Saturday, April 30, 2011
Bill Fleckenstein, President of Fleckenstein Capital discusses the US dollar, inflation & silver with Eric King of King World News.....listen here
Central banks that were net sellers of gold a decade ago are buying the precious metal to reduce their reliance on the dollar as a reserve currency, signaling demand that may extend a record rally in prices.
As developing countries accelerate purchases, gold may reach $US2000 an ounce this year, compared with a record of $US1538.80 yesterday in New York, said Robert McEwen, the chief executive officer of producer US Gold Corp. Euro Pacific Capital’s Michael Pento, who correctly predicted gold’s highs for the past two years, forecast a 2011 high of $US1600.
Prices reached a record 14 times this month on demand from investors seeking an alternative to the dollar after the currency slumped to the lowest since 2009, US debt widened, and the Federal Reserve signaled April 27 that borrowing costs will remain near zero per cent for an extended period. The economy in China, the biggest foreign holder of US Treasuries, grew 9.7 per cent in the first quarter.
“China is out to have more gold than America, and Russia is aspiring to the same,” McEwen said yesterday in an interview in New York. “When you have debt, you don’t have a lot of flexibility. China wants to show its currency has more backing than the US.”
In 2010, central banks became net buyers for the first time in two decades, adding 87 metric tons in official-sector purchases by countries including Bolivia, Sri Lanka and Mauritius, according to World Gold Council data. China, with more than $US3 trillion in foreign-currency reserves, plans to set up new funds to invest in precious metals, Century Weekly reported this week. Russia purchased 8 tons of gold in the first quarter.
China’s gold reserves
China, which has just 1.6 per cent of its reserves in gold, may invest more than $US1 trillion in bullion, Pento said. “China wants to be an international player, and they need to own more gold than they currently have.......read on
From Comics Alliance:
Despite very literally being an alien immigrant, Superman has long been seen as a patriotic symbol of "truth, justice, and the American way," from his embrace of traditional American ideals to the iconic red and blue of his costume. What it means to stand for the "American way" is an increasingly complicated thing, however, both in the real world and in superhero comics, whose storylines have increasingly seemed to mirror current events and deal with moral and political complexities rather than simple black and white morality.
The key scene takes place in "The Incident," a short story in Action Comics #900 written by David S. Goyer with art by Miguel Sepulveda. In it, Superman consults with the President's national security advisor, who is incensed that Superman appeared in Tehran to non-violently support the protesters demonstrating against the Iranian regime, no doubt an analogue for the recent real-life protests in the Middle East. However, since Superman is viewed as an American icon in the DC Universe as well as our own, the Iranian government has construed his actions as the will of the American President, and indeed, an act of war.
Superman replies that it was foolish to think that his actions would not reflect politically on the American government, and that he therefore plans to renounce his American citizenship at the United Nations the next day, and to continue working as a superhero from a more global than national perspective. From a "realistic" standpoint it makes sense; it would indeed be impossible for a nigh-omnipotent being ideologically aligned with America to intercede against injustice beyond American borders without creating enormous political fallout for the U.S. government.
While this wouldn't be this first time a profoundly American comic book icon disassociated himself from his national identity -- remember when Captain America became Nomad? -- this could be a very significant turning point for Superman if its implications carry over into other storylines. Indeed, simply saying that "truth, justice and the American way [is] not enough anymore" is a pretty startling statement from the one man who has always represented those values the most.....read on
Gold has closed the week at $1565 as increasing numbers of US investors sort safe harbour in gold to protect themselves from an increasingly weak $.
Gold traded higher throughout the New York sessions and briefly touched an all time high of $1570 before settling back to $1565 at the close.
From the Sydney Morning Herald:
Erosion of faith in currencies, particularly the US dollar, is paying off nicely for Australia's gold miners, whose production has increased with the ever-rising gold price.
For a man carrying the title of ''Treasurer'', Peter Costello sure seemed comfortable getting rid of the treasure.
It was the winter of 1997, and the Reserve Bank of Australia had decided that a gold price around $450 an ounce was the ideal time to part with two-thirds of its bullion.
Conducted in secret over several months, the move spectacularly punctured both the gold price and confidence in the local mining industry.
As the gold mining sector cried treason, the fresh-faced treasurer stood firm behind the RBA's $2.4 billion decision.
''Gold no longer plays a significant role in the international financial system,'' Mr Costello was widely quoted as saying. ''One holds it for purposes of diversification.''
Fourteen years and a healthy dose of hindsight later, gold has more than tripled its value against the Australian dollar, and almost quintupled against the ailing US dollar.
The same stockpile would fetch about $7.6 billion if sold today, meaning we are more than $4 billion behind on the deal after accounting for inflation.
As the utterances of US Federal Reserve chairman Ben Bernanke helped propel gold to new heights this week, the metal that seemed to have lost its lustre in 1997 is fast reclaiming its standing as the world's currency of choice......read on
Said the joker to the thief,
"There's too much confusion,
I can't get no relief.
Businessman they drink my wine,
Plowman dig my earth
None will level on the line, nobody offered his word, hey"
"No reason to get excited,"
The thief, he kindly spoke
"There are many here among us
Who feel that life is but a joke
But you and I, we've been through that
And this is not our fate
So let us not talk falsely now, the hour is getting late"
Friday, April 29, 2011
Wealthy New York town installs network of 'Big Brother' cameras to background check every single car that drives through
A wealthy village is installing one of most extensive municipal surveillance systems in the United States in a controversial bid to crack down on crime.
Residents of King's Point in Long Island, New York are paying for 44 'Big Brother' style CCTV cameras to be installed covering its entire 3.3 square mile area.
On every single one of the 19 roads in and out of the village cameras will take pictures of passing vehicles, scan licence plates and check them against criminal databases.
When an offender or stolen car strays into King's Point an alert will be sent to the local police department.......read on
27 April 2011
What's up with silver? The question is what isn't up with it, the white metal having risen a Viagra-inspired 150 percent in less than a year. With silver roaring to within a whisker of its all-time high over the Easter weekend, the warning wolves have come out in packs. Yet for all the cries of "bubble" from the top-callers (who've been wrong since $25), silver well could run further before this current move's exhausted.
What the bubble brigade fails to realize is that silver is undergoing a normal parabolic response to years of a distorted supply-demand picture. This isn't a bubble, it's a coming-out party, silver announcing it's arrived. Enjoy the hors d'ouevres, as the party is only getting started. And while you're at it, throw out your "normal" chart analysis, from here to the top it's pure fundamentals. Has silver historically corrected once it's reached "X" level on some indicator? Never mind, just don't get in the way of the train.
What's going on with silver right now - something I'm surprised nobody seems to be talking about - is simply that it's having its own "golden moment." That is to say, silver is poised to beat its own all-time nominal high, just as gold did back in '08 when that metal was the one making the big upside move. In other words, Silver 2011 = Gold 2008. Let's now examine the implications this has for prices going forward.
As a student of fractals, I look for repeat patterns in markets, and this one's a real standout. As the above chart shows, once gold equaled its high of $850 (set in 1980) it didn't stop there - it went on to scrape the $1,000 level, an overshot of roughly 17 percent. Should the pattern maintain, this gives us an upside silver target between $56-$59 based on the all-time intraday $50 high.
From there, if the golden precedent holds, we'll at last have that correction they've been crowing about - a brutal 20 or 30 percent meltdown that will deliver to the newly-minted silver bulls what Mr. Jim Sinclair calls a "religious experience." Out will jump the bubble brigade, and once again financial TV will buzz with "I-told-you-so" top-callers and tulip-mania-talking trolls.
Then, the gold chart hints, silver will do what all bull markets do: frustrate both longs and shorts. As you can see, gold fairly flat lined once it made its initial post-$1000 drop, drifting until it finally bottomed near the end of '08. Those of you expecting another big buying-opportunity dip before the summer may end up disappointed - same goes for any bears looking for a further beat down. Rather than rising to new all-time highs, silver could switch to a rather dull range-trade mode, slowly leaking downward, wringing out all the excess optimism in preparation for the next launch. Unfortunately for the impatient, that's a process that's usually measured in months, not days.
A key to watch: the USDX, which is what this whole metals bull has really been about all along. A drop to as far as 70.75, and the whole picture changes, as the U.S. monetary authorities must finally intervene on behalf of their bonds and currency. That won't be precious-metals positive.
Disclaimer: the preceding is for academic purposes only, and should not be treated as trading advice. Trading and investing involves risk.
JOHN SOLTEZ is a trader and the author of the novel Only in America, the story of a young professional struggling to cope with life during a time of economic and social turbulence. You can check out this critically-praised book at www.amazon.com/dp/061533007X Reach John with comments at: email@example.com .
It appears economist Paul Krugman thinks the budget and the economy are not in that bad of shape because he thinks the dire warnings are overdone. In his latest Op-Ed piece this week, he said, "When I listen to current discussions of the federal budget, the message I hear sounds like this: We're in crisis! We must take drastic action immediately! And we must keep taxes low, if not actually cut them further! You have to wonder: If things are that serious, shouldn't we be raising taxes, not cutting them?" (Click here for the complete Op-Ed post from the New York Times.) Yes, that's right, Mr. Krugman wants to raise taxes just as inflation in food and gasoline are heating up. It is hard to understand why a Nobel Prize winner in economics wants to raise taxes in the middle of the worst economy since the Great Depression. He doesn't just want to raise taxes on the wealthy, but on the middle class as well. He goes on to say the plan he backs, ". . . also calls for a rise in the Social Security cap, significantly raising taxes on around 6 percent of workers. And, by rescinding many of the Bush tax cuts, not just those affecting top incomes, it would modestly raise taxes even on middle-income families. . . .And the proposal achieves this without dismantling the legacy of the New Deal, which gave us Social Security, and the Great Society, which gave us Medicare and Medicaid." So, in Krugman's eyes, we should continue going broke over the funding of Medicare and Medicaid?
Mr. Krugman also points out that taxes in the U.S., ". . . are much lower as a percentage of national income than taxes in most other wealthy nations." Who are those "other wealthy nations?" Japan, France, Spain, the UK? What Krugman conveniently leaves out is there is a sovereign debt crisis going on with many "wealthy" western countries. Many are broke and are in severe budget crisis because of their cradle to grave nanny states. Right now, the economy is in such bad shape that a record number of people require government handouts to survive. A USA Today article said yesterday, "A record 18.3% of the nation's total personal income was a payment from the government for Social Security, Medicare, food stamps, unemployment benefits and other programs in 2010. Wages accounted for the lowest share of income - 51.0% - since the government began keeping track in 1929." (Click here to read the complete USA Today article.) I don't see how we can be in a recovery if record numbers of people require government handouts. The last thing these people need are tax increases, on top of crushing inflation that will only get worse.
Inflation goes hand in hand with money printing, and America is printing dollars at an alarming pace. Recently on his website, Congressman Ron Paul said, "Even the most conservative budget that has been proposed by Republican leadership requires raising the debt ceiling by an additional $9 trillion by 2021. This demonstrates absolutely that no one in power right now has any real intention of addressing our spending problems or paying down the debt. They simply expect to continue to borrow and run up more debt forever, without limit. Yet they always imagine our dollar will have value no matter how many we print. This expectation is foolish and naïve. I guarantee that those buying our debt are not foolish and naïve enough to go along with this charade forever." (Click here for the complete Ron Paul post.)
Other countries are not happy with the money printing by the U.S. which is currently the world's reserve currency. BRIC countries (Brazil, Russia, India and China) held a summit recently, and according to financial writer JR Nyquist, the BRIC countries would like nothing better than to crush the U.S. dollar and change the balance of power. Nyquist writes, "The sequence of unraveling is easy to follow. If you dump U.S. Treasuries, how will the U.S. dollar remain the global reserve currency? In that event, how will the United States finance its deficit spending? Interest rates would skyrocket, with predictable consequences." (Click here for the complete Nyquist post.) The U.S. would be forced to print even more money to finance its debt, and the dollar would hyper-inflate. This is not some farfetched scenario, but a definite possibility. Nyquist goes on to say, "The BRIC summit testifies to the desire of Russia and China to undermine the dollar. However crazy you think such a scheme, they are nonetheless pursuing it. You might say it makes no sense, but you are not a "former" KGB officer or a member of the Chinese Communist Party. Do you really imagine that KGB officers and Communists are bourgeois, like you? No, they are not. They are the declared enemies of the bourgeoisie."
The U.S. is in a very serious economic and budget quagmire with no easy road out. The Paul Krugmans of the world would like you to think that everything is okay with the economy - go back to sleep. But if you do that, you will surely wake up in a nightmare.
Greg is the producer and creator of Greg Hunter’s USAWatchdog.com. The site’s slogan is "analyzing the news to give you a clear picture of what’s really going on." The site will keep an eye on the government, your financial interests and cut through the media spin.
Greg Hunter’s USAWatchdog.com is neither Democrat nor Republican, Liberal or Conservative. Before creating and producing the site, Greg spent nearly 9 years as a network and investigative correspondent. He worked for ABC News and Good Morning America for nearly 6 years. Most recently, Greg worked for CNN for shows such as Paula Zahn Now, American Morning and various CNN business shows.
Greg is a hard hitting reporter who has a history of getting to the truth no matter how difficult the subject. Some of his stories include "Dangerous Deadly Depleted Uranium Munitions," where Hunter uncovered the Army’s failure to warn our troops of their exposure to radioactive dust on the battlefield.
In a story called "Produce the Note", Hunter uncovered in 40 percent of foreclosures the bankers cannot prove they legally own the property. If an embattled homeowner knows that fact, it could mean the difference between being thrown out in the cold and having a roof over his head.
And in a report in March of 2008, Hunter exposed the hidden fact the banks were in trouble and the economy was headed for a fall. Greg warned viewers of the coming problems long before other reporters picked up on the looming financial catastrophe. In 2009, many in the mainstream media said things such as "no one saw the crisis coming."
Hunter joined ABC News in 1999 from WTSP-TV in Tampa. He has earned a "National Headliner Award," an International "Freddie Award" for health and medical reporting, as well as investigative reporting awards from both the "Society of Professional Journalists" and the "Radio Television News Directors Association."
Having just written a commentary explaining why gold and/or silver "mania" is much more of an imminent event in Asia than in the West, when I saw silver leap more than $2/oz in early, Asian trading on Monday that definitely got my attention.
Silver was then unceremoniously slammed back down by about $3/oz - once Western markets opened and the predatory bullion-bankers went to work. The $2+ move higher was very close to being (in absolute terms) the largest upward move in this entire bull market, to date - likewise the $3+ move lower. It would only be natural for shell-shocked investors to ask themselves "what is the real price of silver?"
Before I get into that topic, I just want to spend a moment to discuss the "surprising" reversal in the silver market today. Obviously the pattern of bullion prices starting strongly (in Asian trading) and then "suddenly plunging" when Western markets open is as blatant as it is absurd.
The simple fact that bullion prices have moved relentlessly higher over more than a decade, while Western bankers have been consistently selling them lower, day after day, week after week, month after month can only lead to one of two conclusions: either Western bankers are grossly incompetent (and never learn from their mistakes); or they have been relentlessly manipulating gold and silver prices lower. On second thought, it is certainly possible that both conclusions are correct.
In this particular instance, the desperation of the bankers to push gold and silver lower is especially rabid. The bankers are absolutely determined to preserve the myth there are still 'seasons' in the precious metals sector (a topic I intend to explore in the near future) - and we are now (supposedly) entering the "off season".
Seeing bullion prices surging higher at this time of year has them terrified, and has already resulted in the most massive shorting frenzy with the gold and silver miners since the Crash of '08. The shorting of the miners has been all the more frantic given that the bankers have clearly failed to control surging bullion prices. This has resulted in a radical disconnect in the prices of the miners versus the price of bullion, or (put another way) the miners are now as cheap as they have been in close to two years. Obviously both bullion and the miners are heading much, much higher in the future, so it remains to be seen whether these "shorts" can manage a profitable exit from the miners - or simply a reenactment of "Custer's Last Stand". But I digress.
With there being "two prices" for gold and silver, the Eastern price and the Western price, confused investors/traders will be wondering which price is a valid reflection of the market. In fact, with the silver market being the most excessively manipulated market in the history of commodities, neither price is "valid" with respect to the true, fundamental value of silver.
Much has been written on this topic (including several of my own commentaries), so I don't have nearly enough space to devote to why (even at close to $50/oz) silver remains grossly undervalued. Let it suffice to say that with there being less refined silver in the world today (relative to gold) than at any time in thousands of years, the price ratio of silver to gold is certain to descend to well below its long-term average of 15:1 - very likely lower than 10:1. If we were to assume that gold is "fairly priced" today, rather than still being seriously undervalued, this would put the present value of silver today at a minimum of $150/oz.
However, another simple way of illustrating the fraudulent "official" price(s) of silver is to point to the third price - it's unofficial price in the large "cash settlements" which are now apparently taking place each month in the apex of silver-fraud: the COMEX exchange.
Knowing that the huge "shorts" in this market (the bullion banks) are literally nothing more than "paper tigers", with not nearly enough metal to back their massive (and illegal) bets, large traders are now engaged in a very fun and profitable game. While most of these traders have, themselves always focused exclusively on trading paper-bullion - rarely if ever taking possession of the "physical" metal - now many/most of them are demanding "delivery" each month with their COMEX contracts.
These traders do this knowing that there isn't nearly enough silver in COMEX warehouses to satisfy these binding, legal contracts for the delivery of silver. In other words, Western bullion markets are already in "technical default" - an unheard-of situation for a major commodities market. To prevent this technical default from becoming an actual default, every month the bullion banks are forced to buy-off these traders with large cash-settlement bribes. The bankers "deliver" only paper to the traders rather than silver, and to get these traders to accept this, the bankers add a large premium - estimated to be as much as 25% (or more) of the official "spot" price.
This game has also apparently been taking place in the London gold market even before it started occurring in New York. The big difference is that (theoretically, at least) the charade in the gold market could go on and on indefinitely - while the silver market must "implode", and likely sooner rather than later.
The big difference between the two markets is the massive "industrial demand" for silver, which (ironically) was created by the bankers. Decades of manipulating the price of silver to only a tiny fraction of its real worth has (naturally) over-stimulated demand. Unlike the paper-traders, industrial users of silver would never accept these cash bribes, since you can't manufacture any of the countless products which now use/contain silver with Bernanke-bills.
Thus while both the gold and silver markets could "detonate", due to the radical imbalance between supply and demand (and between their present prices and their real value), only the silver market has a lit fuse - and a short fuse, at that.
Understanding these dynamics, I hear many knowledgeable silver investors expressing frustration with the phony, official prices - and the secret unofficial price being paid to large traders. This attitude surprises me, since not one of these individuals wants to sell any of their silver today. They are simply annoyed that the "sticker price" on the silver they are already holding isn't higher. Given that many of these investors are still accumulating silver, their attitude is irrational, if not childish.
What does it really mean when the "official price" of silver is well below its unofficial (but much more realistic) price? It means that this precious commodity, which has not been this scarce in hundreds of years is on sale - and ordinary investors can buy it at a discount.
Keep in mind that in this permanent era of high demand and inadequate supply that buyers of physical bullion frequently complain about the high "premiums" which we must pay to buy our silver from dealers. Given the reality of these cash settlements (and assuming the rumors about the size of these bribes are reasonably accurate), this means that even with these premiums ordinary buyers are still able to buy their physical bullion below the actual, current price.
As I continue to remind readers in replies to their comments and mail, the bankers now work for us (although for those of us who also hold shares in the miners, it may not seem like that at the moment!). I say that if the bankers want to make it possible for me to buy my silver below the actual, current price, then who am I to argue?
Indeed, if not for this cash-settlement charade delaying the inevitable implosion of this market, we would have already seen the price of silver skyrocket to a level where few of us would want to purchase it. Such an event would very likely precipitate the investor mania in this sector I wrote about - prematurely - and as I warned previously, this is not a desirable scenario, even for the holders of precious metals.
Consider the insanity of the world we live in. The bankers who are terrified that gold and silver will rise to their true, fundamental values (many multiples of current prices) continually push the price lower (rather than merely seeking to keep them stable). This radically over-stimulates demand, leading to much more buying and (over the longer term) much higher prices than if the bankers had not manipulated prices in such a rabid and predatory manner in the first place.
Meanwhile, gold and silver investors - who are still only wanting to accumulate bullion, and have no desire to sell any of it - are complaining that gold and silver remain too affordable. As I frequently point out to people in chats on our forum, few emotions short-circuit our capacity to act (and think) rationally as much as greed, and the attitudes in the bullion market (on both sides) illustrate this principle vividly.
"Be careful what you wish for - as you just might get it," goes the old adage. Never were those words more applicable than with respect to the precious metals market today. Precious metals investors (most of whom still know they need to accumulate more bullion) are "wishing" for prices which more accurately reflect the value of their asset - while if they get their wish, all that it really means is that they will never be able to buy any more of this good at a discount.
Celebrate the fact that our most-scarce commodity remains affordable to us, even while it appreciates faster than any other asset class. Silver investors who are not satisfied with this current reality can only be characterized as "greedy". It is a character flaw which invites self-destructive behavior, and thus we must rid ourselves of any/all such thinking.
Regular readers know how partial I am to the aphorisms of wisdom which have enriched our minds and our cultures, and so I will end this piece with one more of those pearls: "good things come to those who wait." If we replace the vice of greed with the virtue of patience we will be doubly rewarded: not only will our self-improvement inevitably be reflected in a superior return on our investments, but we obtain the added "dividend" of greater peace of mind.
At the heart of that system is the Vatican's own bank, the Institute of Religious Works (IOR).
Filmmakers Alessandro Righi and Emanuele Piano have been examining this latest chapter in the history of a notoriously secretive organisation.
NATO said its warplanes attacked combat vehicles near the besieged Libyan port city of Misrata yesterday, following reports that one of its strikes killed rebel fighters battling Muammar Qaddafi’s forces in the area.
The North Atlantic Treaty Organization can’t confirm the strike yesterday 10 miles (16 kilometers) southeast of the port hit rebels, an alliance official said. Twelve rebels were killed in a strike carried out as part of the alliance’s air campaign, the Associated Press reported, citing a doctor in the city.
NATO “deeply regrets” any loss of life, said the official by telephone from Brussels who declined to be identified in accordance with alliance policy. A deadly strike on rebel forces would be the third of its kind since the campaign began......read on
Above is the static map based on real time tabulations of the Norwegian Institute of Air Research pertaining to potential releases of radiation from the Fukushima plant.
For the dynamic version of this map, regional dynamic maps as well as technical information click below. Japan and North America static maps are indicated below
~ There is a lot to be said for living in the Southern Hemisphere
For some foreign policy watchers, it's not as though America doesn't have the money. It's the world's biggest military spender and, as analysts tell RT, other nations are being much wiser with their cash.
Thursday, April 28, 2011
- The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.
Ms. USA 2003 Susie Castillo is a frequent flyer, but rethinks her travel plans after a recent incident at Dallas airport. Castillo, an actress, says that she was sexually harassed by TSA employees while flying out of the Washington DC-area hub. In this video she explains how she opted out of a body scan machine and, as a result, was humiliated and hassled by a government employee. Has it come to choosing between a dangerous machine or molestation? Castillo discusses her encounter moments later here.
$1 million Aussie (AUD) worth of gold weighs ~ 22kg in 1kg bar form, or in coins a bit over 21kg, approx. 680 gold kangaroo 1oz 9999 gold coins.
In silver a $1 million weighs 680kg in 1kg bar form or approx 18,200 1oz 999 silver kookaburra coins!
In other words you can put a $1 mil AUD in gold in a briefcase and still pick it up. A $1 mil in silver still requires a Chep pallet and a forklift. The day you can put $1 mil in silver in your briefcase and pick it up easily might be the time to consider taking some profits, but before then keep on stacking.
Gold has just hit an new all time high price in US$ of $1524 on the back of a long expected crash in the US$. USD is trading at 73.47 on the USD index, a multi year low.
Wednesday, April 27, 2011
Japan’s sovereign-rating outlook was cut to “negative” by Standard & Poor’s as the nation’s reconstruction needs following last month’s earthquake will likely add to what’s already the world’s biggest debt load.
The outlook on Japan’s local-currency debt rating, at AA-, the fourth-highest grade, was lowered from “stable,” S&P said in a statement today. The company had reduced the rating by one step in January in the first cut since 2002. Moody’s Investors Service said last month the disaster may bring forward the “tipping point” for the country’s bond market.....read on
The price of silver has been absolutely exploding lately. It has reached heights not seen since the Hunt Brothers attempted to corner the silver market over three decades ago. But this time there are no Hunt Brothers to blame for the stunning rise in the price of silver. So exactly why are investors buying silver as if there is no tomorrow right now? Well, the truth is that there are a lot of reasons. Investors have been flocking to precious metals such as gold and silver as the value of paper currencies has declined. The euro is incredibly weak right now and the U.S. dollar appears to be on the verge of a major collapse. In fact, the entire financial system is highly unstable right now. In such an environment, investors seek some place safe to park their money, and right now gold and silver are seen as safe harbors. But gold and silver have not been going up in price at the same pace. So why is silver outperforming gold so significantly?
The price of silver has increased by more than 150% over the past 12 months. But the price of gold has only gone up about 30%.
If you invested $100 in the S&P 500 ten years ago it would be worth about$107.48 today.
If you invested $100 in gold ten years ago it would be worth about $569 today.
If you invested $100 in silver ten years ago it would be worth about $1037today.
Clearly something is going on with silver.
Many people are convinced that this is part of a correction that is long overdue. Geologists tell us that there is approximately 17.5 times as much silver in the crust of the earth as there is gold. But today the price of an ounce of gold is about 30 times higher than the price of an ounce of silver.
That would seem to indicate that the price of silver still has a lot of room to grow relative to the price of gold.
In addition, silver is a key industrial commodity and it is constantly being used up. Today, silver is used in a vast array of products and medicines. The following is an excerpt from an official U.S. government report that describes just some of the ways silver is used in society today....
Silver's traditional use categories include coins and medals, industrial applications, jewelry and silverware, and photography. The physical properties of silver include ductility, electrical conductivity, malleability, and reflectivity. The demand for silver in industrial applications continues to increase and includes use of silver in bandages for wound care, batteries, brazing and soldering, in catalytic converters in automobiles, in cell phone covers to reduce the spread of bacteria, in clothing to minimize odor, electronics and circuit boards, electroplating, hardening bearings, inks, mirrors, solar cells, water purification, and wood treatment to resist mold. Silver was used for miniature antennas in Radio Frequency Identification Devices (RFIDs) that were used in casino chips, freeway toll transponders, gasoline speed purchase devices, passports, and on packages to keep track of inventory shipments. Mercury and silver, the main components of dental amalgam, are biocides and their use in amalgam inhibits recurrent decay.
Estimates vary, but many experts are now projecting that at current consumption rates we will run out of silver at some point during this century.
On the other hand, we are not facing a similar problem with gold. Gold, because it has traditionally been so expensive, is not used in many products at all. The total amount of gold on earth just continues to increase each year.
Silver is also considered to be a lot more accessible for smaller investors. Not many average Americans can afford to do much investing in gold because it is so expensive. But just about anyone can afford a few ounces of silver.
As investors around the globe have watched the Federal Reserve create endless amounts of money and as they have watched the U.S. government borrow endless amounts of money the hunger for precious metals has grown.
The following is what John Browne had to say about the current situation in a recent commentary....
Today, with the Federal Reserve treating the greenback as a never ending lottery ticket for deficit spending politicians, many investors feel the U.S. dollar is good for nothing. As a result there is an increasing international pressure to remove the U.S. dollar's reserve status. Given that there is no widely accepted alternative to the dollar (the euro has many problems of its own), this is creating fears of an international currency crisis, which has fueled interest in precious metals.
As the U.S. dollar and other paper currencies continue to decline, the demand for precious metals such as gold and silver is only going to increase.
Most investors are not stupid. They know that the European debt crisis is approaching a meltdown. They know that U.S. government debt is not sustainable. They know that all of the paper currencies around the world that are backed by nothing will continue to decline in value just like they always have. All of the major central banks have been recklessly printing money. In such an environment it only makes sense to put your wealth into hard assets.
But there is another layer to all of this. Many now view investing in precious metals as a way to rebel against the Federal Reserve and other central banks. All over the globe people are waking up to how unjust the banking system is. Since central banks such as the Federal Reserve are almost completely unaccountable politically, many individuals have sought other ways to protest the system. Getting out of “Federal Reserve Notes” and into precious metals is one small way to do that.
In any event, what is clear is that the price of silver is likely to continue to go up over the long-term. Silver is used in thousands of products and we are slowly running out of it. Meanwhile, the central banks of the world are absolutely flooding the globe with paper currency. What all of that adds up to is a much higher price for silver.
The amount of foreign exchange reserves should be restricted to between 800 billion to 1.3 trillion U.S. dollars, Tang told a forum in Beijing, saying that the current reserve amount is too high.
China's foreign exchange reserves increased by 197.4 billion U.S. dollars in the first three months of this year to 3.04 trillion U.S. dollars by the end of March.
Tang's remarks echoed the stance of Zhou Xiaochuan, governor of China's central bank, who said on Monday that China's foreign exchange reserves "exceed our reasonable requirement" and that the government should upgrade and diversify its foreign exchange management using the excessive reserves.
Meanwhile, Xia Bin, a member of the monetary policy committee of the central bank, said on Tuesday that 1 trillion U.S. dollars would be sufficient. He added that China should invest its foreign exchange reserves more strategically, using them to acquire resources and technology needed for the real economy.
Tang also said that China should further diversify its foreign exchange holdings. He suggested five channels for using the reserves, including replenishing state-owned capital in key sectors and enterprises, purchasing strategic resources, expanding overseas investment, issuing foreign bonds and improving national welfare in areas like education and health.
In these times of endless currency debasement, just as at the end of the Roman empire, the only long term strategy is to go long silver, farmland and chooks; and go short bonds, stocks and political promises.
From the Silverfuturist:
This week Max Keiser and co-host, Stacy Herbert, report on the world fleeing the dollar flood and the dollar fraud and about Jamie Dimons worst nightmare. In the second half of the show, Max talks to Matt Taibbi about the real housewives of Wall Street.
Tuesday, April 26, 2011
.......Speaking of silver, recently the feds tried and convicted an eccentric engraver and silverbug named Bernard von Nuthaus of counterfeiting his own version of the US dollar. STR readers may remember Bernard from my earlier column about the Liberty Dollar. In 2007 I met the man personally and paid $10 for some of his silver coins now valued at $40-50. Meanwhile, in four short years the US paper dollar has lost a sizable chunk of its purchasing power while the alleged counterfeit coins have appreciated by a factor of four or more. The US Attorney in the case, Anne Tompkins, perhaps with an eye towards her future as a US presidential candidate, said: "While these forms of anti-government activities do not involve violence, they are every bit as insidious and represent a clear and present danger to the economic stability of this country....Attempts to undermine the legitimate currency of this country are simply a unique form of domestic terrorism.” Poor Anne Tompkins appears to know little of the US Constitution, that "No State shall ... coin Money; ... make any Thing but gold and silver Coin a Tender in Payment of Debts." Otherwise Anne can hardly sit in judgment of others for having the audacity of making coins of gold and silver while a PRIVATE construct called the Federal Reserve, which is neither Federal nor does it reserve, passes off fiat currency as highly valuable while printing millions more each day......read in full
The silver roller coaster has definitely taken us a on a exiting ride over the Easter break. From around $45 leading into Easter to climb to almost $50 in exclusively Asian market trading and then over the top and plunging back to where we started when Western markets opened today. I hope all my readers held on tight and were not thrown from the car. $5 up and down moves have not been seen since Jan 1980. When this bull market in Silver started in early 2001 most 24 hrs periods saw less than a 10c move and the ounce price was only $4. We have come a long way in 10 years, and yet we have so far to go. Expect more days like this as the market moves forward, increasingly they will become so common that they will be the "new normal" just as a 10c move was in 2001.
"Fasten your seat belts. It's going to be a bumpy night"
~ Margo Channing (Bette Davis)
From RussiaToday on Apr 25, 2011As world marks the Chernobyl anniversary, many say that the world has failed to learn the lessons on nuclear safety that the tragedy provided. RT talks to Professor Christopher Busby, Scientific secretary of the European Committee on radiation risks, for a little more insight on 21st century's most serious nuclear crisis at Fukushima.
Monday, April 25, 2011
Just found this amazing 650yr silver price chart with silver priced in 1998 dollars. High point for silver was in 1477 at $806/oz in 1998 equiv. $, adjusting for inflation into 2010 dollars the 650yr high point was $1150/oz.....and yet some will come out this week and say we are in a bubble at $50/oz!. ...and in 1477 there was more available above ground silver than there is now and there was no industrial uses beyond cutlery and storage jars.
A meme is now circulating that gold is in a bubble and that it's time for the wise investor to sell. To me, that’s a ridiculous notion. Certainly a premature one.
It pays to remain as objective as you can be when analyzing any investment. People have a tendency to fall in love with an asset class, usually because it’s treated them so well. We saw that happen, most recently, with Internet stocks in the late ‘90s and houses up to 2007. Investment bubbles are driven primarily by emotion, although there's always some rationale for the emotion to latch on to. Perversely, when it comes to investing, reason is recruited mainly to provide cover for passion and preconception.
In the same way, people tend to hate certain investments unreasonably, usually at the bottom of a bear market, after they've lost a lot of money and thinking about the asset means reliving the pain and loss. Love-and-hate cycles occur for all investment classes.
But there’s only one investment I can think of that many people either love or hate reflexively, almost without regard to market performance: gold. And, to a lesser degree, silver. It’s strange that these two metals provoke such powerful psychological reactions – especially among people who dislike them. Nobody has an instinctive hatred of iron, copper, aluminum or cobalt. The reason, of course, is that the main use of gold has always been as money. And people have strong feelings about money. Let’s spend a moment looking at how gold’s fundamentals fit in with the psychology of the current market.
What Gold Is – and Why It’s Hated
Let me first disclose that I’ve always been favorably inclined toward gold, simply because I think money is a good thing. Not everyone feels that way, however. Some, with a Platonic view, think that money and commercial activity in general are degrading and beneath the “better” sort of people – although they’re a little hazy about how mankind rose above the level of living hand-to-mouth, grubbing for roots and berries. Some think it’s “the root of all evil,” a view that reflects a certain attitude toward the material world in general. Some (who have actually read St. Paul) think it’s just the love of money that’s the root of all evil. Some others see the utility of money but think it should be controlled somehow – as if only the proper authorities knew how to manage the dangerous substance.
From an economic viewpoint, however, money is just a medium of exchange and a store of value. Efforts to turn it into a political football invariably are a sign of a hidden agenda or perhaps a psychological aberration. But, that said, money does have a moral as well as an economic significance. And it’s important to get that out in the open and have it understood. My view is that money is a high moral good. It represents all the good things you hope to have, do and provide in the future. In a manner of speaking, it’s distilled life. That’s why it’s important to have a sound money, one that isn’t subject to political manipulation.
Over the centuries many things have been used as money, prominently including cows, salt and seashells. Aristotle thought about this in the 4th century BCE and arrived at the five characteristics of a good money:
- It should be durable (which is why, say, wheat isn’t a good money – it rots).
- It should be divisible (which is why artwork isn’t a good money – you can’t cut up the Mona Lisa for change).
- It should be convenient (which is why lead isn’t a good money – it just takes too much to be of value).
- It should be consistent (which is one reason why land can’t be money – each piece is different).
- And it should have value in itself (which is why paper money leads to trouble).
Of the 92 naturally occurring elements, gold (secondarily silver) has proved the best money. It’s not magic or superstition, any more than it is for iron to be best for building bridges and aluminum for building airplanes.
Of course we do use paper as money today, but only because it recently served as a receipt for actual money. Paper money (currency) historically has a half-life that depends on a number of factors. But it rarely lasts longer than the government that issues it. Gold is the best money because it doesn’t need to be “faith-based” or rely on a government.
There’s much more that can be said on this topic, and it’s important to grasp the essentials in order to understand the controversy about whether or not gold is in a bubble. But this isn’t the place for an extended explanation.
Keep these things in mind, though, as you listen to the current blather from talking heads about where gold is going. Most of them are just journalists, reporters that are parroting what they heard someone else say. And the “someone else” is usually a political apologist who works for a government. Or a hack economist who works for a bank, the IMF or a similar institution with an interest in the status quo of the last few generations. You should treat almost everything you hear about finance or economics in the popular media as no more than entertainment.
So let’s take some recent statements, assertions and opinions that have been promulgated in the media and analyze them. Many impress me as completely uninformed, even stupid. But since they’re floating around in the infosphere, I suppose they need to be addressed.
Misinformation and Disinformation
Gold is expensive.
This objection is worth considering – for any asset. In fact, it’s critical. We can determine the price of almost anything fairly easily today, but figuring out its value is as hard as it’s ever been. From the founding of the U.S. until 1933, the dollar was defined as 1/20th of an ounce of gold. From 1933 it was redefined as 1/35th of an ounce. After the 1971 dollar devaluation, the official price of the metal was raised to $42.22 – but that official number is meaningless, since nobody buys or sells the metal at that price. More importantly, people have gotten into the habit of giving the price of gold in dollars, rather than the value of the dollar in gold. But that’s another subject.
Here’s the crux of the argument. Before the creation of the Federal Reserve in 1913, a $20 bill was just a receipt for the deposit of one ounce of gold with the Treasury. The U.S. official money supply equated more or less with the amount of gold. Now, however, dollars are being created by the trillion, and nobody really knows how many more of them are going to be shazammed into existence.
It is hard to determine the value of anything when the inch marks on your yardstick keep drifting closer and closer together.
The smart money is long gone from gold.
This is an interesting assertion that I find based on nothing at all. Who really is the smart money? How do you really know that? And how do you know exactly what they own (except for, usually, many months after the fact) or what they plan on buying or selling? The fact is that very few billionaires (John Paulson perhaps best known of them) have declared a major position in the metal. Gold and gold stocks, as the following chart shows, are only a tiny proportion of the financial world’s assets, either absolutely or relative to where they've been in the past:
Gold is risky.
Risk is largely a function of price. And, as a general rule, the higher the price the higher the risk, simply because the supply is likely to go up and the demand to go down – leading to a lower price. So, yes, gold is riskier now, at $1,400, than it was at $700 or at $200. But even when it was at $35, there was a well-known financial commentator named Eliot Janeway (I always thought he was a fool and a blowhard) who was crowing that if the U.S. government didn’t support it at $35, it would fall to $8.
In any event, risk is relative. Stocks are very risky today. Bonds are ultra risky. Real estate is in an ongoing bear market. And the dollar is on its way to reaching its intrinsic value.
Yes, gold is risky at $1,400. But it is actually less risky than most alternatives.
Gold pays no interest.
This is kind of true. But only in the sense that a $100 bill pays no interest. You can get interest from anything that functions as money if it is lent out. Interest is the time premium of money. You will not get interest from either your $100 or from your gold unless you lend them to someone. But both the dollars and the gold will earn interest if you lend them out. The problem is that once you make a loan (even to a bank, in the form of a savings account), you may not even get your principal back, much less the interest.
Gold pays no dividends.
Of course it doesn’t. It also doesn't yield chocolate syrup. It’s a ridiculous objection, because only corporations pay dividends. It’s like expecting your Toyota in the driveway to pay a dividend, when only the corporation in Japan can do so. But if you want dividends related to gold, you can buy a successful gold mining stock.
Gold costs you insurance and storage.
This is arguably true. But it’s really a sophistic misdirection to which many people uncritically nod in agreement. You may very well want to insure and professionally store your gold. Just as you might your jewelry, your artwork and most valuable things you own. It’s even true of the share certificates for stocks you may own. It’s true of the assets in your mutual fund (where you pay for custody, plus a management fee).
You can avoid the cost of insurance and storage by burying gold in a safe place – something that’s not a practical option with most other valuable assets. But maybe you really don’t want to store and insure your gold, because the government may prove a greater threat than any common thief. And if you pay storage and insurance, they’ll definitely know how much you have and where it is.
Gold has no real use.
This assertion stems from a lack of knowledge of basic chemistry as well as economics. Yes, of course people have always liked gold for jewelry, and that’s a genuine use. It’s also good for dentistry and micro-circuitry. Owners of paper money, however, have found the stuff to be absolutely worthless hundreds of times in many score of countries.
In point of fact, gold is useful because it is the most malleable, the most ductile and the most corrosion resistant of all metals. That means it’s finding new uses literally every day. It’s also the second most conductive of heat and electricity, and the second most reflective (after silver). Gold is a hi-tech metal for these reasons. It can do things no other substance can and is part of the reason your computer works so well.
But all these reasons are strictly secondary, because gold’s main use has always been (and I’ll wager will be again) as money. Money is its highest and best use, and it’s an extremely important one.
The U.S. can, or will, sell its gold to pay its debt, depressing the market.
I find this assertion completely unrealistic. The U.S. government reports that it owns 265 million ounces of gold. Let’s say that’s worth about $400 billion right now. I’m afraid that’s chicken feed in today’s world. It’s only a quarter of this year’s federal deficit alone. It’s only half of one year’s trade deficit. It represents only about 5% of the dollars outside the U.S. The U.S. government may be the largest holder of gold in the world, but it owns less than 5% of the approximately 6 billion ounces above ground.
From the ‘60s until about 2000, most Western governments were selling gold from their treasuries, working on the belief it was a “barbarous relic.” Since then, governments in the advancing world – China, India, Russia and many other ex-socialist states – have been buying massive quantities.
Why? Because their main monetary asset is U.S. dollars, and they have come to realize those dollars are the unbacked liability of a bankrupt government. They’re becoming hot potatoes, Old Maid cards. But the dollars can be replaced with what? Sovereign wealth funds are using them to buy resources and industries, but those things aren’t money. And in the hands of bureaucrats, they’re guaranteed to be mismanaged. I expect a great deal of gold buying from governments around the world over the next few years. And it will be at much higher dollar prices.
High gold prices will bring on huge new production, which will depress its price.
This assertion shows a complete misunderstanding of the nature of the gold market. Gold production is now about 82.6 million ounces per year and has been trending slightly down for the last decade. That’s partly because at high prices miners tend to mine lower-grade ore. And partly because the world has been extensively explored, and most large, high-grade, easily exploited resources have already been put into production.
But new production is trivial relative to the 6 billion ounces now above ground, which only increases by about 1.3% annually. Gold isn’t consumed like wheat or even copper; its supply keeps slowly rising, like wealth in general. What really controls gold’s price is the desire of people to hold it, or hold other things – new production is a trivial influence.
That’s not to say things can’t change. The asteroids have lots of heavy metals, including gold; space exploration will make them available. Gigantic amounts of gold are dissolved in seawater and will perhaps someday be economically recoverable with biotech. It’s now possible to transmute metals, fulfilling the alchemists dream; perhaps someday this will be economic for gold. And nanotech may soon allow ultra-low-grade deposits of gold (and every other element) to be recovered profitably. But these things need not concern us as practical matters in the course of this bull market.
You should have only a small amount of gold, for insurance.
This argument is made by those who think gold is only going to be useful if civilization breaks down, when it could be an asset of last resort. In the meantime, they say, do something productive with your money…
This is poor speculative theory. The intelligent investor allocates his funds where it’s likely they’ll provide the best return, consistent with the risk, liquidity and volatility profile he wants to maintain. There are times when you should be greatly overweight in a single asset class – sometimes stocks, sometimes bonds, sometimes real estate, sometimes what-have-you. For the last 12 years, it’s been wise to be overweight in gold. You always want some gold, simply because it’s cash in the most basic form. But ten years from now, I suspect that will be a minimum. Right now it’s a maximum. The idea of keeping a constant, but insignificant, percentage in gold impresses me as poorly thought out.
Interest rates are at zero; gold will fall as they rise.
In principle, as interest rates rise, people tend to prefer holding currency deposits. So they tend to sell other assets, including gold, to own interest-earning cash. But there are other factors at work. What if the nominal interest rate is 20%, but the rate of currency depreciation is 40%? Then the real interest rate is minus 20%. This is more or less what happened in the late ‘70s, when both nominal rates and gold went up together. Right now governments all over the world are suppressing rates even while they’re greatly increasing the amount of money outstanding; this will eventually (read: soon) result in both much higher rates and a much higher general price level. At some point high real rates will be a factor in ending the gold bull market, but that time is many months or years in the future.
Gold sentiment is at an all-time high.
Although gold prices are at an all-time high in nominal terms, they are still nowhere near their highs in real terms, of about $2,500 (depending on how much credibility you give the government’s CPI numbers), reached in 1980. Gold sentiment is still quite subdued among the public; most of them barely know it even exists.
Some journalists like to point out that since there are a few (five, perhaps) gold dispensing machines in the world, including one in the U.S., that there’s a gold mania afoot. That’s ridiculous, although it shows a slowly awakening interest among people with assets.
Journalists also point to the numerous ads on late-night TV offering to buy old gold jewelry (generally at around a 50% discount from its metal value) as a sign of a gold bubble. But this is even more ridiculous, since the ads are inducing the unsophisticated, cash-strapped booboisie to sell the metal, not buy it.
You’ll know sentiment is at a high when major brokerage firms are hyping newly minted gold products, and Slime Magazine (if it still exists) has a cover showing a golden bull tearing apart the New York Stock Exchange. We’re a long way from that point.
Mining stocks are risky.
This is absolutely true. In general, mining is a horrible business. It requires gigantic fixed capital expense to build the mine, but only after numerous, expensive and unpredictable permitting issues are handled. Then the operation is immovable and subject to every political risk imaginable, not infrequently including nationalization. Add in continual and formidable technical issues of every description, compounded by unpredictable fluctuations in the price of the end product. Mining is a horrible business, and you’ll never find Graham-Dodd investors buying mining stocks.
All these problems (and many more that aren’t germane to this brief article), however, make them excellent speculative vehicles from time to time.
Mineral exploration stocks are very, very risky.
This is very, very true. There are thousands of little public companies, and some are just a couple steps up from a prospector wandering around with a mule. Others are fairly sophisticated, hi-tech operations. Exploration companies are often classed with mining companies, but they are actually very different animals. They aren’t so much running a business as engaging in a very expensive and long-odds treasure hunt.
That’s the bad news. The good news is that they are not only risky but extraordinarily volatile. The most you can lose is 100%, but the market cyclically goes up 10 to 1, with some stocks moving 1,000 to 1. That kind of volatility can be your best friend. Speculating in these issues, however, requires both expertise and a good sense of market timing. But they’re likely to be at the epicenter of the gold bubble when it arrives – even though few actually have any gold, except in their names.
Warren Buffett is a huge gold bear.
This is true, but irrelevant – entirely apart from suffering from the logical fallacy called “argument from authority.” But, nonetheless, when the world’s most successful investor speaks, it’s worth listening. Here's what Buffett recently said about gold in an interview with Ben Stein, another goldphobe: "You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what that's worth at current gold prices, you could buy all – not some, all – of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?"
I’ve long considered Buffett an idiot savant – a genius at buying stocks but at nothing else. His statement is quite accurate, but completely meaningless. The same could be said of the U.S. dollar money supply – or even of the world inventory of steel and copper. These things represent potential but are not businesses or productive assets in themselves. Buffett is certainly not stupid, but he’s a shameless and intellectually dishonest sophist. And although a great investor, he’s neither an economist or someone who believes in free markets.
Gold is a religious statement.
Actually, since most religions have an otherworldly orientation, they’re at least subtly (and often stridently) anti-gold. But it is true that some promoters of gold seem to have an Elmer Gantry-like style. That, however, can be said of True Believers in anything, whether or not the belief itself has merit. In point of fact, I think it’s more true to say goldphobes suffer from a kind of religious hysteria, fervently believing in collectivism in general and the state in particular, with no regard to counter-arguments. Someone who understands why gold is money and why it is currently a good speculative vehicle is hardly making a religious statement. More likely he’s taking a scientific approach to economics and thinking for himself.
So Where Are We?
So these are some of the more egregious arguments against gold that are being brought forward today. Most of them are propounded by knaves, fools or the uninformed.
My own view should be clear from the responses I’ve given above. But let me clarify it a bit further. Historically – actually just up until the decades after World War I, when world governments started issuing paper currency with no relation to gold – the metal was cash, and it was used as money everywhere, on a daily basis. I believe that will again be the case in the fairly near future.
The question is: At what price will that occur, relative to other things? It’s not just a question of picking a dollar price, because the relative value of many things – houses, food, commodities, labor – have been distorted by a very long period of currency inflation, increased taxation and very burdensome regulation that started at the beginning of the last depression. Especially with the fantastic leaps in technology now being made and breathtaking advances that will soon occur, it’s hard to be sure exactly how values will realign after the Greater Depression ends. And we can’t know the exact manner in which it will end. Especially when you factor in the rise of China and India.
A guess? I’ll say the equivalent of about $5,000 an ounce of today’s dollars. And I feel pretty good about that number, considering where we are in the current gold bull market. Classic bull markets have three stages. We’ve long since left the “Stealth” stage – when few people even remembered gold existed, and those who did mocked the idea of owning it. We’re about to leave the “Wall of Worry” stage, when people notice it and the bulls and bears battle back and forth. I’ll conjecture that within the next year we’ll enter the “Mania” stage – when everybody, including governments, is buying gold, out of greed and fear. But also out of prudence.
The policies of Bernanke and Obama – but also of almost every other central bank and government in the world – are not just wrong. These people are, perversely, doing just the opposite of what should be done to cure the problems that have built up over decades. One consequence of their actions will be to ignite numerous other bubbles in various markets and countries. I expect the biggest bubble will be in gold, and the wildest one in mining and exploration stocks.
When will I sell out of gold and gold stocks? Of course, they don’t ring a bell at either the top or the bottom of the market. But I expect to be a seller when there really is a bubble, a mania, in all things gold-related. There’s a good chance that will coincide to some degree with a real bottom in conventional stocks. I don’t know what level that might be on the DJIA, but I’d think its average dividend yield might then be in the 6 to 8% area.
The bottom line is that gold and its friends are no longer cheap, but they have a long way – in both time and price – to run. Until they're done, I suggest you be right and sit tight.