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Gold and Silver Beyond the Limit ~ Peter Schiff
Issue 92
Today's Gold/Silver Ratio: 41/1 Up

Issue 118

Gold: $1628.00/ Silver: $39.95

SGS Notes: We are watching a political theater unfold that is certain to have a dramatic and lasting effect on silver and gold prices well into the future.

Gold and Silver Beyond the Limit

Peter Schiff

Perhaps the debt ceiling should be renamed the "national debt target," for it seems Washington is always trying to reach it. One could say it's their only reliable, time-tested achievement. And without fail, upon reaching their national debt target, they promptly extend it further in order to discover how quickly it can once again be attained!

While I have little doubt that the ceiling will be raised, my readers have been curious as to the implications for gold in each of the debt and "default" scenarios possible after August 2nd. This month, I'll outline how each outcome could affect the price of gold and silver.

BEARISH GOLD CASE #1: DEBT CEILING NOT RAISED - ENOUGH CUTS MADE TO AVERT DEFAULT

My readers know that this scenario is actually what the US government should do. The debt ceiling should not be increased and massive cuts must be made. We know this outcome is extremely unlikely - it would require not only a resolute steadfastness to sound money, but also a 180-degree change of philosophical beliefs by the majority of Congress (and the American public) overnight.

Yet in our fantasy world, if this did occur, it would be bearish for gold. It would mean the US government was shrinking, that debts were being paid, that the entire US economy was becoming more solvent and viable. Gold would be less important to own, as the risk of both currency crises and sovereign debt crises would be lower.

BEARISH GOLD CASE #2: DEBT CEILING RAISED - FEDERAL BUDGET BALANCED

If the debt ceiling is raised in order to avert imminent default, but the spare time is used to truly bring the federal budget into balance, the US economy might still be saved. But when I say "balanced," I mean it. This would mean not only eliminating the entire $1.5 trillion deficit, but also leaving enough of a surplus to cover all outstanding debt and unfunded liabilities. For perspective, Senator Rand Paul's proposal to but $500 billion a year, widely considered more radical than landing a man on Mars, would only address 1/3 of the annual deficit - it would take cuts many times that for the US to return to solvency.

But let's be optimistic: if the budget could be balanced, then the fact that the debt ceiling was being increased yet again would not be so awful. Since the US government's fiscal policies would be completely reversed, we could expect to start seeing a strengthening of the dollar (so long as Bernanke stopped the printing presses too) and a weakening of gold and silver.

However, this is just as much of a pipe dream as the first scenario. No government in history has dug itself out of the hole we now face without defaulting. If Congress even tried to enact a plan like this, people would be rioting in the streets over their lost entitlements. And we'd suddenly have millions of unemployed soldiers. Not exactly a recipe for peace and prosperity.

BULLISH GOLD CASE #1: DEBT CEILING NOT RAISED - US DEFAULTS ON TREASURY DEBT

This is the scenario that President Obama and Secretary Geithner are threatening. They claim that if the debt ceiling is not raised, they will have to immediately begin defaulting on Treasury interest payments. This is rather unlikely, as interest payments make up only 10% of spending, but let's say they stop paying anyway.

If they do this, market interest rates for US debt would skyrocket, meaning the only buyer left at rates the Treasury could afford would be the Fed. In other words, if they default on August 2nd, QE3 will start on August 3rd. Of course, a default would be absolutely devastating to the dollar and a boon for gold and silver. Global confidence in the invincibility of the United States would be shattered, and the underlying problem of excessive spending would still remain to be addressed.

Another interesting scenario would be if Congress didn't raise the debt ceiling and the Treasury just kept borrowing anyway. It's not like the Executive Branch follows laws scrupulously nowadays. What if they just ignored it? Someone could challenge the act in federal courts, but the odds are often in the President's favor. In this case, gold and silver might experience less of an initial spike, but their long-term prospects would be elevated as the world recognized that we were one step closer to becoming a banana republic.

BULLISH GOLD CASE #2: DEBT CEILING RAISED - SYMBOLIC CUTS IN SPENDING

This scenario is by far the most likely outcome of the debt talks in Washington; they will raise the debt ceiling and make spending cuts which sound substantial, but which only mange to slow the accumulation of new debt.

The plans on the table suggest cutting a couple trillion in cumulative spending over the next decade. In other words, they propose cuts that only reduce deficits by about 10-20%; they do nothing to reduce actual debt levels. So if these talks are successful, then instead of a $1.5 trillion deficit each year, perhaps we only suffer a $1.2 trillion deficit. Meanwhile, the debt continues growing. This is "success" in Washington.

Clearly, this is bullish for precious metals. It means more of the same - more spending, more debt, and necessarily more money-printing.

The Empire Has No Ceiling

Over the past 50 years, the US debt ceiling has been raised over 70 times. In other words, there is no ceiling at all - it is as fictitious as the idea that central planning works, or that the US has anything resembling a "free market."

So, I guess it stands to reason that regardless of the debt ceiling increase, it is likely that the US will be downgraded by one or more ratings agencies. The effect will be massive because the world's largest pension, mutual, and sovereign wealth funds typically mandate investment only in AAA-rated securities. A downgrade of US debt means those funds must immediately sell off their primary reserve asset. The effect of this cannot be overstated, and gold would be the first and best refuge for an onslaught of orphaned capital.

Despite gold once again hitting new highs, I can only recommend my readers continue to keep a healthy portion of their portfolio in precious metals. Given the sad realities of the US fiscal and monetary situation, it's prudent to assume that nothing will be solved by August 2nd.

Quote of the Week                               

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Gold And Silver: We Were Right - They Were Wrong

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Silver in Your Bandages and Copper in Your Pillow
Dr. Jeff Lewis

 

Gold settles at record as GDP Disappoints
MarketWatch

 

U.S. debt ceiling crisis only a minor player in gold and silver prices
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The Buzz Around Gold Is Growing Louder
Jeff Clark

 

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Ron Paul to Bernanke:
Is Gold Money?

Eric Sprott, of
Sprott Asset Management

Financial Sense
Newshour

" Silver Set to 'Explode' "

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Central Banks Unanimously Prefer Gold Over Paper ~ Jeff Nielson
Issue 92
Today's Gold/Silver Ratio: 39/1 Dn

Issue 117

Gold: $1600.60/ Silver: $40.16

SGS Notes: This week's news has centered around the debt ceiling, the budget 'crisis', and the impending economic crises for Europe, Italy, Greece (again)... all of these things are having an impact on gold and silver prices.

Central Banks Unanimously Prefer Gold Over Paper

Jeff Nielson

After the Western banking cabal engineered the "crash" of the global gold market in 1980, Western central banks spent more than a quarter-century perpetrating the lie that gold was a "barbarous relic" - which was supposedly "inferior" to the worthless, un-backed paper they were cranking out (in record amounts) on their privately-owned printing presses.

Their incentive was obvious. In getting the entire world to believe that lie, they were able to enrich themselves by $10's of trillions of dollars. This was done by creating those $10's of trillions ("out of thin air"), pretending that this paper actually represented real wealth - and then getting people all over the world to give them $trillions more paying interest on worthless paper which never represented any real wealth in the first place.

While it was the largest fraud (and theft) in the history of the world (by a factor of more than 1,000), it was by no means an original act of fraud - being nothing more than the same scam which all bankers always perpetrate, whenever they are (foolishly) granted the privilege of inventing "money" out of thin air, going back a thousand years.

During the first twenty-five years of this institutionalized fraud/theft, the bankers supported their fraud by dumping their vast hoards of gold onto the market (in the largest quantities in history). "Look," they would say, pointing with their evil talons, "Even we bankers, the greediest creatures ever hatched on this planet, have no use for this archaic, yellow metal - so why would any of you want to own it?"

It was a very successful strategy

The price of gold was pushed to an all-time low (in real dollars), so low that more than 90% of the world's gold mines were forced to close since they couldn't manage to break-even at those fraud-induced prices. And individual holdings of gold (especially in the West) fell to their lowest level in history.

Obviously, with that privilege to print money not having been revoked yet (a literal "license to steal"), their incentive to continue this fraud/theft is as strong as ever. However, over the past five years a "funny" thing has occurred. First these central banks rapidly slowed their dumping of gold, then they stopped it altogether, and now they are the single-largest bloc of gold-buyers on the planet.

Recent statistics released by the World Gold Council allow us to go even further. Over the past two years, the world's central banks have demonstrated a 100% unanimous preference for gold over their own banker-paper (i.e. all those un-backed "fiat currencies"). During that span of time, only three nations have been modest "net sellers" of gold - and in all three cases this related to "long term sales agreements" (i.e. old obligations). During the past two years, not one single central bank on the face of the Earth has chosen to be a net-seller of gold over that time.

I drive a Toyota

Let me construct an analogy here. A person goes shopping for a car. He goes to a Ford dealership, and after getting the full "sales pitch" on what wonderful vehicles all Ford products are, the shopper asks the salesman "what kind of car do you drive?" And the salesman answers "I drive a Toyota."

The car-shopper then goes to a GM dealership, a Chrysler dealership, a Volkswagen dealership, and every other auto-dealership he can find. At each dealership, the salesman tells the shopper what "wonderful vehicles" they make, but when the shopper asks each one what car they drive themselves, every one replies "Toyota". The obvious question to ask is that armed with such data, is there a single (rational) auto-buyer who would buy anything other than a Toyota?

The equally obvious answer is that "no", no rational buyer would ever choose any vehicle other than a Toyota - unless he/she simply couldn't afford the purchase price.

The most charitable statement we can make about the world's central bankers is that they are the world's "sellers of money". Indeed, since I have already pointed out that what they are selling is worthless, we could obviously come up with a long list of terms less-neutral than "sellers". Unquestionably, with armies of statisticians and data-gatherers at their disposal, they are the world's foremost experts on "money" (assuming we generously include their fiat currencies with that label).

Much like a hypothetical world where all the sellers of automobiles (who know these cars the best) all buy a single brand of automobile themselves, all of the world's foremost experts on "money" are showing a 100% preference for one kind of money: gold. The message from the world's central bankers is absolutely unequivocal: only chumps would choose to hold paper over gold.

Clearly, the massive paper-fraud of these banksters is in its final stages of decay: a Ponzi-scheme of unimaginable proportions, where people willingly funneled $trillions of their own wealth into the clutches of Western bankers - only to ultimately end up with zero (or near-zero, or less-than-zero). We know this, because the scammers themselves are now publicly fleeing from their own scam.

Ironically, the same, semi-comatose mainstream media which still alerts us when "insiders" in our equity markets are "dumping" their shares, has been 100% oblivious to the "insiders" in our monetary markets dumping their banker-paper (in favor of gold). The parallel cannot be missed: when corporate insiders are unanimously dumping their shares, only the "Mother of All Fools" would be a buyer in equity markets. When all of the world's monetary "insiders" are dumping their banker-paper in favor of gold, only an equivalent "fool" would attempt to swim against that tide.

To avoid getting "lynched" by all of the silver-bulls who follow my work, let me take a moment to include silver in this analysis. To begin with, if anything the bankers have even more fear/hatred of silver than gold. However, their hatred/aversion to silver is so extreme that rather than merely lie about silver (so people would not want to hold it), and then hoarding as much as possible themselves, they decided on the "nuclear option": destroying the world's stockpiles of silver. The only reason why the world's central banks have shown no interest in silver is because inventories have been decimated to such an extreme (more than 90% lower than 15 years ago) that (relative to gold) there is no silver for the central banks to start hoarding.

At the household level, the world's silver shortage is not yet that extreme. We can still buy what we want/need as individuals - and at "sale" prices, thanks to the recent ambush of the silver market by the CME Group. Of particular relevance, for those small investors who are finding the price of gold moving out of their "reach", silver remains accessible - and a fantastic bargain.

Short of B.S. Bernanke starting to walk around with a neon sign hanging around his neck saying "buy gold", it is impossible for ordinary investors to get any clearer warning that "cash is trash" and bullion is "golden". Ignore such a warning at your own peril.

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Gold & Silver Accelerate to Upside

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Retirement Accounts & The Coming Tax Code Revolution

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Silver Price Manipulation, Delivery Default & Supply Shortage Risks

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Silver is a Powder Keg
Waiting To Explode
Andy Schectman, CEO
Miles Franklin

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Gold Is Our Defense Against The Fiat Currency Graveyard ~ James Turk
Issue 92
Today's Gold/Silver Ratio: 40/1 Dn

Issue 116

Gold: $1595.50/ Silver: $39.34

SGS Notes: Well, we've seen gold (and silver) dramatically rising in the wake of discussion on more Qualitative Easing and the European Crisis and the US Budget crisis... Silver rising faster than gold (on a % growth basis) in keeping with its historical performance. The Dodd-Frank Legislation also has been a big item in the news this week... Check out the ratio this week... down to 40:1

 

Gold Is Our Defense Against The Fiat Currency Graveyard

James Turk

 

“The rule of law has basically been thrown out the window. Money printing is the order of the day. And when politicians take control of central banks, which they have done in the United States and they are also doing in Europe, that basically destroys the currency. It puts the currency on the road to what I call the Fiat Currency Graveyard, so I expect there are going to be massive currency problems as we go forward. The financial crisis that we have been dealing with for the last several years has not been solved.”

So cautions James Turk, widely-respected precious metals expert and founder/chairman of GoldMoney. In this detailed interview (recorded in June), Chris and James explore the probable outcome of the current US debt-ceiling operatics, the likelihood of future Fed money printing, and strategies for preserving wealth. In short, James believes we are witnessing the decline of the world's major fiat currencies, and expects gold to be remonetized in the aftermath.

James explains why he expects:

The US Government to raise the debt ceiling in August, which will require the Federal Reserve to print more money in order to soak up the new debt, sending gold and silver prices much higher this summer.

Holders of fiat currencies to experience increasing losses in the purchasing power of their wealth; contrary to those who hold precious metals, who will see the reverse.
This pattern of currency devaluation to be similar to the many other examples seen throughout monetary history. In short, the “unthinkable” event of a dollar collapse is a much more probable event than most consider.

Precious metals to be an excellent vehicle for preserving purchasing power through this next transition, and whatever future currency emerges, their historic role as money to be restored.

The end of the bull market in precious metals is years away. We’ll know its ending when holders of PMs begin trading them for other assets (e.g. property, securities) that have become overly undervalued.

Click Here to listen to Audio Interview with Chris Martenson & James Turk

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Could Silver One Day be Worth More Than Gold?

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What Dodd Frank Could Mean To You

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Silver and Industrial Demand - Part I by Jeff Lewis
Issue 92
Today's Gold/Silver Ratio: 42/1 Dn

Issue 115

Gold: $1545.70/ Silver: $36.67

SGS Notes: This week's article was too long for one newsletter, so we've split it up into 2 parts. This week will deal with historical and established silver demand; Part 2 will deal with Future Trends and silver's role in them. Meanwhile, if you haven't been watching silver and gold prices lately, you'll note that in the past week, we've seen a rise again in silver from the $34 range to the $36 range, and gold from the $1490s to the mid $1500 range and a drop of the gold:silver ratio of 2 points...

 

Silver and Industrial Demand - Part I

Jeff Lewis

I. Introduction

As you know, silver is much more than just a form of money. Although not often discussed in great detail, silver is actually an incredibly important and strategic industrial commodity. In fact, demand for silver by industry has increased dramatically in recent years and shows no signs of slowing despite price fluctuations.

Silver's incredible versatility - as a conductor, a catalyst, an antibacterial agent and much more - and unrealistically low prices have made it ideal for use in a huge number of products spanning countless manufacturing sectors. And the continued (relative) affordability of this super-metal points to dramatically increased demand in coming years.

As silver investors and educators, we feel that understanding silver's tremendous role(s) in industry (along side its importance as a store of wealth) is critical to understanding its past, present and future value. In fact, we are confident that you will find the insight and knowledge gained to be crucial for maintaining perspective as we head through the upcoming currency storm.

Ironically, if not miraculously, we find ourselves at the cutting edge of technology, while simultaneously, re-aligning with what also happens to be an excellent, proven, and historic form of wealth preservation - and money. Not to mention it is becoming increasingly scarce!

To broaden your understanding of silver's industrial applications, we're examining past and current industrial demand and looking forward toward what is expected to be a very bright future for this powerful and increasingly rare metal.

Growing Industrial Demand

As recently as 1990, total annual demand for silver by industry was about 273 million ounces (Moz). This represented about 39 percent of the total amount of silver fabricated each year. By 2000, industrial demand represented over 40 percent of total fabrication. And as of 2007, it had climbed to an all-time high of 465 Moz annually - or 55 percent of total fabrication - where, despite a downturn related to the global economic crisis that began in 2008, it is approximately today.

This upward trend is expected to continue, with annual industrial silver consumption growing from about 487 Moz in 2010 to approximately 666 Moz in 2015. This increase in demand will come from growth in both long-established industrial uses of silver and some intriguing new applications.

Established Industrial Applications

Silver's superiority as an electrical conductor makes it ideally suited for use in batteries and electrical contacts. Silver is used widely in automobiles (the list of core automotive applications is growing) and, in the form of a highly conductive paste, in photovoltaic cells. Photovoltaic cells - which convert solar energy into electricity - are already in great demand as concerns about dwindling fossil-fuel supplies grow. Photovoltaics also promises to play a key role in the drive toward clean energy sources in coming years. In fact, silver demand for use in photovoltaic cells is expected to double by 2015.

Emerging Industrial Applications

Thanks to silver's unmatched conductivity and relative affordability, it has become a critical element in the manufacture of a great variety of electronic devices - many of which have become important (and largely taken for granted) parts of our daily lives. Because silver-containing batteries manage energy output in very small packages, they are widely used in smart phones, laptops, and tablets, demand for which seems to be virtually limitless.

Other new applications capitalize on silver's powerful antibacterial properties. Silver-bearing products ranging from socks to cosmetics are appearing on the market with increasing frequency.

Because, in many of its industrial applications, silver performs much better than its possible replacements (if they exist), industry shows little interest in moving away from it toward less expensive or more abundant materials. So long as silver continues to be relatively inexpensive, and consumers don't lose their appetites for silver-containing products - which doesn't seem likely - industrial demand for silver will continue to grow.

 

Quote of the Week                               


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Peter Schiff on
numismatic vs. bullion

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The Screaming Fundamentals For Owning Gold And Silver by Chris Martenson
July 4 , 2011
Issue 92
Today's Gold/Silver Ratio: 44/1 Up

Issue 114

Gold: $1497.50/ Silver: $34.22

SGS Notes: We hope youare enjoying your extended Independence Day holiday. While we aren't seeing dramatic volatility in silver prices during the last few weeks, the general consensus is that the price will head sharply upward again soon... The Greece Bailout, Increasing Devaluation of the Dollar, the new RV of the Iraqi Dinar, movements towards implementation of a gold standard... all these are having an effect on this market.

 

The Screaming Fundamentals For Owning Gold And Silver

Chris Martenson

This report lays out an investment thesis for gold and one for silver. Various factors lead me to conclude that gold is one investment that you can park for the next ten or twenty years, confident that it will perform well. My timing and logic for both entering and finally exiting gold (and silver) as investments are laid out in the full report.

The punch line is this: Gold and silver are not (yet) in bubble territory, and large gains remain, especially if monetary, fiscal, and fundamental supply-and-demand trends remain in play.

Introduction

In 2001, as the painful end of the long stock bull market finally seeped into my consciousness, I began to grow quite concerned about my traditional stock and bond holdings. Other than a house with 27 years left on a 30 year mortgage, these holdings represented 100% of my investing portfolio. So I dug into the economic data to see what I could discover. What I found shocked me. It's all in the Crash Course in both video and book form, so I won't go into that data here.By 2002, I had investigated enough about our monetary, economic, and political systems that I decided that holding gold and silver would be a very good idea, poured 50% of my liquid net worth into precious metals, and sat back and watched.Since then, my appreciation for and understanding of the role of gold as a monetary asset and silver as an indispensable industrial metal have deepened considerably.

Investing in gold and silver is still a good idea. Here's why.

Why own gold and silver?

The reasons to hold gold and silver, and I mean physical gold and silver, are pretty straightforward. So let's begin with the primary reasons to own gold.

To protect against monetary recklessness
As insulation against fiscal foolishness
As insurance against the possibility of a major calamity in the banking/financial system
For the embedded 'option value' that will pay out if and when gold is remonetized

By 'monetary recklessness,' I mean the creation of money out of thin air and the application of more liquidity than the productive economy actually needs. The central banks of the world have been doing this for decades, not just since the onset of the great financial crisis. In gold terms, the supply of above-ground gold is growing at roughly 3% per year, while money supply has been growing at nearly three times that yearly rate since 1980.

Now this is admittedly an unfair view, because the economy has been growing, too, but money and credit growth have handily outpaced even the upwardly distorted GDP measurements by a wide margin. As the economy stagnates under this too-large debt load while the credit system continues to operate as if perpetual expansion were possible, look for all the resulting extra dollars to show up in prices of goods and services.

Real interest rates are deeply negative (meaning that the rate of inflation is higher than Treasury bond yields). This is a forced, manipulated outcome courtesy of central banks that are buying bonds with thin-air money. Historically, periods of negative real interest rates are nearly always associated with outsized returns for commodities, especially precious metals. If and when real interest rates turn positive, I will reconsider my holdings in gold and silver, but not until then. That is as close to an absolute requirement as I have in this business.

Monetary policies across the developed world remain as accommodating as they've ever been. Even Greenspan's 1% blow-out special in 2003 was not as steeply negative in real terms as what Bernanke has recently engineered. But it is the highly aggressive and 'alternative' use of the Federal Reserve balance sheet to prop up insolvent banks and to sop up extra Treasury debt that really has me worried. There seems to be no way to end these ever-expanding programs, and they seem to have become a permanent feature of the economic and financial landscape. In Europe, the equivalent would be the sovereign debt now found on the European Central Bank (ECB) balance sheet.

Federal deficits are seemingly out of control and are now stuck in the -$1.5 trillion range. Massive deficit spending has always been inflationary, and inflation is usually gold/silver friendly. Although not always, mind you, as the correlation is not strong, especially during mild inflation (less than 5%). Note, for example, that gold fell from its high in 1980 all the way to its low in 1998, an 18 year period with plenty of mild inflation along the way. Sooner or later I expect extraordinary budget deficits to translate into extraordinary inflation.

Reason #3, insurance against a major calamity in the banking system, is an important part of my rationale for holding gold. I'm not referring to “paper gold" either, which includes the various tradable vehicles (like the "GLD" ETF) that you can buy like stocks through your broker. I'm talking about physical gold and silver because of their unusual ability to sit outside of the banking/monetary system and act as monetary assets.

Literally everything else financial, including your paper US money, is simultaneously somebody else's liability, but gold and silver are not. They are simply, boringly, just assets. This is a highly desirable characteristic that is not easily replicated.

Should the banking system suffer a systemic breakdown, to which I ascribe a reasonably high probability of greater than 1-in-4 over the next 5 years, I expect banks to close for some period of time. Whether it's two weeks or six months is unimportant; no matter the length of time, I'd prefer to be holding gold than bank deposits.

During a banking holiday, your money will be frozen and left just sitting there, even as everything priced in money (especially imported items) rocket up in price. By the time your money is again available to you, you may find that a large portion of it has been looted by the effects of a collapsing currency. How do you avoid this? Easy; keep some 'money' out of the system to spend during an emergency. I always advocate three months of living expenses in cash, but you owe it to yourself to have gold and silver in your possession as well.

The final reason for holding gold, because it may be remonetized, is actually a very big draw for me. While the probability of this coming to pass may be low, the rewards would be very high.

Here are some numbers: The total amount of 'official gold,' or that held by central banks around the world, is 30,684 tonnes, or 987 million troy ounces (MOz). In 2008 the total amount of money stock in the world was roughly $60 trillion.

If the world wanted 100% gold backing of all existing money, then the implied price for an ounce of gold is ($60T/987MOz) = $60,790 per troy ounce.

Clearly that's a silly number (or is it?), but even a 10% partial backing of money yields $6,000 per ounce. The point here is not to bandy about outlandish numbers, but merely to point out that unless a great deal of the world's money stock is destroyed somehow, or a lot more official gold is bought from the market and placed into official hands, backing even a fraction of the world's money supply by gold will result in a far higher number than today's $1,500/Oz.

Click here to read remainder of the article

Quote of the Week                               

In honor of Independence Day, 2011, I'd like to share this article. It was written some fifty years ago by the father of radio host Rush Limbaugh.
Regardless of your opinion of Rush the Third, please take a few moments to read and reflect upon the words and wisdom of Rush the Second.


Lives, Fortunes, and Honor, Americans Who Risked Everything


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When the Music Stops there will Only Be One Seat Left

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SILVER GURUS: Paper to Physical Ratio of 25, 100, 500 to 1? Sprott, Martenson & Bix Weir

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