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Howard Ruff on Buying Gold And Silver
November 19, 2010 
Issue 86
SGS Notes: Whew! What a week in the precious metals world... today some volatile action as many predicted would happen... Those 'in the know' expected to see JP Morgan sell lots of naked short contracts on silver today to drive the price down under $25 spot, in an attempt to close the day out before the weekend at a low point...

Let's see what actually happened today:

We can see a sharp drop of almost $1.00 from 4:00-10:00 a.m. EST... and then a rally back to previous position...

The past month has seen several of these. Look at this custom chart depicting silver spot prices from October 19 - November 19, 2010. In regard to the gold/silver ratio, October started with a ratio of 60:1, and ended at 54:1. Today's closing ratio ended around 50:1. It still has a long way to go to get back to the historic ratio of 16:1. At today's gold price, that would mean silver should be at almost $85 per ounce.

In an interview this week on Alex Jones' radio show, the international journalist Max Keiser suggested a mechanism for bringing down the 'House of Morgan': Every American should just buy some real silver. The relevant excerpt from the interview is three minutes long and you can listen to it here:

Listen to Max Keiser on Alex Jones here


Howard Ruff on Buying Gold & Silver

Gold and silver are perfect pure inflation hedges. Strictly seen as an investment, as the dollar shrinks in value, gold will be worth thousands of dollars an ounce and silver will be worth hundreds of dollars an ounce. Glenn Beck, one of my favorite talk show hosts, said he is “not buying gold as an investment, although it will be a good investment, but as insurance.” He doesn’t tell us what he is insuring against, but I’ll tell you. He’s insuring against the plummeting loss of purchasing power of all dollar-denominated investments (price inflation), even the possible collapse of the dollar.

In these current circumstances, not buying gold or silver is one of the dumbest money decisions you can make in 2010-2011. Here are just a few reasons why this is so:

1. Obamanomics: Socialist states always inflate the paper currency. Obama, Congress, and the Federal Reserve are diluting value of dollars like never before by creating more of them. Accommodating Obama and Congress, the Fed has manufactured trillions of dollars out of nothing at by far the fastest pace in history, and it’s accelerating. Currencies are supposed to be a “means of exchange and a store of value.” The dollar is still a means of exchange, but due to inflation, it is no longer a store of value.

The government has given trillions to the big banks, which will loan the dollars into circulation or give them to politicians to spend into circulation. This money expansion currently dwarfs several times over the monetary explosion that led to the Carter-driven metals bull market in the ‘70s. I can’t overstate what is happening. Economists may call this monetary-expansion process “inflation” but it really should be called “dilution”—dilution of the money supply and consequently its value. Inevitably, sooner or later, consumer prices rise and laymen then mistakenly call that “inflation.” Calling rising prices inflation is like calling falling trees hurricanes. When will the public catch on? Price inflation and gold prices are the chief measurements of public awareness. Sooner or later, awareness becomes a critical mass, the public catches on, and the metals go through the stratosphere.

2. Real money: Gold and silver (especially silver) have been real money over and over again, in all ages of time and on all continents. Ever since Gutenberg invented the printing press 400 years ago, the world has been littered with worthless dead paper currencies every seventy-five to eighty years, due to runaway money printing when the people discover they can vote themselves benefits from the public treasury. Every time the dominant currency has been inflated, gold and silver coins have become hugely profitable investments, and sometimes the only surviving currency!

Throughout history, each time a paper currency finally caved in to inflation, gold and silver (especially silver) became the only universally acceptable coin of the realm. Gold and silver as a means of exchange and a store of value have always survived. They have always been symbols of wealth, far more precious in our consciousness than any mere paper.

During periods of hyperinflation, there always comes a time when people refuse to accept more and more counterfeit, inflated money or base-metal coins in return for their hard-produced goods and services. At that point, society instinctively turns to gold and silver. It has happened over and over again, and as George Santayana said, “Those who cannot remember the past are condemned to repeat it.”

3. It’s early in the game: Gold and silver are early in an historic bull market (in fact, as this is written, it’s only a Golden Calf), making this a low-risk investment with an awesome upside for the long-term investor. Especially silver. This gold and silver bull market will dwarf the last great one in 1973-80, when fortunes were made by relatively small amounts of money invested by amateur investors (many of them my readers). All of the factors that created the last bull market are here again, only amplified several times.

4. Supply and demand: Both metals are far rarer than most people know. All the gold ever mined since the dawn of history, including that in Central banks, gold fillings, and sunken shipwrecks in the Caribbean, etc. would cover a football field about four-feet deep. It would make a cube about the size of a typical 8-room house. Demand is now leaping past new supplies.

Likewise, most of the easy silver has been mined over the centuries, even with primitive methods. For example, during the Roman millennium, they used silver coins for currency and exhausted the Spanish silver mines.

Now that prices are high enough to make gold and silver mining profitable again, it will take as much as seven to ten years to develop new mines, and stagnant supply and rising demand have made higher prices inevitable for the imminent future.

In 1980 the historic ‘70s gold bull market finally topped out at $850. After adjusting for inflation, to merely equal what it did in 1980, gold would have to go (only) to $2,300, and silver topped out at $50 in 1980. After adjusting for inflation since then, to merely make a new high, silver would have to go over $125 and gold to $2,300!

Why might the metals go even higher? Most compelling is the fact that the biggest single factor that drives gold and silver is monetary inflation, and that’s already several times greater now than it was during the great gold-and-silver bull market of the ‘70s. In fact, gold and silver have been rising in response to money creation since 2000. Add to that the silver supply/demand phenomenon, and that means far higher prices—unless they repealed the law of supply and demand when I wasn’t looking.

These are just a few of the reasons why ignoring gold or silver will cost you a fortune in missed opportunities. In the worst case, gold is headed towards at least $2,500 an ounce (currently over $1,000, up from $280 so far), and silver is headed for at least $100 (currently more than $19, up from $4). And the best by far is still ahead. Long term gold and silver investors should make as much as ten times their money—and maybe a lot more—before we get a sudden rush of brains to the head and create a sound, gold-backed currency.

Other Articles of Interest

Ted Butler & Chris Martensen
Discuss the End of the
Silver Price Manipulation

$53,957 in Circulation for Every Ounce of Gold

Delta-Hedging to Cause Gold Price to Explode


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Quote of the Week

"The major monetary metal in history is silver, not gold.”

– Nobel Laureate Milton Friedman


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