How Low Will the Silver Price Go?

What can we learn about where the price of silver may go in the future?  Casey Research has a very interesting graph showing the size of silver price corrections over the past decade.  Read on to learn what this might mean for the future and how to use these corrections to your advantage…

-Jeff Clark, Casey’s Gold & Resource Report

We released our 2010 Silver Buying Guide 2 weeks ago and the silver price promptly cratered. So does this change our view of gold’s shiny cousin? Hardly.

While industrial uses comprise about half (53%, according to GFMS) of silver’s demand, making it susceptible to bigger falls than gold in a weak economy, it is equally clear silver also responds well to inflation, as well as serious financial “dislocations” (to put it nicely).

There are many examples of this, perhaps the best being the late 1970s. The economy in the middle of that decade was going nowhere, so some investors dumped their silver holdings because demand would supposedly be weak. A big mistake, as we now know, because silver’s greatest advance occurred at a time industrial demand was, at best, flat. Instead, silver rose due to monetary concerns and rampant inflation, giving investors 500%+ returns in the latter part of that decade, with an easy chance for even higher gains.

So if you’re buying silver to protect yourself against inflation and out-of-control government spending, then – as Doug Casey is fond of saying – sit tight and be right.

Still, it might be useful to contemplate how far silver could fall, particularly if you don’t own enough and are looking to add to your holdings.

The following chart examines all the major corrections in the price of silver in the current bull market (2001 to present). I only included corrections greater than 10%, many of which were big and sudden, much like we’re experiencing now.

You can easily see how volatile silver has been. Yet amidst all that volatility, the price has risen 334% from its 11-21-01 low (as of May 21).

Based on this data, we can make some projections. Our recent high in silver was $19.64. Therefore…

These projections cast a wide net, to be sure, but there are still some conclusions we can draw:

1) The current correction in silver, as sharp as it is, is not out of the ordinary. Nothing is happening to the silver price right now that hasn’t occurred before.

Diagnosis? Normal.

2) If you agree with our analysis that says inflation is inevitable and that fiat currencies will sooner or later be taken off life support, then scary drops become great buying opportunities. Imagine if you had bought during that waterfall decline in 2008; you could’ve paid less than $9 for an ounce of silver. That would make the current correction less worrisome. By extension, buying during today’s big downdrafts will give you peace of mind tomorrow when we see another correction at higher levels.

Treatment regimen? Buy the big corrections.

3) Adjusted for inflation, silver’s peak in 1980 would exceed $100 today (and that’s based on distorted government CPI numbers).
 

Prognosis? Excellent.

Since we don’t know where the next bottom is, one effective way to handle purchases is to buy in tranches. You could place limit orders at a couple different levels.

But we might save the Big Purchase for a true fire-sale price, something greater than the average sell-off. There won’t be a big flashing light that says “Buy Now!” when the bottom forms, but the bigger the drop, the easier it will become to ease into the market.

Easy? Yes, if you have lots of cash (we currently recommend in Casey’s Gold & Resource Report that one-third of assets be in cash). That big stash is going to give you the ability to load up on the cheap.

If you don’t have a significant amount of Federal Reserve notes saved, it’s not too late to start. And I’ll bet you a six-pack on a Tahitian beach you’ll feel differently about this sell-off if you have a big pile of cash waiting to deploy.

The big SALE! may very well be on its way. I hope you’re getting ready for it.

What silver investments are we buying on the corrections? Check out our 2010 Silver Buying Guide, which includes a list of the dealers with the cheapest prices on all forms of physical silver, a brand new silver ETF recommendation, and the two best silver stocks in the world. You’ve got nothing to lose – a one-year subscription to Casey’s Gold & Resource Report is only $39, and you can try it risk-free for 3 months here.

Stephen Leeb: The Real Threat to Europe, the US (and NZ)

This week in our musings, we have some thoughts of our own – and thoughts of others that we have found interesting….

The opening headline in this week’s NZ Sunday Star*Times Business section reads “Gold Production heads to $1b”. It seems that gold is starting to attract mainstream attention, even in New Zealand. Over the page, in Rod Oram’s piece, we find this fact reported:

The sum that we (NZ) owe the rest of the world – our net international liabilities – are now 90% of GDP, the third highest in the world after Iceland and Hungary - and are forecast to reach 100% of GDP by March 2014.

Finance minister Bill English correctly referred to this as “New Zealand’s largest vulnerability”.

I for one would like to know the ratio of our debt servicing costs to our income – this is actually a much more important number then the one above, for the simple reason that it defines our ability to pay our way. Suffice it to say that New Zealand’s vulnerability lies in its requirement to continually borrow from abroad, and therefore our interest rates are inescapably tied to overseas rates. The remarks I made last week about the effect on US debt repayments of rising interest rates apply to us in spades.

Now to some of the articles that have grabbed our attention this week…

• William Engdahl: Euro slump due to Attack from Wall St and Washington

• Stephen Leeb: The Real Threat to Europe, the US (Ed: and us)

• Jim Rickards: Financial Warfare, and More

• Mish Shedlock: New Proposals to keep Australia’s Housing Bubble from bursting

Euro slump due to planned Wall Street and Washington’s attack - William Engdahl

Germany’s Chancellor Merkel says the Euro currency is at risk and that Europe faces its greatest challenge since the EU was formed.

It comes as stock markets in Europe and Asia tumbled on the surprise news that Berlin was banning types of ’short selling’ – where investors profit by betting that shares will drop in value.

The euro is under pressure after nations using it had to pull together to bail out Greece, which is struggling under a massive debt and from strikes that are bringing the country to a halt.

Many say the aid package came too late and that the crisis in Athens may be a prelude to the currency crumbling.

William Engdahl, author and economic researcher, thinks it is the greatest challenge since 1999 when the euro was created.

He said the crisis is the result of an orchestrated attack by the U.S. on the dollar’s main rival.

“The whole attack on Greece and the attack on the euro originated from a concerted strategy of Wall Street and US Institutions to permanently cripple or try to cripple the only alternative reserve currency anywhere in the world that can challenge the dollar,” Engdahl told Russia Today.

Stephen Leeb: The Real Threat to Europe, the US (Ed: and NZ!)

Stephen Leeb was trained as a mathematician and psychologist, and I have found him to be right on the money on a number of occasions. He’s another guy I listen to carefully when he speaks… In these remarks he discusses the indirect taxes that increasing energy and commodity prices impose, and his view on gold.

Don’t mistake us: the euro will disappear in time. It’s just that, for now, European nations are taking some positive actions that the market sees as reducing the risk of economic Armageddon. France and Spain have decided to cut benefit packages for their civil servants to reduce their deficits. Germany has approved of the massive bailout package to help Greece, which amounts to de facto quantitative easing.

If there were no further problems down the road, we might expect the euro to eventually bottom out at around $1.10 – maybe a dollar. The EMU might eventually unwind the recent quantitative easing and come through the current crisis intact.

Unfortunately, the road ahead is far from smooth. And the problems that lie ahead have far more to do with resource scarcity than Western governments’ excessive debt levels.

Let’s take an example from the U.S. (just because the data is readily at hand).

While some people enjoyed the weather this past weekend, I confess I spent my time crunching numbers. By doing so, I came to some poignant conclusions regarding the average American family’s energy costs in recent years. Between 2000 and 2005 (the most recent year for which government stats are available), energy expenditures per U.S. household rose from an average of $2,200 (or 4% of expenses) to $5,000 or 10% of expenses.

Although more recent figures on energy expenditures are not yet available, we know that household incomes have fallen since 2005 while energy prices have risen. So it’s fair to say that the average household pays an equal or greater percentage of its income on energy today.

That’s a huge after-tax increase in Americans’ cost of living. It’s like paying nearly $3,000 more each year in taxes – after you have finished paying Uncle Sam. This money doesn’t go towards fixing potholes, making education affordable, or stimulating the economy. Instead, much of this money goes overseas to enrich the oil-exporting nations.

Naturally, the same is true of increases in the price of virtually every other raw material the U.S. imports. Copper, nickel, zinc, platinum, and many other commodities have gained substantially over the past 10 years. And every resulting increase in the cost of living suppresses consumer spending, much as a tax would, but without any redeeming side effects.

Naturally, Europe faces similar problems. (Ed: - and so do we here in NZ) Like the U.S., it imports a lot of oil and raw materials. Admittedly, it has been further ahead than the U.S. when it comes to developing alternative energies. But now that Europe faces pressure to cut government deficits, alternative energy projects may take a back seat for a few years. (Instead, the new world leader in alt. energy is China and it is widening its lead every day.)

Going forward, the combination of greater fiscal restraint and rising commodity prices will put a lot of strain on Europe. It will probably lead to a sustained period of quantitative easing, which will pit European nations against each other.

In the end, resource scarcity more than sovereign debt will cause the biggest problems in both Europe and the U.S. It will restrain people’s ability to send their kids to college, pay for healthcare, or retire while they’re still young enough to enjoy it.

As for gold, we remain confident that gold offers us long-term security against market declines.  Simply said it is the world’s strongest currency in times of uncertainty.

Jim Rickards: Financial Warfare, and more

Jim Rickards, Senior Managing Director of Omnis Inc, is interviewed often by Eric King of King World News. King World News is a very important site for followers of the precious metals markets to keep a close eye on. Nothing of importance to these markets escapes Eric’s eagle eye. The full interview is carried on the site, and I urge you to check it out; I attempt to paraphrase the important points below.

Financial warfare: it may not be obvious at the time it’s happening – there is a slippery slope from open markets to closed markets to adversarial markets. Now, while China may not be engaged in actual warfare at the present time, it is certainly wielding a huge deflationary hammer against the US - thus contributing to Ben Bernanke’s worst nightmare, because of the impact deflation has on banks and on debt. Currently, we have apparent price stability because the forces of deflation, coming from China and elsewhere are balanced by the forces of inflation i.e. money printing by the central banks. However this is an unstable equilibrium – the balance can easily tip from one side to the other or shift back and forth.

Interestingly, gold is an investment that does well under both inflation and deflation.

It is interesting to speculate who the buyers are, now that gold is undergoing a correction; in any case these short term fluctuations are not of concern. Jim still has a short term target of $2000 per oz, and $5000 per oz for the medium term.

Credit default swaps do not form part of the free market – they form part of a rigged game. To be clear, the fiscal situation in Europe is a mess. However, CDS make the situation many times worse. With derivatives, you can attack a country with no money down. The $1T rescue package will not work; GS could create  $5T worth of shorts in the form of credit default swaps, which they can do over the phone. Governments, led by Germany are fighting back, however. Jim makes the point that these countries are important Nato allies; the investment banks have been allowed to run riot, but this situation may not continue.

Mish Shedlock: New Proposals to keep Australia’s Housing Bubble from bursting

(Ed: wonder what Steve Keen will say about this…)

Insanity Down Under: ING Says Thanks to Capital Appreciation, Paying Principal on Mortgage Loans is Unnecessary

from Mish’s Global Economic Trend Analysis by Michael Shedlock

Myths that home prices rise forever and interest rates stay low forever are alive and well in Australia. Please consider this amazing story of corporate insanity as described in the Sunday Telegraph - Revealed: The home loan that could save you a fortune.

ING Direct, Australia’s fifth largest lender, is preparing to sell loans that have no fixed term and no requirement to repay any capital along the way.
 
At current rates, the interest-only loans would cut repayments on a $300,000 mortgage by $5000 a year.
 
“People are needlessly being denied the chance to buy a property while prices spiral rapidly out of their reach” ING Direct CEO Don Koch said. “There is an urgent need to provide more affordable options and borrowers should be able to choose whether they want to repay the capital, or not.”
 
Mr Koch wants to position the bank as a “mortgage partner for life”, with borrowers carrying the same interest-only loan from property to property for as long as they wish, accumulating equity from rising house prices as they go.
 
Then, as they near retirement, they could sell their property for a big enough profit to pay off the original loan and buy a smaller place outright, leaving them mortgage-free. Or, they could keep the mortgage going and repay the original capital from their estate, after death.
 
Banks already offer interest-only loans, but borrowers often are allowed to keep them only for five to 10 years. Then they must start paying the capital.
 
But ING says this preoccupation with paying off the loan is unnecessary.
 
“There is no economic reason for banks to insist on regular capital repayment,” Mr Koch said. “It just makes the loan more expensive for the borrower.
 
Financial comparison website InfoChoice CEO Shaun Cornelius said the move was a welcome innovation: “Depending on the size of the loan, it could add hundreds of thousands of dollars to a borrower’s cash flow over their lifetime.”

Economic Idiocy
 
Koch’s proposal, seconded by CEO Shaun Cornelius of InfoChoice, is economic idiocy at its finest. No one “saves” anything by not paying down mortgages, the money is simply spent (most likely wasted) elsewhere. Moreover, home prices do not perpetually go up.
 
The US housing market has without a doubt proven both statements.
 
Ask any homeowner in the US who is headed for retirement and severely underwater on their home what they think of Koch’s hypothesis.
 
With so many underwater mortgages, only a complete fool think estates would be in a position to repay the original capital from their estate, after death, especially in countries where the bubble has not yet popped, such as Australia, Canada, and China.
 
Of all the proposals to keep the housing bubble alive in Australia, especially in light of what has happened in the US, this idea from ING needs to go straight to the top of the idiotic ideas list.
 
ING Direct CEO Don Koch is testament to the idea “there is always the greater idiot who never learns a thing from history, who instead proposes to do something that the market has recently proven preposterous.”

Simple Questions
 
By the way Mr. Koch, I have a few simple questions for you:
 
Are you aware of what interest rates were in the 1970’s and 1980’s?
 
“What happens when interest rates rise, perhaps even double, and your borrowers struggle to make even the interest payments?”
 
Alternatively, “Are you dumb enough to offer low rates forever?”
 
Either way. Mr. Koch, you and your banks are screwed, and it should not take a genius to figure that out.
 
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Gold: The Safest Bet, Unlimited Demand, Vending Machines, and Price Projections

This week in our musings, we have some thoughts of our own – and thoughts of others that we have found interesting….

Looking around the economic landscape, it’s hard not to have a sense of foreboding. Despite the optimistic propaganda from our governments and financial centres, it is clear that things are not good out there on the ground. I have had talks with many ordinary people in the US and have heard stories of increasing hardship, like the lady in Massachusetts who has just lost her job at the medical centre where she has worked for 14 years. Her boss told her he was very sorry to have to lay her off but he had never seen the economic situation so bad. I also talked to a guy who had lost his job in a business supplying parts to the auto industry. Aged in his late 30s, he had no skills apart from what he had picked up during his job there, so had very few prospects. I also talked to my plumber mate in New York, who told me he was surviving, but had seen many of his mates losing jobs.

Now this is all anecdotal evidence, but stories like these abound all across the US.

The financial markets remain in a precarious state. The financial crisis that exploded publicly in 2008 has not been defused; on the contrary the crisis is protracted, ongoing and has no end in sight. The cracks have simply been papered over with another layer of derivatives. The cause of the crisis – TOO MUCH DEBT – has been answered by the creation of yet more extensive and expensive layers of debt. At the moment, with artificially low rates of interest, the interest that the US pays on its national debt is manageable, but if interest rates were to rise to a “realistic” level – say at least greater than 6% - then it becomes a different story, with the servicing cost of each layer of debt rolled over multiplied 6-fold.

Although deflation seems to be the story of the day, the truth is that, behind the scenes, price inflation is increasing rapidly – wholesale food prices in the US have been rising inexorably for the last six months.  It is not an accident that the top 3 US states doing best in the current environment are North and South Dakota and Nebraska. These are states heavily reliant on farming for their income. Of course North Dakota has the undoubted advantage of having its own bank – but that’s another story.

This inflation genie will NOT go back in the bottle… Notice that the price of technology is going down – but what will happen as time goes by is that the average household will have to spend increasingly more on food and energy, and therefore less on everything else, as the supply of credit to these households has all but dried up. Now, if there is indeed rapid inflation – indeed even possibly hyperinflation about to occur in the US, there will be downward pressure on the US dollar, and increasing reluctance of foreigners to fund US borrowing requirements.

Meanwhile, we have a European sovereign debt crisis, and a situation in the US where at least 40 of 50 states are insolvent – the most notable being California. At the same time the price of gold is rising inexorably, having broken out to new highs above USD1200 per oz. This is occurring at a time when the US dollar index is rising. Of course the price of gold in euros is reaching new records almost daily as the euro plunges in value against the dollar.

What can we learn from all this?  Just think about the consequences if the US (to take an example) is forced to close financial markets – and currency markets – for some period of time. We have been informed that that very situation came very close (only hours away) to happening in 2008. Foreign markets would be forced to shut down as a result. New Zealand has to borrow $240 million per month from abroad, just to stay functioning. We are NOT isolated from foreign currency or banking events. What do you do when your ATM no longer works? Do you have enough currency available to you to survive for say a week?   How would you deal with a situation like that in Argentina not long ago when people went to bed one night with savings in the bank and woke up the next morning to be told their money had vanished? Might be worth thinking about…

Of course, you might also consider the fact that in the early 1970’s, before Nixon closed the gold window, you could buy a good man’s suit in the US for $35 which was the value of 1 oz of gold at that time. Today a comparable suit costs more than $1000 – around the value of 1 oz of gold now.

Now to some of the articles that have grabbed our attention this week…

·        JP Morgan: Gold Could Now Face ‘Unlimited’ Demand

·        The Safest Bet During Uncertain Markets – J.S. Kim

·        Abu Dhabi Hotel Installs Gold Vending Machine

·        Louise Yamada’s Projections for the Gold Price

JP Morgan: Gold Could Now Face ‘Unlimited’ Demand

From: Businessinsider.com

JP Morgan’s John Bridges believes the latest breakout for gold was a huge positive sign for the metal.

Euro weakness fears, coupled with dollar weakness fears, could lead to an enormous amount of demand:

JP Morgan:

A German banker once told us that gold normally trades like a commodity. However, when investors lose confidence in currencies, because the pool of gold is so much smaller than the pool of currencies, demand for gold can effectively become unlimited. We believe the European version of “QE” is generating serious currency worries and led today to the breakout of the gold price above the previous intraday high at $1,226/oz.

We see this breakout as significant: The market might have welcomed the European’s latest solution to the Greek crisis with a weaker gold price. If the gold price had fallen, bears could have pointed to a “double top” in the chart, and this could have contributed to a period of weakness for the metal.

They’re recommending exposure both through gold and gold-related stocks, as insurance, since despite the fact that gold is a record price levels, they believe that it could feasibly go far higher. Guessing just how wild investors will get for an asset is still a horribly tricky game nonetheless.

John Kim is one of our trusted sources – we have examined his recommendations over a long period and now listen very carefully to his perspective.

The Safest Bet During Uncertain Markets

from The Underground Investor by J.S. Kim

With six consecutive intraday triple digit swings from high to low in the DJIA index, here’s the safest bet during these uncertain times. Beginning last Thursday, volatility has returned to US markets with a vengeance. So who’s going to win the battle between the bulls and bears now? With the loss in confidence in global markets and the further exposure of the rigging games of markets precipitated by the 700 point drop in the DJIA in ten minutes last Thursday, sustained volatility and further corrections are likely in our near future. If so, then where’s the safest place to be now? The same place it has been for the past five years – precious metals.
Since we’ve launched our investment newsletter in June of 2007, precious metals have been a core holding of our newsletter. Since we began publishing our newsletter, at times we have held Chinese RE and technology stocks, Brazilian oil producers, various agricultural stocks and so on, depending upon our assessment of the risk-reward parameters of holding stocks in these specific countries and specific sectors. During other times, our holdings in precious metals have been much more concentrated. However, the common denominator throughout all 35 months we have published our newsletter has been the holding of precious metals. During this 35-month period, our Crisis Investment Opportunities newsletter has outperformed (as of May 12, 2010) the Australian ASX 200, the UK FTSE 100 & the US S&P 500 by 308.89%, 304.87%, and 300.85% during the comparable investment period.

And yes, our core foundation in precious metals is what has provided stability and tremendous growth to the core portfolio of our investment newsletter during this time. Listen to the propaganda of western commercial firms, however, and you may not even know PMs are an investment asset. Consider the following story reported by the Los Angeles Times in April 5, 2010:

At least one-third of Kimberly Sterling’s clients have sought advice in the last year about investing in gold. The Orlando financial planner has successfully discouraged all but one from doing so. That one investor insisted on having some gold in his portfolio, she said, despite her warnings. Eventually she referred him to a gold-commodities exchange-traded fund that has done well during the metal’s decade-long run-up in price. But her firm, Resource Consulting Group, still wouldn’t buy in. “Our bottom line is this: Gold is a bubble now, and it is too late to get in,” she said recently. “It is like someone who bought real estate in 2006, at the height of that bubble. You could get hurt really badly.”

Since the time that article ran, gold has since returned 10.08% and silver 10.17%. The S&P 500? -2.5%. Terrible advice like the above is typical from advisers that work for large commercial investment firms because (1) most are willing participants in the massive fraud inherent in the world’s stock markets today; and (2) they fail to understand the mechanisms of our monetary system. If they truly understood the mechanisms of financial markets today, they would understand that all the commercial investment advice about gold being a risky asset is pure propaganda along with 90% of the other advice they dole out to their clients.

If you understand how the global monetary system and financial markets truly operate, then your vision will expand from the tunnel vision of most commercial investment firm advisers to a much wider perspective that would recognize the importance of owning gold and silver.

Almost four years ago in this article, on August 16, 2006, I stated the following:

“Over 7-½ years, if your portfolio has tracked the S&P 500’s index as some 97% of professional money managers aim to do, you have about the same amount of money you had 7-½ years ago. Only with the rapid devaluation of the dollar, your same amount of dollars buys much less today, so…tracking the index has lost you money…And that’s the good news. The bad news is, as of 2006, the US stock market’s performance will likely become even worse for the rest of the decade.”

Though it’s hard to remember the sentiment surrounding US stock markets four years ago, I can assure you that at the time I delivered my above predictions, the general consensus was that I was crazy. So how did my above prediction pan out? On August 16, 2006, the S&P 500 closed at 1,295.43. Today, it stands at 1,157.43 for a loss of 10.65%. Consider the devaluation of the dollar and your losses amount to a much more significant amount than 10.65%. And what about gold during this time period? On August 16th, gold was selling for $629.75 an ounce. Since then, at $1,236.80 an ounce, gold has risen 96.40% (less the inflation of the dollar during this time). But even back on August 16, 2006, thousands of advisors that work for global commercial investment firms were dispensing terrible advice similar to Kimberly Sterling’s even as I was outlining, in this article, the reasons why “Gold’s Speculative Stigma is Unwarranted”.

How do I know this? Because when gold was trading at $500 an ounce, I recall reading analyst reports by precious metal “experts” at top financial firms that warned their clients of a massive gold bubble and a pending crash of gold from $500 an ounce back to the $250-$300 an ounce range. How can these experts have been so wrong?

Three reasons.

ONE: Commercial investment firms do not earn fees from their clients buying gold and silver. Thus, the reason they perpetually discourage it. Precious metals are the enemy of all fraudulent fiat money including the SDRs of the IMF and the financial derivative products of Wall Street. Consider this story in which HSBC ordered their clients to remove their gold from their vaults, all at their own expense.

TWO: Commercial investment firms do not educate their financial consultants regarding precious metals. Most of their consultants probably could not even properly explain something as basic as the difference between ounces of metals classified as resources and those classified as reserves and the significance of the different categories among these classifications. Having no basic understanding of precious metals leaves their consultants woefully unprepared to provide any type of meaningful guidance regarding PMs. For example, when the aforementioned Kimberly Sterling finally gave in to her one client that insisted on owning gold, she steered him into a paper gold ETF. But here’s why even that advice will most likely turn out to be a huge mistake.

THREE: Most commercial investment firms rely on the naïve trust their clients place in them and their client’s lack of understanding about how they reap their profits to exploit them. They manipulate their clients’ fear about volatility and misunderstanding about diversification to ensure that their clients don’t invest in PMs and instead, invest in financial instruments likely to return less but generate more fees.

Yes, gold and silver are volatile, and have historically been volatile due to the price suppression schemes against them engineered by Central Banks to discourage investors from investing in gold and silver. Remember that I noted above that gold has increased, in US dollar terms by 96.40% since August 16, 2006. How then, have we been able to produce a 281.80% return in our investment newsletter since the later date of June 15, 2007 (in a tax-deferred account)? Simply by understanding how the global monetary system operates and using this knowledge to predict the effects of these price suppression schemes in advance. Commercial investment firms always tell their clients that volatility is terrible and to fear volatility, but the only reason to fear volatility is if you don’t understand what causes it. Of course, whenever volatility occurs in the stock markets, they inform you not to be shaken out of the stock market, because the stock market always goes higher in the long run (a myth we have also deconstructed in this article, unless your investment time frame is 50 to 100 years). When volatility strikes the PM markets, however, they seize this opportunity to label PMs as risky. As long as Central Banks and their governments scheme against PMs, gold and silver will continue to have sharp, scary drops in the future at times. If, however, one understands what causes the volatility in the gold and silver markets, one can actually leverage volatility to one’s advantage.

The myth about volatility in gold/silver being bad while volatility in stock markets is okay is equivalent, on a propaganda level, to the myth about the “safety” of diversification. In this video here, I explain why diversification is more Wall Street propaganda as well. In conclusion, one should know that ulterior motives and ignorance drive commercial investment firms to misinform you that precious metals are a risky investment while stock markets are the safe place to be. Furthermore, the 30, 40, 50-year time frame that commercial investment firms’ gold analysts utilize to belittle gold’s performance is also bogus. When Alan Greenspan was Chairman of the US Federal Reserve, one of his stated missions was to get the world to view the dollar as if it were backed by gold even when it was backed by nothing, and for a while, he succeeded in selling the world the lie of a strong dollar. However, now that this deceit has been revealed to the world, one needs to assess gold as an investment asset under a much more narrow time frame. Unless you figure out that Wall Street has flipped this equation upside down, you’re liable to be hurt very badly in the coming years. Of course, if you’re from Germany, Argentina, Thailand, South Korea, Zimbabwe, or any other country that has undergone a severe monetary crisis that produced bank holidays, runaway inflation, and government pleas to their citizens to hand over their gold, then you don’t need me to tell you this.

About the author: JS Kim is the Chief Investment Strategist and Managing Director of SmartKnowledgeU, LLC, a fiercely independent wealth consultancy company that guides investors in the best ways to build wealth through the progression of this global financial crisis. His investment newsletter, Crisis Investment Opportunities, has significantly beat all major developed stock market indexes since its launch in 2007, outperforming the Australian ASX 200, the UK FTSE 100 & the US S&P 500 by 308.89%, 304.87%, and 300.85% (in a tax-deferred account, cumulative returns for the investment period, June 15, 2007 to May 12, 2010).

A Sign of the Times?

From: Yahoo News

Abu Dhabi Hotel Installs Gold Vending Machine

ABU DHABI — There’s no mistaking what’s in this vending machine. The well-heeled in the Gulf can now grab “gold to go” from a hotel lobby in the United Arab Emirates, when the need for a quick ingot strikes.

On Thursday, a day after its inauguration, the shiny machine attracted spectators of many different nationalities who gathered to watch whenever an enthusiast was struck with the urge to splurge on a bar of the precious metal.

Abu Dhabi’s Emirates Palace Hotel became the first place outside Germany to install “gold to go, the world’s first gold vending machine,” said a statement from Ex Oriente Lux AG, the German company behind the vending machine.

“In addition to one-gram, five-gram and 10-gram bars of gold, the machine also dispenses gold coins,” it added.

Gold rates are constantly updated inside the shiny machine — itself gold-plated — in the hotel’s lobby, courtesy of a built-in computer connected to a dealer which sells gold online.

“This eliminates the risk premiums usually associated with precious metal trading,” the German company said.

Hotel general manager Hans Olbertz said they wanted the hotel to be the first in the world to offer guests what he called “this golden service.”

The Emirates Palace is often used by visiting foreign dignitaries, and its top floor is reserved for the rulers of the UAE federation’s seven emirates, each of whom has his own suite.

Louise Yamada’s Projections for the Gold Price

Louise Yamada is one of the most respected technical analysts on Wall Street. When she speaks, it’s a good idea to at least consider what she says.  We’ve taken a screen shot that shows her short term Gold Price projections below…

And here is the full 4 minute CNBC interview…

When will gold mining stocks really rise?

Last week Gold was up while the Dow and every other stock market in the world plummeted.  Interestingly gold mining shares also were if not up, at least holding pretty steady.  A marked difference from previous times the broad markets have fallen, where the gold miners followed, or in the case of 2008 where the gold mining shares were hammered even worse.  And even more interesting was that Silver has held up pretty well and so have the big silver miners.

Could this be that gold and its cousins the gold mining stocks are breaking away from the broader financial markets?

It seems a distinct possibility.  The following article from Jeff Clark of Casey Research delves into the question of when will gold stocks really rise?  He gives a few indicators to look out for and comments on whether now is a good time to be buying precious metals shares…

Gold Stocks: Math Today, Magic Tomorrow

By Jeff Clark, Senior Editor, Casey’s Gold & Resource Report

Here at Casey Research, we eagerly awaited the release of quarterly reports from the companies in our favorite sector. Why? The gold price was substantially higher last quarter than during the comparable meltdown quarter of 2008, so we were anxious to find out if it would lead to a spike in profits.

Gold and silver producers posted substantially higher net profits, and yes, much of it due to higher metals prices. But amazing to many, higher profits did not lead to higher – or at least not significantly higher – stock prices.

While most saw their stocks rise the day of their respective announcements, some actually fell if gold or the broader markets were down on the day. And they certainly didn’t jump like you might expect when “soaring profits” splashed the headlines of their press releases.

What gives?

We have some answers straight ahead, including a big fat clue as to when gold stocks will take off and give us those “magical” price levels we think are coming.

Gold Stocks Are Still Going to Take Off, Right?

We think that at some point the public is destined to participate in precious metals stocks, and when they do, we’ll see volumes jump and share prices take off.

But for now, gold stocks are playing follow the leader…

… rising and declining in tandem with the S&P since last April. So, until gold stocks separate from the overall market, we should anticipate they’ll tag along if the markets slide. And we think the path of least resistance for the stock market is down, not up, so caution is warranted about going overweight our stocks.

But just as we showed with gold last month, gold stocks will similarly propel higher when the general public crowds in, regardless of what the markets are doing. Here’s what gold stocks did in the last great bull market, compared to the S&P.

As measured by the Barron’s Gold Mining Index (a good substitute for the HUI that didn’t exist), gold stocks rose 652% during the 1970s (through January 1980), while the S&P returned a wimpy 22%. The action in the ‘70s was definitely in gold and gold stocks, despite two recessions that decade, and we think a repeat is in the cards.

When the masses finally wake up, it’s highly probable our returns will match the chart above or the late ‘90s surge in Internet stocks.

Is Now a Good Time to Buy?

As investors, our goal is to get positioned in the best stocks at the best price. And buying low assures us of more profit when we eventually sell. So, are gold stocks “low” right now?

We have a couple clues to help answer that, with gold itself offering the most important hint. Let’s compare how gold stocks are performing in relation to gold to see if they’re overvalued or undervalued or somewhere in between.

The chart shows that gold stocks, as measured by the HUI Gold Bugs Index, outperformed gold until 2008. Since then, gold stocks have underperformed gold by a fairly wide margin.

This gold-stock-to-gold ratio tells us that in our bull market, gold stocks are currently undervalued relative to the gold price. This doesn’t mean they can’t get cheaper, of course, but it does signal they represent good value and that compared to their underlying asset, there’s lots of room to the upside.

So, if you have a long-term perspective and the patience to wait until gold stocks begin outperforming gold again, today’s prices are good prices.

So, do we buy? The answer depends on your current exposure to gold stocks, how much gold and cash you have, and your outlook. If you own equities exceeding one-third of your total investable assets, we wouldn’t rush to buy. If you have limited (or no) exposure and a patient mindset to see you through until the big payday, even enduring temporarily lower prices along the way, then buying some now is probably a good move. If you have very little in the way of savings and gold, we’d put money there first before committing a big chunk to gold stocks.

Basically, the larger your stable of gold stocks, the more stubborn you should be about price. And we wouldn’t go “all in” just yet. Your risk in loading up now is if markets were to take another nosedive. But if you’re light on stocks, adding some of the best of the best at this time should work out well, as long as you don’t panic into selling on general market weakness.

Just Tell Me When!

The #1 indicator that will tell us when gold stocks will take off has nothing to do with charts and is something you can monitor yourself: it will be when your neighbors and co-workers begin to express curiosity. You obviously want to be invested before them, but that’s when things will start to get exciting.

So when might “gold fever” strike your neighbor? History holds the best clue:

►In the 1970’s bull market, gold stocks began their big ascent when the gold price hit about $450/ounce. Adjusted for inflation, that would equal roughly $1,340 today. So, when we see gold rise decisively above $1,300 and stay there, that just might be the trigger that spurs the interest of the masses in gold stocks. That’s not a prediction, but it does give us an idea of what to look for.

Casey Research chief economist Bud Conrad was right when he called for gold breaking through the $1,150 barrier in 2009 – and now he’s calling for gold to break over $1,450 by year’s end. Weighing in as well, Doug Casey himself sees precious metals as the only asset class worth buying now, and gold stocks as being the best way to add speculative leverage to those investments.

Exciting? You bet. We’re convinced that, sooner or later, higher prices are ahead for the best gold- and silver-producing companies, along with the “magical” levels that can happen in a mania. So, while we encourage caution, we also encourage selective participation so you don’t get left behind. Waiting for the “perfect” time to buy is an exercise in self-deception; nobody can time the market. 

Let’s be honest: no one can guarantee when or if a gold mania will happen. But all of our research points to higher prices for gold (and silver), so we remain confident we’re in the right sector. And we can make money before the mania gets here.  

To learn where to buy physical gold and where to store it… and which major gold stocks, mutual funds, and ETFs are the safest while giving you handsome upside… read Casey’s Gold & Resource Report. At $39 per year, it’s a steal for the value you get out of it. Click here for more. 

John Williams: A Hyper-Inflationary Great depression is coming

In this Weekly Wanderings, we report on an interesting experience, consider the outlook of John Williams of ShadowStats, and present a picture of the commercial real estate debacle in the US.…..

Experience of the week…

In the office one day this week I was sitting across from a colleague of mine from Pakistan. Suddenly, out of the blue, with no prompting on my part, he started talking about gold. He said “You in the west have no idea of the central role gold plays across Asia as a store of family wealth. Every family aspires to owning some gold, and the wealthier you are, the more of it you have. It is never normally sold and it is added to down the generations”.

With that comment he opened a window on his computer screen and showed us a photo of his wife on their wedding day. She was wearing a bulky gold necklace – 22 carat gold – worth at least $10,000. He then showed us several other photos – and in each one his wife was wearing a different set of gold jewellery, comparable to the first.

Suddenly the notion of gold as a store of value came home to me in a way I had never before appreciated. I understand that economic supremacy is shifting from west to east in our generation, but here was tangible proof that as paper (fiat) currencies become worthless, citizens of Asian countries will automatically reap the benefit in terms of their ownership of gold and silver.

John Williams: A Hyper-Inflationary Great

Depression Is Coming

Source: Tim McLaughlin and Karen Roche of The Gold Report  04/30/2010

ShadowStats’ John Williams has done his math and believes his numbers tell the truth. He explains why the U.S. is in a depression and why a “Hyper-Inflationary Great Depression” is now unavoidable. John also shares why he selects gold as a metal for asset conversion in this exclusive interview with The Gold Report. [Emphasis added is ours - Ed]

 The Gold Report: John, last December you stated, “The U.S. economic and systemic crisis of the past of the past two years are just precursors to a great collapse,” or what you call a “hyper-inflationary great depression.” Is this prediction unique to the U.S., or do you feel that other economies face the same fate?

JW: People will find to their happy surprise that they’ll be able to survive. Most businesses are pretty creative. The thing is, the U.S. economic activity accounts for roughly half that of the globe. There’s no way that the U.S. economy can turn down severely without there being an equivalent, at least a parallel downturn outside the U.S. with its major trading partners.

When I talk about a great depression in the United States, it is coincident with a hyper-inflation. We’re already in the deepest and longest economic contraction seen since the Great Depression. If you look at the timing as set by the National Bureau of Economic Research, which is the arbiter of U.S. recessions, as to whether or not we have one, they’ve refused to call an end to this one, so far. But assuming you called an end to it back in the middle of 2009, it would still be the longest recession seen since the first down-leg of the Great Depression.

In terms of depth, year-to-year decline in the gross domestic product, or GDP, as reported in the third quarter of 2009, was the steepest annual decline ever reported in that series, which goes back to the late ’40s on a quarterly basis. Other than for the shutdown of war production at the end of World War II, which usually is not counted as a normal business cycle, the full annual decline in 2009 GDP was the deepest since the Great Depression. There’s strong evidence that we’re going to see an intensified downturn ahead, but it won’t become a great depression until a hyper-inflation kicks in. That is because hyper-inflation will be very disruptive to the normal flow of commerce and will take you to really low levels of activity that we haven’t seen probably in the history of the Republic.

Let me define what I mean by depression and great depression, because there’s no formal definition out there that matches the common expectation. Before World War II, economic downturns commonly were referred to as depressions. If you drew a graph of the level of activity in a depression over time, it would show a dip in the economy, and you’d go down and then up. The down part was referred to as recession and the up part as recovery. The Great Depression was one that was so severe that in the post-World War II era, those looking at economic cycles tried to come up with a euphemism for “depression.” They didn’t want to create the image of or remind people of the 1930s. Basically, they called economic downturns recessions, and most people think of a depression now as a severe recession.

I’ve talked with people in the Bureau of Economic Analysis and the National Bureau of Economic Research in terms of developing a formal depression definition. The traditional definition of recession—that of two consecutive quarters of inflation-adjusted contraction in GDP—still is a solid one, despite recent refinements. Although there’s no official consensus on this, generally, a depression would be considered a recession where peak-to-trough contraction in the economy was more than 10%; a great depression would be a recession where the peak-to-trough contraction was more than 25%.

We’re borderline depression in terms of where we’re going to be here before I think the hyper-inflation kicks in. You’ve certainly seen depression-like numbers in things such as retail sales, industrial production and new orders for durable goods, where you’re down more than 10% from peak-to-trough. In terms of housing, you’re down more than 75%, and that certainly would be in the great depression category. With hyper-inflation, you have disruption to the normal flow of commerce and that will slow things down very remarkably from where we are now.

TGR: After a period of recession, isn’t inflation considered a good sign?

JW: There are a couple of things that drive inflation. The one that you’re describing is the relatively happy event where strong economic demand is exceeding production, and that’s pushing prices higher, as well as interest rates. That’s a relatively healthy circumstance. You can also have inflation, which is driven by factors other than strong economic activity. That’s what we’ve been seeing in the last couple of years. It’s been largely dominated by swings in oil prices. That hasn’t been due really to oil demand, as much as it has been due to the value of the U.S. dollar. Oil is denominated in U.S. dollars. Big swings in the U.S. dollar get reflected in oil pricing. If the dollar weakens, oil rises. That’s what you saw if you go back to the 1973-1975 recession, for example. That was an inflationary recession.

Indeed, the counterpart to what you were suggesting earlier about the strong demand and higher inflation is that usually in a recession you see low inflation. The ‘73 to ‘75 experience, however, was an inflationary recession because of the problem with oil prices. That’s what we were seeing early in this cycle, where a weakening dollar rallied oil prices, and then the dollar reversed sharply and oil prices collapsed. We have passed through a brief period of shallow year-to-year deflation in the consumer price index, but, as oil prices bottomed out and headed higher since the end of 2009, we’re now seeing higher inflation, again.

I’m looking at hyper-inflation, which is a rather drastic forecast. This has been in place as an ultimate fate for the system for a number of years. Back in the ’70s, the then Big 10 accounting firms got together and approached the government and said, “Hey guys, you know you need to keep your books the way a big corporation does. You’re the largest financial operator on earth.” The government then, as well as today, operates on a cash basis with no accrual accounting and such. Yet, over a period of 30 years, the accountants and government put together generally accepted accounting principles, or GAAP, accounting for the federal government and introduced formal financial statements on that basis in 2002, which supplement the annual cash-based accounting.

If you look at those GAAP-based statements and include in the deficit the year-to-year change in the net present value of the unfunded liabilities for Social Security and Medicare, what you’ll find is that the annual operating shortfall is running between $4 and $5 trillion; not $500 billion as we saw before the crisis or the $1.4 trillion that they announced for fiscal 2009. Now to put that into perspective, if the government wanted to balance its deficit on a GAAP basis for a year, and it seized all personal income and corporate profits, taxing everything 100%, it would still be in deficit. It can’t raise taxes enough to contain this. On the other side, if it cut all government spending except for Social Security and Medicare, it still would be in deficit. With no political will to contain the spending, eventually the government meets its obligations by revving up the currency printing press.

TGR: With all this new paper money coming into the system, wouldn’t we see a bigger bubble than we’ve ever seen prior to a hyper-inflationary great depression?

JW: No, in fact, it’s a very unusual circumstance that we have now. Put yourself in Mr. Bernanke’s situation—he had to prevent a collapse of the banking system. He was afraid of a severe deflation as was seen in the Great Depression, when a lot of banks went out of business. The depositors lost funds and the money supply just collapsed. He wanted to prevent a collapse of the money supply and keep the depository institutions afloat. Generally, that has happened. The FDIC expanded its coverage and everything that had to be done to keep the system from imploding was done. The effects eventually will be inflationary.

In the process, what Mr. Bernanke did was to expand the monetary base extraordinarily, more than doubling it over a period of a year. The monetary base is money currently in circulation plus bank reserves. If you go back to before September 2008, the bank reserves were in the $50 to $60 billion range. Where the currency was maybe $800 billion, we’ve gone over $2 trillion in total reserves. Most of that is in excess reserves and not required reserves that banks have to keep to support their deposits. Normally banks would take their excess reserves and lend them out into the regular stream of commerce, and in doing so, that would create money supply. Instead they’re leaving the excess reserves on deposit with the Fed. Money supply and credit are now generally contracting. We’re going to see an intensified downturn in the near future. I specialize in looking at leading indicators that have very successful track records in terms of predicting economic or financial turns. One such indicator is the broad money supply.

Whenever the broad money supply–adjusted for inflation–has turned negative year over year, the economy has gone into recession, or if it already was in a recession, the downturn intensified. It’s happened four times before now, in modern reporting. You saw it in the terrible downturn of ‘73 to ‘75, the early ’80s and again in the early ’90s. In December of 2009, annual growth in real M3 turned negative. It’s now at a record low in terms of decline, down more than 6% year over year. What that suggests is that in the immediate future you’re going to see renewed downturn in economic activity.

In all the prior instances that I mentioned, this event led recessions, except for ‘73 to ‘75. That’s when you had the oil spike and a recession that came from that. When the money supply turned down in that recession, the economy accelerated in its decline. We’re going to see something along those lines, now, with about a six-month lead time. You’re going to have negative economic growth this year. The implications for that are extraordinary, because the projections on the federal budget deficit, a number of the state deficits, and the solvency and stress tests for the banking system all were structured assuming positive economic growth in the 2% to 3% range for 2010. Instead it’s going to be negative. Many states are going to be in greater difficulty than they thought. Most likely, you’re going to have federal bailouts there. The banks are going to have more troubles. All this means more government support, more government spending, greater deficits and greater funding needs for the U.S. Treasury. We have a global market that already is increasingly reluctant to hold the dollars and U.S. Treasuries.

TGR: The U.S. dollar is still the reserve currency, and it’s holding its value while the euro struggles. Wouldn’t decoupling precede hyper-inflation?

JW: I don’t know if it will decouple from being the reserve currency formally, but it will de facto. The reserve status is the reason the dollar didn’t collapse per se a year and a half ago during the September ‘08 panic. The movement is already afoot, however, to try to relegate the dollar to some status other than a reserve currency. For example, OPEC purportedly is looking to price oil in something other than U.S. dollars. The pressure is there to change the status.

Again, if you start to see a great depreciation of the U.S. currency or a tremendous increase in lack of confidence in the soundness of the government’s fiscal condition, there is a problem. You mentioned Greece, for example. The sovereign solvency issues there are minuscule compared to what we have with the United States, which is the elephant in the bathtub. The markets know it’s there. The central bankers know it’s there. Again, with the downturn in the economy, all the issues are going to be brought to a head. As they come to a head, there will be that effort to dump the dollar. I would expect that, indeed, it will be decoupled from its reserve status, although it could follow after the fact as opposed to before the fact.

TGR: Major economic indicators suggest significant improvement; even the IMF has stated that we’ve averted a global depression. What are you seeing that these governing bodies are not?

JW: What I’m using is a leading indicator of economic activity: year-to-year change in inflation-adjusted broad money supply. We’re now seeing a very sharp year-over-year decline, which has not been seen since the 1990 recession. This indicator does not work always in the upside; it doesn’t necessarily give you a signal for a rising economy. It is, however, basic. If you strangle liquidity you can always contract an economy. Deliberately or not, liquidity’s being strangled. You’re seeing very sharp declines in consumer credit, commercial and industrial loans and commercial paper outstanding.

You are getting happy news from governments, central banks, financial markets, Wall Street analysts and the popular media, which does tend to cater to Wall Street. Such is standard practice. Happy news is what sells and you don’t want to discourage people. The Obama administration, interestingly, started talking-down the economy when it wanted to get its stimulus package in place. As soon as that was done, it started talking-up the economy. Everything was just fine and dandy again. This is the most extraordinary downturn most people living today have ever seen. In terms of modern economic reporting, which basically started after World War II, we’ve never had a downturn as long or as severe. Perversely, the extreme nature of the downturn actually has warped recent reporting of seasonally-adjusted data to the upside.

TGR: Earlier you mentioned that business around the world will survive in the event of a depression. Aren’t there sustainable businesses in the U.S. as well? Won’t an influx of printed currency and green-tech job creation offer some value? At some point, doesn’t stimulus money become real cash producing real goods? Surely the economy would be viable at some level?

JW: Not without income growth. There’s nothing there that you’ve described to me that is growing, aside from inflation. To have sustainable growth in the economy, you have to income growth, net of inflation. That is not happening, and there is nothing in existing government stimulus that will cause real income growth.

Beyond income issues, the problem with the hyper-inflation is that very quickly the use of cash will cease. Let me contrast our circumstance here with a very popularly followed hyper-inflation case that’s now run its course in Zimbabwe. There you had probably the worst hyper-inflation that anyone’s ever seen. After devaluation upon devaluation, they successively lopped the zeros off the bills. If you took a $2 bill that they first issued back in the ’80s and then tried to come up with the equivalent of a $2 bill in the last form of the currency, it would be very difficult to do because it was so worthless. If you put a pile of those together to equal the original $2 bill, it would actually stretch from the earth to the Andromeda Galaxy. We’re talking light years. There are not enough trees on earth to print them. Yet the Zimbabwe economy survived and functioned. They had a lot of problems, but they operated. The reason they functioned was because they had a back-up system, which was a black market in U.S. dollars. People switched out of the Zimbabwe dollar to U.S. dollars. They could live with that. In the U.S., we don’t have a back-up system.

TGR: You mentioned in a recent interview with CNN that you’re recommending individuals move into both cash and gold. With the euro and the dollar in jeopardy, where does that leave us?

JW: I don’t like the euro. I don’t think that’s going to hold together, and I’ve thought so for some time. If it should break up and you have a new German currency, a new mark or something like that might be a strong one option. At the moment I like the Canadian dollar, the Australian dollar and the Swiss franc. For anyone living in the United States, rather than looking at the short-term volatility in the markets and trying to make money off of that, this is the time to batten down the hatches and to look to preserve your wealth and assets.

In terms of preserving the purchasing power of your assets, the best thing I can think of is physical gold. That’s worked over the millennia. I’m not per se a gold bug. It just happens to be a circumstance in which it’s the cleanest asset around for that. You don’t need to put all your assets into gold, but hold some. Hold some silver. I’d look to get some assets out of the U.S. dollar and look to get some assets out of the U.S. When I say outside of the U.S. dollar, again, I look at the Canadian dollar, Australian dollar, Swiss franc in particular. I think they will tend to do particularly well, whereas the U.S. dollar is going to become effectively worthless.

As the dollar breaks down, you’ll also likely see disruptions in supply chains, including shipments of food to grocery stores. People should consider maintaining stockpiles of basic goods needed for living, much as they would for a natural disaster. I sit on the Hayward fault in California. I have a supply of goods and basic necessities in case something terrible happens—natural or man-made—that will carry me for a couple of months. It may take that long for a barter system to evolve, which I think is what you’re going to end up with; at least until a new currency system is reorganized and you get a government that’s able to bring its fiscal house into order. No currency system in the U.S. is going to work unless the fiscal conditions that drove it into oblivion are also addressed.

On a global basis, where the dollar is the world’s reserve currency, 80% of currency transactions involve the U.S. dollar. There’s going to have to be an overhaul of the global currency system. To gain credibility with the public, the powers that be likely will design a system that has some kind of a tie to gold, but that’s purely speculative.

TGR: From a personal investment point of view, you emphasized that this is a time to conserve assets, including gold and other currencies. How else can investors protect themselves?

JW: I like physical gold and silver. I look to gold as a primary hedge. If you can come out of this holding gold, you’ll be in a position where you’ll be able to take advantage of some extraordinary investment opportunities that will follow. With inflation, real estate is usually a pretty good bet. It tends to hold its value over time. There may be periods of illiquidity, though, and it’s not portable. Neither of those limitations is an issue with gold. Maybe gold will become the black market to support U.S. economic activity. It certainly would be the area that people will try to transfer their assets to as time goes along.

You see people now as gold gets to a new high saying, “Oh my goodness, I bought at $200, and I can sell out at $1,100 making a good profit.” What people don’t realize is that they haven’t made a real profit. What they’ve done is retained the purchasing power of the dollars that they invested in gold, and they’ve lost proportionately the purchasing power of the amounts left in dollar-denominated paper assets over the same time. Gold is a long-term wealth preserver. Again, where many people are used to an investment environment where they can buy a stock, make a quick profit and then sell, with gold you need to hold on for the long haul as an insurance policy, not as a quick investment.

TGR: Thank you very much for your time.

Walter J. “John” Williams was born in 1949. He received an A.B. in Economics, cum laude, from Dartmouth College in 1971, and was awarded a M.B.A. from Dartmouth’s Amos Tuck School of Business Administration in 1972, where he was named an Edward Tuck Scholar. During his career as a consulting economist, John has worked with individuals as well as Fortune 500 companies. For more than 25 years he has been a private consulting economist and a specialist in government economic reporting. His analysis and commentary have been featured widely in the popular media both in the U.S. and globally. Mr. Williams provides insight and analysis on his website, www.shadowstats.com.

The Commercial Real Estate Debacle

Today’s first item of interest is something that I shamelessly ripped from yesterday’s edition of Casey’s Daily Dispatch … which you can sign up for free, I might add.  The headline reads “CMBS Delinquencies Above $50 Billion“.  According to Horsham, Pennsylvania-based Realpoint LLC, the delinquent unpaid balance for commercial mortgage-backed securities (CMBS) rose 6.8% in March, up to a staggering $51.05 billion.

The delinquent unpaid balance is now up 268% from a year ago and more than 23 times the low point of $2.21 billion in March 2007. Furthermore, the March delinquency ratio of 6.4% is nearly four times the 1.66% reported in the same month last year and about 23 times the Realpoint recorded low point of 0.28% in June 2007. Here’s a chart showing monthly delinquencies since May of 2008:

Last Thought

While everyone’s focused on the problems of Greece,  the sovereign debt dominos have started to fall – possibly the sequence will be Greece, Portugal, Spain, Ireland, maybe Italy, (although Italy allegedly owns a considerable amount of gold) then the UK, followed by the US, then Japan. Paradoxically, the US dollar may strengthen over the next few months, as capital flees the Eurozone.