If This Comes True, You'll Be Glad You Own Gold & Silver

You'll be happy you own gold and silver once you read this, compliments of our associates at Stansberry Research and the S&A Digest: "Sovereign wealth funds," foreign government investment pools, are dumping the dollar. One big fund in the Persian Gulf has cut its dollar-denominated holdings from more than 80% a year ago to less than 60%.

China's State Administration of Foreign Exchange [SAFE] is working out deals with European private-equity funds to diversify away from the dollar. SAFE holds the majority of China's $1.6 trillion in foreign currency reserves in U.S. dollars.

Foreigners also hold roughly $1.5 trillion in Fannie (FNM) and Freddie (FRE) AAA-rated debt. Merrill Lynch (MER) warned that the U.S. could face a foreign "financing crisis" within months as Fannie and Freddie unwind. And Merrill is certainly credible on the subject of financing crises, having caused more than its share of them...

Merrill has about 40,000 customers holding roughly $6 billion of securities called auction-rate preferred securities. Like all auction-rate securities, you can only sell them at auction, which occurs only once a month. These obviously illiquid instruments were successfully marketed as liquid, money-market instruments, which can be sold instantly at any time.

Market makers used to act as buyers of last resort if auctions didn't work well. But since auctions started failing earlier this year, the buyers of last resort have dried up and blown away. They don't want to get stuck with bad paper. They just want to stick others with it. Mutual funds that bought these securities as cash equivalents have a problem. They're unable to liquidate auction-rate securities to pay the large redemptions they all face in a bear market.

We all know gold and silver are great to own during inflationary periods, but how about Google (GOOG)? Google raised the price of its online advertising 19% in the past year. And the worst-performing industries, mortgages and retail, are paying the highest prices. Google raised mortgage-company advertising rates 35% and retail rates 9.3%. Bloomberg expects Google shares to rise 25%."

Friday morning Google and Microsoft (MSFT) were hammered after reporting their quarterly earnings. Google's results were lower than expected, the result of the weakening economy hurting advertising revenue, while Microsoft missed forecasts by a penny. Google's shares were down 10% last time I checked, and Microsoft's shares were down over 7%. So much for the latest, so-called "relief rally".

I don't know about you but this has my attention, and if I wasn't already invested in gold and silver, I'd be convinced to start accumulating. In fact, any corrections that might unfold in the gold and silver markets this summer is another chance to buy the exchange-traded funds for gold (GLD) and silver (SLV).

Now if you want to have a sleepless night, or you want to reassure yourself that buying some shares of Barrick Gold (ABX), Goldcorp (GG), Kinross Gold (KGC), Silver Wheaton (SLW) and Silver Standard Resources (SSRI) are a good idea, check out what Stephen Leeb of The Complete Investor wrote to us on Friday:

Will Israel attack Iran? Or is the U.S. secretly planning to make peace with this rogue nation? Either way, what will these events do to oil prices? That's the trillion-dollar question these days. But buried in a recent New York Times article on the subject is the deeper truth that shows that – no matter what action Israel, the U.S., or Iran takes – or even if diplomacy triumphs – oil prices will skyrocket regardless.

The head of OPEC, Abdalla Salem el-Badri, said it all last week. On the one hand, he admitted that OPEC could not make up for the loss of Iranian oil, in the event it goes offline. On the other hand, he said that OPEC might halt investment in new oil production capacity.

If oil supplies are so tight already that OPEC cannot do without Iran (which contributes less than 5% of the world's oil), how will the world meet fast rising demand from the developing world over the next few years? And with supplies so tight, why cut back on development ... unless you already know you've reached a permanent peak and can't raise output no matter how hard you try?

Let's face it. Whether another war breaks out in the Middle East or not, oil prices will shoot to the moon over the next few years, rewriting the rules on which investments will pay off and which will collapse into dust. Inflation will soar, along with the cost of producing all commodities, destroying the real return on most securities.

When I read Leeb's book "The Coming Economic Collapse...How You Can Thrive When Oil Costs $200 a Barrel", it was 2006 and oil was around $70 a barrel, so this gentleman and his team certainly seem to be on the ball (or on "the barrel" depending on your perspective).

That is why I think a subscription to The Complete Investor is something you should seriously consider. I'm a subscriber, and I'm NOT PAID to recommend this uniquely valuable newsletter or any newsletter. Here's some questions they were asking us about on Friday morning:

Are you prepared for what is about to unfold?

• Russian and Saudi Arabian oil production have peaked – leaving the world with no way to meet our rapidly growing demand for energy.
• Oil prices must surpass $240 a barrel in the next few years in order to avoid severe shortages...
• Commodity prices, already at record highs, are poised to make their greatest gains in history over the next five years.
• Inflation will climb as high as 25%-30% annually, destroying the value of most people's savings and crushing their retirement dreams.
• 95% of Americans will experience a lower standard of living within the next 10 years.

These are bold assertions, but again, Dr. Leeb has a lot of credibility and his research team works hard to be accurate. If they are correct or anywhere close to correct, gold and silver prices are going to soar. The same is true for copper and most likely platinum and paladium.

Precious metals tend to do very well when energy and commodity prices are "already at record highs, [and] are poised to make their greatest gains in history over the next five years"!

Right now gold seems high at around $957 and silver also seems high at over $18 an ounce. But there are bus loads of seasoned analysts and respected precious metals "bugs" who are saying gold could go to $3,000 and silver might go over $50 an ounce.

They (including the folks at Casey Research) are saying that it wouldn't surprise them if gold and silver corrected somewhat this summer, especially if oil and natural gas prices correct.

My colleague Puru Saxena wrote me from Hong Kong early Friday morning. His words included:

In summary, don't be surprised to see oil correct in the days ahead and I can promise you that the media will be very quick to proclaim the end of the "oil bubble". However, if my assessment is correct, such a correction will be a fantastic buying opportunity in oil futures, options and top-quality companies in the oil and gas sector.

Concerning the precious metals, Purus, who writes the very respected newsletter Money Matters, which I highly recommend, said the following: "Summer months are usually a weak period for metals so continue to use the ongoing correction as a buying opportunity in this sector."

To see gold consolidating met the expectations of James Moore, of TheBullionDesk.com. "With investor risk appetite showing a slight improvement and having posted aggressive gains last week, it comes as no surprise to see the metal correct," Moore wrote.

"To avoid a deeper correction, gold needs to establish a base above the $953 to $955 chart level, but given the backdrop of rising inflation and recessionary pressures and increased financial-market jitters, we anticipate investors will view dips favorably, with the metal ultimately set to rechallenge $1,000," Moore added.

And Burton R. Schlichter, of New World Trading, believes that gold is building support, saying that "speculators and traders still have a 'buy the dip' attitude."

Bottom line: There are a lot of reasons currently that gold and silver might go up dramatically over the months and years ahead. The dollar's continued weakness seems inevitable and the ongoing monetary and finanial crises in the western world isn't going away any time soon.

Even if the "worst case scenario" doesn't unfold, what is happening now and the trends that are ongoing now should make investing in precious metals and companies that produce precious metals a very rewarding experience.

P.S.: One of my mentors and a newsletter editor himself told me yesterday that Hecla Mining (HL) is still one of the most under-valued silver producers today. Just thought I'd pass that on.

PPS: Looks like some lucky investors will get to buy Yamana Gold (AUY) under $14 a share. That would be under 14 times projected earnings, and here's a company with almost no debt and a profit margin of over 20%. Bargains are so sweet!

Comments

[atauber]

blah blah blah

[investor88]

Marc's article makes for provocative reading but there is no doubting the logic of his arguments. We can place in our minds the arguments for and against, when observing price behaviour of oil, commodities and inflation.

[drooyrich]

Autaber, as I said in another post we are in the winter cycle according to Kondratieff where the credit boom = debt boom has been fenomenal - now, this theory well documented which has with precision forecasted financials boom and bust is now predicting deflation - frankly, I cannot see how we will get deflation since the other tsunami is much bigger i.e. peak oil - with oil becoming more and more expensive, this will have an inflationary impact on food, energy, metals, etc. I think the deflation will be on housing, stocks, bonds - so, according the the classical Kondratieff theory, gold will outperform during the housing/stock/bond deflation and should do even better since we will have inflation on food/energy/raw materials - the target price ?? Ok, if we calculate how much monetary mass has been increased during the Autumn period (1980-2000) gold price should rise to 32.000 dollars just to match this increase - I know this sounds crazy but these are the facts - will it ? I would be happy for just 6000-10.000 dollars - best luck to you - protect yourself, your family because what is to come will not be pretty at all !

[drooyrich]

PS again - if Hecla is undervalued, go to First Silver Majestic for an undervalued one - Hecla is trading at 1 billion dollars cap, producing 6 million ounces of silver and 100 million proven and probable (plus a gold mine in Venezuela, blee) while First Silver is trading at one fourth the cap, will be producing more silver this year, around 7 million and is targeting to have more than 200 million ounces of silver reserves probale and proven - seems quite evident to me - the reason of this difference ? Simple, First Silver is a junior who in the space of 2 years has become a medium-large player and is still off the radar screens - best luck to all - I do have shares of Frist Silver Majestic of course - trading on the TSE as FR.TO

[jakedeez]

The dollar is not going to lose its place as the reserve currency. Horse sense people, not horse blinders. Even George Soros doesn't think people are going to sell their dollars... there is nothing to put the value in if not dollars.

[EE]

Did you forget about silver so quick? Try butlerresearch. com & silverstockreport.com

[bold4gold]

The dow, nasdaq, and s&p are all in a Bear Market. Commodities are in a bull market now and will be for years to come. Real wealth will transfere from one to the other. Soros and Jim Rogers are both buying gold to protect themselves from inflationary forces. Every smart investor should do the same... GREAT ARTICLE!

[KellyLieberman]

"The dollar is not going to lose its place as the reserve currency. Horse sense people, not horse blinders. Even George Soros doesn't think people are going to sell their dollars... there is nothing to put the value in if not dollars. "

You have got to be kidding yourself. There are antique dealers and diamond traders in Manhattan that will only accept Euros now. if you have travelled abroad in the last 6 months you would know that no one is taking dollars on the street anymore.. just Euros. If you deal in the black market overseas (Vietnam, Cambodia etc..) it's gold or gemstones. Even the criminals are too smart to take the dollar!
Gold is being held down by manipulation as a false front to prop the dollar and for a few central banks to profit. Please see link:
www.gata.org/files/Rod...
When all breaks loose as it will....what will you be holding?

[User 30121]

EE, Kelly Lieberman, et al. You can tell these non-believers only so much...before you turn BLUE! Let them go, it just makes more gold and silver available for US! I've given up trying to enlighten these nay-sayers/non-believe...

[jt]

Well said, Kelly. User 30121, it is frustrating, but don't give up. Every person has his/her tipping point, or reallife encounter, where all of a sudden the lightbulb goes on. Often the staunchest naysayer then becomes the staunchest proponent for the position s/he was just lambasting. Such is human nature, I'm afraid--"if i don't know it, it's not true." Most don't consider the possibility that they're ignorant...and I've found that the strongest opinions are put forward by the most ignorant. So keep putting out the facts for those who WILL read and think. Don't get stopped out by the naysayers...they will always be there...and those who actually KNOW as always will be in the minority. Some will have to learn the hard way...and it could get VERY hard very quickly now. jt

[E.D.Hart]

The British were the greatest Empire the world had ever seen up to that point, with unassailable naval power, and the greatest economic power to boot.

Hence the saying, "the Sun never sets on the British Empire".

It was common knowledge of all, and nearly universally believed that the British Pound Sterling would reign supreme over the new millennium of the 20th Century, as it had in the 19th Century.

It was simply inconceivable to the Brits and their trading partners that the Sterling wouldn't be the reserve currency of the world for at least another 1000 years.

Until, the dollar came along and replaced it.

Oops, never mind.

Those who hold their wealth in dollars are at risk of repeating this awful history.

Why not diversify your currency exposure?

[GMiki]

Well, the Roman Empire, the Ottoman Empire ... We had a good idea once--democracy and all that. Free markets ... (I'm not sure when those operated.) So own a little bullion, guys. Buy some silver as a failsafe. It won't kill you and when you need to buy groceries some day, you'll be happy to have the wherewithal.

[lonie]

Refering to the Iran problem and Will Rogers quip. ( Without diplomacy wars would fall flat on their face in 2 weeks .) . So, there has been lots of ' diplomacy .

[jakedeez]

Kelly - A few things to point out...

1. Antique dealers and diamond traders are irrelevant to the point of reserve currency. (also they have to take dollars, "for all debts, public and private")

2. Inflation is higher in almost ever country other then the US.

3. The Euro cannot at this point replace the dollar because of the fractured nature of the EEC's economic localities.

4. Gold and silver, while they can reasonably be held in a portfolio as a hedge, are not something that should be invested in, seriously, in a portfolio that you don't personally hold. Meaning, if you want to buy gold, but it, and accept delivery. If you hold it in a portfolio it should be traded around.

5. Over the long term, gold is less an inflation hedge then it is a hedge against panic. The idea that gold is a hedge against inflation only works because people buy it as a hedge against inflation, causing demand to increase. It is very ponzi like.

There are so many "gold bugs" out there that believe they are investing in something real, and that those who invest in stock are foolish. Gold is an "end of the world" play. It can not always be the end of the world.

Can gold continue to rise, sure, if people continue to fear inflation. Will major holders of US debt dump their dollars for gold or anything else for that matter? No. In fact the IMF is selling gold.

A failure to bail out the debt portion of Fannie and/or Freddie if needed would be far worse for the dollar then would allowing the debt to fail.

The reason why I say the dollar will not be replaced is because there is no way it can be replaced. There is no currency that is able to replace it. The dollar will get stronger, and weaker over time. There is no doubt that if we do not do something to change our net exports the dollar will get weaker over time, but that is a much longer term issue then most "gold bugs" will admit.

Look at a 20 year chart of gold... those who think that gold can't break should sit down and have a conversation with tech investors from the bubble. Heck, at least they though that had a reason to invest, other then, the US dollar will go down so I better buy gold.

Kelly, you are right, gold is being held down. There is a weakness in the dollar and our fundamental financial system... Gold however is not the solution. Gold works best when inflation expectations are accelerating... inflation is high, inflation expectations are very high. Short term paper offers negative real returns... Things are bad... that is not the time to buy gold. If you really believe inflation will continue to accelerate or at least not abate, buy tips.

If you want to diversify your holdings in USD, then do so... but the idea that you want to buy gold because the dollar is about to blow up... you maybe just a little late to the party.

[copesetic]

After tech and 911 wiped me out I starting "collecting" silver,and am up %100+.Which,I believe is just the beginning.Between increasing industrial demand,lagging production and investor demand that is still miniscule, silver is posed to be the investment of the 21st century.
The word for silver and money is the same in several languages. No other commodity will weather the coming storm as well. Not that boose,smokes and tuna don't have their place,with sufficient lead to keep them in house :) Only silver will be readily accepted when currency isn't worth the paper it's printed on...............Unles... we turn into waterworld HAHAHAHA............. we're FREAKING DOOMED!!!!! woops,a mugumbo guru moment :)

[elwind45]

When did you ever see the treasury sec become a media bum? The amount of fear must rise in investors, " when this goldman reject hits the stage". Pall- mall paulson needs to visit some State fairs to spread his "hubris". When you see treasury more than the president something is major broke. Funny, when the S&L debacle hit it was only going to cost 2.5B. The final bill was about 150B. Today its 25B to save the GSE's. However the enterprises have 80B in the "bank" or so Paulson says! The bailouts are going to create new credit to save old debts. How is this a productive use of funds? Too much credit without equal production! The fed will have to start draining at the same time that taxes will have to be raised to finance federal balance sheet. A flat tax will be added as a new way to finance government.( old system will be left in place) The GSE's will beg borrow than be folded up. The investor class is on the treasury's radar screen to be bleed dry.....pity!

[Dixicat22]

I'm not a "gold bug," "silver bug" or any other kind of fanatic, but I have built up a small pile all the same. Why? It's not because of all the negative financial intricacies artfully explained in article after article. It's because of facts on the ground. Or to put it more bluntly, the prices paid on the street for the essentials of life. Those I understand all too well. My wife and I are newly retired after more than 40 years each of high stress jobs that left us with small-modest pensions, health insurance and a bit in savings that is melting away, bit by bit. Our last trip to the grocery store rang up over $400. How do working people with children survive? How will their children survive? What will happen to all the retirees and the ever more unemployed, most of whom are not counted anymore. And this is America. This is not the time for more artful discussion. This is the time for answers that matter to people en masse. Hungry people don't give a damn about gold, silver, Swiss francs or anything else indigestable.

[marxbites]

I was just such a naysayer until I heard Cheney admit he'd kept his CFR directorship a secret as a legislator. Well indoctrinated me voted for W 2x. Well, that and W's lavishing Ted w/a 40% "education" Dept increase, instead of move towards free market education, propelled me into getting my own non-establishment biased education. As a liberal small govt fiscal conservative, I'd long ago decided the Dems were the socialist warmongers history confirms, but was deluded enough to think the Rep rhetoric was genuine. It wasn't. Indeed Lincoln was a commie socialist as hard as THAT is to believe. So the roots of the Republican party are pinker than the Dem progressive slide into it's own pinkdom. I've learned the two parties are controlled from the banking cabal that conspired to take away the people's real commodity market valued money in stages; the Morgan Dems & Rockefeller Reps.

But just wrap your mind around this from:
albensonjr.com/noconse...

//So lets take a brief look at the "conservative&quo... roots of the Republican Party. When the Republican Party ran its first presidential candidate, John C. Fremont, back in 1856, Fremont had the backing of several men who were socialist refugees from the failed socialist/communist revolts in Europe in 1848. One of the most well-known of these was Friedrich Hassaurek, an Austrian socialist, who stumped the Midwest in Fremont's behalf. However it did little good at that point, as Fremont was beaten. However, it is worth noting that when the War of Northern Aggression broke out in 1861, General Fremont ended up with a goodly number of these forty-eighter socialists and communists on his military staff while the war was in progress. The Forty-eighter socialists seem to have flocked to Fremont. What did they know about the august general that our "history" books have not bothered to tell us?

Although Fremont was beaten in 1856, the socialists and communists were nothing if not patient. In 1860 they found another candidate worthy of their leftist support--Abraham Lincoln. So in the presidential campaign of 1860 the Forty-eighters all came out for Lincoln. Carl Wittke, author of Refugees of Revolution noted that: "Lincoln was fully aware of the political influence of the Forty-eighters in the campaign of 1860, in persuading many of their countrymen to desert the Democratic allegiance for the Republicans..." It appears that the Forty-eighters had quite a bit of influence in the Republican convention in 1860--even to helping write parts of the party's platform. So much for "conservatism&quo... at the Republican roots!

Establishment historian James McPherson told us in his book Abraham Lincoln and the Second American Revolution that Mr. Lincoln had championed the cause of the socialists and communists in Europe in 1848, so why would he not embrace their unstinting support during his presidential aspirations in 1860? You can accurately label this scenario "the Red roots of the Republican Party."

If socialists and communists supported Fremont in 1856 and Lincoln in 1860 and 1864, we can hardly label the beginnings of the Republican Party as "conservative&quo... now, can we? The roots of the Republican Party were anything but conservative--at best they could be considered deep pink. Our decent, patriotic folks in this country need to become aware of this so they will not be guilty of trying to take us all back to Republican "conservative&quo... roots that do not and never did exist! It is true that the Republican Party did take a more conservative tack in the late 1940s and 50s, and even through the early 60s, but that was out of political necessity and it hardly reflects the real foundation and origins of the GOP.

It is interesting to note that, in 1860, the Democrats were the real conservatives, while the Republicans were the left-leaning radicals. People today should know the difference. The fact that most don't reveals the lack of depth in what most of us received in government schools that passed for education. Sadly, what most of us received was leftist propaganda that was paraded by us under the guise of "history." Sadly, in our day, nothing has changed and our people "still perish from lack of knowledge." //

Some mind blast eh?

Want more reality of the scam our govt is; the elites that bleed us dry who run it from the shadows, pulling the strings of the manipulatable fronts they put in office for the purpose? And the perpetual debt of perpetual wars for supposed peace?

This essay names the names, and connects the dots of the pure evil who have worked so hard in concert to take away the freedoms that some patriots once upon a time gave everything to give us.

Wall Street, Banks, and American Foreign Policy, by Murray N. Rothbard
mises.org/resources/12...

There is NO way the people's capital these criminals have squandered on themselves will ever be repaid to those who earned it. Our ONLY choice is to protect what little is left. Turn most of your paper assets into metals.

There is ZERO difference between the Warburg/Rothschild designed 2nd Reich's fiat monetary system, the very blueprint of our own FED, and the inevitable hyperinflation that results when tyrannts rob their people by coin clipping, debasement; or by printing press fiat, once they've fooled the masses into reliquishing their REAL money in exchange for unbacked money debt receipts printed from thin air. Called money because the govt says so. Boy are we stupid.

Ron Paul is dead right. He is also the only Pol I've seen in the 40 years I've paid attention, that truly upholds his solemn oath defending the constitution that no others even come close to.

[marxbites]

Dixie,

We need to chop Leviathan off at the thighs. Dems & Reps alike have proven they collude more often against us for themselves, than for we producers they feed off while themselves only consuming; producing nothing we would buy from it voluntarily.

[Jim Regan]

I hadn't heard of this recent move, that could potentially be huge and I think that a lot of people here are downplaying the potential move in the markets that results from this.

www.bullishbankers.com.../

[chux08]

Bullish Bankers = Smart Bankers judging by what I just read...

But aren't the words gold and bankers an oxymoron? Or does it just seem that way?? :-)

GREAT article nonetheless!!

[Silver-Bullet]

Fiat currencies (i.e. US$, yuan, yen, euros etc.) and Precious metals (gold, silver, platinum, palladium etc) are COMPETING ASSET CLASSES.

Government LOVE fiat currencies, as they can INFLATE AWAY THEIR DEBT OBLIGATIONS. This is highly inflationary, potentially hyper-inflationary.

IF YOU ARE A **** NON-GOVERNMENT ENTITY*****, YOU SHOULD START ACCUMULATING PRECIOUS METALS BY [DOLLAR COST AVERAGING INTO THE ASSET CLASS] EVERY TIME IT CORRECTS!!!

Keep sufficient cash for dad to day living. Get out of debt.

PROTECT YOUR FAMILY!!!

THE GOVERNMENT DO NOT HAVE YOUR BEST INTEREST IN MIND. THEY JUST WANT TO BE RE-ELECTED, AND WILL CONTINUE TO PROMISE YOU WHAT THEY DON'T HAVE. TO PAY FOR WHAT THEY DON'T HAVE, THEY MERELY PRINT MORE MONEY.

Watch 'I.O.U.S.A.', it's in the theaters now.