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Two Scenarios For Next Precious Metals Rally (Part I) ~ Jeff Nielson
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Today's Gold/Silver Ratio: 52/1 SAME

Issue 129

Gold: $1663.90/ Silver: $31.40

SGS Notes: Okay, we've crammed a lot into this newsletter, we admit it! But, if you've been following the economic news and the precious metals market, you'll be aware that there is a lot looming on the not-too-distant horizon. We feel the urgency to get you as much information as possible so that you can be prepared.

Two Scenarios For Next Precious Metals Rally (Part I)
Jeff Nielson, Bullion Bulls, Canada


Let me preface this piece by first stating that my reason for writing it was not to induce people to guess which scenario they found more probable, and then to place their bets beforehand. Rather, my purpose was exactly opposite: to prepare people for either scenario so that when they recognized one or the other unfolding they wouldn't do something stupid in a moment of panic (or greed).

Sadly, in our markets to "do something stupid in a moment of panic" generally means doing precisely the opposite of what one should be doing. This also explains why the bankers like to start panics. First of all, as the cause of these panics the banksters are neither "panicked" nor (obviously) surprised themselves. So they continue to operate calmly (in this feeding-frenzy) while the sheep make themselves especially easy to shear.

As a result of this never-ending game being played in our markets by the bankers, there is genuine utility in looking ahead (something the sheep almost never do) so that when events do unfold we will be prepared to act (calmly) - as opposed to reacting in panic (as the bankers desire).
With that preface out of the way, the next task is to explain/define these two, looming scenarios:

  • The crash-driven rally
  • The event-driven rally

Putting aside the fact that gold and silver are the most undervalued assets on our planet today; despite this ever-present truth the sheep generally need a "reason" to jump on the precious metals bandwagon. The irony here of course is that simply by jumping on the bandwagon the sheep supply the necessary momentum to drive prices higher - meaning that no "reason" is every truly necessary for gold and silver prices to go higher, in accordance with their ultra-bullish long-term fundamentals.
So the Catch-22 of the precious metals market is that we always need some catalyst to break gold and silver free of the intermittent bankster-created "log-jams" which have occurred in this market over the course of its 10+ year bull run, even though there is never any reason necessary to bid-up these grossly undervalued assets. In the last several years we have seen (arguably) three such catalysts. Two of those catalysts were events and one was a "crash".

Taking these catalysts in chronological order, the first of the three was the Crash of '08. Critics will argue that a "crash" is precisely an example of an event-driven catalyst. However, as I alluded to previously a market-crash is a particularly unique form of event, due to the extreme and unusual sentiments which accompany that event. The second reason to distinguish this catalyst from an "ordinary" event which serves to drive the market higher is that the circumstances prior to a crash will be markedly different from the circumstances of any other event-driven rally.

To begin with, one very likely clue that we will be on the precipice of another banker-created crash is that gold and silver (and likely all commodities) will begin to rally strongly without any identifiable cause for their strong surge in prices. To be more precise, the mainstream media (i.e. the propaganda machine) will not supply us with any "reason" for these soaring prices (other than pointing to their favorite scapegoats, the evil "speculators").

They will not tell us that those price increases are nothing but playing catch-up for the previous $trillions in money-printing. Understand that what responsible precious metals commentators generally tell their audience is that we accumulate gold and silver merely to preserve our wealth - i.e. we're not doing this (greedily) looking to turn a profit. However, the fundamental truth is that the decades of suppression, and the even more extreme manipulation of recent years mean that gold and silver are more undervalued today than they were at the beginning of this bull market over ten years ago.
Similarly, with the banksters' paper grossly overvalued, this means that most commodities should be soaring to much higher prices, simply based upon the long-term ramifications of year after year of hyperinflationary money-printing. Here we come to the ultimate fear of the banksters, and the political stooges who serve them: they know that the end of their entire, paper Ponzi-scheme will be imminent when prices for hard assets (i.e. gold, silver, and commodities) begin to soar without any explicit short-term causes.

Unlike the brainwashed sheep, they know their history. They know that the ultimate cause of all hyperinflation is a general loss of confidence in (worthless) paper - just as the Dutch "lost confidence" in their precious tulips 400 years ago. Thus when prices begin soaring (i.e. the paper begins to crash) "for no reason", the real reason will be that people are losing confidence in the paper and dumping it in favor of hard assets.

This precisely describes circumstances in the spring and summer of 2008, and explains why the bankers decided that nothing less extreme than a "crash" would suffice to put the brakes on the looming hyperinflation. What this means is that unlike an ordinary event-driven rally for the precious metals sector we will be tipped-off prior to the next crash being manufactured: we will see another instance of spiraling gold, silver, and commodities prices with charts showing a clear exponentially-rising pattern.

The banksters will not sit back quietly and allow their $100's of trillions in Ponzi-paper to evaporate. Inflicting severe economic hardship on 100's of millions means nothing to them. Indeed, the bankers have an even more extreme "solution" for dealing with a pending hyperinflation scenario: starting a war.

Hitler started World War II to cope with the aftermath of Germany's hyperinflation from the Weimar Republic. However Hitler wasn't a banker. He had no mountains of worthless paper to protect. His only motives were to create a smoke-screen for the economic ruin from the preceding hyperinflation and to cover-up his own economic mismanagement, which is an inherent aspect of all Fascism.
With the bankers (and the ultra-wealthy Oligarchs) being firmly in charge of our governments today, war would be a tool that they would use undoubtedly before any hyperinflation reduced their mountains of paper to what it really is: "Monopoly money". Thus should we see another repeat of the explosion in gold, silver, and commodities prices which took place in the spring and summer of 2008, many would suggest that we should hope for a market crash.

Those with the inclinations to be "traders" (i.e. the greedy) will be sensing opportunity at this point. They will note that we will have a clear warning before the next crash is manufactured. They will note that such a crash will occur when we see a distinctive repeat of what occurred in gold, silver, and commodity markets in the spring/summer of 2008. They will look at the charts for gold and silver for 2008, and they will think to themselves "sell".

This would be a colossal failure of analysis, and another triumph for naked greed. Simply because identical circumstances cause the bankers to use an identical "tool" (i.e. a market crash) does not mean that the consequences of their reckless intervention in markets will be identical.

Our economic circumstances in 2012 are enormously different than in 2008. Today our economies are all much weaker. Today our economies are all much less solvent. These two different dynamics both have significant implications in any crash scenario. Create a crash in a (relatively) strong economy and there is resistance; that is, that residual economic strength will push back against the downward economic pressure of a crash - slowing the descent and stretching-out the length of time of that downward slide before "bottom" is hit.

Conversely, create a crash in a weak economy and all you have is free-fall. We would (will?) see a crash which is much faster, and much more severe. This alternately means that anyone attempting to "time" this event by selling their gold/silver and then (assuming they can) buy it back it cheaper could miss badly in either direction.

The fact that a 2012 crash would tend to be a much faster event would mean that it could be over before all the would-be traders are expecting. They are sitting-and-waiting (for even cheaper prices) with their pile of depreciating paper, while prices have already began bouncing back. And as with the Crash of '08, the rebound in gold and silver prices will be at least as rapid as their plunge, and likely even more rapid - leaving all those greedy "traders" still waiting at the station.
On the other hand, with a crash in 2012 undoubtedly a much more severe economic event, would-be traders could easily jump back into the market too soon - and do their buying with prices about to plunge much lower. We can assess those relative probabilities by looking at our other different dynamic for 2012: much less solvent governments.

The Crash of '08 sparked the Money-Printing of '09, which in turn has directly led to the Debt Crisis of 2010-to-present. The "64-trillion-dollar question" today is this: if a crash in 2008 caused a debt-crisis (when our economies were relatively strong), what would a crash do in 2012 - with our economies all weak, and all of Europe already in a debt-crisis. The answer to that question is really simple. Everybody is Greece.

The combination of an even worse crash, with much weaker economies, already in the midst of a debt-crisis means that either the money-printing would have to be much, much more extreme (i.e. guaranteed hyperinflation) or it would fail to halt our economic crash despite the extreme money-printing.

Understand that every new "dollar" of paper created is created with more debt. Understand that our interest rates are already as low as they can go, and still we see the debt-dominoes going bankrupt one-by-one. So doing much more money-printing means piling on exponentially more debt onto already insolvent economies while revenues are simultaneously plummeting lower. This precisely describes what just took place in Greece.

So when "everybody is Greece" (including the world's worst debt-sinner, the United States) what are the holders of $10's of trillions in Western bonds going to do? Will they stoically and nobly "go down with the ship" like the Captains of Finance that they are? Or will they all scramble for the nearest "lifeboat" like proverbial rats deserting that sinking ship? I'll let readers answer that one for themselves.

In the Crash of '08, it was only the gold-bugs (and silver bulls) who were thinking to themselves "paper is going to zero". The sheep were still all running towards that worthless paper. In any crash in 2012 (or 2013) it will be obvious to everyone that "everybody is Greece", and all that paper is going to zero.

What this means is that in any future crash event, any sell-off in gold and silver will end very quickly and very abruptly, when all of the "rats" from the bond-market (belatedly) try to swap (worthless) paper for (valuable) metal. Naturally, all of the extreme money-printing taking place means that the underlying paper currencies are just as worthless as the bonds.

This should mean that all the sheep would be dumping their paper currencies for gold and silver too. However, that would imply rational thinking. Since the panic of any crash event means the opposite of rational thinking, the holders of our paper currencies will undoubtedly do even worse than the bond-holders.

As I continue to point out to readers, it would take much less than 10% of these paper-holders turning toward the 5,000 security of gold and silver to cause precious metals prices to soar to many multiples of present prices (especially in the tiny silver market). This comes at a time when people are only holding about 1/10th as much precious metals in their portfolio as is the historic norm.
The question for the precious metals bears and skeptics is this: if gold and silver prices can go on a 10+ year bull-run while ignorant Western investors have under-owned this asset class to the greatest degree in history, what happens when all of the "stupid money" of the West belatedly rebalances their holdings?

As an aside, this raises a secondary question: how can the drones in the mainstream media continue to talk about "bubbles" in gold and silver while these assets have never been so under-owned by Western investors?

When thinking investors begin to ask (and answer) these questions for themselves, their strategy for any crash scenario should be clear: don't idiotically sell the gold and silver they are already holding, greedily hoping they can cash-in on some "obvious" short-term trade. Rather they should be buying more gold and silver in any crash, even in the face of rapidly falling prices. They would know that any plunge would be very short in duration, and will reverse higher very, very strongly, when all of the paper-holders finally begin to "see the light".

Naturally, the my hope and that of all other gold and silver bulls is that we can see gold and silver begin their next, inevitable rally from some event which inspires much less fear and economic carnage than an economic crash. In Part II, I will flash-back to two such events, and note both their significant similarities and significant differences.

To read Part 2 click here

 

New At SGS!

Introducing our new Silver Bullet !

Whether you are protecting yourself from Werewolves or Inflation, this Silver Bullet is for you! We are excited to introduce this Silver Bullet novelty item. This item includes a set of TEN 1/10 oz .999 fine Silver Walking Liberty rounds, contained in a semi-transparent 12 gauge shotgun shell.

 

This item is not only a great investment in precious metals, it makes for a great conversation piece. If your group or organization would like to customize this item, we will work with you to create a custom label with your favorite slogan or logo. (Additional pricing will apply)


We also have the 1/10 oz rounds available for purchase individually on our site now. These are the size of a dime and a good alternative to junk silver which is only 90% pure.

 

 

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Gold & Silver as Parallel Monetary Systems
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On the lighter Side… ; - )


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Quote of the Week

"Paper money has had the effect in your state that it will ever have - to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice."

- George Washington

 

Note: If you are getting duplicates of the S&GS Newsletter, please eMail us and let us know.
Contact us at info@silverandgoldshop.com
Phone: 888-203-2232 x 1
Where a Nation's Gold and Your Gold Should be Held - Part I
If you are having difficulty reading this, click here to view online
Today's Gold/Silver Ratio: 52/1 UP

Issue 128

Gold: $1651.60/ Silver: $31.75

 Where a Nation's Gold and Your Gold Should be Held - Part I

Julian Phillips
Proprietor at Global Watch - The Gold Forecaster

Purpose of Holding Gold
Most central banks hold their nation's gold in the vaults of the world's leading financial centers' central bank vaults. These include New York, London, and Canada among others. In a peaceful, cooperative world, this is sensible as one of the prime purposes of central banks holding gold is to cover the nation's international trade payments when their own currency becomes unacceptable and their reserves of foreign exchange are depleted. By positioning the gold outside the country, it's instantly accessible for payments or guarantees of payments.


Dangers of a Nation Holding Gold in Another Nation's Central Bank
In the last week we have heard the announcement that Iran has (according to them) 907 tonnes of gold. The developed world has just outlawed Iran dealing in gold and silver (there are other places, where if they wished to do so they will be able to trade). With their gold inside Iran, it is outside the reach of the developed world though. If they had held their gold in the world's main, developed world vaults that would have been frozen along with Iran's other overseas assets. We may not agree to Iran's politics and attitudes, but there is a lesson to be learned here.
Ownership implies the freedom to do what you want with an asset. In this case we are talking about a nation's assets. The handling of Iran's assets by freezing of their assets shows that other nations can interfere with that freedom. Governments feel free to impose restraints on other people's assets within their jurisdiction. It is this concept of a right to restrain the rights of ownership that will prove a growing issue.


With the world changing from an under-developed world with a developed world to an emerging world drawing down power and wealth from the developed world, there are many changes taking place which will lower the levels of international cooperation in the days ahead as political, religious, monetary and economic pressures rise.


One nation that has foreseen these pressures coming is Venezuela. Their 160 tonnes of gold was held in Canada, the U.S. and European vaults and out of their full control. Their policies -including the nationalization of gold mining and export-have proved unpopular in the developed world too. With Venezuela being an oil exporter primarily, the unpopular President (outside the nation) felt it prudent to ship his nation's gold back home. The process began a few months ago.


Venezuela's Gold Comes Home

Venezuela has now succeeded in bringing its 160 tonnes of gold from the developed world's central bank vaults (i.e. Canada, U.S. and Europe). There's no doubt that such a move does secure the nation's monetary sovereignty. Now, Venezuela's gold cannot be subject to the political wishes of the U.S., Canadian or European governments.


Furthermore, there's a potential 3,000 tonnes of gold under the ground in Venezuela and the likelihood that the government will take that into their vaults over the time it takes to mine it. They will then be in a position to take the U.S. dollars they receive for their oil and pay their miners for the gold, so diversifying their reserves away from currencies and into gold. If they do that, then this is one more source of supply that will be removed from the gold market.


Whatever the nation's politics, it is a central banker's duty to do all in its power to protect its nation's gold and foreign exchange reserves in terms of control and value. With dollar hegemony, a great deal of that power remains in the hands of the issuer of that currency. As sovereignty issues grow, it is becoming incumbent on central bankers to do more to protect nation's reserves. The most vulnerable nations are those whose politics differ drastically from the developed world or those whose international trading is not dependent on the major developed world. After all, if you are a kind of economic colony of a major nation it will exercise its influence far more effectively through other routes.


The conclusion that best suits vulnerable nations logically is to hold as much of its gold at home. Its dollars have to be held in New York and its euros in Europe -something they can do little about. But a nation like Venezuela with its reserves of gold at home and a 'natural' diversifier in the gold under the ground, is acting in that nation's interests in building up its gold reserves at home.


China Following the Same Path

China has outlawed the export of gold and vigorously broadened the number of banking import licenses for gold. The resulting flows of gold in with nothing coming out, is leading to the total national stock of gold in China rising fast.


" Last year saw around 360.96 tonnes of gold produced there with the government encouraging this growth of local production. But this figure may be a heavy underestimation as scrap and non-China Gold Association member's production is not included in that number.


" 490 tonnes of gold came into China through Hong Kong with more imports possible through other routes, not included in this total.


" At the start of 2012, demand for gold during the lunar New Year jumped over 50% pointing to much higher imports in 2012. These could lead to a jump of reported imports of 750 tonnes in 2012.
China is preparing Shanghai as the center for Yuan trading and as their leading financial center. Hong Kong is the current, financial center and has huge modern gold vaults already. We have issued an article in our newsletter Gold Forecaster giving our views on China growing to a second or first gold market hub in time. But we repeat that NO gold is allowed to leave the country! With privately held gold open to confiscation at some point in time, we consider the total gold held inside China as part of that nation's available stock of gold in their reserves.

Read Part II Here

New At SGS!

Introducing our new Silver Bullet !

Whether you are protecting yourself from Werewolves or Inflation, this Silver Bullet is for you! We are excited to introduce this Silver Bullet novelty item. This item includes a set of TEN 1/10 oz .999 fine Silver Walking Liberty rounds, contained in a semi-transparent 12 gauge shotgun shell.

 

This item is not only a great investment in precious metals, it makes for a great conversation piece. If your group or organization would like to customize this item, we will work with you to create a custom label with your favorite slogan or logo. (Additional pricing will apply)


We also have the 1/10 oz rounds available for purchase individually on our site now;

 

Quote of the Week

"Nothing is more important than balancing the budget with the least increase in taxes."

- Herbert Hoover, March, 1932

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Gold and Silver Manipulation and How They Do It
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Eric Sprott: Financial Train Wreck Coming Soon! Got Gold? Better Yet, Got Silver?
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Silver Shortage This Decade,
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Note: If you are getting duplicates of the S&GS Newsletter, please eMail us and let us know.
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The Upside for Gold and Silver will Knock Your Socks Off ~ Embry
 
Today's Gold/Silver Ratio: 44/1 Up

Issue 122

Gold: $1833.70/ Silver: $41.85

SGS Notes: This week we can only say, there's a 'Whole Lotta Shakin' Goin' On!' Not just geologically, but in the markets as well... we've seen silver up over $44 this week, and gold broke through the $1900 barrier before heading back down. We see the big manipulators scurrying to cover their short positions and a lot of new activity 'out there'... The Warren Buffet Bailout of B of A is a big item...another is the Jackson Hole conference on the economy. This week's newsletter, like many, will try to cover the highlights...

 

The Upside for Gold and Silver will Knock Your Socks Off Embry

Geoff Candy Mineweb


With no easy solutions to the globe's debt problems visible, Sprott Asset Management's John Embry expects gold and silver to be significant beneficiaries but the road ahead will not be easy.

 

With no easy solutions to the globe's debt problems visible, Sprott Asset Management's John Embry expects gold and silver to be significant beneficiaries but the road ahead will not be easy.

For many commentators, gold is considered not only a constant store of value but, also, a barometer for the health of the global economic system and the currencies that pump through its veins.

For, John Embry, chief investment strategist at Sprott Asset Management, the current parabolic rise in prices, which have beat even his optimistic performance expectations this summer, is indicative of the unsustainable debt situation in which the world now finds itself.

Speaking on Mineweb.com's Gold Weekly podcast, Embry explains, "We've reached a stage in the debt cycle where it doesn't appear we can move forward and on that basis you need more and more debt creation to generate the same dollar real GDP growth - and I don't think we can get that kind of debt growth. So to keep these systems stuck together they [governments] are going to have employ quantitative easing in massive quantities, and if they don't, the current softness in the economy is going to turn into a rout."

Given the current levels of growth, Embry says, any halt in the funds propping up the banking system will result in significant deflation in "fairly short order" because the deflationary pressures within the West are huge.

But, he says, it is not just the West that is likely to suffer. "The Chinese miracle is grinding to a halt, they've dined out in the West for years and they paid for it by taking back our crappy paper but the fact is that they kept their economy going at breakneck pace and I would also say it is probably one of the most unbalanced economies I have ever seen.

"They have depended so heavily on exports and capital spending and now the export markets are weakening at the same time they have massive over capacity. So those two engines are coming to a halt and the hope is that they can do lateral arabesque into consumer demand to keep the thing going. I think that will be a hard act in the short run and consequently China faces some fairly difficult economic problems going forward.

What this means for prices?

While this rather bleak scenario does not bode well for the financial system as a whole, gold's performance over time [as well as that of silver] is likely to "knock your socks off", Embry says. But, he adds, especially after this latest move, he would prefer to see a correction in prices before that happens.

"I don't want to see this thing just scream away and become out of control and conceivably if you got a strong effective action in either Europe or the United States - that might be the catalyst for a significant correction of a couple of hundred bucks - but having said that I don't see the easy solution."

Embry points out that it is also important to note that, "It's not gold and silver that are doing anything. There have been constant stores of value for centuries. It's the value of the paper money that they are being denominated in that is at risk here and you know every attempt in history, fiat paper currency has always ended in tears and this one has been going for 40 years since Nixon closed the gold window and it's probably in its terminal stages."

Indeed, he is of the belief that the world will ultimately see a return to some kind of a gold standard.

"When we do have to recast the currency system, just to restore confidence there will have to be some backing that maintains discipline - and gold has traditionally filled that role. So I can see gold being introduced as a maybe fractional reserve like there was before 1971 in the United States. but to do that given the amount of paper out there and the limited amount of gold, they would have to mark the gold price up dramatically."

And, while he cannot put any kind of timing on such an event, he does think that gold could move as high as $2,500 within the next twelve months.

 

Quotes  ____________     

“Gold, unlike all other commodities, is a currency,” he said. “And the major thrust in the demand for gold is not for jewelry. It’s not for anything other than an escape from what is perceived to be a fiat money system, paper money, that seems to be deteriorating.”

Alan Greenspan

For Full Article, Click Here

SGS Note: Perhaps Mr. Bernanke needs to confer with Mr. Greenspan...

 

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Gold, Silver And 'Leaky Buckets ~ Jeff Nielson
Issue 92
Today's Gold/Silver Ratio: 43/1 Dn

Issue 121

Gold: $1872.60/ Silver: $43.80

SGS Notes: These days, events are happening almost daily in the precious metals market. The latest big news this week is the move by Hugo Chavez, dictator of Venezuela, to Nationalize the Venezuela gold industry, and to repatriate the country's gold holdings around the world. See links in 'Other Articles' about this.

 

Gold, Silver And 'Leaky Buckets
Jeff Nielson, BullionBulls, Canada

 

To those of us who have "found" precious metals, their (financially) life-saving properties are blatantly apparent. Indeed, apart from explaining the 5,000 year heritage of gold and silver as premier financial assets in our civilization, most of the arguments in favor of gold and silver are straightforward, simple arithmetic.

Because of this reality, one of the great frustrations for all precious metals bulls are the thankless (and generally fruitless) efforts we make to try to enlighten friends/relatives/associates. The pattern of such attempts is maddeningly similar.

Some friend or loved one mentions how "inflation" is hurting them financially. So the gold/silver bull begins to explain what inflation really is, who is causing it, and how it is done. So far, so good. However, as soon as we move on to explain how we protect ourselves from this "inflation" (i.e. through accumulating gold and/or silver), a subtle metamorphosis inevitably takes place with our subject.

A bland/placid expression creeps over their face, and is frozen into their features. Through years of experience with this phenomenon, I know exactly what that expression translates to in terms of the person's thoughts: "I'm trapped with this dangerous lunatic. How can I escape?" At that point, any attempt at "conversion" becomes purely an exercise in futility.

After each such failure, I inevitably review the process which has taken place, and ask myself where I could have gone wrong. The reality, of course, is that the fault does not lie with ourselves, nor with the individual whom we have failed to convince. Rather, the "blame" belongs to the propaganda machine of the bankers, which for the past century has blared out one message above all others: paper currency = money = wealth.

It is the fact that this simple, but totally erroneous equation is embedded in the "programming" of most of us which prevents the precious metals message of financial salvation from penetrating the psyche of those so afflicted. Thus, the initial step in being able to re-program the minds of these propaganda victims is to de-program them first. It starts with repudiating the bankers' odious "equation" (above).

First of all, paper currency does not equal "money". This is actually an entire discussion in itself. I could abbreviate it by listing the four qualities which all "good money" must possess. However, without expanding on the reasoning behind those traits, such mere assertions will not sway the brainwashed mind. Readers can review my own previous discussion on this, or the many similar efforts of other commentators, however the conclusion is unequivocal: paper currency is not money.

Now let's examine the third element in this propaganda-chain: wealth. The more cumbersome way to refute this equality/equivalence would be to explain why paper currency does not equal wealth. However, the better way to do this would be to simply point out the basic difference in the properties of these three elements. Paper currency is tangible. Money is tangible. Wealth is intangible.

This can be easily demonstrated anecdotally. Many people (including myself) often go days at a time carrying out all of our commercial transactions without ever once using "money". Thanks to the credit card (which is simply an electronic cheque-book), we no longer need money to convey our wealth to a vendor to make a purchase. It can all be done electronically because of the intangible nature of our wealth.

In similar terms, if we get up in the morning to discover that interest rates have been raised or lowered, this immediately affects property values - and the wealth of each/every property owner. Our properties have not changed in any way. We have not done anything ourselves. However, our level of wealth has gone up (or down). In fact, countless exogenous events affect our precise level of wealth at any given moment. Clearly, if wealth was not intangible than its exact level at any moment in time would not be so fluid.

Our equity markets leap higher or plunge lower (affecting the wealth of any/every equities-holder) often based only on "sentiment" or "expectations" - purely intangible drivers themselves. Obviously anything which can be altered by mere attitudes is intangible. As with any "intangible" (in our material world), we often find it helpful to adopt a (tangible) metaphor to allow us to have a better conceptual grasp. In the case of wealth, the obvious metaphor is a liquid. Indeed, the very frequent use of the term "liquidity" as a synonym for wealth is proof of such suitability.

Once we have conceptualized wealth as a "liquid", then it becomes equally simple to conceptualize "money" and "paper currency" within the same metaphor. They are containers for this liquid. Now let us make our metaphor even more tangible and precise.

Instead of "money", let us divide this into two "containers": gold and silver - the best/most-preferred forms of money in the history of our species. And instead of "paper currency", let's call that container "U.S. dollar". Finally, let's simply refer to these containers as "buckets".

We now have a very specific metaphor, and a very clear choice for each of us. We each have our own quantity of liquid (wealth), and we can store/hold that liquid in the "gold" bucket, the "silver" bucket, or the "U.S. dollar" bucket. Now let's examine the quality of each bucket.

Why have gold and silver been the preferred forms of money for our species for 5,000 years? Because they perfectly preserve (i.e. contain) the wealth of the holder. Look back 2,000 years to ancient Rome, and a stylish Roman could adorn himself in the finest toga, sandals and accessories for the cost of 1 oz of gold. Flash ahead to today, and any gentleman could obtain a top-quality suit, shoes and accessories for the cost of 1 oz of gold. Clearly, the gold bucket does not leak.

Now let's look at the U.S. dollar bucket. In the less than 100 years since the creation of the odious Federal Reserve, the U.S. dollar has lost approximately 98% of its value. Obviously the U.S. dollar bucket does leak. Hold your liquid in the U.S. dollar bucket long enough and you will lose all of it.

A (literal) "Devil's Advocate" would argue that a bucket which takes nearly 100 years to lose all of its liquid is "good enough". The rebuttal to this is as frightening as it is simple.

In the 40 years since Nixon severed the last connection between the U.S. dollar and gold, the dollar has lost more than 75% of its value. In other words, the hole in the bucket has gotten much larger. Today, as the price of food soars, and the price of gas soars, and the price of gold soars, and the price of silver soars none of these items have changed in any way, rather it is the value of the U.S. dollar which is plummeting. The hole in the bucket is rapidly getting larger.

Throughout history, all paper currencies which have not been backed by gold or silver (i.e. "fiat currencies") have failed. The most common means of failure is through the destruction of these paper currencies via hyperinflation: the value of the currency plummeting to zero. We can describe "hyperinflation" in our metaphor very easily: it's when the entire bottom of the U.S. dollar bucket has disappeared. Liquid (i.e. wealth) pours out the bottom as fast as we can funnel it in.

Looking at the first two buckets provides us with a crystal-clear picture. We have the gold bucket which never leaks. Not in 100 years, not in thousands of years. We have the U.S. dollar bucket. Not only does this bucket "leak", guaranteeing the loss of all liquid/wealth over time, but the hole in the bottom is getting larger every day - and soon it won't be capable of holding any liquid at all.

Given this stark illustration with just two buckets, some might presume that my inclusion of a silver bucket in this metaphor is redundant. However (as we shall see), the silver bucket is actually quite distinct from the gold bucket.

Obviously the silver bucket is just as leak-proof as the gold bucket, but silver buckets cost much less. After decades of being impoverished by our own, elitist governments (primarily through storing our wealth in 'leaky buckets'), many people can no longer afford gold buckets - however virtually everyone can still afford silver buckets.

This makes silver the "People's Bucket", a leak-proof container to store our "liquid" (wealth) which everyone can afford. However it gets even better. In continuing with our metaphor, we must all understand that the bankers have their own "Magic Bucket". How magical? Every drop of liquid which leaks out of the U.S. dollar bucket ends up in the bankers' Magic Bucket. That's pretty "magical"!

It is because the bankers have their own Magic Bucket that they hate silver buckets with every fiber of their evil beings. For the last century, and especially the last 50 years the bankers have made a concerted effort to destroy all of the world's silver buckets. How? Through manipulating the price of silver to a ridiculous low (in real dollars, the price of silver hit a 600-year low in the 1990's), they simultaneously destroyed "supply" (by bankrupting more than 90% of the world's silver miners), while causing demand to explode. Global inventories and stockpiles have been obliterated.

The result of this is that in relative terms there has not been this little silver in the world (above ground) in thousands of years. This is true both in relation to the quantity of gold and on a per capita basis. This means that in relation to gold buckets, silver buckets are now very rare - some might even call them "magical" too.

Not only is silver a leak-proof bucket to carry our liquid (wealth) which is still affordable for the average person, but it has become extremely useful in countless industrial applications - meaning that "everyone" wants silver buckets. Because of this high scarcity and soaring demand, it is a matter of elementary supply/demand analysis that the price of silver must rise to many multiples of its current price.

To translate this back to our metaphor, when we put liquid in our silver bucket, not only does the silver bucket prevent any leaks, but it actually increases the amount of liquid in our bucket. The silver bucket is also a Magic Bucket - but not an "evil" Magic Bucket like the one owned by the bankers. The bankers' liquid increases through leeching all of the liquid out of the U.S. dollar buckets, while the silver Magic Bucket increases the liquid of the holder without stealing any liquid from anyone else.

Let us review (one last time) the three "buckets" we can choose from to store our liquid/wealth. We can choose the gold bucket, a leak-proof bucket guaranteed to hold every drop of our liquid over the long term. We can choose the U.S. dollar bucket: a leaky bucket, with a hole in the bottom that gets larger every day - and which is guaranteed to lose all the liquid contained over time.

Lastly there are the silver "Magic Buckets". These marvelous devices not only ensure against leaks, but actually cause the liquid contained to increase in volume. The only down-side to these Magic Buckets? There is a very limited supply.

It can be virtually impossible to explain to a brainwashed mind how/why U.S. dollars are just scraps of worthless paper - just as it was impossible to convince the Dutch 400 years ago that tulips were mere flowers. It can be equally difficult to explain the concept of "saving our money" (i.e. wealth) in the form of gold and/or silver - despite the fact that 100's of millions of Indian peasants understand it and have been doing it all their lives.

Conversely, even the most brainwashed mind should still be capable of understanding the difference in "utility" between a 'leaky bucket' guaranteed to fail in its sole purpose, and buckets which have demonstrated themselves to be leak-proof over thousands of years.

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As Chavez Pulls Venezuela's Gold From JP Morgan, Is The Great Scramble For Physical Starting?

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Bill Murphy : The Gold cartels have lost control over the market

King World News:

John Embry - Silver About to Roar Through $50 All-Time High

Ben Davies - Expect $2,100 Gold by the End of December

Richard Russell - Expect Mass Entry Into Gold By Retail Public

Eric Sprott - The Price of Silver Should be $110 to $120 Today

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Dorothy's Silver Shoes or The Re-monetization of Silver Currency ~ Hugo Salinas Price
Issue 92
Today's Gold/Silver Ratio: 44/1 Up

Issue 120

Gold: $1751.10/ Silver: $39.18

SGS Notes: This week the GATA Gold Rush 2011 Conference was held in London. GATA is the Gold Anti-Trust Action Committe (http://www.gatagoldrush.com/ ) ... and we've seen material in the past from Andrew Maguire, Bill Murphy, and Ted Butler and others who have been actively involved in fighting the precious metals' manipulation over the years. Speakers this week at the conference include such big names as James Turk, Eric Sprott, Hugo Salinas Price, John Embry, Jim Sinclair... you've read articles by these folks and others in the SGS Newsletter since we began it.

The issue of the possible re-monetization of gold and silver is a hot one as we watch fiat currencies around the globe crumble into ruin. It's been on our radar screen at SGS since we began in 2008. There are many credible experts that believe it is coming faster than a speeding freight train... Bix Weir, of Road To Roota, is one such person. He has long been associated with GATA. As the world wakes up to the fiat schemes of the central bankers, there will be a rush... supplies will be in limitation... prices will skyrocket...

 

Dorothy's Silver Shoes or The Re-monetization of  Silver Currency of the United States of America

Hugo Salinas Price

President, Mexican Civic Association Pro Silver

www.plata.com.mx

Download article + bonus article, Gold Standard Generator & Protection Of Jobs

Why not re-monetize the silver dollar? Re-monetization could put the silver dollar and its subsidiary silver coinage into circulation in parallel with FRNs – “Federal Reserve Notes”.

There are several reasons that make this action possible, and only one that might be considered as an unimportant material obstacle.

In favor:

The silver dollar is the money that is still the Constitutional “coin of the realm”, defined by Act of Congress as 371.25 grains of pure silver. (The Troy ounce contains 480 grains.)

The silver dollar is familiar or at least known to almost all Americans.
A considerable quantity of these silver dollars is owned by Americans.

The silver dollar is a cherished symbol of a great past.

The monetized silver dollar would ignite a desire to save such as America has perhaps never seen before. The very first thing that must be done, to encourage people to save, is to give them something worth saving. As the US government gallops toward the abyss of bankruptcy by unlimited spending, the American people desperately require a refuge for their savings!

In this writer’s opinion, a large majority of the American people can see themselves as owners of silver money and, if a poll were taken, one can imagine that most Americans would express themselves in favor of silver money. Not so with gold, towards which the American people have little emotional attachment: gold is seen as the money of the élite. William Jennings Bryan exploited this fundamental attitude of the American people with his “Cross of Gold” speech. (Note: this should not be taken as disparaging gold; it is simply the statement of an opinion about the attitude of Americans regarding gold.)

Against:

The silver dollar bears a value stamped upon it: “One Dollar”.

***

The branch of government which the Constitution has designated as the agency “to coin money [and] regulate the value thereof” is the Treasury.

If the Treasury were to monetize the silver dollar coin by attributing to it a monetary value in terms of FRNs - “Federal Reserve Notes” - the public would very probably ignore the inscription of “One Dollar” upon the coin and accept it as legal tender money for the amount of the Treasury quote given to it. It would not be necessary to explain that twice, to anyone owning a silver dollar coin! In a short time, people would regard the term “One Dollar” as the name of a coin, rather than as a numeric indicator of legal tender value.

Determining the value of the silver dollar falls quite nicely into the Constitutional mandate to the Treasury: “To coin money [and] regulate the value thereof…”

How would the Treasury go about determining a quote to regulate the value of the silver dollar? Let bureaucrats and lawyers write books about how it should be done; here it is in a few words:

Suppose the price of silver bullion is $35 per ounce.

The silver dollar contains 77.34166% of a Troy ounce.

$35 X .7734166 = $27.07, the value of the silver in the silver dollar.

The Treasury will quote the silver dollar’s value in FRNs, with a margin of 15%, and round the figure to the next highest multiple of four:

$27.07 X 1.15 = $31.13, rounded up to $32.

The silver dollar as a legal tender coin worth $32 FRNs. The American public would eagerly purchase these silver dollars, worth $32 FRN dollars, and which could be used for all transactions without any haggling. The silver dollar worth $32 FRNs could even be deposited for that value in banks, if anyone had a mind to do such a thing.

If the price of silver rose to $37.61, the margin of profit of the Treasury, or seigniorage as it is formally known, would be reduced to 10%; at that point, a new and higher quote would be issued, to restore the 15% profit of the Treasury:

$37.61 X .7734166 = $29.09 value of silver in the silver dollar X 1.15 = $33.45, rounded up to $36 FRNs - 36 being the next highest multiple of four.

Why “the next highest multiple of four”? Because by doing so, the result would be the re-monetization of the entire silver currency system of the United States as it existed up until the Sixties of the last century.

In the last example, the silver half-dollars would automatically be worth $18 FRNs, the quarter-dollars would be worth $9 FRNs, and the dimes would be worth one-tenth of the silver dollar: $3.60 FRNs.

As pointed out in many articles at www.plata.com.mx, in the section in English, the last quote of the Treasury would remain firm and not subject to reduction, just as if the value in FRNs had been re-stamped upon the coin. The Treasury quote would simply take the place of a stamped quote, which cannot be reduced. The Treasury quote would only be raised, to follow the rising price of silver. In this way, the silver dollar would be a coin that would remain in use permanently.

This program would return the silver dollar and its subsidiary silver coinage of half-dollars, quarters and dimes to the American people in such a way as never to disappear again: all rises in the price of silver would be matched with rises in the quoted monetary value of the silver dollar and by derivation, of its subsidiary coinage: the silver half-dollar, the quarter and the dime.

This program would not cost the Federal Government – or the taxpayers that support it – one single cent! And yet, it would constitute the greatest gift to the American people that any US Congress could possibly invent, next only in importance to the return of the Gold Standard. The restoration of the silver currency of the United States to circulation, in parallel with the fiat FRN, can be considered the prelude to the revived Gold Standard.

By paying the Treasury a premium of 15% over the bullion price of silver, the American people would actually be subsidizing the Treasury’s work of monetization. This cost would be a one-time cost of obtaining real money of permanent value and utility, independent of the Fed and the banking system.

The re-monetization of the silver currency of the United States would create a new, vast market for physical silver and drive the price of silver very much higher. Those who might not be able to afford the purchase of monetized silver dollars could purchase half-dollars, quarters or dimes, which would provide the same security: they too, would rise with the rise in the price of silver. The rise in the price of silver would affect gold, which would also rise in price.

In order to facilitate larger transactions in silver, the Treasury could once again issue “Silver Certificates” attesting to the existence of silver held in its vaults.

With regard to the present faux-silver coinage in circulation, the American people are too intelligent to be deceived by it; this coinage may remain in circulation until the Treasury issues new coins for the purpose of making change in small transactions.

Though the restored silver currency may legally circulate, in practice it will be saved in its entirety and only be used in cases of emergency. Its “velocity of circulation” will be effectively close to zero.

******

Dorothy wore silver shoes, in L. Frank Baum’s classic book. Silver shoes on the yellow brick road! Dorothy symbolized then and still does today, the American people. Dorothy was unaware of the magic power of her silver shoes – and the American people are still equally unaware of the magic power of the re-monetized silver dollar: the power to recover America as the land of Hope and Opportunity!

What are the obstacles to regaining the silver dollar as money which can circulate in parallel with Federal Reserve Notes? The main obstacle will be the weapon of fear wielded by the entrenched interests of banking and the Federal Reserve, the intellectual centre of the banking cartel. These fiat money-mongers will rely on generating fear of the consequences of silver money so that they can maintain their huge fraud of fiat money FRNs; the Fed and the “Too Big to Fail” Banks are deathly afraid of the competition of silver. They know that the slightest crack in their monopoly of issuing fiat money will expose their scheme.

The Fed and the banking system will without doubt claim that “silver money is very costly”, but they will certainly not mention that the American people will fall over themselves to acquire it and even pay a premium of 15% to the Treasury, for the blessing of owning real money. Nor will the Fed and the banking system ever mention the gigantic costs that the depreciating FRNs have inflicted upon American savers; nor will they wish to recognize that the fiat FRN and the Fed are directly responsible for the present financial and economic destruction of the once great United States of America.

Another objection which will be put forward forcefully is that what the American economy requires is more spending on the part of the public. They will argue that more savings on the part of the American people spells doom for the economy: “More drink for the drunkard” is essential, according to the prevailing Keynesian thinking.

However, the humbug wizard has already been exposed and the Fed has lost its prestige forever. Toto has drawn the curtain! The State of Utah has already voiced its dissatisfaction with the present monetary system, by legislating in favor of gold and silver as legal tender money. If this project - monetizing the silver dollar by the Treasury’s giving it a numeric monetary value in FRNs, which immediately places it alongside the Federal Reserve Note as money – if this project comes to the notice of the several States of the Union, they together may force the issue.

The present policy is to “kick the can down the road” and postpone the final reckoning. But, the end of the road is already in sight! The condition is one of utter helplessness. The re-monetization of the silver dollar is the first step toward regaining health for the economy of America. Paper, fiat money will probably remain in use for some time, but the presence of the monetized silver dollar will force the Federal Reserve, the banking system and the US Government itself, to a more prudent financial course. It will be possible to regain financial health, because an alternative is available. Savings, the foundation of prosperity, will bloom as Americans opt for massive voluntary austerity by saving monetized silver dollars, half-dollars, quarters and dimes.

The banking system in the United States will be anxious to receive the massive savings in silver of the American people as deposits, but this will only be possible when the price of silver bullion has stabilized. Thus, the American people will have the upper hand; they will bend the banking system to their will by refusing to deposit their silver in the banks and thus force the banking system to reform itself to prudent monetary practice and desist from inflating by expanding credit out of nothing. After a stabilization of the banking system, the way would be open to a resumption of the Gold Standard.

Americans are today caught in a financial calamity with no parallel in history. They are being told this every day by every medium of communication. But they watch their crumbling economy in utter paralysis, because there is no alternative to which they may turn. The whole world is a mirror of their plight.

The restoration of the silver currency of the United States of America by the very simple procedure outlined here can provide the life-saving alternative. There is, at present, no other practical proposal for a viable action in the field of money. Perhaps there can be no other practical proposal? Perhaps a return to silver money is the only path out of the present crisis of civilization?

Let us hope that a political leader in the United States understands this message. The popular appeal of silver is universal; “silver shoes” will take that leader far – and the American people will follow him on that road!

Other Articles      

Road To Roota Theory
Bix Weir


Silver Money For Americans

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Next Leg Up for Silver Could Take it To $65-$75
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Silver To Go Nuts
Bill Murphy

 

11 Mentality Shifts of Silver Investors

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5 Stages of the Awakening

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Get Out Of ALL Paper Assets and Into REAL Assets

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Gold Rush 21
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GATA Gold Rush #1

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Silver's Performance to Triple That of Gold over The Next 3-5 Years..
Issue 92
Today's Gold/Silver Ratio: 43/1 Up

Issue 119

Gold: $1684.80/ Silver: $39.15

SGS Notes: The big news this week was the downgrading of the US credit rating from AAA to AA+ with S&P. I won't fill the newsletter with that since it's been in all the news... But what we are about to watch is the coming spike in gold and silver prices due to this and other factors... The downgrading of the US Dollar will have a huge domino effect on other currencies around the world. So we will be seeing unbelievable volatility everywhere in the markets... and demand is about to go sky high.

 

Silver's Performance to Triple That of Gold over The Next 3-5 Years..

Eric Sprott

Silver is likely to be the investment of the decade in the same way that gold was the investment of the last one as both industrial and investment demand come to the fore, says Eric Sprott

 

According to Sprott Asset Management CEO, Eric Sprott, Silver is the investment of the decade. Not only is it likely to reach $50 an ounce by the end of the year but, he says, over the next three to five years, it's performance is likely to treble that of gold's.

Speaking on Mineweb.com's Metals Weekly podcast, Sprott said, "We've been huge proponents of gold over the last 11 years, and we've been involved in silver over that same time period but beginning about a year ago it became extremely evident to us that the investment demand for silver was massively understated."

This move also appears to be occurring in India, where festival celebrants, deterred by high gold prices have been buying silver ornaments as gifts. (See: Silver puts gold in the shade.)

He adds, as a result of this, the ratio between the two metals is likely to get back to a more "appropriate" level around 16:1 - it is currently around 37:1 and only in June last year it was sitting around the 70:1 level.

"If one looked at the silver and gold sales as an example of the US Mint, so far this year, people have put the same dollars into silver as they've put into gold - which can't carry on with the price being 38:1 - you just can't have the same amount of money going in. We see the same thing in the ETFs - the silver ETFs have been growing while the gold ETFs so far this year, have declined," he says.

One of the main reasons for this, according to Sprott is that more and more people are viewing gold, and now silver, as the reserve currency and given the state of the world, there is a shift from paper to hard currencies.

It is not, however, just Sprott who sees this shift toward hard currencies. The state of Utah, recently signed a law which has made it the first U.S. state to recognize federally issued gold and silver coins as legal tender.

Asked why there is likely to be such a large relative outperformance, Sprott says, "the fundamentals for the two metals are entirely different. There is huge industrial demand for silver, there's not much industrial demand for gold. It's interesting when you look at how many dollars of gold are produced in a year and what's available for saving, and how many ounces of silver are produced per year, and how many of those ounces are available for investment, the ratio is something like there are 10 times more gold available for investment in dollars every year, than there is silver. So if the guy is just as happy to own silver as gold, the fundamentals are going to diverge markedly here."

With the growing industrial uses for the metal in, among other areas, photovoltaic cells, and the medical field (for its antibacterial properties) on top of the growing investment demand, higher prices could result in some substitution but, according to Sprott this is not really a concern as the dollar value of the silver is almost immaterial to the total cost of the product.

Any clouds to the silver lining?

Asked if there are any potential hiccoughs to the run for silver that he is predicting, Sprott says that while there are a few things that would cause him to change his mind, he does not really see any of them coming to pass any time soon

The first cloud, according to Sprott would be fiscal and monetary responsibility by governments and central banks but, he says, this is certainly not evident at present and would go so far as to say, " ever since we had QE1, the reason to own gold and silver has just changed materially here because of the irresponsibility of the central banks in the world

The other potential hiccough, he says would be some kind of massive mania type blow off, " you have to take your best guesses when something like that might end - I don't see it as being anywhere near that stage at this point."

And, finally he says, "The other thing that would have an impact is if, ultimately, gold and silver in fact are named reserve currencies - then we will all have accomplished what we're after and you may or may not need it neat because it's now money."

Where to from here?

According to Sprott Silver will move to $50 dollars this year before powering ahead, "If you ask me in the three to five year time frame, obviously I think it's going to go north of $100 simply because we'll get that 16:1 ratio and I certainly see gold going a lot higher, so that's my outlook here and therefore the rewards for owning silver and the equities will be quite outstanding."

Quote of the Week                               

“By this means (fractional reserve banking) government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft.”

--John Maynard Keynes
The Economic Consequences of the Peace (1920

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3 Reasons Silver Should Head Higher Than $50 Now

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U.S. Debt Ceiling Crisis Only A Minor Player in Gold And Silver Prices

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Gold Is The True Reserve Currency

 

We Are at the Cusp of a Global Move into Gold and Silver

Chris Weber

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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.

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