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The Silver Lining Part – 2

Stinking ThinkingThe only reason silver is so cheap right now is that people “think” it should be cheap. They’ve been conditioned to think that because governments have been dumping their silver into the markets for half a century. This extra supply has had the effect of suppressing silver’s price and the low price has resulted in our consuming more silver than produced for over half a century. But won’t they just mine more Silver?That’s a good question. The short answer is: yes. But the good news is that most silver supplies don’t come from silver mining operations. Rather, silver supplies are often a by-product of mining copper, lead, zinc and gold. In fact, about 75 percent of the supply of newly mined silver originates as a by-product of mining other metals. But won’t they just open more Silver Mines?Good question again. Again, the short answer is yes. But the worldwide average for taking a mine from discovery to production is five to seven years, and in countries with strong environmental laws, it can take much longer. The world isn’t just running out of silver aboveground either, it’s also running out of silver in the ground. Minable deposits of silver are becoming harder to find. The coming Silver BoomI am certain that one of the biggest catalysts for growth in precious metals will come from silver. Indeed, I think we are on the verge of the greatest silver boom history has ever seen. As the dollar continues to collapse, big investors will first turn towards gold and dramatically drive up its price. By the time the public catches on, gold will look pretty expensive to them. Everybody will then start hearing about silver being rarer than gold. In a frenzy, people will dive into silver, just as the stockpiles are practically diminished and production has practically stopped. That is when silver prices will explode. From the book:  “Guide to Investing in Gold and Silver” by Michael Maloney

The Silver Lining Part – 1

You’ve heard that every cloud has a silver lining? Well, in this case, the dark economic cloud does have a silver lining…literally. Because, monetarily, only gold and silver glitter. If you were excited by the prospects of investing in gold in the last chapter, wait till you get a load of the possible gains to be made by investing in silver. Think you’ve Got Silver Pegged?For the first 2000 years that gold and silver were the primary forms of money across the globe, the exchange rate between the two metals averaged 12 ounces of silver to 1 ounce of gold. In other words, silver’s value was one-twelfth that of gold. Of course, it would vary by region and time period. The ratio is set by the marketplace doing what it does naturally, which is discovering the fair price of something. This means that on average there was probably twelve times more silver in circulation than gold throughout history. It is simply the market finding the price/quantity equilibrium based on the relative rarity of the two metals. Get to the Point!The reason why I am giving you all this background is that I think that investing in silver in the near future will be as good as gold, or should I say, better. As I mentioned, when investors became net buyers of silver in the 1960’s, it forced the government to abandon silver as money and when investors became net buyers of silver in 1979, the price catapulted to over $50. Well, guess what? In 2006, for only the third time in history, the public became net buyers of silver once again. Industrial GradeSo you might be asking yourself, if the Government was selling silver and investors were selling silver, just who was buying silver?  The answer: industrial manufacturers. Silver sold was used to make consumer goods. Of all the elements, silver is the indispensable metal. It is the most electrically conductive, thermally conductive, and reflective. Modern life, as we know it, would not exist without silver. Photography, batteries, electronics…these things all came of age, and became widely available, during or shortly after, World War 11 and then absolutely exploded in use after the 1960’s due to scientific discoveries regarding the industrial applications of silver. Unlike silver, gold has two basic uses and both are hoarding type uses where the metal doesn’t get used up… money and jewellery. Less than 10 percent of gold production is used in industrial applications. Ninety percent of all the gold ever mined throughout history is still available for purchase somewhere. Of all the uses for silver, only jewellery and silverware result in saving the silver used; in all other uses, silver gets used up in microscopic amounts, thrown away, and eventually ends up in a landfill. That’s where those billions of ounces went! From the book: “Guide to Investing in Gold and Silver” by Michael Maloney

The Perfect Economic Storm

Big Government  and  Inflation. The biggest problem facing the U.S. is a really big government. It’s a monster that needs continuous feeding.  Before Roosevelt’s New Deal, the federal government was 3 percent of the economy.  Today it’s over 26 percent.  And when you add in state and local governments, plus the cost of regulatory compliance, plus the cost of all of the business that provides the goods and services that support all of the government agencies, it’s more than 50 percent of the U.S. economy. I believe the biggest thing to worry about in the coming storm is the government coming to the rescue.  And with the government so big, and so pervasive, and with everyone expecting the government to provide a safety net for every possible contingency….it will. As noted, economist Milton Friedman puts it, “Government has three different functions.  It should provide for military defense of the nation.  It should enforce contracts between individuals.  It should protect citizens against crimes against themselves or their property. When government….in pursuit of good intentions…. tries to rearrange the economy, legislate morality, or help special interests, the costs come in inefficiency, lack of innovation, and loss of freedom.  Government should be a referee and not an active player. Many economists, financial advisors, and money managers feel that all the financial disequilibria created by the dollar standard, U.S. budget and balance of trade deficits, and currency creation by the central banks are building up and storing energy that will one day result in an enormous wealth transfer.  Will the transfer come gradually, or will it spring upon us suddenly?  Some believe it will be sudden, triggered by an event, rather than a slow meltdown.  Whatever form this transfer takes, those who had the foresight to move their wealth to the safe harbors of gold, silver and precious metals will reap the benefits. There is, however, disagreement among economists as to whether the result will be deflation, inflation, stagflation or hyperinflation. Deflation is a contraction of the currency supply, which causes the currency to gain value and prices to fall.  Deflation can happen rapidly, as in the case of the Great Depression, or slowly, as in the case of Japan in the 1990’s. Inflation is a mild increase in the currency supply, which causes the currency to lose value slowly and prices to rise. Stagflation is economic stagnation, where the economy might be in recession and just can’t seem to get going, combined with high unemployment and high price inflation as in the 1970’s. Hyperinflation is inflation on steroids. From the book:  “Guide to Investing in Gold and Silver” by Michael Maloney

Coming in from the Cold…to the Gold

Good Day SunshineI promised you sunshine and now you are going to get it.  The wealth transfer I talked about in the last chapter is real and it is extremely powerful.  During a cycle change, when one asset class is topping out while the other is bottoming out, the intensity of the wealth transfer that has already taken place does not go unnoticed.  The herd sees that other people have made enormous gains, and they want some too. The public continues to chase yesterday’s hot investment class, even though big gains have already been made.  The pronounced severity of the full transfer of wealth is only noticeable after the transfer is complete .… at the end of that cycle and the beginning of the new one. Gold RushOnce again, smart investors know that the stock and bond markets have reached their peak, and have been declining for a while now. Those that are financially intelligent and in the know have been quietly moving their money into tangible assets, especially gold and silver.  You may not have heard about it in the mass media but we are in the midst of the greatest gold rush in recorded history. From the book: “Guide to Investing in Gold and Silver” by Michael Maloney