By Peter B. Meyer – June 20, 2012
Central bankers around the world hold their hands on the print button of their presses. So it’s easy to predict a rise in precious metal prices over the next 2 years. It is similar to what happened many times over in the past. After 2008’s market meltdown, central bank action sent precious metals soaring. For instance, gold jumped 25% in 2009. But in a good year for gold, silver can do even better. In 2009 while gold jumped 25% the price of silver jumped over 50% from $11 to $17 per ounce.
Now is the time to look at silver again. Sprott the largest commodities trader on the globe, says: “The €100 billion the European Union granted to Spanish banks last week is just the beginning… The problem is much bigger than Central Bankers and Governments can deal with – the whole banking system is much larger than the countries involved.”
All sovereigns have large deficits; they lack excess funds to bailout their banks, as their own credit worthiness is under water. With continued European bailouts and strong demand for precious metals, gold and silver prices should soar, after their recent floundering. Sprott thinks the recent ‘low’ gold and silver price is originated by the central banks that are controlling the prices for precious metals, because a high gold price indicates the central banks performance is lousy.
Sprott says: “All of the data is incredibly positive for precious metals. I focus on gold because the silver data is so poor that we get, but when you see China buying 100 tons of gold in April, Iran’s buying, Turkey’s buying… Kazakhstan announces they’re going to go from 12% of reserves in gold to 15% - all of the data speaks to HUGE VOLUMES OF PHYSICAL GOLD BEING ABSORBED… way beyond the ability of the miners to provide that gold. Which makes me think the central banks are continuing to lease or to supply the gold into the market somehow.”
In addition to ongoing problems with Europe's financial system and growing demand for metals, there's another reason, metals - in particular silver- will soar. In short, the world is out of silver.
Sprott says, “Aggregate investment demand for silver between 2000 and 2009 was 293.8 million ounces (according to the GFMS, the world's foremost precious metals consultancy). Using his own numbers, Sprott compiles the silver holdings for seven large investors, including himself, iShares, Silver Trust, ZKB, GoldMoney, etc. Just those seven entities own 519.6 million ounces of silver… That's 225.8 million missing ounces. And again… That's only seven investors. It doesn't include central banks, individuals, hedge funds, etc.“
It's obvious, as Sprott notes, silver data has been "very, very misstated." Sprott ends his speech saying, "There's $22 billion of silver available in the world, of which the ETFs already own half, and between you guys and us we probably own the other half... Which means there's nothing left."
Sprott states, the world's silver supply would be gone "in a nanosecond" once the people realize there isn't as much metal as we believe, "because it's a very small amount of money." He also noted, there's a shortfall in the world's gold supply.
The message is clear: Buy gold and silver coins and bullion now, for as much as you’ve liquidity available and keep doing so till the prices escalate.
By Peter B. Meyer - 3rd of March 2012
Mr. Gold welcomed me with a big shiny smile: he was pleased to meet me and happy to take note of his interesting biography. He started with some questions:
Have you ever had any doubts about gold? Does it sometimes feel like it should be performing better? Are you concerned about its volatility? Do you worry about how it might perform in the future? Have you ever wondered about its true purchasing power? Maybe you’re nervous about a big drop in price again?
He confirmed me, he was fully aware about the worries people had about him. He also understands that we live in a very uncertain world. He continued, when it comes to money it looks as though your leaders don’t understand some basic monetary principles, which are making the situation even more unsettling.
But the problems you’re experiencing are actually nothing new. I have seen these monetary, fiscal, and economic difficulties many times before. And I can tell you this: you’re safe with me. That’s a bold statement, but I have provided monetary protection numerous times throughout history, too many to count, in fact. I have served all kinds of people over the centuries, from emperors, kings and counts to serfs and servants.
To put your mind at ease, let’s review my core curriculum, along with some history, to show you how I can protect you and your readers against the monetary danger that’s likely to worsen in the near future. We’ll also take a look at your peculiar set of circumstances to see how I can be of service. By the time we’re finished, I think you’ll feel much better about my ability to help you and your readers to withstand whatever is thrown its way.
My Enduring Characteristics
Let’s start with the basics. I have some characteristics that no other matter on Earth has, I cannot be:
• Printed, - ask a miner how long it takes to find me and dig me up.
• Counterfeited, - you can try, but a scale will catch it all the time.
• Inflated, - so I cannot be reproduced.
Further I cannot be destroyed by:
• Fire, it takes heat at least 1,063ºC to melt me.
• Water, I don’t rust or tarnish.
• Time, my coins remain recognizable after a thousand years, even under seawater as proved by Odyssey*.
I don’t need:
• Feeding, like cattle.
• Fertilizer, like corn.
• Maintenance, like printing presses.
I have no:
• Time limit, most metal is still in existence.
• Counterparty risk, remember MF Global!
• Shelf life, I never expire.
As a metal, I am uniquely:
• Malleable, I can be spread without cracking.
• Ductile, I can be stretched without breaking.
• Beautiful, without arrogance; I am the ultimate accessory.
As money, I am:
• Liquid, easily convertible to cash.
• Portable, you can conveniently hold $30,000 in one hand.
• Divisible, you can use me in tiny fractions.
• Consistent, I am the same in any quantity, at any place.
• Private, no one has to know who owns me.
I am internationally accepted, last for thousands of years, and probably most important, you cannot multiply me, to make more of me.
And by the way, don’t fret about those who say I’m not as good an asset as an income-producing vehicle. They misunderstand my role. I’m not trying to be a stock, for example. My function is as money and a store of value, so the proper comparison is to your dollars and euros or what you call Treasury Bills of similar nominal value. And here is where I excel and serve my purpose: since 1913, the US dollar has lost 96% of its purchasing power. I have lost none.
Remember, I am the only financial asset that is not simultaneously someone else’s liability. I don’t require the backing of any bank or government.
Because I am eons old, I’ve observed something throughout history that you may not be aware of: government’s fiat currencies are a relatively new invention, and none has endured. Eventually, they have all failed. Me? I have never been defaulted on or worth zero. Please remember this for the next time you may have any doubts about my long-term value.
You can rest assured that over time, I will hold my value. And when you near the end of your life, you can pass me on to your loved ones, knowing full well they will have something that cannot be devalued, debased, or destroyed.
How reliable are you as Money?
Like you, I’m concerned about the current state of fiscal and monetary affairs. It seems your government leaders have boxed themselves into a corner. They’ve incurred too much debt and are spending too much money. It’s important that you understand some lessons from history about this kind of behavior so that you’re certain of what I can do for you.
The common denominators that lead to the downfall of every fiat currency are the two big Ds: debts and deficits. With that in mind, consider the following:
Detailed studies of government debt levels over the past 100 years show that debts never have been repaid, in original currency units, when they have exceeded 80% of GDP. US government debt will exceed 100% of GDP this year.
Investment legend Marc Faber reports that once a country’s payments on debt exceed 30% of tax revenue, the currency is “done for.” By some estimates, the US will hit that ratio this year.
Peter Bernholz, a leading expert on hyperinflation, states unequivocally “hyperinflation is caused by government budget deficits.” Next year’s US budget deficit is projected to be $1.5 trillion.
The solution many of your leaders are pursuing is to create more currency units. The US monetary base has exploded 205.8% during the last three years, while my price is only up 65.8%. This fact, alone, implies that my price in dollars is likely to climb much higher.
This is also the reason why I’m not in a bubble, as some have tried to claim. It is your central banks and bond markets that are in a bubble. The fact that my price is rising is a warning that what your leaders are doing is unsustainable and potentially dangerous to your currency.
Think about this: the US has debt backed by debt, based on debt, dependent on debt, and leveraged with debt. You can, for example, buy a bond (i.e., lend money) on margin (i.e., with borrowed money). This is not a sound way to run financial markets.
Meanwhile, the warning bells continue to sound regarding Europe’s debt crisis. In just the past weeks:
Moody’s, Standard & Poor’s, and Fitch downgraded recently the triple-A status of France, Austria, and the UK; while six other European nations including Italy, Spain, and Portugal was downgraded several times. Standard & Poor’s downgraded 34 of Italy’s 37 banks. As Moody’s warned just last week that it may cut the credit ratings of 17 global financial institutions and 114 European ones.