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Gold and Silver Make the World Go 'Round


The world is drowning in freshly printed paper and there are just too many paper dollars around that are looking for an alternate home to US Treasuries.

Maybe base metals can head significantly lower if the World grinds to a halt and China stops buying everything (doubtful), but I don't reckon the same would happen with gold and silver. There is no turning back now. The world is drowning in freshly printed paper and there are just too many paper dollars around that are looking for an alternate home to US Treasuries. Someone said to me that the IMF or Germany or France might sell some gold and that would send the price markedly lower. I laughed. China, Japan, Russia and a handful of other countries looking to ditch their paper horde would just back up a few 747's and swap their paper reserves for real money - in a heartbeat. Physical gold in real size will never hit the market. As for silver, well, there isn't much available.

The U.S. silver stockpile of over 5 Billion ounces has been used up over the last 40 years. It's gone and it isn't coming back. Sure, there will be some scrap selling and all that on higher prices, but mine supply is very inelastic. You can't turn supply up much in a short time. Silver is a byproduct of lead, zinc and copper mines and they're running full tilt already. The pure silver deposits in Mexico, Peru and other South American countries will demand higher prices and years to come to market. Interesting is the discussions in Mexico regarding the silver backed Peso. That could be very telling in the near future. In my opinion, physical silver is so bloody cheap it isn't funny!

I see that someone had a crack at the Bank of England about their gold sales and the US$6.6 Billion hit they have taken on those crazy sales back in the early part of the new millennium. About time! I wonder when the Aussies, Dutch, Canucks, Portugese, etc. are gonna do the same. These central banks went chasing some "yield" on their citizen's "savings" and now have a few paper IOU's from the biggest debtor on the planet - paper that is devaluing in front of their eyes. Not many people realize that their money isn't "as good as gold," let alone know that their reserve banks have flogged it all off. I wonder when those central banks are gonna cut and run and start buying back the gold they ditched. Ouch. Reserve diversification has been a point we have discussed on numerous occasions these past 3 or 4 years. How good are the recent "official" buyers looking these days - places like Russia, the 'Stans, China, Argentina amongst others?? But I digress….

I keep hearing that Iran tensions are a big part of the precious metals rally – that is so illogical that it isn't funny. Maybe it has spooked a few into metals, but have a think about it. In 2002, there was this Middle East country who, we were guaranteed, had WMD's and were gonna use them against us. A real shooting war started. Gold couldn't rise 50 bucks. Today we have another Mid-East country who may be able to do something nasty in a few years. There's a bit of sabre-rattling and jaw-boning but certainly no shooting and stuff, yet gold is up $200 in 5 months?? Oil at +$70 a barrel? Oh yeah, now that's inflationary if you include it in the calculations… ex-food and energy, seriously, what do ya reckon we all spend our pay on? And don't get me started on housing/rent equivalent calculations….. hmmm.
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Position in gold, silver

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