The Gold Digest

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2009-02-21T20:50:00.000-08:00

Close Call For US Banks

Merril Lynch: Rich turning to gold

Could It Happen Again?

Israeli Conflict Is Pro-Gold

2008-12-30T16:58:00.000-08:00

Four Reasons for an Immediate Rise in Gold

Gold hit $884 as this post was written early on Monday 29th December, the day that Indian astrologers have down for a stock market crash. That would seem unlikely given thin holiday trading. But a further rise in the gold price, even if short-term, looks probable for four reasons:

1. Geopolitics: Israel has attacked Gaza with considerable loss of life, a reminder of the chronic political problems of the Middle East with Iran and Pakistan other possible flash points. Arabs are big investors in gold and respond to disruptions in their own backyard.

2. Physical delivery requests are mounting at the Comex futures exchange which could well result in an immediate shortage of gold at the year-end. The futures market looks about to breakdown, giving control of the gold price back to the physical market where available stocks are low.

3. Gold preserved value through the storm of 2008, and 2009 looks no better, while investors are increasingly concerned about the bubble in the bond market. In the investment cycle the next step is a bond crash and a flight to precious metals.

4. The dollar rally looks to have already broken down, so look for a swift reversal to dollar devaluation and gold appreciation. That would also boost the oil price, usually a positive for gold, and also linked to geopolitical instability in the Middle East.

Short Term Gold Price Forecast

2008-10-27T20:28:00.000-07:00

"Depending on whose opinions one takes into account, gold could decline further, stay in the current range ($650 to $850) or shoot for the moon when and if the current solutions to the credit crisis give rise to hyper-inflation.

As we have recently written, the metal might well be mentioned in some context at future global gatherings trying to address this world-sized problem. Whether or not such mentions might involve further sales to help the needy nations, or a complete reassessment of the metal's role in the global reserve system, remains to be seen. There have certainly been a rising number of calls for gold's triumphant return to the bedrock of the currency system."

Jon Nadler, Senior Analyst, Kitco Bullion Dealers Montreal, Daily Commentary for October 27, 2008

Personally I am buying all I can at these prices, knowing full well that the price could drop even further. But it is not the $500/ounce that gold could be trading at in 5 weeks or months, but the $5000/ounce I expect it to be trading at down the road that is my focus. So whether I am paying $900/oz like I did a few weeks ago, or $750/oz. now, when it goes ballistic, it really won't matter what I paid.

So everytime I am asked, "should I wait for the price to go down further before I buy, I always reply, "the best time to buy gold......is when you have the money!"

Regarding the Current Gold Price Decline

2008-10-23T22:51:00.000-07:00

NEW YORK/LONDON, Oct 23 (Reuters) - Gold prices hit their lowest levels in more than a year on Thursday, briefly trading below $700 an ounce, as funds sold heavily to raise cash.

"I still think it's all about raising cash and capital preservation. The market is way too long," said Bruce Dunn, vice president of trading at New Jersey-based Auramet Trading.

"All the mining companies are saying gold is going back to $1,000, but I think these people are living in la-la land. You've got a serious recession and people are not buying gold jewelry," Dunn said.

Jewelry buying represents more than 60 percent of annual global gold demand. according to research firm GFMS.

"Funds are liquidating, trying to raise cash. Technically, we broke down yesterday below $738 (COMEX futures). I think people are getting short," said one COMEX gold futures floor trader.

But bullion remains under pressure from falling demand in India, the world's biggest consumer of physical gold.

"Industry analysts have reported the demand for gold during the buildup to the Indian festive season has been muted when compared to previous years," Credit Suisse said in a note.

NOW LET ME TRANSLATE THE ABOVE........What these establishment apologists are saying is that the lack of demand for gold means the price of gold will fall because people quit buying jewelry in a recession.

I agree that falling demand leads to falling prices, but it also holds true that increasing demand leads to increasing prices. And the truth is, right now, there is more demand for gold than anytime in modern history. You can't find it. The major gold dealers are sold out!

As soon as these traders quit unloading their paper gold to raise cash, it will spring back like a rubber band.

For more on the media, check our Mr. Katz' comments below.

by Howard Katz
October 6, 2008

We gold bugs are used to such media lies temporarily distorting the markets. We know that you have to have a tough skin and a contrary-opinion mentality to withstand the media pressure. We remember Richard Nixon’s abolition of the gold standard in 1971 and his imposition of price controls. The nation rejoiced that the President was acting decisively to fight inflation. And then Nixon started printing money like it grew on trees. On the initial reaction, there was a $3 drop in the price of gold. Over the next 8½ years, there was an $834 rise in the price of gold. We kept our heads when all about us were losing theirs and blaming it on us.

I can tell you that America was not always like this. This is a weird and perverted chapter in our history. Americans have fought many battles against the bankers. Thomas Jefferson was elected President by running against the first central bank. Andrew Jackson was elected President by running against the second central bank. McKinley defeated Bryan in 1896 because McKinley was for the gold standard, and Bryan was against it. And by the way, 1896 was the year that Adolph Ochs took over the New York Times and made it into a great paper, and you know what? Adolph Ochs (and the editorial position of the Times of that day) was for the gold standard. What a shame that his descendents do not have his character.

We live in troubled times. Those about us are losing their heads and blaming it on us. To survive we must see reality as it is not as it is presented in the media.

Howard S. Katz was one of the early gold bugs of the late ‘60s and ‘70s, turning bullish on gold in 1965. His favorite gold stock, Lake Shore Mines, went from $3/share to $39/share over the course of the seventies (sold at $31). Katz turned increasingly skeptical about gold as it mounted its final rise in 1979, and he called the top after the close on Jan. 21, 1980 (with gold at $825.50/oz.). Katz traded gold in and out during the ‘80s and ‘90s and once again turned long term bullish in Dec. 2002. His thoughts on commodities, stocks, bonds and real estate are available in a letter entitled The One-handed Economist and published every two weeks giving specific advice on trades in stocks and futures. This letter is available (both electronic and paper copy) for $300/year with a 3-month trial for $100. Send to: The One-handed Economist, 614 Nashua St. #122, Milford, N.H. 03055. (Include both electronic and mailing address.) Mr. Katz’s blog is available weekly (no charge) at www.thegoldbug.net.

No Supply of Gold

2008-09-19T13:56:00.001-07:00

I am just going to be straight to the point. If you do not own any gold right now, then you never will.

My New York wholesaler, who saw the last financial crisis in the 1970s when we had 20% interest rates, $800 gold and gas lines, told me this morning that he had never seen such demand for physical gold combined with no supply.

He said there are some denominations of gold that he can't get at any price!

Now let's see if I can remember that formula from Econ 101? High demand + low supply = increasing price.

In short, in his opinion, gold would blow by $1000/ounce very shortly as soon as the hedge funds are done unloading their paper gold on the market, which has temporarily forced prices down.

Don't forget, if you have an IRA or 401(k) you would like to convert to gold, consider a self -directed IRA that can invest in United States Treasury issued gold Eagles.

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Why Wall Street Hates Gold and Silver??

Inside Wall Street

Wall Street is a culture, as well as a financial institution.

Most of the young brokers who are the big producers on Wall Street are human beings, subject to all the errors of habit and behavior and peer pressure that plague all of us. They are surrounded by “group-think.” They make tons of money on the status quo. I have visited firms on Wall Street with big trading rooms full of twenty-something men and women whose annual income is measured in the millions – all on commissions on stock sales.

Few big Wall Street firms sell bullion (right off hand I can’t think of any) so it is only money out of their pockets if hot-shot brokers tell their clients to sell some stock and put the money into bullion or coins. Maturity and client concern are scarce commodities on Wall Street.

They are congenitally bullish on stocks, because that’s where their bread is buttered.

Financial Shows

Many of you listen to or watch financial shows, populated with people who are typical examples of main-stream Wall Street financial thinking.

If your broker’s opinion is important to you, you may be uncomfortable here. If you aren’t a maverick, you had better become one, and be quiet about it. You will have to leave the herd, and for a while, Merrill Lynch’s herd is all on Wall Street.

Panama and the Dollar

.........one key part of Linowitz’s banker-inspired mission was that the Canal Zone would be a “Free-banking Zone,” not subject to regulations or oversight. Even before the deal was signed, bank buildings were going up all over the Zone. Every multi-national bank was there, and it appears that they moved many of their international money systems there, with no oversight or regulation. Who determines their safety or vulnerability? No one!

If terrorist hackers were to hack into those computers and infect them with a destructive virus, the entire dollar-based monetary system would disappear in a nanosecond. In that case, for all practical purposes, the only spendable money left would be gold or silver coins or barter.

And what if they were able to sneak a nuke onto a ship and detonate it in the canal? It’s already bad enough that the Chinese are in control of the ports on both ends of the canal. Imagine the chaos with the banks obliterated and commerce fatally crippled.

These and innumerable other scenarios may seem beyond the edges of credibility, but I dare you to say they are not possible.

This is not a forecast, only a speculation about a possible worst-case, we-hope-not scenario.

The Hyperinflation Scenario

What if monetary inflation rose as a result of soaring demands on government with the soaring deficits, and the subsequent inevitable consumer inflation broke out into a real hyperinflation, with the modern money machine running night and day, like Germany during the 1920s. This would make money increasingly worthless and the precious metals increasingly precious. History tells us that this has happened over and over again, and we are repeating most of the same deadly mistakes.

These are only a few of the possibilities.

Best Case Scenario

Even in this “best-case” situation, you will make a bundle on this monetary-inflation-sensitive investment, even in a still-orderly world.

If all else fails, you still can count on Social Security, Medicare and the prescription-drug program to trigger a flood of trillions of dollars of “money printing” and the subsequent monetary inflation, followed as night follows day with soaring price inflation. As it becomes obvious to the public that these programs are plummeting into insolvency, the consumer inflation rate and gold and silver will soar.

When the dire facts become obvious, Congress will start desperately searching for solutions, but which ones?

Will they raise taxes and watch FICA soar and taxpayers revolt? Very little, if any! Will they cut benefits or raise the Social Security retirement age? Maybe a little bit, but not much. Will they dig in their heels and memorialize the current dysfunctional system by simply printing money? You bet! This will lay the groundwork for more ruinous inflation, and soaring gold and silver.

In this best case (the most likely – I think, I hope?), we will at least see rising inflation and an inflationary recession (which is already written in cement), and gold and silver and the metals and their mining stocks will go up – perhaps five to ten times, perhaps a lot more.

There is no best-case – or worst-case – scenario in which I can conceive of gold and silver being losers. You can mortgage the kids and bet the farm!

Why is Gold Falling Now?

2008-09-10T13:45:00.000-07:00

Ned Schmidt Audio Link

The above audio link is a 7 minute summary of what Ned believes is making the price of gold fall at present.

To summarize his conclusion, there are tremendous amounts of paper gold (options/derivatives/etc.) being liquidated at present. Nobody wants these "claims" to gold at present because the gold price has been falling for 6 months.

But, unlike "paper" gold, "real" gold is in high demand. As I talk to the network of wholesalers that I do business with in Florida, New York and California they all tell me that they can't get product. They say nobody is selling.

So obviously there is a disconnect between the real value of gold which is in high demand and the "current price" of gold which is based on the short term panic selling of hedge fund managers.

These "disconnects" are where fortunes are made by those who have the guts to dive in while everyone else is running for the exits.

Ned makes one last important point that the last gold correction lasted about 9 months, and we are 6 months into this pullback. He looks for a rally before year end, and I am inclined to agree.

I spoke to one of my long time dealer friends in NY today and asked him what he thought. He said gold may have another $20 on the downside, but the upside is unlimited.

I like those odds.

Real Gold vs. Paper Gold

2008-08-08T09:38:00.000-07:00

You may have heard of the SPX, XAU, EFTs and a bunch of other derivative/paper types of investments that seems very confusing. Would like to know more about it?

Well.....you've come to the wrong place. (Again, they actually PAY me to do this!)

I don't know much about that kind of stuff, as it is mostly used by traders and speculators to make a quick buck. Since I'm not that smart, I stay away from anything with initials. (Especially the IRS.)

But, I am about to tell you all that you need to know about these things.

Investor A thinks the price of gold is going down. He writes a contract and offers to sell gold to Investor B at $900/ounce. Investor B thinks the price of gold is going up to $1000/ounce, so he buys the contract.

Now A doesn't actually have the gold he is selling, and B doesn't really want to buy the gold. They just each want to make the difference on the price movement.

This is known as a "naked" contract. (no clothes) You are selling something you don't have.(no gold)

So even though A doesn't have any gold, the contract is still enforceable by B to demand delivery of the gold. But this never happens as no one wants the hassle of exchanging physical gold.

Back to our story.

Now if gold goes up from $900 to $1000, Investor B gains $100. Why? Because he theoretically buys the gold from A at $900 and sells it at the current market price of $1000.

Investor A obviously loses $100. He now has to "theoretically" buy gold at $1000 and sell it to B at $900.

It is a paper transaction only. That is the key thing to remember, and billions of dollars of these contracs are outstanding.

So Why Do I Care?

Regarding gold, there are thousands upons thousands more of these little paper "claims" to gold out there in cyberspace than there is "physical" gold. And that is no big deal as long as no one wants to enforce their contract and take delivery of the "physical" gold.

But, what if our "paper" economic system were disrupted? What if foreigners all decided that they no longer wanted to be paid in dollars, but in gold? (This is already happening with our Asian and Arab trading partners and they have hinted that it will escalate.)

Overnight, the dollar coud become worthless, or at least deeply devalued. Gold would skyrocket in price. And everyone who has one of these legal contracts that says they can buy gold at $900/ounce will demand their gold.

Problem is....there's not enough of it to go around........at any price, which fuels the cycle and forces gold prices higher and higher.

And if you think that can't happen here, don't forget, that is exactly what happened in pre-WWII Germany.

Europe quit taking Germany's "inflated" paper money and demanded gold in exchange for goods and services. This sparked a massive decline in the value of their currency, and in the end, it took a whole wheel-barrel load of Deutchmarks to buy a loaf of bread.

Germany needed gold and/or other tangible assets, and Hitler rode in on the white horse and saved the day by stealing it from....guess who?.....the Jews.

"And now," as Paul Harvey used to say, "you know the rest of the story."

Conclusion

If you don't own physical gold, you are at risk. At HUGE risk.

I have been in the financial business since 1983 and I can tell you with certainty that this house of cards will fall sooner or later. Hopefully it will be later, but it could be tomorrow.

And when it does, your investments in tangible assets will save you.

So stay away from anything with initials, and people named Adolph.

Gold Versus Stocks

2008-08-06T12:46:00.000-07:00

The Dow-to-Gold ratio is an interesting statistic of some usefulness. It simply tells you how many ounces of gold it will take to buy one share of the Dow Jones Industrial Average. In layman's terms, it tells you whether gold is more expensive than stocks or visa versa.

The following excerpt from an article entitled "Why Gold is the New Currency."

"The median stock (as measured by the Dow Jones Industrial Average) to gold ratio over the last 106 years was 5.4. In other words, during the 20th century, on average 5.4 ounces of gold would buy one unit of the DJIA.

Today, it takes more than 12 ounces of gold to buy one unit of the DJIA. So in spite of gold’s mammoth rise from $250 to $860, the precious metal is still quite cheap relative to stocks.

So while the mainstream financial media and the Federal Reserve might be proclaiming an end to the commodity boom and the beginning of a new bull market in stocks, I don’t buy it. In real terms, stocks are anything but cheap. Gold on the other hand, is clearly undervalued."

Although I agree with a lot of the author's conclusions, I disagree with his conclusion that stocks are overvalued. Here's why.

First, the gold/stock ratio may not be a reliable indicator since they are always tinkering with the Dow components, which can make the true ratio an unknown. But I fully agree that gold is still undervalued LONG TERM.

Stocks however do not by default become overvalued simply because gold is undervalued. There is no rule of the universe that says two asset classes cannot be undervalued at the same time.

Short term I think you will see stocks rebound strongly for 2 reasons.

First, as boomers approach retirement realizing that they are needing to put away massive amounts of money over the next few years, this demand for stocks will push up their prices regardless of whether they are overpriced or not.

Second, as foreigners are dumping their dollars, they are buying US assets.....real estate and companies/stocks. The Arabs just traded some of their dollars for a stake in Citibank. They see value here, and they have shown themselves to be pretty astute investors.

It is the DOLLAR that gold is tremendously undervalued against. As the Fed continues to print more dollars out of thin air, by default, the existing amount of dollars become worth less and less. This increase in money supply is only going to continue to get worse, not better.

So, I can see gold going to $5000 against the dollar. And, if, for the sake of arguement, the historical 5/1 ratio holds true, then look for the Dow to hit 25,000.

Tangible assets...gold, stocks and real estate are the only safe harbors.

Gold and the Dollar Collapse

2008-07-29T15:49:00.000-07:00

In an article entitled "America's Second Biggest Bank Failure," James Turk throws out some interesting statistics.

"All of this does not bode well for the dollar. The federal government is readying the printing press to create even more dollars to plug the black-hole on bank balance sheets, but there is another black-hole that they need to begin worrying about.

The FDIC deposit fund only has $53 billion of assets, and around 10% or perhaps more of that is now going to be used to bail-out IndyMac. So how safe is the FDIC? How safe is the dollar, or more to the point, how safe is your wealth held in dollars? Not very."

One tenth of the FDIC fund was used to bail out ONE bank! What happens if two, three, ten others fail?

"Oh well," you say, "the government wouldn't let the FDIC fail."

True. So the Feds will simply print some more dollars out of thin air to pump into the FDIC. That is, if they can.

At what point does the rest of the world stop accepting dollars that are being printed as fast as the next crisis arises? And when they do stop allowing use to do so, who is going to be there to bail out the FDIC if it goes belly up?

So the point of this is simple. When paper money fails, and it always does, gold, as it has done for 6000 years, will still be here, protecting the wealth of those who were smart enough to buy it beforehand.

Don't wait too late.

The Undervalued Saint

2008-07-28T12:31:00.001-07:00

The old $20 gold piece that was used as legal tender prior to 1933 contains almost one ounce of gold. Today as of this writing, gold bullion (common gold with no rarity premium) is trading at $920/ounce. A $20 gold piece, known as a "Saint" can be purchased today for around $980, a 6.5% rarity premium, based on the fact that there no more of these coins being minted.

This historically low premium (30-year average has been 40%) represents a tremendous opportunity for patient investors, as the spreads between these two have exceed 75% to 100% in the past.

Why is the spread so low now?

Lack of demand is the short answer. As the price of gold has increased over the past few years, many "traders" have entered the gold market seeking to make a quick buck. Demand has shifted from rare and/or semi-rare coins to bullion. Traders are not willing to pay even a 10% premium for something rare, since they do not plan to hold it long enough to capitalize on the eventual return to normal spreads.

Hence, no demand.....no premium.

And this is good news for long-term investors.

Obviously, as long as the price of gold continues to rise, the saint prices will also rise at least as fast.

However, when the price of gold eventually levels out (and this could be years down the road), if the past is any indication, traders will dump gold bullion and buy Saints, seeking then to profit from the historically low premiums. When this happens, the higher demand will push premiums higher.

Even if gold goes no higher than its current price of $920, history suggests that holders of Saints can still expect a 40% - 100% gain.

For this potential, I do not understand why anyone would buy bullion at this time.

Note: Should gold once again be confiscated, there is a possibility that your Saints would be considered "collectible," and be exempt from confiscation. Bullion would not.

The Gold to Dow Ratio

2008-07-10T14:33:00.000-07:00

from The Gold Page

The Dow/Gold Ratio chart below shows the ratio of the price of the Dow to the price of gold. Another way to look at it is the number of ounces of gold it takes to buy one share of the Dow. For example, with the Dow at 12,000 and gold at 300, it requires approximately 40 ounces of gold to buy one share of the Dow, so the ratio is 40. The reason for using gold is that gold is the most honest form of money in existence. Fiat government paper money comes and goes, but gold as money has endured for thousands of years. It is the ultimate store of wealth.

It is interesting to note that this is a long-term view of over the last one hundred years and a few observations of the chart of the Dow/Gold Ratio are readily apparent: In 1931, after the ratio crossed below the trend line, it was several years later that the ratio attempted to cross above the trend line only to fail and drop almost to its previous low. Ultimately, it took a period of approximately twenty years to cross the trend line to the up-side.

Around 1972, the ratio crossed below the trend line again. And once again, several years later it attempted to cross above the trend line only to fail more so than the previous attempt mentioned above. And then, again after approximately twenty years, it crossed above the trend line.

When the ratio of 1966 broke below the previous high of 1929 in 1971, the correction was substantial. Note that the ratio high of 2000 has dropped below the previous ratio high of 1966 and so far has failed in its attempt to cross above it.

Extrapolation of the future trend of the Dow/Gold Ratio is left as an exercise to the reader but several conclusions are possible. If the Dow/Gold ratio is to continue on trend, the Dow must drop significantly to restore the historic Dow/Gold Ratio. The price of gold must rise significantly to restore the historic Dow/Gold Ratio. Or the two of them must meet somewhere in between. It seems only reasonable to suspect the last scenario to be most likely.

Also, it's interesting to note that when the ratio dropped 50% there was no turning back...it went all the way to 1.

A Short Primer on Gold and the Dollar

2008-01-14T11:59:00.000-08:00

Excerpted from: Super Bull
by Jim Puplava
http://www.financialsense.com/
March 22, 2004

The third pillar of this new super bull market in precious metals is a declining dollar.

Despite a 28% decline in the U.S. currency, the United States is still running record trade deficits.

America’s trade deficits are structural from energy to capital goods. Last year’s trade deficit was a record, rising to over $500 billion. In the month of January the U.S. experienced another record trade deficit of over $43 billion.

At the present rate of rise it will take more than a 50% increase in exports just to balance out our trade. With budget and trade deficits that are now running at over 5% of GDP and growing.

Our trade and budget deficits are now at levels where a currency crisis sets in. The dollar is going much, much lower. A decline of 50% or more would be possible if not probable. It is also unlikely a decline of this magnitude would be orderly. Severe currency adjustments don’t correct themselves in an orderly fashion. A crisis is more likely.

The chart below of Gold vs. US Dollar (1990 - 2004) shows the decline in the dollar since 2001 and the rise of gold. There is a reverse relationship between the two. One is a fiat currency and the other is real money. Over the course of history only real money survives a crisis, an empire or a nation. Gold and silver are enduring; paper currencies are not.

Cited by Barron’s as one of the top financial websites to visit on the weekend (1 Nov. 2004), Financial Sense provides free educational resources to the broad public audience through editorials, current news and resource links on salient financial market issues. Begun in 1985 as a local talk radio program, Financial Sense Newshour is now a free weekly webcast with host Jim Puplava and top financial thinkers.

© 2004 James J. Puplava Storm Watch Archives

The Oxford Anti-Terror Portfolio

2008-01-14T11:42:00.000-08:00

The Investment U e-Letter: Issue # 715
Thursday, September 27, 2007

The Oxford Anti-Terror Portfolio… Asset Protection that Doubles the S&P's Return
by Alexander Green, Chairman, Investment U; Investment Director, The Oxford Club

This week CNBC invited me to appear on their morning program "Squawk On the Street," with hosts Mark Haines and Erin Burnett. The topic was "Anti-Terror Plays."

The reason they contacted me is because of the strong performance of the Oxford Anti-Terror Portfolio, which I initiated back in February 2003.

Since then, we haven't had any terrorist attacks on American soil, although many of our allies - Spain and Britain, for example - haven't been so lucky.

Yet, since inception, our Oxford Anti-Terror Portfolio has more than doubled the performance of the S&P 500, rising over 20% per year, even though this is a (pardon the pun) "defensive" portfolio.

The Thinking Behind the Oxford Anti-Terror Portfolio

No one knows what the chances are of another terrorist attack on the U.S. mainland. True, the FBI, the CIA, the Department of Homeland Security, the Department of Defense and many others are working to keep us safe. But it's also true that we have many enemies… and our borders are hardly secure.

So we think about the potential for future terrorist attacks the way we think about natural disasters. We don't know where they'll occur, we don't know when they'll occur, but they almost certainly will occur some time in the future.

Rather than scrambling to react in the aftermath, we think it makes sense to plan ahead in order to protect the investment portfolios we've worked so hard to build.

As I'm sure you recall, after 9/11 the stock market closed for a week, but then sold off sharply. The economy faltered, too. That may happen again in the future.

Even if it does, however, we will all still have economic needs that have to be met, including food, clothing, shelter, healthcare, and so on. Our strategy with the Anti-Terror Portfolio is to hold a combination of bonds, gold shares, foreign stocks, defense contractors, politically-safe oil companies and various non-cyclical stocks. Here's why…

Quality and Diversity Pay Off

In the immediate aftermath of an attack, there is likely to be a knee-jerk flight to quality. And we all know what the world's highest-quality securities are: U.S. governments. So our Anti-Terror Portfolio contains a slice of Treasuries.

Gold, too, traditionally rallies during periods of economic and political uncertainty. And gold shares are a leveraged play on the metal. So we own the Market Vectors Gold ETF (AMEX: GDX). It holds all the world's major gold and silver stocks, including Newmont, Barrick Gold, Freeport, AngloGold, Kinross and Harmony.

We also favor non-cyclical stocks like utilities, food companies, and healthcare firms. After all, come what may, you're still going to have to pay your power bill, eat three squares a day and visit your doctor.

Foreign shares may hold up better than U.S. shares for two reasons. One is that a terror attack in the U.S. is likely to send our domestic markets reeling. But the response in Japan or Hong Kong or Switzerland may be more muted. Plus, other currencies may appreciate against the dollar.

Defense contractors are another good anti-terror play. After all, these companies are building the arsenals to help defend against future attacks. And government expenditures in this area are rising.

Finally, let's not forget that much of the world's imported oil comes from a veritable "rogue's gallery" of nations: Iran, Iraq, Russia, Nigeria, and Venezuela to name just a few. Domestic, Canadian and European energy producers may go to a premium if there is a supply disruption in one of the world's many hotspots.

Everything in our Anti-Terror portfolio is designed to help you preserve and protect your investment portfolio, even if the unthinkable happens.

Some say the prospect of future terror attacks are unpleasant to contemplate. I don't disagree.

But recall the words of legendary fund manager Peter Lynch:

"If you're gonna panic, do it early."

Good Investing,

Alex

The 5 Best Ways to Invest in Gold

2008-01-13T13:41:00.000-08:00

A Daily Reckoning White Paper Report

By Addison Wiggin

A passage from Demise of the Dollar… and Why It's Great For Your Investments

The ultimate dollar hedge investment will always be gold. Investing in gold through ownership of the metal itself, mutual funds, or gold mining stock provides the most direct counter to the dollar. As the dollar falls, gold will inevitably rise. In a moment, we'll provide you with many ways for positioning your portfolio to profit from a bull market in gold. For now, we emphasize the high probability of gold's future. The real potential for profits in the coming years and decades is not going to be found in the traditional American blue chip industry. That is a financial dinosaur that can no longer compete in the world market.

The future growth is going to be seen in gold. The world economy may remain off the gold standard, but ultimately the tangible value of gold as the basis for real value-whether acknowledged by central banks or not-will never change. Historically, this has always been the case, and it always will be. In other words, we are on a "gold standard" in spite of the popularity of fiat.

You have many choices.

In the following paragraphs, you'll discover five ways to invest in gold. Based on your level of market experience and familiarity with products, one of these will be appropriate for you.

1. Direct ownership. There is nothing like gold bullion, the ultimate expression of pure value. Historically, many civilizations have recognized the permanence of gold's value. For example, Egyptian civilizations buried vast amounts of gold with deceased pharaohs in the belief that they would be able to use it in the afterlife. Great wars were fought, among other reasons, to pillage stores of gold. Why the allure? The answer: Gold is the only real money, and its value cannot be changed or controlled by government fiat-the underlying reason for governments to go off the gold standard, unfortunately.Gold's value will rise based on the pure forces of supply and demand, no matter what Mr. Greenspan decrees regarding interest rates or greenbacks in circulation. The big disadvantage to owning gold is that it tends to trade with a wide spread between bid and ask prices. So don't expect to turn a fast profit. You'll buy at retail and sell at wholesale, so you'll need a big price jump just to break even. However, you should not view gold as a speculative asset, but a defensive asset for holding value. Since your dollars are going to fall in value, gold is the best place to preserve value. The best forms for gold ownership are through minted coins: one-ounce South African Krugerrands, Canadian Maple Leafs, or American Eagles.

2. Gold exchange-traded funds. The recent explosion in exchange traded funds (ETFs) presents an even more interesting way to invest in gold. An ETF is a type of mutual fund that trades on a stock exchange like an ordinary stock. The ETF's exact portfolio is fixed in advance and does not change. Thus, the two gold ETFs that trade in the United States both hold gold bullion as their one and only asset. You can locate these two ETFs under the symbol "GLD" (for the streetTRACKS Gold Trust) and "IAU" (for the iShares COMEX Gold Trust). Either ETF offers a practical way to hold gold in an investment portfolio.

3. Gold mutual funds. For people who are hesitant to invest in physical gold, but still desire some exposure to the precious metal, gold mutual funds provide a helpful alternative. These funds hold portfolios of gold stocks-that is, the stocks of companies like Newmont Mining that mine for gold. Newmont is an example of a senior gold stock. A senior is a large, well-capitalized company that has been around several years and has a profitable track record. They tend to own established mines that produce known quantities of gold each year. For many investors, selection of such a company is a more moderate or conservative play (versus picking up cheap shares in fairly young companies).

4. Junior gold stocks. This level of stock is more speculative. Junior stocks are less likely to own productive mines, and may be exploration plays-with higher potential profits but also with greater risk of loss. Capitalization is likely to be smaller than capitalization of the senior gold stocks. This range of investments is for investors whose risk tolerance is broader, and who accept the possibility of gold-based losses in exchange for the potential for triple-digit gains.

5. Gold options and futures. For the more sophisticated and experienced investor, options allow you to speculate in gold prices. But in the options market, you can speculate on price movements in either direction. If you buy a call, you are hoping prices will rise. A call fixes the purchase price so the higher that price goes, the greater the margin between your fixed option price and current market price. When you buy a put, you expect the price to fall. Buying options is risky, and more people lose than win. In fact, about three-fourths of all options bought expire worthless. The options market is complex and requires experience and understanding. To generalize, options possess two key traits-one bad and one good. The good trait is that they enable an investor to control a large investment with a small, and limited, amount of money. The bad trait is that options expire within a fixed period of time. Thus, for the buyer time is the enemy because as the expiration date gets closer, an option's "time value" disappears. Anyone investing in options needs to understand all of the risks before they spend money. The futures market is far too complex for the vast majority of investors. Even experienced options investors recognize the high risk nature of the futures market. Considering the range of ways to get into the gold market, futures trading is the most complex and, while big fortunes could be made, they can also be lost in an instant.

We cannot know, predict, or even guess, when the demise of the dollar is going to occur, or how quickly it will take place. But we do know it is going to occur. The tragic mismanagement of monetary policy by the Fed over many years has made this inevitable.

Removing the U.S. monetary system from the gold standard was not merely a decision of short-term effect. Nixon may have seen the move as a means for solving current economic problems, but it had long-lasting impacts: trade deficits, growing federal debt, and the ability to print money endlessly and build a new credit-based economy. Internationally, the decision by the United States virtually forced all other major currencies to also go off the gold standard.

Any investor who views the economic situation broadly-both domestically and internationally-can see that trouble lies ahead. We have delayed the inevitable because China is a partner in our monetary woes.

The Chinese are building their own debt on the dubious foundation of the U.S. dollar, and other Asian economies have been forced to go along for the ride. When the dollar falls, many other countries will suffer as well. The offset, logically, is found in commodities. Investing in oil stocks makes sense, for example, because the price of oil is rising and as it becomes more difficult to drill oil those companies that own drilling and exploration operations will benefit. It makes sense to invest in other commodities as well.

The tangible asset play is clearly where future value is going to lie. With China's never-ending need for coal, iron ore, tungsten, copper, oil, and other metals, the future of tangible markets is the bright spot in the gloomy financially based economics of the world.

Leading the charge is gold. It is ironic that monetary policy follows a predictable pattern.

Governments overprint money and their currency crashes. Inevitably, they always return to gold, but often at great expense and with considerable suffering. We find ourselves in another one of those moments in time where irresponsible monetary policy has put us at risk. But we don't have to simply hold on and wait for the demise of the dollar; we can take action now because that demise is great for your portfolio-if you position yourself in tangible assets rather than in empty fiat promises and the bizarre economic premise of U.S. monetary policy.

Goods and services can be paid for only with goods and services. Currency is nothing but an IOU, a promissory note that is not backed up with any tangible value. Once we reach our national credit limit, monetary policy will be forced to retreat. When that happens, traditional investors and their savings accounts are going to be hit hard. The beneficiary of the falling dollar will be the investor whose holdings emphasize tangible value of goods: resources and precious metals.

Every danger to one group of people is invariably an opportunity to another. It all depends on where you position yourself. Those investors positioned in dollar-based investments are going to suffer the loss of purchasing power when the dollar's value disappears. Those who have moved their investments to higher ground will benefit from the change.

Addison Wiggin
For The Daily Reckoning

Guide To Investing In Gold Coins

2008-01-02T18:14:00.000-08:00

Ebay Guide to Investing in Gold Coins

Over the past decade or so, the price of gold has been mostly flat or falling, except recently when it grew unbelieveable and collapsed :). This can be blamed on many different factors ranging from the macroeconomic arena to political intrigue.

However, not all hard asset investment areas have suffered the same fate during this period. There is at least one gold investment sector that has defied the flat gold market. That sector is rare American gold coins. We're not referring to common date Double Eagles and similar "generic" coins. The coins that have performed well over the past decade are the truly rare U.S. gold coins that were minted from 1795-1933.

Despite the fact that this winning sector has been totally ignored by the financial press, it has 7 alluring features:

1. Increasing value.
2. Proven profit potential.
3. Growing demand competing for a relatively small, static supply.
4. Privacy benefits and tax advantages.
5. More wealth with less bulk...an excellent way to concentrate wealth in a portable package. 6. Affordability...investors can participate with just a few thousand dollars.
7. Beauty, rarity and pure pride of ownership.

Over the past decade many rare gold coins have soared in value, and billions have been made.

Do you find yourself sometimes asking though?

Where Did All The Gold Coins Go?

Twice in our nation's history, gold coins were melted by the government. These two government meltdowns transformed U.S. gold coinage from common monetary units into excellent long-term numismatic investments.

The first melting occurred in 1834 when the gold content of U.S. coins was reduced and nearly all gold coins minted during the period from 1795 to 1834 were melted because their intrinsic value exceeded their face value.

The second melting resulted from the great Gold Confiscation of 1933, when 90% to 95% of all U.S. gold coins held by individuals, banks and the Treasury were recalled, thrown into huge melting pots and poured into 100-ounce and 400-ounce gold bars. Franklin Roosevelt's gold confiscation of 1933 saw the end of regular issue, legal tender U.S. gold coinage.

Of the surviving populations of coins left today, not all are actually actively traded on the market. Many have been incarcerated in complete sets or long-term investment portfolios.

I can sum up my best advice in one sentence: Buy Key Date Gold coins in the highest grades you can afford and hold them for the long term.

Additionally, there are some specific guidelines you will want to follow when investing in Key Date Gold coins.

QUALITY NOT QUANTITY. Higher quality coins are much rarer than lower quality coins. They also offer the greatest aesthetic pleasure and are more likely to attract serious collector demand.

INVEST IN THE RAREST COINS YOU CAN AFFORD. Concentrate on coins with low survival rates as reported by PCGS and NGC.

BUY SLEEPERS AND STOPPERS. Sleepers are coins that are undervalued in terms of their relative rarity. Stoppers are the most important issues that make up complete sets of coins. Many Key Date coins fall into these categories. We highly recommend them.

GET PROFESSIONALS WORKING FOR YOU. While bullion coins are bought in bulk, the best way to buy rare coins is to have a professional you can depend on recommend specific examples for you. There are only a few expert numismatists with the knowledge to recognize, identify and trade in the finest and scarcest coins on the market.

BUY PCGS- AND NGC-CERTIFIED COINS ONLY. Only invest in rare coins graded by Professional Coin Grading Service (PCGS) and Numismatic Guaranty Corporation (NGC). These are the leading independent grading services whose standards are accepted industry-wide.

GET THE "SIGHT-SEEN ADVANTAGE." Do not buy coins that a dealer has obtained for you "sight-unseen." This is important because professional coin dealers are willing to pay more for rare coins with superior eye appeal.

I know this article isnt enough to make you sell your house and buy gold coins, but that is why I ALWAYS emphasize to buy only what your budget allows.

If you can save 2 or 3 hundred a month in a sock drawer, guess what, you are looking at 3 -5 really nice St Gauden Gold Peices, or even one really nice and rare one.

Alot of investors/collectors aren't patient enough starting out, they want it all, and they want it now, and when they get it, then they more, and can't figure out why they didnt make money in 2 months on their initial purchase.

The long-term is the key, and if you can do that, then trust me that hard assets like gold coins are the way to go!

Good Luck all, and I hope this helps a little!

HOW CENTRAL BANKERS CONTROL THE GOLD PRICE

2007-12-26T13:51:00.000-08:00

by Adrian Ash
BullionVault.com
October 1, 2007

"...What is it with leading commercial banks – first Credit Agricole...now Citigroup – and their accusations of wanton gold-price manipulation by central bankers...?"

"IT WAS SO embarrassing...

"I mean, who ever let the guy publish that report? Credit Agricole was a laughing stock. Everyone in the gold industry was amazed. It was just ridiculous..."

The gold-market analyst I met for a beer one warm summer's evening in Soho, London earlier this year took himself very seriously. The infamous report from Chevreux – a division of Credit Agricole – on the other hand, made him wince.

The Remonetization of Gold by Paul Mylchreest put the reputation of France's largest bank right on the line – the very same line spun by the Gold Anti-Trust Action Committee (GATA) since 1999.

"Central banks have 10-15,000 tonnes of gold less than their officially reported reserves of 31,000" the Chevreux report announced. "This gold has been lent to bullion banks and their counterparties and has already been sold for jewelry, etc. Non-gold producers account for most [of the borrowing] and may be unable to cover shorts without causing a spike in the gold price."

In other words, "covert selling (via central bank lending) has artificially depressed the gold price for a decade [and a] strongly rising Gold Price could have severe consequences for US monetary policy and the US Dollar."

The conclusion? "Start hoarding," said Paul Mylchreet...a smart call. Because in finance, being right – even if for the wrong reasons – still pays off. His report for Credit Agricole's Chevreux division was published in January last year. Come May 2006, the Gold Price leapt to a 26-year high. It's since gone on to break those levels again, rising to its highest price since the all-time peaks seen at the start of 1980.

As for the world's central banks, they seem to done a pretty bad job of "covert selling" since the start of this decade. The Gold Price has now doubled for US investors and savers, and it's pretty much doubled for British and European gold owners, too. Japanese gold prices have more than tripled.

How come? Whatever the reality of active, covert manipulation, the world's central banks do indeed control the Gold Price, as former Federal Reserve governor Wayne Angell put it in 1993.

"The price of gold is pretty well determined by us...But the major impact on the price of gold is the opportunity cost of holding the US dollar...We can hold the price of gold very easily; all we have to do is to cause the opportunity cost in terms of interest rates and US Treasury bills to make it unprofitable to own gold."

Cutting interest rates below the rate of inflation between 2003 and 2005, the Greenspan Fed guaranteed a bull market in gold. Cutting rates again now in late 2007, even as oil and global crop prices move to new record highs, the Bernanke Fed seems bent on pushing Gold Prices higher, too.

Indeed, a new report from Citigroup – the United States' largest bank – agrees with Credit Agricole's conclusions. "Central banks have been forced to choose between global recession or sacrificing control of gold," say John Hill and Graham Wark at Citi, "and [they] have chosen the perceived lesser of two evils.

"We believe that the policy resolution to the credit crunch will take the form of a massive, extended 'Reflationary Rescue' in a new cycle of global credit creation and competitive currency devaluations. This could take gold to $1,000 an ounce, or higher."

More than that, the flood of central-bank gold sales earlier in 2007 was "clearly timed to cap the Gold Price," they go on. But little good it did the central bankers' aim of capping gold if so. The price just moved above a 27-year high vs. the Dollar, and it's tracking new 16-month highs for European investors each day.

Why suppress gold? If gold goes higher, or so the thinking runs, then the world's confidence in the confidence-trick of paper money backed by government promises alone might just collapse. That was the threat in the late 1970s. Given last month's run on Northern Rock in the United Kingdom...and now the collapse of NetBank in the US...that might come to be seen as a possible threat again today.

Allegations that the world's major central banks actively work together to suppress the price of gold were only given credence in 2004 when Paul Volcker – chairman of the US Federal Reserve at gold's all-time top – said in his memoirs that "letting gold go to $850 per ounce was a mistake" during the last great bull market in gold bullion.

At one of the policy meetings led by Volcker in late 1979, his Federal Reserve committee noted the threat of "speculative activity" in the Gold Market. It was spilling over into other commodity prices. One official at the US Treasury called the gold rush "a symptom of growing concern about world-wide inflation."

"We had to deal with inflation," as Volcker said in a PBS interview of Sept. 2000. "There was a kind of great speculative pressure.

"It was the years when everybody wanted to buy collectibles from New York. The market was booming, and other markets of real things were booming – because people had got the feeling that things were inflating and there was no way you could stop it."

But besides waving a gun at anxious gold owners, there seemed only one other route to stopping speculators profiting from – or rather, defending themselves against – the demise of the Dollar.

Fix it up with higher interest rates. The Volcker Fed took US interest rates to 19%...and put the real cost of Dollars above 9% after adjusting for inflation. The Gold Price sank almost in half inside 12 months.

Because just like Wayne Angell says, the price of gold really is determined by central bankers. They hold it very easily...simply by causing the opportunity cost in terms of interest rates and US Treasury bills to make it unprofitable to own gold.

To do that, however, they have to raise interest rates dramatically above inflation. If you don't trust the Bernanke Fed to do that – not least after they cut 0.5% off the returns paid to Dollar savings in mid-Sept. – then you want to consider buying gold today.

© 2007 Adrian Ash
Editorial Archive
http://bullionvault.com

Gold/Silver Trading Strategy

2007-12-22T09:14:00.000-08:00

THE GOLD/SILVER RATIO STRATEGY& THE CASE FOR SILVER
Franklin Sanders
March 07, 2003
Ahh, reality is stingy, and forces us to make choices. If you stop at McDonald's for lunch you can't eat at Burger King at the same time.

Investors face the same choices. If you spend all your money on gold, you won't have any left for silver. Which should you choose? The one that will rise fastest and farthest. I believe that will be silver, but how do we make that decision? Is there some measure, some clue other than our bald opinion?

FUNDAMENTALS
Throughout history silver has served mankind as the primary monetary metal. However, unlike fellow monetary metal gold, most silver use is non-monetary. This industrial demand for silver is quirky. In most applications only a very little silver is needed, so silver contributes only a tiny fraction to end-product cost. For example, the amount of silver on printed circuit boards contributes only pennies to a computer's cost. Given this quirky demand, unless silver's price skyrockets, higher prices don't discourage use.

There's another quirk that keeps silver demand strong in the face of rising prices: its unique properties. In most applications, there is no good substitute for silver because nothing else acts quite like silver. For instance, it is the most electrically conductive metal, so the only near substitute in printed circuit boards is - gold, which is even more expensive. In some applications, like photography, there is no substitute at all, because nothing else reacts to light like silver salts. To replace silver in photography requires a completely new technology.1
So silver demand doesn't drop much when prices rise (demand is price inelastic). Moreover, the silver bull that peaked in 1980 scared silver users so badly that over the next two decades they drastically reduced the amount of silver used . They figured out how to get more work out of less silver, but most of those one-time reductions can't be quickly or easily repeated. Usage has been squeezed down about as low as it can go in the short run.

THE SHORTFALL
The high prices in 1980 brought lots of silver to market in the following years, and left a big surplus to work off. Beginning in 1990, however, the world began using more silver than mines and recycling produced. By the end of 2001, that shortfall had eaten up nearly 1.5 billion ounces. Since 1990 fabrication demand has averaged 156% of yearly mine production. For every ounce of silver the mines produced, industry consumed one and a half ounces of silver.

Meanwhile demand for silver keeps on rising - even for photographic silver. Demand rose from 513 million ounces ("Moz") in 1985 to 880 million ounces last year.

But in spite of production shortfalls year after year, silver's price remained almost flat in the 1990s. Strange - where did all that silver, 1.5 billion ounces, come from? Some say a conspiracy exists to suppress the silver price, and that may well be. I don't doubt the shortfall has been papered over with derivatives, leasing, and futures. All the same, eventually the price must rise as demand grows and supplies shrink. If a conspiracy has tried to suppress silver's price, so much the better. When they lose control (as they inevitably will), the price will surge even farther than natural forces alone would have sent it.

KEY TO SILVER PRICE
Keep one thing in mind: the key to the silver price is monetary demand. Other categories of demand alter only slowly over time due to technological or economic changes. Supply-demand imbalances in commodities can persist for a surprisingly long time without moving the price sharply. In the past decade, the price of silver has been practically flat, with a few spikes, because monetary demand has been absent. Strong, sustained silver moves occur when many people decide suddenly they want silver because it is money. Today, when stocks, currencies, bonds, and other paper assets have begun to disappoint investors, investor attitudes are shifting. What begins as a trickle ends as a tidal wave when the panic peaks. When public revulsion at the US dollar begins, the tidal wave will become a tsunami. Silver, far more volatile than gold, will benefit most.

RELATIVE MARKET SIZE
In the 1960 - 1980 precious metals bull market, gold rose from $35 to $850, a 2,429% increase. At the same time silver rose from 90 cents to $50, a 5,556% increase. Silver rose 2.3 times as fast as gold.

What is the obvious reason for silver's greater volatility? Compared to gold silver is a tiny market, so the same amount of money drives silver much higher. That's why you expect to see silver rising faster than gold in a bull market - the ratio ought to be trending down as both metals rise.

Will history repeat itself? Yes, I think that silver will again outperform silver.

THE RATIO RECENTLY
Today's rising ratio does not prove that I have been wrong the past few years to recommend buying a large silver component. Just the opposite: silver is becoming a better and better buy against gold.

When you walk into the grocery store and they are offering the usually more expensive Community Club coffee on sale, do you buy it or Folgers? No choice there, right? Well, silver is on sale against gold. We have been given more time to buy silver at lower prices. In the last precious metals bull market, silver lagged gold about three years, and then passed gold without ever looking back. If silver rises faster than gold, we'll get a lot more bang for our buck - and end up with more ounces of gold as well.

I'll be first in line to admit that the gold/silver ratio chart has been very, very hard for me to interpret lately - maliciously tricky.

Last July the ratio appeared ready to break down from a five year correction uptrend, when suddenly it shot skyward. At that point I projected at top around 77:1, later 79+. It continued up to 74.07 (10 Oct. 02), then seemed to be forming a head and shoulders top.

Had it changed directions again? Right when it seemed ready to break down in December, suddenly it shot skyward again. On February 7, 2003 the ratio hit 79.6, traded sideways a few days, then dropped all the way to 74.9. The 74.5 level, which was formerly resistance, is now support. That is the first level to watch for a ratio breakdown and change to primary downtrend. Then the ratio must confirm by dropping through 70.0, 62.5, and, finally, 59.5. A head and shoulders top seems to be building with a neckline at 69.5, the top of the shoulder(s) at 74.50, and the top of the head above 79.

RETURNING TO THE MEAN
Over the years markets tend to return to their mean or average values. However, as they correct they also tend to overshoot the mean, swinging like a pendulum first too far to one side, then too far to the other.

Based on year end average prices, the 1792-2002 mean ratio is 31.32. If the ratio merely returned to that mean over the bull market's course, silver would rise about 2.4 times faster than gold. However, based on the extreme ratio swings of the last 125 years, and the ratio's drop in the last precious metals bull market, I believe it is safe to speculate that the ratio will drop much, much lower than the 200 year mean. In fact, my target is 16:1, the bottom of the last bull market.

What makes the ratio work? Why would it return to the old monetary ratio at 16:1? I presuppose that both gold and silver are money, although both have been politically demonetised. That demonetisation, and the devaluation it causes, has encouraged lower order uses of both metals, in jewellery, for instance. However, periodically the metals' monetary character reasserts itself, and the old monetary ratio reappears.

THE PHYSICAL GOLD/SILVER RATIO
I have seen wildly differing estimates of the physical occurrence of gold and silver in the earth's crust. What difference does it make? It's a fair guess that one factor determining the gold/silver value ratio is the physical ratio in the earth's crust. Over the years I have found that ratio of given as low as 10:1 and as high as 40:1, but usually at 12:1. I asked a mining engineer, and he turned up definitive data.3

According to AGI Data Sheet 57.1, "Abundance of Elements," on average silver occurs at 0.07 parts per million, and gold at 0.004 parts per million in the earth's crust. Thus the naturally occurring ratio is 17.5:1.

Interesting - that's not far from the last monetary ratio - 16:1 -- set when both gold and silver were still universal money in the last century. Nor can I forget that when the great Bunker Hunt was investing in silver back in the 1970s he was often heard to say he expected the ratio to fall to 5:1. Never forget, either, that year by year industry consumes silver, while most of the gold ever mined still sits in a vault (or hangs around a neck) someplace. For 100 years and more that industrial consumption has put steady downward pressure on the ratio.

ANCIENT RATIOS
Now consider the ratio's behaviour before it first broke through its ancient boundary at 16:1.

If you had a chart 45 feet long where every foot represented one century of history, the ratio of gold to silver would never rise above 16 to one until the last fifteen inches. It ranged from a low of 2.5 to 1 to a high of 16:1, and never rose above 12:1 until after 1500. (The ratio's jump above 13:1 after 1500 stemmed from massive silver supplies from the Spanish mines in the Western Hemisphere. The backbone of North and South America, the Cordilleran mountain range, holds the world's richest silver deposits.) For most of human history, a band from 8:1 to 12:1 has contained the ratio.

What drove silver above 16 to 1? It was politically demonetised beginning in 1873 and ending in the late 1930s when Roosevelt's silver manipulations forced China off the silver standard. Removing all that monetary demand for silver naturally made it lose value against gold, and rising industrial demand could not yet soak up the excess supply. From 1873 until 1941 the ratio rose until it hit 100:1 for the first time in history. With numerous zigs and zags, the ratio hit a low in 1980 below 16:1.

I know. I saw it. (On a yearly average basis, the post-1941 lows were 16.97 in 1967 and 14.07 in 1979.)

From that January 1980 low the ratio climbed back to 100 to 1 in February, 1991. It continued on a steady downward path until January, 1998 when it touched under 40:1. From there it has risen to 76.4 to one, and right now the ratio appears to be peaking, ready to roll over and turn down. It seems that the long term trend from 1991 is down, and the upmove from 1998 has been only a correction of that primary downward trend, which should resume when the present correction ends.

REFINEMENTS OF THE RATIO
Understanding the gold/silver ratio makes possible very profitable arbitrage refinements to our investment strategy.

First, we time our purchases by the ratio. When the ratio is relatively high, we favour silver in new purchases. When the ratio is relatively low, we favour gold.
Second, we buy that form of silver that offers a possibility of extra profit. When the silver market gets hot, new investors will be buying US 90% silver coin. That drives up the premium to 30 or 40% above the silver value. At that point we can swap 90% coin for one ounce rounds or 100 ounce bars, and convert that premium to extra ounces of silver.
Third, we play the ratio. When the ratio is high, we swap gold for silver. Then when the ratio drops, we swap silver back into gold. From the present 76:1, I am looking to make our next swap from silver to gold below 40:1. Every time we cycle through a complete swap - gold to silver and back to gold - we increase our ounces.
These ratio refinements certainly beat the alternative strategy: sitting still with a sterile investment, waiting for the price to rise.

RATIO TRADING BENEFITS & DRAWBACKS
Our strategy is to buy silver with gold when silver is cheap, and then reverse the trade, buying gold with silver, when gold becomes cheap in terms of silver. We swap, for example ten ounces of gold for silver when one gold ounce buys 80 silver ounces (the ratio is 80:1). Then when the ratio drops to 40 to one (40 ounces of silver buys one ounce of gold), we swap back our 80 silver ounces for 20 ounces of gold, doubling our holdings.

DRAWBACKS

Tax consequences.
If you have a profit in any gold that you sell and you file income tax returns, you will have to claim the gain on the gold because gold for silver does not qualify as a "like kind" exchange."
Storage. It takes 80 times as much room to store your silver.

Market risk.
I could be wrong. The ratio could go higher still, even back to 100, and you would just have to wait that much longer.

Transaction costs.
Transaction costs (shipping, spreads, and commission) can be as high as 10%, although they should be somewhat lower. You have to hold the trade long enough to justify the transaction costs, and the transaction costs of trading physical gold and silver is higher than trading some sort of paper like futures or options. (To keep your costs low, I only charge commission on one side of the trade. If your dealer won't do that, find one who will.)

BENEFITS

Growth.
It takes an investment that pays no dividends and no interest (gold) and makes it grow by increasing the number of ounces you hold.

Potential outperformance.
In the last great precious metals bull market, 1960 - 1980, silver outperformed gold about 2.3 times (230%). Gold rose from $35 to $850 or 2,429%. Silver rose from 90 cents to $50, or 5,555%, 2.29 times as fast. Silver is a smaller and therefore much more volatile market, and repeated this outperformance several times between 1941 and 1980. The 200 year mean for the ratio is 31.3:1, so if the ratio just reverts to its historic mean without overshooting it (as in 1980), it will outperform gold over two times.

Precious metals.
You never step out of your position in precious metals. You are invested in gold or silver at all times.

Never skew your portfolio more than 70% to silver. That is, at current market value you should never have more than 70% of your total investment in silver. Keep the other 30% in gold. Always take delivery of your physical metal. Never leave silver in storage with any dealer.

THE RIGHT SIDE OF THE RATIO
Fair warning: I am not a prophet. If I am wrong about gold/silver ratio, it will cost you money. You'll buy silver instead of gold and the gold will outpace the silver.

For all the reasons listed above, however, I don't think that will happen. I think the best way to profit in the next years will be to slant your precious metals portfolio toward silver, using a ratio trading strategy to increase your gains.

I could be wrong - but I've got 4,500 years of history on my side.

http://www.gold-eagle.com/editorials_03/sanders030703.html

-- F. Sanders, March 5, 2003
© The Moneychanger, 2003

For over 20 years Franklin Sanders has dealt in physical gold and silver and edited a monthly newsletter, The Moneychanger. In 1993 he wrote the book Silver Bonanza. Visit his website www.the-moneychanger.com and download a free Gold, Silver, & Platinum Portfolio Calculator. It calculates acquisition cost, current market value, average unit value, and average cost per ounce for gold, silver, and platinum. With the portfolio calculator you will also receive free daily updates and market commentary for precious metals spot prices and bullion coin and bar prices.

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1 For the umpteenth time, digital photography will not replace silver in photography in any time material to our investment. That's a red herring for the ignorant. A $500 digital camera, or a $100 digital camera for that matter, offers very little competition to a $7.00 recyclable camera that makes prints a couple of jillion times as detailed.
2 In 2002, silver output by source came 34% from lead/zinc mines, 23% from copper mines, 16% from gold mines, 1% from other mines, and only 25% from primary silver mines. World Silver Survey 2002, Washington: The Silver Institute, 2002; page 26.
3 The American Geological Institute Data Sheets for Geology in the Field, Laboratory, & Office, Third Edition, compiled by J.T. Dutro, Jr., R.V. Dietrich, and R.M. Foose, Data Sheet 57.1, "Abundance of Elements."

Private Wealth - A Thing of the Past?

2007-12-05T10:53:00.000-08:00

By David Bradshaw

Editor, Real Money Perspectives

Oct 4, 2007

Your right to privacy has been called "the civil rights issue of the information age," reports Minnesota Public Radio.

Today Americans enjoy unlimited benefits from new technologies in our wired world. But those wires send information in two directions, and the access to our personal data is very vulnerable.

"The all-you-can-eat packages of voice, video and Internet services offered by phone and cable companies may be convenient, but they represent a potentially significant threat to people's privacy," reports LA Times.

The same is true of your financial information. Your holdings in stocks, bonds, cash, even gold (in most cases) are literally on display for the world to see today, unless you take some specific (and legal) steps to privatize your wealth.

Businessweek reports an "Invasion of the Stock Hackers"… "An alarmed SEC says that teams of thieves are lifting passwords from home PCs -- and emptying online brokerage accounts. Consumers have $1.7 trillion worth of assets with online brokerages, says TowerGroup, a financial research and consulting firm."

Owning paper promises for real assets can pay off, but in today's increasingly paperless world, your assets could also be wiped out with the stroke of the key on a computer keyboard. At least temporarily your wealth could become illiquid at the very moment you most need it, unless you have something "outside the system" so to speak.

While gold bugs boast of the wonders of gold ownership in today's mixed-up financial world, those who stick with only gold stocks, gold or silver ETFs or even gold and silver bullion coins have no more privacy than equities, bonds, real estate or cash.

A shining alternative
In today's world of ultra-transparent investment, it may surprise you to discover that there are only a few legitimate investment niches that offer the small investor 100% privacy of ownership.

An excellent example is investment-grade United States gold and silver coins. In addition to being completely invisible to anyone’s prying eyes, these gems provide better average returns than gold and silver bullion historically.

Unlike most other major asset classes, investment-grade U.S. coins do not require a Social Security number or 1099 IRS reporting upon either the purchase or sale.

The U.S. Patriot Act, Section 352 covering "Anti-money laundering and terrorism," the government states; "Anything that derives 50% or more of it's value from it's metal content is covered or reportable." Translation: your bullion holdings are not private!

That means if America were to witness some type of a modern banking crisis, similar to 1933, the President has the right to declare a National Emergency and confiscate your physical gold coins, unless they can be valued at least twice their melt down value, period.

Treasury claims power to seize bullion -GATA
The U.S. Government has the authority to prohibit the private possession of gold and silver bullion coins by U.S. citizens during wartime, and, during wartime and declared emergencies, to freeze their ownership of shares of mining companies, the Treasury Department has told the Gold Anti-Trust Action Committee in August 2005.

But gold and silver owners aren't alone in such jeopardy. For the U.S. Government claims the authority in declared emergencies to seize or freeze just about everything else that might be considered a financial instrument.

The government's authority to interfere with the ownership of gold, silver, and mining shares arises from the Trading With the Enemy Act, which became law in 1917 during World War I and applies during declared wars.

When the Trading With the Enemy Act was passed in 1917, gold and silver formed part of the official currency of the United States and were essential to ordinary commerce, so perhaps an argument could be made then against "hoarding," even if "hoarding" could not be well defined. That is no longer the case; the United States has officially disavowed gold and silver as money and they no longer have a meaningful role in commerce.

So gold and silver investors may want to ask their members of Congress to seek repeal of the statutes that give the government the authority to interfere with the private ownership of gold and silver, emergencies or not. Full story.

In addition to offering privacy, U.S. rare coins are also very portable. You could easily put a million dollars worth of rare coins in a briefcase and go anywhere in the world to liquidate them in a pinch.

What other tangible asset offers such a great combination of 100% privacy and 100% portability? I can think of none, except perhaps diamonds or other raw gems, but they are not nearly as liquid, with over 5,000 U.S. rare coin dealer in the U.S. alone.

Gold stocks may be a great long-term growth asset, but whenever you are dependent upon a company's solvency or a mutual or exchange fund to maintain liquidity, you have added another layer of risk and given up privacy.

Physical ownership of rare gold alone allows you the opportunity to have 100% ownership and 100% control of your gold assets without a single worry that your gold may also become someone else's liability.

A collectible, not a commodity

Investment-grade U.S. gold and silver coins are not a commodity, they are a collectible. So while the bull market in precious metals may help to propel rare coin prices upward, buying an investment-grade coin is not the same as buying a commodity, like sugar, wheat or even gold bullion.

Have you ever seen a 100 oz. bar of gold? Some bars are ugly and beat up and some bars are brand new and shiny -- but they both trade for the exact same value. Not so with collectible coins. High quality and rarity are the primary drivers.

Because the investment-grade coin market is smaller than the bullion market, it is less prone to speculation and more geared toward being a long-term hold. This means rare coins are one of the least volatile forms of gold to own.

Every person in America has the ability to put them self on a personal gold standard by simply purchasing some physical U.S. rare gold and silver coins.

Virtual gold may be a great new product, but I'm recommending that clients hold physical gold at the foundation of their diversified portfolio.

Charts illustrate that gem-quality numismatic gold and silver coins are in a long-term bull market, like precious metals -- but rare coins tend to move up and down more gradually. Perhaps this stability is one of the reasons WSJ, Marketwatch and other mainstream news outlets have been so positive about this market niche over the last year or two.

As technology brings us closer together, the fragments of information about you are becoming much easier to piece together, revealing the most intimate details of your life, unless you take steps to privatize a portion of your wealth today.

Maintaining private wealth in the future may require owning collectibles from the past. Investment grade U.S. gold and silver coins are fast becoming a new American icon because they offer investors financial stability, profit potential AND privacy!

The Case For $2,000 Gold

2007-12-05T10:11:00.000-08:00

Why the Quiet Bull Market of the 21st Century is About to Roar!

By Craig R. Smith & David M. Bradshaw

Nov. 27, 2007

Moving little faster than a 19th century stagecoach, this "secular" (long-term) bull market in tangible assets has managed to escape the notice of mainstream America or media fanfare so far in the 21st century.

That is about to change.

Now that gold prices have risen above $800/oz., a new public phase of the gold rush is set to begin. Strong physical demand, a falling dollar, central bank buying, geopolitical risks and concerns about inflation are only a few of the major forces driving this gold bull.

"The era of 'peak gold' has arrived. Try as they might, miners cannot find enough ore at viable costs to replace their fast-depleting reserves, even if they dig miles into the center of the earth," reports London Telegraph.

"Gold is not a mainstream investment yet, because it's seen as difficult to understand," financial gurus tell Reuters.

Yet every day it becomes easier for the man on the street to understand that his paper dollars are becoming worth less … and his food, health care, gas, oil, gold, silver and most other tangible assets are all costing him more.

"The relatively subdued interest of the investing public, if not the investment newsletters and columnists, is in fact good news for those long the metal. It means there are a lot of people left to buy the stuff, which is not the case at bull market peaks. So even at about $800 the ounce, the real gold bull market has not begun," reports London Financial Times.

Headlines report: "Gold at 28-year high", yet often fail to mention, that after discounting prices for inflation, gold must rise above $2,150/oz., nearly three times the current price, to reach the previous 1980 price peak.

Ambrose Evans-Pritchard, International Business Editor for The London Telegraph reports correctly; "In today's terms, $850 gold would be equivalent to $2,000 an ounce, suggesting that the current six-year bull market in precious metals may have much further to run."

"Global commodity companies believe that gold prices will rise for years to come, eventually reaching at least $2,000 and it will probably go even higher. Investment experts say gold is the best commodity to invest in because it has stood the test of time," reports Nandita Jain of Commodity Online.

So gold is now about one third of the way toward reaching a true new high. Using the official government CPI inflation adjuster, $800/oz. gold in 1980 equates to $316/oz. gold today in 1980 dollars. So rather than being near a market top, gold remains the buy of a generation.

Daily Post: Who's Afraid of Low Inflation?

2007-12-03T07:07:00.000-08:00

By Richard Daughty "The Mogambo Guru"

November 28, 2007

www.dailyreckoning.com

"The Dollar Crisis" by Llewellyn H. Rockwell, Jr. president of the Ludwig von Mises Institute, says, "Have a look at Murray Rothbard's America's Great Depression, which remains the best overall account of why the stock market crash happened and what Hoover did to make everything worse. Murray shows that the depression was not a crisis of capitalism but the result of a disastrously loose monetary policy in the 1920s."

Book? What in the hell is he talking about? I am here to learn how to make a lot of easy money in a hurry, and he wants me to read? Oh, crap!

So I find myself growing ill at east about this "reading" thing, but Mr. Rockwell relentlessly goes on, "Do you find yourself tripped up by inflationists throwing intellectual curveballs? Maybe you should sit down with the great treatise on money and banking in our time: Money, Bank Credit, and Economic Cycles by Jesus Huerta de Soto."

Again with the books! I start to get up to leave, but as I gathered up my lunchbox, my bag of snacks, my pizza box, a bag of potato chips and a bag of Oreos, he says, "Back in the 19th century, there were many people who wanted inflation: bankers, debtors, and the government", and I think to myself, "Hey! Just like now! This could be interesting!"

And indeed it is, as it brings up an article in the Financial Times with the title "Bernanke seeks to have the best of both worlds." The pertinent paragraph was, "Mr. Bernanke signaled that the implied objective would not be 'zero inflation, properly measured', but something higher than that, because of the danger of very low inflation" Hahaha!

"Danger of very low inflation"! Hahahaha! This is the most asinine and thoroughly ridiculous thing I have ever heard! In all my years of studying economics and rigorously defending my theories (Them: "You're an idiot!" Me: "No, I'm, not!"), I have never heard of such a thing as a "danger of low inflation", and a Google search showed that there is not one instance of anybody saying that there was such a thing, even hypothetically, as "the dangers of low inflation", because inflation in prices was always supposed to be, and assumed to be, zero, or less, and it usually was, and everything was always fine, and there is not much that is lower than "zero or less".

So that is why the references to inflation being "too low" are actually about "the dangers of deflation", which is that awful feeling you get when you notice that all those assets you acquired in the big boom are not going up in value lately, and they are costing you money, and people are not borrowing money to buy them from you, and it appears that the Last Sucker In Line Who Paid The Top Price At The Top has been identified, and it is you, and you are ready to sell at a loss just to get away from the embarrassment.

And now Ben Bernanke, as is promised by "targeting inflation" and heralded by the spooky sound of ravenous wolves howling in the distance and getting closer and closer, is going to bury us in price inflation and destroy us all, but that is the only thing he can do, as there is literally nothing he can do, for if there was, someone else in all of history would have thought of it, and tried it, when their stupid experiments with fiat currencies destroyed them, and believe me when I tell you that they tried everything, and they all failed.

Then, I almost gagged on a burrito I was eating to get the taste of this whole Bernanke thing out of my mouth, when I read the Bloomberg.com news item that included "Stephen Cecchetti, professor of international economics at Brandeis University and a former research director at the New York Fed", which appears to be pretty impressive credentials until you next read that he said, "Nothing leads me to suggest that there's an inflationary pass-through from dollar depreciation." Hahahaha!

I am simultaneously busting a gut laughing while puking up blood and odd bits of burrito in anger, as this is too, too, too much!

I see Jim Rogers, being interviewed by Bloomberg.com, and I motion for him to take over here and give this moron a few Blistering Mogambo Insults (BMI), such as, "You, sir, are a moron and you should be whipped, and you would be whipped if Americans were not stupid as posts or our Congresspersons were not so corrupt (except Ron Paul)!"

Instead, it is reported that Mr. Rogers went after Federal Reserve Chairman Bernanke "for comments on the currency before a congressional committee on Nov. 8."

Mr. Rogers is quoted as actually saying, "He is a total fool." And about what is Bernanke a fool? "He said Americans who buy only American goods are not affected if the value of the U.S. dollar goes down. I was terrified."

And to prove that Mr. Rogers did NOT graduate from the Mogambo School Of Stinging Editorial Critique (MSOSEC), no matter what his resume says or doesn't say, he didn't stop there and start viciously attacking the character of the guy, the guy's family and children, the guy's friends, telling vicious lies and ruining their credit rating, which is what you learn on Day One at the MSOSEC.

Rather, he just explained how even newborn babies, fresh from the womb, cry because they know that, "If you only buy American products and the dollar goes down, the price of oil goes up, copper goes up, wheat goes up. That affects you. He doesn't understand the economy as far as I can see."

Being a graduate of the MSOSEC, I would have said more. Much more. With obscenities. Lots of them. Ugh.

Mogambo sez: If it weren't for gold, we would be in a mess with no place to go for safety. If it weren't for silver, we wouldn't have such a startling upside potential.

And if it weren't for corrupt people in and out of government who have created the mess, neither one of these assets would make us as filthy stinking rich as they are going to make us, as the ultimate value of fiat currency is always literally zero, meaning that when all the money is gone, the skimpy 5 billion ounces of gold extant in the world will be, theoretically, ALL the money, and the people who have some of it will have their share of everything! Wheee!

Editor's Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.

The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications.

The MOGAMBO GURU, e-economic newsletter,by Richard Daughty, the angriest guy in economics. e-mail: RichardSmithGroup@Verizon.net

Gold 102 : How High Will it Go?

2007-07-11T14:11:00.000-07:00

A Thinking Shift
Outdated habits of thinking are probably the worst enemies of mankind. For most people, once they are comfortable with a certain world view, they would rather die that give it up, even if reality shows itself no longer compatible with their hard fought "understanding." This is especially true in the case of those who have encountered some measure of success with their formerly valid thinking.

Ideas of "Value"
We all have been brought up with the thinking that a thing's "value" is coterminous with its (paper) dollar price. As we grew up and became interested in investing, the same thinking has prevailed. We have applied it to all kinds of transactions, and - because of the dollar's reserve currency role - have had the luxury of teaching the rest of the world our perception of economic "value" as well. That thinking, that perception of value, is about to break down - and we had better face this reality, or else ... Especially in the case of valuing gold and oil, this "dollar perception" is by now a given in the world. But not only that, in the case of gold, we have built up a further abstraction on top of the notion of "dollar pricing", namely the concept of "derivative pricing." How is the current price of gold determined? By trading physical gold, as most people believe? Not so.

Gold "Valuation"
The dollar-gold price is determined largely on the London Gold Exchange and the US COMEX through a series of futures and option trading transactions on any given trading day. In that system, paper-claims to physical gold are traded just like physical gold, under the assumption that each claim can be "cashed in" for physical gold at any time. Truth is, though, that the paper claims to physical gold have so proliferated during the past two decades that it is impossible for the responsible parties (those owing physical gold on such paper claims) to deliver gold into all of these claims at current gold prices. Financial derivatives instruments are ridiculously complex creatures, and need not be explained in detail here. Suffice it to say that they are usually paper claims to physical gold based on a lease transaction of some form or another.

An (oversimplified) example: Bullion bank (BB) borrows physical gold from central bank (CB) at a stated "interest" rate, or lease rate (usually near or below 1 percent), for a stated amount of time, the "lease period." During the lease period (3 months to one year) BB gets to sell the gold at market price, invest the proceeds in higher-yielding paper securities, cash in the yield on the paper securities at the end of the period, buy gold at market price, and return the borrowed amount of gold to CB, plus the "interest." This is done, as you probably know, mostly to "short" the market for gold, i.e., in a bet that the price of gold will stay the same or decline. The underlying "lease contract" is the CB's paper claim to have the borrowed amount of gold returned to it.

The CB can now enter the paper-gold market and sell this contract (i.e., the documented right to have the amount of gold returned to it) at a discount in order to recoup at least the cash value of the contract. In the gold markets as they are currently constituted, such a sale of such a gold "derivative" is considered a "sale of gold". The more sales of this nature occur, the more "gold" is considered to have been "sold" in the market, exerting a price-depressing effect on physical gold (in the minds of most participants in this market). However, as the number of such "sales" proliferates, the same effect is noted as in a fiat currency inflation: In currency case, the value of the inflated currency declines relative to the goods and services it can buy - prices rise in the economy. In the case of gold derivatives, paper gold is sold in the paper-gold markets, reducing the value of paper-gold. Since this paper-gold pricing mechanism is what is currently perceived as "the gold market", all participants are conditioned to perceive the paper-gold price as "the" gold price (i.e., the actual price of physical gold). Result: The physical gold price drops as well. But this will only go on for so long.

When the Paper-Shackles fall off ...
This all works just fine and dandy as long as there is not such a percentage of physical delivery demanded into these derivatives claims that the nasty truth comes down on all the participants: that there are not enough people in the world willing to sell physical gold at such artificially low prices so as to enable all of these paper claims to gold to be satisfied with physical gold (as is currently assumed by most participants). The situation is very much the same as it was in 1933, when too many people lost faith in the paper dollar (because too many of them were in circulation) and went to their banks, demanding their gold. The banks of course knew all along they never had enough gold to satisfy everyone's demand to convert, but the "system" worked because the probability of that many people demanding gold was so small.

The paper-gold market is built upon the same illusion. Traders, bullion banks, gold producers, and central banks never expect that too many people will demand physical delivery, so the faulty pricing mechanism is allowed to continue - fulfilling its still useful function. However, in the current environment of a rapidly falling dollar in the face of a rising alternative reserve currency (the euro), the paper-gold pricing mechanism (gold priced in fiat-dollars) can no longer keep up. To preserve this illusion of viability, too much gold must be loaned by central banks at ever-increasing quantities in order to supply the market with physical metal to prevent delivery problems that are just around the corner. After about a decade of full-bore gold lending and other off-the-books transactions like swapping, etc, the world's central bank gold holdings have decreased by too much to sustain the effort.

But that alone is not so bad. The last nail in the coffin of both the dollar and paper-gold pricing mechanisms for gold lies in the fact that, collectively, the most gold-heavy central banks of the entire world (the euro-system CBs) have agreed to limit their lending activity (via the Washington Accord), which itself has raised the bar considerably. Eventually, gradually, physical supply shortages will creep in and - at first quietly - make their presence known through a considerable upward swing in paper-gold prices (is that happening now?) At some point it will become clear to all market participants that their paper-claim based pricing mechanism has never been able to account for the real value of the underlying asset - physical gold. Physical gold will become so hard to come by that a huge price increase will ensue - a price increase which the paper-gold market is not equipped to accommodate (largely because it is set up to achieve the opposite).

Here comes the cool part: in 1933, FDR had complete control over the banking laws, and though his extra-constitutional emergency decrees (called executive orders) made the private ownership of gold "illegal" thus enabling the banks to survive while forcing the people to give up their gold. Now we are dealing with an entire region of individual foreign governments acting in concert to support the price of gold internationally with the express purpose of dooming the dollar, so it can be replaced by their own currency. This time no executive decree can change the outcome. When the time of physical shortages comes, the gold derivatives markets (or rather the derivatives pricing mechanism for gold) will simply melt down. There will be forced cash settlements, probably imposed by judicial decree after lengthy litigation. There will be amicable cash-settlements - literally compromises - that will not even get close to approximating the true value of gold-settlement in this unfamiliar environment. What there will not be enough of is physical gold to satisfy these paper contracts, and the (dollar) "price" of gold will rise ... and rise ... and rise ... ... and the value of the euro system's gold reserves will rise along with it. That is the crucial point. The euro itself will float like a pleasure-cruiser on the surface of that rising tide of euro bank gold-reserve values, while the dollar will remain tethered to the silly quasi-official "gold price" of $42.222 per ounce (see, Title 31 United States Code, Section 5117) like a buoy with too short a tether during a tsunami. It will simply stay under water.

And gold?
Gold will take on a dynamic that centuries, even millennia of "monetary use" have not allowed it to assume. Gold will become the number one wealth asset of the very rich and powerful. (Wanna bet that all of the really rich and powerful are already stocked up on physical gold as you read this - all the while telling you and your compatriots through the approved media outlets that gold is "risky" and should not be relied upon too heavily as an investment?) Free-gold will be the ultimate foundation of the value of the euro reserve currency without being tied to it by any legislative mechanism! This, as simple as it sounds, has never happened during gold's entire history of human use. For, commercial viability in our modern world requires the symbiosis of a mature fiat/computer-blip currency system with the oldest store of wealth known to man. This mature fiat component is an absolute prerequisite for such a system to function properly, and that is the reason why even a classical gold-standard cannot provide the same benefits. Gold convertibility has led us to where we are today - given human nature and the temptations that power provides. The silver lining in this cloud of a bleak dollar future is the fact that, at current, distorted, ridiculously low prices, gold - physical gold - represent a bargain that is simply unfathomable to most (and that's why "most" will never buy enough gold to truly profit from this dynamic, I'm afraid).

To recognize this requires a total thinking-shift. It requires adopting a completely new and different perspective on financial life. It requires that people learn to think in terms of true value rather than "dollar-pricing" when it comes to physical goods (and "derivative pricing" when it comes to physical gold.) Thinking shifts of that nature are hard to make. They require us to make mince-meat out of our former world view, the one that we have fought so hard to acquire during our lifetimes. Most people are more attached to their idea of themselves and the world around them than - to life itself. When that idea is threatened or challenged, or even utterly destroyed by the sheer force of reality as it happens around us, most people go into denial, attempting to continue to navigate by a set of data that no longer has true relevance in the new reality. In doing so, they often actually risk their lives, or they start wasting away, incapable of dealing with a totally new set of variables. This will be a very sad thing to behold - but it is bound to happen.

Conclusion - or just a new beginning?
After millennia of gold use as money, gold will finally break its man-imposed shackles and fulfill its "best use" function. Gold will trade as a pure wealth-asset without government tampering or restrictions - not because the governments of the world suddenly "got religion" and saw the error of their ways, but because they see how they can benefit from a free gold price and "stick it" to their current number one foe - the United States of America. Once the US is removed as a superpower, there is of course no telling what will follow. It may not be as pretty as some envision.

If US leaders won't recognize the danger and take the appropriate course of action, individual Americans can contribute to the survival of their country (and possibly even rid themselves of the bankster crowd to some extent?) by accumulating physical gold now. Prices are rising, and there is no telling at present how fast or how slow this scenario will progress in playing itself out - but play itself out it will. Rest assured of that! You can already see it happening all around you.

Alex Wallenwein
Editor, Publisher
The EURO VS DOLLAR CURRENCY WAR MONITOR
Moneypulation Watch (FREE E-zine)

Gold 101

2007-07-10T14:01:00.000-07:00

Reprinted from National Mining Association website
Introduction to Investing in Gold
Throughout human history, gold has been not only a means of exchange, but also a store of value. Gold is an excellent hedge against inflation, and protects earnings for the future. Modern investors can invest in gold by purchasing gold bullion in the form of bars or coins. Investors with an eye toward history may desire to invest in semi-numismatic pre-1933 coinage. This coinage offers a two-fold benefit. Not only will a rising gold price make the coins more valuable, but, due to the limited mintage of these coins, as demand increases, the rarity portion of the coin's price may also increase.
Forms of Gold Investment
The reasons for investing in gold have remained much the same throughout history. Gold is a safe haven in times of economic and financial instability. It is a proven asset-diversifier that, when included in domestic portfolios, reduces the portfolio's overall risk. And gold is an excellent hedge against inflation over the long term. Gold is the only asset that is negatively correlated against the price of the dollar.

Broker commissions on buying and selling gold can range from a few percentage points above wholesale to upwards of 20%. Investors are certainly encouraged to shop around for the most reputable dealers.