Silver's Rise

I did an interview with Germany's investigative reporter, Lars Schall, last week. We covered everything from the Middle East Uprisings to Oil Prices to Silver Prices to the still weak global economy. He put the transcript up on his website yesterday. Here's the tidbit on silver, given today's continued hike in that metal:

Question: In general, do you think both metals (silver and gold) will go much higher?

Answer: Yes, I think they will. There is a fundamental weakness in the global economy. There is a fundamental weakness in the U.S. economy. The Federal Reserve chairman Ben Bernanke, President Obama, and Treasury Secretary Geithner are all talking about this recovery we are supposed to be in. Apparently, to them, we have been in a recovery since the middle of 2009, but real individuals don’t see that. The less they are finding jobs, the longer they are out of jobs, the more expensive it is to buy food, gas, and other basic items, including their health care, and the more people facing foreclosures amidst the month of lowest housing prices since this ‘recovery’ officially started, the more apparent it is, that we aren’t in a recovery.

We are in a weak, not a stable, situation despite all this talk. The dollar is weak, and that takes money out of the pockets of for instance, Americans, that pay more for imported items, and get less on exporting them. Also, our Treasury debt has gone up from $5.4 to $9.4 trillions in two years, that is an exceptional amount and increase. This is debt with which the government buys its own currency and circularly, its own debt, but it doesn’t get out into the real economy. As long as that is the case, as long as the economy is weak and immense debt is used to prop the dollar, and as long as there exists speculative capital seeking somewhat sure investments, at least short-term, the metal market will continue to go up. There might be days where it comes down on profit taking or other reasons, but in general it will climb higher.

The rest of the interview is here. What do you guys think?

Comments

[jb.mcmunn]

This is, and has been, a no-brainer for years. Trade treaties generally prohibit protective tariffs so the only alternative you have to tweak your exports is to debase your currency.

IOW, it's "the race to Zimbabwe". There few options available to preserve wealth when everyone is debasing their currency. People run for cover in hard assets.

FWIW I have had NO problems getting physical gold or silver. I read these stories about the US Mint and scratch my head. My supplier tells me that the vast majority of what he sells is new product. None of the private customers are selling. He says new customers have started appearing, so rather than there being a bubble I think the retail investor is only beginning to pay attention to gold and silver, the commercials touting gold and silver notwithstanding.

IMHO the huge spike in demand for silver coins is that people want something that looks like money. They also realize few people will be able to give you change for a 1 oz gold bar. Silver coins seem the most fungible. Personally although I hate the premiums i loaded up on ASE's last year.

Another reason for buying PMs is the lack of alternatives. Bonds? Insane. Stocks? Artificially propped up by QE2 and commodity prices are going to cause very ugly margin squeezes. I'd only buy stocks related to PM, agriculture and oil. I got into oil in the 90s and those holdings have only been exceeded by the returns on gold. Real estate? Still deflating. I'd only consider farmland. Still, of the options I consider viable there is only one you can carry in your pocket: PMs.

Keep an eye on places like Ireland, Spain, Greece, California, NY, and Illinois. If there is a breakdown in the social order the best investments might be guns ammo and food. I'm not building a bunker right now nor do I wear a tin foil hat but places like those will be the canaries in the coal mine.

[Martin M]

There is a "decade-trade" every decade. In the 80s people made money on bonds due to volatility provided by Volker's change in policy fixing currencies and floating rates. In the 90s everyone made money in stocks, all stocks was up. In the 2000 fortunes were made flipping real estate.

This decade's trade is currencies and commodities. The counterpart is the goverments. Gold & Silver is in direct competition to fiat currencies issued by governments. Some governments will be at the loosing end, some at the winning. Holders of silver and gold will remain their purchasing power, if the price of gold decreases, the value of the currency will increase, vica versa.

I just received a skype call from a friend visiting his mother's country; Ireland. He tellls about peolpe standing in line selling their gold and silver at theft prices. They are desperat for cash, 3 x 1/20 oz small gold bullions were bought by the dealer for 50 EUR0! 1/3 of spot price! Young girls selling their jewelry for nothing!! And the dealers are not selling! My friend could not buy!! The guy working behind the counter was ashamed, but he said that this was the only job he could get...

I just finished a two day work shop on financial crises at my business school. Researchers from Norway, Sweden, Germany and the US preseneted their papers. On the second day I decided to test the "temperature" (the WS was lame)... inspired by a good US presentation I adressed the fact that no real losses was levied the financial industry, and that no banksters had been endited. Then finalyy the US professors woke up (they were the only ones that agrred with me) a naive (non-investor economic historian) Norwegian researcher commented: "have the conference been hijacked by the tea-party?" he asked out loud... trying to ridicule me...

I talked with him during lunch for a short while... he argued that he was a " social democrat"" and that when he saw an idiot wayving a silver coin" I must be a loonie... I had to explain to him that currencies had counterparty risk (I am a political economist, I dont trust politicians)) and that gold and silver was the best way to protect savings for "small people", and still dont think he got the message.

I turned my attention to the two US researchers, they took the point much easier.. one of the reffered to Buffet recently stating that "what would you rather own, all the gold in the world or 1/3 of all american companies listed?" I had to explain them that gold was not a cash flow generating equity... it was a way of saving... they "got it" and we had good discussions.

Conclusions: US researchers are amazed that the financial terrorists have not been in jail (like the rest of us) and they are certainly not sure convinced that the economic recovery is here.... Norwegian reaserchers live in a bubble, have never experienced the real effects of financial crises (pampered by oil-revenues) and the Irish are getting robbed..... i,.e no bubble in silver or gold from thsi "on the ground report"...

[LarryP]

Nomi,

I think that's the best explanation of why silver and gold will contine to rise that I've ever read.