Wednesday, January 19, 2011

John Hathaway: Debasement, spending sprees argue for gold

Tocqueville Gold Fund manager John Hathaway reviews gold's prospects and those of gold mining companies in the fund's year-end investor letter. Hathaway writes:

"While many observers feel that the gold rally has been overdone, is too crowded, resembles a bubble, or whatever, the simple fact remains that central banks of the Western democracies appear on course to debase paper currencies. On the one hand, currency debasement is the path of least resistance to grapple with the seemingly intractable fiscal issues of record deficits and unchecked growth in entitlements. On the other hand, persistent economic weakness translates into political pressure for central banks to pursue extremely lax monetary policies. Under these circumstances, it is hard to argue against the notion that some exposure to gold offers protection against monetary damage still to come." in full

The Tunisian job: How president's wife 'fled with $60m in gold bullion'

From The Independent:

The final act of the kleptocracy by the Ben Ali family was to steal one and a half tonnes of gold, with the president's wife personally collecting the bullion from an initially reluctant but eventually browbeaten president of the country's central bank.

Within hours the allegations – denied by the central bank – had been turned into slogans on the streets of Tunis in another demonstration, as protesters vented their fury at the former first family. "Hang them all, but let's get our gold back first," shouted a group marching along Avenue Bourguiba.

This may not be easy. Whereas Zine el-Abidine Ben Ali is now a guest of Saudi Arabia, supposedly in the same neighbourhood of Jeddah which once hosted another fallen African strongman, Idi Amin, the whereabouts of his spouse, Leila Trabelsi, is unclear. Some Tunisians say that Dubai, where she would go on shopping expeditions, is the destination, others say it is one of the central Asian on

Hinde Capital's Ben Davies On 11 Threats That Will Terrify Investors And Push Gold Higher

From Business Insider:

Fear lies at the heart of nearly every big move in gold. Luckily for gold bugs, there's plenty to be afraid of in 2011.

Hinde Capital's Ben Davies says central banks are driving equity markets, leading to a global ponzi scheme. In this context, gold is "extremely undervalued."

"What specifically keeps us awake at night? Too be honest all the issues we discussed last year and more," he says in a new 45-page report (via King World News).

Reported silver shortages around the world

From Gold Core:

Reuters reported shortages of 1 kilo silver bars in Asia last week. Sprott Asset Management reported that it was experiencing difficulty sourcing 1,000 oz silver bars. Sprott said they were concerned about the “illiquidity in the physical silver market" and said delays in being able to source physical silver highlights the “disconnect that exists between the paper and physical markets for silver."

Zero Hedge reported that Bullion Vault, the digital gold provider, had run out physical silver inventories in Germany (and possibly elsewhere) and was advising clients to buy silver from other sources.

Zero Hedge also reported yesterday that some smaller bullion dealers in the UK were having difficulty sourcing all silver bars and had delayed delivery of silver bars (including 1 kilo silver bars) until February.

This comes at a time when the US Mint has reported huge demand in the first two weeks of January for their very popular US Silver Eagle 1 oz bullion coins.

At about $33, €25 or £20 a coin, collectors and those seeking financial insurance have been buying silver in very significant quantities. The 2011 minted coins were first issued on January 3 and in just the first two weeks, 3.5 million coins were sold, according to numismatic web site Coin News.

If sales continue at these levels, that record should be surpassed this week. The all time monthly record of 4.26 million silver coins, which was set last November, is clearly in sight.

A recent report by analyst Adrian Douglas of GATA warns of forthcoming shortages of gold and silver bullion coins and bars, and that a “tipping point” will soon be reached that could lead to a COMEX default and a short squeeze which leads to much higher prices. Douglas himself has shown in Le Metropole Café how Comex silver inventories are shrinking and are not far from ten year lows.

The “bear raids” by the large concentrated shorts being investigated by the CFTC, are only leading to increased physical off-take. Indeed, the selling raids may be leading some participants on the COMEX (including large hedge funds) to take delivery or sell futures and buy bullion in allocated accounts.

None of the factors, in and of themselves, suggest that widespread shortages of silver (or gold) bullion are imminent in the immediate future. However, much circumstantial evidence suggests, especially the bona fide reports of difficulty in sourcing large silver bars, that the supply and demand balance in the silver market is very tight.

The more than 80% increase in the silver price seen in 2010 is not leading to an increased supply of silver but rather to a continuing and possibly increasing demand.

This is not surprising as silver is a byproduct of base metals and therefore its price increase will not have led to any material increase in silver mine production. This fact is known by most buyers of silver coins and bars and many of them continue to hold and add to their silver holdings in anticipation of much higher prices.

Silver at $50 per ounce and the 1980 adjusted for inflation price of $130 per ounce are conservative estimates for some silver enthusiasts. They have been proved right in recent years and the extremely delicate supply and demand equation in silver could see them proved right again in the coming months.

Since 2003, GoldCore have written research articles pointing out that the very small size of the silver bullion market would likely see its inflation adjusted high of $130/oz reached in the long term.

Interestingly, were gold to reach its adjusted for inflation 1980 price of $2,300 per ounce, and silver revert to its long term gold/silver ratio of 15:1 (geologically there are 15 parts of silver to every one part of gold in the Earth’s crust) then silver would reach over $150 per ounce.

While this seems über bullish to those who know little about the silver market, some silver enthusiasts - and there are many - believe that in time, silver will be valued at the same price as gold as huge quantities of silver have been used up in industrial applications since the Industrial Revolution of the 19th Century and throughout the 20th Century and into this millenium.

In these unprecedented financial and economic times, it is important to have a long term perspective.

The Keiser Report - You're insane if you don't own gold

Panic Before The Herd And Win-Win With Silver!

Jerry Western with Lorimer Wilson
A win-win situation, as we all know, occurs when opposing parties both gain from a certain outcome. Perhaps both don't always get all that they want but both 'win' something in the bargain. It's the best outcome that can be expected for both parties. With silver there is a lose-lose and a win-win scenario.

The Lose-Lose Scenario

While owning silver outright is a win-win situation, it will be a lose-lose situation for all those large banks around the world such as JPMorgan and HSBC who are reported to be short silver to the tune of 3.3 BILLION ounces! That figure is a multiple of all known above-ground silver in tradable bullion form - and a multiple of annual world silver production. The saying 'He who sells what isn't "hisin" gives it back or goes to prison' comes to mind. These shorts may need to deliver more silver than can possibly be delivered in any reasonable timeframe and once they begin (and there are reports that some have already begun) to cover their positions it will have major bullish implications for the price of silver.

The Win-Win Scenario

How do you orchestrate a win-win in silver for yourself? It's really very simple. Because there is not enough physical silver to go around at today's price (or the price would not be on the rise), all you need to do is to purchase physical silver. This has the dual effect of 1) taking available silver off the market, meaning silver then becomes all the more scarce, and 2) it bids up the price. Any time a commodity is bought, it puts upward pressure on the price. Any time it is sold, it puts downward pressure. See how simple this stuff is? It's a perpetual motion machine.

The more physical silver people buy and take off the market, the higher the price goes. The higher the price goes, the more investors buy in. It has a self fulfilling effect. Silver and gold are unique in that trait. With most commodities, buyers try to get the lowest price possible because they intend to use that commodity. With the money metals, the reason most investors are buying is to protect themselves from the loss of purchasing power of the currency through inflation of the money supply. They intend to store the metal for sale at a much higher price at a time when the currency stabilizes.

You must remember that silver and gold are the anti-dollar. Theoretically, you are simply retaining your wealth by holding them even though the dollar value is increasing. The more the dollar value is increasing, the greater the debasement, and the more the need to protect oneself. At some point this will turn into a panic and today's dollar price will seem ridiculously low.

Owning Silver Is a Win-Win in Numerous Ways

  • You win by holding an asset that is no one else's liability. You do not have to depend on a counter party.
  • You win by taking physical metal off the market which helps increase its price.
  • You win by having a valuable commodity that is money itself and outside of the faltering banking system.
  • You win because you are protecting your wealth from the ravages of inflation.
  • You win because you are showing others, by your actions, that you believe in the worth and value of holding real money.
  • You win again if they follow your lead. The further we go in time and price in the silver bull market, the more people will realize what they are missing out on, and the quicker and higher the dollar price will rise.

For more reasons "Why You Should Have Silver in Your Portfolio - As Well As Gold" please refer to this article written recently.


Owning silver is a win-win all around. The only way you can lose by holding physical silver at this point is via theft, or confiscation, which is the same as theft. I'll take my chances. I'd rather have someone try to take what I already have in my possession than have someone fail to deliver to me what is rightfully mine. In the former, I'm in control. In the latter, someone else is calling the shots.

Got physical silver yet? Panic first before the herd and win-win!

Jerry Western (a.k.a. 'Gold Money' at, is the author of "Got Gold? Get Gold!" which is available online and at major book retailers, and also provides a Model Portfolio Service listing his top precious metal company picks and weighted rankings which is available by e-mailing westernoutlook at with the word 'peek' in the subject line.

Lorimer Wilson is editor of both and and offers a FREE weekly "Top 100 Stock Market, Asset Ratio & Economic Indicators in Review" which is available by sending an e-mail to and saying "sign me up" in the subject line.

The Canary In The Inflationary Coal Mine Is In Southeast Asia

From Zerohedge,com:

While the bulk of 2011 food protests have focused around countries that are, to put it bluntly, in the periphery of the desert, and thus mostly irrelevant from a food supply perspective (their domestic issues are of no matter to America: after all they have no oil) the recent focus on surging prices has been largely geographically isolated for the time being. That said, in today's piece, "Sovereign Man" Simon Black takes a look at a far more critical country smack in the middle of Asia's breadbasket, Laos, which he believes may rapidly become the canary in the Southeast Asian coalmine, whose troubles could promptly spread to China and the rest of the continent, and from there, to the rest of the world. We would add that unless the central bank approach of pedal to the liquidity metal is reversed promptly in the next few months, which it certainly will not, he will most certainly be proven correct. And just as the deterioration of events in Africa, where the rapidity of protests took even us by surprise, despite first predicting food riots just one day ahead of their actual eruption, should anger spill over in Asia, the time until everything hits a boiling point will make even the recent revolution in Tunisia appear to have transpired at a snail's pace.

The Canary In The Inflationary Coal Mine Is In Southeast Asia, from Sovereign Man

Laos is a small, landlocked economy in Southeast Asia that's often overlooked in favor of its neighbors: Thailand, China, and even Cambodia. But there are a few important factors that set Laos apart and lead me to believe that, when it comes to inflation, the country is the canary in the coal mine.

First, Laos is one of the most sparsely populated countries in Asia; with just 6.3 million people, its numbers pale in comparison to regional neighbors such as Burma (50 million), Thailand (67 million) and Bangladesh (162 million).

The other thing that's important about Laos is that the country is home to some of the most fertile soil in the world: more than 20% of its land mass is ripe for agricultural use. This is an astounding number, and it's no wonder that agriculture makes up the preponderance of the Laotian economy.

Put another way, Laos, with its vast resources and small population, might loosely be considered an agricultural version of Kuwait. But Laos is nowhere near as wealthy, since oil is much pricier than rice, soy, and fish.

Given its resources, it certainly seems ironic that the prices of staple foods in Laos, including rice, have soared in recent months, and that the Laotian government is now under intense pressure to "do something" about it.

You expect this sort of thing to happen in Algeria, where the population is 35 million, where only 2% of the land is cultivated, and where agriculture makes up but a tiny percentage of the economy... but in Laos? This is akin to finding Kuwaitis unable to afford filling up their cars due to high gas prices. It's unthinkable.

Thing is, it's not that there are food shortages in Laos; this isn't an issue where supply has failed to keep up with demand (thus resulting in rising prices). The price hikes are simply another indicator of monetary inflation causing severe price inflation, particularly in the developing world.

How does this happen? The trillions of new currency units being compulsively manufactured by central bankers are finding their way to developing countries. This surge heats up local markets, causing prices to rise.

This effect is compounded when developing markets fight to keep their currencies artificially depressed against the dollar. When the price of milk goes up by a dollar in the developed world, people grumble about it, but they can afford it. In Laos, where the minimum wage is about $65/month, an extra few dollars for groceries is unfathomable.

The government in Laos will most likely raise the minimum wage. The figure that's being discussed is about a 40% increase from today's level, which itself is nearly double the minimum wage in 2009.

Rising wages like this are a common ingredient in hyperinflation, spawning a vicious cycle of higher prices, which then beget higher wages, which then beget higher prices, and so on. Wage hikes are always playing catch-up with rising prices, and the end result is a reduced standard of living. No amount of monetary wizardry can prevent this.

I saw a similar case when I was in Sri Lanka a few months ago: the government there keeps the rupee fixed to the US dollar at an artificially low rate in order to support exporters... yet the weak rupee has hit the locals hard, causing soaring prices of 30% or more for staple foods such as rice and coconuts.

When I was in Zimbabwe recently, the locals told me similar stories about their days of hyperinflation: everyone was constantly getting a "raise" to keep up with inflation, but prices were adjusting so rapidly, their living conditions would constantly deteriorate.

Needless to say, banks do just fine in this situation. All the freshly printed money circulates through the banking system, generating greater volume and higher profits. It's no coincidence that Laos' largest commercial bank (BCEL) is expecting its net income to surge 27% this year, and I'll be curious to see what happens to the Laotian stock market (which just had its inaugural session last week).

Bottom line: if this sort of thing can happen in Laos, where there's about 2.5 acres of lush, fertile, arable land for every man, woman, and child in the country, it can happen anywhere... and I'll be watching this situation very closely to see if any civil unrest develops as a result.

Regardless, inflation is here. And the more you see politicians and central bankers denying it, the more you should be preparing for what may come. More to follow.