THE VALIDITY of BIMETALLISM

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THE VALIDITY of BIMETALLISM

Sandeep Jaitly
www.bullionbasis.com



Bimetallism is often thought of as an unworkable system of monetary arrangement. In the last form that bimetallism existed prior to the ‘de-monetisation’ of silver across the globe in the 19th century, this is certainly true. But in its original form, with floating ratios, it is a perfectly valid monetary system.

The problem, as ever, comes with the attempt to fix prices. Bimetallism - on the strict proviso that the ratio of gold to silver is not fixed - is a perfectly viable system. Since time immemorial, money was defined in terms of silver, not gold. The Pound Sterling was originally defined as 5,400 Troy grains of silver; 240 Pfennigs originally equalled one Troy pound of silver and the Indian Rupee was equal to 175 Troy grains to name but a few. Gold coinage, in so far that it existed, was very much limited in circulation. An often overlooked fact is that gold coinage was never originally defined in terms of silver. Trying to enforce a fixed relationship between gold and silver is like trying to enforce a fixed relationship between the exchange of chalk and cheese.

The United Kingdom’s Pound Sterling will be used as an example to show the blunder- filled journey from a silver based monetary unit to a gold one. Dating back to Saxon times, the Pound Sterling was defined as 5,400 Troy grains of silver divided into 240 pennies or 20 shillings. Henry VIII was the first gross monetary debaser in British history - mixing copper with silver in a ratio of 2:1 thus causing one Troy pound of silver to produce 60 shillings instead of 20. He earned the sobriquet ‘old copper nose’ when his debased coins, after minimal use, produced a coppery shine on the king’s nose.

There had been occasional dalliances with gold coinage in the early medieval period, but each attempt involved fixing the gold/silver ratio such that the gold coins were undervalued leading to them being melted for silver. The first serious attempt at a ‘floating’ gold coin was the guinea issued in 1663. 44½ guineas were defined to equal one Troy pound of gold. It was generally accepted - although fluctuations occurred - at 21 shillings. In 1697, the first blunder happened. A proclamation was made - for reason unknown - that the Exchequer accept guineas at 22 shillings (fixed.) This in effect overvalued gold compared to the rest of Europe: the gold/silver ratio in England had now advanced to 16.01, whereas in the rest of Europe is barely rose above 15.

It had the effect of draining silver coin from England and replacing it with European gold: a ‘risk-free’ arbitrage could be made with comparative ease. It must be remembered that the mint was open to both gold and silver in England then. Sir Isaac Newton, master of the royal mint, was consulted about the problem of the vanishing silver specie.

Newton, as one might expect, saw the nature of the problem easily and recommended that the value of the guinea be brought down to be more in line with European rates of gold/silver exchange. The recommendation was taken up and the guinea brought down to 21 shillings by royal proclamation - but this was insufficient according to Newton’s prescription. Even though the implied gold/silver ratio had been brought down from

16.01 to 15.28, it still remained above levels prevailing in continental Europe. In 1715, the Netherland’s West Friesland had an implied gold/silver ratio of 15, as did France. Silver specie continued to flow out of England. Newton, as the records indicate, did not sound out the idea of a floating market rate between the guinea and pound Sterling. As a general frame of thought, ‘change’ is not something the British are generally keen on.

The state of the kingdom’s silver coin had dwindled and become so worn that it was necessary to declare in 1774 that silver should be legal tender for sums over £25 by weight and not by tale (i.e. number of coins.) Silver - completely by blunder - had been replaced by gold, whilst silver remained the legal basis for Pound Sterling. The two states were incongruous. The official closing of the mint to silver in the United Kingdom [as it was by then] was achieved in 1816, when gold became the legal basis for Pound Sterling. This was merely a formality as the gold standard had been implicit for decades as silver left the country.

The road to hell...

It seems like a series of innocuous events led to the adoption of a gold standard in the United Kingdom. With malice not a forethought, the country ended up on a gold standard. All this due to something as simple as fixing a ratio. Other nations followed suit. The United Kingdom, by 1816, was a power with no equal and the rest of the world could not watch idly. The United Kingdom was the first country of size to ‘de-monetize’ silver. By the end of the 19th century - virtually all of Europe had switched to gold as the legal basis for currency (implicit or not) and silver - by the whim of governments - had become a mere token issue.

This transition had horrific consequences across the world - and it was not as pleasant a sojourn as the British experienced. Silver remained the basis for the currencies of India, China and many more. Those that were last to convert their standard from silver to gold suffered the most. In a very short space of time, these countries found that imports [from gold based countries] were getting far more costly, and exports were being paid for in voluminous amounts of silver. In some cases, this caused a rapid escalation in the general price level. This occurred in China prior to the communist revolution.

It had the effect of wiping out the agricultural classes and causing mass destitution paving the way for Mao to take command with his ignorant ideologies. India, under the imperial yoke of Great Britain, did not adopt a gold standard until 1893 - after the majority of the “civilized” world. A similar fate awaited the agricultural classes in India as China.

Attempting to fix a gold coin’s price in silver terms, a seemingly innocent desire, aided the establishment of communism.

The correct way of practicing bimetallism

Silver was the legal basis for money across the entire globe and that is the way it should have remained. The ancient currencies (e.g. Rupee and Pound) were defined in terms of silver alone. That was perfectly sufficient. The introduction of gold coin should have been under a different nomenclature so as to imply no fixed relationship between gold and silver. This was initially done - the gold guinea not being defined initially in terms of Pounds Sterling.

The two rates of exchange should be left to the market. With the strict proviso that the mints across all countries are open to both gold and silver in any size tender, any geographical differences in the (market traded) gold/silver ratio will tend to be arbitraged away. The market process would naturally achieve what Newton initially wanted: minimal difference between different countries’ gold/silver ratio rates.

A huge discovery of silver reserves in the United States - as occurred in the 19th century - would have the effect of elevating the gold/silver exchange ratio locally. Perversely, the nominal amount of gold within US borders is likely to increase with this glut of silver. A sharp move higher in the US gold/silver ratio would induce surrounding countries to send gold to the United States in exchange for the cheaper silver to be exported. The effect would be to normalise the gold/silver ratio in the United States in relation to the ratio in surrounding countries.

The problem was not with bimetallism but with the mechanics of its establishment. Bimetallism is paradise so long as exchanges between the metal are free, and mints are open to unlimited tender in both metals. It is up to the people to decide which metal they prefer and there should be no hindrance from government in this choice. From a legal perspective, there was nothing lacking in having silver as the basis for money. What was lacking was the prevailing mentality that gold could and should somehow be fixed in relationship to silver. No other pairs of distinct entities have this kind of relationship forced on them. Gold and silver are no different.

Sandeep Jaitly, 9th January 2011

Sources:
Banking and Currency, Ernest Sikes, 1905.
The Early history of Gold in India, Rajni Nanda, 1992. Lemetropolecafe. Subscription required. (http://lemetropolecafe.com/kiki_table.cfm?pid=8979)

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Free coinage of gold and silver - then and now (http://lemetropolecafe.com/chien_du_cafe.cfm?pid=9282)

Hugo Salinas Price

Some people think that one of the fundamental institutions of the 19th century should be restored; we single out Great Britain as the great leader embracing this institution.

This institution was the free minting of gold practiced by Great Britain in its heyday of growth, world economic and financial power. Under this system, any owner of gold bullion could take his bullion to the Royal Mint and have it minted into coins containing exactly the same amount of gold. This was done at no cost to the owner of bullion as a government service to the economy.

Thus, the owner of gold bullion converted his bullion directly into money which could be saved, invested or spent at will. The new gold was turned into money and increased the money supply because gold was money.

Another idea has been floated, regarding doing the same with silver: “Opening the Mint to Silver” is the same idea as free coinage of gold, outlined above, but applied to silver.

Some people suppose that re-instituting this practice of centuries prior to the 1800’s, which was indeed entirely wholesome and beneficial in its time, would produce the same wonderful results today; supposedly, the restoration of this institution would restore stability, growth savings and true and lasting prosperity.

Free coinage of silver considered

First we must think of what sort of “free coinage” of silver we are thinking of. Would we propose the free coinage of a coin with a face value, or with no face value?

If we propose the free coinage of a coin with a face value, then the face value must be superior or equal to the intrinsic value of silver. No one is going to take silver bullion to the U.S. Mint, for instance, and have it turned into silver coins with a face value that is less than the bullion value of the silver in the coins!

If the face value is equal to the intrinsic value of the silver, then within a week’s time the silver coinage would probably be on its way back to the refinery, the price of silver having gone up in the meantime and made the melted coins worth more than the coins themselves.

If the face value is superior to the bullion value of the silver in the coins, then the miners who are taking their silver to the Mint are obtaining a State subsidy of their mining operations, which is politically objectionable.

Alternatively, if we are proposing the free coinage of a coin with no face value, then the situation is different. There is no subsidy at all involved; if there is a cost for minting, it could reasonably be attributed to social and economic policy for the benefit of the community in general. It would be an acceptable State expenditure, indeed, a quite legitimate function of the Treasury.

However, the miner having turned his silver bullion into coins with no face value – or with a face value far below the intrinsic value, which negates the coin’s monetary function - is now faced with the problem of what to do with them. The coins are valuable, indeed, but – what is their value? They can be designated as “legal tender”, they are a product of the Treasury, but the problem does not go away – what is the value of these coins?

Each individual would have a different idea regarding the value of these coins with no face value! And the ideas of each individual would change hourly, according to the quoted price of silver on the international exchanges. Each transaction with these coins would necessitate a process of haggling about the correct value of the coins.

Some people, but most definitely not all people, would wish to save these coins, and under present conditions, they would most likely be doing something wise and prudent; however, they would be speculating on a rise in the price of silver, either long-term or short-term, according to the views of each individual saver. Speculators are a small portion of the total population, especially among the less-affluent savers who are the most interested in silver as a means of saving.

The fact is that silver coins with no face value, or with a face value so low as to be meaningless, as in the case of the American Silver Eagle 1 oz. coin, are generally available in quantities sufficient to cover the needs of American speculators on the price of silver, who wish to speculate by purchasing Silver Eagles.

For this reason, if under present conditions the US Mint or any other Mint were open to “free coinage of silver”, there would probably not be a great increase in the amount of such silver being minted. Such miners who turned in large amounts of silver to be minted, would be well and truly stuck with them and have a great deal of trouble in placing them among the public, which in the U.S. for instance, is already largely satisfied with the production of Silver Eagles by the U.S. Mint.

The dilemma

If free coinage refers to minting as legal tender a coin with a face value superior the value of its silver content, then this implies a subsidy to the mining interests. This is unacceptable, politically.

If free coinage refers to a coin with no face value, even if by Law classified as legal tender, this means that any important amount of additional minting is going to lead to piles of coins stuck in the hands of the miners who delivered the bullion to the Mint for minting into coins. This is unworkable economically, as there is insufficient market for silver coins with no face value.

Why did free coinage work at one time, and why would it not work again today?

The reason is not hard to find: in the past, in earlier centuries, silver was money in itself. There was no “price of silver”! The price of silver was expressed in the amount of things that a given amount of silver could purchase. The closest thing to a price of silver was the amount of gold one ounce of silver could buy.

Miners digging up silver were actually “digging up money”. With free coinage of silver, all the miners had to do was take their silver to the Mint, and - presto! – their silver bullion was turned into silver money.

How did we get from there, to where we are today?

It’s a very long story but we shall try to abbreviate it.

The greatest minter of silver in history was the Spanish Empire.

In 1535 the Spanish Crown established a Mint in Mexico City, to mint coins which already existed in Spain before the Conquest of Mexico. These were the “Pieces of Eight”, which were coins that bore in inscription “Ocho Reales” – meaning “Eight Reales”. A “Real” was the name given to a certain weight of pure silver, about 3 grams. This size of coin probably derives from the Arabian Rial, for Spain was under Moslem domination for about seven centuries until the Moors were expelled from Spain in 1492. And the Rial itself is perhaps another name for the Koranic “dirham” which is defined in Islamic Law as a silver coin of about 3 grams in weight.

Eight reales, of 3 grams each, made a coin of 24 grams. And since the U.S. silver dollar was modeled by Thomas Jefferson upon the Spanish “Pieces of Eight” used by the American Colonies before Independence, the U.S. Silver Dollar as defined by the Constitution contains – 24.05 grams of pure silver!

The ratio between the values of gold and silver, at the dawn of the Industrial Revolution, was fixed in the U.S. at 16:1. The gold dollar contained 1.505 grams of gold, while the silver dollar contained 24.05 grams of silver. 24.05 / 1.505 = 15.984, that is, very close to the ratio of 16:1.

We must pause to understand something with regard to the peculiar valuation which humans give to gold, a valuation which is quite different from that accorded to silver.

Gold has, for practical purposes, no declining marginal utility. What this means is that no one ever has so much gold, that he begins to attribute a lesser value to any additional gold. Regarding the world as a whole we can say that world demand for gold is insatiable. At the end of 1970, there was an above-ground stock of 90,000 tonnes of gold, and the price of gold was $35 dollars an ounce. At the end of 2008, the above-ground stock of gold in the world has been calculated as about 162,500 tonnes, and yet the price had gone up to close to $1,000 dollars. Additional gold is being added to this pile at a rate of about 2,500 tonnes annually, approximately 1.5% per year, and it all has an immediate market. And yet, as of June 2011, the price is in the $1,500’s.

Silver, on the other hand, does have a declining marginal utility.

The old ratio of 16:1 between the price of gold and the price of silver was established before the Industrial Revolution, when the extraction of silver from the ground was still a primitive labor-intensive process. This changed radically in the 19th century and huge quantities of silver began to flood the world and notably, the United States.
The prevailing view of what happened to silver in the 19th century is as follows:

The world’s appetite for silver began to taper off as a result of its declining marginal utility under the impact of the enormous production of silver. There arose a great conflict between those miners who insisted that the U.S. Government should maintain, to their benefit, of the old ratio of 16:1, and the market for silver, which began to reflect the declining marginal utility of silver in lower prices for silver, while the gold price stood firm, due to its non-declining marginal utility, even when gold mining was also producing increasing quantities of gold.

In 1873, the Sherman Act by the U.S. Congress finally demonetized silver. The struggle to maintain the old ratio of 16:1 was ended. Gold had triumphed.

Professor Antal E. Fekete has a different explanation for what happened to silver in the 19th century. As we understand his explanation, the Sherman Act of 1873 was not the result of a fall in the price of silver, which would have meant an enormous subsidy of the Western mining interests had the policy of the “Open Mint” been continued, but rather the cause of a fall in the price of silver. Because up until the Sherman Act, all silver taken to the US Mint was minted into coin for the account of the owner of the silver – i.e. the miners; whereas the Sherman Act changed this crucial arrangement and declared that henceforth, the Treasury would mint silver dollars for its own account, that is to say, only in the amounts which it, the Treasury, decided should be minted. The miners were thus left hanging in the air with an excess of production of silver which had to be offered on the market. The result was that the price of silver began to decline.

Whatever the cause of the demonetization of silver – whether the fall in the price of silver gave rise to the Sherman Act, or whether the Sherman Act was itself the cause of the fall in the price of silver, the fact is that silver finally ceased to be regarded as money in itself, except for China, which capitulated in the 1930’s and Latin America which abandoned silver in the early 1900’s.

In spite of having been demonetized, in spite of no longer being money-in-itself, silver went on being used to manufacture coins for everyday use all over the world until the 1950’s. Since then, all silver coins in the world gradually went out of circulation, one by one. The reason for the disappearance of silver money was that the increasing volume of money in the form of banknotes and bank deposits created by the banking systems of the world began to exert an upward pressure upon the price of silver. The silver in coins of various denominations began to be worth more when melted down into silver bullion, than as monetary coins. Some people saved their silver coins, perceiving the increase in the value of silver, but the vast majority of silver coinage in the world was melted down and sold as silver bullion.

The rise of technology in the world since 1950 created the principal market for silver bullion. Silver’s continued use in the minting of coins became a minor part of the market. Industrial use created by technology became the major support for the price of silver.

Silver is no longer used to mint coins for monetary use. The fall in the price of silver, initiated in the 1800’s, has now ceased and silver is gaining value, partly as an effect of the increase in money in circulation and the perceived probability of huge future increases in money in circulation due to current monetary policy around the world.

People around the world are now concerned about the safety of their savings and are buying silver and gold as a refuge for those savings.

The silver coins that people are buying are not monetary silver coins; they cannot easily and immediately be used in daily transactions to pay for purchases of goods or services. Purchasing those coins is a form of speculation on the future increase in the price of silver and the value of the coins. It is a wise speculation, but a speculation nevertheless. More and more people are now buying silver coins in spite of the occasional falls in the price of silver, because the fears caused by these falls are outweighed by the fear of losing all their savings when invested in other ways.

This is where we are today, with regard to silver.

The rise of numeric money

At the dawn of the 20th century, gold was the world’s money. A British Pound was 7.32 grams of gold, and the coin which contained that amount of gold was called the “Sovereign”; it had no numeric value engraved upon it, which is significant: gold was money and the Sovereign did not require a numeric value in terms of something else. A US dollar was the name for a monetary unit that contained 1.505 grams of gold. A Mexican peso was the name for a monetary unit that contained .75 grams of gold. And so on, around the world.

The 20th century saw the birth and growth of the power of the State thanks to the idea that the State is to be responsible for prosperity and the amelioration of the economic condition of the poor - the Welfare State, in other words. The Welfare State requires expenses far beyond the resources of the State which can be provided by taxation.

Banking systems all over the world collaborated in providing their respective States with banking money (deposits) and bank notes created out of nothing.

Initially, it was possible to redeem this bank money by claiming gold against the delivery of bank money, but finally in the 30’s, paper calims against gold were so excessive that general bankruptcy took place, and since then, no bank note in the world has been exchangeable for gold upon demand.

The last tenuous link between money and gold which existed in the world was expressed by the Bretton Woods Treaty of 1944. Only foreign Central Banks could claim gold redemption for dollars which they held. Their own monetary systems were based on the trust that their dollar claims upon US gold would be honored.

On August 15, 1971 those claims were dishonored. Nixon “closed the gold window” and the dollar, and with it the whole world, was freed from any constraint upon the increase of debt – debt could be “paid” with more debt, forever and ever, or so it was thought.

The international bankers were delighted. At last, they were free from that pesky limiting factor, gold! Free to expand credit, free to create more money ad libitum. The ensuing decades were a banker’s dream!

By and large, the change to irredeemable bank money was enormously successful, if the creation of a world gone mad can be considered a success.

As the decades went by, people eventually forgot about the gold into which their bank notes (paper money) had once been redeemable. They began to think about their bank notes as money itself, when they are not so by any means; they are only a formerly redeemable representation of actual gold money.

The bank notes bear numbers which originally referred to the weight of metal they represented. The world has forgotten this entirely and now people everywhere regard the bank note as money itself and the quantity of money as equivalent to the number on the note.

The population of the globe today thinks of money in terms of numbers which refer to no quantity of anything. The more numbers you can add up, the wealthier you are! The world’s money is simply numeric.

Problems of free coinage of gold without a gold monetary system

Within a world monetary system that is exclusively numeric, the free coinage of gold would mean the minting of coins either bearing a face value, or not bearing a face value.

The U.S. Mint does produce gold coins with a face value, but the face value is so low as to be meaningless – the face value is ignored; it is as if it were not there at all.

If the Mint were open to free coinage, the miner supplying the gold bullion would be in the same position as the miner supplying silver bullion in exchange for silver coins with no face value: “Now, what do I do with the coins? Who wants them?” The market for gold coins is satisfactorily served by current minting. There is no scarcity of gold coins. They are readily available. The miner does not want this hassle. He disposes of his gold by other means.

Since they bear no numeric face value which is related to reality, gold coins are not easily useable in commerce. Purchasing them is pure speculation – even if the best and most solid speculation. Using them as money directly will require negotiation between buyer and seller. This is cumbersome and inefficient.

Gold is money, but it cannot at present be used as money directly in day to day affairs, because using it requires what is actually barter activity. Today it is not possible to make a deposit in a bank anywhere in the world, using a gold coin. Some banks in Europe buy and sell gold coins. If you want to make a deposit, you must first sell your gold coin at one window, and with the numeric money you can then make a deposit at another window.

My friend James Turk has invented an ingenious system which he calls “Goldmoney” and it does perform a useful service for gold owners; “Goldmoney” can accept numeric money from the owner of an account, and convert that numeric money into gold held for his account; conversely, “Goldmoney” will convert the gold holdings of the owners of an account into numeric money and effect a transfer of this numeric money according to the account holder’s instructions. Alternatively, “Goldmoney” can effect transfers of gold between gold holder’s accounts.

Let us now suppose that the U.S. Mint is going to produce gold coins with a true face value. Just what is that value going to be?

A moment’s consideration will suffice to conclude that such a project is not feasible, because the true price is fluctuating every day in terms of numbers and today, numbers rule in this world.

Gold is not directly useable as money in today’s world, but it remains a mighty metal.

Let us suppose that the U.S. Mint produced a gold ounce coin and that it was given a value of $2,000 dollars, when the market price of gold is $1,600 dollars per ounce. What would be the result?

The result would not be a gold coin overvalued in terms of present numeric dollars. The result would a devaluation of the numeric dollar in terms of gold! Up to 1934, the U.S. dollar represented 1.505 grams of pure gold. This worked out to a price of gold in dollars of $20.67 per Troy ounce.

Suppose gold has reached a price of $1,600 dollars an ounce. If a gold coin is minted that says “$2,000 Dollars”, then that means that the dollar is now worth less, it has been devalued to one two-thousandth of an ounce of gold; otherwise, people would take four of these coins, paying $8,000 dollars for them, and buy five ounces of gold bullion. What people want with gold is to have more gold, no matter how it looks!

So, it is not possible to overvalue a gold coin.

Winding up this discussion it is clear that as things are, “opening the Mint to the free coinage of gold” cannot be a useful measure, because it can only be considered as an institution that complements a monetary system wholly based on gold as money in itself. Whenever we talk of “the price of gold” it is evident that we are living in a monetary system that is not a gold system. Under a gold monetary system, there is really no “price” of gold, for everything is priced in terms of gold, and “the price of gold” is revealed by the things which gold can purchase – its purchasing power.

Free coinage of gold is not viable except as a support to a monetary system that consists exclusively of gold, or of gold and silver, where the silver floats in relation to gold. To put it simply, think of the monetary system as a duck, and of free coinage as the feathers on the duck. The two must exist together!

Considerations regarding silver

If silver is currently $36 dollars an ounce, a one-ounce silver coin can be successfully placed in circulation with a monetary, numeric face value of $60 dollars, which overvalues the silver contained in the coin.

These coins would be very useful to the population and would be eagerly snapped up in vast quantities. The population would save these coins and use paper money for transactions – Gresham’s Law; individuals would dispose of their silver money only in situations of great need. Theoretically, it would be possible to gather important quantities of these coins and use them to purchase a greater weight of silver bullion than that contained in the coins. However, it would be difficult to gather such quantities of silver, as the people would be jealously hanging on to their silver coins. Those individuals who might wish to carry out such an operation would be turning in silver money in exchange for bullion, and bullion, unlike the coins, would carry the risk of a fall in the price of silver. The speculators would have abandoned cash for a speculative position in bullion.

Those people who might wish to own more silver bullion would want to purchase their bullion with numeric money and not with overvalued silver money – this is predicated by Gresham’s Law: you spend the money that appears less desirable, and retain the money that you think is more desirable; a silver coin which overvalues the silver in the coin, is certainly more valuable, in the eyes of its owner, than a paper note or a bank deposit.

However, these temporarily overvalued silver coins would eventually exist in a situation where silver bullion is valued at more than $60 dollars an ounce, because since numeric or fiat money is continually increasing in volume, prices are rising and silver bullion will eventually be worth more than $60 dollars an ounce.

These coins would then be undervalued and their destination would be the refinery, where they would be turned into bullion with a higher numeric value. Thus, silver coinage with an overvalued face value is possible, but destined to a short life in circulation.

We have covered all the alternatives regarding free coinage of silver and of gold. The free coinage of both precious metals poses similar yet different problems which make it impossible to implement free coinage.

Free coinage is only possible and indeed, highly useful and desirable where people think in terms of quantities of precious metals when they are doing their economic calculation, not in terms of numeric money, and this can only happen where the monetary system is based on gold or silver, or on both.

The way back

How can we return to such a sound and realistic economy, where precious metals become once again money itself, because people think in terms of quantities of precious metal, either silver or gold?

First, we do not believe any change can be effected by a decree of any sort. The change must come in a roundabout way, insensibly. The problem of an overnight change, from the whole world’s way of economic calculation by simple numbers, to calculation by quantity of precious metal is simply overwhelming.

Just as the change from using quantities of precious metal to effect economic calculation was gradual – a gradual decline in quality of money, we may remark – so a change back to using precious metals in economic calculation will have to be gradual.

We believe that the insertion of silver into circulation must come first, because silver is the metal that is accessible to the majority of the world’s population.

This can be done by a kind of collaboration with the present system of numeric calculation in terms of money which is only numbers.

Gresham’s Law is popularly expressed as “bad money drives out good”, meaning that money of higher quality is driven out of circulation and into savings!

The plan is to infiltrate good silver money into potential circulation, in parallel with numeric – paper – money; “potential circulation” means that though the silver money will be usable in any transaction, in practice it will not circulate, because as higher-quality money it will be driven into savings. And savings, immediate and massive increase in savings, is what is vitally necessary in today’s over-indebted world. Good silver money could and would provide the necessary incentive and means to accommodate massive savings.

Silver can be turned into money that will never vanish en route to the refinery, as in the past, but remain permanently in savings as potentially circulating money

There is only one way to achieve this

A silver coin with no engraved face value can be granted a numeric value by means of an official quote on the part of a State Authority, either by the Central Bank, or preferably by the Treasury itself.

The numeric value will overvalue the silver in the coin, ideally by a small percentage. This numeric value, granted by the Central Bank or Treasury, will increase as the price of silver rises; the rise in the price of silver will be inevitable, due to the constant increase in the volume of numeric paper money and bank deposits.

The overvaluation of the silver coin by the Treasury or other Authority creates a profit for the Treasury or other Authority that mints and grants a virtual monetary value to the coin. This is can be called either a subsidy or a tax paid by the population to the issuing institution. This is a one-time-only cost of furnishing real, tangible silver money for the population, and it will willingly be paid by the population. The cost will not be paid by the Monetary Authority, but paid by the population to the Monetary Authority.

Temporary falls in the price of silver will not be allowed to affect the official numeric value, only rises, just as the value of a dollar bill does not depend upon the value of the paper it’s printed on. (Though rises in the price of paper and costs of printing are making the printing of paper dollars uneconomical already, as shown by the attempts to introduce metallic dollars into circulation in the U.S.) A fall in the price of silver would mean greater profit for the Monetary Authority, and a larger over-valuation of the silver in the coin, regarding which the public will be totally indifferent. Absolutely no one will wish to turn in his over-valued silver coins for paper bills.

This coin will never disappear from circulation, as it bears no engraved value which cannot be modified when the intrinsic value of the silver in the coin begins to approach its engraved value.

This coin, due to its superior quality as incorporating a quantity of silver, will immediately be snapped up by the population and retained as savings. Daily expenses will be met with numeric money but silver will be kept back as savings, useable in emergencies directly as money in daily transactions.

The creation of this silver coin, now become money with a virtual numeric value, makes its use possible in numeric economic calculation and in daily needs in case of pressing circumstances. It can co-exist with numeric money. Whoever pays with the coin, the recipient of the coin will probably retain it in savings. It can be deposited for credit in a bank at its numeric value, in which case the bank manager will probably keep it for himself, by substituting an equivalent amount of paper money out of his own pocket for the silver coin.

This plan for monetizing silver is not a plan for “free coinage of silver”. The Mint will coin such quantities of silver coins as demanded by the public. If the coin is scarce, a premium will be paid by savers anxious to own this coin. The Monetary Authority will be charged with the task of minting quantities of this coin sufficient to satisfy popular demand. If the coin is so abundant that its quantity exceeds the capacity for savings of the population, the excess will return, via the banking system, to the Central Bank, until the desire for saving on the part of the population once more manifests itself in further demand for the coin.

Thus, silver will come once again into use as money, with the help of a virtual numeric value granted by a Monetary Authority.

It is foreseeable that masses of this silver money, put away in savings, will be in the hands of the people as numeric money destroys itself, as it appears to be doing through its issuance in astronomic quantities. When the pernicious numeric money destroys itself, silver will remain in the field! When the Central Banks collapse through their own actions, silver will once again take its rightful and reasonable place in the lives of people, by default.

World demand for this coin, ideal for savings, will be so great as to drive industrial use of silver into second place in the determination of the price of silver. As silver is sought as a monetary refuge, minting of coins will become so great that demand for silver as money will determine limits to its industrial use and drive the price so high that the old ratio of 16:1 might become a reality once again. But, that would be far in the future.

The fixed ratios between silver and gold which existed in the past were actually mistakes of policy and theoretically, it is unsound to look for such a fixed ration, because of the difference between gold and silver. Gold does not have a diminishing marginal utility, while silver does have such a diminishing marginal utility. This indicates that the ratio between silver and gold must be a fluctuating ratio, where it is the value of silver with relation to gold that fluctuates.

It is important to place monetized silver in the hands of people once again so that the idea of silver as money does not totally disappear from the memory of mankind.

Our very civilization depends upon the use of real, physical money. We cannot have an industrial civilization along with the use of numeric money which is now either paper, or in bank accounts nothing more than imaginary money.

Man cannot deal with reality with what is the stuff of numbers of no substance.

Silver must be first in circulation, before gold, because silver is for use by the masses and gold is much more special. The way back to gold, which is so vitally important, is through silver as money in the hands of the people.

All of this does not mean that people will be saddled with the need to handle heavy quantities of silver to make payments. The ownership of a quantity of silver money can be transferred by electronic means from one owner to another; “Goldmoney” can also be “Silvermoney”. Only 50 years ago, the U.S. Treasury issued Silver Certificates representing silver in the vaults of the Treasury. Silver Certificates representing monetized silver coins in Treasury vaults would be acceptable, as there would be no leveraging involved.

All great transformations in social and economic life must involve masses of people. In other words, change must come from the grass roots.

The mobilization of silver as money once again, to circulate in parallel with numeric money, is the way forward. Silver money is the thread that will allow humanity to escape from the Labyrinth of numeric money.

We have no idea to propose, regarding the reform of the international monetary system to restore gold as money. This is something that has to take place, because the world has truly turned into a madhouse of disorder since gold was banished in 1971. We have no idea how the restoration of gold as money in the world will take place.

The restoration of gold money is gigantic counter-revolution in monetary affairs. While we wait for this event, the monetization of the silver ounce, or some fraction of it, to allow it to circulate permanently in parallel with numeric money is something that favors humanity and that can be carried out without upsetting the world’s numeric monetary system.

We conclude with a phrase borrowed from Franz Lehar’s “Merry Widow” operetta: “Man tut vas man kann!” – one does what one can!

[pywong]

The Screaming Fundamentals for Owning Gold and Silver

The Screaming Fundamentals for Owning Gold and Silver (http://www.chrismartenson.com/martensonreport/how-play-greatest-gold-silver-bull-market-our-lifetime?utm_source=financialsense&utm_medium=syndication&utm_content=link2&utm_campaign=59850)

BY CHRIS MARTENSON PHD06/29/2011

Both are going much higher, for different reasons

This report lays out an investment thesis for gold and one for silver. Various factors lead me to conclude that gold is one investment that you can park for the next ten or twenty years, confident that it will perform well. My timing and logic for both entering and finally exiting gold (and silver) as investments are laid out in the full report.

The punchline is this: Gold and silver are not (yet) in bubble territory, and large gains remain, especially if monetary, fiscal, and fundamental supply-and-demand trends remain in play.

Introduction

In 2001, as the painful end of the long stock bull market finally seeped into my consciousness, I began to grow quite concerned about my traditional stock and bond holdings. Other than a house with 27 years left on a 30 year mortgage, these holdings represented 100% of my investing portfolio. So I dug into the economic data to see what I could discover. What I found shocked me. It's all in the Crash Course in both video and bookform, so I won't go into that data here.

By 2002, I had investigated enough about our monetary, economic, and political systems that I decided that holding gold and silver would be a very good idea, poured 50% of my liquid net worth into precious metals, and sat back and watched.

Since then, my appreciation for and understanding of the role of gold as a monetary asset and silver as an indispensible industrial metal have deepened considerably.

Investing in gold and silver is still a good idea. Here's why.

Why own gold and silver?

The reasons to hold gold and silver, and I mean physical gold and silver, are pretty straightforward. So let’s begin with the primary reasons to own gold.

To protect against monetary recklessness
As insulation against fiscal foolishness
As insurance against the possibility of a major calamity in the banking/financial system

For the embedded 'option value' that will pay out if and when gold is remonetized
By ‘monetary recklessness,’ I mean the creation of money out of thin air and the application of more liquidity than the productive economy actually needs. The central banks of the world have been doing this for decades, not just since the onset of the great financial crisis. In gold terms, the supply of above-ground gold is growing at roughly 3% per year, while money supply has been growing at nearly three times that yearly rate since 1980.

Now this is admittedly an unfair view, because the economy has been growing, too, but money and credit growth have handily outpaced even the upwardly distorted GDP measurements by a wide margin. As the economy stagnates under this too-large debt load while the credit system continues to operate as if perpetual expansion were possible, look for all the resulting extra dollars to show up in prices of goods and services.

Real interest rates are deeply negative (meaning that the rate of inflation is higher than Treasury bond yields). This is a forced, manipulated outcome courtesy of central banks that are buying bonds with thin-air money. Historically, periods of negative real interest rates are nearly always associated with outsized returns for commodities, especially precious metals. If and when real interest rates turn positive, I will reconsider my holdings in gold and silver, but not until then. That is as close to an absolute requirement as I have in this business.

Monetary policies across the developed world remain as accommodating as they’ve ever been. Even Greenspan's 1% blow-out special in 2003 was not as steeply negative in real terms as what Bernanke has recently engineered. But it is the highly aggressive and ‘alternative’ use of the Federal Reserve balance sheet to prop up insolvent banks and to sop up extra Treasury debt that really has me worried. There seems to be no way to end these ever-expanding programs, and they seem to have become a permanent feature of the economic and financial landscape. In Europe, the equivalent would be the sovereign debt now found on the European Central Bank (ECB) balance sheet.

Federal deficits are seemingly out of control and are now stuck in the -$1.5 trillion range. Massive deficit spending has always been inflationary, and inflation is usually gold/silver friendly. Although not always, mind you, as the correlation is not strong, especially during mild inflation (less than 5%). Note, for example, that gold fell from its high in 1980 all the way to its low in 1998, an 18 year period with plenty of mild inflation along the way. Sooner or later I expect extraordinary budget deficits to translate into extraordinary inflation.

Reason #3, insurance against a major calamity in the banking system, is an important part of my rationale for holding gold. I’m not referring to “paper gold” either, which includes the various tradable vehicles (like the "GLD" ETF) that you can buy like stocks through your broker. I’m talking about physical gold and silver because of their unusual ability to sit outside of the banking/monetary system and act as monetary assets.

Literally everything else financial, including your paper US money, is simultaneously somebody else’s liability, but gold and silver are not. They are simply, boringly, just assets. This is a highly desirable characteristic that is not easily replicated.

Should the banking system suffer a systemic breakdown, to which I ascribe a reasonably high probability of greater than 1-in-4 over the next 5 years, I expect banks to close for some period of time. Whether it's 2 weeks or 6 months is unimportant; no matter the length of time, I'd prefer to be holding gold than bank deposits.

During a banking holiday, your money will be frozen and left just sitting there, even as everything priced in money (especially imported items) rocket up in price. By the time your money is again available to you, you may find that a large portion of it has been looted by the effects of a collapsing currency. How do you avoid this? Easy; keep some ‘money’ out of the system to spend during an emergency. I always advocate three months of living expenses in cash, but you owe it to yourself to have gold and silver in your possession as well.

The final reason for holding gold, because it may be remonetized, is actually a very big draw for me. While the probability of this coming to pass may be low, the rewards would be very high.

Here are some numbers: The total amount of 'official gold,' or that held by central banks around the world, is 30,684 tonnes, or 987 million troy ounces (MOz). In 2008 the total amount of money stock in the world was roughly $60 trillion.

If the world wanted 100% gold backing of all existing money, then the implied price for an ounce of gold is ($60T/987MOz) = $60,790 per troy ounce.

Clearly that's a silly number (or is it?), but even a 10% partial backing of money yields $6,000 per ounce. The point here is not to bandy about outlandish numbers, but merely to point out that unless a great deal of the world's money stock is destroyed somehow, or a lot more official gold is bought from the market and placed into official hands, backing even a fraction of the world's money supply by gold will result in a far higher number than today's ~$1,500/Oz.

The Difference Between Silver and Gold

Often people ask me if I hold goldandsilver as if it were one word. I do own both, but for almost entirely different reasons. Gold, to me, is a monetary substance. It has money-like qualities and it has been used as money by diverse cultures throughout history. I expect that to continue.

There is a chance, growing by the week, that gold will be remonetized on the international stage due to a failure of the current all-fiat regime. If or when the fiat regime fails, there will have to be some form of replacement, and the only one that we know works for sure is a gold standard. Therefore, a renewed gold standard has the best chance of being the ‘new’ system selected during the next bout of difficulties.

Silver is an industrial metal with a host of enviable and irreplaceable attributes. It is the most conductive metal known, and therefore it is widely used in the electronics industry. It is used to plate critical bearings in jet engines and as an antimicrobial additive to everything from wall paints to clothing fibers. In nearly all of these uses, plus a thousand others, it is used in such vanishingly small quantities that it is hardly worth recovering at the end of the product lifecycle -- and often isn’t.

Because of this dispersion effect, above-ground silver is actually at something of a historical low point. When silver was used primarily for monetary and ornamentation purposes, the amount of above-ground, refined silver grew with every passing year. After industrial uses cropped up, that trend reversed, and today there are perhaps 1 billion ounces above ground, when in 1980 there were roughly 4 billion ounces.

Because of this consumption dynamic, it's entirely possible that over the next twenty years not one single net new ounce of above ground silver will be added to inventories, while in contrast, a few billion ounces of gold will be added.

I hold gold as a monetary metal. I own silver because of its residual monetary qualities, but more importantly because I believe it will continue to be in demand for industrial uses for a very long time, and it will become a scarce and rare item.

Scarcity

If we cast our minds forward ten years and think about a world with oil costing 2x to maybe 8x more than today, we have to ask how many of our currently-operating gold and silver mines, or the base metal mines from which gold and silver are by-products, will still be in operation, and how many will close because their energy costs will have exceeded their marginal economic benefits.

After just 100 years of modern, machine-powered mining, nearly all of the good ores are gone. By the time you are reading stories like this next one, you should be thinking, 'Why are they going to all that trouble unless that's the best option left?'
South African Miners Dig Deeper to Extend Gold Veins' Life Spans (http://online.wsj.com/article/SB10001424052748703584804576144062424424614.html?m od=WSJEurope_hpp_LEFTTopStories)

Feb 17, 2011

JOHANNESBURG—With few new gold strikes around the world that can be turned into profitable mines, South Africa's gold miners are planning to dig deeper than everbefore to get access to rich veins.

The plans raise questions about how to safely and profitably mine several milesbelow the surface. Success would mean overcoming problems such as possible rock falls, flooding and ventilation challenges and designing technology to overcome the threats.

Mark Cutifani, chief executive officer of AngloGold Ashanti Ltd., has a picture in his office of himself at one of the deepest points in Africa, roughly 4,000 meters, or 13,200 feet, down in the company's Mponeng mine south of Johannesburg. Mr. Cutifani sees no reason why Mponeng, already the deepest mining complex in the world, shouldn't in time operate an additional 3,000-plus feet deeper.

"The most critical challenges for all of us in South Africa are depths and depletion of reserves," Mr. Cutifani said in an interview.

The above article is just a different version of the story that led to the Deepwater Horizon incident. By the time exceptional engineering challenges are being pondered to scrape a little deeper, it tells the alert observer everything they need to know about where we are in the depletion cycle. We are closer to the end than the beginning.

We are at the point in history where we can easily look forward and make the case for declining per capita production of numerous important elements just on the basis of constantly falling ore purities and gold and silver fit into that category rather handily. Depletion of reserves is a very real dynamic and it is not one that future generations will have to worry about; it is one with which people alive today will have to come to terms.

The issue of Peak Oil only exacerbates the reserve depletion dynamic by adding steadily rising energy input costs to mix. Should oil get to the point of actual scarcity where we have to ration by something other than price, then we must ask where operating marginal mines fits into the priority list. Not very high would be my guess.

Supply and Demand - Gold

Not surprisingly, the high prices for gold and silver have stimulated quite a bit of exploration and new mine production. With over decade of steadily rising prices, there has been ample time to bring on new production. Which leads to a real surprise: in the case of gold, relatively little incremental mine production has occurred.

The analytical firm Standard Chartered has calculated a rather subdued 3.6% gold production growth over the next five years:

Most market commentary on gold centres on the direction of US dollar movements or inflation/deflation issues – we go beyond this to examine future mine supply, which we regard as an equally important driver. In our study of 375 global gold mines and projects, we note that after 10 years of a bull market, the gold mining industry has done little to bring on new supply. Our base-case scenario puts gold production growth at only 3.6% CAGR over the next five years. (Source - Standard Chartered)

Of course none of this is actually surprising to anyone who understands where we are in the depletion cycle but it's probably quite a shock to many an economist. The quoted report goes on to calculate that existing projects just coming on-line need an average gold price of $1,400 to justify the capital costs while greenfield, or brand-new, projects require a gold price of $2,000 an ounce.

This enormous increase in required gold prices to justify the investment is precisely the same dynamic that we are seeing with every other depleting resource: energy costs run smack-dab into declining ore yields to produce an exponential increase in operating costs. And it's not as simple as the fuel that goes into the CaterpillarD-9s; it's the embodied energy in the steel and all the other energy-intensive mining components all along the entire supply chain.

Just as is the case with oil shales that always seem to need an oil price $10 higher than whatever it currently is to break even, the law of receding horizons (where rising input costs constantly place a resource just out of economic reach) will prevent many an interesting, but dilute, ore body from being developed. Given declining net energy, that's forever as far as I am concerned.

The punchline of the Standard Chartered gold report is that they think $5,000 gold is a realistic target and go on to note the most important shift in gold accumulation of the past 30 years:

The limited new supply comes at a time when central banks have turned from beingnet sellers to significant net buyers of gold. The result, in our view, will be a goldmarket in deficit, even assuming flat growth in demand.

With the supply-demand balance so out of kilter, we see the gold price potentially going to US$5,000/oz. (Source)

The emergence of central banks being net acquirers of gold is actually a pretty big deal. Over the past few decades central banks have been actively reducing their gold holdings preferring paper assets over the 'barbarous relic.' Famously, Canada and Switzerland vastly reduced their official gold holdings during this period, a decision that many citizens of those countries have openly and actively questioned.

The World Gold Council out of the UK is the primary firm that aggregates and reports on gold supply and demand statistics. Here's the most recent data on official (i.e. central bank) gold holdings:



(Source)

Note that the 2009 data is lowered by slightly more than 450 tonnes in this chart to remove the one-time announcement by China that it had secretly acquired 454 tonnes over the prior six years, so this data may differ from other representations you might see. I thought it best to remove that blip from the data. Also the data for 2011 is for the first four months only, so we might expect 2011 to be a record-setter if the current pace continues.

Overall, world supply and demand are a bit out of alignment right now with supply increasing by 2% last year and non-official demand increasing by 10%:



The summary of the fundamental analysis is that with mine production seriously lagging the price increases for gold, coupled to increased central bank and investment demand, we have set the stage for some hefty prices increases irrespective of any fiscal or monetary shenanigans.

However, once we put those back into the mix, I forecast a quite volatile but upwardly sloping price for gold over the coming years. Possibly a very steep upward slope at points.

Supply and Demand - Silver

Silver demand is growing by double-digit percentages, being led primarily by industrial uses and investment demand. The Silver Institute does a fine job of tracking and reporting on these matters.

First demand:

Total fabrication demand grew by 12.8 percent to a 10-year high of 878.8 Moz in 2010; this surge was led by the industrial demand category. Last year, silver’s use in industrial applications grew by 20.7 percent to 487.4 Moz, nearly recovering all the recession-induced losses in 2009, and is now seeing pronounced advances in 2011.
Jewelry posted a gain of 5.1 percent, the first substantial rise since 2003, primarily due to strong GDP gains in emerging markets and the industrialized world’s improving economic picture. Photography fell by 6.6 Moz, realizing its smallest loss in nine years, as medical centers deferred conversion to digital systems. Silverware demand fell to 50.3 Moz from 58.2 Moz in 2009, essentially due to lower demand in India. (Source)

Now Supply:

Silver Production 2010

Silver mine production rose by 2.5 percent to 735.9 Moz in 2010 aided by new projects in Mexico and Argentina. Gains came from primary silver mines and as a by-product of lead/zinc mining activity, whereas silver volumes produced as a by-product of gold fell 4 percent last year.

Mexico eclipsed Peru as the world’s largest silver producing country in 2010, and Peru is followed by China, Australia and Chile. Global primary silver supply recorded a 5 percent increase to account for 30 percent of total mine production in 2010. (Source)

Again, we are comparing double digit demand increses against low single digit supply increases. After a decade of rather dramatic price increases for silver, the alert observer should be asking exactly why this is the case.

In table form, we can clearly see that the silver balance for the world requires both dishoarding from government stockpiles and from the recycling of scrap silver. That is, shortfalls from mining have to be made up from above ground stocks:



(Source)

There's only so long that such an imbalance can continue before the shortfalls require much higher prices to cool off demand.

One of the reasons that I originally invested quite heavily in silver is precisely because I came to the conclusion that the price was far too low, artificially so, and that it would therefore be a great investment. So far so good.

Given the above fundamentals, I project that prices for the precious metals will be many multiples higher - in today's dollar terms - by the end of the decade.

Part II of this report: How to Play The Greatest Gold & Silver Bull Market Of Our Lifetime (http://www.chrismartenson.com/martensonreport/how-play-greatest-gold-silver-bull-market-our-lifetime?utm_source=financialsense&utm_medium=syndication&utm_content=link1&utm_campaign=59850)delves into the specifics of how much of your net worth to invest and in what forms, what price targets gold and silver are likely to reach, and what indicators to look for that will indicate it's time to sell out of your precious metal investments.

Click here to access Part II (http://www.chrismartenson.com/martensonreport/how-play-greatest-gold-silver-bull-market-our-lifetime?utm_source=financialsense&utm_medium=syndication&utm_content=link2&utm_campaign=59850) (free executive summary, enrollment required for full access)

[pywong]

Whistleblower Maguire - This Will Destroy Gold & Silver Shorts (http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/7/6_Whistleblower_Maguire_-_This_Will_Destroy_Gold_&_Silver_Shorts.html)


http://www.youtube.com/watch?v=Bt_H3OWxUSY

This morning London whistleblower Andrew Maguire told King World News that the launch of the new gold and silver exchange in China will destroy the remaining gold and silver shorts. Maguire stated, “The launch of this new gold and silver exchange has flown under the radar, but certainly has my attention. I firmly believe we are marking a pivotal point that will in very short order affect current precious metals price discovery dynamics. We now have an additional factor to be vended into the supply demand equation. This factor will ultimately destroy the remaining short positions in both gold and silver.”

Maguire continues:

“China is keen to diversify their cash holdings and is also encouraging citizens to make investments in gold and silver. The Pan Asia Gold Exchange is another step in this direction by opening up ease of access to physical gold and silver to their bank customers. This physical backed exchange is going to be a big game-changer.

Just look at the scale of this to get an idea of how massive this game-changer will be, The Agricultural Bank of China has over 320 million retail customers and 2.7 million corporate customers and has integrated its customer account information system with this platform.

By creating the first ever rolling spot contract, Chinese bank customers will for the first time have ease of access to 10 ounce gold contracts in Renminbi directly from their bank accounts and with the click of a mouse. To give a further idea of scale, if just 1% of their customers bought a single 10 ounce contract, that would equate to 1,000 tons of physical gold being drawn down....

“The impact on the price of silver will be even more pronounced. Silver is a much smaller market and already in tight supply. If just 1% of Agricultural Bank of China customers buy 500 ounces of silver, that would require 1.6 billion ounces of silver! I believe the leveraged and naked existing short side concentration in silver will be blind-sided by this. In my opinion it will create a massive short squeeze.

None of this potential new physical demand has been factored in by analysts and I expect a large and unanticipated drawdown of physical gold and silver over the next few months, ahead of the international contracts going ‘live.’

One of the key points here Eric is that many of these shorts are naked and heavily leveraged. Thus for every physical ounce of gold and silver taken out of the physical market and into this new exchange in China, it will force many multiples of that to be covered in the paper market.”

The KWN audio interview with Andrew Maguire will be available shortly, you can listen to it by CLICKING HERE (http://www.kingworldnews.com/kingworldnews/Broadcast/Broadcast.html).

To watch Andrew Maguire and others discuss the new Pan Asia Exchange on YouTube (http://www.youtube.com/watch?v=Bt_H3OWxUSY).

© 2011 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. However, linking directly to the blog page is permitted and encouraged.

Eric King
KingWorldNews.com
To return to BLOG click here.

[pywong]

07 July 2011 at 16:10 IST

India to import 350 tons of gold, 1200 tons of silver (http://www.commodityonline.com/news/India-to-import-350-tons-of-gold-1200-tons-of-silver-40594-3-1.html)

NEW DELHI (Commodity Online): India’s state-owned trading company—Minerals and Metals Trading Corporation (MMTC)—said on Thursday that it would import 350 tons of Gold and 1,200 tons of Silver in 2011-12 as demand for the precious metals is rising fast.


"We plan to 350 tons of gold and 1,200 tons of silver in the 2011-12 fiscal as the domestic demand for these metals are fast rising," MMTC Marketing Director Ved Prakash told reporters.


India is one of the largest importers and consumers of gold and silver in the world. As the domestic production of these precious metals is negligible compared to their rising consumption, India has been importing hundreds of tons of gold and silver every year.


Prakash said that import of gold by MMTC in the current fiscal is expected to increase by more than 40 per cent with the yellow metal fast emerging as a safer investment option.


"We are stepping up import of Gold this fiscal due to rising demand for the nobel metal. Also, its value as a safe option, in the current volatile market, is rising,” he said.


The company almost doubled its import of gold at 45 tonnes during the April-June quarter this year compared to the same period last year, he added. He said besides gold, the demand for Silver is rising as it gives better returns.


Silver prices have been touching new peak in India thanks to robust demand amid short supply in the global market.


Majority of silver in India is used in the production of ornamental items like jewellery, utensils and gift articles. Every year, India buys more than 4,000 tonnes of silver and over 960 tonnes of gold

[pywong]

Lee Bellinger
Publisher

Silver Demand from China Shines Brightly for U.S. Investors (http://cl.publicaster.com/ViewInBrowser.aspx?pubids=7889|6485|676529|676515&digest=OSDLJlnyGMi%2bD%2frjiR0JqA&sysid=1)

There are two silver industry must-read guides that recently reaffirmed what these Executive Bulletins (as well as our acclaimed Independent Living and Money, Metals, and Mining subscription newsletters) have been telling you for some time: Owners of silver are sitting on, well, a gold mine!

Both documents spell out some of the exciting prospects for the white metal's ultimate price. One is from the CPM Group in New York, titled The CPM Silver Yearbook 2011, and the other is from the Silver Institute, titled The Silver Institute World Silver Survey 2011.

Silver Demand in U.S. is Growing, but in China, It's Exploding!

Both studies indicate that China's silver demand has grown perhaps 300%-400% over the last decade. In 2000, the Silver Institute estimated that Chinese consumption of silver was 1/70th that of North America. So, if we use the current forecast number, the Chinese may be using something like 1/20th the amount now. Obviously huge growth, but in the view of Money, Metals, and Mining editor David Morgan, this growth could continue for quite some time, as Chinese demand continues to rise in the technological arena, including explosive demand for silver-laden solar panels.

The following is from Bloomberg, quoting Shi Heqing, a silver analyst at Beijing Antaike Information Development Company.

http://www.independentlivingnews.com/email/images/china_silver.jpg


"Silver trading in Shanghai jumped 65 percent in terms of volume last month (April) and will continue to increase on demand for a safe-haven investment, even as the government moves to curb volatility and speculation.

"'Chinese investors have piled into silver as one of the investment choices to hedge against rising inflation. The government's move to increase margins in an effort to curb volatility won't affect buying interest in physical material,' Shi said.

"Volume on the Shanghai Gold Exchange rose to 33,293 metric tons in April, up from 20,206 tons the previous month, according to data from the exchange, the main bourse in China for trading silver. The central bank raised reserve requirements a day after reports showed inflation and lending exceeded economists' estimates in April, with consumer prices rising more than 5 percent. China turned to a net importer of silver in 2010, a situation that has not changed this year, according to Antaike."

CPM predicts Chinese silver fabrication demand will rise 15.6%, to 177.2 million ounces this year. Chinese consumer demand for jewelry and silverware has been strong, CPM noted. "Silver jewelry demand remained steady because it is comparatively more affordable than gold or platinum jewelry. In addition, many Chinese consumers are said to prefer the white color of silver jewelry to the yellow color of gold."

Why White-Hot Silver Is NOWHERE NEAR a Long-Term Top

Silver was up a phenomenal 78 percent in 2010 and posted an average price of $20.19 that year, a level only surpassed in 1980, and a marked increase over the $14.67 average price in 2009. (Editor note: nominal price – not inflation adjusted!)
According to the Silver Institute, world investment demand rose by an impressive 40 percent last year to 279.3 million troy ounces, resulting in a net flow into silver of $5.6 billion, almost doubling 2009's figure. This is significant on relative terms when looking at silver only, but $5.6 billion is ridiculously small relative to global financial markets. This is one of several reasons we know the recent top in silver was only interim in nature.

The Silver Institute makes the point that exchange traded funds (ETFs) registered a huge performance in 2010, with global ETF holdings reaching an impressive 582.6 million ounces, representing an increase of 114.9 million ounces from 2009.
More Indications that Silver is THE Place to Be


Opportunities Beckon for Resource Investors

Gold, silver, and rare earths are in an enormous bull market. But investing in this space requires discipline and access to reliable information that is not mere hype.
Subscribing to David Morgan's Money, Metals, and Mining newsletter enables you to get up to speed and profit from the opportunities found in silver and other hard assets – plus the stocks of mining companies that are responsible for feeding the world's hunger for these precious commodities.

Here's how to subscribe...

The Telegraph reported recently that holdings in the iShares Silver Trust (SLV), the largest silver ETF in the world, increased by 179 tonnes on the back of increased interest in the metal. By the start of May, the situation had reversed and vehicles such as the iShares fund claimed record redemptions. CNBC reported that the ETF saw $1 billion redeemed by the 5th of May, which in turn helped to feed silver's price correction sparked by five consecutive increases in traders' margin requirements on the New York silver futures market.

Let me close by warning you that downward corrections in silver can be dramatic. The average price correction downward in the past decade has been almost 20%! Some have been much larger. The advantage of such dizzying fluctuations is that it scares off unsophisticated investors, as well as larger speculators with a short time horizon.

With silver having pulled back into the $35 range, we believe another buying opportunity is now at hand. Investors have the opportunity to enter the market at what is likely an interim low point – a likelihood further supported by seasonality which suggests precious metals prices typically fall back during the summer. Money, Metals, and Mining recently revealed that, in past years, a silver purchase made in August and sold in February has been profitable 85% of the time.

I want to help you stay up-to speed to capitalize on this opportunity for epic profits in silver. For starters, here's an important new primer published by Independent Living, titled "The Coming Silver Revaluation." It's free!

For those interested in tapping into the power of precious metals stocks, I have a GREAT briefing you need to see right away!
Yours in Freedom and Prosperity,

Lee Bellinger, Publisher
Independent Living
and Money, Metals, and Mining

P.S. If you simply want to pick up some silver coins, bars, or rounds, Independent Living Bullion is having a FREE SHIPPING/INSURANCE special for all your precious metals purchases in July. Prices are extremely competitive and our knowledgeable, low-pressure staff is eager to answer all of your questions. Call 1-800-800-1865 or visit www.IndependentLivingBullion.com for information about pricing, buying, or selling.

[pywong]

Why it’s Still Buying Season for Gold and Silver Mining Stocks

The Global Physical Gold & Silver Reserves Race is the New Nuclear Arms Race (http://www.theundergroundinvestor.com/2011/07/the-global-physical-gold-silver-reserves-race-is-the-new-nuclear-arms-race/)
July 21st, 2011

The old Cold War USA-USSR nuclear arms race has been replaced by the East-West Central Bank battle to accumulate physical gold and physical silver reserves. While Western Central Banks and their puppet bullion banks have distracted and goaded private citizens with the invention of fraudulent bogus paper gold and paper silver derivative products, including ETFs more recently, and paper futures contracts for a much longer period of time, they themselves have been making sure to avoid the very fraudulent paper products they have invented and have been diving headfirst into real physical precious metals.

As Central Banks continue to significantly devalue all major global currencies through excessive creation of new supply out of thin air in a digital world where “new money” is never even printed into paper/cotton form but only is created as digital bytes that are sent across international borders, the private families that are the majority shareholders in the world’s most powerful Central Banks have engaged in heavy buying of physical gold in particular, and to a lesser degree, physical silver. In 2010, Central Banks as a group, became net buyers of physical gold after two decades as net sellers. EU Central Bankers became net buyers of physical gold for the first time during the 1st Quarter 2011 since their introduction of the heavily flawed Euro into circulation in January of 2002.

As of April 2011, China was, according to “officially reported” statistics, the sixth-largest official holder of gold, with 1,054.1 tonness, according to World Gold Council estimates. The U.S. was still reported to possess the largest gold reserves at 8,133.5 tonnes. However, all of you know by now that I believe all “officially reported” statistics, whether the statistic is GDP, unemployment, inflation, or gold reserves, to be a charade and mockery of the truth. To this day I am highly skeptical of the US reported reserves of 8,133.5 tonnes, especially since these reserves have neither been independently audited nor independently tested to ensure that they meet good-for-delivery bar status since Dwight D. Eisenhower was the US President in the 1950s. As for China’s “officially reported” holdings of only 1,054.1 tonnes, anyone that takes these reported stats at face value as the truth is a fool for any number of logical reasons. One, China reported that its “official” gold holdings were a constant 600 tonnes from 2003 to 2009 and then reported that it had increased its holdings to more than 1,000 tonnes overnight in 2009. Since China lied about its gold reserve holdings for more than 6 years, one cannot and should not assume that their “officially” announced 1,054.1 tonne level was truthful. Since China made that announcement in 2009, their “official” gold reserve level has not increased at all.

Anyone that believes that China has not accumulated more gold, and lots of it, since that time, does not understand the Chinese government and Chinese bankers. Chinese bankers have been studying the best ways to invest in gold and silver for many years now in preparation for this global monetary war and they realize that one of the best ways to invest in PMs is to own the real thing. Furthermore, there are multiple mechanisms by which China could be secretly increasing their gold reserves out of the scrutiny of the public eye. In 2008, China replaced South Africa as the largest gold producer in the world, but nobody really knows exactly how much gold China produces or how many proven/ probable reserves or how much measured/indicated resources they own. Thus, China could be increasing gold reserves significantly on in-house production alone. Certainly we know that China is increasing its silver reserves through a policy of decreasing its domestic silver exports and increasing its foreign silver imports.

For example, last month, China’s General Administration of Customs reported that its net imports of silver nearly quadrupled year-over-year in 2010 to more than 3,500 metric tons. Also of important note is the fact that in 2010, China exported 1,575 metric tons of silver, 58% less than in 2009, and imported 5,159 metric tons of the metal, 15% more than in 2009. This is a huge change if one realizes that from 2005 to 2010 China transitioned from a net exporter of 2,900 metric tonnes of silver to a net importer of 3,500 metric tonnes.

From 2005 to 2010, China increased its gold holdings in its State Administration of Foreign Exchange (SAFE) more than tenfold from a very small starting point of USD $4.2 billion to USD $48.1 billion. However, China could be increasing gold (and silver) reserves significantly through purchases in its Sovereign Wealth Fund – purchases that are not made available for public inspection or consumption. For China to publicly announce their buildup of gold and silver reserves that would drive up the price of the very commodity they wished to accumulate more of would be akin to then-Chancellor of the Exchequer Gordon Brown’s foolish decision to pre-announce in 1999 that the UK would be selling half of its gold reserves.

Also of important note are the following facts. China only recently deregulated gold in 2003 to allow gold prices in China to mirror international prices. The Shanghai Gold Exchange only opened in October of 2002. In late 2009, the Chinese started making gold and silver bullion easily accessible to its citizens through introducing physical sales of multiple size bars at its banks and China finally legalized ownership of 99.999% pure silver bullion. The Chinese typically have a tendency to buy PHYSICAL gold and PHYSICAL silver, not the fraudulent paper gold and paper silver derivatives invented by bankers to suppress the price of gold and silver. For the first time ever, Chinese citizens will be able to buy silver futures in Hong Kong this week and later in Shanghai; however, since the Chinese are fond of owning Physical metals, perhaps even the majority of Chinese may settle these futures contracts with physical delivery. Furthermore, even when the option to buy gold and silver ETFs in China becomes a reality, the average Chinese citizen may shy away from these products due to his or her propensity for owning real gold and real silver.

For Asians in general, gold and silver have always been money. In Thailand, the word for money “ngen” is also the word for silver. In China, the word for bank combines the characters for “silver” and “movement”. In China not only is private demand strong AND relatively young, but even in India, private ownership of gold bullion bars was not legalized until 1990. Thus, the war between East and West over gold and silver will intensify in coming months and coming years. The objective of the East will be to release the gold and silver price from the clutches of Western price suppression schemes while the objective of the West will be to hoard gold in an attempt to prevent citizens of Western nations from owning the asset that will protect them the most from their currency devaluation schemes.

The current talk in the mainstream financial media about gold being a bubble at $1,600 an ounce and of silver having already reached its top of its long-term peak at $50 an ounce is simply rubbish. A bubble is never defined by high prices, the perception of high prices or even a decade long rise in prices. What defines a bubble is a meteoric rise in price that is not supported by fundamental reasons. For example, the US NASDAQ dot.com stock market was a bubble because dot.com stocks that had zero earnings were trading at impossible valuations and sometimes double and triple digit dollar values per share. However, the fundamental reasons that have driven gold from $250 to $1,600 and silver from $4 to its current $39 – $40 range are even stronger today than they were at the beginning of this precious metals bull. Therefore, it is impossible for a bubble in gold and silver to exist at their current prices and at this current time.
And for this reason, this is precisely why the global nuclear arms race has been replaced by a global physical gold race. Welcome to the new global war in precious metals.

About the author: JS Kim is the Managing Director of SmartKnowledgeU. SmartKnowledgeU now offers monthly subscriptions to our premium investment newsletter, the Crisis Investment Opportunities newsletter, an investment newsletter that has returned well over a cumulative 200% (on all opened and closed positions) since its launch in June 2007 to present day. Follow us on Twitter here.
Republishing rights: The above article may be republished on other sites as long as all text and links remain as is and the author acknowledgment remains intact.

[pywong]

The Economist doesn't agree. Come back 9 months later and see who is right. I think the Economist is wrong. They have not considered the trillions of dollars printed to bail out the global banks. That is the precursor for hyperinflation and gold price to shoot up!

Remember: Do not be a victim of the Central Bankers.

And the Economist is one of their mouthpiece. All mainstream media are.


World economy: Gold prices at record highs - UPDATE (http://viewswire.eiu.com/index.asp?layout=VWArticleVW3&article_id=1578310942&refm=vwHome&page_title=Latest+analysis&mkt_tok=3RkMMJWWfF9wsRonv6TOZKXonjHpfsX66usrX6Wg38 431UFwdcjKPmjr1YIFSsV0dvycMRAVFZl5nQlRD7I%3D&rf=0)

July 20th 2011
Printer version


FROM THE ECONOMIST INTELLIGENCE UNIT

On July 18th the price of gold rose above US$1,600 per troy ounce for the first time ever, continuing a strong run that began over a decade ago and accelerated in the aftermath of the global financial crisis. In this period of extreme uncertainty, gold's status as a hedge against negative risks in the global economy has made it one of the world's best-performing assets. But a bubble can develop even in an asset that is seen as the embodiment of security, and this looks suspiciously like a bubble. Ironically, it would take some good news to burst this one.

There is nothing special about the nature of gold that makes it an ideal safe-haven asset. Were it not for its widely perceived role as just that, gold would behave like most commodities—rising in value during good economic times, when demand for its industrial uses increases, and vice versa. But perceptions are often self-fulfilling in financial markets, and there is no denying that, in recent years, gold has performed extremely well as (and because) the global economy has done extremely badly.

http://viewswire.eiu.com/asset_images/1588310943.GIF

Since Lehman Brothers collapsed on September 15th 2008, the price of gold has more than doubled. Demand from investors rose from 692 tonnes in 2007 to 1,200 tonnes in 2008. In 2010 investors soaked up 1,487 tonnes. The surge in gold's popularity has, to a large extent, mirrored that of other safe-haven assets. Deep recession has pushed up savings rates all around the developed world, and with enormous uncertainty still pervading the global economy, that money has largely been parked in the most trusted assets. The yield on 10-year US Treasury bonds, the world's primary "risk-free" asset, stands at just 2.9%. There have been periods of rising confidence over the past three years, such as in early 2011, when investors briefly poked their noses out of their risk-averse bunkers and sent 10-year US Treasury yields as high as 3.7%. But even that was well below the 4.8% average in the decade before Lehman's crash. Yields on Japanese and German government bonds are also very low historically.

While all safe-haven assets are performing strongly, gold has the added advantage that its value is not tied to the finances of a government. High public debt ratios in the post-crisis era have given cause for investors to reconsider the risk-free status that many government bonds previously enjoyed, which by extension has made gold more popular. For example, central banks, which tend to invest almost entirely in very low-risk assets, appear to have been adjusting their portfolios in favour of gold and against sovereign bonds over the past year. Having been net sellers of gold for decades, they were net purchasers in 2010 and have been so far in 2011.

In recent weeks, escalating doubts about the soundness of sovereign bonds may have helped to push gold to its new nominal record level. Most dangerously, the debate in the US over raising the federal debt ceiling remains extremely fraught. Unless Congress agrees to increase the debt ceiling by August 2nd, the federal government will need to either immediately cut its spending by 44%, or default. The markets still believe that a deal will be reached (as does the Economist Intelligence Unit), which explains why the yield on Treasuries is still so low. However, a US default is becoming more conceivable by the day, and one strategy to hedge against such a risk and an accompanying crash in the US dollar is to buy gold.

The crisis in the euro zone has also entered a new stage in recent weeks. Concerns about a disorderly Greek default are increasing. Portugal and Ireland also face severe fiscal difficulties. Spain and Italy's debt profiles are not as alarming, but they are at risk of a liquidity crisis if demand for their bonds dries up. The euro zone is not currently equipped to bail out Spain and Italy. Italy's government is the third-largest issuer of bonds in the world, behind only the US and Japan. It used to represent another highly liquid, relatively low-risk asset for nervous investors—no longer. Yields on 10-year Italian government bonds were up to 6% on July 18th, from 5% the previous week and 4% a year ago.

Not only do sovereign debt risks in Europe and the US reduce the safe-haven alternatives to gold, they also represent serious threats to the global economy. And even if the deal on the US debt ceiling is reached, it is likely to include harsh austerity measures that the stuttering recovery might not be able to cope with. European governments have already embarked on their own programmes of austerity, while the European Central Bank is raising interest rates. Bleak scenarios are easy to imagine even if the worst are avoided. In this environment, the appetite for gold is understandable.

Although we feel that investors, for the most part, are holding gold in fear of bad events in the global economy, gold is also often held as a hedge against inflation. Our view is that the prospects of a sustained rise in inflation in the developed world are minimal unless there is a vigorous recovery, but the extraordinary monetary policy actions taken by Western central banks, particularly the US Federal Reserve, have stoked fears that a period of high inflation is imminent, regardless of other developments. More plausible is the danger that the high indebtedness of governments might create the temptation for central banks to allow a period of high inflation later in the recovery, in order to inflate away those debts.

A correction awaits

Although the reasons are clear for the rise in the price of gold over the past few years, we believe that it is nearing its peak. We expect the US to reach a deal that avoids default before the August 2nd deadline, and it is probable that European leaders will patch over the latest cracks in the euro zone, averting disaster, if not providing a real solution. The US economic recovery is also expected to regain some momentum in the second half of the year, and Japan is already returning to something approaching normalcy following its crippling natural disaster in March. These factors should boost investor confidence and push down the price of gold. In the medium term, official interest rates are likely to rise, driving up returns on a range of assets and raising the opportunity cost of holding gold.

We expect the price of gold to average US$1,390/troy oz in the fourth quarter of 2011 and to fall to US$1,000/troy oz by mid-2013. But this forecast is based on our central assumptions, and it is important to remember that the reason gold is expensive right now is that the risks to those assumptions are unusually high.



The Economist Intelligence Unit
Source: ViewsWire

[pywong]

Central Banks Unanimously Prefer Gold Over Paper
Jeff Nielson

After the Western banking cabal engineered the “crash” of the global gold market in 1980, Western central banks spent more than a quarter-century perpetrating the lie that gold was a “barbarous relic” – which was supposedly “inferior” to the worthless, un-backed paper they were cranking out (in record amounts) on their privately-owned printing presses.

Their incentive was obvious. In getting the entire world to believe that lie, they were able to enrich themselves by $10’s of trillions of dollars. This was done by creating those $10’s of trillions (“out of thin air”), pretending that this paper actually represented real wealth – and then getting people all over the world to give them $trillions more paying interest on worthless paper which never represented any real wealth in the first place.

While it was the largest fraud (and theft) in the history of the world (by a factor of more than 1,000), it was by no means an original act of fraud – being nothing more than the same scam which all bankers always perpetrate, whenever they are (foolishly) granted the privilege of inventing “money” out of thin air, going back a thousand years. (http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=21633:the-collapse-of-paper-money-a-the-vertical-move-of-gold&catid=56:darryl-r-schoon&Itemid=126)

During the first twenty-five years of this institutionalized fraud/theft, the bankers supported their fraud by dumping their vast hoards of gold onto the market (in the largest quantities in history). “Look,” they would say, pointing with their evil talons, “Even we bankers, the greediest creatures ever hatched on this planet, have no use for this archaic, yellow metal – so why would any of you want to own it?”

It was a very successful strategy. The price of gold was pushed to an all-time low (in real dollars), so low that more than 90% of the world’s gold mines were forced to close since they couldn’t manage to break-even at those fraud-induced prices. And individual holdings of gold (especially in the West) fell to their lowest level in history.

Obviously, with that privilege to print money not having been revoked yet (a literal “license to steal”), their incentive to continue this fraud/theft is as strong as ever. However, over the past five years a “funny” thing has occurred. First these central banks rapidly slowed their dumping of gold (http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=1422:new-central-bank-sales-agreement-very-gold-bullish&catid=48:gold-commentary&Itemid=131), then they stopped it altogether (http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=12906:the-real-truth-about-the-imfs-gold-sale&catid=48:gold-commentary&Itemid=131), and now they are the single-largest bloc of gold-buyers on the planet.

Recent statistics released by the World Gold Council (http://www.gold.org/download/value/stats/statistics/xls/Changes_latest_as_at_July2011_IFS.xls) allow us to go even further. Over the past two years, the world’s central banks have demonstrated a 100% unanimous preference for gold over their own banker-paper (i.e. all those un-backed “fiat currencies”). During that span of time, only three nations have been modest “net sellers” of gold – and in all three cases this related to “long term sales agreements” (i.e. old obligations). During the past two years, not one single central bank on the face of the Earth has chosen to be a net-seller of gold over that time.

Let me construct an analogy here. A person goes shopping for a car. He goes to a Ford dealership, and after getting the full “sales pitch” on what wonderful vehicles all Ford products are, the shopper asks the salesman “what kind of car do you drive?” And the salesman answers “I drive a Toyota.”

The car-shopper then goes to a GM dealership, a Chrysler dealership, a Volkswagen dealership, and every other auto-dealership he can find. At each dealership, the salesman tells the shopper what “wonderful vehicles” they make, but when the shopper asks each one what car they drive themselves, every one replies “Toyota”. The obvious question to ask is that armed with such data, is there a single (rational) auto-buyer who would buy anything other than a Toyota?

The equally obvious answer is that “no”, no rational buyer would ever choose any vehicle other than a Toyota – unless he/she simply couldn’t afford the purchase price.

The most charitable statement we can make about the world’s central bankers is that they are the world’s “sellers of money”. Indeed, since I have already pointed out that what they are selling is worthless, we could obviously come up with a long list of terms less-neutral than “sellers”. Unquestionably, with armies of statisticians and data-gatherers at their disposal, they are the world’s foremost experts on “money” (assuming we generously include their fiat currencies with that label).

Much like a hypothetical world where all the sellers of automobiles (who know these cars the best) all buy a single brand of automobile themselves, all of the world’s foremost experts on “money” are showing a 100% preference for one kind of money: gold. The message from the world’s central bankers is absolutely unequivocal: only chumps would choose to hold paper over gold.

Clearly, the massive paper-fraud of these banksters is in its final stages of decay: a Ponzi-scheme of unimaginable proportions, where people willingly funneled $trillions of their own wealth into the clutches of Western bankers – only to ultimately end up with zero (or near-zero, or less-than-zero). We know this, because the scammers themselves are now publicly fleeing from their own scam.

Ironically, the same, semi-comatose mainstream media which still alerts us when “insiders” in our equity markets are “dumping” their shares, has been 100% oblivious to the “insiders” in our monetary markets dumping their banker-paper (in favor of gold). The parallel cannot be missed: when corporate insiders are unanimously dumping their shares, only the “Mother of All Fools” would be a buyer in equity markets. When all of the world’s monetary “insiders” are dumping their banker-paper in favor of gold, only an equivalent “fool” would attempt to swim against that tide.

To avoid getting “lynched” by all of the silver-bulls who follow my work, let me take a moment to include silver in this analysis. To begin with, if anything the bankers have even more fear/hatred of silver (http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=20678:bullion-blows-up-banksters&catid=49:silver-commentary&Itemid=130) than gold. However, their hatred/aversion to silver is so extreme that rather than merely lie about silver (so people would not want to hold it), and then hoarding as much as possible themselves, they decided on the “nuclear option”: destroying the world’s stockpiles of silver (http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=13244:inventory-fraud-increases-in-silver-market&catid=49:silver-commentary&Itemid=130).

The only reason why the world’s central banks have shown no interest in silver is because inventories have been decimated to such an extreme (more than 90% lower than 15 years ago) that (relative to gold) there is no silver for the central banks to start hoarding.

At the household level, the world’s silver shortage is not yet that extreme. We can still buy what we want/need (http://silvergoldbull.com/s/) as individuals – and at “sale” prices, thanks to the recent ambush (http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=18874:the-silver-take-down-anatomy-of-a-crime&catid=49:silver-commentary&Itemid=130) of the silver market by the CME Group. Of particular relevance, for those small investors who are finding the price of gold moving out of their “reach”, silver remains accessible – and a fantastic bargain.

Short of B.S. Bernanke starting to walk around with a neon sign hanging around his neck saying “buy gold”, it is impossible for ordinary investors to get any clearer warning that “cash is trash” and bullion is “golden”. Ignore such a warning at your own peril.

[pywong]

Gold & Silver: Full Spectrum Dominance (http://news.goldseek.com/GoldenJackass/1313611200.php)

http://news.goldseek.com/GoldenJackass/goldenjackass.JPG

By: Jim Willie CB, GoldenJackass.com

-- Posted Wednesday, 17 August 2011 | Share this article | Source: GoldSeek.com


Gold and Silver have emerged in the last 12 months as the dominant asset group. They led the entire 2000 decade, still gathering disrespect. They do not require respect from the Wall Street and London crowd. They serve as effective protection during the slow motion crumbling process to the global monetary system. The sovereign bond crisis has circled the peripheral nations, rendered its wreckage, and is working toward the center where the USTBond and UKGilt reside (worried). Italy and Spain are squarely in the crosshairs for financial assaults, but France and the United States lie closer to the core of Western nation sacred debt territory, soon to become sacred burial grounds. That must sound drastic and melodramatic, but just wait. Other calls of an insolvent US banking system, calls of a chronic housing bear market also once sounded extreme. They came true. So did $1000 gold and Canadian Dollar parity calls made in 2005. Again they came true. Dismissal of Green Shoots, Jobless Recovery, Exit Strategy, and No QE sounded bombastic and pedagogical, but they were also correct calls. In fact, very easy calls. The ruin of the USTreasury Bond debt security is a long drawn out process like a cancer victim. Weakness is followed by emaciation, then organ damage, circulatory problems, finally a bedridden state, and lastly the inevitable death. Analogies to each can be made with USTBonds nowadays, like the foreign central banks withdrawing from the process evident in low Indirect Bids, like dependence upon debt monetization.

INTEREST RATE SWAP DEVICE

A preamble is necessary. The Wall Street market makers (manipulators) have succeeded in leading the investment community to believe that the long maturity USTreasury market has contradicted the Standard & Poors rating downgrade of USGovt debt. The bond rally with accompanying fall in the TNX bond yield to near 2.15% as a low led a gaggle of analysts and news anchors to conclude the S&P downgrade can be ignored, as the swimming pool water is safe. Keep in mind the powerful effect of the Interest Rate Swap mechanism. After contemplating some of its traits, you decide if the bond rally is legitimate. The Interest Rate Swap accomplishes the following:


initiates a bond rally with heavy leverage, using essentially free short-term debt to fund long-term USTreasury Notes (10-year) and Bonds (30-year)

contributes toward giving an ALL CLEAR sign to a toxic swimming pool, of which the USTreasurys are considered the safest in the Sovereign Bond Summer Camp

manages a concentrated USTreasury Carry Trade, whereby Wall Street firms recapitalize from easy profits in an orchestrated managed USFed bond rally assured by two more years of accommodation

enforces the distortion of the capital cost, near 0%, which actually destroys capital and distorts the price of all assets (see the effect on housing market)

leads the investors to believe the erosion in asset value from price inflation is tame, when the actual CPI is much higher than 5%, and recently closer to 10% annually

provides end demand for long-term USTreasurys using hidden funding sources like the USFed debt monetization vat or the USDept Treasury standby device, the Printing Pre$$

provides the required demand to conceal $1 trillion in Wall Street firm naked shorting of USTreasurys (called innocuously Failures to Deliver) which generates desperate liquidity at a time when investment banking has dried up, essentially closing the loop on USTBond counterfeit.

The net effect of the intensive Interest Rate Swap activity is to destroy capital, to drain capital from the USEconomy, and to crowd out the corporate bond market. The United States is becoming 1990 Japan, but without the trade surplus. With ignorance, the financial media has been displaying the "Turning Japanese" rock music song by The Vapors from the 1980s. Little do they realize that the expression means coming to climax during the sexual experience, with a facial expression straining to resemble the Asian countenance. How strange!! Ironically, the effect of the IRSwap usage has kept interest rates artificially low. That is the sentinel signal for the Gold Bull Market, powered by cheap money, in the quest for true safe haven in the strong storm and deep distortions. The prevailing interest rate is far below the rate of price inflation. So the Gold market will remain steadily stuck in powerful bull market mode.

GOLD & SILVER DOMINANT

The banker index is finally under stress. They have benefited greatly from the fantasy of phony accounting practices. They have also benefited from a staged controlled USTreasury Carry Trade. But their losses continue to mount in great volume. Their exposure to Europe sovereign debt, the US housing market, and mortgage bond investor lawsuits combine to make renewed risk. These insolvent zombies are due for a death experience, if only the markets were fair.

http://67.19.64.18/news/GoldenJackass/2011/8-17gj/1.jpg

METALS BEATS PAPER

Mining stocks are not keeping pace with the bullion metal. The ultimate problem is paper securities and the trust held in them. Persistent stories about well supplied hedge funds shorting mining stocks, stories of naked shorting of small mining stocks (see Alpha Group), and other sponsored spread trades to support bullion metal over the mining stocks have all contributed to the decline in shares. The distrust in all things paper, as in financial securities, at a time when trust in sovereign debt is on the wane, when financial sector insolvency is argued, when bond fraud has gone unprosecuted, has created a hostile climate for investments. The shortage of credit and capital to anything except USTreasury debt has exacerbated the condition. The HUI index of mining stocks has not done well versus the basic precious metal, the gold bullion, since the spring months. The threat of USEconomic recession will only make the situation worse, certain to lead to more whacks to the equity markets. Gold bullion has no counter-party risk, no paper dependence. Stay clear of the fraudulent custodians and their GLD & SLV fraud-strewn funds for lazy investors who do no research. They will be separated from their metal claims, handed cash in redemption, and sent away. One point of fraud proof is that GLD & SLV have a discount to the metal, while legitimate funds like the Sprott Trust and Central Exchange Fund include a premium price to the metal. That is because the big cartel banks, as custodians, are shorting shares of GLD & SLV, sending the metal inventory to the COMEX to satisfy delivery needs.

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SILVER STILL STANDS OUT

Independent analyst Dan Norcini does stellar outstanding work. Once gain, he exposed an excellent factor, this regarding Silver. He points out how the Continuous Commodity Index (CCI) has averaged one big drop per month for the past five months. Silver has done well relative to the commodities, as he highlights. In fact, the Silver price is due to rebound. The process has begun, with Silver back above $40/oz. Each CCI drop has lasted from 4 to 7 trading days and has been followed by a rather significant rally. In the past couple weeks, the current decline seems to have run its course. The next 2 to 4 week rally in all of the commodities is underway, like a cycle. To be sure, copper, crude and the grains are going to rally. Norcini surmised (correctly) that Silver was not going much lower, if at all. He posted a reasonable target for Silver at $44 with timing before Labor Day in early September. Adding to the ammunition are the promising Open Interest numbers in silver futures contracts. Even the Large Commercials are covering their shorts in Gold, a good sign generally for precious metals. See the Norcini weblog where he argues how the USDollar will be sacrificed for the greater good (CLICK HERE).

http://67.19.64.18/news/GoldenJackass/2011/8-17gj/3.jpg

SILVER MORE THAN INDUSTRIAL METAL

The consolidation phase for Silver has given compromised critics and lousy analysts an opportunity to denigrate the white metal, claiming it is exposed for its vulnerability as an industrial metal. While some significant portion of Silver demand comes from industrial processes, it is not replaceable. Besides, its investment demand has been equal in US$ volume as Gold demand, a remarkable fact pointed out by sector leaders Eric Sprott and James Turk. They argue that the Silver price will move higher and reduce the Gold / Silver ratio in the process naturally. The true industrial metal indicator is copper, not silver. Copper has earned the title of having a PhD in Economics. Notice how silver has outpaced the copper price in the last 18 months. Even post-May when the COMEX ambush occurred with successive margin requirement hikes, the Silver / Copper ratio has risen steadily. Sorry, the industrial argument is a weak angle that does not bear weight or scrutiny. The Silver investment demand is due to a big important recognition that Silver is in the process of resuming and reclaiming its monetary role. The Chinese lead in that parade, adding silver to their reserves in management of their $3.2 trillion reserves booty.

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The gold market breakout has made history, exceeding the $1800 level before the usual games were played. The higher COMEX margin requirement is a tired card at a tilted table. Look for gold profits to move toward silver positions, lifting its price toward $50 in the coming several weeks. Lastly, one must wonder why the USTreasury Bond futures contract does not have to endure margin requirement increases. It is clearly the biggest asset bubble in existence. However, it is the standard bearer of the fiat paper charade. Its low yield is proof positive of being broken, just like Greece with its high yield. The USTreasury Bond complex would be in big trouble if not for the Interest Rate Swap and the US$ Printing Press both. Prepare to protect your personal wealth during the grandest transfer of wealth in modern history, from toxic paper to reliable hard metal with no counter-party risk. Money is in the process of being invalidated and redefined. The Paradigm Shift continues at work.

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[pywong]

RANTING ANDY: "OUTING" GLD and SLV, and "INNING" ALTERNATIVE FORMS OF PHYSICAL GOLD AND SILVER INVESTMENT (http://lemetropolecafe.com/kiki_table.cfm?pid=9450)

Andy Hoffman

In light of the last two days’ violent Cartel attacks, It looks like I’m back from the world of mild sanity to once again RANTING. Yesterday, we saw a patented PAPER gold and silver MAULING at EXACTLY 12:00 PM EST, presaging today’s CME margin hike comedy, not surprisingly in front of COMEX options expiration Thursday and Quivering Lip Bernanke’s speech Friday.

However, I’m not going to RANT about the blatant $160 takedown in gold based on NOTHING other than another concerted PAPER raid (replete with the typical CME margin increases - http://www.zerohedge.com/news/and-theres-your-perfectly-leaked-explanation-cme-hikes-gold-margins-again-time-27), as I have something more important to talk about here.

However, to get you through this miserable day, take heart at what “Mr. Gold”, Jim Sinclair, had to say this afternoon, and BUY MORE GOLD and SILVER NOW, as we will be seeing new ALL-TIME HIGHS in both this fall.

http://www.jsmineset.com/2011/08/24/the-heart-of-violent-markets/

Now, back to the point of this RANT, the need to not only own PHYSICAL gold and silver, but own it in a vehicle that CANNOT be confiscated!

In fact ,this RANT was inspired by the conversations I had with investors yesterday, but particularly one whom owns both GLD and SLV. When I mentioned the lawsuits against JPM for naked shorting silver, he had no idea what I was talking about, but of course gave the smug, apologist answer that “the shorting is not for JPM’s account, but their customers.” Yes, their “customers” have for ten years been massively shorting silver into the strongest bull market anywhere, losing of hundreds of millions if not billions in the process, yet keep coming back for more. RIIIIIGGGHHHTTT.

Better yet, he told me he “trusts JP Morgan” – and in fact owns JPM stock as well! Perhaps he’s not aware that many others do not trust JPM as he does…

http://www.thestreet.com/story/11026295/1/jpmorgan-fighting-10000-lawsuits.htm

Nearly all the people I speak to in the “real world” (as opposed to the shadow world of “Planet GATA”) believe GLD and SLV are the only ways to own gold and silver, in many ways associating them with ACTUAL Precious Metals. Any attempts to reference their shady trading activities or swiss-cheese prospectuses are shunned, much less the conflicts of interest involved in its custodians being notorious gold and silver short sellers, with absolutely ZERO metal auditing requirements. It feels like I’m speaking a foreign language when trying to explain the potential (and highly likely) frauds which surround these evil securities, which were created, in my view, solely to generate PAPER gold and silver shorting tools for the Cartel.

For those that have an interest in actual DUE DILIGENCE, the two links below discuss all you need to know about the potential fraud in GLD (and SLV, which has essentially the same rules). The first was written in late 2004 by one of the world’s true authorities on PHYSICAL gold and silver, James Turk, whom operates the LEGITIMATE online bank www.goldmoney.com.

http://news.goldseek.com/JamesTurk/1101100282.php

The second, by my friend “Dave from Denver,” also of GATA fame, is a shorter synopsis of GLD’s hazards, penned in early 2009. Please read these two articles carefully, as understanding the loopholes in these fraudulent securities could mean the difference between PROTECTING your wealth and LOSING IT ALL.

http://www.zerohedge.com/article/guest-post-got-gold-why-owning-gld-can-be-hazardous-your-wealth

And for those that don’t read these articles, the four main issues are as follows:

1. The gold in GLD are NEVER required to be audited.

2. There are ZERO prohibitions against encumbering said gold in the trust (i.e. leasing it out to short-sellers).

3. The fund custodian (HSBC) is allowed to use “subcustodians” to store the gold, whom have no obligation to give proof that they hold such gold.

4. The fund custodians (HSBC for GLD and JP Morgan for SLV) are the subject of numerous lawsuits alleging naked shorting of silver (http://www.youtube.com/watch?v=H8ok4fqblQ8), which appear highly likely of being successful given the evidence submitted by whistleblower Andrew McGuire (http://babybulltwits.wordpress.com/2011/08/08/ranting-andy-demystifying-andrew-mcguire) and OFFICIAL comments from CFTC Commissioner Bart Chilton himself! (http://www.bloomberg.com/news/2010-10-26/silver-market-faced-fraudulent-efforts-to-control-price-chilton-says.html).

As for GLD and SLV, I sense most people won’t realize they are just PAPER DERIVATIVES until it is too late. I’d bet 98% of Americans won’t realize that PHYSICAL GOLD and SILVER are the only REAL MONEY until it is too late, and likewise 90% of those invested in GLD and SLV to lose everything before realizing warnings such as these should have been heeded.

Thus, my FIRST piece of advice is to SELL ANY AND ALL SLV AND GLD, IMMEDIATELY! And for that matter, stay away from IAU, SGOL, and any of the other PM ETFs (especially the “double-long” and “double-short” ETF derivative monsters).

Secondly, how should you invest in PHYSICAL gold if you are looking to protect purchasing power from the deleterious effects of accelerating, and potentially hyper-inflation?

Here are my answers, in no particular order:

1. The aforementioned www.goldmoney.com. Goldmoney.com stores your gold in OFFSHORE, ALLOCATED and AUDITED gold accounts, to be held at depositories of your choice in either London, Zurich, or Hong Kong (DO NOT choose London!). The pro of this method is you do not need to worry about storage or security, and the con is you must TRUST that the operators of those vaults will not in some way compromise your gold or silver. Goldmoney.com is run by one of the true leaders of the movement to own gold and silver, James Turk, so be comforted by the fact that his stellar reputation stands behind it.

2. The five closed-end gold and silver bullion funds operated out of Canada, three by the Spicer family and two by Sprott Securities.

a. Phillip Spicer created the first of these funds, the Central Fund of Canada (CEF), in 1961, which has been managed by his son, Stefan, for the past 14 years. Phillip, at age 73 is still Chairman, and Stefan, a friend of mine, is as honorable a man as you’ll come across. I trust him fully, and have thus owned his funds and recommended them to countless others. In fact, until creation of the Sprott closed-end bullion trusts roughly a year or two ago, none other than John Embry was the Chairman of the Central Gold Trust (GTU), one of the other two Spicer bullion funds. John Embry is well known throughout Canada as a leader in the Precious Metals industry, and he too is a personal friend in whom I’d trust with every cent of my capital.

i. CEF, the largest of the five funds, holds essentially half gold and half silver, with a market cap of $6 billion and daily trading volume of 2.2 million shares. Throughout the decade-long bull Precious Metals bull market, I’d estimate It has historically traded at an average premium to Net Asset Value (NAV) of roughly 5%-10%, but today trades at the bargain price of an actual 1.5% DISCOUNT to NAV, in my view due to gold Cartel naked shorting aimed at preventing it from doing further equity offerings (the proceeds of which are used to purchase additional gold and silver). Irrespective of such activities, CEF is perfect for institutional accounts due to its large size and liquidity. Moreover, given the aberrationally low discount valuation, the stock has upside from BOTH the prices of gold and silver AND increased premiums as REAL supply becomes increasingly scarce. CEF and the other Spicer funds are ALLOCATED, AUDITED, and STORED IN CANADA in LEVEL 10 UNDERGROUND VAULTS.

ii. The other two Spicer funds are the Central Gold Trust (GTU), which holds 100% gold bullion, and the Silver Bullion Trust (SVRZF), which holds 100% silver bullion. These are newer funds, and are thus smaller, but do a fantastic job preserving wealth and are also currently trading at the low-end of their historic NAV trading ranges as well. GTU has a market cap of $1.1 billion and trades at a 4% premium to NAV, while SVRZF has a market cap of $140 million and trades at a 10% premium. By the way, SVRZF is fully eligible to be AMEX listed (requires a $75 million market cap), so I would expect this to happen sometime soon.

b. The other two funds are administered by Sprott Securities, the brainchild of Eric Sprott, the reigning “General of the Global Precious Metals Army”, whom has none other than the aforementioned John Embry as his Chief Investment Strategist. They are roughly a year old, with the first, Sprott Physical Gold Trust (PHYS), holding 100% gold bullion and the second, Sprott Physical Silver Trust (PSLV), holding 100% silver bullion. Like the Spicer funds, the gold and silver behind PHYS and PSLV are held in secure vaults (in this case within the Royal Canadian Mint), ALLOCATED, and AUDITED. However, unlike CEF, GTU, and SVRZF, the gold and silver in these funds are DELIVERABLE UPON DEMAND under certain predetermined conditions. PHYS has a current market cap of $2.2 billion and trades at a 2% premium to NAV, while PSLV has a $1.1 billion market cap but trades at a 20% premium. The large premium, which has held up remarkably while the Cartel mercilessly attacked the CEF premiums, is perhaps the best possible signal that demand for REAL, PHYSICAL silver is sky high.

3. Actual, PHYSICAL gold and silver bullion (preferably one ounce coins rather than bars or fractionals, such as ½ ounces, ¼ ounces, etc., as fractionals have much higher premiums, and NOT collectible, “proof”, or “authenticated” coins)

a. Owning gold and silver are as natural as, per the iconic singer Sade, “the way we came to be.” A generation’s worth of propaganda has brainwashed Americans to believe DOLLARS are money, when in fact DOLLARS are just one of hundreds of unbacked, depreciating fiat currencies, ALL of which have collapsed throughout the centuries. Supported by 5,000 years of history, only GOLD and SILVER are real MONEY, and once one gets over that mental hump, he NEVER turns back. Gold and silver may not be able to pay for groceries (a common concern I hear), but are among the most liquid assets in the world. Moreover, don’t be surprised if one day soon, DOLLARS cannot be used to buy groceries!

i. When buying gold and silver, there are numerous outlets to do so. Obviously the safest and most secure route is via your local coin shop, however coin shops typically have relatively small supplies, and generally only accept cash or money orders at banks that are OPEN when you walk in to confirm their funds. In other words, if you wish to buy in size, you need to go to more “institutional” sellers. Here are some of the names I trust most, in no specific order.
Miles Franklin (www.milesfranklin.com) – based in Minnesota, is one of the largest coin dealers in America. Founder David Schechtman and his son, Andrew, are as honorable as any people in the business, and like myself strive to educate their clients about PROTECTING THEMSELVES via their wonderful newsletter.
DBS Coins (www.dbscoins.com) – head salesman David lives in California, and their main warehouse is outside Boston. Countless successful transactions and super-prompt delivery.
JH Mint (www.jhmint.com) and Mom’s Silver Shop (www.momssilvershop.com) – Both based in California, JH Mint is operated by none other than Jason Hommel, one of the top silver experts on earth, while Mom’s Silver Shop is operated by, take a guess, Jason’s mother. Jason has exquisite knowledge of the physical metals market, and unparalleled integrity.
Sprott Money (www.sprottmoney.com) – Headquartered in Canada and also run by the Sprott group of companies. I have not used Sprott Money yet, but would not hesitate to do so based on the firm’s reputation in its other Precious Metal businesses.
APMEX (www.apmex.com) – Headquartered in Oklahoma, APMEX is the largest bullion dealer in America, and provides excellent service albeit a bit more impersonal due to the firm’s large size.

Long-term readers know I have espoused the virtues of PHYSICAL gold and silver ownership for years, while simultaneously panning the fraudulent ETFs that are nothing more than empty promises of gold and silver backing, in my VERY, VERY STRONG OPINION. However, I wanted to lay out all these options in one article to help those new to the game (such as those watching this month’s climb to record levels), as well as to reinforce the importance, and surprising EASE, of deciding to switch from DOLLARS to GOLD and SILVER.

Additional benefits of PHYSICAL ownership are the gradual mindset change of viewing GOLD and SILVER as MONEY, and thus one’s NET WORTH in terms of OUNCES, not dollars (as much of the Eastern World does). Times like the last two days are much more bearable when you realize your bullion has not tangibly CHANGED at all, as opposed to brokerage accounts that drop precipitously.

Additionally, bullion ownership guides you toward spending more time RESEARCHING what is REALLY going on in the world, as opposed to what the talking heads in Washington, on Wall Street, and throughout the media are saying.

And finally, it predisposes you to LEARN more about mining history and the mining process, so that you will be more prepared to make investments in the WORLD’S CHEAPEST SECURITIES, gold and silver mining stocks!

Andrew C. Hoffman, CFA
Managing Director
San Diego Torrey Hills Capital
B (720) 350-4130
C (917) 324-7602
ahoffman@torreyhillscapital.com
www.babybulls.com