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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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Peacock Syndrome - America's Fatal Disease
Silver Bear Cafe

 

Gold And Silver: We Were Right - They Were Wrong

USA Watchdog

 

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
MineWeb

 

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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Bullion Blows Up Banksters ~ Jeff Nielsen
June 26 , 2011
Issue 92
Today's Gold/Silver Ratio: 43/1 Up

Issue 113

Gold: $1503.30/ Silver: $34.43

Bullion Blows Up Banksters

Jeff Nielsen

When precious metals commentators (including myself) talk about the pathological fear/hatred which bankers exhibit toward gold and silver, we typically focus on their aversion to higher bullion prices – as being the “canary in the coal mine” which warns us that banker money-printing has spun out of control.

There is, however, an even more fundamental antagonism which the paper-pushing “elites” feel toward precious metals: the simple act of holding bullion is effectively an involuntary “de-leveraging” of the endless $trillions in bankster Ponzi-schemes which have totally contaminated nearly all Western economies.

Readers should not confuse my title with the popular “take down JP Morgan” campaign spearheaded by a few so-called “silver vigilantes”. When I talk about bankers being “blown up” by bullion, this is an entirely passive process. First of all, our purchasing of bullion (as has been often explained) is a defensive move to “insure” our dwindling wealth against the currency-dilution inflicted upon us by the excessive money-printing of the bankers. Secondly, the “harm” caused to the bankers by bullion is indirect, and entirely a function of their own excessive behavior.

Let me quickly cover the first premise by once again reviewing the monetary abomination known as “fractional reserve banking”. In the typical, modern “fractional reserve system”, each time we deposit a (paper) dollar with a bank (or invest it), our eternally greedy bankers are allowed to effectively print-up ten more dollars, loan them out into the economy (or “invest” them) – and thus that $1 dollar suddenly becomes $11, with the other $10 dollars being a windfall created (literally) out of thin air, which has neither been “earned”, nor does it have anything at all “backing” its value.

This ten-to-one dilution of our currency – which is nothing less than (legal) systemic fraud – is precisely how the Federal Reserve has been able to reduce the value of the U.S. dollar by roughly 98% (over its 98-year existence). But even stealing at this rapacious rate was not enough to sate the greed of the 21st century Wall Street bankster.

They directed their spineless servants in Washington to change a vast number of rules (and eliminate even more “safeguards”) allowing these banksters to increase that (already obscene) 10:1 leverage to an utterly insane level of greater than 30:1 – which turned the entire U.S. financial system (and most of its debt and equity markets) into a collection of hopelessly unstable Ponzi-schemes. This leverage-insanity has culminated in the creation of the banksters’ private casino: the $1.5 quadrillion derivatives market – by itself more than twenty times bigger than the entire global economy.

Thus when a small minority of individuals engage in the “defensive” strategy of buying bullion, we are protecting ourselves in two ways. First of all, we are isolating our waning wealth in a form which the banksters cannot dilute/debauch with their money-printing. Secondly, we are accumulating this insurance against the inevitable financial collapse when the bankster Ponzi-schemes finally implode. There is, however, an indirect “virtuous circle” which is set in motion by the simple act of buying bullion, which (to the best of my knowledge) is not being discussed by other commentators – either in the mainstream media, or within this sector itself.

Let us back-up to the basic premise upon which fractional-reserve banking exists: we invest or deposit a dollar with a banker, and then they are legally allowed to dilute that dollar by anywhere from a factor of 10:1 or 30:1. However, each and every time that we take one of our dollars and invest it into precious metals, we are breaking that cycle of dilution (and currency-destruction).

As this purchasing of bullion increases, we thus began to weaken the cycle of serial currency-dilution, and effectively de-leverage our own financial systems. Note that this “involuntary de-leveraging” of Wall Street (in particular) has been made 100% necessary due to the complete failure of servile politicians and corrupt regulators to rein-in the 30:1 insanity of Wall Street. Indeed, after only a brief drop-off (when there were no “chumps” available to take their bets), all reports indicate that the Wall Street vampires are just as leveraged today as they were before they almost destroyed the global financial system the first time – except that this insane leverage is now concentrated in even fewer hands.

This means that as individuals accumulate bullion to personally insure and insulate their wealth from the fractional-reserve piracy of modern banking, that collectively our actions are insuring and insulating our entire economies against the inevitable economic carnage as the paper-bubbles collapse – including all of the worthless, fiat currencies themselves.

In fact, I only began to consciously explore this line of reasoning myself when I was admiring the brilliance of Hugo Salinas Price’s movement to re-institute silver money as a “parallel currency” in Mexico. Critics of this scheme have argued that most of the silver money being created would quickly disappear: people would spend their paper money, and hang onto their (higher quality) silver money.

My rebuttal to that has been that this is the beauty of Salinas Price’s proposal. Effectively, instead of Mexicans having paper “savings accounts”, where they give their pesos to bankers – and then suffer the economic rape of currency-dilution – Mexicans would have “silver savings accounts”, 100% immune to the monetary depravity of bankers. I then added to that by pointing out the cumulative effect of this: permanently reducing the percentage of our wealth which is under the control of bankers, and (simultaneously) permanently reducing our vulnerability (i.e. leverage) when these paper-pirates (yet again) destroy themselves (and our system) with their insatiable greed and reckless gambling.

The mainstream media have been programmed with their own rebuttal. They call such behavior “hoarding”. This is nothing less than a perversion of semantics. In fact, for more than 4,000 years most of humanity has held their “savings” in the form of gold or silver, and billions of people do so today, primarily in Asian economies.

What has been “savings” for 4,000 years does not become “hoarding” simply because the mainstream media chooses to be an accomplice of the banksters in helping them steal our money through their fractional-reserve Ponzi-schemes.

This supplies ordinary citizens with yet one more motivation to insure a large percentage of their wealth by converting it to (“physical”) gold or silver. Not only are we protecting ourselves individually, but collectively we are engaging in the “bank reform” which our cowardly and corrupt political leaders have failed to do.

This means that each and every time you hear some media talking-head parrot the words “hoarding silver”, you can immediately translate that to mean “insuring our financial system”. The fact that it will ultimately help to “blow up the banksters” (as a consequence of their own greed) is merely a fringe benefit.

 

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Silver, Gold & The End Of The World As We Know It

Bix Weir

 The U.S. Monetary System and Descent into Fascism
Dr. Edwin Vieira

 Is Gold About to Have Its Status Upgraded?

US Global Investor

 Announcement to Set off Gold Mania?

Emerging New Monetarism

JP Morgan Case
Heats Up

Madoff Trustee Triples JPMorgan Suit to $19 Billion

Madoff Aide Holds Key to Intrigue

 

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1 of 9
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The Final Fight ~ Silver Shield
May 7 , 2011
Issue 92
Today's Gold/Silver Ratio: 42/1 Up

Issue 107

Gold: $1500.70/ Silver: $35.85

SGS Notes: :Yes, silver took it on the chin this week. What we have seen in the dramatic price drop for silver and gold has been a carefully orchestrated manipulation of prices by some powerful folks in high places… If you have been following the SGS newsletter for very long, you would know that we've been reporting on this faithfully from the beginning. It's been going on for several years now… and with all the exposé going on by some honest and persistent men in the industry, the fire is heating up under this issue. So this week I am devoting the newsletter to the various commentaries from these people who have reported the truth about what's happening. There's a lot to 'feast on' this week.

This is NOT a normal 'market correction' as some would have us think…Remember that investing in physical silver and gold is not the same as paper … yet the dynamics in paper have a dramatic effect on physical. (Also noteworthy this week… huge difference in Gold:Silver ratio… last week was 32:1

Bear in mind, that all of manipulation forcing prices downward have long-term effects on this market beyond the prices… it creates a disincentive for mines to produce and refine silver… a disincentive for research & development on new sources for silver. Consequently, there is a very real shortage of phyical metals in the market…

And, again, the warning is issue repeatedly: Hold on for the Long Haul. This is NOT the time to SELL… it is the time to ACQUIRE.

Silver Shield: The Final Fight

This is the final fight of physical and paper silver, so hold the line and get ready to take it to the enemy. The Elite have literally thrown everything they have at the silver markets to try to make silver investors weak in the knees and cry uncle. Like a bully trying to take your lunch money by twisting your arm.

This can only end one of two ways; you give up and the banksters laugh or you stand up and say enough! These tactics may work on some paper traders who are literally forced by margin calls. For those who have listened to me, and bought only physical, this recent manipulation is only a subsidized discount to buy more, for less.

The CME has raised the margin requirements an unprecedented 5 times in less than 2 weeks to force higher and higher costs on paper traders to force them to sell. The higher the costs and the lower the price of the underlying asset is a toxic combination in the paper market.

I saw this happen in the 2008 rout, where they took it down 60% in a matter of months. It was the worst time to be a silver holder, but I knew the real story and held on when everything in the world said get out. I held on and even added to my position to then see a return of close to 500% in the next 2 years.

Read Entire Article Here


Collusion by Fed Officials and Commodity Exchange Heads Has Its Intended Effect
Trader Dan


I find it amazing how effectively these people can coordinate their policies with the heads of the commodity exchanges and their pals at the big banks who are perennial shorts in the markets and have now managed to pluck the money out of hundreds of thousands of commodity trading accounts enriching the big banks (government sponsored hedge funds) in the process. Nothing like a freely operating financial system where the playing field is completely level and no one has an advantage over the next guy!

By their continued hiking of silver margins, the exchange effectively removed the liquidity in the silver market that the smaller specs have been providing. That left the market vulnerable to severe drops in price as these specs exited due to financial constraints which then removed a source of potential bids under the market as the CFTC commitments report has shown the small specs to be good buyers in the silver market. Even the bigger hedge funds are impacted by such a sharp hike in margins as their losses in silver then precipitate even more losses across other assorted commodity markets due to the cascading effect of mounting paper losses and margin calls and the need to raise cash.


As the silver market tanked the exchange officials could then warn about Clearinghouse integrity and have more reasons to drive margins even higher as they point to the increased volatility, volatility which I might add, they created themselves by hiking margins to such an extreme degree.
Read Full Article Here

 

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A Few Notes...      

 

Some things we are seeing as the market demand is increasing…and things which have an impact on our customers…

  • Longer wait times for our inventory orders

  • Higher Premiums, especially for Silver Eagles

  • Product sell-out (from our suppliers)
Rest assured, however, that we are doing our utmost to get products out the door to YOU and will continue to provide you with the best service possible.

 


Honoring All Our Mothers…

 

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It Was All A COMEX Affair
Ed Steer

I Smell BS In The Silver Markets
Silver Shield

The End of OZ
Bix Weir

Where Did Silver Come From & Where Is It Going?


Julian Phillips

Real Reason for NATO Attack on Libya

Nixonomics at the New York Times
Gary North

Gold and Silver Storm The Fed


Darryl Robert Schoon

Gold and Silver To Explode Again


John Hathaway

Short Term Volatility but Silver will Zig Zag to $100
Paul Mladjenovic

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Interview With
Adrian Douglas
Part 1

Adrian Douglas is a Director of the Gold Anti-Trust Action Committee (GATA) and editor of the Market Force Analysis Letter
Part 2

Fractionals Are Back

 

 

We have brought back the silver fractional rounds…
½ oz, ¼ oz and now 1/10 oz
.999 Fine silver rounds are now available for purchase.

Does SGS
BUY BACK Silver?


We get inquiries about this all the time… Our answer is a qualified 'Yes'.
We are purchasing inventory replacement all the time. Consequently, timing is everything.

Customers have first priority over our vendors.
So, while we don't recommend selling at this time… we understand that circumstances sometimes dictate liquidation.

Don't hesitate to call and ask us if you need to liquidate some of your holdings.


 

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The Reason Silver Has Been Rising Faster Than Gold
April30 , 2011
Issue 92
Today's Gold/Silver Ratio: 32/1 (same)

Issue 106

Gold: $1513.50/ Silver: $46.86

SGS Notes: The crazy ride continued this week…the week began Monay with a sharp rise from $46.86 to$47.88, then Tuesday spike up into the high $49s… closely pressing the $50 threshhold…then back down by end of day to just over $45. By Wednesday night, the price was back to the mid $48 level, continuing strongly in that range until close of week Friday night. The ratio has remained constant at 32/1… but we've also seen Gold do a huge $58 spike this week. The dollar went to 73.2 in the wake of the S&P downgrading the US credit rating down to C - lower than Mexico… We've had several inquiries this week about whether silver is still a good buy at $50+… This week's newsletter will be addressing that…

Psst! Letting you in on a little 'secret'… if you watch our Facebook page for SGS, (see link at right) you will see a flurry of activity of postings on Fri/Sat … this is because we post a lot of articles and links that we come across while preparing for the Newsletter, but 'reject' for newsletter publication… lots more extra stuff there, folks!

The Reason Silver Has Been Rising Faster Than Gold
Analysis of the different advance which has occurred in the silver price vis-à-vis gold in the past few months where the former has substantially outperformed the latter.
Author: Julian Phillips, MineWeb

Silver is breaking new records at around $40 and gold is touching new highs of close to $1,460. Looking back, over the past few years we have seen gold rise from around $312 to $1,460 a rise of 4.68 times and silver from around $6 to $40 a rise of 6.67 times.

But this does not give a clear picture, so we went back over the last year and what did we see? Since early 2009, gold has moved from $900 to $1,460, a respectable 62%. Over the same period silver has moved from $10 to nearly $40 a remarkable 400%. Why the difference in relative performance?

Both metals have moved as money. Gold and silver Exchange Traded Funds have attracted massive investments in the developed world where trust in the monetary system is far higher than it is in the emerging world. But it was the underlying gold and silver that attracted investors. Waning confidence in the value of paper currencies gave way to demand for precious metals as a store of value retainers for investors.

Gold and silver have substantial differences as value retainers which help us to identify why the two metals have differed so much in performance.

Gold is and has always been the 'senior' monetary metal held by Central Banks as money until 1971 and after that as a valuable reserve asset in the vaults of central banks.
Silver was rejected as money and as a reserve asset by the mid-fifties, despite it being treated as money throughout the ages before that.

Both gold and silver have been attacked as money through 'official' sales from the seventies until last year. But gold was sold to undermine the reality that it is money. Silver was sold out from reserves almost completely by central banks discarding it as money, completely.

Apart from a brief period when Egypt was at its height and supplies of silver less than those of gold, gold has always been in far shorter supply than silver and considered far more valuable than silver.

Silver in the past few decades has been seen as a commodity, mined mainly as a by-product of base metal mining, with only 30% mined in a pure silver mine.

Most silver is consumed whereas gold is not, which will continue to be the case until less expensive substitutes are found. This will only happen at far higher prices still.

GOLD AS AN INVESTMENT

Gold has always been the precious metal of choice for wealthy individuals, institutions and central banks. It has never been abandoned as such. Even when "Official" selling was at its peak, central banks sold only what they thought was sufficient to add credibility to the paper currency they were pushing to the centre of the system, first to add credibility to the dollar then after 1999 to the euro. With those tasks completed, Central Banks are now either holders or buyers of gold.

The amount sold in most cases was around 20%, but in the case of the uninspired then-Chancellor Brown of the U.K.'s case, half of Britain's reserves were sold. The largest holders of gold sold none or only small amounts. So while it was underpriced and we believe still is, did not see its price 'crushed' completely.

The path back to investment acceptance is a slow one and a long one with most of the journey still to come. We believe that we are on the brink of major changes in price levels in 2011 and beyond.

SILVER AS AN INVESTMENT

Silver had not really been an investment metal until 2004 and not a significant one until 2009.

It was a commodity metal in so short a supply that the Hunt brothers of Texas felt they could corner the market. In 1979, they took the silver price from its high of $8 an ounce [it had doubled since it stood at $4 an ounce in the mid- 1970s' already] to $50 an ounce by the early 1980's. It then fell all the way back to $5 an ounce thereafter as the Hunt Brothers found they were unable to sell the silver until prices had fallen back to those levels where they stayed until October 2003. Until 2009, it was relegated to the sidelines as an investment metal.

It started to regain popularity as an investment metal because it began to be considered as "poor man's gold" as the gold price rose out of reach of the poorer investment classes.

For instance, in India until its middle classes began to grow substantially, 70% of all gold bought was bought by the agricultural sector, whose income was directly related to the quality of the monsoon rains. When profits were good, they found their way into property and into gold, As the price rose, the quantity of gold available to such people fell. Then $1,500 bought five ounces of gold, but with gold at $1,460, it only buys just over 1 ounce of gold.

In India, precious metals are used in commercial transactions so the divisibility of silver relative to gold was far greater and more flexible. It also remained affordable in larger quantities. After all, now one ounce of gold buys 36.5 ounces of silver. So, silver remains affordable far lower down the economic ladder than gold does. It therefore can attract a far wider market than gold does currently at retail levels. Bearing in mind that precious metals are attracting a huge and growing market in the emerging parts of the world, the demand, as a wealth protector, at the retail end of the market is expanding rapidly.

CATCH-UP

It would therefore be wrong to still categorize silver as a monetary metal. Its day will come, but not until its price is much higher and not until paper currencies have lost considerably more credibility than at present.

The most difficult part of silver's rise as a wealth protector has been from October 2004 to October 2008, from when its price moved from $5 an ounce to a peak of over $20 an ounce then to fall back to than less $10 an ounce before taking off on its current path. The fall coincided with the onset of the 'credit-crunch.

All the while, demand from the photographic sector has waned. More importantly, the uses of silver have morphed from discretionary demand to a need. Even in a downturn, the demand for silver will remain strong as its uses are considered vital now.

So as a non-monetary, more volatile precious metal, its future then was far cloudier than now. The transition from those days to 'poor man's gold was its re-birth as an investment metal. While we believe it has now returned as such to stay, it still has a lot of catching up to do. By catching up we mean that it still has to return to the concept fully, that it is a lower category investment metal respected from institutions [eventually by central banks] as well as the retail end of the market.

Gold is already at that point. This does not mean that the gold price has reached a ceiling of any kind. It does mean that the gold price will rise relative to the value of currencies from now on with its metallic qualities being far in the background. Silver is still a long way off from that point.

Julian Phillips is a long time specialist analyst for gold and silver and is the principal contributor to the Gold Forecaster - www.goldforecaster.com - and Silver Forecaster- www.silverforecaster.com - websites and newsletters

Quote of the Week                               

 

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Dollar Crashing

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Lew Rockwell


Don't Fear A Pullback in Prices
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Your Silver Pacifier
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No Sign of the Top for Silver
TradePlacer


Atlas Is Shrugging
Robert Tracinski

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A Few Notes...      

 

Some things we are seeing as the market demand is increasing…and things which have an impact on our customers…

  • Longer wait times for our inventory orders

  • Higher Premiums, especially for Silver Eagles

  • Product sell-out (from our suppliers)
Rest assured, however, that we are doing our utmost to get products out the door to YOU and will continue to provide you with the best service possible.
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
The Bullion Report - Your Money is No Good Here
April 22 , 2011
Issue 92
Today's Gold/Silver Ratio: 32/1

Issue 105

Gold: $1513.50/ Silver: $46.86

SGS Notes: Whew! This week was a wild ride. (Did you notice the big drop in the ratio again?) I'm going to share a lot of info in the newsletter this week. As usual, the experts and economic advisors have been prolific in their writing the past 2 weeks. The S&P downgrading of the US credit rating was a HUGE factor in the numbers we're seeing. So read what you can now, bear with me, and stash this away for digesting the rest of the information as you are able. Let the dust settle a little this weekend and celebrate the MOST momentous occasion in history.

Your Money's No Good Here
Richard Zimmerman, Berkshire Asset Management

Fear premium seems like an understatement following the Standard and Poor's downgraded outlook for US debt. Markets reacted in kind, with and the threat of losing a AAA rating brought another round of potential haven seekers to gold and silver. What is it about the rating that is so special, and why should this change anything?

Let's get one thing clear - there were a few stories that reported the US' credit rating was lowered from neutral to negative. The Ratings Service actually lowered their outlook for US debt. The reasoning? They lack confidence that Washington will get the federal deficit under control in the next two years or so. The long term outlook suggests that there is a roughly 30 percent likelihood that the US will lose its current investment rating. That rating was actually reaffirmed in yesterday's Standard and Poor's release, but with paragraph after paragraph of concerns over the future growth and expenses for this western superpower.

The AAA rating is endangered by what the Standard and Poor's views as "very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us" - exactly the kinds of things that have been moving more than a little investment in precious metals. Unlike the US dollar, I have often reiterated that gold and silver are difficult to manipulate with changes in policy. However, the key issue here is the cracks in the foundation.

Since the start of the global recession, it was not uncommon to hear that a country was in trouble on the credit front. Greece, Portugal, Spain, Ireland - there is no shortage of areas of potential weakness. The thing is - it seemed a lot less dire when it was somewhere else. The idea that the Euro zone would have a country or two with fiscal weakness is one thing, but an industrialized nation of this size? The US is practically the backbone of a global economy, and one of the largest single economies in the framework of the world.

Perhaps it is more unsettling because of the scope of foreign investment in the United States. As of February 2011, China held over $1 trillion in US treasuries. Japan had a cool $890 billion. The United Kingdom and other nations held more modest levels, around $200 billion or so, for a grand total of $4,474,300,000. (1) Of course, Japan's finance minister was quick to state that US treasuries remained attractive, despite the warning against the US. China was less magnanimous. Their foreign ministry urged policy makers in Washington to move to protect investors in their debt. Besides debt obligations, foreign governments are probably eyeing their ample US dollar reserves. While it is anyone's guess how much of China's foreign currency reserves are dollar denominated, it cannot be comfortable on any level to see the recent troubles in the US devalue the currency. Uncertainty in the future of the US and the overall perceived risk of default has as much of a chance to drive investors from the US dollar and into other assets.

The Treasury Department's projection is that the debt-ceiling is within reach, to be breached as early as May. Default could come as early as this summer.

Summary

The US is unlikely to see the kind of real growth that the situation requires to sort out its massive deficit. Right now, the economic crisis has pared growth, and playing an eternal shell game with the fiscal deficit doesn't seem close to over. The diminished outlook in a superpower like the United States is enough to rattle even the most stalwart investor's cage. That means the chance for more investor uncertainty, and that usually means fresh highs in precious metals. The threat from Standard and Poor's was a surprise to a lot of people. Everyone seems to be aware that things are not perfect, and that public finances are relatively tattered. The short term key will be how people feel this credit ruin stands up to global counterparts. If the US is viewed as the 'best of the worst' as it were, this initial gain in gold and silver will likely be met with some pressure. If all it does is create talking points ahead of re-election promises then people are less likely to assuaged, and that means a harder currency than a feeble buck.

1. http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt

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Yes, we like Ayn Rand, Atlas Shrugged… which, by the way is out in theaters…We saw it last week, Part 1. Check it out here: http://www.atlasshruggedpart1.com/
Just picked up a copy of the book at Costco to re-read.

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Silver Is Getting Too Popular, Right? by Jeff Clark
April 16 , 2011
Issue 92
Today's Gold/Silver Ratio: 34/1

Issue 104

Gold: $1487.10/ Silver: $43.12

SGS Notes: If you've been watching spot prices in Precious Metals the last 2 weeks you're probably holding on to your seat at the leaps being taken. 3 weeks ago, on 3/11 our newsletter reported the gold:silver ratio at 39:1 with gold at $1419.60 and silver at $35.90. This week the ratio has dropped to 34:1 with gold at $1487.10 and silver at $43.12. This represents a 20% increase for silver and a 4.7% increase for gold, which is in keeping with the fact that silver has outperformed gold historically, and the projections that it will continue to do so.

Jeff Christian says "Metals most likely to top out in 2nd quarter, correct into late summer before resuming another run"… We will surely see some correction in these prices on the short term, but for the long term, experts are agreeing that prices are projected to increase as currency is debased around the world and economic policies remain in place. Even at these prices, silver and gold are still a good hedge against inflation as well as having potential for solid dividends.

Silver Is Getting Too Popular, Right?
Jeff Clark, Daily Gold

04/15/11 Stowe, Vermont - It's no secret that the silver market is red hot. As I write, silver American Eagles and Canadian Maple Leafs are sold out at their respective mints. Buying in India has gone through the roof, especially noteworthy among a people with a strong historical preference for gold. Demand in China continues unabated. Silver stocks have screamed upward.

So, as an investor looking to maximize my profit, I have a natural question: is the silver trade getting too crowded, meaning we're near the top? Have the masses finally joined the party such that we should consider exiting? After all, it's not a profit until you take it, and you definitely want to sell near the top.

There are several ways to measure how crowded the silver market might be. I prefer to look strictly at the big picture and not get caught up in the weeds. This means I'm looking for signs of market exhaustion or the masses rushing in. Nothing says "peak" more than an investment everyone is buying.
So how crowded are silver investments right now? Let's first look at the ETFs.

At $35 silver, all exchange-traded funds backed by the metal amount to $20.7 billion. You can see how this compares to some popular stocks. All silver ETFs combined are less than a quarter of the market cap of McDonald's. They're about 10% of GE, a company that still hasn't recovered from the '08 meltdown. Exxon Mobil is more than 20 times bigger. And this isn't even apples-to-apples, as I'm comparing the entire silver ETF market to a few individual stocks.

This comparison is even more interesting when you consider that it's the ETFs where most of the public - especially those that are new to the market - first invest in silver. So while the metal has doubled in the past seven months, total investment in the funds is still far beneath many popular blue-chip stocks.

Okay, maybe all this money is instead going into silver mining stocks. How does the market cap of the silver industry compare to other industries?

While you fetch your magnifying glass, I'll tell you that the market cap of the silver industry is $73.1 billion. It barely registers when compared to a number of other industries I picked mostly at random. The dying newspaper industry is over 26 times bigger. Drug manufacturers are 213 times larger. Heck, even the gold market is 19 times greater. And here's the fun one: the market cap of the entire silver market, with all its record-setting prices and stock-screaming highs, represents just one-third of one percent of the oil and gas industry.

To be fair, there are a number of sectors that are smaller than silver. Radio broadcasters ($43.2B), video stores ($10.9B), and sporting goods stores ($2.5B) have puny market caps, too. But then again, who's buying DVDs or baseball mitts to protect their wealth from a coming inflation?

Silver hardly resembles the picture of an investment that is too crowded.

I'm not saying one should rush to buy silver right now. After all, it has doubled in seven months. Unless this is the beginning of the mania, prudence would certainly be called for at this juncture. The price will always ebb and flow in a bull market, and an ebb is overdue.

The question, of course, is from what price level it occurs. What if a correction doesn't ensue until, say, a month from now, and the price falls back to…where it is now? I remember some articles in January that insisted silver would fall to as low as $22, and, well, they're still waiting and have in the meantime missed out on some huge gains. For silver to fall back to $22 now would require almost a 50% drop!…Not impossible, but I wouldn't hold my breath.

Fixating on market timing takes your focus off the ultimate goal. In my opinion, instead of worrying about what will happen next week or even next month, focus on how many ounces you have, and then buy at regular intervals until you reach your desired allocation. This has the added benefit of smoothing out your cost basis. And don't forget to buy more as your assets and income increase.

This is a market where you'll want to be well ahead of the pack. Someday in the not-too-distant future, average investors will be tripping over themselves to join in. That will make the market caps of our silver investments look more like some of the others in the charts above. And that will do wonderful things to our portfolio.

See Related Article: The Tiny Silver Market - Jason Hommel
(3 parts)

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Instead of offering you one particular video this week, we are directing you to Bix Weir's page where several are listed.

Bix says, "I'm amazed by all the information that is coming into line with the Road to Roota Theory on Youtube and other forms of the "New Media". From all corners of the world events related to the "End Days" of the fiat monetary system are taking place and the "New Media" is the place to track down the TRUTH. From the end of the Oil Standard to the Silver Moonshot to the final preparations of implementing a true gold standard in the US...it is all happening NOW!"


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These Perth Kangaroo Bars (1 tr. Oz) are a good buy at only $48 over spot.
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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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