SG&S Notes: I am seeing so much being written on this subject now… I could send out this newsletter DAILY to get you the latest information - important information - you should have… but then you'd all unsubscribe because you'd be overwhelmed and annoyed with me for cluttering up your mailboxes… So… I'm attempting here to summarize the information… keep in mind that many of the experts I'm reading have no conflict of interest in the matter of precious metals (e.g. they are not involved personally in making a living from the sale of precious metals). They are just market analysts…
The content below is really a compilation in my own words of other experts. I take no credit here for the creation or originality… Admittedly, this week's news is lengthy… as I mentioned before… there is A LOT of important information being written right now… I hope you find this helpful. If you don't want to keep this in your mailbox… just bookmark our RSS Feed page at http://www.silverandgoldshop.com/View/Rss.aspx?groupId=1
Will Atlas Shrug?
Information compiled by Mary Beth Maidment
January 7, 2010
Okay, I'm going to attempt to synthesize some of my reading this past week. There is a huge volume of finance and investment experts and other 'market analyzers' out there all talking about these things.
I don't know how many of you are great readers of literature. Personally, I love reading, listening to audio books and the like. Awhile back I made my way through the volume of Atlas Shrugged by Ayn Rand on audio. I haven't tackled it in print yet, but am considering it.. (it's about 1-1/2" thick… so a daunting task for bedtime reading). But at any rate, I heartily recommend it… it's a great epic novel on capitalism.
There's a wonderful quote by one of the characters, who is refuting the notion that 'money is the root of all evil'. (That quote, by the way, is inaccurate also… Scripture says 'the LOVE of money is the root of all evil'. BIG difference!)
Here's the quote:
"Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the basis for moral existence. Destroyers seize gold and leave its owners a counterfeit pile of money. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective of value, and equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an amount which is not theirs: upon the virtue of the victims. Watch for the day when it bounces marked 'Account overdrawn.'" - Ayn Rand
Atlas Shrugged was published back in the 1950s… but the issues Ayn Rand was spotlighting then are even more apropos in 2010. The looters and destroyers spoken about in Atlas Shrugged were the majority of corrupt politicians, bankers and big corporate executives… Those translate into the same today along with the criminal banking system called the Federal Reserve.
Our currency used to be backed with a gold standard, as provided for in the US Constitution. But the fiat currency scam cannot be run with a gold standard in place because you cannot manufacture money out of thin air like you can with a printing press. Politicians cannot reward the powerful individuals and lobbys that get them elected by creating trillions of dollars in currency and handing them 'bailouts' when a gold standard is in place. The Federal Reserve cannot 'loan' currency to the US Government at exorbitant rates (when it only costs them pennies to print all denominations, and then they 'loan' it to the US Government at face value plus interest!) when there is a gold standard.
These schemes cannot last indefinitely. There will be a paying of the piper. The 'prosperity' our country has enjoyed for the last half century has been built on a house of cards - the fiat currency system - which, like Humpty Dumpty is going to come tumbling down. In addition, our country has followed the Keynesian School of Economic thought, which is built upon leveraging such things as real estate and stock markets with the philosophy that these can only go up . As we have seen with the housing market and now with the commercial real estate market, real estate CAN go down… even further… and stock markets CAN founder on the rocks of a fiat currency system in which excessive printing of currency, job losses, and bankruptcies are the norm.
Noted economist, Murray Rothbard warned against this long-term borrowing by government to pay for public services when he wrote,
"Deficits and a mounting debt … are a growing and intolerable burden on the society and economy, both because they raise the tax burden and increasingly drain resources from the productive to the parasitic, counterproductive, "public" sector. Moreover, whenever deficits are financed by expanding bank credit--in other words, by creating new money--matters become still worse, since credit inflation creates perma-nent and rising price inflation as well as waves of boom-bust "business cycles."
The Feds and politicians in Washington are going to be caught in their own scam. It reminds me of my reading in Scripture in the book of Psalms 7: 14-16
14 He who is pregnant with evil
and conceives trouble gives birth to disillusionment.
15 He who digs a hole and scoops it out
falls into the pit he has made.
16 The trouble he causes recoils on himself;
his violence comes down on his own head.
Psalm 9:16 "the wicked are ensnared by the work of their hands."
Here's the domino effect: The Fed will continue to try to keep its finger in the dike by creating more liquidity, but this will cause the dollar to continue to fall. As the dollar falls, the bond market will sink to protect itself. Interest rates will then move higher, which will, in turn, put pressure on the economy.
The only alternative would be for the Fed to stop the printing presses and creating more money. If they do that, the economy will sink into a deeper recession. Something has to give. This can't go on for very much longer.
Which choice will the Fed make? Bernanke seems to be committed to letting the dollar fail, in a desperate attempt to wring forth an inflation of assets. I think he believes that eventually his dollar creation and resulting liquidity will reverse the deflationary tide.
Richard Russell, publisher of the Dow Theory Letters writes,
"The Federal Reserve took our money system away from the discipline of gold and kidnapped it for its own benefit. As I see it, over the coming years we'll see gold again come into its rightful place as the true money of the land. For this to happen, a lot very painful changes will have to take place.
I'm sorry to say it, but the great advance in the US standard of living has been due to the Fed's systematic policy of inflation. You can't manufacture prosperity via the printing press, or I should say that you can't manufacture perpetual prosperity via printing. The US's long love affair with Fed-created inflation is coming to an end."
So, if you're a thinking person, you're going to be asking "When will this end be taking place?" Experts are all talking about this… here are some of the signs to watch for:
1) Gold breaking the $1000 mark - heralds the collapse of the dollar Eric deCarbonnel
2) Increase of world-wide investment in precious metals we're seeing record amounts of investment being done in China, India, Russia, other major countries who are stocking up as a hedge against what they know and believe is coming soon - the collapse of the dollar and other fiat currencies of the world. We're also seeing record amounts of physical metals being purchased by domestic investors.
3) Decline in supply of gold and/or silver (shortages) - Mark O'Byrne of GoldCore says that
" In 1900 there were 12 billion ounces of silver in the world. By 1990, the internationally respected commodities research firm CPM Group say that figure had been reduced to around 2.2 billion ounces of silver. Today, that figure has fallen to less than 1 billion ounces in above ground refined silver. It is estimated that more than 90% of all the silver that has ever been mined has been consumed by the global photography, technology, medical, defense and electronics industries.
On current supply/demand trends, the amount of above ground refined silver is projected to shrink to even lower levels in the coming years. Industrial demand has been outstripping mining supply for most of the last 20 years, driving above ground supply to historically low levels. Few in the investment world are aware of this important fact.
Silver production has been flat in recent years while demand has been increasing. This hasn't resulted in significantly higher prices yet because the world has been able to fill the gap from inventories and official government stockpiles. However, today the U.S. government's stockpile is all but gone, and sales from other official sources, such as China, Russia and India, are declining, too. The decline in refined silver stocks, from around 2.2 billion ounces in 1990 to around 300 million ounces today means that silver stocks are near an all time low."
As for gold, Eric deCarbonnel writes,
"With the difficulties and irregularities in the COMEX delivery process, many, including gold brokers like JB Slear, have doubts as to whether there is gold in inventory to match existing warehouse receipts.
Like others involved in the gold market, Slear believes that there are real shortages of precious metals that have yet to be exposed. "
4) Drop in the gold/silver ratio - Dr. Jeffrey Lewis of Silver Coin Investor says…
"Throughout history, gold and silver have been tethered together in the eyes of investors. Once one of the metals moves too high or falls too low, investors are quick to switch their holdings from the relatively overpriced metal to the relatively under-priced metal.
The current market conditions indicate that gold has become overpriced and silver has become underpriced, suggesting there will be a shift in assets from gold to silver."
Greg McCoach of Amerigold says ….
"There is approximately 17.5 times more silver than gold in the world which coincidently, is very close to the 16 to 1 monetary ratio of silver to gold that existed for thousands of years. As problems with the dollar and other national currencies continue to worsen, some of the wealth fleeing national currencies will flow into silver, causing the ratio of the precious metals to decline as it has since the ratio was over 100 in the early 1990's.
…Eventually I see silver returning to its 16 to 1 ratio with gold before all is said and done with the secular bull market in the precious metals. What does that mean for how high silver could go? Well, if gold is 1200 an ounce and you divide by 15 you would get $75 an ounce silver. If gold goes to make a true inflation adjusted new high, which would be roughly $6,500 an ounce, silver based on the 16 to 1 ratio would be $406.35 an ounce! Right now the silver to gold ratio is 62 to 1 but with what I see happening in 2010 I think you will begin to see this ratio cut in half."
5) Explosion in the price of gold (silver will follow) - Again, Richard Russell says,
"This is one of the greatest and longest-lasting bull markets in history. The record is shown below. Ten years of successively rising gold prices. I study the listing, and I ask myself, "What does 10 years of steadily rising gold prices mean?"
Last day of the year quotes (spot gold).
2000 -- $273.60
2001 -- $279.00
2002 -- $348.20
2003 -- $416.10
2004 -- $438.40
2005 -- $518.90
2006 -- $638.00
2007 -- $838.00
2008 -- $889.00
2009 -- $1096.50
First, we must understand that gold is the immutable standard against which all other values are measured. The price of gold is the universal standard; it never changes. The price of everything else changes in terms of gold. I study the list above, and this is my conclusion -- "What it means is that it requires more dollars each and every year to buy one ounce of gold. In other words, year after year, the dollar is being devalued; the dollar is systematically losing its purchasing power." The reason? Too many Federal Reserve Notes (we mistakenly call them "dollars") are being created by the Fed. The more dollars that are created, the weaker the dollar's purchasing power. The listing of gold's annual year-end price is stark evidence of the diminishing purchasing power of the US dollar. This depressing picture highlights the fact that the government has two ways of robbing the people of the fruits of their labor: (1) taxes and (2) the systematic destruction of the purchasing power of the dollar. There is only one way out of this slow disaster. Get rid of the Fed and allow the United States to issue its own legal Constitutional money -- money which is preferably backed by or convertible into gold. The year-end closing prices for gold tells the tale that the Fed and the media are afraid to disclose. Did you see a single reference to this ten-year gold story? Imagine if the S&P had been higher 10 years in a row. It would have made headlines in every newspaper in the land. "
With Regard to Silver prices, Dr. Jeffrey Lewis says,
"Silver's Ascent Won't Be Slow
In relation to gold, silver tends to make much larger percentage movements more frequently than gold, which is most likely due to its inexpensiveness and the volatile industries that demand so much of the metal each year. In addition, silver has a tendency to enter into short but strong periods of price strength and decay very slowly. This can be confirmed with any silver chart; each uptick period is short but strong, while the dips tend to happen very slowly.
Why You Should Buy Silver Now
The mixture of silver's volatility and the shift in demand from gold to silver as an inflation hedge provide rationale for buying silver today, rather than waiting. As many have seen, when silver heads higher, it does so quickly and often without tell-tale signs of strength. Thus, to take advantage of any future climb in the value of silver, investors should be quick to buy now, rather than wait until after silver makes its next move."
The following two signs almost go without saying… these are
6) Collapse of the bond market
7) Crash in the stock market
But just keep in mind.. by the time these last two signs appear … the prices of gold and silver will be almost out of range for the ordinary person looking to protect his/her assets, and widespread panic and chaos will be the rule of the day.
Some references for more reading: