Saturday, April 16, 2011

Darryl Robert Schoon
12 April 2011
Silver, the Canary in the Gold Mine was my talk at a Gold Standard Institute symposium in Canberra, Australia in November 2008. The topic could well describe today's gold and silver markets.

Today, both silver and gold are achieving record highs but silver's accelerating price indicates silver may indeed be the canary in the gold mine, the leading indicator for gold's long-awaited explosive move upwards, a move the Fed and major bullion banks have colluded since the 1980s to prevent.


In 1979, the price of silver accelerated along with the price of gold. Silver had spent 1977 and 1978 hovering between $4 and $5 but in 1979 silver began to move upwards-as did gold.

In late January, silver moved to $5.94. Six months later, silver tripled, trading in the $16-$18 range before beginning a meteoric ascent in December, doubling from $17 to $34 , rising 33% on the first trading day in 1980 and peaking January 21st in intraday trading at over $50 per ounce, almost a 1,000 % rise in a year.

Silver (black): gold (red)

On January 21st, gold also peaked at $850. The simultaneous top of both gold and silver is all the more metaphysically coincidental because the factors driving the two metals were far different, i.e. the gold price was being driven by inflation while the Hunt Bros.' squeeze attempting to corner the silver market was responsible for the spectacular ascent of silver.

Now, three decades later, a similar scenario is about to unfold, albeit with a different ending. The current decade will not only repeat what happened in the 1970s but it will bring to its inevitable end that which was set in motion in 1971.

The end of paper money is now in sight.

1970s REDUX
History does not repeat itself, but it does rhyme. -- Mark Twain

On August 15, 1971 President Nixon announced that the US would no longer convert US dollars to gold. For the first time in history, money was no longer gold or silver or convertible to either. On that day, because of Nixon's actions all money everywhere became but government issued coupons with unknown expiration dates.

The reason behind Nixon's extraordinary action was that US gold reserves had been virtually emptied by US overseas military spending. The massive outflow of US dollars needed to maintain America's global military presence had far outweighed any corresponding inflow from America's significant positive balance of trade.

By 1971, it was clear the US owed more far gold than it possessed. The closing of the gold window by Nixon constituted the largest monetary default in history. Now, thirty years later, the final consequences of that default are unfolding.

After 1971, governments everywhere borrowed, printed and spent even more money as gold no longer was a constraint on the global money supply. Additionally, gold was no longer exchanged in order to rectify global trade imbalances.

It was Milton Friedman-the monetary poster boy of the right-who advised Nixon to cut all ties between the dollar and gold. Friedman, like Keynes-the monetary poster boy of the left-was a strong believer in fiat money and Friedman advised Nixon that floating exchange rates would balance global trade flows. Friedman was wrong.

The 1971 cutting of ties between money and gold instead led to increasingly unbalanced trade flows, rapid increases in government debt, and by the late 1970s, increasingly high rates of inflation.

In January 1978, US inflation measured 6.84 %. In January 1979, it was 9.28 % and by January 1980 inflation had risen to 13.91 %. Gold, the traditional refuge from monetary inflation, rose accordingly. In 1978, the average gold price was $193.40. In 1979, it was $306; and in January 1980, gold spiked to $850 with inflation peaking two months later at 14.76 % in March.

In August 1979, President Jimmy Carter appointed Paul Volker to head the Fed hoping to control inflation. Volker's aggressive rate increases brought down both inflation and the price of gold (note: Volker was also responsible for the demonetization of gold in 1971).

Today, aggressive rate increases to prevent high inflation are almost impossible. As inflation moves higher-and irrespective of distorted US figures, it is already doing so-higher Fed rates would end the Fed's liquidity-driven recovery and cause payments on the now astronomical US debt to rise to unsustainable levels.

Expect, then, that gold will move far higher before the Fed is finally forced, if ever, to raise rates. This long-delayed reaction will cause gold to move even higher as a slowing US economy would more than offset any potential rise in the US dollar until the US dollar crashed; and, in such an event, gold would be the only safe haven left standing.

The reason why gold is not rising as rapidly as silver as in the 1970s is because since the 1980s the Fed has focused on keeping the price of gold low à la Gibson's paradox; and, as a consequence, instead of rising equally with silver, gold is lagging and silver is leading.

Silver, however, is clearly the canary in the gold mine and as the below chart shows, silver has now broken out.

Such a breakout of silver indicates gold could soon follow. This time gold's explosive rise would again be fueled by rising inflation and an unexpected variant of the Hunt Bros. silver squeeze in the 1970s.

Inflation is already here. Excessive central bank liquidity and loose monetary policies since 2008/2009 have unleashed global inflationary pressures that cannot easily be controlled.

Just as inflation drove gold to a high in 1980, it will do so again today, three decades after Nixon literally pulled the gold out from under the world's monetary foundation. Inflation is now about to finish what Nixon started, the end of fiat money is in sight.

Increasingly consumed by inflation, today's paper currencies will worthlessly inflate ad infinitum and disappear like cotton candy into monetary oblivion like all fiat currencies. This time is no different. Gold and silver will again soar and, as in the 1970s, a short squeeze will again be a factor.

Unlike the 1970s, however, it will not be silver that is squeezed. This time it will be the bullion banks who have colluded with central banks to keep prices of gold and silver low; for as silver and gold rise, at a certain point the bullion banks will be forced to cover their enormous short positions (see below) driving gold and silver higher.


The collapse of paper money will make the 2008 collapse of financial markets seem like the prelude it is. Capitalism, i.e. economies based on the substitution of debt-based capital for gold, is possible only when capital, i.e. paper money issued by a central bank, is itself tied to the precious metal. In 1971, that changed.

It was the removal of gold from capitalism's monetary foundation that sent capitalism's endgame into motion. Thirty years later, it is reaching its destined end. What will also end is the vast inequities the system encouraged and abetted.

Nobel winner Joseph Stiglitz recently observed that the top 1 % in the US now receives 25 % of America's income and controls 40 % of its wealth. This is to be expected as capitalism rewards those closest to the spigots of credit, i.e. bankers, and those who employ them.

All others are but temporary winners as over time the house cannot be beat-at least not until the house burns down. However, the fire has been lit-the house itself did it in 1971-and the banker's house of cards has been burning ever since. Paper burns, gold and silver don't.

Last week, I received an email from an 8th grade middle-school student. His school project was to interview an expert on his chosen subject, the 2008 financial collapse. He discovered that most experts had not foreseen the collapse. As I had, he approached me for some answers.

On my TV show,, I provided some insights about the collapse and our present circumstances. The student was sincere and intelligent and his generation will be among those who will have to deal with the coming economic rendering. They will also be among those who will help rebuild this country.

On February 8th, the title of my blog was "Severe Earth Changes Coming". On February 19th, a 6.3 earthquake struck New Zealand. On March 11th, a massive 9.0 earthquake devastated Japan and was followed by a 7.4 quake on April 8th. These are only the beginning. More changes are on the way.

Humanity is in the midst of a momentous paradigm shift. Governments will fall, natural disasters will increase and the present world will pass away, paving the way for the better world that is to come.

Buy gold, buy silver, have faith.

Darryl Robert Schoon

The Silver Economy

Jeff Nielson
12 April 2011
In a previous commentary I looked at how our economies would function in a world where our paper, fiat currencies had collapsed. Given the unrepayable debts racked-up by most Western economies, and the out-of-control money-printing by our central banks (sanctioned by our governments), this is not merely a plausible scenario, but as many would argue it is a highly likely outcome.

I explained how by merely applying existing laws on "legal tender" currencies and taxation that we should be able to hold gold and silver money to protect ourselves from the collapse in wealth which accompanies the collapse of banker-paper, and be able to spend that money without any adverse taxation consequences. Specifically, there should be no "capital gains" tax on any transactions where we are spending our gold and silver money - irrespective of how much they have appreciated versus the bankers' worthless paper.

I titled that piece "The Gold Economy", in deference to the superior status which gold enjoys (today) as "money". However, shortly after that I was enlightened by some historical materials submitted to me by readers. I quickly revised my position on silver versus gold as "money", and now firmly believe that it is silver rather than gold which is the key, monetary currency - at least on the individual level. Certainly when it comes to "backing" an entire economy, gold's superiority remains obvious.

In a subsequent commentary, I looked at how an economy would function hypothetically if it fully "monetized" silver as the official currency in circulation. I pointed out an obvious fact which has been completely forgotten by the modern charlatans who call themselves economists: that a "strong" (and appreciating) currency is the hallmark of both a stable and prosperous economy. I illustrated the fraudulent trade arguments used by these academic dolts which they have used to trigger a "race to the bottom": seeing which governments could devalue their (paper) currencies the fastest.

I explained how an economy with "sound money" (in the form of silver currency) would quickly rise above the banker-dominated cesspool of fiat, paper currencies. I referred to the (previous) real-life example of the U.S. economy to provide evidence of how a "high wage" economy with a very strong currency would be more prosperous than competing economies with their paper currencies, rather than less so. However, as my "hypothetical" model for such an economy I used Mexico as my example - saluting the ongoing movement in Mexico today to partially re-monetize silver.

Many silver investors are now quite familiar with the Mexican silver-sage, Hugo Salinas Price. His one-man "crusade" to have silver coins recirculated in the Mexican economy as a "parallel" (but official) currency in Mexico is elegant in its simplicity.

The genius of his proposal was to keep the unit of currency constant (a 1-oz coin), while allowing the nominal quote which assigns these coins their value to float in conjunction with the prevailing "spot" price of silver - subject to some minor, but technical constraints. He also stressed the importance of allowing the government Treasury which mints these coins to incorporate a fair-but-significant seigniorage (or "premium") on the nominal quote it issued on the coins, in order for it to maintain a reasonable profit-margin on this operation for taxpayers and to ensure there was never a monetary incentive to melt-down the coins for their silver.

In other words, the nominal quote would (for example) be 15% above the market-value of the silver - making the coins always more valuable as money than their melt-down value of the silver. The government actually turns a profit on one of its functions, and the money is preserved in our economies. However, there is a third benefit which also flows from the brilliance of his proposal: it makes a "parallel" silver currency just as economically viable (and practical) in non-silver producing nations as it is in a country like Mexico - which is one of the world's largest silver-producers.

To explain how this can be so, we must first back-up and project how this new, silver "money" would be handled by the Mexican population - where the availability of sufficient silver is clearly not a constraint. Some critics of Salinas Price mistakenly believe that Gresham's Law (stating that "bad money will drive out good money") represents a flaw in his proposal.

They argue that the Mexican people would spend their paper pesos and "hoard" their much more highly-valued silver money (otherwise known as "savings"). Indeed, this is exactly what we should hope that people would do when "good money" was reintroduced into our economies.

But let's put aside that argument for now, and instead focus on one point within the argument: given the choice, any rational person would rather hold silver money than paper money. This is precisely how and why non-silver producing nations can also introduce silver money into their economies - on terms very similar to those which could be obtained in a large silver-producing nation like Mexico.

To obtain all the silver it needs from silver mines to supply an economy with silver, all that a government needs to do is to pay the silver miner in that nation's silver currency. Immediately, some readers will conclude that this is insanity: that no silver miner would ever agree to such a "money-losing proposition".

Understand what is implied here. Using our previous, hypothetical example of a government which reserves a 15% seigniorage on the nominal "quote" it issues for the silver money, this means that a silver miner would "sell" a certain number of ounces of silver to a government, and receive (as its payment in full) the purchase price in silver money - represented by the number "X". The payment for the silver miner in ounces would then be X - 15%.

"How could any silver miner ever contemplate such a ridiculous transaction?" is the instant reaction of most people to this proposition. However, Salinas Price argues (with complete confidence) that the miners would be happy to accept such payment for their silver, and I concur with his reasoning entirely.

What do miners currently receive for their silver? Paper money. The same paper currencies which we bullion-holders are ridding ourselves of in favor of good money. Recall the proposition of logic which we have already accepted: given the choice, a rational individual would choose always silver money over paper money.

Why would a silver miner not act like a "rational individual"? In fact, contrary to the illusion of this transaction, the silver miner loses nothing. The seigniorage which the silver miner "loses" in the original transaction is preserved in the silver money. When the silver miner spends that silver money, it recoups the entire "loss" on the transaction. The only difference is that it receives "good money" for its silver in the original transaction instead of the (worthless) paper money it currently receives.

Indeed, because these silver currencies are guaranteed to never lose their value (as money), because the nominal quote can never be reduced (in accordance with Hugo Salinas Price's proposal), not only will this silver money be preferred to paper currencies, it will even be preferred to holding silver, in its pure "commodity" form.

Logically, we would expect silver miners to line up, hoping to be selected to be the official supplier of the "good money" for one government or another. The problem of supply is, in fact not a problem at all.

This brings us back to another proposition of our original analysis: that average citizens would "hoard" silver money. Another way of putting this is: the "savings rate" would go up. Certainly, if there is one equation which is beyond doubt in North America it is that the average person saves much, much too little.

In this respect, let us affix blame squarely where it belongs: on our central banks, and the lackey-politicians who support their monetary insanity. It is near-zero interest rates which perpetually rob anyone foolish enough to save, while the rabidly excessive money-printing destroys that wealth with inflation - a double-blow to anyone who saves in the face of the economic purgatory our governments have created.

Conversely, with "good money" introduced into our economies as parallel currencies, we can (to some extent) ignore the depravity (and hypocrisy) of bankers and politicians. Holding good money, we don't care about what fraudulent interest rates our governments choose. Understand that while bankers pay us a tiny fraction in "interest" on savings (with one hand), they are stealing five times that amount from us through the inflation they deliberately create with their money-printing.

With our silver money guaranteed to never lose its value, we don't need to spend it instantly - just to make sure the bankers don't cause it to erode to nothing while we hold it. Suddenly savers are rewarded, which is obviously the proper outcome for this virtuous behavior - rather than the sleazy double-robbery committed by bankers in our current world of paper currencies.

Let me summarize where we have arrived at, in our hypothetical world of silver money. First of all we have "good money", which we can hold fearlessly without fear of being robbed or cheated via near-zero interest rates, excessive inflation, or hypocritical taxation policies which amount to outright theft.

Second, we instantly reverse the trend of debt-bloated households spending as fast as they can, and taking on much too much debt - because the monetary policies of our morally- and intellectually-bankrupt governments force us to do this. Instead, people would be rewarded and encouraged to build-up a healthy level of savings, both at the individual and collective level in our economies.

More broadly, the healthy deflationary impact of using "good money" as currency would purge our economies of excessive, leveraged debt - and automatically incorporate sound, sustainable economic practices among both the government and the economy in general.

In short, an economy which replaces fiat-paper with good money must inevitably rise above its paper-loving peers. All that is "lost" in making the transition from paper to metal are the bankers' opportunities to steal from us with their paper schemes.

Now you understand completely why these bankers fight with all their might to attempt to discredit gold and silver, and prevent these precious metals from (once again) assuming their proper place as our only money.

Jeff Nielson

Keiser Report: For a Few Billion Dollars More

On a side note to Stacey's story about UK copper theft, when I was an analyst at a major US firm several years ago a colleague and I were sent a gushing report from an executive who was visiting the company's new site and surrounds in India. In the report he was in a lather stating that "it is all wireless over here!". My colleague being an ex-South African military guy, used to visiting 3rd world locations cut through the gushing with "....well of course the bloody place is wireless, the staving peasants have stolen all the copper wires and sold them to scrap merchants"

From on Apr 14, 2011

This week Max Keiser and co-host, Stacy Herbert, report on the scrap metal crimewave, shorting US treasuries and other signs of economic chaos. In the second half of the show, Max talks to author and blogger, Cory Doctorow, about copyright extremists and about watching robots throw buildings at each other.

Silver mine strike in Bolivia boosting silver spot prices

From Silver Shortage blog:

Bolivian miners have staged a major protest at the San Cristóbal mine, one of the world’s largest silver mines, San Cristobal Mine is the world’s third-largest producer of silver and the sixth-largest producer of zinc, it produced some 620,000 kilograms of fine silver in 2009, according to official data, and its output accounts for about half of the country's total mining exports.The Union decides to continue indefinite strike and they are blocking the entrance to the mine .There is neither production nor exports, because there's a blockade as part of the strike , this is all bullish for the silver price worldwide and it is probably what have caused the recent silver prices surge , experts are now expecting $50 an ounce for silver as early as next month . The price ratio gold / silver has moved in favor of silver in the last couple of months. A large number of investors have seen silver more affordable than gold. Because of this demand, dealers in precious metals in the United States and China have warned of a shortage of supply. Many investors are very worried about the continued devaluation of the currencies in the leading nations. The policies pursued by the U.S. central bank, the Federal Reserve (Fed) are eroding confidence in the dollar, leading many Americans to buy silver. Many Chinese are also buying silver as a hedge against rapidly rising inflation in China. The demand for silver in Traded Funds (ETFs) has increased dramatically in recent years.

Market Insights: Gold, Silver, Platinum & Palladium

Spain to need bailout and Gold to $1,500?

Panel discussion on the Irish Banking Crisis

James Turk on Silver Backwardation

Adrian Day discusses Gold, Silver & US$

Adrian Day discusses the gold and silver markets and the outlook for the US$ and US interest rates with Geoff Candy of Mineweb.......listen here

Stars & Stripes - Silver closes the week above US$43

Whilst 42 maybe the answer to life, the universe and everything, it doesn't hold true for silver, as silver crossed the line for week above US$43/oz. Note the striped pattern in the chart below. I have only seen this pattern a few times before and it always has shown to be a sign of strong buying pressure and further short term gains.

Max Keiser - Hang the Bankers !!

Max on the UK CH4 10 o'clock show earlier this week.