Finally, the MSM is Catching Up to the Dollar Disaster

Straight from CNBC this morning, the rest of the world is finally catching up to what we already know, the dollar is dead as the worlds reserve currency.

$105 per barrel oil. Cotton prices at record levels. Food prices at 2008 highs. Typically, such commodity price increases would send central banks running to the U.S. Dollar to secure the value of their savings. After all, the dollar has been the reserve currency since World War I.

But not this time.

Central banks are shedding dollars [DXC1  76.565    0.08  (+0.1%)   ], reducing their holdings by about $9 billion in previous quarter, according to Nomura Securities’ Jens Nordvig, global head of G10 FX Strategy.

What are they buying instead? Gold [GCCV1  1414.10    -12.10  (-0.85%)   ].

The yellow metal hit a fresh record high this morning, while the dollar index dropped to a 15-month low. The news had Fast Money’s Brian Kelly looking to add more gold and silver longs to his portfolio Thursday morning.

“What is working is gold, silver [SICV1  36.65    -0.399  (-1.08%)   ] and oil [CLCV1  103.90    -1.50  (-1.42%)   ],” said Kanundrum Capital’s Kelly. “I wish I had more.”

Gold and silver have become the inflation hedges of choice for some investors. Gold hit an intra day high today of $1,448 per ounce. Silver is trading at 31-year highs, hitting an intra day high of $38 per ounce.

So what does that mean to the average Joe like us? To begin with inflation, and some are calling for Hyper-Inflation.

Where is The Silver Correction?

Many experts tell us to wait for a correction, Dave Morgan and Larry Edelson to name two, but we must consider Silver's unique position as a precious metal.

There is little doubt that at some time between now and July we'll see it test a low point, perhaps as low as $22 or $23 USD. It won't be there long and will move above it's current highs pushing $40 USD soon after it tests that low.

Silver, unlike Gold and other PM's, is also a commodity that is consumed by many industries such as the electronics, alternative energy, automotive and the medical fields. Therefore it has a solid demand as an industrial and that drives the market as much as investment. Gold has always been the investment of choice among those inclined to keep a liquid portion of their portfolio in precious metals.

However, Silver is a very small market and therefore one needs to be cautious as moves within the market that would be considered small in Stocks or Gold, for example, have a much bigger affect on the Silver market. It's just not seen as a store of wealth and is therefore more volatile than those that buy and hold Gold for investment.

However, one needs to be cautious as the world economic crisis worsens, because many average citizens who do not normally buy PM's begin to look at Silver as a form of alternative currency and this could effect the markets price. Silver has begun to be monetized like Gold and is seen as the best alternative to fiat currency for everyday transactions; i.e. an alternative currency form.

What you need to keep in the back of your mind at all times is the relative small size of the market, as I stated earlier. As Gold climbs you may see one or more large investors dump their Silver and run to Gold, but don't panic and follow suit if you are a small holder (less then 10,000 ounces). Silver will come roaring back to it's previous price and continue to climb, because it is a commodity that is NOT recycled and is a finite supply.

Most metal experts see $50 USD for Silver by years end and almost all agree the historic ratio will return to 16:1 at some time in the near future. When that happens, even if Gold stays in the $1,600 USD range, puts Silver at $100 USD. Almost certainly within the next three years Silver will test $150 USD or higher.

In the short term owning Silver will create wealth and should the unthinkable happen, like a collapse of our fiat system (not really so unthinkable), you'll be glad you're holding some physical Silver to use for trade.

What Is the Value of Survival Silver?

As you see at the top of the page one of our tag lines is, "The number of ounces you own define your wealth (survival), NOT the price per ounce."

The trouble most people have with valuing silver as a survival tool, and this includes even the most savvy investors on Wall Street, is thinking of it in it's value in terms of acquiring goods and services rather than being cashed in for units of currency.

If the US Dollar is worth nothing, then silver can not be equated to US Dollars per ounce. One needs to think entirely differently about the value of Gold and Silver as a currency. It's very hard for most people to think in those terms and to be honest we won't know what an ounce of Silver or Gold will buy you when the dollar in no longer the means of exchange. The market, at that time, will set the cost of goods and services; food, water, gasoline.

One must assume that in the beginning most people will think in terms of it's Dollar value, but as time moves forward a real value in terms of tangibles will be established.

Eric Sprott says this about the subject:

I think most mainstream investors still struggle to appreciate the changes that have occurred in precious metals market since 2008. Gold is reverting back into a world reserve currency – it’s so clearly visible now. It’s one of the only asset classes that has ‘worked’ for investors and savers. And yet there remains this large contingent who continue to question its legitimacy as an asset class.

Mainstream America, or for that matter everywhere in the world, will struggle when it comes time to use it as a monetary alternative. Categorically across the board money mangers in all forms refuse to view precious metals a a measure of wealth, a means of measuring value, if you will. They have been trained and have worked their entire careers investing and managing a fiat currency and have not come to understand that it is a hard currency. It is without a doubt a risk free investment even if the dollar, some how, manages to hang on. As Eric Sprott said above, the world is moving to Gold (or Gold backed currencies) as a reserve currency.

In today's financial environment one simply can NOT count on dollars as a wealth source. Owning precious metals is the only safe place to place your investment dollars, while you can still use them to purchase Gold and Silver.

Silver is the most easy to obtain, anyone with a few bucks can buy an ounce, and is of a lower value then Silver, again based on dollars. Gold has always been that pretty, shiny yellow metal and therefore has always been valued much higher using a fiat currency as a unit of measure. 

However, using it as a hard currency for small purchases such as water, food, gas, medicine, etc. would be difficult. Remember, for a long time people will equate it back to it's former value based in dollars. Therefore Silver will have a much better trading value for small purchases. A couple of ounces of Gold could buy you a car, but not a ham sandwich. You can't just hack a piece off of your bar or coin.

We recommend buying Silver in ounces, either bars or coins, and we have our Silver broker manufacturing fractional Silver coins, in 1/10 ounce coins. 5, 10 and 100 ounce sizes are great for investment if things were normal with regard to the state of the economy. 


Fractional sizes are readily available in Gold now and they are also a great idea. Remember, while more cumbersome to store and keep track of, you'll be glad you have small sizes when the crunch hits.

China Moves on the Dollar - It May Be Down for the Count

The Peoples Bank of China has announced their 12th five year plan, and it doesn't include the dollar. Look at this just released article in Spiegel.

The Chinese central bank surprised with a spectacular announcement: The would-be superpower wants to handle their entire future foreign trade in yuan, not in dollars. Beijing shakes America's claim to represent the key currency - with serious consequences for the U.S..

The announcement was inconspicuous , but it has the potential, to permanently change the balance of power on the world currency market: China strengthens the international role of the yuan. All exporters and importers will, this year, be allowed to settle their business with their foreign partners in Yuan, the central bank said on Wednesday in Beijing.

This will respond to the growing importance of the yuan as a global reserve currency. "The market demand for cross-border use of the yuan rises," said the central bank. The PBoC had previously tested this plan by allowing 67 000 enterprises in 20 provinces to run their business abroad in yuan. The trade volume amounted to the equivalent of €56 billion.

Now the amount of yuan to be extended, it should be handled much more business in Chinese currency - and less in the U.S. Chinese companies trade at present often in dollars, they are thus dependent on the decisions of the U.S. Federal Reserve to pay on it in a rising oil price and will have pay higher transaction fees than necessary. That should change now.

Currently, the People's Republic can hardly take yuan out of the country and even that is monitored within the boundary of all legitimate capital flows. Chinese exporters have to change a large part of their euro, yen or dollars at a fixed rate revenue in yuan. Foreign companies wishing to do business in China must do so in Yuan, they can exchange their money in the People's Republic. Tourists are allowed a maximum of 20,000 yuan and exporting. Yuan an international market can not occur - and not on supply and demand-based exchange rate.

Previously (just last week) China announced that it would allow the settlement of trades across it's borders in Yuan by the end of this year. Bold moves to make their currency the reserve currency only increase pressure on the already faltering dollar.

There is no doubt that China has dealt the knockout punch to the dollar and it's time has past. The dollar has been fighting a defensive fight for several rounds now, unable to throw a single punch. Now in the 12th round the poor punch drunk dollar can hardly hold it's hands up in defense. China can now land punches at will and in very short order Ben Bernanke will throw in the towel.

Here is the original article from the PBoC website.

Eric Sprott on Why Silver is the Investment of the Decade

Eric Sprott is one of the most listened to PM experts in the world and the head of a large Canadian securities firm.

His video gives you 8 reasons why Silver is the investment of this Decade.

His eight reasons in summary:

1. Demand is not only up, but still rising. The US Mint in the months of January and February sold as many dollars of silver as they sold dollars of gold. The Chinese used to export 100 million ounces of silver – they now import 112 million ounces – and that’s in a market that’s a total of 800 million ounces, or a 20% shift in just Chinese demand.

2. Supply and Delivery Challenges for Physical Bullion. In a market that trades roughly 400 million (paper) ounces a day, when Sprott Asset Management was preparing to open their physical silver trust they had difficulty acquiring just 15 million ounces. Other evidence direct from the US Mint further solidifies this point. The Mint recently advised potential investors that it can longer coin the popular Silver American Eagle saying, “The United States Mint will resume production of American Eagle Silver Uncirculated Coins once sufficient inventories of silver bullion blanks can be acquired to meet market demand for all three American Eagle Silver Coin products.”

3. Technological demand for silver is increasing. In 2010 industrial production of silver was up 18% due to rising demand from the technology sector. Among other things, silver is increasingly being used in computers, cell phones, and solar panels. Health care, alternative and traditional, is another market segment that will see silver demand increase because of silver’s antibiotic properties. It’s already being used in bandages, clothing, and medical devices.

4. Silver is closing the margin on the gold-to-silver ratio. Historically, though not in recent decades, silver has traded at an average ratio of about 16-to-1. It is currently trading at about 40-to-1, and just recently was trading at nearly 70-to-1. If the historical ratio of gold to silver holds up, then if gold is priced at $1600 an ounce, silver would need to be trading at about $100. If gold were to trade at $3000 an ounce, a prediction made by several contrarian precious metals analysts, silver would trade at $300 if the gold-to-silver ratio returned to historical norms.

5. There is a silver shortage. We’ve already discussed the supply issues that many investors taking large deliveries may be experiencing. But, there is also a pricing disconnect occurring, that indicates supply problems, at least in the short-term, are prevalent. According to Sprott and other analysts, forward looking silver prices indicate that a silver shortage exists. The phenomenon of price “backwardation” is one way of being able to identify this. Though there are millions of ounces in the ground, backwardation can mean there is simply not enough of an asset available right now. Sprott, for example, says that when they purchased the aforementioned 15 million ounces of silver, some of it wasn’t even minted until two weeks after they made the purchase, suggesting that existing inventory is simply not available.

6. More (Paper) Money. As the US Federal Reserve and central banks around the world continue to deal with fiscal issues through monetary means, more and more paper currency hits the global marketplace. As a result, more money is chasing fewer goods, with silver being one of those goods. For the reasons above, as well as the fact that there is more money available, the price of silver will continue to “inflate,” just like other hard assets. Over the last 100 years, since the Federal Reserve was established, the US dollar has lose some 95% of its value. This is a long-term 100 year trend, and given the current policies of the Fed, which are no different than the policies of the last century, the US dollar will continue to depreciate.

7. Gold for Main Street. While an ounce of gold may cost $1500, silver is significantly cheaper, giving working individuals and families the ability to invest without having to spend this month’s mortgage on a coin. Silver is available in various weights and mintages, from one ounce government issue coins like silver eagles to one-hundred ounce poured bars from Johnson Matthey. In addition, for newer investors, though fake silver exists, the risk to the investor is much lower because of the price, and investors can choose US “junk silver” coins like pre-1965 half dollars, quarters and dimes for easily identifiable and tradeable instruments. With silver, anyone who has a desire to do so can become their own central bank.

8. Crisis. Inflation is often identified as the single biggest reason for why precious metals like gold and silver rise. However, this is not always the case. During the 1990′s, a period where inflation was anywhere from 1% to 6% annually, the price of gold and silver barely moved. There was simply no investor demand. One of the reasons for this may have been because during the 90′s, the US was experiencing a period of boom. It was the advent of the internet and the general mood was positive. Stocks were rising and were the primary investment vehicle of choice during the technology boom. Gold and silver took a back seat. After the technology crash and September 11th, however, sentiment changed. As boom times gave way to recession, precious metals rose. They continued to rise as governments, namely in the US, passed more restrictive laws on everything from personal liberty to capital investment. When countries start restricting freedoms, people tend to shift capital. Throughout the first decade of the 21st century, this may have been the primary reason for gold and silver’s powerful rise. After the collapse of 2008, more and more investors began to realize that crisis is upon us. The government, failing to mitigate the problem, and likely making it even worse, forced those in traditional investments into the safe haven historical assets of choice – gold and silver. Thus, while inflation may play a part in the rise of precious metals, it is the perception that government is unable to deal with crisis that has been the real driving force. As the economic crisis continues to deepen, civil unrest breaks out around the world, and citizens lose faith in their government’s ability to manage crisis, the prices of precious metals, the last vestige of monetary security, will continue to rise.

The Golden Dragon Roars To Life

It's never been more clear that China has begun to make it's move as the reserve currency for the world. For some time now many have speculated that they intend to make the yuan or renminbi the worlds reserve currency, even while denying it just recently when President Hu visited the White House. However, as your momma used to say to you, actions speak louder than words.

As recently as 2007 China was a net exporter of Gold. They were producing more Gold than they were consuming and they were selling the excesses off on the open market. However, the next year they became a net importer of Gold, albeit a very small amount. In 2010 China imported just over 200 metric tonnes of Gold, a big change from 2007.

In 2011 they have imported 200 metric tonnes in the first two months! The first indication that rumors are true about positioning itself as a world reserve currency. Backing the yuan or renminbi with Gold is a sure way to allow themselves to be taken seriously by the rest of the world. When a huge downturn comes about, nations using a fiat based currency system will be looking for stability and no currency is more stable then one backed my Gold, as the dollar used to be.

They have some ground to gain on the US as it is reported, but unaudited, that the US has 8,133.5 metric tonnes of Gold and even some of the nations in Europe that are in trouble have over 2,400 tonnes of Gold. China is just sixth in the world with 1,054 metric tonnes, so yes they have a way to go.

Why now? Why 2011? Because, with all the uncertainty in global economics it appears the time is right to begin positioning. More than a dozen countries, including the US, are on the brink of default and it will only take a few more events to push them over the edge. When the collapses begin, it will be a domino effect and even countries with fairly stable economies will fall prey. China to the rescue.

Many experts agree that a big change is coming and with the Fed announcing the absolute end to QE2 in June, most feel that the economy will not be able to sustain itself and that the Fed's assumptions are wrong. The result will be a collapse that QE3 will be unable to reverse.

Robert Zoellick, president of the World Bank recently spoke of the possibility of a return to some form of gold standard. To further their position and "Spread the Yuan around", they have just this week announced that they will allow cross border trades in the yuan this year. 

The People’s Bank of China said that it was “part of plans to grow the currency's international role” and “would respond to overseas demand for the yuan to be used as a reserve currency.” No smoke signals in that statement. 

Even the Chinese people are getting in on the Gold action with reports of Gold bars sold to individuals up 70% over last year at Beijing’s largest jewelry store. And reports at the Malls in are showing massive increases in the purchases of gold bars and jewelry.

The Golden Dragon finally roars to life. It's going to be a different world soon and I'm not sure we here in the US are going to like it.

Silver Correction Coming...

Silver prices are due for a correction some time soon, within a month I predict. We keep hearing stories about tight supply when the fact is that in the retail market of bars of 100 ounces or less there seems to be no problem. The real tightness comes from the commercial side of the market where 1,000 ounce bars are virtually non-existent.

When you dig deep enough into the goings on behind the market you begin to realize that much of the reporting that is being done is only half-truths. A good example is the Canadian Maple Leaf. The media has been reporting that the Royal Canadian Mint is having trouble keeping up with the demand for the coin. While that is true, they don't report the reason. The force behind the shortage is not just demand, but that they're main production is 1,000 ounce bars and that market is tight, with everything they have been producing already purchased and awaiting delivery. Therefore they are having issues sourcing enough silver to meet the demand for the 1,000 ounce bars which in turn cause them to not have enough raw material for the 1oz rounds.

China's population has begun to catch up to the west in terms of gadgets and conveniences. The huge increase for cell phones and general modernization has caused pressure on the silver supply as China, who was a net exporter in 2007, to become a net importer. Their own mining efforts can't keep up with the demand so they import what they need. This also has put pressure on the mining industry and they are playing catchup. 

Further the price of Gold is causing it to not be an alternative to many folks that are not large investors, so they are turning to silver for investment. While an excellent idea, it is also putting pressure on the silver mining industry.

Over the next few years silver will continue to climb and be much higher than it is now. But, as with every investment indicator there are always corrections and gold and silver are due for one shortly. I believe once it hits $40.00 an ounce it will correct and become an opportunity to get it at a discount price. Increase prices at the pump and at the grocery store may slow or affect it's meteoric climb for a while as the everyday buyer is forced to put more of his money into living expenses and less into wealth protection.

However, with it's predicted high in two years I would recommend buying it at any dip as the overall price will be close to $100.00 per ounce within 5 years. Continue to watch for dips and buy when and what you can, either you'll be telling yourself I'm glad I did or you'll be saying I wish I had.

Does Saudi Arabia Know Something We Don't?

With the crisis in the Middle East growing on a daily basis, Saudi Arabia recently announced that they would pick up the slack. But, they can't. They are at max output now and all they can do is speed up the pumping rate for a short time.
 
They can't sustain a faster pumping rate as they will run the well dry and suck sand. They must slow the pumps back down to allow the well hole to fill up again. There are reports from our government and famously leaked by Wiki-Leaks, that the Saudis may have over estimated their reserves by as much as 40%! 
 
Recently they announced a huge move into alternative energy sources to the tune of $130B dollars and a huge part of that is solar energy. That is a huge move!

There is no better place to be than in silver to take advantage of that move. Solar panels rely heavily on silver in their construction and will certainly cause the prices to rise in the coming years. 

With silver hovering around $35.00 an ounce and oil prices soaring it portends a bright future for silver and it makes those predictions of $100.00 per ounce more believable.But, the question begs to be asked as to why this big move into alternative energies? The Saudi's recently announced that they are moving ahead with plans to build nuclear power plants and natural gas infrastructure within the next four years. And now the addition of solar energy farms.


According to this article at Fastcompany.com the solar farm industry in the middle east is in it's infancy and Saudi Arabia is on the forefront of that technology moving to the middle east.


Before we answer the question about "why" let's look at a few more statistics from Saudi Arabia. Their stock market has dropped nearly 22% since mid-January. Essentially it's in a shambles.

From Bespoke Investments we see this
quote:

Back in late January, the TASI
saw a one-day decline of over 6% on 1/29 when tensions began to escalate in
Egypt. When things settled down in Cairo, the TASI rebounded back above its
50-day moving average, but it then began to roll over again when tensions
moved to Libya.

Not really too revealing just yet.
But, let's take a look at this snip-it from Bloomberg:

Saudi
Arabia is "perfectly unstable," like Egypt, where 10-day protests
are threatening the 30-year rule of President Hosni Mubarak, Nassim Taleb,
author of "Black Swan," said today...
...The
86-year-old ruler of Saudi Arabia, King Abdullah, has backed the Egyptian
government and condemned the protesters, while trying to address imbalances
in the largest Arab economy. The government announced in August a $385 billion,
five-year spending plan as the kingdom tries to reduce a jobless rate of as
high as 43 percent for Saudis between the ages of 20 and 24.
Almost
40 percent of the population in Saudi Arabia, which is the world's largest
oil exporter, is under 15. The country is ruled by the Al Saud family, which
relies on support from the Sunni Muslim clerical establishment under a 1744
pact.

Perhaps now you can begin to see a change in the underpinnings of things in Saudi Arabia. The Saudi's are attempting to kill two birds with one stone, move from oil dependence and create jobs in hopes of closing the inequalities that exist between the ruling class and
it's citizens.

This all means huge profits for those that tap into the technology that is about to explode in the middle east. Saudi Arabia is just the tip of the iceberg as the region begins this shift to alternative energy and they have the money to be first on the block to acquire oil independence.

Let's face it, they are in the perfect geographical location to make a lot of energy from the sun and that means huge consumption's of silver. Silver prices will continue to soar as it is consumed for solar panels and other technologies that depend on it. Warren Buffet has increased his position to nearly 200 million ounces while establishment investment advisors on Wall Street continue to tell their clients that silver isn't a good investment, it's merely an industrial metal and subject to the whims of the manufacturing industry.

Keep telling them that Jim Kramer and others, while we and our friends reap the rewards of investing in this "Industrial Metal".

Will The Government Begin To Confiscate Precious Metals?

When I first began to research the possibility that the rumors I was hearing were true I was astounded to learn that there is a ton of evidence to substantiate those rumors. Actually you could say I was astounded, thunderstruck, astonished … I won't go on any more, that what I was reading from an impeccable source was actually a scenario that has been discussed in the halls of our fine Government.

Let me be clear, I am NOT a Government basher and I have served my country proudly and pay my fair share of taxes. To think that they are actually planning a "what if" that includes confiscation of Gold and Silver and other PM's just blew me away. Digging further into history showed me that before my time when the Great Depression was upon America this sort of thing happened all the time.

Will this be 1933 all over again? According to sources it won't be that bad and there does not seem to be any plans to outlaw the owning of physical Gold or Silver as the government imposed on us at that time. However, there are clearly plans laid down to begin to enact some sort of program to take physical PM's away from folks. 

There seems to be trigger figure that has been revealed from several others that indicate a price of $2,000.00. 

Here are some of the plans that are being talked about and keep in mind that these quotes are coming from very reputable people like silver analyst David Morgan, trend forecaster Gerald Celente and precious metals expert Jerry Western.

There is a plan to use the IMF (AKA US Treasury and Wall Street) to be the front man for the new world order and one currency.We also got disturbing news yesterday from an impeccable source that when gold touches $2,000 it’s confiscated in the USAfor about $200. Then it’s to be reissued by the Treasury for $10,000 per ounce to back the new IMF world currency using SDRS in 2011.  Large physical gold is being moved to Canada. (Editor's note: There are strong indications that Warren Buffet has already begun to move his PM's to Canada, where he owns two gold mines and obviously has the secure storage available)

Jerry Western, who wrote Got Gold? Get Gold!, writes that while the government won't overtly begin to confiscate PM's as they did in 1933 they will certainly resort to covert methods.

So, will it happen again? I’d have to say overtly, probably not. Never say never, but I believe that covertly it has already begun ...

…there’s the matter of gold and silver Exchange Traded Funds. Many of these funds, including the largest, are thought by many informed individuals, not to hold the metal they are purported to. At some point, if they don’t have the metal, they will default on their obligations to shareholders. Those shareholders who thought they owned gold will not…They will have had their gold taken from them. Confiscated.

The final implementation of confiscation will probably be in the form of confiscatory taxes. If taxes rise to 90% on any profit I must report, then it will be discouraging and not worth the effort to hold the metal. 

Qualifying all of this is of course necessary and I must say that it may not happen at all UNLESS the US decides to go back to a gold backed currency standard. That is exactly when FDR in 1933 moved to confiscate and ban gold ownership until 1973 when we transitioned to fiat currency.

One last bit of paranoia is this fact:

When ObamaCare was passed, we found out afterwards, new 1099 requirements which will force gold/silver merchants to declare all precious metals transactions over $600. Thus, the mechanism for tracking and taxing even small cash transactions has already been put into place. 

My conclusion is to advise you to keep an eye on what is happening in Washington via sources like this one, make your buys in small quantities (under 600 per transaction) and above all find a place to store those physical metals you are holding in a place that can't be found if someone comes looking!