Nothing more humourous than the so called "experts" claiming gold and silver have peaked when the general public is completely ignorant of current economic conditions.

Regards - VHF

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Gold and Silver's Bright Future Still 'Secret'

Patrick Heller

December 21, 2010

There are significant developments in trading of Classic U.S. gold coins now. As happens every year, wholesalers who are situated in states with an inventory tax on Dec. 31 are busy trying to trim their stocks. One consequence is that U.S. gold marketmakers in Texas have pulled their bids until the new year.

Don’t worry. This might be a good time to remember the long-term and why you are interested in gold and silver in the first place.

Gold and silver prices peaked in January 1980 when just about everybody in the world was aware of the Hunt Brothers’ attempt to corner the silver market, consumer prices were soaring and home mortgage rates were at 14 percent or so.

At the time, it seemed like a huge segment of the public was talking about how gold and silver prices were going to keep going up and up and that it was a good time to be buying. In reality, when almost all potential buyers had jumped into the markets, that was a signal of the market top.

Back then, there was a sharp spike in prices before they fell almost as quickly. For instance, gold peaked at $850, but it only closed above $700 on four days.

Before I go into what the public doesn’t know about the gold and silver markets today, let’s consider their lack of general financial knowledge. The public’s economic ignorance is rampant. Sometimes the lack of knowledge is fostered by government officials, sometimes by incompetent media reporting and other times it appears that the reporting may be skewed by a reporter with a dishonest agenda. There are so many examples, there isn’t room to cite more than a handful.

From the Federal Reserve Open Market Committee on down, politicians are claiming that consumer prices are not increasing fast enough and that the government must inflate the money supply to cure this “problem.”

Sure, the pronouncements by some government officials do get reported. But the reports don’t provide the context so that the public can better understand what is happening. Here are samples of what I mean.

On Oct. 5, just before top federal officials (including President Obama, Fed Chair Bernanke, and Treasury Secretary Geithner) announced plans to inflate the U.S. money supply starting after the elections, the 10-Year U.S. Treasury debt interest rate was 2.474 percent. On Dec. 20, it closed at 3.36 percent, an increase of 35.8 percent in 10 weeks. Does the public realize that this indicates what is going to happen to the value of the U.S. dollar?

Or does the public comprehend the disconnect between two significant indicators of inflation when the November Producer Price Index (PPI) jumped 0.8 percent (about 10 percent annually) versus the Consumer Price Index (CPI) which was only up 0.1 percent (just over 1 percent annually). The PPI is generally a more accurate indicator of what will be happening to consumer prices in the coming months where the CPI measures what changes have occurred in the recent past. If you did a survey of the general public, how many would be aware of the PPI figure and its implications?

Another scary example of public ignorance is the looming crisis in state and local government budgets. Federal stimulus funds were used to temporarily cover the deficits of agencies that are required to have balanced budgets, but that source of revenue is over. The impact of sharply smaller revenue streams leads some analysts to expect that this one financial problem will prevent any economic recovery in the United States, will lead to at least one million lost state and local government jobs, and eventually force the U.S. government to create money out of thin air for a record-sized bailout. Yet the seriousness of this crisis is little covered by the mainstream media. Certainly, no one in Washington wants to talk about it.

In the past two years, state and local governments together have spent nearly a half trillion dollars more than they collected in taxes, plus fell about one trillion dollars further behind in funding public pension liabilities.

When interviewed for the Dec. 19 broadcast of CBS’s 60 Minutes, Meredith Whitney, a financial analyst who made her reputation by warning that the big banks were in trouble long before the 2008 collapse, said “The most alarming thing about the state issue is the level of complacency. It has tentacles as wide as anything I’ve seen. I think next to housing this is the single most important issue in the United States, and certainly the largest threat to the US economy.” When Steve Kroft asked why the public wasn’t paying attention to this crisis, she said, “’Cause they don’t pay attention until they have to.” As much as the public lacks knowledge about what is really going on with the U.S. economy, their ignorance of the gold and silver markets is even worse. If you were to survey the general public, how many do you think realize—

• That foreign owners of U.S. dollars are becoming more aggressive at dumping the U.S. dollar for tangible assets such as gold, silver and other commodities?

• That buyers in the Far East are having such a difficult time acquiring physical gold and silver that they are now buying paper contracts and paying with U.S. dollars? This strategy enables the buyers to get rid of tens of billions of U.S. dollars, and gets them most of the way toward owning physical metals. As the buyers later find physical metal, they have been paying a premium in order to turn their paper into the real metal.

• The major governments have failed to come to an agreement to avoid a currency war where each issuer tries to knock down the value of its currency by more than the others?

• That the U.S. government has a huge incentive to suppress gold and silver prices – to help hold down the interest rate that it pays on Treasury debt?

• That the U.S. government has changed the terminology in describing its gold holdings from “Gold Reserves” to “Custodial Gold,” which is a sign that the U.S. government may no longer have title to all the gold it supposedly holds?

• That central banks, collectively, have turned from long-term net sellers to net buyers of gold reserves?

• That China is aggressively seeking to replace the U.S. dollar as the unit of payment for international transactions? As demand for the U.S. dollar declines, that will further impair its value.

• That gold and shares in gold mining companies now make up less than 1 percent of global investment portfolios, whereas it was well over 20 percent in 1980?

• That the price of gold, even though at a nominal high, is still not much more than halfway to the inflation-adjusted January 1980 peak price? Or that the price of silver would have to at least quadruple current levels to beat the January 1980 peak?

Today, the mainstream media carries many stories about so-called “experts” proclaiming that gold and silver prices have peaked. Unless they completely ignore the foregoing list and more, I just don’t see how they come to such conclusions.

The price of gold from the end of 2009 through Dec. 20 has risen 26 percent; silver has soared 74 percent. As good as those results are, in my judgment the prices of gold and silver in 2011 will rise by much greater percentages. As the public gradually understands what is really happening with precious metals, the growing demand for physical gold and silver will expand. If you want to give yourself a gift that you will appreciate for years to come, pick up some gold and silver soon.