China Should Buy More Gold: Newspaper

China should buy more gold with its foreign exchange reserves, an official newspaper said.

China should buy more gold with its foreign exchange reserves, an official newspaper said in a commentary on Monday.

The China Securities Journal said gold accounted for only 1.3 percent of China's foreign currency reserves, which hit a world record $875.1 billion at the end of March.

In rich countries, by contrast, gold makes up 50 percent to 60 percent of reserves, it said.

Worries about the momentum of the U.S. economy; fears among financial experts that the dollar is on a long-term depreciating trend; doubts that the euro can replace the dollar as a major reserve currency; and concern that overseas demand for U.S. Treasury securities is drying up -- except on the part of China -- were all reasons why China should buy more gold, the paper said.

Against this background, gold was playing a much more important role in the global monetary system, it said.

"It would be a wise step for China to appropriately increase its gold reserves," said the China Securities Journal, which is owned by Xinhua, the state news agency.

It cited Russia and South Korea as examples of countries that had switched part of their reserves out of dollars and into gold.

The paper recalled a recent recommendation by an expert at the Beijing Gold Economy Development Research Centre that China should quadruple its gold reserves to 2,500 tonnes from 600 tonnes now.

"China should raise its gold reserves so those reserves can account for 3 percent to 5 percent of the foreign exchange reserves, instead of current 1.3 percent," the China Gold newspaper on May 9 quoted Liu Shanen as telling a conference.

Gold Mining Stocks and the Current Sell Off in the Metals

This is not the final blow off for gold but could be a major consolidation and pullback that could last from two months to two years (like 1974-76).
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Gold mining dehedging will be a stabilizing factor for gold as many companies try and close out horrible hedge book positions and cover. This will be a strong influence to halt any major price declines.
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Since all the metals are getting hit hard at the same time, this appears to be big fund action and now momentum players will follow and exit.
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If there is any central bank that wanted to add some gold to the kitty without upsetting their colleagues they will show up in the next few weeks or months.
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The gold correction should be looked at from two basic global technical aspects.
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1) Using a base of approx. $400 gold for all of 2004, one could expect a 33% retrenchment of the move to $700. 33% of this $300 move would be $100. So a target here would be $600 gold.
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2) Using the shorter term base of 2006 (Jan-March of approx $570) then the move to $700 would be $130 and using a short term 50% retrenchment (due to the short term nature ) would be $65 or a target of $635. These numbers work for traders as well as jewelry buyers in Asia and India. So a $600-635 price target may be reasonable.
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The major move in gold will occur years from now when inflation is everywhere and at very high levels (8-12%) and people from China, France, the U.S. and other countries are stampeding into gold. The last few years are only the first leg of gold catching up with toothpaste, donuts and coffee. The big move is coming later.
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Major mining companies are in acquisition mode and this is a long term bullish sign as these players are extremely conservative and rarely speculate (as opposed to small exploration companies) ABX taking over PDG. Teck-Cominco merger and now Teck-Cominco going after Inco. There are others. They know the supply-demand equation for the metals is long term very favorable.
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The dollar needed a rest from its 8% sell off in the last 10 weeks and is rallying. Gold is responding to this. The other base metal sell offs are more likely to respond to other factors and that is why this coordinated selling is most likely fund driven and many funds are new to this arena... so expect plenty of volatility.
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50-day moving averages will probably bring in some support. I would suggest that long term investors in this sector protect profits, raise some cash and remain at least 60% invested as we are still in a bull market in the precious metals. But caution is advised. All metals are very pricey. The easy stuff is over.
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A hard look at 1974-76 would be a smart thing to do. This was a tough time for gold and the mining shares but it was only a rest from the 1968-73 run up and a prelude to the blast off from 1976 to 1980. This may be a re-run.
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Remember gold mining stocks that can mine gold at $250 gold or lower make fortunes at even $500 gold... so don't throw out the baby with the bath water just because a much-needed correction is now showing up.

Has gold moved too far, too fast?

There are basically two views. The bears argue, quite correctly, that commodity run-ups are always self correcting: consumption drops just as production increases and prices retreat. They also point out, correctly, that the longest bear market ever is actually in commodity prices, which have been dropping, in real terms, since the beginning of recorded history. The bulls, including myself, argue that, while these things are true, both fundamental and monetary factors militate for perhaps a decade of higher prices until the fundamental trend reasserts itself. In other words, I think we're in a period that's going to run against the norm. Stocks, in bear markets, tend to fall twice as fast as they previously rose. Commodities, in bull markets, rise twice as fast as they previously fell. We're in one of those times. I, like everyone else, would be much more comfortable in conventional, prosperous times. But I like to be a realist and make the trend, whatever it is, my friend.

When the bubble arrives -- and I'm very confident it will -- it will be easy to tell. The magazine cover stories, the cocktail party buzz, the talk of legislation in Washington to "do something" about high prices, the reports from brokerage firms -- there will be lots of indicators. Of course, few people will pay attention to them in the right way -- they'll think they're accurate descriptions of reality, not indicators of a mania. It was the same with the Internet stocks a few years ago.

Generally there are three stages to a bull market. The first is stealth, when prices go up but nobody cares or even notices. With commodities, that happened from about 2000 to 2003. Next is the "Wall of Worry" stage. People see that prices are rising, but expect them to fall back to the bear market levels they'd gotten used to. People come up with all kinds of reasons why they're overpriced. They are confused by the new reality, and many "old hands" and commodity producers take the opportunity to sell, since they haven't seen good prices for years. This is the stage of the market we're now in. Finally, there is the mania stage, when broad masses of the public get involved. It's where the big profits -- but also the big risks -- are. Personally, I'm more comfortable buying when everyone says you're an idiot for doing so, or at least when they're skeptical. When we're all hearing about what a great investment gold is, I'll be looking for other opportunities. But my guess is that we won't really be there for another year. And when it arrives, the mania should last for some time, as it did most recently with the Internet stocks.

While I was expecting to see a big surge -- and went on record with that expectation on March 22 when gold was trading at $550 -- there's little doubt that gold and silver may be getting ahead of themselves for the short term. A market trend, even an unstoppable one -- which is how I view the current metals bull market -- is still going to periodically correct.

Get used to it.

That is especially true if you're an investor in the mining shares, which is absolutely, without question, the right way to play this market. Buy on dips (historically, we see buying opportunities in the summer months) and don't be chased out of the market by volatility.

When this thing does finally come to an end, the better-managed gold and silver stocks will be trading for many multiples of what they trade for today.

This trend is your friend... get comfortable with it.

Got Gold?

History teaches us that all paper currencies fail as a medium of exchange. It also teaches us that Governments confiscate their citizens' gold bullion as the paper currency loses credibility. And, for those few citizens who keep their gold, they can't use it to buy anything.

A Short History of Gold as Currency in the United States

Article 1 of the US Constitution mandates that the U.S. Government only issue gold or silver currency. The requirement evolved from the fact that during the Revolutionary War, the Continental Congress issued paper dollars called Continentals. By 1781, Continentals were worthless. The American saying "Not worth a Continental" comes this historic fact.

In the Civil War, the South required its citizens to convert their gold into Confederate Dollars, which were worthless in 1865. The North issued Greenback Dollars and the folk song refrain "Not worth a greenback dollar" tell us how much they were worth.

During World War I, the Government enacted the Trading with the Enemy Act. This law gave the president the right to prohibit the hoarding of gold.

As a result of the Depression, the Emergency Banking Act of 1933 ended Americans' right to own gold. Presidential Executive Order 6102 requires gold owners to convert their gold to dollars. Presidential Executive Order 6111 prohibits the export of gold coin, gold bullion or gold certificates.

After the Depression, we had a series of unending National Emergencies. World War II and the Korean War were justified. The Soviet threat was vastly overblown. We were the victims of failing to understand history during the Vietnam War. During all of this time, Americans were denied the right to own gold.

In December 1974, Congress returned the right to own gold to Americans. From the United States vs. Campbell onward, no Court challenge ever forced the Government to recognize Article 1 of the U.S. Constitution as binding on the Government. The 1974 Law doesn't require the Government to comply with the gold or silver currency requirement of Article.

Our current National Emergency is about 20,000 armed and angry individuals who violently disagree with the U.S. Government's Middle East Policy. The Governments response has been to suspend the Bill of Rights and open concentration camps. Also, the Government has adopted economic policies in response to the "War on Terror" that are spending us into the worst Depression in recorded history.

As our economy falters in the next few years, Americans will lose their right to own gold coins and bullion. For those that resist converting their gold to dollars, they will find they will be the new "Enemy Combatants" with no rights and living in a concentration camp.

Currently, the American Government collects data on anyone buying gold bullion. It makes it all the easier to find you when they want to take your gold. For those planning on resisting, they avoid the reporting requirement by buying their gold bullion in Canada or elsewhere outside of the United States. However, most of these "Gold Resisters" aren't very good about keeping their purchases secret. There are scores of mistakes they are making. Let me cite one example. The American bullion buyer flies to Canada. He or she buys their bullion coins from a Canadian gold dealer and they pay with their credit card. They fly back to the States and the dealer delivers their coins to them in the States. It takes the U.S. Government two minutes to determine from the credit card record that the "Gold Resister" has purchased gold bullion and will be a problem when the Government wants their gold.

Let's assume that you wisely purchased your bullion coins. The Government never found you. It now takes a wheelbarrow of dollars to buy a loaf of bread. You are feeling superior to most Americans with wheelbarrows. You want to trade one of your gold coins for a diary cow. The cow produces milk that can be processed into cheese and butter. Your gold coin produces nothing of benefit to your family. Will the Dairy Farmer sell the cow for your gold coin? If he or she does so, they become "Enemy Combatants." The gold coin produces nothing the farmer can use to sustain his or her family. There is no reason for the farmer to take your gold coin. I submit the economic reality will be that gold has little more value than dollars in the world of tomorrow.

Gold: It's Not Iran, Stupid

TEHRAN, Iran - Iranian president Mahmoud Ahmadinejad shocked the world today when he, all of the sudden, decided to wind down his country's nuclear program and make peace with the West. "Today I have decided to replace our plans for nuclear energy with eco-friendly wind power. Furthermore, I look forward to my upcoming trip to Tel Aviv where I will introduce a free trade agreement for the greater Middle East." Markets reacted immediately sending oil back down to $40/bbl and gold to $300/oz as tensions in the region have evaporated.

The preceding scenario is obviously fictitious, but you wouldn't guess it based on the mainstream media's reaction to rising commodity prices, especially gold. For the past few weeks, as gold has inched its way closer to an all-time high set over two decades ago, the talking heads have cited events in Iran as the catalyst for precious metal price increases. If tensions were to suddenly cool down, then everything would be hunky-dory in the world of rising commodity prices. Okay, maybe we can buy this argument for crude oil, where the price per barrel likely has a small unquantifiable geopolitical risk premium built into it. But for gold, this argument is hogwash.

We have all read reports of upper-class Iranians stockpiling gold as tensions continue to rise, but this shouldn't really have much of an effect on the price level as Iranian demand is a rounding error in the world of gold. The reason why gold has more than doubled over the last four years has to do with the diminishing amount of confidence in paper assets, namely those denominated in U.S. dollars. Savvy investors in Asia and Europe are very much aware of the risks of holding dollars, yet most of us in the Western Hemisphere are still asleep at the wheel. Ninety-nine percent of Americans haven't got a clue about gold. Maybe 1 out of 1000 Americans under the age of 40 even know what a Krugerrand is - yet the media is portraying those who buy gold as doing so for Iran protection.

Gold and silver are gaining in popularity as the price rises, but we are nowhere near the media saturation levels of real estate or stocks. When the mainstream media wakes up to gold, only then will we hear about price increases resulting from a lack of confidence in paper assets rather than tensions in Iran.

GOLD & SILVER Up in Price What Does It Mean

"When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it." [1]

Abstract

Gold and silver have both been on a tear as of late, exploding upwards in price to near blow-off levels. Many different reasons have been offered as to what precipitated these stellar performances: worries over Iraq; worries over Iran; problems in Nigeria; concerns over oil; fears of inflation with commodity prices going up to all time new highs; problems in the White House; the US dollar falling precipitously, etc.

The reasons are legion and too numerous to name. Rather than any one specific reason, it appears more plausible that a confluence of events have contributed to the angst of living in the paper fiat land of the 21st century new world order. Should be one for the history books if anyone survives to write about it.

If you listen to the news reporters on the radio and TV, they all have their favorite reason as to why gold is going up in price to 25-year new highs.

The truth be known, we too have our favorite cause or reason as to why gold and silver have been steadily rising in price. However, we are not quite sure how many are going to like it. Nevertheless, tell it we must.

Price

When we speak of price, exactly what are we referring to? A pair of new sneakers is up in price to $99 dollars a pair. The new car we want is up in price to $50,000.00

When we say up in price we are referring to price as being the amount of dollar bills needed to purchase or exchange for those items we want. We are talking about the quantity of money needed: X amount of dollars.

The greater the quantity of dollar bills needed to purchase the same amount of goods means the price has gone up. Read that again very slowly and let it sink in.

However, what makes the price or quantity of dollars needed to purchase an item with increase in the first place? Does it happen randomly by chance, or is there some sort of economical principle at work?

When two people come to trade or exchange things in the marketplace, one is a seller and the other is a buyer. Employing indirect exchange the buyer uses money to exchange for the goods he wants that the seller is selling.

The seller is willing to take the money in exchange for the goods he is selling. He does this because he has faith that he can take the money, go into the market, and purchase whatever goods he needs with the money at a future time.

The price is the agreed upon quantity or ratio of money (dollar bills) that the seller is willing to accept for his goods, and that the buyer is willing to exchange for the goods. Both must agree and be satisfied with the price before any exchange can take place.

Supply & Demand

Supply and demand obviously plays into the determination of price. If you are about to climb a very tall mountain late in the fall when temperatures are dropping you will want to have a heavy coat with you to keep yourself warm.

If there are more buyers that want to purchase the supply of available coats, the price of the coats will go up. There is more demand then supply.

If suddenly a huge shipment of coats come in, and most have already purchased their coats - the price of the new coats will go down. There is much more supply than demand.

The more evenly balanced supply and demand is - the more balanced is the price, it will not be subject to large swings up and down - all other factors being equal, which usually they are not.

The above example is just one simple example of one item in one specific situation. The economy is much more complex than the example provided.

Factors

Even within the sphere of just one item - say a particular coat - many factors go into the supply and demand of the coat that together affect the price differently in different regions.

For example: transportation is essential to move goods. Are they going by truck, train, plane, or boat? In what quantity are they being shipped? How far out of normal trade routes are the goods going? All these factors are involved in price formation. Moreover, this is just in regards to one simple item - a coat.

When one takes the aggregate prices of all goods and services in a nation's economy, or in the world economy into consideration, there is a confluence of a myriad of different variables of supply and demand that go into price formation.

Price in regards to the total aggregate of all goods and services entails a very complex set of variables. Are prices going up or down in general?

Omniscience

When discussing prices in a nation or in the world, huge volumes of many different items and an even larger volume of variables are at play. It is impossible for any one man or group of men to figure this all out.

I don't care how smart they are - how many doctorate degrees they have - no man or group of men can possibly equal the inherent knowledge of the marketplace and all of the transactions of the marketplace that contain all of the variables of supply and demand.

It is impossible. To attempt such is futile. To believe that a group of men could have such knowledge is illusionary at best and delusional at worst. Such behavior brings to mind interventional elitism: a superior class much like the priests of the Temples of old.

Only the market can possibly know what in total the market knows - to think otherwise is foolish egocentricity bordering on megalomania. This is why free markets should be left alone; without intervention by those that think they know better than the market does.

Why are we discussing this somewhat "dry" topic of price formation - because it is background information for what we really want to talk about: Gold and Silver Up In Price - What Does It Mean?

Price Formation

We have seen that individual prices can have a different set of variables affecting their quantity as opposed to overall or aggregate prices in a nation's economy.

Yet we often find economists and other wizards of finance talking about prices in general as either rising, falling, or staying about even. Some refer to this as price inflation. Other more ambitious types refer to it as the production miracle of modern day 21st century structured finance.

However, what they really are referring to is hedonic pricing, which is sort of like making believe you are wealthier when you take a dollar out of your left hand pocket and save it by placing it in your right hand pocket: the proverbial story of robbing Peter to pay Paul.

If the supply and demand for any particular good stays about even, is it possible for that item to go up in price? This is where a subtle nuances regarding demand comes into play.

Let's go back to our example with winter coats. On average every year for the past ten years the coat manufacturer has seen the demand - the number of coats wanted by market participants, go up by about 5% per year.

The manufacturer has a good idea that the demand for coats will be the same this year. Suddenly there is a hurricane, which knocks out many oil and gas refineries, causing the price of shipping to skyrocket.

Disposable Income

The coat manufacturer has to increase his price for the coats to make up for his extra cost. Now the people that were going to buy a coat have to pay more for it. At the same time, the price for fuel to heat their homes and drive their cars has gone up significantly.

They have less disposable income (all other things being equal which once again they're usually not, as perhaps they have received raises or the price of other goods have gone down) and cannot afford all the things they want to purchase.

Now it becomes a question of whether what the people want (potential demand) is the same as what the people can afford (actual demand fulfilled by buying).

It does not do the coat manufacturer any good if 10,000.00 people merely wish they could buy his coat but none of them can actually afford to buy his coat. What one wants and what one can afford are two entirely different things.

This is why disposable income is important. This is why savings is so important. Both groups of money are readily available to directly purchase new goods and services. So far we have only taken into consideration the supply and demand for the good to be purchased: the coat.

Money Supply & Demand

In the transaction of selling and buying a coat, we have stated there is a buyer who pays money for the coat, and a seller who agrees to accept a certain quantity of money (price) in exchange for the coat.

In any exchange between a buyer and a seller, there is present the good, and there is the money exchanged for the good. We have considered the supply and demand factors regarding the coat or good - what about the supply and demand of the money to be exchanged?

For example, as we stated above, just because the public wanted to purchase x amounts of coats, this did not mean that they could afford to buy the coats, and would, therefore, actually purchase them.

However, say most of the people worked for a large computer company that just renewed its labor contract with the local union. All of the workers suddenly received raises in their pay. Now they have extra income or money to pay the extra cost of the coat that the higher fuel and transportation costs incurred.

Previously, the people's demand for the money to buy the coats with did not match their supply of money. However, after receiving increases in their pay - they now have an increase in their personal income or money supply, which allows them to purchase the coat.

Once again, we are talking about a very specific good (coat) in a very specific situation (local). Even in this simple example, we see there are many different factors that come into play.

Aggregate Variables

Imagine the factors that exist when we talk about the aggregate prices and supply and demand for all the products that a nation produces; and then add into the mix the supply and demand of the money used to exchange for those goods. It is mind boggling to consider the variables and combinations thereof.

We have seen by our example that not only is the supply and demand for the goods and services purchased important in exchange, but the supply and demand for the money used in the exchanges is important as well.

Any large shift in the supply and demand variables in both the goods and the money supply will affect the prices paid. It is obvious that any unbalanced shift in the ratios of supply and demand on both sides of the exchange can have drastic changes in the price or quantity of money needed to make the exchange.

Price Inflation

This in turns leads to the fact that if there is a large change in the supply of money as compared to the demand for money, all other things being the same, any such increase will result in an increase in the price of the goods - as there is more money chasing the same amount of goods.

In aggregate, if the total amount of goods that a nation produces stays the same, but the money supply increases by 20%, then you can rest assured that prices of those goods are going to go up.

By going up in price, we mean that it takes a larger quantity (number) of dollar bills to purchase the same amount of goods. The ratio of the supply and demand for money - compared to the supply and demand for the goods purchased - determines the price.

Monetary Inflation

Accordingly, what occurred first: prices going up, or the money supply going up?

The increase of the money supply causes a greater quantity (number) of units of currency (dollars) to be bidding for the same amount of goods.

Higher prices or price inflation is the result of certain actions and factors - namely an increase in the money supply compared to the demand for money, as compared to the supply and demand for goods.

The cause is the increase in the money supply relative to the demand for the money. Price inflation is the result of monetary inflation. Nevertheless, what exactly is monetary inflation?

Is it simply an increase in the quantity of money available? The answer is no, not exactly.

It is the result the increased quantity of money has on the quality of the money.

The quantity is the number of units of money. The quality of money is the PURCHASING POWER of the money - what the money can purchase.

The quantity of money is of little import if its quality is deteriorating. As the money loses purchasing power, it takes an ever-greater amount (quantity) of money to purchase the same amount of goods.

Currency Debasement

This is debasement of the currency - the loss of purchasing power because of too much money supply compared to the demand for money. This is the true culprit - the thief that comes in the darkness of night and steals our wealth.

From this we see that prices do not go up as much as the value or purchasing power of our money goes down, which in turn makes the quantity of units of money go up (price) needed to purchase the same amount of goods.

When paper fiat debt-money can be created at will by the click of a computer key - the point of no return has already been reached. Our present day monetary system of paper fiat debt-money is beyond repair.

The only thing left to do is to return to a system of Honest Money - the hard currency system of our Constitution - a system of Gold and Silver coin.

Now comes that which led up to all this - something not often said, and even less seldom understood - and almost never properly addressed in one's financial and monetary affairs.

Recall that prices go up because the purchasing power of the money goes down.

This is why price inflation in a result not an effect. Price inflation is the result of monetary inflation.

There are other types of inflation as well: asset inflation, wage inflation, speculative and highly leveraged derivative inflation that affects international "hot" money flows via the new age carry trades.

None of these inflations can exist without monetary and or credit inflation first rearing its ugly head. They are all siblings of the creature of monetary inflation.

So now we see the reason why general overall prices go up: it is because the money supply increases more than the demand for the money increases, as compared to the supply and demand for goods and services.

Hence, there is a ratio of a ratio at play: the supply and demand of money compared to the supply and demand of goods.

Divine Knowledge

We have found there are three major ratios that affect prices: the ratio of the supply and demand for money, the ratio of the supply and demand of goods, and the ratio between these two supply and demand equations.

The ratio of these two ratios is one of the main data points that determine if general prices are rising or falling. However, is it possible to figure out this ratio? The government says it is. The economists who make their livelihood by predicting such rarified data points seems to believe it can be done. Myself - I'm a bit skeptical.

To believe that a group of 12 men: the Federal Reserve Board of Governors, can possibly calculate any of the above statistics, let alone the ratio of one to another - is absurdity run amuck. Delusions of grandeur come to mind. It is nothing but elitism pure and simple.

Furthermore, why would anyone want to know those statistics and information even if they could? The answer is because, as all good financial wizards know - they must be in possession of the Holy Grail that mere mortals are not aware of.

Otherwise, they would not have the power and control over the people that all good wizards must have. The overlords would not be able to pontificate on subjects that the common man has little, if any, experience of. They would not be in possession of the money power.

Just as the priests of the Temple used the arcane knowledge of the stars and planets to mesmerize and hold sway over the citizenry, so too do todays wizards of finance use esoteric and unintelligible economic measurements such as hedonics to hold control over the people.

In addition, the people receive the information in a foreign language called Greenspeak. The goal is to present an illusionary charade of complexity so convoluted that the people quickly acquiesce to any possibility of ever being able to figure it out, let alone understanding and employing it.

In the end, the people cherish and choose protection over freedom and liberty. We sheepishly agree with our overlords that it is best to leave it all in the hands of the elite masters of the Temple; and that we should be grateful that we have them to protect us from ourselves.

Inflation

We have established that price inflation is a result not a cause. The cause of price inflation is the monetary inflation that comes first: a rise in the money supply greater than the demand for money.

This is no different from the fact that deflation is the result of the inflation that came before. If you want to alleviate deflation then you must alleviate the inflation that leads to it.

The increase in the money supply in excess of the demand for money will cause prices to rise. By rising prices, we mean that it takes a greater quantity or number of units of the currency to purchase the same amount of goods.

As an example - I go to my local car dealership to buy a new car. The price of the car is $25,000.00. To make a living I am a landscaper. This means that winters are slower in income then summers. Because I have not been working much, I pass on buying the car.

When fall comes, I go back to the car dealership, having saved some money to go towards paying for the car, which I still need a loan for in order to be able to buy the car. The price of the same vehicle is now $30,000.00 dollars.

I am shocked and say to the salesman - "what happened, I was in here earlier in the year and that same car was only $25,000.00 - did they change something on or in the car?"

"No" says the salesman, "it's the same car." I reply, "then what caused it to go up in price?" "It's called inflation kid - everything goes up in price," bellows the salesman as he walks away.

As the salesman said: it's the same car, nothing is different about it. It is not more valuable now then it was 8 months earlier - it just costs more.

What makes the car cost more money is the value or purchasing power of the money used to purchase the car has gone down, causing a greater number of units of the currency needed to purchase the same amount of goods, i.e. the car.

Currency Debasement

This is true for almost all rising prices - they are the result of monetary inflation that debases and lowers the purchasing power of the unit of currency. Since 1913, the U.S. Dollar has lost 95% of its purchasing power. The Fed has been doing one hell of a job.

This is the reason why cars now cost what houses used to cost. This is why houses that used to sell for $100,000.00 now cost a million. This is why a wedding that used to cost a couple to a few thousand dollars now cost $30,000.00. This is why you can go broke trying to send two or three kids to college, as a small fortune is now needed to pay the cost.

A can of coca-cola is the same as it was back in 1950. In 1950, the soda cost $10 cents. Today the can of soda costs 100 cents. If the manufacturer is doing their job correctly, they should have learned by now how to produce the can of soda for LESS than it cost back in 1950. The increased efficiency of production should lessen the price - not increase it.

It is because the Fed, and its proliferate creation of excess money and credit, that things have gone up so much in price. The things are generally the same things. The loss of purchasing power causes the need for more units of money (quantity) to pay for the same amount of goods.

The businessman knows that the money he accepts in exchange for his goods has lost purchasing power; therefore, he demands a greater quantity of it, so that when he goes to buy goods in the market, he will have enough money to do so.

The Price of Gold

What about gold, does gold go up in price because the value of the money used to purchase it goes down? Yes - that is the exact reason why gold goes up in price. Gold goes up in price commensurate with the loss of purchasing power of the dollar.

Now the part that many do not want to hear - but it is the truth, and if more people realized it, we would be much better off: monetarily, financially, and economically. We would not accept the unacceptable.

It does not increase one's wealth to buy gold and hold it for one or two years; and to then sell it for paper fiat dollars. Gold, and all other goods, go up in price because the quality or purchasing power of our money goes down.

As we have shown, this means that a greater quantity of units of money (price) is required to buy the same amount of goods. This is currency debasement or loss of purchasing power.

The quantity of the money supply can, and does, affect the quality or purchasing power of the currency.

If the supply/demand ratio of money is greater than the supply/demand ratio of goods and services available for purchase - the price of the goods goes up.


This is true for gold as well - because gold is priced in dollars.

If one purchases gold for $500 dollars an ounce, and the price goes to $1000 an ounce, it is because the purchasing power of the dollar has fallen that the price of gold goes up.

If one sells their gold after it has gone up in price, and accepts fiat dollar bills in exchange for the gold, then they have not increased their wealth or purchasing power.

They are accepting a larger quantity of dollar bills to make up for the quality (purchasing power) or value that the unit of currency (dollar bill) has lost. This is one of the secrets the guardians of the Temple do not want us to know.

This is the reason why we have said that a gold standard that backs the currency, even if it is backed 100%, is not a viable solution for the debased and near worthless condition of our monetary system. It is beyond repair and needs to be replaced - not backed. Our currency is no longer worth backing with gold - if ever it was.

As the US Constitution and THE COINAGE ACT OF 1792 mandate - our monetary system is based on a silver standard, with a bimetallic system of silver and gold coin.

Do not believe that the price of gold and silver going up in dollar bills that are constantly losing value or purchasing power is beating the system of paper fiat. All it is doing is allowing one to tread water and to keep up with the devaluation of the currency.

Do not sell your silver and gold for paper fiat debt-money. Do not exchange your precious metal futures or options for dollar bills - make them deliver the metal to you - make them honor the contract by fulfilling their obligation. Keep them honest - demand Honest Money.

"Lenin is said to have declared that the best way to destroy the Capitalistic System was to debauch the currency. Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million can diagnose." [2]

Investing In Gold Coins And Bullion

The first known coins were minted in the mid-seventh century B.C. Coins revolutionized the conduct of commerce.

Alexander the Great introduced a regulated and universal coinage throughout his empire. Coins were typically engraved with the likenesses of rulers and deities, providing a historical snapshot. Coin collecting started in Renaissance Europe. Wealthy

Europeans collected Greek and Roman coinage. The United States minted its first gold coin in 1795. From then until 1933, U.S. mints produced hundreds of styles and denominations of gold, silver and other coins. Dazzling pieces of artistry and history, collectible rare coins and bullion are among the most prudent additions to any quality investment portfolio.

A collection of coins and bullion could add value and stability to a portfolio. Investing a percentage of a diversified portfolio in gold, silver and platinum could act as a hedge against inflation. Gold can be viewed as an alternative asset class. Tangible assets are usually not as susceptible to the same market pressures as stocks and bonds. Typically, gold is not correlated to either the stock or bond markets.

Gold often trades inversely to the U.S. dollar, making it a useful hedge in times of dollar depreciation. The gold supply is limited - all the gold ever mined would fit into a storage room about 55 feet long, 55 feet tall and 55 feet wide.

Bullion is a term for coins, ingots, private issue, and so on that trade below, at, or slightly above their intrinsic metal value. Only the precious metals (gold, silver, platinum, and palladium) are included as bullion. A bullion coin is a legal tender coin that trades at a slight premium to its melt value.

Examples of bullion: U.S. Gold, Platinum and Silver Eagles, Canadian Maple Leafs, South African Krugerrands. A rare coin can be determined by several factors: mintage, grade, series. Values of coins are determined by both scarcity and grade.

Set building is the practice of collecting a complete series of coins representing all the different designs of a certain U.S. coin, for instance. It provides a systematic path for the collector.

Investors have frequently found that a carefully assembled set of coins is worth substantially more than the total of its individual pieces. Well-compiled sets have also tended to be more liquid than comparable accumulations of random coins. It can provide an exciting historical treasure hunt, as well as an investment instrument.

Set building provides the investor with the opportunity to define objectives and formulate strategy. Set building can be a life-long adventure. Sets can be collected by: type (which can be any particular design or denomination), series (all dates and mints struck of a denomination) or design type, commemorative issues, and more.

A key date coin is generally considered to be the most important coin in a particular series, usually the lowest-mintage and/or the most expensive. Rarity is based on the number of specimens extant of any particular numismatic item.

For protection, investors and collectors should only buy rare U.S. coins that have been graded and certified by the three leading independent coin-grading firms: professional Coin Grading Service (PCGS), numismatic Guaranty Corporation (NGC), independent Coin Grading Company (ICG). These organizations are recognized industry-wide for their accuracy, objectivity and high standards.

These services help to make the market in numismatic coins safer and more liquid. When a coin is graded, it is immediately encased in a tamper-resistant slab and sealed with its certification number and grade displayed.

Gold Bull with Numerous Legs

With the gold price past the $600 mark, many have asked how long the gold bull will run. Simply put, a long way. In fact, simply put, gold will continue to run and run hard as long as the USGovt and USFed resist change, resist a recession, resist a severe decline in the USDollar, and insist on relying upon the printing press to solve its economic and financial problems. These trends are nowhere in sight for change. Gold was doubted way back when it was vaulting past the $400 mark. The $500 mark was critical, passed last summer. Extremely powerful developments reinforce the gold bull, factors which are historically significant, items for the history books. The sign posts contained rather significant painted messages written in defiant language and bold tones, indicating global shifts, such as:

* "The Chinese delink from the USDollar"
* "King Abdullah Diversifies Toward the Euro"
* "Alan Greenspan to be Succeeded by Ben Bernanke"
* "M3 Money Supply Statistic No Longer to be Published"

These are very important developments, major events, financial equivalents of serious and damaging earthquakes which work to change the financial landscape. We have just began to dance on the FOREX dance floor. Last year, gold was stepping on euro toes and yen toes, wearing golden slippers and displaying some nifty foot work. In 2003 and 2004, gold stepped on USDollar toes repeatedly and without apology. The night is young, and gold is tireless. Fat and bloated, the USDollar, euro, and yen are fat hogs, slow afoot, clumsy in foot work.

THE NEXT LEG
The next chapter for gold has other strong messages, compounding the powerful forces pushing gold up. These almost as earth shaking as the above factor messages, indicating continued global shifts, such as:

* "The USFed is Almost Done in its Tightening Cycle"
* "The Perma-War Will Cost billion$ More"
* "The Gold Cartel Faces Billion$ in Hedge Book Losses"

Don't be too sure about USFed Governors will avert a mistake in hiking a few more times. They always do, and always will. That is what they do, their reason for being. They engage in blatant attempts to control the market with their "FedSpeak BS" tactics. See the clown Fisher for his "8th inning" analogous comment last summer. Now we have Yellin talking about being near the end of the tightening cycle, "which is data dependent." In other words, the USFed still requires concurrent signals as it ignores future signal, a key indicator of their incompetence and ineptitude. What do you expect from the American Politburo freaks anyway? They are driving a giant bus and ignore signs, preferring to drive until they recognize having gone over the cliff.

War costs huge sums of money and depletes huge supplies of commodities like oil, steel, and base metals. Lately, it seems our leaders refuse to negotiate and to prefer the push toward conflict, even citing opposing faction willingness to talk as a sign of weakness and a justification to cease those talks. War is good for business, certain businesses anyway. It sure does motivate big investments in gold across the globe. The USGovt can play its silly games of taking war costs off the budget, but continue to fund them. Heck, if they remove all expensive programs from the official budget, but continue to fund them, then these clowns can claim a surplus.

The hedge book losses for the gold cartel are real. Soon we should hear about declining jewelry sales (their favorite disinformation tactic), which is great news for gold, since investment demands overwhelms jewelry demand when the gold bull roars. Stated Barrick losses are historically without precedent, with greater losses than any mining company in history. One must wonder if certain connected bank & brokerage houses have the inside track on illicit bailouts on their hedge books. See JPMorgan. Recall the M3 money supply statistic is dead, and JPMorgan has essentially merged with the US Federal Reserve. No longer can the gold cartel expect grand favors by the central banks in official gold sales. Rumblings in the European Union signal a clear unwillingness to play that stupid game. Before long, the only gold left will be in Asian hands. Then comes the decade dominated by Asia, driven off a strong bank foundation.

Why is there no public outcry for the gradual merge of state and corporate interests? How is the public interest served by government when a large corporation has its mitts in there directing policy? Do corporations have the interest of the people close to their hearts & minds? Or do they have personal enrichment, control, and power as key motives? The claim of "government by the people" appears sorely missing. The Italian Fascism model is frightening in its political direction implications, yet has been sold so easily. Their giveaway for "dirty hands" is the infamous prevalent "no bid contract" doled out all too frequently. Amidst these additional current factors, gold will continue to shine with bright luster. Wait though, let's get back to the major signposts and their major bull market messages, since they will carry the traffic on the multi-lane golden highway, the one widened last summer. They ensure the multiple year bull market will not be denied, since too many unresolvable problems persist.

THE CHINA SYNDROME
These are truly significant signposts, without precedent in modern history. The Chinese had been rumored to delink their yuan currency for so long that many within the mainstream doubted the event would ever occur. They did. Now the big rumor is that the Chinese are busy cleaning up their banking system in a preliminary maneuver to set up a gold-backed currency. They pursue the optimal currency index to store their vast horde of reserves, which are expected to top $1 trillion sometime this year. Their piggy bank has just surpassed Japan's horde, over $850 billion in size. The next two key events are the foundation of the new pan-Asian credit market and the new payment system for international commerce in an indexed currency. The Asian credit market is in its formative stages. They are deciding up on a currency, and believe an index is most appropriate. Squabbles continue, like inclusion of the Taiwan Dollar. Beijing holds some sway in this region, still resentful of Taipei's independence. Look for the Chinese yuan (based in an index) to take over in the Asian credit market denomination choice. Also, expect major major major hostility and resistance and objection and sabotage from the US authorities. International commerce, like for oil or copper or iron ore or coal or grains begs for reform in its payment system. The Asian Development Group has suggested a currency index for large scale commodity purchase settlements. The Chinese yuan is the natural choice, an evolution which seems to benefit from their route for a managed practical currency index.

By its evolution as a balanced global index based upon Asian trade, the yuan is walking a clever path to displace the USDollar without the direct "in your face" challenge and insult to the United States. Any elevation and hoist of the yuan on a global platter of respectability and utility is an implicit supplant of the USDollar, a push off the table. Such evolution is monstrously bullish for gold, and such movement is very early, even embryonic. We are in the preliminary, not advanced, stages of removal of the USDollar from its place as world currency, from its place as the only petro-currency. Gold stands as the hidden "anti-US$" in function. In time, the yuan will serve that important role. In the tumultuous process, gold will gain respect, rise in value, and take center stage. Some foresee a time when both the Chinese yuan and the Russian ruble currencys are gold-backed.

ARAB REVOLT
The Western press seems to have attributed almost no importance to the death of King Fahd, the long ailing monarch from Saudi Arabia. Not me. It marked a sea change in the Persian Gulf. The newly anointed King Abdullah is much more a friend to Europe than to the United States, and maintains a quiet deep distrust for USGovt leaders and American culture generally. Abdullah has a stronger backbone, more willing to oppose the West. Within weeks he announced a desire to balance favor between Europe and the US, in commerce and in currency reserves management. The OPEC nations surrounding the Persian Gulf have been the beneficiary of doubled income since 2003 when crude oil sold for half the price. They have not materially changed in production output, hence revenues. They have gone nuts with a construction boom, have gone nuts with a boom and (in progress) mini-bust with their stock markets. As Saudi Arabia goes, so will many nations follow, like Kuwait, Qatar, United Arab Emirates, Bahrain, Oman. These guys are close friends. Since the EuroBond offers 1% less in yield versus the USTBond, money is directed toward gold purchase.

Arabs have a longstanding love of and trust in gold. The United States, England, and Europe have not acted like saints toward Arabs over the past century. Arab royals don't exactly trust the paper they are given in exchange for all the wonderful oil, lifeblood to our economies. Arabs take two steps to avert the long arm of the Western dominance. They purchase gold in Turkey. This eludes some detection, some formal accounting, and the clear snub to London and New York. They also handle brokered purchases of USTBond in London. This sidesteps any politically awkward gestures and reactions from neighbors Arab states. They can support the USTBond or not, with some measure of privacy. The London USTreasury data becomes thoroughly mixed with hedge funds and illicit USFed agency operations. If and when the permanent war spreads in the Persian Gulf region, if and when the Iraqi Civil War intensifies, if and when the Iran nation is attacked pre-emptively, if and when the Saudi gigantic oil operation facilities are attacked, look for gold to be purchased by Arabs, and their USTBonds to be sold, and even some of their EuroBonds to be sold. Gold held in the secure confines of Turkish bullion banks is far safer than London or New York in their eyes. War favors gold.

Whether you do or don't believe the war against radical Islam is for real and justified and managed with a deft hand in a capable manner, gold is an excellent hedge in an uncertain time of growing conflict. Whether you do or don't believe the USGovt leaders resemble the Three Stooges, incapable of wiring or plumbing your 2-bedroom home, gold is an excellent hedge in a time of unprecedented waste, record deficits, and horrendous management.

WEIMAR BEN, MASTER INFLATIONIST
The whole world was given adequate notice. Ben Bernanke, who believes in the low-cost inflation solution with all his heart, has succeeded Alan Greenspan as US Federal Reserve Chairman. Ben, who never ran a business, is at the helm. Ben, who never had responsibility in a financial business, is running the USFed. Ben, who had zero banking experience under his belt, is now the leader of the US central bank. Ben, who served for two years as apprentice on the White House Council of Economic Heretics, is given full trust for his aegis. Ben, who claims that printing money costs only pennies for bill, regardless of ($1, $5, $10, $20, $50, $100, $1000) denomination, has control of that printing press. Ben, who once claimed prudence in dropping money from helicopters on household lawns, is making decisions. Woe is the USDollar.

Ben Bernanke has big shoes to fill behind Greenspan, the falsely acclaimed maestro, who gave us crisis after crisis as the bitter fruit of his guidance, followed by ample liquidity to create the next bubble after the last bubble failed to survive more than a few years. The housing bubble has begun to fizzle. No, this Ben is "Little Ben" in my mind. The name of "Big Ben" goes to Ben Roethlisberger, who has a more impressive career so far as quarterback of the Super Bowl Champion Pittsburgh Steelers. In my mind, acting as Chairman to the Princeton University Economics Department is nothing more than an exercise in longwinded apologies for a debt-based USEconomy system and a debt-backed USDollar with adjoined banking system. While much useful theory and exercise takes place in Economics classrooms and faculty offices, most is a bunch of garbage. They spend so much time altering legitimate theory and practice, adopting new nonsense which has served as a series of one plank of mythology after another. With Ben Bernanke at the helm, an avowed advocate of inflation to cure all economic ailments and to treat all ills, trust in the USDollar is sure to wane. His denial of the importance of the Treasury yield curve is his first act and deed of heresy. Gold will thrive under Little Ben's leadership of the U.S.S. Dollar, the lost ship at sea. Ben has no keen sense of the role of golden ballast on the ship decks. Disrespect leads to crises in events and crises in confidence, both of which feed gold demand.

THE DEATH OF THE MONEY METER
Late last year, arguments read by Doug Noland about the changing nature of money creation temporarily seemed convincing. He expressed his view that we live in a different world which no longer can have money be monitored and measured accurately anymore. He thought it to be no big deal that the M3 money supply series was to be discontinued. While it might be true that banks are only part of the formula nowadays, this seems like a smoke screen. Sure, mortgage agencys create new loans against properties, home builders finance new home sales, car companies finance car loans, retail vendors finance sales for home electronics purchases, finance firms finance bond speculator margin in futures contracts and in carry trades, corporations float colossal debt for operations and pensions, and more. Ok, so plenty of new money created in the form of debt comes onto the books.

An M3 statistic which is imperfect might be better than none at all. Some reasonable justification is given for the numerous other non-bank sources. Credit is originating from other non-traditional sources, not just the bank intermediaries. This is without question. With all the imported products from Asia, why not discontinue the Consumer Price Index statistic? With all the outsourced jobs to Asia and Mexico, why not discontinue the unemployment rate statistic? With the prevalent usage of mutual funds and stock accounts and granted stock options to many levels of employees, why not discontinue the savings rate statistic?

No, the terminated M3 money supply statistic can next conceal an entirely new inflation campaign. USTBonds might be purchased with printed money. Fanny Mae mortgage bonds might be purchased with printed money. S&P stock baskets might be purchased with printed money. Margin posted for gold short futures contracts or crude oil short contracts might be purchased with printed money. Heck, even General Motors and Ford vehicle output might be purchased with printed money. For that matter, thousands of properties sitting idle on the housing market might be purchased with printed money. The withheld M3 money supply statistic can next hide a multitude of inflation sins, even fraud on a grand scale with corporations merged with the USGovt.

In my opinion the USFed under Little Ben will next transfer risk from the USTreasury Bond to the USDollar from rampant inflation. One must recall that the USGovt sells debt, and their debt securities must be kept legitimate with a viable functioning market. If push comes to shove, and the USGovt is demanded to support stocks, bonds, housing, and industrial output, be sure that #1 on the list of rescued and subsidized assets is USTBonds. They are likely to support stocks with ongoing Plunge Protection Team activities. However, bonds are king. It seems the path has been laid for perhaps colossal bond monetization, under the cover of the terminated M3 series. With the Bank of Japan starting up a tightening cycle, the yen carry trade to undergo an unwind reversal, mountains of USTBonds are to be sold. On the other side of the table, with failed GM corporate bonds, and profitable credit default swaps redeemed, huge demand for USTBonds will come to the table. A storm in USTBonds is assured, with plenty of large powerful cross currents.

CONCLUSION
This gold game is only heating up. In no way is it in a final chapter, its last leg. The gold bull is in the early part of a middle stage, an important phase. Disinformation continues against the merits of gold in a disgusting consistent unethical and perverse manner. Two factors work to the benefit of gold and silver investors. IN NO WAY IS THE GREAT GOLD BULL (OR SILVER BULL) ON ITS LAST LEGS, LONG IN THE TOOTH, OR WOBBLY IN ITS GAIT. Expect to see a $700 gold price before the end of 2006, easily. Wall Street is only beginning to sense that gold is far more than an inflation hedge. They are recognizing the geopolitical threat with the stench of war constantly in the air, actively pursued. They are detecting stress in the monetary system, with the world's money printing presses overheating and straining in nonstop operations. They might actually awaken to the reality that Asia is not purchasing USTreasury Bonds anymore, despite all the data to reinforce that reality which stares them in the face. Let's hope Wall Street takes a few more years to comprehend that gold has more value than for its vacant yield. Gold has given big capital gains, in fact four times what the crappy S&P500 index has given from its low since the gold bull awakened in 2001.

As the price of crude oil, natural gas, and diesel rises, so does the cost of mining gold, silver, copper, and other crucial metals. If energy and steel prices remained flat, then mining costs would remain steady for producers. But they are not flat. Against this backdrop, gold output has barely risen by a mere 2% in 2005. The easy mine properties have been largely drained and picked clean. More challenging properties remain. A much higher gold price will be required in order to bring new gold to market, in order to offset the higher energy and construction costs. Demand rises for a host of reasons, not the least of which is the corrupted nature of money. We are fast approaching a monetary crisis, one of failed confidence in paper money. The market must work toward balance of supply and demand. Too much artificial supply has corrupted the market from gold cartel subversion. Their corrupt efforts have backfired. That phony supply is drying up. We are left with a ground swell of rising physical demand. The gold price must rise in order to achieve balance and deliver supply (gold bullion) to market at the prevailing price. Supply is losing the battle. A higher gold price awaits.

Investment opportunities react to the rising gold price. Mothballed properties come into focus, mines which were uneconomical just years ago suddenly come to the fore. A mine in Nevada or British Columbia or Peru or Mongolia or Congo or East Armpit, which offered no profit with a gold price under $550 now has profitable prospects. A mine which offered no profit with a silver price under $9 now has profitable prospects. Some have mills adjacent. These properties have stocks living in a coma, now emerging as viable and hugely profitable as investments. As the gold and silver price rises further, wave after wave in new rounds of discovered stocks are potential treasure troves for the intrepid vigilant investor. More profits lie directly ahead.

My Gold and Silver Price Prediction

By year end, gold should hit USD$690 and silver USD$20. So what are you waiting for? This is the chance of a life time. Buy now and reap the profit. If you are into shares, but Silver Wheaton (SLW). Do it now while the price is still cheap!

I See a Silver Moon Rising

On January 28th, here is how I responded on a public forum to someone who wondered aloud as to whether silver might break through the $10 price level by the end of 2006: "This year!?! How about this next week? $20 silver by year end, perhaps even summer, is looking more and more likely to me. And just think, if it goes there then you will be able to say to yourself: 'I did know what would happen!' If it does dip back down at any point, back up the truck because you won't get another chance. History will show today's price to have been a bargain and last year's price as a ridiculous aberration, a result of illegal government market rigging. Mark my words well."

Y'know, when your investments are going your way, it is easy to make the mistake of believing you are a financial wizard. I harbor no such illusions, despite my BA in Finance, MBA in Accounting, law degree and the fact that, at one time, I aspired to become a Specialist (stock exchange market maker) on Wall Street. I've lost way too much money over the past decade.

What is happening today has been obvious for over ten years - that was just about the time that the Plunge Protection Team heaved into action, a response to the Reagan and Bush excesses, all of which continued in spades under Clinton. For the next eight years or so, all my accounting and financial analyst training and experience told me one thing while the markets did exactly the opposite. I lost a lot of money during that time; first in S&P futures, but more recently in contrarian funds like BEARX. For that, I have mightily damned Clinton, Bush and, especially, Greenspan.

Now, however, market forces have grown too large for even the mighty central banking oligopoly to control... except the general level of the stock market, of course. Inflate the money supply as Easy Al and WhirlyBen have done and you guarantee the market never has to decline, regardless of what may be going on elsewhere. Of course, you end up destroying the value of your currency, but nobody ever got fired for doing that.

I give up. Now I expect the stock market never again to decline, at least not for long. However, an 11,000-plus Dow in the future's dog dollars is... how much, again? And your house - suppose its price never goes down, but the purchasing power of today's dollar goes to 10 cents due to WhirlyBen's helicopter-based monetary policy... doesn't that look a lot like the 90% real estate price declines of Depression I?

About that Jan 28 forum posting: Silver actually took two weeks to hit $10. Last week, Silver vaulted over $11, then hit a high spot bid close of $11.54. At the end of the week, though other metals got hammered in the PPT's predictable fashion, silver dipped only a nickel.

Do I smell a correction in the air? Maybe. Or, maybe this is the big wave, at last. We will see. But, this isn't day trading. You've got to be in the game to play the game, so think twice before taking profits. As for myself, I think silver is a no-brainer long-term hold. And gold, platinum, palladium and all the base metals. All commodities, in fact. But, especially, silver.

If the economy goes south, silver goes up as people retreat to it as a hedge.

If the economy goes up or sideways, silver goes up due to industrial demand and the new EFTs.

If we go to war against Iran, silver goes up. If we don't go to war, silver goes up.

If Bush gets impeached (be still, my beating heart), silver goes up. If Bush continues as the Clown-in-Chief, silver goes up.

If the dollar crashes, silver launches Moonward.

Only if the dollar strengthens in the face of both the massive debt buildup that has been occurring and foreign rejection of the dollar's role as the world's reserve currency, does silver maybe decline some... and, in the immortal words of Clint Eastwood, that ain't gonna happen. WhirlyBen Bernanke said so, loud and clear. A stronger dollar will require higher interest rates - much higher interest rates - and economic pain unlike anything ever imagined by anybody alive today in America whose first language is English. Pain which will cause a rush to silver, among other things.

As I said: a no-brainer.

When I wrote the chapter entitled "Money's End Game: Depression II," for my book, Defensive Racism, I made a strong pitch for silver, even over gold. Silver then was at about $4.50 an ounce and gold was hovering around $300 per ounce. In that chapter, I summarized my detailed analysis as to why I thought gold would skyrocket, saying "I believe gold will spike to as much as 3 or 4 thousand dollars per ounce in terms of today's (2004) dollar, no later than 2010 and probably much sooner, then settle in at around $1500." You see, I was hedging my bet, at the behest of one early proofreader - I actually thought (and still do) gold would/will spike to $10,000, then settle in at around $3,000 to $5,000 in 2004 dollars (not tomorrow's dog dollars, either).

Two years ago, in that same chapter, I said the following about silver: "Silver, in particular, seems poised for a serious breakout once the rigging stops, as stop it inevitably must. Though bulky to store and handle, silver actually is a much better bet than gold."

Last fall, on October 7, once again I pitched silver, via "Peak Silver," in which I stated: "Silver's relative scarcity is a vitally-important concept that simply has yet to sink into the minds of almost everybody in the world today. Else, why does silver trade for only $7 and change per ounce, versus nearly $470 per ounce of gold? Stand by, because all that is about to change." At that point, I traded my gold for silver and recommended that others do the same. Since then, gold has climbed 24%, a remarkable performance, while silver has shot up an astounding 60%. I concluded my article with the following observation: "To the Moon, Alice. That's where the price of silver is headed, now that we have hit Peak Silver. To the Moon."

How high is the Silver Moon? We barely have attained low orbit, folks - well below the deadly Van Allen radiation belt. We still are retracing the steps of silver held back by artificial government manipulation. Next comes the increase due to rarity, vis-a-vis gold, not to mention industrial shortages. Finally, when Depression II really takes hold (unemployment will go from the current real 12% to beyond last century's Depression I mark of 25%), the premium of silver as a refuge will go into effect, thus the relevance of the song snippet recited at the outset of this piece.

People who spoke of $100 silver (again, not in tomorrow's dog dollars, either) used to be seen as loons. No more. Well, at least, not so much.

On January 28, in "Paper Bad - Metal Good," once again I recommended silver, as its spot price closed at $9.57 bid, up about a dollar from a month earlier. Last week, of course, it closed up almost another $2 per ounce since the end of January. That's a 2006 "run-rate" of a buck a month. Lessee now, December 31 price of $8.50 plus $1 times 12 months ... ... hmmmmm... .why... .that's $20 and change! Hey - am I psychotic, or what?

If you haven't yet bought silver with every spare dollar you can scrape up, I can only ask when you're going to trust the force, Luke. Last summer, despite the worried look in my wife's eyes, I refinanced our house mortgage, taking out $100,000, all of which I invested in gold, silver and palladium stocks. That $100,000 has become $250,000 today. I expect it to pay off the mortgage altogether before summer's end. Once again, I am her knight in shining armor.

Under WhirlyBen, the dollar easily could slip to half its current purchasing power by this time next year. Guess what happens to silver in that case?

Another clear tip: most analysts are, as always, calling for a major correction in precious metals and screaming, "Sell, sell, sell... " Lessee now, they're the same ones who always get us to buy high and sell low, now, aren't they? The ones who get paid to shovel us that dreck. I must be doing God's work here, because there is no way I get paid for what I tell you.

If there is another correction, that is all that it will be. Remember that the word correction implies an eventual, if not quick, recovery, usually to higher levels. Don't try to day trade metals. This is a loooonnnnnng bull market for metals that we just recently entered, make no mistake. So long, in fact, that I doubt I will outlive it.

I'll say it again: $20 per ounce silver by year's end. Mark my words well. I'm willing to be wrong, but I don't think that will happen.

Indian Gold Demand/Oil Crisis

Indian Demand
The Indian economy itself continues to enjoy growing wealth. A holding back of investment into gold has been because of the price. The enrichment of all Indians will over the longer term, be to the benefit of the gold market. The acquisition of wealth will lead to greater consumer goods being purchased, but gold is the destination of savings and investments away from the visible economy too, so gold will remain a major feature of Indian's lives.

As the wedding season kicked off on the 14th April, we expect the break through the Rs. 27,000 to spur buying, as the realisation that the high prices are here to stay. Yes, there is dishoarding and it is growing. Indian demand has reached 1,000 tonnes a year in the past of which 850 tonnes was imported previously. Imports this year are close to zero and even now wedding purchases of gold are down 30 to 50% so far, but that leas 50 - 70% of normal gold buying continuing. This could well lead to Indian imports even below 400 tonnes this year if this continues, but this is clearly not slowing the price rise of gold.

Those staying out of the market have and will miss out on these rises unless they change their stance. It appears that small retailers and their clients will adjust their view, so we do expect them to return to the market once they realise that prices are not going to come down.

How can we be so certain? A family Elder in India is cautious in the face of the price rises in the market. Imagine him going home and telling his wife and daughter that because the gold price has risen 20 or 30% he is going to break the age-old tradition of buying gold for the daughter on her wedding day to provide financial security for the couple. He would risk a lynching for sure. No, we expect that after six months of waiting, he will go to the market and buy gold, albeit in smaller volumes. There are signs that this is now happening.

One dealer said the current prices were sustainable. "People now have a little more confidence in high prices," said one dealer in Mumbai. Consumers are used to high prices it seems?

The Oil Crisis
Perhaps this title is an understatement, because we are facing far more than simply an oil crisis. The difference between the price of Brent Crude and West Texas is disappearing as supplies are rapidly being overtaken by demand.

The capacity cushion in the entire oil industry was at 1.7 million barrels, 1.5 million of which sits with OPEC. We believe this has dropped to perhaps below 1 million barrels per day by now and dropping fast. The questions we have to ask now are:

1. The interruption in supplies from the Nigerian Delta region are continuing, that's up to 600,000 barrels down on global supplies. What will happen if supplies from Nigeria, Iran or places like Venezuela are interrupted?
2. Chad is threatening to hold back 160,000 barrels a day.
3. What if suppliers turn to exclusive contracts with individual nations like China to the detriment of other buyers?
4. To what extent will individual nations go to, to secure their own supplies of oil?
5. Just how far will the U.S. go to, to ensure continued supplies from the Middle East?

Clearly we are on the brink of a global oil shortage.

Iran
A strike against Iran is close to a certainty now. Few doubt this it seems. But we have to ask why? Yes, the nuclear enrichment programme is a focal point, but far more is at stake here. And we are not talking about political factors or nuclear threats. We are talking of the consequences of these actions. We are not here to moralise, to justify or support or oppose any of these actions. We are here to help our Subscribers assess the consequences and their effect on the gold market primarily, through the events that take place in this globe of ours.

One of the immediate consequences is rising levels of tension, as war raises its ugly head. Should there be a strike against Iran's nuclear facilities, Iran is unable to react, effectively, militarily. Their 'revenge' will probably only be seen in its control of its own oil supplies. It has always had the option of diverting all its production to the East, to attempt to keep the oil price rising. But such ploys will lead to three figure oil prices and elevated levels of global tension.

On top of this the possibility of sectarian violence lies ready to persuade the Middle East in its entirety, to expand sectarian violence, causing supply ruptures thereby eliminating any remaining surpluses.

For Gold, Everything's Coming Up Roses

Gold bugs' only problem on Monday was trying to determine which of a myriad of bullish factors best explain yet another move to fresh 25-year highs. The usual suspects -- inflation, geopolitical tensions, and a weak dollar -- were all present after a three-day weekend.

Most visibly, crude oil topped $70 a barrel amid heightened concerns about Iran's nuclear ambitions. Crude finished the session on a gain of $1.08 at $70.40 a barrel.

Gold for June delivery surged $18.70, or 3.1%, to $618.80 an ounce, off an earlier 25-year high at $619.30. Other metals followed gold's lead, with silver rising 51 cents to $13.36 an ounce, off a 22-year high of $13.38. Copper finished up 7.95 cents at $2.895 an ounce, after hitting yet another all-time high at $2.935.

Ali Larijani, Iran's National Security Council Secretary, said Western requests that Iran stop its nuclear-enrichment program are "illogical," according to Iranian news agency ISNA.

The standoff between Iran, the world's fourth-largest producer of crude oil, and Western countries has sparked concern over supply disruption. Crude oil prices are at levels unseen since last September when Hurricane Katrina disturbed Gulf Coast production.

Gold's surge so far this year has been fueled both by rising geopolitical tensions, as the precious metal serves as a safe haven, and by the inflationary pressures from surging energy prices, as gold also acts as a hedge against inflation.

Other metals have mostly followed gold's lead, but with their own twists. Silver has been surging even more amid expectations that a soon-to-be-launched exchange-traded fund (ETF) will boost demand for the metal. The fund, much like the streetTRACKS Gold (GLD:NYSE - commentary - research - Cramer's Take) ETF, should make investing in the commodity easier for retail investors.

Copper, meanwhile, has reached new highs amid continued signs of global economic growth.

China reported first-quarter GDP growth of 10.2% on Friday, which sent copper sharply higher while U.S. markets were closed, according to Nell Sloane, metals analyst at NSFutures.com. "It certainly feels like the flow of money toward all metals is accelerating," she wrote in her daily commentary.

Gold and metals, which are dollar-denominated, also received a boost Monday from dollar weakness. A weak greenback normally boosts the value of dollar-denominated commodities, as it takes more dollars to buy the same amount of goods.

The dollar index, which measures the U.S. currency vs. most key world currencies, fell 1% Monday. The drop came after a Wall Street Journal article on Friday suggested that the Federal Reserve is not committed to hiking interest rates beyond May 10.

Markets are also eagerly awaiting the release of the minutes from the Fed's March 28 meeting, due Tuesday, which might provide clues about the intentions of central bankers.

Gold bugs have long speculated that a sharp slowdown in the U.S. economy will weaken the dollar this year, further boosting the precious metal's value.

Those theories appeared validated after more bearish news from the U.S. housing market. The National Association of Home Builders said its housing market index dropped to 50 in April, its lowest level in four and a half years.

So far, the dollar has remained supported by the Fed's 15 successive rate hikes since June 2004. But once the Fed stops, the dollar will have to weaken to rebalance the soaring U.S. current account deficit, gold bugs believe.

What has kept the dollar afloat to date has been continued inflows of foreign capital into U.S. assets -- providing the "funding" of the current account deficit. On that front, the dollar received support on Monday after a report showed foreign investment into U.S. assets had increased in February.