bull, there are many reasons for me to be dismayed by this rabid and incessant rhetoric.

For one thing, it adds nothing to the "debate" about silver manipulation, nor does it do anything to inform investors -- most especially the new investors streaming into this sector. Indeed, the emotional excesses of these writers are likely only to frighten new arrivals to this sector, who were looking for an "investment" not a "war."

In addition, this totally misrepresents how and why the original investors came to this sector: it was not to "attack" the rapacious U.S. Banker Oligarchs, it was to protect ourselves from them. Silver isn't (to use the term coined by Warren Buffett) a "financial weapon of mass destruction," like the $1.5 quadrillion paper time-bomb which these Oligarchs have created in their derivatives market. It is a "suit of armor" -- to make us invulnerable to banker blood-sucking.

Thus the rabid-ranters are in no way representative of the vast majority of silver investors. The bankers are doing a perfectly fine job of destroying themselves -- and they need no "assistance" from us to finish their greed-induced suicide. In fact, I am convinced that most of these "mouths that roar" are in fact paid tools of the bankers, performing an invaluable service for them: demonizing silver investors in the eyes of the (ignorant) general public.

Readers must realize that among any even semi-informed individuals, "precious metals manipulation" no longer represents a "question mark." It is an obvious reality, which has been documented by many (including myself). It includes not only obvious statistical evidence of manipulation, but a plethora of confessions from various "insiders" and (somewhat more recently) a bona fide "whistleblower" (Andrew Maguire ) with decades of experience in bullion-trading. However, with respect to the general public (i.e. the sheep) "manipulation" represents just another "conspiracy theory" -- which the sheep have been carefully programmed to automatically ignore.

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Quote of the Week                               

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US Dollar Fails Annual Cycle

The Great US Collapse Nears
John Williams, ShadowStats

Gold Hoarded In Tokyo Exodus
ZeroHedge

Preventing Government
From Stealing Your Gold

Jeff Nielson

The Great Silver Mystery
Bix Weir

The Silver Door Is Closing
Silver Shield

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Gold Target $8000 by 2015
James Turk, MineWeb

The Constraints of Silver Supply
Bob Quartermain,
Casey Research

 

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Short Squeeze! Here Comes 50-dollar Silver
March 11 , 2011
Issue 92
Today's Gold/Silver Ratio: 39/1

Issue 99

Gold: $1419.60/ Silver: $35.90

Short Squeeze! Here Comes 50-dollar Silver
Tyler Durden, Smart Money Europe (3/7/11)

Silver is blasting through all barriers, topping $36.5 this morning! The white bullion market is tight, and the short squeeze in the futures market is exerting a constant upward pressure on the price. If current trends persist, the all-time high of $49.45/ounce will be reached in the near future.

Silver is performing exceptionally, outstripping a vast array of commodities and stocks. Even unrest in the Middle East has not stopped the price increasing, whereas during similar circumstances in the past, silver would have taken some serious blows.

As far as silver is concerned, we are living in exceptional times. Supply shortages have existed since the Fifties, but this deficit was traditionally eliminated with the (once strategic) reserves of central banks and other financial institutions, who wanted to get rid of their silver due to its lack of monetary use. Consequently, bank supplies have fallen rapidly. Today, the shortage on the silver market is mainly supplemented by recycling used silver, aka 'scrap'.

Nick Laird of ShareLynx, who supplied the chart below, gave the following explanation in a recent MoneyWeek interview: "Since 1950, the demand for silver increased up to 925,000 tonnes, while the production only amounted to 570,000 tonnes. This equals a silver production deficit of 16 years!"

Continuous increases in demand for silver means producers can barely keep track with demand, particularly now from the investment community. Recently, Eric Sprott of Sprott Asset Management reported exceptional delays on deliveries of physical ingots, and national mints are pointing at shortages, in part owing to the gigantic increase in demand for coins. The US Mint recorded selling 4.6 million Silver Eagles in January 2011 - a one-month record - while the website King World News recently reported shortages at the Royal Canadian Mint, producers of the popular Maple Leaf.

Futures markets are becoming increasingly important in the commodity pricing and silver is no exception; indeed, trends in silver futures are largely responsible for the price rise over the past few months. This is due to the gigantic short positions retained by some major (American) banks. The four largest traders are short an impressive 104 days of global silver production on the COMEX. The eight largest traders are short for almost 140 days of silver production. Herewith, silver is the highest in advance sold metal within the entire commodities complex.

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Silver Prices Headed For Correction?

Melissa Pistilli

The Silver Bullet &
The Silver Shield

Dollar's Global Fall Will Be 'Disastrous' for US Living Standard
Greg Brown

Gold Fireworks About
To Begin

Toby Connor

Conversations with God About Gold & Silver       Part 2
Bix Wier

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Gold And Silver
Sounding The Alarm
National Inflation Association 

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Silver Outweighs Gold ~ Peter Schiff
March 5 , 2011
Issue 92
Today's Gold/Silver Ratio: 40/1

Issue 98

Gold: $1432.80 / Silver: $35.67

Silver Outweighs Gold
Peter Schiff, March 3, 2011

In the world of precious metals, silver spends a lot of time in the shadow of its big brother gold.

Gold, with its high price-to-weight and distinctive yellow tint, has always occupied a special place in the human psyche. To many people across many ages, gold is simply the ultimate form of money - and, as a long-term, stable store of value for one's personal wealth, I agree it's hard to beat.

However, rare circumstances are aligning today that I believe will make silver the true champion of this bull run.


WHAT'S DRIVING PRECIOUS METALS?
Gold and silver are both benefitting from a perfect storm in the sector.

Dollar devaluation means that much of the 'gains' we see are really just losses by people holding dollars. In other words, if your dollars lose 50% of their value, it's going to take twice as many of them to buy the same ounce of gold.

But the rally is based on more than simple inflation. Precious metals are regaining their role as the ultimate reserve asset. That means many, many more people are buying and holding these metals than at any time in the last thirty years.

Another factor is the rise of emerging markets and decline of developed markets. As billions of poor Asians, Africans, and South Americans lift themselves out of poverty by embracing the free market, the US is plunging itself into poverty by rejecting it. This means there are a mind-boggling number of new customers for jewelry, savings, and industrial products that require precious metals - and that we are becoming less and less able to outbid them for these resources with our dollars.

SILVER'S DRIVING FASTER

If the world were going to hell in a hand-basket, then I would expect gold to outperform silver. However, it is only the developed economies that are on the rocks - and only the US that faces true catastrophe. Thus, we have seen silver outperform gold for the last eight years.

The market is telling us that while uncertainty reigns supreme, the global economy will prosper in the years ahead. While gold most effectively insures the investor against economic devastation, silver offers both a shield against monetary turmoil and exposure to market growth.

THE KEY: INDUSTRIAL DEMAND

This is because silver is both a precious metal and an industrial metal. Gold is mostly precious, copper is mostly industrial, but silver strikes a fine balance between the two. And it seems as if this moment in history is perfectly suited to this balance. We are facing not only the prospect of the collapse of the international monetary order, but also the largest industrialization process the world has ever seen.

While in a past era, wood, steel, or oil would have been the most critical commodity, today silver is used in everything we hold dear: iPhones, flat-screen TVs, batteries, solar panels, etc. Asia - the new heart of the global economy - is accumulating gold, but they're consuming silver. That makes both metals good bets, but likely gives silver the edge.

It's safe to say the future depends on a steady supply of silver. This burgeoning demand is reflected in the latest figures: global demand for silver is about 890 million ounces a year, while global mine production is about 720 million ounces a year. We're actually consuming scrap to make up the difference. And unlike gold, which tends to remain in a recoverable state as coins or jewelry, a large quantity of silver is ending up in trash dumps - where it is essentially lost forever.

As long as the emerging markets continue to trend toward freer markets, and consumers the world over continue to demand computers, electronics, and green tech, silver should only become more scarce - and thus more valuable. I think these assumptions are pretty safe to make.

CAN THE WORLD THRIVE EX-US?

Of course, if everyone agreed with me, silver would already be worth hundreds of dollars an ounce and there wouldn't be any profit to be made on the trade. Fortunately, there are a couple of bogeymen in the financial media scaring the majority of investors away from silver so far.

First, some analysts still believe - bless their hearts - that the US is really going to pull through this time into a sustainable recovery. After being duped by dot-coms and then housing, they are all aboard the Treasury Express back to Bubbletown. Unfortunately, as in the previous two cases, the current low interest rate environment is merely masking an underlying economy that is vastly more rotten than it was even a decade ago. The unemployment rate is a key signal that this time, Bernanke's magic medicine won't work.

A second cohort sees that the US is doomed, but still thinks we will drag the rest of the world down with us. This is the school that holds that despite our persistent current account deficits and monumental external debt, the world economy "needs" the US consumer to drive growth. As I alluded to in my book, How An Economy Grows And Why It Crashes, this is like a plantation master claiming his slaves need him around to consume the fruits of their labor, or else they wouldn't have anything to do. Well, the results are in: after an initial panic rush into dollar-based assets, emerging markets are back at full sprint while the US is still limping along.

SILVER IN A DOLLAR COLLAPSE

Just like a Hollywood celebrity, we in the US spent our time at the top of the world - and soon let our status get to our heads. And like a celebrity, our adoring fans the world over will be quick to forget us as we fall from the limelight and deal with our powerful addiction to partying and cheap money. To survive the next decade in America, you are going to want an asset that is in demand globally, but is also free from counterparty risk here at home.

I recently did an interview with a group that is making a film about living in America in the year 2019. The premise is that inflation is rampant, the economy is in shambles, and groups are springing up that do all their trading in silver rounds. While I think their timeline is quite generous, this is a fairly accurate picture of what lies ahead.

Not only does silver appreciate while sitting in your safe due to overseas demand, but it also comes in units that are ideal for use as a common trade unit. Two or three ounces of silver can buy you groceries for a week. By contrast, just try to eat an ounce of gold's worth of vegetables before they spoil. There are fractional gold coins and bars, but they carry very high markups.

None of us have had to think about these things in our lifetimes, but it is not abnormal in history. Soon, understanding precious metals will be as much a survival skill as knowing how to change a car tire.

THE GOLDEN RATIO

I always say that every investor should have at least 5-10% of his portfolio in physical precious metals. Of that, the proportion allocated to gold vs. silver depends mainly on risk tolerance. Silver tends to be more volatile than gold, so silver investors must have the discipline not to liquidate their stash at the first sign of a correction.

I generally advise a ratio of 2:1 gold-to-silver in the average portfolio. More aggressive investors can push it to 1.5:1 or beyond.

Year-to-date, silver is up 5 percentage points more than gold, and I expect that trend to continue. It's important to understand that in this fast-changing world, silver is no longer runner-up.

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Quote of the Week                               

Other Articles      

Fractal Analysis Suggests Silver to Reach $52 - $56 by May - June 2011
Lorimer Wilson

No Reason Today for Yesterday's Executive Order 6102
Richard Mills

Why Governments Will Buy Silver
SilverStrategies.com

 

A Conspiracy With A Silver Lining
NY Times

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Silver Going to $100
Eric Sprott

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