Posted on 10/06/2011 12:23:14 PM PDT by blam
Load Up On Gold and Silver As Bernanke Dives Off The Deep End
Commodities / Gold and Silver 2011
Oct 06, 2011 - 07:41 AM
By: Money Morning
Martin Hutchinson writes: I first thought U.S. Federal Reserve Chairman Ben Bernanke was being deceitful when he denied the existence of inflation - but now I'm beginning to think he's simply delusional.
Anyone who watched or listened to Bernanke's Oct. 4 congressional testimony must have reached the same conclusion.
"Persistent factors continue to restrain the pace of recovery," Bernanke said. Then the Fed Chairman promised to consider yet more stimulus "to promote a stronger economic recovery in a context of price stability."
The irony, of course, is that we don't actually have price stability, but Bernanke refuses to believe this - thus the added stimulus. And that says nothing of the fact that the first $2 trillion of "stimulus" did little or nothing for the overall economy.
This is the same kind of delusion that led the Fed Chairman to proclaim in 2007 that the "the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained."
So, with a delusional central bank chairman, an anemic economic recovery, and every indication that prices across the board will continue to soar higher, there's really only one place to put any loose change you have lying around: gold and silver.
Bernanke's Blunder
Back in May, I said gold and commodity investments were attractive for two primary reasons:
•First, global monetary policy was - and still is - very stimulative. Commodities, especially gold, tend to do very well when interest rates are well below inflation.
•Second, rapid growth in emerging markets has created a new wave of middle class consumers. Those new buyers are increasing demand - and therefore prices - for industrial commodities.
Of course, following the market turbulence of the past few months, the picture has changed somewhat. While growth in China and other emerging markets remains quite rapid, it appears to be slowing a bit. That has dented demand for industrial commodities. Prices have dropped as a result.
Copper, for example, has fallen to about $6,900 per metric ton, from more than $10,000. However, unless the emerging market economies go into a full-blown recession - and I don't expect they will - I would anticipate some recovery here.
On the other hand, monetary policy has gone in the opposite direction - becoming even more stimulative. Bernanke intends to keep short-term interest rates near zero until mid-2013 and he's undertaken a $400 billion "Operation Twist" program to bring down long-term interest rates. Both of these measures have increased monetary stimulus at a time when inflation is already running close to 4%.
That brings us to this week, when Bernanke decried the progress in the economy and indicated that the Federal Open Market Committee (FOMC) would consider even more monetary stimulus - even though three of the group's members are solidly opposed to the idea.
$5,000 Gold - $150 Silver
So far the only thing the Fed's loose monetary policy has succeeded at doing is pushing gold and silver prices steadily higher.
Gold has risen by more than 30% this year, and silver at one point in April was trading 300% higher than it was a year earlier.
These metals have stumbled lately, but with over-expansive monetary policy still intact, they are likely to experience a strong rebound.
Remember, it's not just Bernanke: The European Central Bank (ECB) also has stopped raising interest rates because of the Eurozone's problems. And the Bank of England (BOE) has indicated that it may well drop rates from their current 0.5% level - even though British inflation remains around 5%.
The undeniable result will be a renewed surge in gold and silver prices, meaning the present pullback is an outstanding buying opportunity.
If gold matches its 1980 peak adjusted for inflation, it will hit $2,500 an ounce. If it matches its 1980 peak adjusted for the world economy's growth since then, it will hit $5,000 an ounce. Similarly, if silver were to match its 1980 peak adjusted for inflation, it could climb as high as $150 an ounce.
These are not unrealistic targets. As in the late 1970s, the world's monetary authorities are determinedly trashing the value of paper money and forcing rational investors to look for an alternative.
Panning for Profit
For investors, the simplest way into the metals remains the two large exchange-traded funds (ETFs): The SPDR Gold Trust (NYSE: GLD) and the iShares Silver Trust (NYSE: SLV).
There is a modest amount of slippage between these ETFs and the metals themselves, so their prices are running about 2% behind the metals, but their convenience and liquidity make them the best choice for retail investors.
However, gold and silver mining companies this year have substantially underperformed the metals. The Market Vectors ETF Trust (NYSE: GDX), which tracks gold miners, is about 15% below its Jan. 1 level even while gold itself is up about 15%.
Indeed, miners currently are very cheap compared to the metals themselves. This is especially true of silver. So, gold and silver investors should make sure a substantial part of their portfolio is devoted to the miners, as well as the precious metals themselves.
As far as gold miners are concerned, I would recommend Barrick Gold Corp. (NYSE: ABX), which is currently selling on a price/earnings (P/E) ratio of 12 and Yamana Gold (NYSE: AUY), with a P/E of about 16.
A good silver miner to look at would be Silvercorp Metals (NYSE: SVM) - a rapidly growing Chinese silver miner that trades at roughly 16-times earnings.
Why? The "Progressives" will come and take it; it's their "RIGHT".
Load up on food and ammo; and prepare to defend your Family and property. Money (even the gold and silver kind) will not buy you a future.
MANY Jews in Germany had gold and silver, when Hitler took power.
What they needed were guns and ammo.
So the tubas groam in at the end of the performance! Soon martial law ensues. The plan all along to keep the O. in ofice? I would not be surprised.
Because this Bernanke/Police parody can never be posted enough while Benji is still in power:
http://www.youtube.com/watch?v=3u2qRXb4xCU
Here’s what I think of Gold:
http://www.commodityonline.com/news/Tungsten-and-its-use-in-making-fake-gold-22919-3-1.html
MANY Jews in Germany had gold and silver, when Hitler took power.
What they needed were guns and ammo.
Not much there. Unless you are buying large gold bars (and don’t know how to test them) you have nothing to worry about.
There has not been a single credible tungsten gold coin fake in history. And my course (see tagline) explains why there never will be one.
________________________________________________________
Load up your guns with precious metals, lead and brass.
There is a modest amount of slippage between these ETFs and the metals themselves, so their prices are running about 2% behind the metals, but their convenience and liquidity make them the best choice for retail investors.
Certainly ETFs are the simplest way, but these are also much riskier than you yourself being in direct possession of the physical metal.
I doubt that GLD and SLV hold a dollar of gold or a dollar of silver, for each dollar invested.
Some knowledgable folks have suggested that the ratio of held metal to invested dollar is 1:100. If true, these funds are selling what they don't hold.
When the S finally HTF, I'd much rather be holding the physical than a piece of paper.
Once it’s known that you hold gold (physical possession; gold on paper ain’t worth the ink), you will be a target for sure.
“When the S finally HTF, I’d much rather be holding the physical than a piece of paper.”
I’d rather be holding a sandwich and heavy artillery.
Why gold?
Because 9mm ammo runs about 11 pounds per $100, or a little under 5 and a half tons per $100,000.
$100,000 worth of food is going to be very heavy, spoil long before you can use it, and take up a lot of room.
$100,000 worth of gold weighs about as much as a half gallon of milk.
The first few to several thousand should go to food, ammo, and other necessities. After that, if you want to preserve wealth, food and ammo are just dead weight.
Once it’s known that you hold gold (physical possession; gold on paper ain’t worth the ink), you will be a target for sure.
Following the inference in the original post, when you use physical gold to make a purchase, you OBVIOUSLY have gold.
Now; those who see you purchasing, know who has gold. Simple enough.
I wouldn't spend a farthing in the Inner City of any major metro area, and expect not to become a target of the "Have-Nots", would you?
Still, back then, some countries refused to take Jews from Germany. Today, where would an American go with confidence? How many expats can be certain they will not be forced to leave because so much hatred is being fomented against us?
You cannot confidently even bribe those who are essentially weak, who have no honor or who despise you. If you can buy them, so can your enemies.
IMO, gold is for starting over again. It will not save any of us from the worst that may happen.
Following the inference in the original post, when you use physical gold to make a purchase, you OBVIOUSLY have gold.
Now; those who see you purchasing, know who has gold. Simple enough.
Today, where would an American go with confidence?
That gold might come in hand to persuade a farmer to let your family rent his barn and share in the food, and the needy will vastly outnumber the charitable in many scenarios.
$100,000 worth of gold weighs about as much as a half gallon of milk.
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