Silver Metal Prices Will Rocket When Gold Prices Rise

Because it has been used as a form of currency for more than 4,000 years, I think it is safe to assume that silver is not going to disappear as an investment of choice anytime in our lifetime. With silver metal prices and gold prices on a steady increase for several years, some may wonder if now is the right time to invest in precious metals.

Did You Know: Silver is mentioned as a form of currency as early as the book of Genesis in the Old Testament of the Bible?

Historically, gold prices are directly affected by the influx of money into or out of the market. As money pours into the market, the price of gold decreases and likewise as money leaves the market, money goes into gold. Because of the high cost of gold per troy ounce, silver is a much more cost-effective investment opportunity for the majority of people, with silver coins being a fantastic way to invest in silver.

AN EXPERT DISCUSSES SILVER

In a recent interview with Investment Rarities Incorporated, financial guru and bestselling author of Rich Dad, Poor Dad, Robert Kiyosaki, had this to say about why he is bullish on silver metal prices: "Silver is an industrial metal. It is consumed and used in every cell phone, TV, and computer. The supply of silver is low and gold is being hoarded, so gold goes up. With silver, there is supply vs. demand."

BUY SILVER NOW

It is important to note how important silver is to our economy as a precious metal and as a investment vehicle. As gold prices continue to rise (and they will), the price of silver is going to follow suit as it has for decades. When the supply of gold runs even shorter than it already has, the demand for silver will increase tremendously on its own causing it to skyrocket in value quickly.

Still unsure about making your first investment in silver? I was, too, when I first considered it, but as gold prices continued to go up, I eventually made the leap of faith and I turned out to be right on the money. Not all of my investment choices have panned out over the years, but I have never once regretted my silver coin investments.

Why not take advantage of my experience and download your free copy of my digital booklet, Guide to Silver Coin Investing? In it you will learn a great deal about the history of silver metal prices and why it is such a valuable asset to add to your current investment strategy.

Many people are curious about how to protect their money, but often overlook the many benefits of silver coins.

Source: http://www.silver-coin-investor.com/Silver-Will-Rocket-When-Gold-Prices-Rise.html

Gold $1,600? There’s a Reason They Call It Gold Fever

Gold may not be money, as Fed Chief Ben Bernanke said Wednesday, but it continues to be a decent bet, at least on paper, so far this year. Just please don’t let the headlines infect you with yellow fever yourself. Gold, in isolation, is just a form of speculation. And fever, remember, is a symptom of disease.

Inflation fears and instability in the euro zone helped push the price of gold up to nearly $1,600 an ounce at one point Thursday on the New York Mercantile Exchange and it settled at a new all-time high of $1,589.

Not adjusted for inflation, that is.

As we’ve said before, if gold is considered to be a hedge against inflation, then you’ve got to factor that in. For the record, gold topped out at about $850 an ounce back in 1980. That’s the equivalent of around $2,300 in today’s money. So the yellow metal still has a long ways to go before hitting real (not so-called nominal) record highs.

Nevertheless, it’s clear investors and central banks around the globe have a bad case of gold fever, according to the latest data from the World Gold Council, a gold industry association.

Gold prices ended the second quarter up 4.6 percent vs. the previous quarter, helped by the fact that the average price grew nearly 9 percent to $1,506 an ounce, according to WGC’s latest quarterly report.

Where did all this demand come from? Investors, partly. Gold-backed exchange traded funds, like the SPDR Gold Trust (GLD), among others, had net inflows adding 46 tonnes of gold worth more than $104 billion during the second quarter.

The world’s central banks, especially in emerging markets, are also hoarding gold as they diversify away from the incredible shrinking dollar. (And the possibility of Uncle Sam defaulting on its dollar-denominated obligations.)

Total central banks’ net purchases so far this year have already passed the level seen in all of 2010, WGC reports. “Emerging markets banks continue to be the main driving force, led this quarter by Mexico’s 100-tonne increase in its reserves,” WGC says.

China has also been a major player in the gold market, as we noted in an earlier post. Physical gold delivery at the Shanghai Gold Exchange came to more than 205 tonnes during the second quarter, WGC says. That’s an increase of about 15%, or more than 25 tonnes, vs. last year’s second quarter.

However, as good as gold has been, Bernanke is correct when he says gold is not money. Just try to buy a Slurpee with a Krugerrand. It’s also worth mentioning that Warren Buffett, who knows more about investing than you do, hates gold. It offers no yield, for one thing, and has become far more dependent on macroeconomic fears and speculative trading than on any traditional demand.

As we’ve said before, an indexed, properly allocated and regularly rebalanced portfolio — which may or may not include some gold — is an investment strategy you can live with and perhaps eventually retire by. So please just let the pros trade the gold.

Gold Price More Sensitive to Europe than the United States

Prices for gold have lately been demonstrating greater sensitivity to news flow out of Europe than positive data out of the United States. ANZ Bank analyst, Peter Hillyard suggested in an interview with Reuters “The buying is currently always bigger than the selling, and therefore the moves are always more exaggerated to the upside. The market is seeking out bullish news. Situations like Portugal, what is continuing to happen in Greece… will be the bullish triggers that will take prices up.”

The gold price strengthened yesterday amid escalating sovereign debt concerns in Europe to $1,528.10 per troy ounce. The world’s largest gold ETF, SPDR Gold Shares (NYSE:GLD), serving as a general proxy for the price of gold increased $1.28 to close at $148.91 per share. To round out the precious metals group, spot platinumclosed at $1,719.49 per troy ounce, while spot palladium was at $767.72 per troy ounce.

Fiscal accountability

The catalyst for the gold price movement was fueled by Moody’s downgrade of Portugal’s credit rating, which sparked substantial losses in European financial markets. The report raised heightened concern that Portugal might not be able to fully achieve its debt stabilisation and deficit reduction objectives set out in the loan agreement with the European Union (EU) and International Monetary Fund (IMF) as the result of significant issues the country is facing in achieving economic growth, reducing spending, increasing tax compliance and supporting the banking system. It further cautioned that an additional downgrade could be triggered by a considerable difficulty in the execution of the government’s fiscal consolidation program, a further downward revision of Portuguese economic growth prospects or an increased risk that further support requires private sector involvement.

Key developments in the United States

Surpassing expectations, the ADP employment report from the United States indicated that payrolls rose by 157,000 in June. The consensus outlook estimated that the private sector could add anywhere from 95,000 to 110,000 jobs and that the unemployment rate could rise to 9.2 percent. The result was a slight pressuring for gold prices to the downside, as the yellow metal fell slightly to $1,526.60 per troy ounce. Silver increased to $36.12 per troy ounce as a more cyclically sensitive precious metal partner.

On Friday, the market will keenly be observing the employment situation released by the Bureau of Labor Statsitics. The most comprehensive labor report available is composed of a set of working market indicators based on two separate surveys: the household survey which provides a measurement of the number of unemployed as a percentage of the labor force, and a key series come from a survey of business establishments. Investor’s will note that the civilian unemployment rate is a lagging indicator of economic activity. A positive number could create pressure on gold and silver prices as traders and speculators might opt for stocks, but most recently the two metals seem to be more sensitive to Europe’s debt crisis reactionary to positive U.S. data. If the jobs number is weaker than anticipated, however, gold and silver’s safe haven appeal may be extended.

Fund managers speak out

With the price of gold and silver resuming their steady climb upward this week, a long time institutional investor within the precious metals sector was back at it endorsing a continued bullish thesis. In a recent interview, Eric Sprott, founder of Sprott Asset Management, discussed his latest precious metals outlook. Sprott began by espousing that the price of gold has been “aided and abetted” by an overabundance of government policies over the past ten years including “QE1, QE2, and the various printing mechanisms of the ECB and the Japanese government.” He also developed a fundamental case for silver, “our own analysis suggests that demand for silver far outweighs supply and ultimately the price has to go higher.” As a benchmark metric, “silver should trade something like 16 to 1 ratio to gold. If the gold price was $1,600.00, silver should be $100.00. It has always historically been the rate.”

Speaking with the Globe and Mail, fellow portfolio manager, Charles Oliver noted, that he’s expecting gold to reach $2,000 in the next year, which will continue to be driven by the debasement of currencies. “It’s not really the price of gold that’s going up, it’s the value of the yard stick that we use to measure it, that’s going down. In this case, it’s the U.S. dollar,” he said.

Resistance For Aug. Gold at $1,662, $1,680

 If Comex August gold tops the psychologically important $1,600-an-ounce level, two of the next chart resistance points would be around $1,662 and $1,680 an ounce, says MF Global. The metal, already supported by European debt issues, was further boosted the last couple of days by Federal Reserve commentary suggesting more fiscal stimulus may be necessary. More support came late Wednesday when Moody’s Investors Service put U.S. debt on review for possible downgrade. Technically, August gold has broken above the June 22 high of $1,559.30, as well as the top of a bullish triangle pattern drawn over the trade in May and June, says MF Global analyst Tom Pawlicki. “The triangle projects a further rally of $112/oz, or $1,662,” he says. “A Fibonacci pattern drawn off the Jan. 28th-May 2nd uptrend projects an advance toward the 138% extension at $1,680.”

While QE3 Possible, Fed Still On Hold For Now

Federal Reserve Chairman Ben Bernanke’s congressional testimony Wednesday was construed by markets as a sign that policy-makers might be moving closer to further stimulus, but some analysts are offering caution. The Fed likely is still on hold for now, and whether it embarks upon a third round of quantitative easing will hinge on future economic data, they say. “Our economists retain the view that while QE3 is possible, the probability is considerably less than 50%,” says BNP Paribas’ currency team. “The core of the FOMC remains in wait-and-see mode, dependent upon incoming data over the next couple of months to confirm or refute their projections for an end to the soft patch--and thus an early resolution to the issue of QE3 is unlikely.” Barclays Capital says: “Given generally stable medium-term inflation expectations and low deflation probabilities, QE3 speculation is a bit premature, in our view.” Brown Brothers Harriman notes that while Bernanke outlined how more stimulus might occur, recent comments also suggest “that the bar for QE3 is very high.”

Gold Prices Flirt with $1,600 on Hint of QE3

NEW YORK (TheStreet ) -- Gold prices catapulted to record highs Wednesday as Ben Bernanke's testimony to the House Financial Services Committee reaffirmed the possibility of more monetary easing.

Gold for August delivery added $17 to $1,585.80 an ounce, a record settle, at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,588.90, a high, and as low as $1,564.60 while the spot gold price was popping $18, according to Kitco's gold index.

Silver prices were following gold higher up $2.51 to close at $38.15 an ounce. The U.S. dollar index was down 1.13% at $75.22 and the euro was climbing 1.29% vs. the dollar.

Gold and silver popped Wednesday as investors piled into the safe haven metals after theFederal Reserve hinted at more quantitative easing. In the latest FOMC minutes released Tuesday, certain Fed policymakers expressed their willingness to consider QE3 if inflation dropped and unemployment stayed high.

Ben Bernanke, in his testimony to the House Financial Services Committee, did nothing to disavow this rumor. Bernanke cited deflation as a possible future risk as well as the unexpectedly disappointing economic environment.

More money in the system heightens the risk of long term inflation meaning the U.S. dollar would be worth less over time making gold and silver safer places to stash cash.

Although some investors will take advantage of the rally to take profits, others will look to buy gold so as not to miss a run to $1,600 an ounce. George Gero, senior vice president at RBC Capital Markets, says that funds are rushing into gold right now. "All the elements of buyers needs were there as we have eurozone, Middle East, debt ceiling and Chinese inflation to contend with."

Gero also says that traders would be attracted by the higher highs and high lows the gold price has been making. Any traders who had been betting against gold were be forced to buy back those positions, which gave an extra boost to prices.

Gold is moving into "uncharted territory as investors seek to diversify into safe-haven as debt concerns mount after Moody's cut Ireland's debt rating to junk while the August 2nd deadline for raising the US debt ceiling looms even closer," says James Moore, research analyst at FastMarkets.com. This time silver isn't missing the safe haven party.

Silver prices are not only rallying with gold but also benefiting from the fact that China said its economy grew 9.5% in the second quarter while industrial production for the first half of the year rose more than 14% year on year. Many experts had been worried that China would slow its growth too fast after implementing three rate hikes in 2011 alone along with countless reserve requirement increases.

Although inflation is still high at 6.4%, which could prompt more rate hikes and make the likelihood of a soft landing far from certain, China is still growing which will result in strong demand for gold and silver, both as a safe haven and industrial metal.

Mihir Dange, founder of Arbitrage, was sideways to bullish on Tuesday before the FOMC minutes and Moody's downgrade but says he went long last night and sold some out for profits. "Still staying long as we just made new highs ... [now] let's see now if it stays up or gravitates back to $1,550.

Anthony Neglia, president of Tower Trading, who was also on the sidelines Tuesday, was skeptical that silver's rally would last. "[I] don't know if it can right now [there are] only 68,000 contracts which is not that much for that kind of rally." Neglia thinks higher silver prices could have been from the first leg of short covering.

Gold Advances To Record As Debt Crisis Boosts Investor Demand

Gold futures surged to a record $1,588.90 an ounce as the dollar’s slump and the European debt crisis spurred demand for precious metals as alternative assets. Silver surged the most since March 2009.

The greenback fell as much as much as 1 percent against a six-currency basket after Federal Reserve Chairman Ben S. Bernanke told Congress that the central bank is prepared to provide additional stimulus to bolster the economy. Yesterday, Ireland became the third nation in the European Union to have its credit rating cut below investment grade.

“The Fed is talking about more liquidity, not less,” said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. “That’s more money for the markets, and gold is enthused. Investors are running away from currency volatility.”

Gold futures for August delivery climbed $23.20, or 1.5 percent, to settle at $1,585.50 at 1:42 p.m. on the Comex in New York, the seventh straight gain. The previous intraday record of $1,577.40 was on May 2. The spot price of the metal priced in euros and pounds also rose to all-time highs today.

Since Dec. 1, 2008, gold has doubled as the Fed kept interest rates at a record low and governments spent trillions of dollars to spur global growth. The Fed’s second round of so- called quantitative easing, known as QE2 among investors, ended in June.

Yesterday, tonnage holdings in exchange-traded products backed by gold jumped 1 percent, the most in a year.

‘Currency Exhaustion’

“People are getting currency exhaustion,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago. “With the Fed mulling over a possible QE3, which will dilute the dollar, gold is the main beneficiary.”

The Thomson Reuters/Jefferies CRB Index of 19 raw materials rose to a four-week high, led by precious metals and grains.

Gold for immediate delivery has advanced 11 percent, heading for an 11th straight annual gain, the longest rally since at least 1920.

Before today, the MSCI All-Country World Index of equities rose 1.5 percent in 2011, and Treasuries returned 3.6 percent, according to a Bank of America Merrill Lynch index. The dollar had dropped 4.1 percent against the six-currency basket.

‘Shock Waves’

Bernanke said today that a failure by Congress to raise the nation’s $14.3 trillion debt limit would lead to a “major crisis” and throw “shock waves” through the financial system.

“We’re in a very difficult financial period in the world,” Martin Murenbeeld, the chief economist at Toronto-based DundeeWealth Inc., which manages more than $50 billion, said on July 11. “The faith in paper currency is rapidly ebbing.”

Investor holdings of ETPs backed by gold, silver, platinum and palladium have climbed to more than $126 billion.

Silver futures for September delivery rose $2.517, or 7.1 percent, to $38.151 an ounce on the Comex, the biggest gain since March 19, 2009.

Platinum futures for October delivery gained $30.70, or 1.8 percent, to $1,767 an ounce on the New York Mercantile Exchange. Palladium futures for September delivery advanced $16.55, or 2.2 percent, to $784 an ounce.

http://www.bloomberg.com/news/2011-07-13/gold-rises-to-a-record-as-debt-growth-concerns-spur-demand-as-alternative.html

Is Gold’s Momentum Unstoppable?

Gold prices have rallied to record highs, supported by their safe haven appeal for investors seeking shelter from economic uncertainty, and a means to guard against inflation. Gold safe haven and inflation protection demand has provided the metal with so much momentum, that it seems to be able to hold on to its rally despite what economic news comes down the pipeline.

On Thursday, the European Central Bank announced that it would hike benchmark interest rates by 25 basis points. The rate hike should have sent gold prices downward; however, following the news, gold was modestly up by 50 cents to 1,529.70 a troy ounce on the Comex division of the New York Mercantile Exchange, with traders commenting that trading volumes were low. Higher interest rates tend to retard investor demand for gold, which earns no interest, and instead, increases the appeal of interest-earning investments such as treasuries. Gold’s modest upside in the face of the interest rate hike could be attributed to a jump in the Euro relative to the greenback thereby increasing the demand for US dollar-based gold. The Euro’s rise was solidified by a statement from ECB President Jean-Claude Trichet, commenting that the bank would continue to accept Portuguese bonds as collateral even if the country’s credit rating is cut to “junk” status.

Another explanation for gold’s hardiness, despite the interest hike, is the metal’s overall strength and momentum, with traders commenting that the gold market is “so strong” that it was able to “shake off” the rate hike. Friday, the downward pressure on gold was overshadowed by a shocking employment report out of the US which stated a meager addition of 18,000 non-farm employees to payrolls in June; analysts had expected 105,000. The news was interpreted as a sign that there are more tough times ahead for the global economy, and investors fled to the safe-have investments. As a result, gold spiked to $1,538 per ounce in early morning trading.

ETF interest

Despite gold’s ability to maintain its upward trajectory, analysts are cautioning about a potential leveling off, or even reversal on the horizon, supported by an underlying fundamental shift in gold market holdings. One of the key developments is the fact that fund flows into ETF’s are starting to decline, according to recent data from theRoyal Bank of Scotland. The RBS report showed that holdings in gold ETFs have dropped 16 tonnes this year to 2,244 tonnes by the end of June. In addition, in the gold futures market, net long positions, or bets on further price gains, held by speculators on the COMEX exchange in New York have dropped 17 percent, according to the most recent data- released the week ending June 28.

At this point, there seem to be an equal amount of bears and bulls issuing their opinions over the future price of gold. Many of the bears believe a decline is imminent, as the greenback is due for a correction, and China will probably continue to hike interest rates. The United States’ debt ceiling is a key factor in the greenbacks near term, and with the deadline near on the horizon, a lifting of the debt ceiling is expected to be decided upon, very soon. While negotiations are down to the wire, no one expects that the US will not meet its deadline and suffer the consequence of a credit downgrade. President Obama has stated that a deal on long-term debt reduction should be reached by July 22.

Low central bank demand

The demand to borrow gold from central banks has dropped dramatically, and as a result central banks are pulling out unusually high amounts of gold from the Bank for International Settlements (BIS). In the last year central banks have withdrawn more gold than they have in the past decade, according to the BIS’s annual report. Central banks hold bullion in their reserves, and earn an income by lending out the gold. Historically, the largest borrowers of this gold has been gold miners who borrow the gold for hedging, which allows them to sell their gold forward, at predetermined prices. Hedging is not in the best interest of miner’s when gold prices rise, hence the recent decline in demand. As demand has collapsed, and interest rates staggered, banks are pulling out their gold, and in some cases, choosing not to lend their gold at the current, rock-bottom interest rates.

Silver is Now Rarer than Gold

$100 Silver Now a Conservative Target

By Luke Burgess
Tuesday, July 12th, 2011

Most investors assume that because silver is almost 50 times cheaper than gold, it's more abundant.

They're wrong.

The amount of available silver is far less than the amount of available gold.

This fact is often overlooked by even the most seasoned silver investors. And it's this lack of silver stockpiles that has become one of the most critical factors in what could jolt prices, lifting silver into an entirely different asset class all together.

So forget $100 silver — $100 is now considered a timid prediction. Some experts are now calling for silver prices on par with gold.

Let me quickly explain how we got here. Global silver mining has increased significantly over the past two decades.

Silver output has more than doubled since the early 1990s in places like Mexico, Australia, and Peru. Other countries have seen even more dramatic production spikes. In China, a relatively new major supplier of the metal, silver mining has scaled up from less than 10 million ounces in 1991 to more than 100 million ounces today.

Overall, the world's total silver mining production has increased from 400 million ounces in the early 1990s to about 700 million ounces today.

click to enlarge                                          source: CPM Group

But despite a sharp increase to supplies, the global demand for silver is far outpacing global production.

In fact global silver production has been unable to meet global demand for more than fifteen years.

The world's silver mines are simply not producing enough silver to meet demand.

In 2010, global silver demand exceed 1.05 billion ounces; but as you saw in the chart above, global mining has only provided about 700 million ounces.

So how has the market been filling this deficit?

Over the last two generations, major government stockpiles of silver have been sold off to supply the industry. The United States government alone has dumped nearly 5 billion ounces of silver into the market since WWII.

Of course, any government's well of silver reserves are finite. And over the past few years, government supplies of silver have been drying up. Data from the Silver Institute shows net government sales of silver falling drastically in the past decade.

	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010
Net Government Sales (million ounces)	63.0	59.2	88.7	61.9	65.9	78.5	42.5	28.9	15.5	44.8

This is one of the major reasons it is critical to act now.

Without government stockpiles to feed it, the market only has few other places to buy its silver.

Scrap metal is one option for the market, and will continue to help supply rising demand in the near term. But this well will also quickly run dry — and that will create a real problem for consumers who need silver...

Silver is Actually Rarer than Gold

Silver is 17.5 times more abundant in the Earth's crust than gold. But the amount of above-ground gold available far exceeds that of silver.

In 1950, there were 10 billion ounces of available silver above ground. By 1980, that number shrank to 3.5 billion. And today, no significant government stockpiles of silver exist anywhere in the world.

The USGS actually lists the U.S. government's current stockpile of silver simply as: “None.”

The exact opposite is true of gold.

In 1950, there were an estimated 1 billion ounces of above-ground gold. Today, there are nearly 5.8 billion ounces across the globe.

The world currently produces about 700 million ounces of silver per year. Where does it all go?

Believe it or not, most of it winds up as garbage. We literally throw billions of dollars' worth of silver in trash bins every year.

Silver is required in the production of thousands of products: CDs, cell phone batteries, calculators, printed circuit boards, hearing aids, electronic switches, TV screens, catalytic converters, inks, computer monitors, RFID chips, etc.

Once any of these items has served its purpose, it generally gets tossed. And it's simply more expensive to recycle the silver from these products than it is to dig more out of the ground.

Tiny bits of silver in electronics are thrown away every day.

I expect that the world's dumps will be a precious source of resources like silver in the future.

The difference between the metals is that gold is produced, but it's not consumed. While gold is a highly-desired item, it's not an industrial commodity. In other words, gold is desired, but silver is needed.

All of the gold that has ever been mined is basically still around. Studies suggest 98% of all gold mined throughout history is still available in the form of coins, bars, artifacts, and jewelry. But silver is different.

From 1990 to 2000 alone, over two billion ounces of silver disappeared from the market to consumption.

Despite the lack of global stockpiles, new technology will continue to discover more industrial applications for silver, putting a further strain on world supplies. Consider the new photovoltaic industry as an example...

In China, the production of photovoltaic solar panels has doubled every single year since 2003. The demand for silver from the global photovoltaic industry has soared in the past few years, and global demand is expected to reach 150 million ounces per year by 2015 — just to satisfy the photovoltaic industry.

Silver Demand from the Photovoltaic Industry

click to enlarge

But to widen the supply deficit even more, the Silver Institute forecasts industrial uses of silver will rise sharply over the next five years. The organization estimates that by 2015, the demand for silver from industry will increase 36%.

At the same time, the demand for silver for jewelry and investment is reaching record levels. A survey of 340 retail jewelers representing ~4,000 individual stores recently showed silver jewelry sales hitting record highs. The survey found:

• 87% of jewelry retailers said their silver jewelry sales increased in 2010
• 52% said their silver jewelry sales increased between 11% and 25%; 28% saw an increase over 25%
• Retailers rated the following categories as giving them the “best” maintained margin:
  
  • Silver jewelry 57%
  • Diamond jewelry 20%
  • Bridal jewelry 15%
  • Gold jewelry 4%
  • Platinum jewelry 4%

The UK's Royal Mint, which makes the Britannia silver bullion coins and other collector silver coins, reported silver coin production in the first half of this year has doubled.

In the meantime, American Eagle Silver bullion coins continue to move at a record-setting sales pace. The latest sales figures indicate the U.S. Mint sold over total of 3.4 million Silver Eagles in June. This figure earned the title as the "Best Ever June," and ranked seventh place in all-time monthly sales.

This is all very much in line with reports from other mints around the world that are seeing a surge in silver coin sales over the same period.

There's no doubt the silver market will have to face a serious deficit. And in order to balance the deficit, silver will have to come from somewhere...

I believe the majority of this silver will come from investors. And for investors to sell, we'll need to see higher prices.

The world has been drawing down its above-ground supply of silver for decades, diminishing the only source of what is available for investment. Only now have we begun to collectively recognize silver as a solid investment.

This is the perfect market for silver prices to appreciate.

Global supply deficits continue to be ignored year after year by investors. This is slowly changing, but owning silver has not gone mainstream yet...

Even as premiums rise and available retail supply dwindles, there is still time. The opportunity in silver is huge.

I maintain that the very best form of silver you can own is physical — and in your personal possession.

Good investing,

Luke Burgess
Analyst, Wealth Daily
Investment Director, Hard Money Millionaire and Underground Profits

USA economy Too Big to Fail?

The United States is too big to fail. The largest economy in the world is too strong and too influential to fail. The United States economy leads all other economies as it has for the last 100 years; it has extensive ties to the global economic community. What’s good for the US is good for the world. And what’s good for the US government is good for its citizens.

These are the arguments we hear as the US debt issue approaches a full-blown debt crisis, similar to the near bankruptcy in Greece that continues to plague the EMU.  Today Italy and Spain appear to have caught the Greece contagion.

Could the US actually default on its obligations?  Would default be catastrophic? Is the United States, in fact, too big to fail?

There is no doubt that the United States is coming very close to actual default, just as Greece did earlier this month. The US Treasury must pay interest on outstanding national debt by August 2, 2011. It pays interest from monthly federal income (taxes, fees and interest earned) and from borrowing. The Federal government borrows 40 cents of every dollar it spends. And there’s the rub. Federal borrowing is limited by law, and Congress has already spent up to (and a bit beyond) the legal debt limit of $14.3 Trillion. So if Congress does not raise the debt limit by $2.5 Trillion by August 2nd, the Treasury will be forced to pay debt interest and not pay out some domestic obligations. If it defaults on its debt payments, the credit rating of its sovereign debt will be downgraded, and the Dollar will decline. Secretary Geithner called the potential result “catastrophic.”

Unlike Greece, the US has no higher collective available with bail-out funds at the ready. Neither the ECB nor the IMF can help the US. Not even the Bank of China could rescue the US today. It already owns over a $1Trillion is US Treasurys.

The current Keynesian solution is to raise taxes by $1Trillion or more over the next ten years, and maintain the current growth rate for federal spending.  Maintaining the growth rate of federal spending implies cuts in federal programs because national demographics portend rapid cost growth in entitlement programs such as Medicare and Social Security. The tax hikes, now called “revenue increases” would come in the form of “closing tax loopholes” on corporations and setting higher tax rates for “millionaires and billionaires.” Taxing the rich, it is thought, will help close future budget deficits and therefore reduce the federal debt. Budget cuts would maintain the current spending growth rate (rather than reverse the slope of the spending curve), and be limited to discretionary programs, including defense, but would not include Medicare and Social Security.

Those opposed to raising taxes cite the nation’s anemic GDP growth rate, which has slowed to just 1.8%, and persistent high unemployment, which ticked up to 9.2% in June. Raising taxes, the opponents claim, might push the economy into a double-dip recession, or worse.

The president agrees that raising taxes in a recession is a bad idea. That’s why he said in his press conference on Sunday that no new taxes will take effect until 2013. The president has stated this position before. In August 2009, on a visit to Elkhart, Indiana to tout his stimulus plan, Obama sat down for an interview with NBC’s Chuck Todd, who passed on a question from Elkhart resident Scott Ferguson: “Explain how raising taxes on anyone during a deep recession is going to help with the economy.” The president responded, “First of all, he’s right. Normally, you don’t raise taxes in a recession, which is why we haven’t and why we’ve instead cut taxes. So I guess what I’d say to Scott is – his economics are right. You don’t raise taxes in a recession. We haven’t raised taxes in a recession.”

But delaying tax hikes to 2013 will not change the need to pay debt obligations on August 2, 2011. And not fixing Medicare and Social Security is no solution to the controlling the largest consumers of the federal budget.

Opponents say it is time to re-prioritize the federal budget, and slash programs that are not essential to operating the federal government, while lowering taxes across the board.  In Greece, the parliament agreed to deep cuts and a wide-ranging austerity program, required by its bail-out creditors.

The bail-out creditors in our case are the US citizens and businesses that pay federal taxes, purchase goods and services with US Dollars. Without substantial budget cuts and entitlement reform, taxpayers will pay more for spiraling federal costs directly by taxes, or indirectly through the inflation that follows the creation of money (and US Treasurys) out of thin air.

So it is the US taxpayer that will bear the brunt of a decision that does not cut federal spending by 3 times or more than the debt ceiling credit raise.

The US debt negotiations are being held in secret, away from the well of the Congress, away from debate, and away from the American people. The people are left with one-way press conference quips and few facts on which to judge, much less to act. And the story keeps changing.  It’s a wonder that the rating agencies have not come down with a verdict already. But the day ain’t over yet.

The markets are reacting. Monday, the Dow dropped 150 points. The NASDAQ shed 2%. The sell-off may have come in part from new fears of debt crisis contagion in Italy and Spain. But there is no good news coming out of the secret US debt crisis negotiations. To the contrary, the US Treasury Secretary took to the Sunday talk shows with a message of impending doom.

Gold is reacting also. Gold continues to move up in price as investors seek the safe-haven trade.

Gold open interest has swelled by 12,000 overnight contracts. Large Speculators have increased their long positions substantially, according to the CFTC.
What is more significant is the fact that since the negotiations began, Gold and the Dollar are moving in positive rather than traditional negative correlation.

It’s time to start thinking about real solutions to our spending problems. As usual, Europe is light years ahead of the United States. The EMU addressed the debt crisis in Greece by enforcing strict austerity by the Greek parliament. We should learn from this example before, by accident or by treachery, the US debt negotiation catapults into a full-fledged debt crisis.

Part of the solution should be a return to sound money-- Bretton Woods II, with some refinements based on experience. One cannot build a sound monetary system based on money backed by thin air. Gold-backed US currency would bring fiscal discipline to the government and help grow the economy.

With a gold standard, commerce would flourish and citizens would prosper. The Federal government would be smaller and maybe more efficient. The United States economy would grow and become once again, a shining example for the world to see, a tower of financial and economic strength-- too strong to fail.