Has Gold and Silver Topped Out?—No Way
The world looked like a scary place yesterday for gold and silver investors. There was a lot of talk about a global economic slowdown. The price of oil dropped, and gold and silver sold off. In the grand scheme of things, the correction was quite small.
If there is a slowdown, and there may be, do you think the U.S. Fed is going to stand by and watch the economy crash? No way! Expect the Fed printing press to go into high gear and shift from QE2 right into QE3. The Fed will, once again, come to the rescue and save the day as it kills the dollar.
Another few things that are dollar negative: There is still no agreement in Congress on a meaningful cut to the deficit. This comes against a backdrop of a record $223 billion SINGLE month record shortfall. Fighting in Libya raged on yesterday as protesters were being shot at by police in Saudi Arabia. None of these problems are going to be solved anytime soon, and all will put downward pressure on the once mighty buck.
Down is the overarching trend for the dollar according to Peter Schiff. He is the CEO of Euro Pacific Precious Metals. He is a regular on CNBC, FOX, CNN and many other media outlets. He is also the author of the bestselling books: “Crash Proof,” “The Little Book of Bull Moves in Bear Markets,” and the recently released “Crash Proof 2.0: How to Profit from the Economic Collapse.” I am proud to say that Mr. Schiff has agreed to become a Guest Writer for USAWatchdog.com. He wrote a great piece recently that laid out the reasons why gold and especially silver are not only great investments but critical to your financial survival. Please enjoy the post, it’s a very good read.—Greg Hunter.
Silver Outweighs Gold By Peter Schiff: A Guest Writer for USAWatchdog.com
In the world of precious metals, silver spends a lot of time in the shadow of its big brother gold.Gold, with its high price-to-weight and distinctive yellow tint, has always occupied a special place in the human psyche. Too many people across many ages, gold is simply the ultimate form of money – and, as a long-term, stable store of value for one’s personal wealth, I agree it’s hard to beat.
However, rare circumstances are aligning today that I believe will make silver the true champion of this bull run.
WHAT’S DRIVING PRECIOUS METALS?
Gold and silver are both benefiting from a perfect storm in the sector.
Dollar devaluation means that much of the ‘gains’ we see are really just losses by people holding dollars. In other words, if your dollars lose 50% of their value, it’s going to take twice as many of them to buy the same ounce of gold.
But the rally is based on more than simple inflation. Precious metals are regaining their role as the ultimate reserve asset. That means many, many more people are buying and holding these metals than at any time in the last thirty years.
Another factor is the rise of emerging markets and decline of developed markets. As billions of poor Asians, Africans, and South Americans lift themselves out of poverty by embracing the free market, the US is plunging itself into poverty by rejecting it. This means there are a mind-boggling number of new customers for jewelry, savings, and industrial products that require precious metals – and that we are becoming less and less able to outbid them for these resources with our dollars.
SILVER’S DRIVING FASTER
If the world were going to hell in a hand-basket, then I would expect gold to outperform silver. However, it is only the developed economies that are on the rocks – and only the US that faces true catastrophe. Thus, we have seen silver outperform gold for the last eight years.
The market is telling us that while uncertainty reigns supreme, the global economy will prosper in the years ahead. While gold most effectively insures the investor against economic devastation, silver offers both a shield against monetary turmoil and exposure to market growth.
THE KEY: INDUSTRIAL DEMAND
This is because silver is both a precious metal and an industrial metal. Gold is mostly precious, copper is mostly industrial, but silver strikes a fine balance between the two. And it seems as if this moment in history is perfectly suited to this balance. We are facing not only the prospect of the collapse of the international monetary order, but also the largest industrialization process the world has ever seen.
While in a past era, wood, steel, or oil would have been the most critical commodity, today silver is used in everything we hold dear: iPhones, flat-screen TVs, batteries, solar panels, etc. Asia – the new heart of the global economy – is accumulating gold, but they’re consuming silver. That makes both metals good bets, but likely gives silver the edge.
It’s safe to say the future depends on a steady supply of silver. This burgeoning demand is reflected in the latest figures: global demand for silver is about 890 million ounces a year, while global mine production is about 720 million ounces a year. We’re actually consuming scrap to make up the difference. And unlike gold, which tends to remain in a recoverable state as coins or jewelry, a large quantity of silver is ending up in trash dumps – where it is essentially lost forever.
As long as the emerging markets continue to trend toward freer markets, and consumers the world over continue to demand computers, electronics, and green tech, silver should only become more scarce – and thus more valuable. I think these assumptions are pretty safe to make.
CAN THE WORLD THRIVE EX-US?
Of course, if everyone agreed with me, silver would already be worth hundreds of dollars an ounce and there wouldn’t be any profit to be made on the trade. Fortunately, there are a couple of bogeymen in the financial media scaring the majority of investors away from silver so far.
First, some analysts still believe – bless their hearts – that the US is really going to pull through this time into a sustainable recovery. After being duped by dot-coms and then housing, they are all aboard the Treasury Express back to Bubbletown. Unfortunately, as in the previous two cases, the current low interest rate environment is merely masking an underlying economy that is vastly more rotten than it was even a decade ago. The unemployment rate is a key signal that this time, Bernanke’s magic medicine won’t work.
A second cohort sees that the US is doomed, but still thinks we will drag the rest of the world down with us. This is the school that holds that despite our persistent current account deficits and monumental external debt, the world economy “needs” the US consumer to drive growth. As I alluded to in my book, How An Economy Grows And Why It Crashes, this is like a plantation master claiming his slaves need him around to consume the fruits of their labor, or else they wouldn’t have anything to do. Well, the results are in: after an initial panic rush into dollar-based assets, emerging markets are back at full sprint while the US is still limping along.
SILVER IN A DOLLAR COLLAPSE
Just like a Hollywood celebrity, we in the US spent our time at the top of the world – and soon let our status get to our heads. And like a celebrity, our adoring fans the world over will be quick to forget us as we fall from the limelight and deal with our powerful addiction to partying and cheap money. To survive the next decade in America, you are going to want an asset that is in demand globally, but is also free from counterparty risk here at home.
I recently did an interview with a group that is making a film about living in America in the year 2019. The premise is that inflation is rampant, the economy is in shambles, and groups are springing up that do all their trading in silver rounds. While I think their timeline is quite generous, this is a fairly accurate picture of what lies ahead.
Not only does silver appreciate while sitting in your safe due to overseas demand, but it also comes in units that are ideal for use as a common trade unit. Two or three ounces of silver can buy you groceries for a week. By contrast, just try to eat an ounce of gold’s worth of vegetables before they spoil. There are fractional gold coins and bars, but they carry very high markups.
None of us have had to think about these things in our lifetimes, but it is not abnormal in history. Soon, understanding precious metals will be as much a survival skill as knowing how to change a car tire.
THE GOLDEN RATIO
I always say that every investor should have at least 5-10% of his portfolio in physical precious metals. Of that, the proportion allocated to gold vs. silver depends mainly on risk tolerance. Silver tends to be more volatile than gold, so silver investors must have the discipline not to liquidate their stash at the first sign of a correction.
I generally advise a ratio of 2:1 gold-to-silver in the average portfolio. More aggressive investors can push it to 1.5:1 or beyond.
Year-to-date, silver is up 5 percentage points more than gold, and I expect that trend to continue. It’s important to understand that in this fast-changing world, silver is no longer runner-up.
If you want to find out more about Mr. Schiff and his company, Euro Pacific Precious Metals, (click here). If you would like to see a recent appearance where the CNBC crowd tried to verbally beat up Mr. Schiff, click on this link: http://www.youtube.com/watch?v=btCyagaQ3wQ&feature=related I think Schiff more than held his own while some of the hosts were actually quite rude.
“As billions of poor Asians, Africans, and South Americans lift themselves out of poverty by embracing the free market, the US is plunging itself into poverty by rejecting it.”
The above sentance assumes that Americans as a majority are choosing to run away from a free market! The truth is the free market is being sabotaged and taken from us like candy from a baby! Only its worse as the neferious groups doing this candy taking are more than willing to shoot a baby in the head! This is the end of America and no, I see no one willing to stand up to the THEFT occuring to all the middleclass! Left and Right alike we are all in the same boat. We need to stop waring each other and realise we have a common enemy! Everytime you get into an argument with someone over unions, have the courage to stop the argument and bring up what lies we are being told by the Fed-such as the Fed saying they have no idea what happened to another 9 trillion recently! It is true that though we can pull through a dotcom bubble or housing bubble, we can’t pull through a dollar printing pumped stock market bubble. When the stock market collapses regardless of all the money printing pumping it up, the dollar will fall as a measure of the Fed’s faillure!
Time to roll
Jo. Its never been about left or right, white or black, etc., it was always economic class. The governent has kept us thinking it was either left or right etc to keep the middle class divided as they drained us away. And, yes, you are right, I see no one standing up for the middle class, clearly that is a sign by the government, the fed, and all the elite to march right on ahead and take it away. The elite will steal the wealth, sending the middle class to the working poor, the end – all without a shot or civil protest being fired.
Bless me Father, for I have sinned.
I’m a proud fiscal conservative and have been tempted by gold (GLD) with trailing stops that have, unfortunately, always triggered. And I always got back in, and took an incremental loss each time. I have also shorted the Dow (via DOG)and I am currently big into oil stocks and agriculture stocks and ETFs and taking a sound beating.
I am sorry for these sins, but have learned the following 8 lessons:
There is big money in prophecying financial meltdowns and Armaggedon, and I must stop falling for the tripe, though it may come from Hannity, Rush or…. Team Schiff/Hunter. (But they are so much fun to listen to and read. Then again, just about all sins are fun).
Companies are flush with cash. I should have been, and currently should be in, small and mid cap stocks and joined the party as these companies continue their upward trend and spend baby spend.
The only question re: gold is when to get out. Its final fall will be a nasty one because the economy is headed in the right direction, despite reports of its, and the dollar’s, imminent demise. Note to self: put another trailing stop on GLD.
For all the turmoil, oil is abundant and will be cheap again soon as the hype diminishes. My oil stocks will tumble. Yet another note to self: put a trailing stop on my recent purchases of COP and WLL.
Unemployment is high, but it is supposed to be! It is the last to turn around after a recession. Sure, the Obama/Bernanke team is sans clue. This duo is bringing about a much slower recovery than would HRM Ronnie Reagan would have done. But I can no longer deny that it is a recovery.
Speculators are fueling oil and food price hikes. Give Bernanke that one… neither will remain high for long so it will not give rise to inflation. We are in a period of deflation. It is easy to say hyper-inflation is on its way. The doomsday prophets, peace be upon them and bless their hearts, will not tell you the month or even the year hyper-inflation will hit, cause it just ain’t gonna happen.
Companies are now spending money and starting to hire. The result: unemployment will fall, the stock market will skyrocket, gold and oil will plummet, interest will be paid off quicker than expected, the deficit will shrink, Obama will be re-elected and city and county governments will again have tax money rolling in.
Despite it all, there will be profit in doomsday propheteering.
I now await instructions re: my penance.
I am standing up from my chair and clapping till my hands hurt.
Greg, Paul’s sins of poor research must be forgiven because they are small in comparison to the Holy Grail he breached –
“You Shall Not Bellieve The MSM” for it is written those who do are doomed.
The average American will not have a gold and silver portfolio to save himself. And as far as I know, Peter Schiff is not exactly a loyal US Patriot type of guy.
P.S. My silver Eagles hiding in the closet are up 80% since 2008 – – – (insert happy face)
Is it not true that Peter Schiff wrote “Crash Proof 2.0: How to Profit from the Economic Collapse??” i.e. an American Economic collapse?
I consider this proof that Peter Schiff is resigned to an American Economic Collapse – a scenario which I and quite a few others, are not exactly happy to see unleashed on the American people. If an economic collapse took place, I argue that there are no winners, period. The point is a real American Patriot would seek and find the way out. He or she would attack the core Economic problems of America focusing on the Debt owned to Foreigners and a Tax policy that provides permanent and immediate relief to American citizens and business. That is what a competent Patriot would do in the 21st century.
If I was Mr. Peter Schiff, I would call for the following moves:
1. Pay off the Debt Holdings held by Foreigners by “printing” the Money. (Stop arguing this is inflationary – figure it out.)
2. Repeal the Federal Income Tax on American Citizens and
Business PERMANENTLY as in, like, FOREVER.
Mr Schiff will probably agree that the 2nd step will rapidly restore American Optimism/Liberty and give an incalculable advantage to US business instantly. He is an expert on Offshore Hedge Funds, SO he would also know better than most that these 2 moves in combination would transform America literally overnight. That is THE ONLY WAY OUT that is available – everything else is playing to a fiddler.
What do these two comments have in common? Most people live beyond their means. They buy Starbucks 5 times a week instead of an ounce of silver. How is that my fault or Mr. Schiff’s? And where is there anything in the article that would allow you to make a judgment on Mr Schiff’s patriotism? Enjoy your Starbucks while you can
I’m adding to my silver cache on this dip.
Thanks to both you, Greg and Peter this is the type of information that WE should be seeing on the news. Bottom line, you can read whats going on here or you can watch T.V and see what experts think about Charlie Sheen’s interviews…….
Why is it that the more dollars the US Treasury and Federal Reserve create, the less of it seems to be around?
It is because that money is going to Wall Street and the elite not main street. Forget “trickle down”, the new term is “never up”.
After reading my reply I realize I need to explain the term “never up”, it simply means in the end the people will take the money away from the elite.
I’ll try to be concise, to many thoughts jumbled in my head. I’ve been a silver bug for 9 years, bought my first 100 oz bar for 465 dollars. Since then I’ve read everything I can find on silver and how the economy works. You and Max K are the best.
I’m not privy to how all the inner workings of the powers that be on wall street think. I have never been able to predict what will happen in the coming months. A few things I have found to be interesting are as follows. There is around 500 mill to 1 billion oz of silver above ground. About 5 billion oz of gold exists!
Wouldn’t silver be worth more than gold in the coming years? Let’s face it, soon there will be 10 times more gold than silver!very much,
The world can live without gold, if silver is gone are world changes a lot. We need silver for 1000’s of things, it’s the second most important mineral/metal next to oil.
The USGA has said recently that silver will be the first element on the periodic table to go extinct, within 10 years. It seems to me that silver will be worth many 1000’s of dollars and oz in today’s dollars even without the coming inflation.
Am misunderstanding all of this. Most people, including Mr Schiff, whom I respect very much, lean toward gold more. Or possibly even up! Shouldn’t we be looking 4 or 5 years down the road when silver becomes super rare, even more than platinum?
What an I missing? What is it the the big thinkers like wall street, you and Peter Schiff see that I don’t?
I’ve been a fan of yours going back to your time on CNN. You’ve always been very interesting to me as someone that tells the truth in a sea of lies. I value your opinion and curious if you personally think silver bullion will still continue to go up in value in 2011 and 2012 based on some of the points Mitch made above. Thank you in advance for you help!
Greg, I saw this & I thinks it holds true! “I foresee little future in “the price of silver”, I see a huge future for “the price IN silver”.
You can tell when the bullion banks hire trolls to attack PMs investors, they will use every chart or bad news to try to get people to turn lose of all of their insurance, only to see the bullion banks buy it up with worthless currencies. Those that have attacked Peter Schiif have yet to admit they have been wrong, but I bet they have been buying PMs & storing them in Swiss banks & other off shore safe havens away from the US tax men!
After the huge disaster today in Japan, the markets mean nothing. The after shocks are bigger than the quake that has laid waste to Christchurch,NZ,.
GOD be with all of Japan & those that try to save as many people as possible, even as more quakes continue to cause more damage to already weaken nation. Greg, the dangers are growing as more quakes hit Japan. Please pray folks, these nuke power plants get every resource & support from every nation that has the know how to deal with this disaster still unfolding! Man can build what he thinks it safe from Mother Nature Rage, but that is a flaw in mans way of thinking. Again, pray & pray some more.
Greg I have seen him on Tv and really enjoyed the read. I agree with his thoughts that silver has more upside than gold
Two times this week the stock market open one minute early. When you have these computer trades, many in a split second, it makes you wonder. Strange days
Wow, Greg, “the crooked casino” you really are playing with the band now! You are starting to write like you feel, from the heart; that is not to say your articles are not from the heart, but I am sensing some anger now – its a good thing. From the Western Front,
all is quiet; for awhile longer.
The quintessential Peter Schiff video: “Peter Schiff was Right” (LINK: http://www.youtube.com/watch?v=2I0QN-FYkpw). Nuff said.
Here’s a story for you:
My dearly departed mother set up a small family trust (my father had previously passed) in order to protect what few assets she had left from the money-grubbing nursing homes (a story for another time) when and if she needed long-term health care (all rich people do this sort of thing; my mother was not rich).
I was in charge of meeting with the bankers to discuss the trust (my sister did the health-care end as she is a registered nurse).
One day I noticed that she had lost $10,000 on Tyco, so I made an appointment with a VP at in the trust department at the bank – an older, well-suited gentleman who had been with the trust department for years – was our trust officer.
When I inquired about the nasty loss, he shrugged and said “they didn’t see it coming” (despite having all the financial certification letters/degrees after their names). My reply to him went something like this: “So, Mr. VP Banker, you are telling me that with all of your advanced degrees, years of experience, and financial planning licensures that you didn’t see this coming? This is no better than going to Vegas gambling!” He said, “Yes, the stock market is a lot like betting on craps in Vegas; you never know what will happen!” Unfortunately, because my mother set up an irrevocable trust, there was not much I could do.
However, THAT VERY DAY I knew that I would no longer “invest” my mother’s hard-earned money in any more stocks and started buying gold/silver with her earnings. Glad I did! I bought back when gold was just above $300 an oz and saved her from any more blood-letting with the banks and stocks! The bankers thought I was “foolish” and encouraged me to continue reinvest the money back into more stocks and corporate bonds.
Greg is right folks; don’t be misled by the gentleman who posted (above) who believes the stories that the “talking heads” are telling us about companies being awash with cash. They are awash with cash because they are taking care of their stockholders; not their workers and undoubtedly will transfer the monies into foreign banks and/or countries where they can hire workers for a lot less money. These are business decisions that all modern M.B.A.s believe to be correct.
I think another big wild card in this whole discussion is the very good possibility that precious metal ETF’s might only have minimal amounts of physical stock available to back their paper contracts. I’ve read where the ratio could be in the area of 10:1 paper to physical & 100:1 on the high side. Regardless, there’s going to be a lot of very unhappy investors when the music stops.
“if you buy silver you must take physical possession”
Where can we buy it from? And once I buy it, just keep it in my house?
Greg, my only problem with you is that you don’t write MORE OFTEN! Can’t tell you how disappointing it is to go to your site and not find a fresh article from you! That’s OK, I just read your last one again and glean something new from it. Thank you for all you do, really. Dan McCartney.
WoW! Nice to hear from a few who caught the falling knife and brought gold till it bottomed. Gold at $254 and silver $4.15 was one heck of a buy. Is there still more room to go higher, even at these prices? I do believe so. I do believe there are going to be major price movements that will make past ones, tame by comparison. I read Peter Schiff and listen to Max and read editorials by Michael Kosares,to whom I owe my beginnings in the metal arena.
Out of all the information I have read, there is no point in the discussion, on the usage of our wealth protection, should a financial collapse happen. How many will be able to exchange at a stable rate when there will be many who do not understand precious metals. Just supply and demand principles to control the exchange of goods? Add total rejection of paper money to the equation.
There are those who will low ball on one end and the sky is the limit on the other, depending on the goods being bartered. So in fact, till we move from those who sell or control the metals, to exchanging between ourselves, we are not better off than we think. We could quickly lose the things we have taken so long to gather if we are not careful. I am wondering how long the learning curve will be?
Where do you buy your physical gold and silver from and do you just keep it in your house? I guess I’m asking if it can be redeemed somewhere at a later date if you ever need the cash for some emergency.
I have the highest respect for you and Peter Schiff. Thank you for your great work.
I had my silver and gold in my house in a one of those suitcase- type safes….Until my son showed me that it can be unlocked and open with a BUTTERKNIFE!
It is now in my credit union’s safe deposit box waiting for the fed to confiscate it. Been thinking about buying s few canning jars and burying it in the back yard. This is crazy.
I have listened to Lyndon LaRouche for many years and I have prospered by buying into silver when it was 4.25 to 6 dollars an once! I won’t say how much but it’s a boat load! Now if I can keep the rest of my loser family.(I still love them) from bankrupting me by wanting to borrow,borrow,borrow,Oh but I’ll pay you back with interest! Yeah and these family members all thought I was crazy and stupid for buying silver! It doesn’t seem to stop them from asking me for money though! It’s nice to live in the land of unreality,but when people start to really suffer only then will they wake up,maybe. I have a good heart,I love this world and the people in it,I just wish they cared more about themselves and their future and their children’s future. It’s going to take a lot of heart and courage to face what the future is about to bring us. To have hope where none exists. It’s late in my life but I’ve learned that life is for the strong,not the weak. That doesn’t mean I’m heartless. It just means that I have to take a cold hard look at the world and see what can be done and do it. I may run for congress,I don’t know,right now the American people are still spinning their wheels and wondering why the car doesn’t go. Bob.
But think outside of the obvious first
I’ve enjoyed your blog since I first heard you on coast to coast am last year and I sincerely thank you for doing what you do! The web needs more sites like yours!!!! That I really mean. I am also hoping you can clarify two points:
1. I do have a question about your opening commentary – are you saying that no matter what the Fed will continue to save the dollar? If so, are you saying that in essence this WILL continue into eternity and for many, many more years?
2. Based on my first point, then why would I want to pull the trigger and get more precious metals at the current prices? I just invested more into gold and now think I may want to get some more silver, but think silver is way over valued right now without much more opportunity that it will increase in price for the remainder of this year or beyond, but I do think gold will go much higher. My reasoning is that silver is being suppressed by the bankers and will continue to be suppressed. And it is also used in industry and will continue to be suppressed in price due to big business demands for silver in merchandise.
Please if you can, answer both of my questions as I and your readers are probably thinking similar things and respect your insight.