The Only True Standard of Value

Richard Russell snippet
Dow Theory Letters
Apr 21, 2011

April 20, 2011 — The dollar is doing just what the Fed wants it to do — it’s sinking, sinking and sinking more. Sadly, the great American public doesn’t understand what’s happening, and if they were told, they couldn’t care less. Of course, what the public does notice is the painful result of the dollar’s bear market. The result is seen every time Joe six-pack and his wife hit the neighborhood super-market. The rising prices are a shocker. And if the price of your favorite cold cereal has not been raised, there is less of the cereal in the box. Then when Joe has to fill up the buggy to get home, he groans as he sees the gasoline tab. “Sixty bucks to fill up this lemon. I’m going to get a motorized bike,” growls Joey. “This country is going to hell in a hand-basket.”

The US has been getting away with spending more than it takes in ever since World War II. It’s a process that isn’t sustainable, and if a process is unsustainable, it will end. The US’s habit of spending more than it’s paying for has finally hit a brick wall. The wall is the demise of the famous “Yankee dollar.” In order for the US to live over its head, it must borrow. Half of the US’s borrowing comes from foreign sources. And that’s a problem.

The fiat US dollar has no fixed value. It’s worth must be measured against other currencies. “The dollar is worth so much in relation to the Brit pound — or the dollar is worth so much in terms of the euro.” Our foreign creditors, many of whom are loaded with dollars, keep a sharp eye on the comparative value of the dollar, and they’re now frightened and mulling over the credit-worthiness of the US. The recent warning from the S&P rating agency heightened our creditors worries about both the US and the dollar. The disgraceful battle between Obama and the Democrats vs. Paul Ryan and the Republicans is further raising the fears of our creditors.

With commodity inflation now out in the open, Fed head Bernanke has a problem. His absurd defense is to refer to “core inflation” (without the cost of food and energy). Bernanke announces to the world that there’s “no inflation,” and besides if there is inflation, the Fed can end it any time they want.

What Bernanke and the Fed can not control is the tell-tale price of gold. As I write, the battle is on to keep June gold from closing above 1500. Yesterday June gold hit an intra-day high of 1500, but can it close there? “Ah,” Bernanke must be thinking, “If I could only control the price of that damn gold.”

Yesterday, as I looked at my computer, and I could see the fierce struggle that was going on as gold whipped up six dollars, then five minutes later it is up a dollar-fifty. There must be a powerful contingent (perhaps backed by the Fed) that is desperate to keep the price of gold DOWN and below 1500.

But alas for the Fed, gold is traded internationally across the face of the planet and 24 hours a day. Gold is out of the hands of the Fed and Goldman Sachs, and it trades everywhere and where it wants.

This year I’ve been telling my subscribers to think in terms of two concepts:

(1) Think in terms of avoiding losses (rather than thinking in terms of building fat profits).

(2) Think in terms of PURCHASING POWER. Are you gaining or losing purchasing power?

For ten years I’ve advised my subscribers to climb aboard the great bull market in gold. Early subscribers who have followed my advice now have huge paper profits, many have become millionaires, others have been able to retire on their gold positions.

Even new-comers have benefited from their belated investments in gold. Over the last 12 months, the dollar price of gold is up 31.32 percent.

Gold is the only true standard of value. The value of everything else must be measured in terms of gold. “How many ounces of gold does it take today to buy a new Ford?” “How many ounces of gold did it require to buy a new ford in 1932?” It costs a lot more (in dollars) to buy a new Ford today. But how many ounces of gold does it cost to buy a new Ford today compared with the ounces required in 1932 to buy a new Ford? What has changed, gold or the dollar? Gold hasn’t changed, what has changed is the dollar, which has lost purchasing power.

The US public is rapidly being educated about money and gold. Ads are appearing almost daily in the newspapers, telling readers how and why to buy gold. The ads are being confirmed by the rising price of gold. The public is finally “getting it”. I’ve been in this business since 1958, and I’ve seen a lot of advisory services come and go — a lot! What I notice is that there are a number of fairly new advisories that are climbing (entering) on the back of the gold bull market. These advisories are sending out mass mailings to the public — educating them on the fact of the dying dollar and the Fed’s plan to solve the debt problem by diminishing the purchasing power of the dollar. As Lincoln put it, “You can’t fool all of the people all of the time.” Clueless as the American populace is, they are finally learning about gold, something that their great grandparents took for granted.

In terms of gold: Assessing real estate values in terms of gold. At its peak, the housing market in March 2007, the median US home price was $262,600, which was equivalent to 340.6 ounces of gold. Today’s median income price is $186,100 or 109.2 ounces of gold. So in terms of real money, gold, the US median home price has lost 47% since 2007.

Applying the same measurements to the Dow, from the end of 2001 to the end of 2008 an investment in the Dow would have lost 81% of its purchasing power in terms of gold (statistic courtesy Larry Edelson of the outstanding “Uncommon Wisdom” advisory).

The great and harsh lesson of history now stares Americans in the face — no fiat currency in history has ever survived. This fact underscores the growing panic to get out of dollars and out of all fiat currencies.

This emphasizes the irony of those who are rushing into dollars or dollar-denominated bonds and blue-chip stocks on the thesis that these are “safe havens.” It’s a rush out of dollars to get into other forms of dollars.

What’s happening now is on a greater scale than has ever occurred before in the history of mankind. It’s going to hit the current generation of Americans like a whirlwind. It will be historic in its intensity and destructiveness.

The great gold rush of 1849 opened up the American West. This gold rush of the early 2000′s will open up the eyes of Americans to the danger of the Federal Reserve and fiat money.

Below in log scale — one of the greatest and most significant bull markets in US history.

Below, the Dow over the exact same period.

###

Richard Russell
website: Dow Theory Letters
email: Dow Theory Letters
Russell Archives
© Copyright 1958-2011 Dow Theory Letters, Inc.

Richard Russell began publishing Dow Theory Letters in 1958, and he has been writing the Letters ever since (never once having skipped a Letter). Dow Theory Letters is the oldest service continuously written by one person in the business.

He offers a TRIAL (two consecutive up-to-date issues) for $1.00 (same price that was originally charged in 1958). Trials, please one time only. Mail your $1.00 check to: Dow Theory Letters, PO Box 1759, La Jolla, CA 92038 (annual cost of a subscription is $300, tax deductible if ordered through your business).

321gold Ltd

by Warren Bevan

Fundamental Review

China has reportedly imported up to 200 tonnes in the last three months which would be roughly 8% of yearly worldwide Gold production. The heavy importing was said to have been in advance of Chinese New Year, which began February 3rd. Usually red envelopes are stuffed with cash and exchanged during the Chinese New Year, but apparently Gold is being put into the envelopes this year.

It’s not my fault that China is taking over the world in many respects, so please don’t berate me with hate mail. The facts are they are smart, have a long-term plan and are executing it. Western governments let it happen with their debt based system.

It doesn’t matter if you agree with me on this or not, it’s fact and the sooner you understand it the better off and more prepared you’ll be. No point in being stubborn. Look at the facts honestly and decide for yourself.

What I’m working around to is that while the Chinese are far from perfect, they have done a lot more right lately than the West. They are buying Gold as quickly as they can at whatever price they can. I suggest you follow their lead in terms of Gold buying, whether you like their reasons for buying it or not.

A report was received recently where it was said that the Chinese Central Bank is going to increase their Gold reserves, and Silver as well. It was said that they would be using the recent weakness as an opportunity to buy both metals. It doesn’t surprise me to hear this about Gold, and I may not have even mentioned it here. But to hear this about Silver is stunning.

Many societies, including China, have been on Silver standards in the past, and while it is industrial, it is also precious and can be argued as to have many of the same monetary values and features as does Gold. In the past Gold was used more for wealth storage, while Silver was used in day to day transactions due to it’s cheaper price.

It’s beyond what I can put into words how positive this is for Silver, if true. I guarantee if China begins buying Silver as reserves, many other countries will follow.

It’s no secret that I’ve been much more bullish Silver than Gold for years and my portfolio reflects that tremendously. Last year was amazing to say the least. And better years are ahead!

$200 Silver may seem cheap in a few years. No joke.

Turkey’s January Gold imports also rose to 11.12 tonnes of the good stuff. That is quite a bit, and a trend that should continue. January 2010 only saw 60 kg imported!

Three banks failed this SuperBowl weekend and joined 2011’s list of biggest losers. Once again, they were announced after all was said and done for the week, late Friday evening.

Ben Bernanke issued a stern warning that if the debt limit ceiling failed to be raised promptly there could be catastrophic consequences. This is true. And there is no practical solution to a continued debt limit increase which will eventually lead to the failure of the United States Dollar as we know it.

His warning came during his appearance at the National Press Club where he told so many lies that I won’t even go into it . I know I woke up the next day to glorious headlines of peace, love and prosperity, all lies if you even bothered to read past the headlines, let alone dig into the real numbers and truths.

Forget about it. Just buy some physical Gold, Silver, or nickels and sit back and ignore as much of it as you can.

The national debt in the US jumped an impressive $105.8 billion in January alone. That’s about $3.14 billion per day. But if you break it down it’s only about $10 a day for every man women and child in the US. The median US family size is 2.59 so it’s only an extra $803 per average family per month added to the national debt at this rate.

No big deal. Who doesn’t have an extra $800 a month to throw around right?

I know I don’t!

My word that is a lot of cash, and it’s likely to only grow over time. Stop the madness!

Apparently scams out of Sierra Leon still occur in regards to “cheap gold”. Investors actually trusted these scammers and handed them large sums of money for cheap gold which was never delivered or only contained copper shaving. I get many emails from scammers every single day, most from small African nations.

**Note. If you’ve sent me an email starting with Dear Sir, or Kind regards from Africa and you didn’t get one back I may have deleted on first site out of habit!

Gold is not cheap. The cheapest way to buy Gold is on the futures market. Other than that, you have to look at the charts and look for good entry points and shop around for the smallest premium. That is the only way to get a “deal” on Gold.

Silver sales have been soaring lately. 1 oz silver coins have broken sales records in January at the US Mint. Sales of 6.42 million coins were 50% more than any other year in the US Mint’s 26 years of published data. At least they have the Silver so far.

The second highest monthly sales ever just occurred in November 2010, then 2010 supply basically ran out in December so we could well be at the start of back to back record breaking sales months.

It won’t take too many of those types of months until we hear the “we ran out of blanks” excuse. Get the metals while you can because there will be a day when paper price and physical price has a huge spread. There is already a spread, but it’s small compared to what’s coming.

Here’s a great one to finish on and consider. A rich investor bought twenty million nickels in order to profit from the coming fiasco.

Anything that will hold value, including small coins with metal content, is a good investment. Apparently the nickel is actually worth $0.07 today and I’ll bet you a nickel, a nickel will be worth even more over the next few years.

Enjoy the Super Bowl and the coming week. It should be a great one.

Until next week take care and thank you for reading.

Warren Bevan

Original Source: http://www.kitco.com/ind/Bevan/feb072011.html

$2,500 Gold Could Easily Result in $178.50 Silver – Here’s Why!

By Lorimer Wilson Sep 20 2010 11:49AM www.FinancialArticleSummariesToday.com

More than 95 respected economists, academics, analysts and market commentators are of the firm opinion that gold will go to $2,500 and beyond before the parabolic peak is reached. In fact, the majority (55) think a price of $5,000 or more -even as high as $15,000 – is actually more likely! As such, just imagine what is in store for silver given its historical price relationship with gold!

Precious metal bull markets have 3 distinct demand-driven stages and we are now quickly approaching or perhaps even in the very early part of the last stage which occurs when the general public around the world starts investing in gold and this deluge of capital into gold causes it to escalate dramatically (i.e. go parabolic) in price.

Gold

Gold went up 24% in 2009 and is up 16% YTD and, as such, there are no shortage of prognosticators who see gold going parabolic reminiscent of 1979 when gold rose 289.3% in the course of just over a year (from a $216.55 closing price on Jan. 1, 1979 to a closing price of $843 per ounce barely a year later on Jan. 21, 1980) and 128% higher in a late-1979 parabolic blow-off of just under 11 weeks! A 289% increase in the price of gold from $1275 would put gold at $4,960. (More on what that might mean for the future price of silver is analyzed below.) That being the case what appear on the surface to be rather outlandish projections of what the bull market in gold will top out at don’t seem quite so far-fetched. (For a complete list of the economists, academics, market analysts and financial commentators who maintain that gold will go parabolic to $2,500 -$15,000 in the near future please see:

http://www.munknee.com/2010/09/5000-gold-bandwagon-now-includes-these-55-analysts-got-gold/

Silver

Silver has proven itself, time and again, to be a safe haven for investors during times of economic uncertainty and, as such, with the current economy in difficulty the silver market has become a flight to quality investment vehicle along with gold. The 49% increase in silver in 2009 (and 23% YTD) attests to that in spades. During the last parabolic phase for silver in 1979/80 it went from a low of $5.94 on January 2nd, 1979 to a close of $49.45 in early January, 1980 which represented an increase of 732.5% in just over one year. Such a percentage increase from the current price of almost $21 would represent a future parabolic top price of $175. (For what that might mean for the future price of gold see the analysis below.) Frankly, such prices seem impossible in practical terms but that is what the numbers tell us.

Gold:Silver Ratio

The current gold:silver ratio has been range-bound between 70:1 and 60:1 for quite some time which is way out of whack with the historical relationship between the two precious metals. It begs the question: “Is now the perfect time to buy silver instead of the much more expensive gold metal?”

How both gold and silver perform, in and of themselves, does not tell the complete picture by a long shot, however. More important is the price relationship – the correlation – of one to the other over time which is called the gold:silver ratio. Based on silver’s historical correlation r-square with gold of approximately 90 – 95% silver’s daily trading action almost always mirrors, and usually amplifies, underlying moves in gold. With significant increases in the price of gold expected over the next few years even greater increases are anticipated in silver’s price movement in the months and years to come because silver is currently seriously undervalued relative to gold as the following historical relationships attest.

Let’s look at the gold:silver ratio from several different perspectives:

- Over the past 125 years the mean gold:silver ratio (i.e. 50% above and 50% below) has been 45.69 ounces of silver to 1 ounce of gold.
- In the last 25 years (since 1985) the mean gold:silver ratio has increased to 45.69:1
- The present gold:silver ratio has been range-bound between 60:1 and 70:1 (61.3:1 as of September 17/10).
- Interestingly, during the build-up to the parabolic blow-off in 1979/80 silver outpaced gold going up 732.5% vs. gold’s 289.3% causing the ratio to drop from 38:1 in January 1979 to 13.99:1 at the parabolic peak for both metals in January,1980.

Let’s now look at the various price levels for gold and the various silver:gold ratios mentioned above one by one and see what conclusions we can draw.
First let’s use the Sept. 17, 2010 price of $1276.50 for gold and apply the various gold:silver ratios mentioned above and see what they do for the potential % increase in, and price of, silver.

Gold @ $1276.50 using the current 61.3:1 gold:silver ratio puts silver at $20.82 (Sept. 17/10)
Gold @ $1276.50 using the above 45.69:1 gold:silver ratio puts silver at $27.94 (i.e. +34.2%)
Gold @ $1276.50 using the above 13.99:1 gold:silver ratio puts silver at $91.24 (i.e. +338.2%)

Now let’s apply the projected potential parabolic peaks of $2,500, $5,000 and $10,000 to the various gold:silver ratios and see what they suggest is the parabolic top for silver.

@ $2,500 Gold

Gold @ $2,500 using the gold:silver ratio of 61:1 puts silver at $41
Gold @ $2,500 using the gold:silver ratio of 45:1 puts silver at $55.50
Gold @ $2,500 using the gold:silver ratio of 14:1 puts silver at $178.50

Before we go any further the above analyses bears closer scrutiny. In paragraph four above it was noted that “During the last parabolic phase for silver in 1979/80 it went from a low of $5.94 on January 2nd, 1979 to a close of $49.45 in early January, 1980 which represented an increase of 732.5% in just over one year.” Such a percentage increase from the current price of almost $21 would represent a future parabolic top price of $175.

It is interesting to note that the above $175 is almost identical to the $178.50 that would result from a reversion to the mean in the gold:silver ratio with gold at $2,500. For the gold bugs who believe that gold is going to go even higher it can only mean a very much higher price for silver as the analyses below suggest.

@ $5,000 Gold

Gold @ $5,000 using the gold:silver ratio of 61.1 puts silver at $82
Gold @ $5,000 using the gold:silver ratio of 45:1 puts silver at $111
Gold @ $5,000 using the gold:silver ratio of 14:1 puts silver at $357

@ $10,000 Gold

Gold @ $10,000 using the gold:silver ratio of 61:1 puts silver at $164
Gold @ $10,000 using the gold:silver ratio of 45:1 puts silver at $222
Gold @ $10,000 using the gold:silver ratio of 14:1 puts silver at $714!!

From the above it seems that, any way we look at it, physical silver is currently undervalued compared to gold bullion and is in position to generate substantially greater returns than investing in gold bullion.

Summary

History will look back at the artificially high gold:silver ratio of the past century as an anomaly, caused by the dollar bubble and the world being deceived into believing that fiat currencies are real money, when in fact they are all an illusion. This fiat currency experiment will end badly in a currency crisis and when that happens, as it surely will, gold will go parabolic and silver along with it but even more so as the gold:silver ratio adjusts itself to a more historical correlation. The wealthiest people in the future will be those who put 10% to 15% (or perhaps more – much more!) of their portfolio dollars into physical silver today and were smart enough to research and pick the best silver mining/royalty stocks and warrants to maximize their returns.

Indeed, while gold’s meteoric rise still has room to run, silver’s run is yet to get started. As such, it certainly appears evident that now is the time to buy all things silver.

Please Note:

- This is a one-of-a-kind article which no doubt will get a great deal of attention and be posted on a large number of other financial sites and blogs. This is encouraged but to avoid copyright infringement the author’s name must be included with a hyperlink to the original article.

Lorimer Wilson
September 19, 2010

****

Lorimer Wilson is the Editor of both www.FinancialArticleSummariesToday.com (a sight/site for sore eyes and inquisitive minds) and www.munKNEE.com (a site consisting of edited excerpts of the internet’s most informative articles on money matters).  He can be reached at editor@munknee.com

Original Source:  http://www.kitco.com/ind/Wilson/sep202010.html

You really have to hand it to the banksters. As was painstakingly detailed in the book Creature from Jekyll Island, the banking elite devised a brilliant plan in November of 1910 on Jekyll Island in which to take over control of the United States, steal the wealth from the taxpayers and the resources from the country.

It was at this meeting that the Federal Reserve was conceived by the banking cartel, as they devised a plan to protect its member banks from competition and convince Congress and the American public that this cartel was an agency of the United States government.

The creation of the Federal Reserve will undoubtedly go down as one of the biggest tragedies in American history. After all, the government handed over the right to print the nation’s currency AND charge interest to a private, for-profit corporation with foreign stockholders. The Federal Reserve was given the right to simply print massive sums of money out of thin air and then charge the American taxpayer interest on that money.

In essence what they did was place the American people into indentured servitude by forcing the people to pay usury on worthless fiat currency (paper money created out of nothing), not to fund the government, but to enrich the bankers and fund wars in which America should never be involved. It has led to the massive unsustainable debt situation and the dollar losing 96% of its purchasing power since 1913. Stop and reflect on that last statistic for a moment. If you held $100 since 1913, it would only be able to buy you $4 worth of goods and services today! Or put another way, it would take $20 in today’s money to match what just $1 would have bought you in 1913. The rest of the value has been absorbed by the banking cartel and government. How on earth we still allow this institution to exist and operate in privacy is beyond comprehension.

Furthermore, It is absolutely unconstitutional, as Article 1, Section 8 of the Constitution clearly states that only Congress shall have the power to issue money. This view was confirmed in Lewis v. United States, 680 F.2d 1239 (1982), in which the Supreme Court ruled:

The Federal Reserve Banks are “independent, privately owned and locally controlled corporations”, and there is not sufficient “federal government control over ‘detailed physical performance’ and ‘day to day operation’” of the Federal Reserve Bank for it to be considered a federal agency.

As the United States debt-to-GDP ratio approaches 100%, the interest owed on the debt has become one of the largest annual budget items. The total U.S. debt according to http://www.usdebtclock.org/ has reached $56 Trillion or $180,000 for every U.S. citizen. This figure does not even include unfunded liabilities such as Social Security and Medicare, off-balance-sheet liabilities such as Fannie and Freddie and other liabilities that put the true total debt well over $100 Trillion. But let’s just use the $56 Trillion number for now.

The Federal Reserve conveniently stopped printing the total money supply statistic (M3) back in 2006. But since that date, a number of statisticians have extrapolated the number and come up with estimates that are widely believed to be in the ballpark. Using these numbers, the total amount of U.S. money outstanding is approximately $14 Trillion. If you divide 14 Trillion by the U.S. population of 310 million people, there is approximately $45,000 for every US person.

So, if the debt per citizen is $180,000 ($56 Trillion / 310 million people) and there is only $45,000 per citizen in existence, how can the debt ever be paid off? Even if we use the more conservative estimate of debt which is total public and private debt, we get $29.5 Trillion, which is more than DOUBLE the amount of dollars in existence.

The answer is that the debt CAN NOT be paid off. In fact, this is specifically how the banksters designed the system, so that everyone would eventually be in debt and servitude to them. Think about just how maniacal that is for a moment. But it gets worse…

You see, the government has already pledged all of America’s gold, which is surely no longer at Fort Knox as they haven’t allowed an audit in over 50 years. Even if the gold is still there, it now only represents a fraction of the annual deficit, let alone the total debt. Furthermore, the government will eventually have to pledge what is left of America’s public land, buildings and natural resources, privatizing everything from the Grand Canyon to Manhattan to Yosemite National Park.

On the individual level, since there will never be enough money for everyone to pay back their home mortgages, this means the banks will end up foreclosing on a huge portion of the real estate and housing that hard-working Americans own, a process which has already begun. So not only will the banking elite end up with all of the money, they will also end up with all of the land and resources of the once great United States of America. Sound alarmist? Consider this visionary quote from one of our nation’s greatest leaders:

“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered…I believe that banking institutions are more dangerous to our liberties than standing armies… The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” -Thomas Jefferson

It is absolutely ridiculous that we have become so apathetic and brainwashed to be allowing this to happen right under our noses. This charade is going to end badly, either by default or hyperinflation and most likely with a high level of social unrest. Either way, the banksters have created a fiat money system that is absolutely destructive to this country, our freedoms and our way of life. If you are outraged, there are fortunately some things that you can do.

1. Move your money out of the big banks and into local community banks or non-profit credit unions. Because of fractional reserve banking, every dollar that you remove deprives the banks of $9 or more used for risky derivatives gambling where its heads they win, tails you lose.
2. Support a full audit of the Federal Reserve, sign the petition and write or call your local congressman. Voter action has already led to a partial one-time audit that recently passed the Senate, which is a good first step. But we need periodic full audits of exactly what the Fed is doing with taxpayer funds. The more the awareness is raised about the Fed, the better chance we will have of eliminating this institution one day and returning the right to print money to the Congress, INTEREST FREE!
3. Get out of debt and live within your means. We’ve had it good for a very long time and have been able to live beyond our means due to the dollar’s status as world reserve currency and easy credit. Those days are coming to an end, so you should do everything within your means to get our of debt while interest rates are still low. They will need to shoot dramatically higher one day, and you don’t want to have an adjustable rate loan of any type when they do. Establish your freedom from the banks and deprive them of their revenue (interest on your debt).
4. Invest in precious metals. The government’s most likely response to the debt issue and slowing economy is going to be to print money on a scale the world has never seen before. This will undoubtedly lead to hyperinflation, destruction of the U.S. dollar and skyrocketing prices for gold and silver, real money. In addition, the banks and their government bed buddies hate gold because it is out of their control. They can’t print gold or silver out of thin air and it is a threat to their fiat currency system and their very power structure. You should consider owning physical gold and silver and if you are enjoying the leveraged gains provided by mining stocks, make sure to occasionally convert those paper profits into more physical metal stored outside of the banking system.
5. Lastly, continue to learn and share this information with as many people as possible. We can take our country back and end debt enslavement, but we have to move beyond the two-party system and stop bickering over marginal issues. Both parties are completely corrupt and in the pockets of the banksters and megacorporations. None of this will change until we eliminate the Fed and eliminate money from our political system. The mainstream media is not going to tell everyone this, because they are owned and funded by the banksters and elites. The information must spread via the Internet at a grassroots level.

Jason Hamlin
Gold Stock Bull

Howard S. Katz
Nov 9, 2009

(Click on image to enlarge)

On November 4, gold pulled back to $1025, and that was the turn. It gained 75 points over the next 6 days, including a 30 day whopper when India bought 200 tonnes of gold from the IMF. On Friday, $1100 was breached (interday on the Comex, Dec. future).

Is it too late to become a gold bug? Are you one of those who did not listen to the one-handed economist? Worse, did you fly to “safety” in the U.S. dollar? Are you thinking, “Is it too late to buy?” The answer is in the chart above.

This is the gold bull market going back to its beginning in 1999. Even a novice can see one thing: it is going up. I am not a big fan of uptrend lines, although I have drawn the uptrend above. But you don’t even have to look at the uptrend line. All you have to notice is that each time gold goes up, it breaks to a new high, and each time gold goes down, it holds at a higher low. This is a concept that Charles Dow formalized in the Dow Theory a hundred years ago, and it is as valid today as it was then.

It is not difficult, but in this way of doing things is a very important idea. One must always keep in mind the big picture. The big money is made in the big move. The vast majority of traders are up too close to the market. They cannot see the forest for the trees. So they lose sight of the big picture. And it is the big picture which is going to bring you the big profit.

These are the technicals arguing for a big rise in gold. What are the fundamentals? The important fundamental is an event which happened on March 9, 1933. F.D.R. rammed a bill through the obedient Democratic Congress giving the privilege to counterfeit money to the commercial banks.

I know that you have been taught that F.D.R. and the Democrats were against the bankers. That is a lie, pure and simple. Through the 1920s F.D.R. had been a Wall Streeter working at 120 Broadway, the manager of a vulture fund (so called because it would swoop down on dying companies like a vulture and gobble them up.). His very first act allowed his Wall Street buddies to steal from the working people of America and use this privilege to get rich. A traitor to his class he was definitely not. The bill was rammed through Congress in one day, with no hearings, and the House of Representatives did not even have copies to read before they were required to vote. It was a travesty of the democratic process. Ever since that day, the Democrats have pretended to be the party of the working man while they robbed the working man to give to the bankers. Now how does this affect you?

With this in their pocket, the big Wall Street banks went to work. They found a group of “economists” who would advance the theory that letting the bankers print money makes the country rich. It is true that these “economists” were regarded as crackpots by the real economists of the day. No matter, the bankers’ money talked. They bribed a number of the top schools in the country to hire these crackpot economists. Crackpotism was defined as a new theory of economics. A good example is John Kenneth Galbraith, whose chair of economics at Harvard is named after a former head of the Manhattan Bank (today merged into J.P. Morgan). You probably know these crackpots by the name Keynesian. Perhaps you sent your son off to Harvard to earn a degree in crackpot economics.

I went to Harvard, but I was smarter than you or your son. I spotted the professors there as crackpots by my sophomore year. I skipped the Harvard economics courses and learned real economics by self study. This is why my record of economic prediction over the past half century is brilliant, and the record of the crackpot economists with the long titles is a joke.

But here we are in the 21st century, and you have to make a decision. Buy gold, as we gold bugs are telling you. Or buy stocks, bonds or T-bills, as the establishment is telling you. Well, here is the situation. Through the course of the 20th century the bankers were more and more successful. With the Kennedy tax cut of 1963, Nixon’s abandonment of gold in 1971 and Reaganomics in the 1980s, the issues of paper money got bigger and bigger. America had became the richest country in the world while she was on the gold standard (1788-1933). Now America is getting poorer and slipping backward toward the level of the other nations. The U.S. dollar is in full scale collapse, and there is speculation about the day that it will no longer be used as the world currency. (This happened to the British pound in 1947-48 and coincided with the collapse of the British Empire and with the fall of Britain as a world economic power.)

At the present time, both political parties follow the banker line of more paper money. Last year, the Fed created a trillion dollars out of nothing. To avoid alarming people, the Fed lied about this, reclassifying a portion of the money supply as time deposits (although the owners of these deposits were told that they were demand deposits).

The bottom line of all this is that the bankers are hungry for the Fed to create more paper money. (They are always hungry for the Fed to create more paper money.) So they have their crackpot economists writing articles in every “respectable” newspaper and magazine and locking down all the financial advisory positions in both parties. Obama is projecting trillion dollar deficits for the next 3 years. The Government does not intend to borrow these trillions of dollars from the American people. (thus putting the burden on our children). It intends to counterfeit the money (putting the burden on the people of today). (In America, paper money is illegal under the Constitution. That doesn’t seem to stop anybody, but it certainly does make their actions illegal.)

Since the crackpot theory that printing money is the road to plenty is not true, this will cause the collapse of the U.S. dollar. The vast majority of the American people will wind up poor, and the bankers will get rich. Think, we now have a Government which believes that destroying cars (Cash for Clunkers) will “stimulate the economy.” F.D.R. had a similar theory in the 1930s. Plow under crops, and kill pigs. This was considered to be the way to get us out of the “depression.”

The way to protect yourself is to get out of dollars. This means no savings accounts, T-bills, commercial paper or longer term notes and bonds. GET YOUR ASSETS INTO REAL GOODS. As the dollar goes down, the price of real goods in dollars has to go up. And anyone who tells you different is an ignoramus, a crackpot or a fraud.

Leaving aside collectables, which can be tricky, you have 3 choices: stocks, real estate and commodities. Over the (very) long term, all three of these will go up (in dollar terms) as the dollar goes down. But one of my important discoveries is the commodity pendulum. This says that commodities and stocks take turns. Commodities move down and up in waves which used to take a decade and now take two (examples 1971-80 and 2001-?). As their rise feeds through into consumer prices, the Fed is forced to tighten, and this causes a collapse in both bonds and stocks. That is what you are going to see over the next several years. The Obama price explosion is already beginning in commodities and will later feed through to consumer prices. Then the Fed will tighten, and all the establishment types who are in the stock market will feel a great deal of pain. Have you heard the advice, “Stocks go up for the long pull. They always have?” I was told this when I started trading stocks in the 1960s. From 1966 to 1982, the real value of the DJI declined by 70% in real terms. From 1970 to 1980, gold multiplied by 25 times in nominal terms and 12 times in real terms. How stupid do you have to be to get taken by the same lie twice? (When the young Jim Dines first became a gold bug in 1963, he was fired by his establishment broker. They later went bankrupt, but they never apologized.)

# # #

Howard S. Katz
email: howardkatz@hotmail.com
website: www.thegoldspeculator.com

I publish an economic newsletter, the One-handed Economist ($300/year). I have been calling the gold and other markets since 1965. To subscribe, visit my web site at www.thegoldspeculator.com. If you don’t like computers, you can subscribe directly by sending $300 to The One-handed Economist, 614 Nashua St. #122, Milford, N.H. 03055. Or you can get a free sample of my writing by visiting my blog at www.thegoldspeculator.blogspot.com (no charge). This week’s blog is about the Middle East. Thank you for your interest.

Howard S. Katz holds a BA in mathematics from Harvard University. He became interested in Austrian economics and started a successful investment newsletter, The Speculator which focused on gold and gold stocks. He is a lifelong advocate of gold and gold stock investing. Later, he published The Gunslinger for investors interested in gold and gold stocks. In addition, Mr. Katz authored three books on gold, the gold standard and money in politics: “The Paper Aristocracy“, “The Warmongers” and the soon to be published “Wolf in Sheep’s Clothing”. He was involved in the Objectivist movement in New York in the 1960s and was an early member of New York’s Free Libertarian Party. Mr. Katz is a contributing author to The Ludwig von Mises Institute where his writings appear along with those of contemporaries Llewellyn H. Rockwell, Jr., Murry Rothbard and Robert Murphy, among others. He has been interviewed on numerous radio programs. He is currently Chief Investment Officer, editor and publisher of the gold and gold stock investment newsletter, The One-handed Economist.

By Nick Barisheff
Sep 29 2009 2:40PM

http://www.bmginc.ca

“I’m not so much interested in the return on my money
as I am the return of my capital.” – Will Rogers

In this extraordinary environment, preserving your personal wealth becomes priority one. Before you make another major financial decision, it is imperative to understand the big picture by recognizing and understanding three critical issues. First, we are in a secular bear market for financial assets (stocks and bonds). Second, the consequences of the global bailouts will likely be highly inflationary. Third, we are at a pivotal point in the long-term investment cycle. Let’s examine each of these three keys in more detail.

KEY 1: WE HAVE ENTERED A SECULAR BEAR MARKET

In a secular (long-term) bear market, stocks plunge in value, single digit price/earnings ratios become the norm, and they can stay that way for decades. The secular bear we are experiencing now actually began when the stock markets crashed in 2000-2001, but few investors noticed because in 2003 the markets were artificially propped up by massive amounts of easy money from the US Federal Reserve under Chairman Alan Greenspan. This was not a new monetary policy. Greenspan’s response to every financial “crisis” he faced starting with the stock market crash of 1987 all the way through to and past 9/11 was to pour money into the system. The system was never allowed to self- correct, allowing a variety of asset bubbles to form.

During a secular bear market such as this one, stocks habitually move down or sideways. But there are occasional and sometimes violent bear market rallies to the upside that suck in naïve investors hopeful of a quick market turnaround. The most recent example is the spring/ summer 2009 rally in which the S&P TSX, the Dow and the S&P 500 has risen between 48 and 56 percent from their March lows. Since we are just in the early to middle stages of this secular bear market for stocks, investors still have time to rebalance their portfolios into negatively correlated assets. That means selling stocks and bonds (which will decline when interest rates rise) and buying an asset class that will thrive in this uncertain market: precious metals

Cash may seem to be a safe haven but it won’t protect against rising inflation. Bonds did well in 2008 because interest rates were slashed to zero. But rates have nowhere to go but up, which means adding or keeping bonds in your portfolio is likely to produce a negative return. It is important to note that bonds no longer provide true diversification protection because stocks and bonds have become positively correlated, meaning they generally move in the same direction.

Buy and Hold Doesn’t Work In A Secular Bear Market

Following traditional bull market mantras such as ‘Buy-and-Hold’ and ‘Stay the Course’ is a recipe for disaster in a secular bear market. Because secular trends last for years, they also take years to break. The most recent examples are the1966-1982 bear market in equities which, on an inflation-adjusted basis, investors lost nearly two thirds of their value during this period. As Warren Buffett points out “During these 17 years, the stock market went exactly nowhere.”

During this current bear market, the DOW has been negative over the past ten years, the MSCI World Index is only marginally positive, yet precious metals have soared over 200 percent (Figure 1). If inflation is taken into account the stock indices would be in significant negative territory, while volatility has been extreme: many of the stocks that formed the DOW in 1999 are no longer even in existence. One more fact: if you are counting on stock dividends to help you get through this downturn, consider this: at the time of writing, companies are cutting dividends at the fastest and deepest pace in at least 50 years.

KEY 2: MASSIVE BAILOUTS WILL TRIGGER MASSIVE INFLATION

As Merrill Lynch economist David Rosenberg wryly points out, “the new growth engine for the economy is government spending.” We are in the early stages of a global government spending spree of unprecedented proportions which, coupled with zero percent interest and extraordinary money supply growth, will be hugely inflationary. Financial assets will continue to lose purchasing power in this kind of environment, but gold and precious metals will hold theirs because they are a proven hedge against an investor’s two worst enemies — inflation and economic turmoil.

In recent years, the US money supply has been growing at an alarming rate. In 2008, despite a slowdown in lending and credit, money supply still grew dramatically with M3 (the broadest measure of money supply) increasing at about 11 percent, as Figure 2 shows. In 2009 the money supply is still growing at approximately 9 percent on an annualized basis. Over the long term, M3 increases have been the best leading indicators of future increases in the price of goods and services.

Most people think of inflation as a rise in the price of goods and services but in actuality price rises are the effect, not the cause, of inflation. As famed economist Milton Friedman pointed out many years ago, “inflation is always and everywhere the result of an increase in the money supply”.

Precious metals are the only currency to own when central bank printing presses are debasing global currencies at unprecedented rates. Because they are a proven store of value, precious metals are likely to be the only asset class that will preserve the purchasing power of your savings as we enter into a prolonged period of ‘–flation’: deflation, stagflation or inflation (one of the latter two being much more likely).

KEY 3: RIDE THE INVESTMENT CYCLE

A buy and hold strategy might work if it weren’t for the existence of cycles that drive bull and bear markets. A good way to understand the investment cycle is to look at what is called the Dow:Gold ratio. The Dow:Gold ratio (Figure 3) calculates the number of ounces of physical gold bullion it would take to ‘purchase’ one share of the Dow Jones during any given time period. When the ratio rises, as it did in the 1920s, 1960s and 1990s, it tells us that portfolios should be overweight stocks. When the ratio slumps, as it did in the 1970s and today, it tells us that portfolios should be overweight precious metals bullion.

The last three major stock market bubbles ended with the Dow:Gold ratio above 18:1, while the last two major bear markets (1932 and 1980) ended with the ratio near 1:1 At the height of the equities bull market in 1999, the Dow:Gold ratio peaked at over 40:1. But now the current ratio is below 10:1 and falling. It is certainly not too late to increase your allocation to gold and precious metals.

Precious metals preserve wealth

Precious metals have successfully preserved wealth for thousands of years because, unlike stocks and bonds and paper currencies, they are not someone else’s promise of performance and they are not someone else’s liability. Massive credit expansion has put US debt at over $11 trillion, but if the $60 trillion in unfunded pension liabilities and Medicare obligations that the US owes its citizens, actual debt is approaching a staggering 500 percent of GDP.

America’s spiralling debt crisis is leading many experts to consider the previously unthinkable: that the US might become the next Argentina, which famously defaulted on its debt ten years ago. To learn more about the debt crisis, visit www.ChrisMartenson.com. Dr. Martenson has created a superbly researched video called the “Crash Course” which explains in layman’s terms how massive debt is destroying investors’ wealth.

Precious metals are a safe haven

In 2008, stocks lost 30-70 percent of their value, while gold increased about 5 percent in US dollars. But equally significant, in a year of record-setting volatility, gold’s volatility was reassuringly low. At its lowest point, gold was only down 14 percent and at its highest it was up 21 percent. Both Goldman Sachs and UBS see the price of gold rising, and UBS expects investment demand for gold to pull the price of silver and platinum up along with it. Citigroup is calling for gold to rise above $2,000.

Precious metals protect against depreciating dollars

Since gold and precious metals are priced and traded in US dollars, they surge in value when the US dollar declines. As trillions in new money is printed, the dollar and other currencies will fall precipitously relative to gold. In an environment where the dollar is already weak and other currencies are weaker, investors seeking to preserve and grow their wealth must understand the impact of declining currencies on their portfolios.

Figure 4 shows the Canadian and US dollars have lost approximately 84 percent of their purchasing power since 1970. The world’s other currencies have fared no better. Not coincidentally, 1971 was the year the link to the gold standard was cut. Only gold, along with its two precious metals brethren – silver and platinum – will hold their value in periods of severe deflation and inflation.

Physical bullion versus proxies

Few investors are aware of all the precious metals investment options available to them. Some precious metals investments such as futures contracts and options are better suited for speculation and a higher tolerance for risk. But certificates, pooled accounts, ETFs and mining stocks also have higher risk. Only physical, bullion stored on a fully allocated, insured basis can guarantee peace of mind because it gives the investor exclusive title to the safest and lowest risk precious metals investment of all.

For absolute security, physical bullion should always be stored in allocated and insured form. If not, investors take the risk that their bullion may be lent out without their knowledge or consent or may not be there at all. Today, buying and storing physical, allocated bullion has never been simpler. You can privately and securely purchase bars of gold, silver and platinum in large bar sizes and have them insured and stored for you at a registered LBMA vault without ever breaking the Chain of Integrity. Visit www.bmgbullionbars.com to learn more or read our BMG Special Reports on how to invest in precious metals at: www.investinpreciousmetals.ca and www.goldmyths.com

It’s time to preserve your portfolio’s purchasing power

A minimum 10 percent allocation in precious metals is considered adequate in a bull market, but a much larger allocation of 20 percent or more is suggested for protection in a secular bear market. If you have not already done so, now is the time to rethink your investment strategy and preserve your hard-earned wealth. Physical bullion will keep its value regardless of whether the economy is headed for inflation, deflation or hyperinflation.

For the first time in history, the central banks have an unlimited ability to print as much money as they need. Precious metals are the only currency that will survive intact in this environment, because while governments can print infinite amounts of money, they cannot “print” more precious metals. More and more investors and institutions are turning to precious metals, because this secular bear market is expected to last for many years, eating away at investors’ hopes and dreams and portfolios along the way. Don’t let your portfolio be one of them. Now is the time to make an investment in your future, because the future is precious metals bullion

Nick Barisheff
President, Bullion Management Group Inc.
September, 2009

****

Nick Barisheff is President and CEO of Bullion Management Group Inc., a bullion investment company that provides investors with a cost-effective, convenient way to purchase and store physical bullion. Widely recognized in North America as a bullion expert, Barisheff is an author, speaker and financial commentator on bullion and current market trends. For more information on Bullion Management Group Inc., BMG BullionFund and BMG BullionBars visit: www.bmginc.ca.

A report suggests that the Chinese government is pushing the general public into buying gold and silver bullion, which could have a dramatic effect on the markets.

Author: Lawrence Williams

We are indebted again to Paul Mylchreest’s  Thunder Road Report  for news that will bring big smiles to gold and silver investors everywhere.  Apparently China is pushing the idea of buying gold and silver for investment purposes to the general population in the way that Western television sells soap powder.  If 1.3 billion Chinese citizens start buying gold and silver, even in tiny quantities, imagine what that will do to the market!

The report notes that China’s Central Television, the main state-owned television company, has run a news programme letting the public know how easy it is to buy precious metals as an investment.  On silver investment the announcer is quoted as saying ” China has introduced its first ever investment opportunity for silver bullion. The bars are available in 500g, 1kg, 2kg and 5kg with a purity of 99.9%. Figures show that gold was fifty times more expensive than silver in 2007, but now that figure has reached over seventy times. Analysts say that silver has been undervalued in recent years. They add that the metal is the right investment for individual investors and could be a good way to cash in.”

What appears to have happened in China is a total relaxation of strictures on holding precious metals by the individual with the government pushing gold and silver as an investment option, seemingly at every opportunity.  This is a far cry from the situation only a few years ago where the distribution of gold and silver was strictly controlled.  Now, the Thunder Road Report notes that every bank will sell gold and silver bullion bars in four different sizes to individuals and gold related investments are said to be soaring in popularity.

Around a year ago, Leyshon Resources managing director, Paul Atherley, in an investor presentation in London – and no doubt delivered elsewhere in the world too – commented that some employees at the company’s gold mining project in northern China would, on pay day, go to the local bank and buy a small gold bar as an investment and wealth protector.  To an extent we put this down at the time to mining company hype – but this seems to be exactly the same phenomenon noted by Thunder Road.  The Chinese are being converted from being the lowest per capita gold consumers in the world to a nation of small precious metals investors.  Now, by next year, Chinese consumption of gold is likely to exceed that of India, which has been for years the world’s biggest gold market.  And one suspects that the potential for gold purchasing by individuals is only in its earliest stages.  As more and more Chinese move into the cities and individual wealth grows, this trend is only likely to accelerate.

Paul ends the piece on Chinese gold and silver potential with the following comment: “Simply put, the Chinese government is trying to trigger a national gold craze…and it’s working. The Chinese public now has gold trading platforms on steroids…. …Also, for the first time in history, Chinese investors can even trade gold abroad (in London) with the swipe of a ‘Lucky Gold’ card. I can’t even get Bank of America to open a foreign currency account.”

This may be an overstatement of the case from a precious metals bull – or it may not!  Certainly if China is indeed pushing the public to buy gold then there may well be a hidden agenda here.  It’s unlikely they are doing it and will suddenly pull the rug out from under millions of investors.  A cynic (or a raging gold bull) would suggest that this will precede a move to switch a good proportion of the country’s reserves into gold which would have a huge effect on the global gold price and could prove disastrous for the dollar.  Maybe it’s not in China’s interests to drive the dollar down too much until it has managed to divest itself of the huge dollar overhang (see the article on Chinese Sovereign Wealth Funds we published yesterday – Chinese sovereign wealth fund dumping dollars for strategic investments like gold ).  The country may well already be, of course, surreptitiously building its gold reserves without reporting the build-up.

If the Chinese are indeed beginning to buy gold and silver as the quoted report suggests then this has to be a strong signal that prices are going to rise, and perhaps rise dramatically, in the relatively near future.  We await comment from other China watchers for confirmation of the gold and silver buying spree, but with global gold production at best flat and probably in decline, even a small increase in Chinese buying could have a substantial impact on gold and silver prices.

Silver Dollar Coin Values

www.dailyreckoning.com

I try not to think about silver, because when I do, my head ends up whirling around at the sheer compelling nature of the fundamentals, and I always come to the conclusions that whirling makes me dizzy and that I need to buy more silver right away because silver is going to start exploding in price over the next few years, it could happen soon enough to do me some good, especially considering the sorry state of all alternative investments right now and the sorry state of just about everything right now, and by the fact that I am slashing the kids’ allowances to zero, freeing up some of the cash I will need!

But sometimes something comes along that makes me think about silver, such as David Morgan of the silver-investor.com site reporting that “during the past ten years, silver’s use in industry has gone from roughly 35% of the entire annual production in silver, to greater than 50%. Not only that, but it is the fastest growing area of the silver market.”

So how much silver was mined? Well, the commoditynewscenter.com notes that “According to the US Geological Survey, about 672m ounces of silver was mined in 2008. And with an average silver price of $14.94 per ounce, if all mined silver was sold at spot, the entire supply chain would generate revenues of only about $10 billion.”

It is statistics like these, coupled with the dismal fact of the virtual elimination of above-ground stocks of silver as the myriads of electronic devices produced over the decades consumed it all, that makes me look at the world with suspicious distrust, my eyes narrowed to slits and my hand inching under my jacket to the shoulder holster in case I have to blast my way out as I realize – to my dismay – that the creatures of this planet are so stupid that they can look at this silver thing, and yet not start buying silver right away! Weird! More than weird!

Even when I politely yell at them, “Hey! You are Really, Really Stupid (RRS) if you are not buying silver, and I hope your children are not as stupid as you, although they are every bit as ugly as you, ya morons!” they still don’t buy silver! Again, weird!

Addison Wiggin of Agora Financial’s 5 Minute Forecast does not actually come out and say, “It’s weird!” or that I am, for once, making sense or how he can’t understand why everyone hates me, but he does say that “there are only 22 pure silver mines around the world. For 15 years straight, they’ve fallen short of meeting total silver demand.” Wow!

In fact, “in the last two years alone, they were off by nearly 76 million ounces”!

And since this is after decades of dis-hoarding of strategic stockpiles, the result is that “Today, most of the U.S. silver stockpile is gone,” and whereas “the world once had about 2.2 billion ounces of silver above ground,” now there are “only about 300 million ounces. In other words, total world silver supply has plummeted by over 86% just in the last few years…while silver demand has gone UP!”

I know you won’t listen to me, since you never have, and all I ever hear is how you are sick of hearing me tell you to buy silver and gold, for one reason, protection against the inexorable predations of a ravenous, sick government, and secondly to make money with silver since the supply/demand imbalance is (as we professional economists term it) So Preposterously Out Of Whack (SPOOW), and you are always asking, “If you’re so smart, how come you are just a lonely, pathetic little man who locks himself in the closet under the stairs because he is so scared of everything?”

Well, I am tired of screaming my lungs out in rebuttal, so maybe you will listen to Addison Wiggin, who is a bigshot at Agora Publishing and has his own newsletter, whose own statistics scream, even if he doesn’t, “Whee! This investing stuff is easy!”

The MOGAMBO GURU, for The Daily Reckoning
by Richard Daughty

****

Richard Daughty (Mogambo Guru) is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise to better heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron’s, The Daily Reckoning , and other fine publications.

BUY GOLD & SILVER COINS

By John Lee, CFA
Apr 30 2009
www.goldmau.com

There are countless tips on how to make money. This article is not about that. Rather, we examine the definition of money, what makes good money, and how some bad monies stay bad while others have become acceptable through new ideas and technology. In the end we will talk about how money and currency will evolve in the future.

Definition of Money

Money is anything that is generally accepted as payment for goods and services and repayment of debts. The main uses of money are as a medium of exchange, a unit of account, and a store of value.

Aristotle on good money

Aristotle (384 BC – 322 BC) was a Greek philosopher, a student of Plato and teacher of Alexander the Great. Aristotle discovered, formulated, and analyzed the problem of commensurability. He wondered how ratios for a fair exchange of heterogeneous things could be set. He searched for a principle that makes it possible to equate what is apparently unequal and non-comparable.

Aristotle says that money, as a common measure of everything, makes things commensurable and makes it possible to equalize them. He states that it is in the form of money, a substance that has a telos (purpose), that individuals have devised a unit that supplies a measure on the basis of which just exchange can take place. Aristotle thus maintains that everything can be expressed in the universal equivalent of money. He explains that money was introduced to satisfy the requirement that all items exchanged must be comparable in some way.

Within such frame work, Aristotle defined the characteristics of a good form of money:

1. It must be durable. Money must stand the test of time and the elements. It must not fade, corrode, or change through time.

2. It must be portable. Money hold a high amount of ‘worth’ relative to its weight and size.

3. It must be divisible. Money should be relatively easy to separate and re-combine without affecting its fundamental characteristics. An extension of this idea is that the item should be ‘fungible’. Dictionary.com describes fungible as:

“(esp. of goods) being of such nature or kind as to be freely exchangeable or replaceable, in whole or in part, for another of like nature or kind.”
4. It must have intrinsic value. This value of money should be independent of any other object and contained in the money itself.

Money, 1,000 years ago

Only humans satisfactorily solved commensurability with the idea and practice of money. Throughout history, we have seen the adaptation of various forms of money. Here are some examples with relative merits denoted.

One couldn’t treat oil as money since it was not exactly durable and portable. Neither could one use a business (such as a restaurant) as money since it is hardly divisible and ever lasting. Gold has been the choice of money for over 5,000 years because it is valuable, durable, divisible and relatively portable.

Trading assets on paper

A thousand years ago, the ownership title of a land parcel or a business is merely a piece paper for decorative purpose and a registry for the tax collector. The oldest existing stock certificate was issued in 1606 for a Dutch company (Vereinigte Oostindische Compaignie) seeking to profit from the spice trade to India and Far East. Though very profitable in its day, when the company was dissolved in 1799, it was some 10 million Dutch guilders in debt.

American Stock exchanges were introduced in the early 18th century and wasn’t prominent until the 19th century, where we saw globalization expanded massively with computer technology, air travel, transcontinental pipelines, and giant cargo ships. Today over 50% of US households own stocks collectively worth over $10 trillion. It’s only in the last 15 years that an average person can access instant world news and buy stocks with few computer clicks thanks to the internet. Hundreds of millions of people around the world own publicly traded stocks collectively worth over $40 trillion. Over 5 trillion dollars worth of US mortgages have been securitized and owned by world citizens. Title certificates to commodities stored around the world are changing hands valued in the hundreds of $billions on various commodity exchanges.

Money, today

Oil, which has always carried intrinsic value but difficult to store and exchange for other goods, all of a sudden becomes a viable medium of exchange and store of value through the advent of Oil ETF. Oil is stored in a warehouse and your digital ownership certificate is tucked safely in your brokerage account, which you can practically instantly exchange for anything else you want, whether it be Microsoft, gold, wheat, air ticket, hotel room, for less than 1% of commission. Granted, we rely on dollars to calculate the exchange ratios but the role of dollars has diminished greatly in the process as we used it only as an exchange reference (and a lousy one at best) and never kept dollars.

Like oil, various assets once thought to be non-divisible, non-portable, and non-durable are gaining popularity and being saved in lieu of traditional money such as gold and dollars. REIT ETF allows you to “store” real estate around the world and sell in any increment you like, S&P spider ETF allows you to own a piece of America’s 500 largest companies with auto rebalancing. You can own Japan, Banks, Wheat, Motion Picture, anything you desire with transparency, liquidity, and low transaction cost.

Those assets are becoming more attractive as store of value with enhanced trading volume, portability, durability and divisibility.

Fiat Currency

Money must be a good store of value by definition.

Fiat paper currencies are popular at times since they are convenient and can be created at will to please the public. However fiat money fails the all important “intrinsic value” test, as its value is solely derived from legal tender laws. The compliance of such law rests on the credibility and strength of the issuing authority. As we know government and political factions can rise and fall faster than pop stars in some cases. It’s no surprise that no fiat money has ever survived through time, and they can never be viable money regardless of technological breakthroughs or other human advances.

The value of a dollar

To Recap

What Aristotle described as good money 2,000 years ago has not changed, sound money must be a good medium of exchange as well as a store of value. Assets such as oil or land once weren’t considered to be good forms of money due to poor physical or liquidity constraints, have received renewed interest thanks to novel ideas and innovative technology. The internet and various pooled products (ETF) on world markets enabled those once immobile and/or illiquid goods to be transacted with ease, speed, transparency and low cost amongst world buyers and sellers.

The role of fiat money is vanishing. This morning, I sold Newmont Mining to book a hotel in Hong Kong without owning dollars for long. I don’t own many dollars, or euros or yuans. Fiat money carries a hefty premium for being a good currency but bad store of value. There is no reason to keep any money without intrinsic value.

My view on gold from this evolution is mixed. On the plus side, gold will crowd out inferior fiat currencies at a faster pace. On the minus side, the choices of store of value have expanded vastly, reducing gold’s role to being a fair medium of exchange. Consequently I don’t see the combination of a $2,000/oz gold price, a crashing stock market and $30/barrel oil. If that happens, I’d be selling gold, storing oil, and paying with oil.

How can I pay with oil? One can already make payments with digital gold via www.goldmoney.com, I wouldn’t be surprised if one invents a way to pay merchants with a share of Disney, or a slice of someone else’s mortgaged backyard through a digital land token!

John Lee, CFA
+1 800.965.6404

****

John Lee is the founder and principal of Mau Capital Management and the portfolio manager of a mining equity hedge fund. He is a CFA charter holder and has degrees in Economics and Engineering from Rice University. Mr. Lee has a keen interest in the history of money and economics, and has previously studied under Mr. James Turk, a renowned authority on the gold market.

Since 2001, Mr. Lee has researched hundreds of mining companies and personally met with dozens of management teams. He actively consults and advices resource companies on project acquisitions, strategic marketing, and corporate financing.

If you would like to receive subscription of Mr. Lee’s Stock Chart of the Week and 4 other famous newsletters for the price of $89.95/3 months, click here to find out more.

Silver Dollar Coin Values

by Thomas Chaize

Since the ounce of gold has passed the $ 300 I wrote 26 subjects on its price.  I had 100% success, so I hope that if will be the 27th.  I keep here only the technical analysis of the price of one ounce of gold;  I will explain the fundamentals of gold in my 2009 report about world production of gold.

The record price for one ounce of gold to 1005 dollars.

The ounce of gold rose to $ 1005 in March 2008 to establish its record, and then a decline has occurred to 692 dollars in October 2008. The gold price  has again risen to 989 dollars in February 2009, to a level close to its previous record.

-

At what level the price of the ounce is there correct?

Thanks to Fibonacci retracements (indicators), we isolated four possible downside:

38.2% retracement i.e drop to 876 dollars.
50% retracement i.e drop to 841 dollars.
62.8% retracement i.e a drop to 803 dollars.
100% retracement i.e a drop to 692 dollars.
You have noted that ounce of gold is already at its 38.2% retracement to 876 dollars one ounce.

The retracement of 50% is the 1st Summit of 1980 to 843 dollars one ounce and that of 100% in the second summit of 1980 to 697 dollars one ounce, it forms a sort of channel of purchase.

If you are looking for an entry point to the gold, you have it between 876 and 692 dollars the ounce. Ideally you can find it at the bottom of the horizontal channel of the 1980s, between 843 and 692 dollars.

The next record gold prices.

After the correction of an ounce gold price is complete, it will rise beyond its previous record to reach area to 1300 dollars per ounce simply by a pendulum effect.

The road map is as follows: we buy between 876 and 692 dollars in the area of the old peaks of 1980 during the current decline then to cover 1300 dollars. The summit of 1980 to 843 dollars, adjusted for very optimistic “official”  inflation, gives us 2 158 dollars to be truly at the same level as 1980.

“Inflation is like toothpaste: once out of the tube, it is impossible to return them.“  Otto Pöhl

Buy Gold and Silver Coins

The world’s mints are coining it as unprecedented numbers of savers search for safer investments

By Sarah Marsh in Vienna and Jan Harvey in London

LEONARD FOEGER/REUTERS

The Austrian Mint is producing more Philharmonic gold coins in a week than it normally does in a month

by Howard Katz

You have probably been taught that the responsible way to handle your economic affairs was to work hard, be thrifty and invest safely. This is what the old timers did, and it worked for them. When they reached 65, they were able to retire

However, the old timers lived in a country on the gold standard. They went to work at age 16, saved 15% of their income each year and put it in the local savings bank at 5% interest per year.  Let us do a little 8th grade math.

Assume an average wage of 30 oz. of gold per year. Saving 15% of that means saving 4½ oz. per year.  At the end of a 49-year working lifetime, you have saved 220½ oz. of gold.

Now listen closely because what happens next is so astonishing that it was called a miracle: the miracle of compound interest. When you lend money at interest, in the first year you get the agreed upon rate. If you lend $100 at 5%, you get $5.00.  It is in the second year, that the miracle starts. In the second year, you don’t merely get another $5.00.  In the second year, you are not lending $100; rather you are lending $105, and at 5% this produces an interest of $5.25.; so at the end of the 2nd year you have $110.25.  This is interesting.  Not only is your capital growing; it is growing at an increasing rate.

Now to calculate what 5% interest does to your capital over a 49-year working life span is a long, difficult problem in 8th grade math. But I was a bad boy one day and had to stay after school, and so I calculated what 5% interest does to capital over a 49-year period. The answer, to cut to the point, is that it multiplies it by 4.25.  So, the man who saves 220½ oz. of gold will, after 49 years at interest at 5%, have 220.5 x 4.25 = 937 oz. of gold.  That is, you saved 220½, but you have 937. This so impressed the people of the 19th century that they called it the miracle of compound interest.

So here you are at age 65 with 937 ounces of gold in the savings bank.  You can stop working, continue to draw interest on your capital, and you will receive 5% x 937 oz. = just shy of 48 oz. of gold per year.  In other words, you can stop working and receive 50% greater salary than you did when you worked.

This was a wonderful system.  It no longer exists, but it is very important if you want to know what to do with your wealth today and how to survive in the modern economic climate.  To read the full article, click here…

Silver Dollar Coin Values

Search through eBay style auctions on silver coins…also gold, rare, ancient coins as well.

http://silverdollarcoinvalues.com/silver-dollar-coins/buy-silver-coins.html/

BUY SILVER & GOLD COINS

by David Morgan

Last week I updated our readers about a video shot at the Orlando Money Show. This week I have two videos where we discuss the ups and downs of the silver market and how silver differs from gold as an investment.

Gold gets most of the press and silver always seems to be in second place, and it will probably stay that way until we get to the blow-off phase of this precious metals bull market. During the panic buying phase or mania that accompany the blow-off phase, gold will be outside the price range of many people. Anyone seeking any protection from the destruction of the U.S. dollar will buy whatever they can, and that is silver.

Silver is far more volatile than gold but, in my studied view, has far more potential than gold.  As I see it, both metals should be owned, although silver can give you one heck of a ride, as most silver investors are well aware.  We also discuss new applications for silver in laptop computers and in the health industry.

Later we discuss the gold market and how gold is holding up better than other asset classes and actually was making new highs in some currencies, although it did fall back, in U.S. dollar terms. This was just a few months ago, when a huge demand for U.S. dollars surfaced as a result of the credit crisis.

As the host points out, eventually the chickens will come home to roost, and with all the money flooding the system it is only a question of time before this “new” money hits the system and manifests into more inflation.

My view is a bit reserved and those who follow my work carefully know I am actually looking beyond the inflation/deflation question to the question of a currency destruction.

However, that is getting a bit ahead of the story. For the time being, you can watch this video and learn why it might take a bit longer to see all this bailout money boost the gold price to the next level.

I want to be cautious here, because both of these metals can take off to the upside at any point, and making a short-term call is difficult at best. Longer term, most of the gold community are not in agreement with the policies set forth by the major nation states of the world and see the metals are going far higher.

It is an honor to be.

Sincerely,

David Morgan

www.silver-investor.com
March 20, 2009

****

Mr. Morgan has followed the silver market daily for more than thirty years. Much of his Web site, www.silver-investor.com, is devoted to education about the precious metals. To receive full access to The Morgan Report click the hyperlink.

Gold Silver Coins