How to Handle the Coming Gold Correction

How to Handle the Coming Gold Correction


By Brian Hunt, editor in chief, Stansberry & Associates

Friday, January 21, 2011

It's not natural.


As our friend and master investor Chris Weber recently noted, never in the past 200 years has a widely traded stock market or commodity registered 10 consecutive years of higher prices.


But as of December 31, 2010, gold has. Gold's 10 consecutive years of higher prices is an astounding, once-in-eight-generations occurrence.


Here's the thing: That uninterrupted 10-year uptrend is not a natural state for gold. It's not a natural state for any asset.


Knowing this... and knowing that even the biggest, healthiest multiyear bull markets need to take "breathers," it's as natural to expect gold to correct and end the year lower as it is to expect someone who has run flat out for 10 miles to take break.


How deep could gold's "break" go? Below is a 10-year chart of gold. As you can see, gold could correct all the way down to $1,100 an ounce and remain in the confines of its big bull trend.


Most people who own gold would freak out about a 20%-plus drop. That's because most people who own gold view it the wrong way. They think it's an investment... and they'd like to get filthy rich from it. That's not how the seasoned investor views gold.


Gold isn't an investment.


A thousand shares of health-care company Johnson & Johnson is an investment. J&J pays a dividend. It's a stable, profitable business that's going to grow its cash flows and distribute a portion of those cash flows to it shareholders.


An income-producing rental property is an investment. Bought at the right price, a rental property will return all your original capital in the form of rent checks.


Gold isn't like those two examples at all. Gold doesn't pay interest or a dividend. It doesn't have profit margins. You can't price it based on earnings.


Gold is money. It's a real, hold-in-your-hand form of wealth. The hot shots on CNBC dismiss gold's role as money as a bubble or a fad. I have to agree with them... It's just a passing fad that has lasted for 5,000 years. It should only last a few thousand more.


Gold has been used for money for thousands of years because it's easily divisible, it's easily transportable, it has intrinsic value, it's durable, and its form is consistent around the world. And as our friend Doug Casey reminds us, it's a good form of money because governments can't print it up on a whim. You can't Bernanke your way to wealth with gold. You have to work and save to accumulate it.


In sum, could gold suffer a big correction from here? Absolutely. It's had an amazing string of gains. Gold is well within its rights to take a break. That break could easily shave hundreds of dollars off its current price.


But when I look at the U.S. government's absolutely stupid "kick the can down the road" approach to our fiscal problems... when I hear howls from special interest groups after even small government spending cuts are suggested... I begin to see a potential gold decline as a huge opportunity to accumulate more real wealth.


That's why if a natural gold correction occurs in 2011, I'll be buying more.


Good investing,


Brian Hunt


http://www.dailywealth.com/

Ron Paul 2012??

This is interesting news. Could Ron Paul Announce a 2012 run soon?

"Texas lawmaker says he'd rather run for Barack Obama's seat than Kay Bailey Hutchison's."

http://www.nationaljournal.com/politics/ron-paul-likely-won-t-try-to-join-son-in-senate-20110120

The George Soros of the right David Rockefeller Confronted

China's Hu Jintao: Currency system is 'product of past'

Hu Jintao is due to visit Washington this week


Chinese President Hu Jintao has said the international currency system dominated by the US dollar is a "product of the past".

Mr Hu also said China was taking steps to replace it with the yuan, its own currency, but acknowledged that would be a "fairly long process".

The remarks to two US newspapers come ahead of a state visit by the Chinese leader to Washington this week.

They reflect continuing tensions over currency issues between the two powers.

The remarks to the Washington Post and Wall Street Journal came in the form of written responses to questions. Mr Hu also reiterated criticism of a decision by the US Federal Reserve to inject $600bn into the economy, which some argue will weaken the dollar at the expense of other countries' exports.

"The monetary policy of the United States has a major impact on global liquidity and capital flows and therefore, the liquidity of the US dollar should be kept at a reasonable and stable level," President Hu said.

'Important contribution'

Meanwhile, he disagreed with suggestions that letting the yuan appreciate in value would help China to combat inflation.

He said inflation, which reached 5.1% in November - its highest level in 28 months - was "on the whole moderate and controllable".

Continue reading the main story

“Start Quote

Making the renminbi an international currency will be a fairly long process”

End Quote Hu Jintao President of China

"We have the confidence, conditions and ability to stabilise the overall price level," he said.

Beijing has previously come under pressure over its currency from the US, which has accused China of manipulating the yuan to help boost Chinese exports.

On Sunday night, three Democratic senators announced they would introduce a new bill to increase penalties the US considers to be "currency manipulators".

However, the move is unlikely to receive support from senior Republicans - who recently took control of the House of Representatives.

The new House speaker, John Boehner, voted against another bill that failed last year that would have helped US companies challenge currency subsidies.

Currency reservations

Despite criticism of the current system, Mr Hu said he believed it would be a long time before the yuan - or renminbi (RMB) - was accepted as a global currency.

"China has made important contribution to the world economy in terms of total economic output and trade, and the RMB has played a role in the world economic development," he said.

"But making the RMB an international currency will be a fairly long process."

Some economists suggest that China's growth strategy - with its focus on exports and state-led investment - may be incompatible with Mr Hu's currency ambitions.

In order for the yuan to oust the dollar as a global reserve currency, international central banks and investors would need to be able to get their hands on huge amounts of the currency.

Yet neither of the ways in which China could supply the world with more yuan is at all appealing to Beijing, according to Michael Pettis, economist at Beijing University.

He says the country could start running big trade deficits with the rest of the world - just as the US has been doing - and finance them by selling their currency to their trade partners.

Or it could allow foreign investors to pour their money into Chinese financial assets - like shares, bonds or yuan bank accounts - matched by similar Chinese investments in the rest of the world.

But Mr Pettis warns that for the numbers to add up, China would need to do these things on an unprecedented scale, which is likely to be unpalatable to the authorities.

Either of these moves is likely to go with an increase in the yuan's value, making Chinese exporters less competitive.

And they may also fuel speculative asset bubbles in China - something that Beijing has been trying to clamp down on of late.



http://www.bbc.co.uk/news/world-asia-pacific-12203391

Silver: From $30/oz to over $500 by 2020

Silver: From $30/oz to over $500 by 2020


By: Jason Hommel, Silver Stock Report

Source: SilverSeek.com

(And from $500 to $5000 by 2030!)

Silver: From $30/oz. to over $500 by 2020. In under a minute, I can tell you why that price must happen, and likely when. It seems to me that the public will one day wake up and start buying silver to protect from inflation. Thus, long before, say 10-20% of people buy silver, at least 1% of the American public will buy silver. We can calculate what might happen to the silver price when that happens.

The amount of money in US Banks is about $18 trillion. 1% of that is $180 billion.

Very little silver is left; it's mostly all been consumed, so most of what is available to buy is the annual new mine supply which is 700 million ounces.

$180 billion is $180,000 million. Divide that by 700 million, and we get an implied price of $257 per ounce. Do the math yourself. I'll wait.

But that price would mean that there is no newly mined silver left over for any industrial use, and that nobody else outside of the USA could buy any of the world's newly mined silver. Clearly that can't happen; those two groups would continue to buy silver, competing to buy, and driving up the price even more.

Thus, silver is very likely to be about $500/oz., by about the time that 1% of the American public wakes up and starts to buy silver. That will be the very beginning of the bull market in silver, when measured by "popular demand" -- and at that price, silver would still be very unpopular.

Just remember these key facts, and don't let anyone, or even yourself, trick you out of this developing bull market in silver. Don't try to time the peaks, don't wait for dips, just buy and hold real silver, not any kind of paper silver promise.

What kind of annual gains will that be? Let's see, if silver goes from $30 to $500 in ten years, the compound interest rate calculator tells us that will be an average annual gain of 32.49%, which is about the same as what silver has done in the last seven years, from $4.15 to $30, which is a gain of about 32.66% per year, on average.

Oh, by the way, the 1980 high for silver was $50/oz. That was when M3, money in the banks, was about $1.8 trillion. Today, the monetary base has increased about ten times higher. Thus, the true inflation adjusted peak for silver would be $500/oz. That just further confirms this $500 estimate.

But there are many reasons why silver should surpass the former highs.

Key reasons to surpass the former 1980's peak:

1. Silver is more scarce due to 30 more years of industrial consumption.

2. Paper silver scams are more abundant.

3. Baby Boomers will be retiring, cashing out stocks and draining pension plans that have not yet invested into silver, causing other investments to vastly under perform silver, making silver ever more attractive.

4. More trend investors today will notice the silver bull market and continued gains in the silver price, and invest in it, and carry it to further highs.

5. The US government and political leaders are spending like never before, and the people, even the world over, lack the political will to control government spending which will ruin all currencies.

6. There are no "safe" currencies to run to, leaving gold and silver as the only alternatives; and gold and silver have been in bull markets in all major currencies for 10 years now.

I'm sure you can think of many other reasons, but that's enough for now.

So, the true skeptic may ask, "Yes, but this guy is a coin dealer, he's just pushing his product because he has plenty of silver he wants to dump. Besides, what kind of argument will he come up with to sell silver after it hits $500/oz.?"

Let me answer this two part question. Yes, I do have silver! I have it, because I believe that the price will go up a lot, thus, it makes perfect sense for me to carry it as inventory. I sell it, because few people are able to buy it in bulk like we can, so I use my own stash, and industry connections, to enable others to buy it.

But what will I say after silver hits $500/oz., or nears that price?

I'll say, "Obviously this bull market in silver is just getting started. Only 1% of American public money is buying silver per year. Just wait until at least 10% of US money is buying silver in a year, the price will be well over $2500 to $5000 per oz. for silver."

But I would never make that argument now. Too few people would believe me, and they would think I'm some kind of kook. And people never do business with kooks.

And what will I say when silver nears $2000/oz.?

I'll say, "Everyone knows it only costs 4 cents to print up a $100 bill, and everything returns to its intrinsic value. But used paper, particularly smelly paper, is worth even less, which is useful only for things like lining the bottom of the cages of birds, or burning in the fireplace. Thus, the price for silver will soon only be quoted in terms of gold, and certainly not quoted in terms of any kind of paper money at all." But again, I'd never say that today, everyone would think I'm crazy.

Oops. Too late for me. But it's not too late for you to buy some silver!

I strongly advise you to take possession of real gold and silver, at anywhere near today's prices, while you still can. The fundamentals indicate rising prices for decades to come, and a major price spike can happen at any time.

Sincerely,

Jason Hommel

www.silverstockreport.com

www.bibleprophesy.org

Silver Rush: Investors pile money into silver

LONDON (Commodity Online): Gold has been the hottest commodity that people from India to the United States are piling their money into. Gold’s poor cousin silver is emerging as the most luring investment option for traders and common people these days.

What is driving the silver boom? What is it that fascinates investors to silver that used to be the first currency in China centuries back?
Like gold, silver is topping the investment charts these days. In the US, sales of the silver bullion coins have recorded historic high in 2010. A latest commodity report says that silver is the most attractive investment proposition for the people in Australia. In fact, in Australia, people are buying more silver coins than gold coins.


In the last one year—in fact from 2009 onwards—silver price has more than doubled. Silver has boomed to the current $30 level from the $13 level in 2009.


Why is silver booming? Why are investors piling their money into silver?


In this following lucid write up, precious metals analysts Dr. David Eifrig provides some fascinating inputs on silver:


Surging Silver Investment is changing the nature of this market. A couple of years ago, I shared two shocking silver charts with DailyWealth readers.


These charts showed how governments around the globe have abandoned silver as money. They've decided it's easier to expand a nation's credit with fiat paper money than to mine more silver. They've sold off their silver stockpiles to industry and investors.


This trend is decades in the making. At first, much of this silver was used up in industrial manufacturing and processes like photography. That silver is gone forever.


But starting around 1997, silver began flowing into private hands. Folks concerned with wars, investment bubbles, and mismanaged economies were buying it up. They turned to silver as a safe form of savings that can't be debased by a gang of spend-happy politicians.



It was a modern day "rush" into Silver Investment. And Buying Silver back then was a smart move. The metal is up sixfold over the last 14 years...while stocks and real estate have struggled to do anything...and while paper currencies have depreciated in value.


The thing is, the silver rush is still on.


Demand for silver coins is taking off. It's up almost sevenfold from the mid-1990s. The public is catching on to the value of silver, and I expect this trend to continue for years.


Since my first essay back in 2009, the price of Silver Bullion has soared more than 100% – from $13.50 to about $29 today. But over the long term, there's much more to come.


Here's how I explained it in 2009:


"Governments around the world are behaving absolutely stupidly right now. Our vice president just said with a straight face that the government has to spend more money in order to save the nation from bankruptcy. That's crazy...but it passes for conventional wisdom these days.


"In my 30 years of investing, I've never seen so many risks in the financial system. That kind of 'patriarchal thinking' is producing those risks."


The stupid thinking I saw in 2009 hasn't gone anywhere. Governments across the globe are spending with abandon and creating big risks for savers and investors.


That's why it's a good idea to keep a portion of your assets in "chaos hedges" like gold and silver. You should know, I'm not the kind of guy who lives in a concrete bunker. I don't think the world is about to end. I'm not anyone's idea of a "gold bug". I buy this stuff just like I buy car insurance.


You should think of gold and silver as insurance against calamity. You should think of it as a safe store of wealth. And as I've just shown you, many people are catching onto this line of thinking. I expect millions more will over the next few years.

http://www.commodityonline.com/news/Silver-Rush-Investors-pile-money-into-silver-35563-3-1.html

Keiser Report: Curse on Taxes