The Morgan Report Blog

What happens to gold during a deflation?

Of course, many of my readers are equally if not more interested in what happens to silver in a deflation as well.

The views on this topic vary. Some insist that both metals will do well under almost any economic conditions; some, like Bob Prechter, think neither gold nor silver will do well; and others, believe gold and gold alone will be the only thing left standing.

Confused? You should be…

In all matters such as these, studying the past can be beneficial, but — as you have read so many times before — knowing the past is not a guarantee of future results. Personally, I like to let the market speak, and for many years I have forecast that a day would come when the price of the physical gold and silver market would separate from the price “set” in New York or London. Alas, this is the case when looking at the retail market versus the commercial market.

Let us venture in the past when it looked like deflation was going to reign at the bottom of the financial crisis in late 2008. Silver actually traded below $9.00 for a brief time.

At that time,  Jason Hommel of Silver Stock Report stated:


The price manipulation at the COMEX has been so  severe in the past, that it has created a profit incentive to create a free market in silver, through an arbitrage between the physical silver market and the paper price as set by the Comex a profit opportunity exists by buying in one, and selling to the other.”

Readers might recall I wrote an article titled Silver Arbitrage, back in August.


What we can take from this past history is that those that were savvy enough to see an opportunity and took advantage of it. This writer bought commercial bars and later sent those bars to a mint to have the bulk silver converted into silver rounds.

Looking at the Opinions

Dr. Marc Faber one of the most respected and best followed in the industry has stated his opinion on the deflation debate as follows–“Therefore, under both scenarios — stagflation or deflationary recession — gold, gold equities, and other precious metals should continue to perform better than financial assets.” See article here.


Again going back into the distant past we might glean something …

Castrese Tipaldi wrote on, “I don’t know if in the last week we saw the last gasp of those usual subjects trying to cap gold, and I don’t know if we now have the very last possibility to get silver at a price so cheap.” What makes this quote so interesting to me is he wrote this on April 20, 2004. See article here.


Steve Saville of the Speculative Investor writes, “The most important difference between then (the 1930s) and now is that gold and cash US Dollars were interchangeable during the early 1930s (the deflationary period) by virtue of the fact that the Dollar was defined as a fixed weight of gold. A typical effect of deflation is an increase in the purchasing power of cash. The fact that gold and cash were officially linked during the 1930s meant the deflation caused the purchasing power of gold to increase along with the purchasing power of cash. In other words, under the monetary system that was in effect during the 1930s gold was a hedge against deflation. Furthermore, under such a system the purchasing power of gold would decrease during periods of inflation; that is, when the dollar was defined in terms of gold, it would have made sense to shift investment away from gold during periods of inflation.”

Adam Hamilton of Zeal LLC wrote, “Anything typically financed by debt is likely to see its prices plunge dramatically, like houses and cars, as the ongoing Great Bear bust continues to destroy the gross excesses of debt via higher long rates. Conversely, anything not typically ‘paid for’ with debt, including groceries and general living expenses, is almost certain to rise in the coming years. We are staring down a brutal environment of widespread inflation marked by various sectors witnessing falling prices as debt leverage implodes.” See entire article here.


One of my favorites is from Dan Ascani, who wrote essentially about Professor Jastram’s very long-term study on gold, and he essentially states that Jastram studied four pronounced price deflations taking place. In all four deflations, operational wealth in the form of gold appreciated handsomely. When one sees that just by holding gold for 13 years, from 1920 to 1933 operational wealth would have increased 2½ times, one realizes that gold can be a valuable hedge in deflation — however, a poor one in inflation.

Several years ago my entire presentation in The Morgan Report was on the topic of silver and gold during a deflation. In fact this writer is fond of quoting Professor Jastram in both of his books. The Golden Constant which looked at gold during both inflations and deflations, and Silver the Restless Metal which was a similar study for silver. Currently it seems the physical markets are taking control, yet the clues are still subtle, nonetheless with Hugo Chavez asking for Venezuela’s gold to be returned we must ask is this the tipping point in the physical gold market that is the start of a trend?

Gary North states, “There are a few contrarians who think that deflation is coming: both monetary deflation and price deflation. As far as I know, there are only about a dozen of them who write newsletters or run websites. For some reason, most of the deflationists seem to think that gold’s price will rise in a mass deflation. They do not warn their subscribers, ‘Don’t buy gold or silver!’ If they did, they would have fewer subscribers.” See entire article here.


Bob Prechter has written much on the topic; his overview of defining Inflation and Deflation can be found here.


Further, Bob goes on and states that neither gold nor silver will do well in the deflation he had predicted for so long. Specifically, “I’ll cut right to the chase: Unless you’re about 80 years old, the United States economy is undergoing the worst downturn in living memory. Every measure of growth is grim. The world’s most recognized stock index — the Dow Jones Industrial Average — is down 30% from its October 2007 all-time high.

“If ever there was a time for the ‘Safe-Haven’ lure of precious metals to surface — now, yesterday, even seven months ago when the Bear Stearns’ bailout launched the historic reshaping of Wall Street — would have been it. Yet, from its March 17 record peak, GOLD prices have plummeted more than 20%.”

So much has happened since Bear Sterns and Lehman Brothers that it might take volumes to go into it all, let’s simply request that you ask yourself if the financial conditions has gotten better or worse since then?

You can read many varying views on what will happen to gold and/or silver under a deflation. Right now the financial marketplace is so unstable that it is difficult to put too much faith in anyone’s opinion based upon such a short snapshot. Doug Casey has repeated often that the metals, and particularly gold, are a CRISIS HEDGE. I think this is the way to look at the situation.

We have already has the financial “crisis” of 2008 and even the mainstream refers to the massive sell-off as a crisis. Since then both gold has made a new nominal high and silver got very close to its old nominal high of $50.00

The question again for you is…

Has all the stimulus and government/political interventions worked or not?

Be thoughtful in your answer your financial future may well rest upon your action or inaction. 

David Morgan

Are Gold & the S&P 500 Behaving Logically or Irrationally?

JW Jones –

Back on August 7th the S&P 500 was in the midst of a panic induced selloff and the bulls were running scared. Prices were collapsing and the bulls were racing to the exits. In the following weeks, piles of money flew out of equity mutual funds as the retail investors rang the register and pulled their money out near the lows which seems to be a regularly recurring event.

While most market participants were clearly panicking, I was sitting back watching the market push lower with complete focus on being ready to initiate long positions near the lows. I sent out multiple warnings to members of my service to raise cash and reduce risk. I sat in cash and watched the madness unfold in real time.

Admittedly I did not expect the selloff to be as severe as it was and unfortunately I did not get involved with any short exposure. However, my focus is always forward looking and opportunities will present themselves again and protecting my trading capital is always my primary focus.

My article that went out August 8th was focused on downside momentum in the marketplace as well as key areas where I expected price action to hold at support. I was expecting the S&P 500 to find support around the 1,130 price level. I will be the first one to admit I am not one for making bold predictions, but I’m not scared to identify key long term support levels which have the tendency to mark bottoms in price action.

While price ultimately undercut my 1,130 target price level on the S&P 500, the following day a giant reversal bar formed which captured my interest and on August 10th I entered long positions with tight stops below the recent lows and members and I were quickly rewarded. I closed the remainder of the trade today and locked in a 32% return based on maximum risk in essentially 1 week using a basic option strategy which levered up my position.

Now I find myself with very little exposure and I’m pondering what to do. First of all, a quick glance at the short term momentum charts illustrates that price action is still extremely oversold. However, oversold conditions could worsen further potentially. The chart below illustrates the amount of stocks trading above their 20 period moving averages:

It is obvious that price action in the S&P 500 is clearly oversold and equities have considerable room to rally. However, I would point out that oversold conditions can be worked off as function of the passage of time and not just higher prices. I continue to believe that we will see the S&P 500 test the 1,220 price level and will likely move on to the 1,250 area. If price action can work above the 1,250 price level the neckline of the head and shoulders pattern will act as a key resistance area. The daily chart of the SPX is shown below:

The key levels outlined correspond with major support areas that are either carved out by previous pivot lows or through Fibonacci retracement levels. At the very least, I expect price action in the S&P 500 index to test near the 1,220 price level as it will mark a .500 Fibonacci retracement area.

I would not be at all shocked to eventually see the neckline of the head and shoulders pattern backtested to verify resistance. The head and shoulders pattern that helped propel prices lower is clear when looking at the weekly chart. I first wrote about the pattern back on July 8th and presented the following chart:

It is entirely plausible that Mr. Market thrusts lower from here to shake out longs. If that scenario plays out it could potentially carve out a double bottom or another basing pattern which would give active traders another entry point to get long. I think we are weeks from having a possible test of the recent lows on the S&P 500 as it is going to take the broad marketplace quite a while to digest the selloff and work off oversold conditions as a function of time and/or price.

Price action would be healthier if we pulled back a bit here before attempting to attack the resistance at the key 1,200 price level on the S&P 500. If prices continue to race higher in a short period of time I would consider the price action to be more of a warning that lower prices are around the corner.

While anything could happen, I believe that the S&P 500 will test the recent lows which need to hold desperately. I want to be a bull very badly, but right now unfortunately I cannot be bullish because a variety of indicators and analysis suggests that lower prices may await us.  

By now most readers recognize the monster bull market that gold and silver have enjoyed for nearly a decade. I do not intend to provide a history lesson, but during the last equity selloff investors and traders alike fled to Treasuries and the yellow metal for safety while nearly every other asset class sold off. Gold put in a new all-time high on August 11th and price quickly sold off.

Since then we have seen gold climb back up and at this point in time it appears to be poised to test the recent highs. Some market pundits say gold is in a bubble while others say prices will work higher. In my estimation as long as the Federal Reserve has loose monetary policy gold prices will continue higher over the long term. At this point in time it does not appear likely that the Federal Reserve will tighten monetary policy until after the election at the very earliest.

Instead of arguing the economics behind gold prices and the inflation/deflation debate, I am more interested in where price action may be headed. At first glance on the daily chart of gold futures it could be said that gold has accelerated significantly higher in a short period of time. There are plenty of traders that believe gold has gotten ahead of itself and desperately needs a strong correction to shake out weak ownership.

Interestingly enough these same traders and investors have been calling for a major selloff in gold for quite some time. While I have written about coming corrections, I have always maintained a long term bullish stance on gold and silver due to the Federal Reserve’s current monetary policy.

Yet again, I find myself expecting to see gold selloff in what could play out as a double top on the daily chart. I am going to be watching the price action closely looking for a possible entry to take advantage of lower prices. At the same time, I am not willing to go charging in until I see some confirming signs that gold prices will head lower.

If gold prices push above the recent highs with additional momentum gold will trade higher yet. The next few days should be very telling as a large move could be setting up in the yellow metal in the near term. The daily chart of gold is shown below:

While the daily chart clearly illustrates the potential for a double top to emerge, the weekly chart has a more parabolic look to it. If a significant correction in the price of gold sets up for traders to take a longer term short trade, then a major reversal or topping pattern should come into focus in the next few weeks.

While a short term trade to take advantage of lower prices in gold might produce some fast money, longer term traders need to be patient and let gold confirm lower prices before getting involved. The weekly chart of gold is shown below:

Ultimately I do believe we need to see a healthy pullback in gold that works off some of the overbought conditions that are present in the price action. If investors continue to view gold as a safety trade it is obvious that prices could continue higher based on uncertainty coming out of the sovereign debt crisis going on in Europe. As of right now, it appears gold could go either way but probability favors the downside.

Logically it would make sense that if the S&P 500 rallied gold would selloff. Unfortunately Mr. Market rarely embarks upon the logical until he has convinced enough market participants to behave irrationally. It should be interesting to see what Mr. Market has up his sleeve this time.

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This material should not be considered investment advice. J.W. Jones is not a registered investment advisor. Under no circumstances should any content from this article or the website be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. This material is not a solicitation for a trading approach to financial markets. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This information is for educational purposes only. 

Gold and Fiat Currency: Forty Years Later


Today, Monday, August 15, 2011, marks the 40th anniversary of the US default on the dollar’s convertibility into gold. It was the world’s de facto reserve currency and thus began an experiment with a reserve fiat currency that was doomed to failure before it began, because there has never been a successful fiat currency in all of history.. August 15, 1971 was just like any other day for most people, and President Nixon’s unprecedented decision to cut the US dollar’s gold international convertibility was largely ignored by the public. The majority of citizens didn’t understand the implications for their financial future. Contrast that to today, where a historic downgrade of US debt and a very public $2-trillion increase of the debt ceiling dominated headlines and the television news.

To read the rest of this article please click HERE

Aug 16th- Bears yell fire in empty theater?

David Banister-

Let’s clarify the SP 500 situation here: (Sent to my paying subscribers on August 16th)

Back on the Sunday night, August 7th I wrote an article forecasting a likely SP500 low at 1096-1100 ranges and explained where those numbers came from.  We ended up bottoming a few days later at 1101.

The lows at 1101 were a convergence of fibonacci weeks, months, sentiment bottoms and VIX extremes along with major insider buying all at the same time. Subscribers to TMTF were made aware of these convergences and were advised to watch 1089-1102 ranges for a major tradable low.

Going back to the March 2009 lows, The SP 500 rallied up in 5 waves from 666 to the 1370 Bin Laden highs.  At that level we had re-traced 78.6% of the entire 2007 highs to 2009 lows, a common turning point.  Since then, we have had a 3 wave decline, also common for correcting a 5 wave move to the upside.  The decline halted at 1101, an exact 38% fibonacci retracement of the 666 lows to 1370 highs.  This is what I call a “fibonacci intersection”. The same thing happened in July 2010 at 1010 on the SP 500, where a huge bottom formed amidst two Fibonacci intersections.  These are crowd behavioral patterns, and we identify them at TMTF for our subscribers.

The rally since 1101 last week to 1204 pivot highs was a 5 wave rally, this is an early bullish sign that most people don’t see. A correction of this 103 point 5 wave rally to 1204 would be normal, but the lighter the correction the more Bullish.  So far the correction is only 23% of the 104 point rally with a gap fill at 1180.

Let’s review the bull signals:

13 Fibonacci month’s from the July 2010 bottom to August 2011 bottoms

7 Times in history we had the SP 500 double in a short period of time, and in every case it retraced 27-40% of the price movement from lows to highs. We just retraced 40% of our SP 500 double, historically very high retracement.

At 1101 we had 38% Fibonacci ABC correction of the Bull leg from 666 to 1370

At 1101 the SP 500 was yielding more than 10 year treasuries

In 1974-77 we had the SAME pattern, which I outlined for everyone last week.

Insiders with massive buying, the most since March 2009 lows, corporate buybacks announced.

VIX at extreme levels

Fear gauges were at extreme levels. Sentiment was over 50% bears with normal readings at 39%.

5 wave impulsive rally from 1101 to 1204 ensued… now a pullback is due. Same thing happened last summer 1010 to 1130, pullback to1040 in 3 waves, then another 5 waves up.

What am I telling everyone?

Stop yelling fire in an empty theater….

This is options expiration week, trading this week is notoriously difficult…

The Bear case is crowded, the Bull case is not.

I’m leaning bullish as long as I keep seeing this type of confirming price action.

I’m watching 1165 on SP 500 as a pivot low worst case, but as long as we see price action above that I like the set up for a while yet on the long side.

(But Dave, the textbook for Elliott Waves doesn’t agree with you… good, that’s why I use other indicators)

Consider subscribing so that you will be consistently informed, have 24/7 Email access to me with questions, and also get Gold and Silver forecasts on a regular basis. Subscribe now with a 33% discount coupon ahead of our rate increase. for details.

A Frightening Worldwide Currency Crisis: An Unstable Monetary System

A Frightening Worldwide Currency Crisis: An Unstable Monetary System

I was asked several years ago to reenact a dramatic scene from the movie Rollover (1981), which is a rather frightening worldwide currency crisis, depicted when oil money is withdrawn from the banking system. Although a total hypothetical scenario, it brings into crystal clear focus what systemic risk is all about. This was just re-posted to our website (see

To put this into the proper context, we might visit something seldom talked about today and something I have not used in the past several years at any of the conferences that I present at — namely, the Golden Pyramid, which is attributed to Mr. John Exter.

You can get some very good background on Mr. Exter from “A Moneychanger Interview: Mr. John Exter Simplex Munditiis,” provided by Mr. Franklin Sanders.

Greg Pickup also did two excellent articles and mentions Mr. Exter’s work in both of them. One is called “The Value of Money,” and the other is “They Rang a Bell.”

John Hathaway, the senior portfolio manager at Tocqueville Asset Management L.P., wrote an article in 1999 called “The Golden Pyramid,” in which he mentions the Exter Pyramid.

Finally, for the purposes of this article, my friend and fellow newsletter writer Jay Taylor did an article titled “Systemic Fiat Currency Risk & John Exter’s Golden Triangle.

John Exter’s depiction of the Golden Triangle can be viewed below. This is a representation of the financial system in John’s era. First it must be pointed out that an upside-down pyramid is a very unstable structure, whereas a normal, right-side-up pyramid is an extremely stable one. Does this imply the whole financial structure is unbalanced?

If we examine the pyramid from the tip (bottom) up, we are looking at the most liquid assets; and as we move up the pyramid, the financial aggregates not only expand (they must continue to expand in a fiat system), but they also become less and less trustworthy. Since the entire financial system is faith based, this could also be viewed as a confidence meter.

People have had faith in gold through all of recorded history, whereas many currencies have come and gone in the monetary history of mankind. The financial markets seem capable of inventing all sorts of paper asset investments; bad or marginal loans are packaged together and turned into high-yield “investments.” All kinds of financial “insurance” packages are written to hedge risk; multitudes of Exchange Traded Funds have emerged that bet on price movement of the underlying asset. Of course, let’s not forget about the hedge fund — once a rather obscure investment vehicle that few knew of or even had the ability to locate, it now has become mainstream. And this hot money moves into and out of various markets with noticeable effect.

The Exter Pyramid does not include derivatives, which would be at least in my view at the very top of this unstable structure. There are many problems with derivatives, but the primary one could be the ability of the parties to pay.

Derivatives have exploded over the past two decades and it is well outside the purpose of this briefing to delve into the topic. However, Mr. Puplava of Financial Sense Online was ahead of the curve as usual and wrote about this topic in his article “Pedal to the Metal.” Additionally, the reader should study the topic of derivatives carefully, and this can be accomplished with some effort by reading about the threat posed by these financial instruments. See the first three or four articles (or more, of course, if you wish) on the Financial Sense Web site.

Looking at the third-world debt loan at the time a mere $1.3 trillion was a concern to Mr. Exter, today we know how the problem was resolved, due to Mr. Perkins, a former respected member of the international banking community. In his book Confessions of an Economic Hit Man, he describes how he helped the U.S. cheat poor countries around the globe out of trillions of dollars by lending them more money than they could possibly repay, and then taking over their economies. See “How the U.S. Uses Globalization to Cheat Poor Countries Out of Trillions.

The Golden Pyramid

So in the movie Rollover, When the Notes Come Due, all heck breaks loose because long-term financial instruments have to be sold all at once and moved into cash to settle with the oil investors. This causes massive selling pressure and moves market valuations tremendously. You might call it a significant shift in investor psychology in an instant!

Thus the financial instruments that the market has the least confidence in fall in value the fastest (greatest amount), and those that the market has tremendous faith in (such as gold) move up in value. In this hypothetical scenario, it all takes place in just a few trading days. I have no idea whether the writer of the movie Rollover was familiar with Mr. Exter’s work or not. But with gold’s reaction since the recent downgrade of U.S. debt this fictional movie is starting to look more like real life by the minute.

Finally, it is rather ironic that this movie was released after gold had peaked on January 21, 1980, and was actually beginning a long bear market.

To take a look at this reenactment on YouTube, please click here. Don’t laugh I am not a professional actor by a long shot but nonetheless if you view with an open mind you should get the gist of this movie sequence.

Maybe with this depiction on the YouTube Web site, perhaps more and more people will become interested in the precious metals markets!

The Crime Against Silver

The Crime Against Silver

Richard (Rick) Mills
Ahead of the Herd

As a general rule, the most successful man in life is the man who has the best information

In 1873, the Fourth Coinage Act was enacted by the US Congress. Western silver miners labeled this measure the “Crime of ’73” because it stopped the printing of US silver dollars. The US had, unofficially, abandoned its bimetallic standard in favor of a monometallic one – gold.

The supply of silver not being used for coinage increased – European Nations had just gone from a silver to a gold standard, the US was no longer coining silver dollars and these two factors, when coupled with massive new silver discoveries in the American west, caused the price of silver to collapse.

There was once a time in history when people acted. . . . Farmers were trapped in debt. They were the most oppressed of Americans, they experimented with cooperative purchasing and marketing, they tried to find their own way out of the strangle hold of debt to merchants, but none of this could work if they couldn’t get capital. So they had to turn to politics, and they had to organize themselves into a party. . . . The populists didn’t just organize a political party, they made a movement. They had picnics and parties and newsletters and classes and courses, and they taught themselves, and they taught each other, and they became a group of people with a sense of purpose, a group of people with courage, a group of people with dignity.” Lawrence Goodwin, author of The Populist Moment

Western miners, seeking the right to turn silver directly into money, mid-western grain and southern cotton farmers (who both had immense debts because of price deflation caused by overproduction) rallied to silver’s cause and the movement became known as Free Silver. The Populist Party had a strong Free Silver element and its merger with the Democratic Party moved Democrats from being in support of a monometallic gold standard to the Free Silver position.

Free Silver supporters were called “Silverites.”

Silverite’s argued that silver should continue to be part of the monetary standard with gold, their slogan was “16 to 1” – sixteen ounces of silver would be equal in value to one ounce of gold, using the ratio established in the Coinage Act of 1834.

Silverites also wanted “free coinage of silver” as authorized under the Coinage Act of 1792. Free coinage meant anyone who possessed uncoined gold could bring it to one of the United States Mints and trade it for its equivalent in gold coins, less a small deduction – Free Silver advocates wanted the mints to accept silver on the same principle. These inflationary measures would have increased the amount of money in circulation and helped debtors pay off their debts, while harming creditors and savers.

Opponents to the Free Silver movement were mostly the financial establishments of the Northeast – the moneylenders, creditors, banks, leaseholders, and landlords – they backed a monometallic gold standard – the expanding economy had constrained the money supply available on a gold only standard, this had made the dollar stronger and decreased prices, opponents of Free Silver wanted to keep it that way.

The Republican Party was against Free Silver, the party’s position being that the best way to national prosperity was “sound money.” Republicans favored a continued strong dollar, which rewarded savers and creditors.

Battle lines were drawn, on one side were the Free Silver proponents – miners, farmers, debtors and Democrats – who wanted a bimetallic standard, the free coinage of silver and inflation. On the other side of the line were the creditors and Republicans who wanted to keep a strong currency using a gold only standard.

Intense pressure caused the U.S. government to agree to the Bland-Allison Act of 1878, this act directed the Treasury to purchase silver at a high price. The Sherman Silver Purchase Act was enacted on July 14, 1890. It didn’t authorize the free and unlimited coinage of silver that the Free Silver supporters wanted, but it did increase, by a large amount, the amount of silver the government was required to purchase every month.

Using a special issue of Treasury Notes that could be redeemed for either silver, or gold, the US government became the second largest silver buyer in the world – after the government of India.

By 1893 the US was in one of the worst depressions in American history and people were turning in the new Treasury Notes for gold and depleting the government’s gold reserves. President Grover Cleveland (R) forced the repeal of both the Bland-Allison and Sherman Silver Purchase Acts.

Democrats failed to win any presidential elections in which the Free Silver issue was front and center. When a Democrat, Woodrow Wilson, won in 1912 he signed into law, in 1913, the Federal Reserve Act that created and set up the Democrats version of a Federal Reserve – having congressional oversight.

The Republicans had their own Aldrich Plan for a Federal Reserve – it gave control to private bankers. There was strong opposition, mostly from rural and western states. They feared that the Fed would become a tool of rich and powerful eastern bankers based in New York City – the “Money Trust.”

In 1913 the Pujo Committee Report concluded that a group of influential financial leaders had gained control of US manufacturing, transportation, mining, telecommunications and financial markets – no less than eighteen different major financial corporations were under control of a cartel led by J.P Morgan, George F Baker and James Stillman.

Silver metal was recognized as more precious than gold when bartering in ancient Egypt – this recorded as early as 930 BC. Silver’s use as money in coin form began around 2600 years ago. Silver and gold have stood the test of time, as a medium of exchange, a storehouse of value and a safe haven in times of turmoil.

Back to the future where we find the little bit of history, just presented, made even more fascinating by events unfolding in a Far Far Away place – Washington. Interesting to read a bit about the history of both sides in the now concluded debt ceiling debate.

One might think that the recent drama over the debt ceiling involves one side wanting to increase or maintain spending with the other side wanting to drastically cut spending, but that is far from the truth. In spite of the rhetoric being thrown around, the real debate is over how much government spending will increase.

No plan under serious consideration cuts spending in the way you and I think about it. Instead, the “cuts” being discussed are illusory, and are not cuts from current amounts being spent, but cuts in projected spending increases. This is akin to a family “saving” $100,000 in expenses by deciding not to buy a Lamborghini, and instead getting a fully loaded Mercedes, when really their budget dictates that they need to stick with their perfectly serviceable Honda. But this is the type of math Washington uses to mask the incriminating truth about their unrepentant plundering of the American people.” Ron Paul (R)

Only a third of mined silver production comes from the production of primary silver mines, the rest comes from mined production of other metals, namely zinc and lead, 25% is from production of copper mines (Chile has very little primary silver production but is the fifth largest silver producing country) and the rest is from production at gold mines.

Mined silver production rose by 2.5 percent to 735.9 M oz in 2010 – gains came from primary silver mines and as a by-product of lead/zinc mining activity. Silver produced as a by-product of gold mining fell four percent in 2010.

Tom Albanese, CEO Rio Tinto Group, the world’s second largest mining company, said that the copper industry has struggled to maintain supply because of declining ore grades (ore grades averaged 0.76 percent copper content in 2009, compared with 0.9 percent in 2002), delays to mine expansions and disruption from strikes. Christine Meilton, chief consultant at CRU Group said there was a risk some copper projects, expected to come on stream in 2012 and 2013, will be delayed because of red tape, poor infrastructure and funding difficulties.

A Report by the APS Panel on Public Affairs and the Materials Research Society coined the term “energy-critical element” (ECE) to describe a class of chemical elements that currently appear critical to one or more new, energy related technologies.

Energy-related systems are typically materials intensive. As new technologies are widely deployed, significant quantities of the elements required to manufacture them will be needed. However, many of these unfamiliar elements are not presently mined, refined, or traded in large quantities, and, as a result, their availability might be constrained by many complex factors. A shortage of these energy-critical elements (ECEs) could significantly inhibit the adoption of otherwise game-changing energy technologies. This, in turn, would limit the competitiveness of U.S. industries and the domestic scientific enterprise and, eventually, diminish the quality of life in the United States.”

The focus of the report was on energy technologies with the potential for large-scale deployment so the elements they listed are energy critical: silver was listed as one of their choices based on its use in advanced photovoltaic solar cells, especially thin film photovoltaics.


Silver investment rose by 40% during 2010 to 279.3 million ounces, almost double the amount for 2009. Demand increased to 167.0 M ozs (+5.1%) for jewelry and 101.3 M ozs (+22%) for coins. Other major usage categories are photography (72.7 M ozs, down 8.3%), and silverware (50.3 million ozs).

Industrial use accounted for the bulk of silver fabrication demand in 2010,  487.4 million ounces, up from 403.8 million ounces in 2009 – an annual increase of 20.7 percent.

Total silver demand in 2010 jumped 14.59 percent while the silver surplus – the difference between supply and fabrication demand – dropped 12 percent to 173.4 million ounces. Primary silver mining cash costs were unchanged at $5.27 an ounce in 2010.

The Federal Reserve first issued its debt based paper money in 1913. Since then the US dollar has lost plus 95% of its value. The history of fiat money has always been one of failure. The US dollar was backed by gold and silver, then just gold – the dollar use to be the rock all the worlds currencies were anchored to but when it became fiat, all the worlds currencies became fiat.

The Hong Kong Mercantile Exchange (HKMEx) has recently announced that they will roll out Yuan denominated silver futures contracts. This exchange will:

  • Grant Asian investors direct access to silver futures
  • Blunt U.S. dominance in silver trading by reducing the importance and influence of the Chicago Mercantile Exchange (CME)

According to the HKMEx China is already becoming a  factor in the silver market. From 2008 to 2010, silver demand soared 67% in China and China accounted for nearly 23% of global silver consumption in 2010.

In 2010 India consumed 2,800 tonnes of silver, 2011’s consumption is forecast to rise to 5,000 tonnes. India’s state-owned trading company –  Minerals and Metals Trading Corporation (MMTC) said it would import 1,200 tons of  Silver in 2011-12 as demand for the precious metal is rising fast.

The rising demand for silver bullion products with 99.99% fineness has started a new trend – silver denominated notes reminiscent of turn of the century American silver certificates are becoming quite popular in India, the difference is, these Indian notes are actually made of silver.

The silver notes closely resemble the country´s rupee and are very popular among the country´s younger generation and rapidly growing middle class. The nominal value of each note corresponds to its respective weight in silver – a note with a face value of 10 rupees is equal to 10 grams of silver.

Silver should be on every investors radar screen. Is it on yours?

If not, maybe it should be.

Richard (Rick) Mills

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Richard is host of and invests in the junior resource sector. His articles have been published on over 300 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Uranium Miner, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor,, Forbes, FNArena, Uraniumseek, and Financial Sense.


Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

Richard Mills does not own shares of any companies mentioned in this report.

Gold and Silver coins to be considered legal tender in the State of Utah

On Thursday, June 2nd Governor Gary Herbert signed into law a bill that allows gold and silver coins, minted by the U.S. government, to be considered legal tender in the State of Utah. This monumental event means that Utah has officially become the first state in the US to legalize gold and silver as currency – an exciting milestone, not just for Utahns, but for anyone concerned about fiscal stability!

Governor Herbert signed the bill and held a one-hour ceremony featuring several of the foremost silver and gold experts from around the country.


Those gathered heard from Larry Hilton, the Utah attorney who helped draft the law. He
who spoke about how a gold standard might restore faith in American money at a time when the country’s debt is spiraling out of control. He referred to the bill as a “dollar-friendly measure,” one that will strengthen the dollar by refocusing policy matters in Washington on what once led to the phrase ‘the dollar is as good as gold.’ ”

David Morgan, owner of and a nationally recognized silver expert
also spoke to those gathered at the State Capitol.

Old Glory Mint played a key role throughout the grassroots process that led to the drafting of this legislation and its signing into law. As a private minting company, Old Glory supported the bill for sound money in Utah, from the beginning. Reed Larsen offered his expertise in the field by addressing many issues and helping to set parameters for the project. Several of the discussion meetings were held at the Old Glory offices in West Jordan. The trail to restoration of silver and gold as legal tender in the state of Utah has been a long and bumpy road.

To mark this singular moment in history, Old Glory designed and minted a commemorative coin, entitled the “Anticipation Round.” One of only eight gold rounds minted by Old Glory was framed and presented to Governor Gary Herbert during the signing ceremony. Symbolically, only 888 silver rounds were produced to mark this occasion. The number eight was chosen specifically because it is the symbol of infinity, suggesting the way gold and silver have historically held their value over time and will likely continue to represent the value of real money going forward. This symbolism also speaks to the far-reaching influence the passage of this law could have on the value of currencies around the world for generations to come.

Old Glory owners and managers express appreciation for the invitation they received to be part of the process and commend the efforts of everyone who contributed to the passage of this ground-breaking legislation.

The Anticipation Round features a seagull and the state capitol on the obverse side of the coin with the sego lily, Utah’s state flower, and the majestic mountains on the back side. The purpose behind the representation of the seagull is to show the seagull’s involvement in helping early settlers in Utah. In the spring of 1848, settlers in Utah had crops that were being completely ruined by an overwhelming swarm of crickets. Thousands of seagulls came from the Great Salt Lake and eradicated the crickets quite quickly – thus saving the settler’s crops from further damage. The seagull and sego lily represent indigenous resources and remind us that unconventional means can be sought to preserve prosperity and that through preparedness we can thwart many of the repercussions of the impending financial challenge through precious metals.

So why was Old Glory Mint so involved in the process of passing this bill? Old Glory Mint purchases bullion straight from mines and the largest refineries, depositories and distributors, and uses it to mint .999 fine silver and .9999 pure gold rounds of various designs and sizes. We are one of the Top 10 private mints in the country, producing bullion products and customized designs in our 3,500-square-foot facility.

HB 317, The Utah Legal Tender Bill, addresses the need for individual states to return to a standard that connects true value with a monetary system. This constitutionally provided protection allows silver and gold coinage to be minted in each state. This bill fits into our overall mission to encourage the use and ownership of gold and silver products. We are thrilled to see the State of Utah take this first, and very important, step to protect Utah citizens and we anticipate, in the not too distant future, when other states will choose to do the same.

Wayne L. Palmer

Junk Silver or Junk Bonds?

By David Morgan

“Junk silver” and “junk bags” are terms that refer to $1000 in U.S. coinage—dimes, quarters, or half dollars minted 1964 or earlier; commonly known junk bags consist of 90% silver. Junk bags of silver dollars are sold separately and have always held a higher premium.

We are talking about coins that are only in fair condition and have no collectible value above the bullion value or the “melt value.” The word “junk” refers only to the value of the coins as bullion, and “junk” is not scrap silver.

When these coins were freshly minted they contained 0.7234 troy ounces of silver per dollar of face value. In practice, the recognized weight of fine silver is 0.715 troy ounces per coin, or 715 troy ounces per bag—a bit less than original, due to wear. Thus the market recognized junk bags as containing 715 ounces of silver if smelted to 0.999 purity. Less common as junk silver are Kennedy half dollars from 1965 to 1970, which contained 40% silver.

In days gone by, junk bags of Canadian dimes and quarters were in the marketplace, but in today’s world very few exist. The Canadian coins contained 80% silver (0.600 troy ounces per dollar of face value) until 1966. In 1967, they were minted in both 80% and 50% varieties. In 1968, they either contained 50% silver or none at all ((such as the Cupro-Nickel). Dollars and half dollars were minted in 80% silver until 1967.

Junk silver coins are still considered legal tender and at many times have carried very low premiums. Today, however, the premium on junk bags is about 20% or more. There have been higher premiums near the peak of the silver price in 1980 and also during Y2K, when silver bags were in high demand.

For those beginning to invest in the real silver market, U.S. silver coins are easily recognized. In addition to being easy to describe to someone who has never seen a 90% silver coin in their lifetime, coins provide convenient divisibility. In other words they can be traded in small amounts, while a silver bar of perhaps 100 troy ounces cannot be divided or used for small transactions.

Simply stated, junk silver is popular among survivalists, but today it might be added among financial survivalists! In the event of a currency collapse, it is speculated by many in the precious metals community that silver coins could provide a viable alternative to today’s currency (scrip), commonly perceived to be money.

So, that is a very brief summary of “junk” silver and it must be pointed out that there is no default risk associated with owning silver. The price does vary along with all other assets, so you might risk not being able to trade your silver for the same amount of currency used for the initial purchase.

Junk Bonds

Now let’s look at “junk bonds.” A junk bond is a high yield bond that is rated below investment grade at the time of purchase. Bonds can also become “junk” if the market determines that the issuer’s risk has increased. For a quick example, at one time General Motors bonds carried a very high rating with the risk of default being extremely low, but today does anyone think that GM is capable of paying back the bondholders? These junk bonds are called “Fallen Angels.” Generally, junk bonds have a higher risk of default or other adverse credit events, but typically pay higher yields than better quality bonds.

Risks in all bond investments, including “high” quality bonds

1. Inflation
2. Currency risk
3. Risk of Principal
4. Market Risk
5. Political Risk
6. Default Risk
7. Liquidity Risk

There are other risks but the point is made: bonds of any caliber have risk! In this day and age, nearly everyone is familiar with the fact that certain rating agencies described the risk of certain “assets” to be high grade at near zero risk. Today that is laughable but certainly no joke, as it has basically taken down the global markets to the present level, and the trust (confidence) in the system has been greatly damaged.

These days, we see many fleeing to government bonds, due to the perceived safety. However, it might be interesting to note the words of currency expert, the late Dr. Franz Pick, who said that government bonds are “certificates of guaranteed confiscation.”

We might ask if Franz Pick’s statement is true or false. Perhaps we can approach the question differently since the outstanding public debt is roughly $35,000 for everyone in the U.S. Simply ask yourself if you, your friends, and your neighbors are able to pony up the amount required on a per capita basis. If so, don’t worry be happy! But if roughly $140,000 per household is not in your petty cash drawer (or your neighbor’s) you might start to consider what really deserves to be called junk—bonds or silver.

Jimmy Rogers stated at the end of 2008, “I’m now selling long-term U.S. government bonds short. That’s the last bubble I can find in the U.S. I cannot imagine why anybody would give money to the U.S. government for 30 years for less than a 4% yield. I certainly wouldn’t. There are going to be gigantic amounts of bonds coming to the market, and inflation will be coming back.”  For the record Mr. Rogers is bullish the U.S. dollar currently on a bounce play, stating everyone else thinks it is going lower, so I am long. His long term view however is very similar to mine.

As the debt burden continues to increase, more and more people will see the light and realize that it is not the government responsible for paying off the bonds—it’s the people themselves. And where is that “money” coming from? Looks like many people are waking up to this fact and several others surrounding this debt crisis. Adding to the debt and raising the debt ceiling on an over indebted system spells trouble ahead and the precious metals are reacting accordingly.

David Morgan

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The Technicians S&P 500 Technical Outlook

The following article is an update on the current technical position of the marketplace as I see it. Obviously the price action this week has been ugly as the situation in Europe has become front and center in the minds of traders and market prognosticators. The information below is an adaptation of what members of my service at received early today.

The S&P 500 sold off sharply earlier this morning and has since bounced higher. Price is drifting lower as I write this but on the shorter term time frame we may see a short / intermediate term bottom traced out during intraday trade today. It would make sense that prices would rebound after being so extremely oversold.

The 10 minute chart of the S&P 500 E-Mini futures chart below illustrates the intraday price action:


If the S&P 500 does carve out an intraday bottom, the daily chart of the S&P 500 below illustrates the key price levels that will come into play on a potential reflex rally:

The VIX is trading lower after popping higher this morning. The data coming out tomorrow and Friday may give traders an opportunity to get involved with a short side try on the VIX. However, I am going to wait patiently for the setup to present itself. Clearly any trade would be a shorter term type of trade as the VIX can behave wildly.

The usual suspects (IYT, XLF, EEM, IWM) are all trading to the downside again today. The financials (XLF) are showing relative weakness at this point in time. The rest of the usual suspects are all rolling over quite similarly to the S&P 500.

The daily chart of the XLF is shown below:


The U.S. Dollar Index futures are trading lower today and continue to base right at a key support level. If price breaks down we could see risk assets like the S&P 500 and oil push higher. For right now, the Dollar is trading well above key support.

Gold futures sold off sharply this morning but have since regained most of the intraday losses and are trading strongly to the upside from Tuesday’s close. Gold is starting to get a bit stretched to the upside and I am stalking a potential short trade on gold for the service. It would only be a short term trade, but I think a pullback is likely.

Silver futures have broken out and intraday price action has pushed silver above recent resistance levels. I’m not going to chase silver here as it could be the beginning of a failed breakout. However, if prices continue higher in coming days or price consolidates at this breakout level I will become interested in taking silver long.

For now, the precious metals are intriguing, but I like the price action in silver better than gold as we have more crisply defined risk levels as gold has runaway to all time highs.

The silver futures daily chart illustrates the key levels in silver:


Oil futures are trading sharply lower today and are coming into a key support level going back to late June. If those prices do not hold up, we could see oil trade down below the key $90/barrel price level. At this point in time, I am not interested in trading oil, but if price works down into the $85/barrel price level I will be interested in oil as a longer term trade for the service.

Lastly, Treasuries are really pushing higher recently. I am patiently stalking a long term entry on TBT for the service similar to the oil trade discussed above. For right now, I’m going to remain in cash and see how price action plays out. Members of my service have been sitting in cash for the past few weeks and we have sidestepped this entire selloff. While I’m sitting in cash for now, I have a growing list of names I am stalking for trades in the future.

Take a look at today for a 24 hour 66% off coupon.

JW Jones

This material should not be considered investment advice. J.W. Jones is not a registered investment advisor. Under no circumstances should any content from this article or the website be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. This material is not a solicitation for a trading approach to financial markets. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This information is for educational purposes only.

Gold and the QE3 ship – Are both about to sail?

David Banister-

Back in Mid-May of this year we had a big rally in the Dollar and Gold was correcting hard.  There was a bit of Dollar Bull hysteria at the time which I felt was quite unfounded.  I wrote an article entitled, “The Dollar Bull Monkey Dance Will Soon End Badly, QE3 Next?”  You see, the collective herd psychology at that time, just a short ten weeks ago, was that Gold would drop hard at the end of QE2, and The Dollar would of course rally as high as 82, maybe more against the weighted index.

The dollar has dropped hard since mid-May as I expected and Gold has continued to rally as well.  I had forecasted $1627 for Gold back when we were under $1,500 and last Friday we closed at $1627 on the nose!  During the mid-May time, most disagreed with my QE3 forecast, and probably still do but I think the ships is soon leaving port.  This could blast Gold up to a target of $1805 on the high end and certainly into the low 1700’s to the $1730 per ounce range.

Gold has had a powerful  5 wave rally (Elliott Wave Theory)  since the October 2008 lows of $681 per ounce, and certainly one could argue that a correction would make sense fairly soon.  However, the fundamentals for Gold are only getting stronger as we have inflation climbing at an 8-9% real rate and interest rates continuing to drop.  This is creating a “negative” real interest rate environment amidst a continuing weaker US dollar.  Hence it is hard fundamentally to argue against Gold at this time, creating difficulty in forecasting the intermediate highs and lows.

With that said, assuming QE3 or some form takes place soon then my $1805 target is quite likely to be hit before we can look for any meaningful correction in the precious metal complex. With the ISM manufacturing index turning down sharply as reported this morning and other economic indicators and GDP report rolling over, a QE3 ship horn is likely to sound soon.  Below is my latest chart dated July 22nd with Gold at $1599 at the time, outlining the likely interim moves in Gold using my crowd behavioral methodology that I employ at my forecasting service.

The combination of crowd behavior and fundamental analysis often delivers stunningly accurate forecasts in advance on the SP 500, Gold and Silver at TMTF.  Consider signing up for our regular updates and use our 72 hour coupon code at

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