>AMP GOLD >> Gold and Silver Survey Most Revealing – April 2011

>

Ian Campbell | Fri, Apr 1, 2011

By Ian Campbell with Lorimer Wilson

The latest quarterly survey of subscribers to StockResearchPortal.com – a site providing stock market data, analysis and research on over 1,600 mining and energy related companies listed on the Toronto and Venture stock exchanges – as to their expectations for the price of gold and silver over the course of 2011, the extent to which they currently owned physical gold and physical silver, and what their intentions were with respect to holding, buying more, or selling part or all of their holdings, has generated some very interesting and revealing data. Let me explain our findings in detail…

Vast Majority of Respondents Bullish on Future Gold and Silver Price Trends

With respect to gold and silver price trends for the balance of 2011, 84% of the 181 respondents said they thought gold price would trend higher and 89% said they thought that silver would trend higher.

Majority of Respondents Were 60+

Surprisingly, as the chart below shows, 60% of the respondents were 60 years of age or older while only 9% were 45 or younger. Ten years ago it would not have been surprising to see those numbers reversed which says a great deal about these respondents’ insights regarding the economic times we live in. Think about that in the context of the following questions asked as to whether respondents owned physical gold or physical silver, and what their current strategy was with respect to holding, buying more, or selling part or all of their holdings.

Majority of Respondents Own Physical Gold and/or Silver

55% of the 181 respondents said they currently own physical gold (directly or indirectly) with 40% saying they would be buying even more. 43% said they would continue to hold the gold they owned regardless of short-term fluctuations.
Regarding silver, 60% of the respondents said they owned it directly or indirectly with 57% saying they had plans to purchase more and only 32% indicating that they might sell their holdings in the future.
23% of respondents who said they didn’t currently own gold said they were considering purchasing some while 17% were undecided. 34% of those who didn’t currently own physical silver said they were considering purchasing some while 18% were undecided.
2% of respondents said their current strategy included selling all or part of their physical gold holding and 3% had plans to sell all or part of their silver holdings.
Interestingly, 48% of respondents said they thought the silver market is illegally manipulated, 18% said they didn’t think it was, and 33% had no opinion. This is obviously a contentious issue, and one I will be ‘going out a limb’ and addressing in the near future.
[Editor’s Note: As to just how high gold will go in 2011, a survey conducted earlier this year by Mineweb.com (over 100 respondents) concluded that gold should end 2011 at $1675 which would represent an 18% increase over the 2010 year-end price compared to 30% in 2009 and 24% in 2008.]
(In the next quarterly survey which will be undertaken at the end of June, the question as to what % of their investable assets respondents hold in physical gold and physical silver will also be included.)

Conclusion

Clearly the preponderance of opinion is on the side of an upward trend price in both gold and silver over the next nine months.

>When Gold Becomes Money Again?

>

Addison Wiggin for The Daily Reckoning

On the night our documentary I.O.U.S.A. made its nationwide premiere in August 2008, the film was followed up by a live panel discussion, broadcast via satellite. Our friend David Walker, the former US comptroller general and “star” of the film, took part…along with several other luminaries.
At one point, the question was asked: Might America’s trading partners one day sell off their US Treasury holdings?
Impossible, said Warren Buffett. In fact, he insisted, they couldn’t…because they’d need to convert it into some other currency, which would be little better than the dollar. No one else chimed in to challenge the assertion.

“Buffett’s answer assumes that there is no alternative,” author, friend and local Baltimore resident Bill Baker writes in his 2009 book Endless Money: The Moral Hazards of Socialism, “because for generations, all the world’s currencies have been backed only by the promise that governments would accept them in payment of taxes.
“But that ignores a currency that has been used effectively by man for thousands of years: gold. China and other countries might exchange their US dollars for it now.”
Indeed, China is quietly building its gold reserves. They totaled 600 metric tons in 2004. Then in April 2009 came an announcement they’d grown to 1,054 metric tons. And the buzz from Beijing is that the central bankers want to grow that stash another tenfold.
Meanwhile, China has trimmed its US Treasury holdings for three months in a row. The January total was $1.15 trillion – down 1.75% from October.
These are the first steps toward what Baker sees as the “remonetization” of gold – coming soon to a country near you.
History is a pendulum.
“Once gold and silver had been written into the Constitution,” Baker says, “no one might have thought that it would be replaced by paper within 60 years.” But the pendulum swung, the Union issuing its infamous greenbacks during the Civil War.
Then the pendulum swung back, the greenbacks’ critics were “able to successfully push for an agenda of gold resumption. But before the London Economic Conference of 1933, the world would be shocked by Roosevelt’s rejection of the gold standard.” The pendulum swung again.
Now, “a series of crises such as was the case in Rome might ultimately bring the pendulum back toward gold,” Baker writes.
In other words, we’re approaching the end of the Great Dollar Standard we wrote about in The Demise of the Dollar. The only world anyone below the age of 40 has ever known – in which all the world’s currencies float freely against each other – is nearly over.
And Baker is investing accordingly.
In late 2010, he began accumulating shares of a tiny gold miner called Orezone. “Our cost basis is 78 cents, and now it’s $3.61,” Baker tells us on a wintry afternoon in his office on the outskirts of Baltimore. “I’ve sold off two-thirds of the shares that I own, and it’s still one of our largest positions. I can’t keep it down!”
It’s a good problem to have. And Baker has it because he’s willing to go further afield than your typical money manager…as far afield as Burkina Faso.
We’ll pause here to place it on a map, so you can get your bearings. (If you were a geography geek growing up, you might remember it as Upper Volta.)
“I read these other quarterlies from these hedge fund managers,” Baker tells us, surrounded by family pictures, CDs of composers like Brahms and rafts of company research. “They’ll get really absorbed in the macroeconomic picture, but they don’t really know what they’re doing, so they just buy GLD [the gold ETF].
“Or they’ll hire two all-star Canadian analysts. Then I look at what they own, and they own Gabriel Resources because John Paulson owns it. It’s safe. Or they bought some big South African company because it’s cheap based on reserves in the ground when they ran it through their stock screener.
“They don’t have a coherent philosophy about really kicking the tires and really finding these companies that people don’t know about.”
Baker does. His firm, Gaineswood Investment Management, has taken sizeable positions in tiny gold miners working well off the beaten paths of the Americas, Australia and South Africa.
Burkina Faso is smack in the middle of a geological formation called the Birimian Trend…the richest source of growth for gold miners in recent years.
Even better is how many miners in West Africa have consolidated their holdings. “In Canada, you might have a district filled up with 12 companies. One company might have each block, or half a block. But in West Africa, these guys own all of it. They’ve got a lot of time, a lot of land, and now they’ve raised a lot more money, so they can keep going after it…and we’ll keep getting these upside surprises.
“That’s our philosophy, to find opportunity where, for example, this one outfit has found 1.2 million ounces of gold. But with all the new discoveries they’re making, they’ll probably come out and say we have 2, 2.5, and next year they’ll say, well, we have 3, 3.5, 4… and it isn’t over yet, because of this whole giant region that’s been unexplored.”
Before we go any further, we’d better make something clear: Bill Baker isn’t your typical gold bug. Nor is he your typical stock market bear.
“The timing or eventuality of financial calamity is unable to be forecast,” Baker writes in Endless Money. “At best, it might be like a hurricane warning: The tempest may strike here, it may hit there, it may be downgraded to a tropical storm or it may go elsewhere entirely.”
But that doesn’t mean investors should fail to prepare for financial calamities…or the demise of paper currencies. Financial calamities are becoming increasingly likely in this overly indebted world of ours…and the death of paper currencies is becoming increasingly certain. The best time to prepare is ahead of time.

Addison Wiggin
for The Daily Reckoning

>The Gold Report

>

Atwell: Mideast Mayhem to Drive Gold Higher

Brian Sylvester of The Gold Report
Friday, Feb 25, 2011
As Casimir Capital Managing Director Wayne Atwell sees it, further political unrest in the Middle East could push gold higher, while inflation risk and sovereign debt issues in Europe are longer-term price catalysts. He also shares his insights on small-cap investment in this exclusive interview with The Gold Report.

The Gold Report: In a recent interview with Bloomberg you said, “Gold’s gotten stronger because it’s no longer weak.” Can you explain that concept to our readers?

Wayne Atwell: Commodities and securities tend to trade on momentum. Gold had been exceptionally strong, but a lot of investors became nervous because gold appeared too strong and people started taking profits. Then the dollar strengthened and we received some more good economic news, which drove gold down again. Gold has corrected about 7% from its high late last year. Once it breaks through its support level, it could go meaningfully lower. It was in a negative technical pattern and once there is a certain technical pattern on the charts investors start dumping gold and go short. Some people don’t believe it, but many people invest based on charts and technical patterns. If enough people invest enough money, then it works.
Gold was on the verge of breaking down further when the Middle East uprisings began and investors became a bit anxious. So far, the citizens of two Arab countries have overthrown their governments. It’s been relatively peaceful, which is great, but you can envision a scenario in which it wouldn’t be peaceful. Saudi Arabia is likely to have some difficulties that may or may not result in a change of government, and now we’re hearing about protests in Iran. The probability is high that both those countries are going to have additional issues. They may not, but unrest in the Middle East has turned the gold price around.
TGR: That parallels what you’ve described in the past as an “event-driven market” for gold. Would further unrest in Arab countries push the gold price back above $1,400/oz.?
WA: I tend to think so, I guess it depends on what form that unrest takes. Obviously, the government changes in Egypt and Tunisia were relatively peaceful. But the uprising has already spread to Yemen and Saudi Arabia—and now there’s talk of revolts in Jordan and Iran. Saudi Arabia, as you’re probably aware, is responsible for about 11%–12% of global oil production. God forbid that country has a problem—that could cause a real crisis. Fighting in the Middle East is certainly an event that could push gold meaningfully higher. You will remember what happened in October 1973 when the Arabs cut off oil to the West and the oil price went through the roof. It caused massive anxiety and a very serious recession.
TGR: What are some other events that you anticipate could move the gold price this year?
WA: In terms of events, I’m worried about the sovereign debt situation in Europe. The European Union (EU) has dealt with liquidity issues for both Iceland and Greece into 2013, but it hasn’t solved the underlying problem; it’s just dealt with the short-term issue. Unless these countries start balancing their budgets, which is unlikely—come 2013, the same problem will resurface. A sovereign default in Europe is highly probable. Spain has an unemployment rate of +20%, which is just huge. That’s an issue, too.
In the U.S. a number of municipal governments are very deeply in the red. They haven’t funded their pensions and healthcare for their municipal workers. There’s a reasonably high chance that one or more of these municipalities could fail, which would cause a high degree of anxiety and force investors to dump municipal bonds, which again would result in investors’ flight to gold as a safe haven.
TGR: In an interview with BNN, you talked about the Chinese and American economies “laying the groundwork for inflation.” How are these countries doing that and what do you believe is the timeframe for dramatic inflation increases in both countries?
WA: I’ve been going to China for 30 years and I have seen a phenomenal change. I’ll just throw out a few numbers to put the country in perspective. China consumed about 3%–4% of the world’s commodities in 1985 and now consumes 35%–45% of global commodities, which is astounding. To put that in context, from 2000–2010, global steel consumption grew at a rate of 5% a year. Chinese steel consumption has grown at a compound rate of 17%. So, in 2000, China actually produced 127 million tons (Mt.) of steel; in 2010, it produced 626 Mt. of steel. Basically, the country grew its steel industry by 500 Mt. in 10 years, providing the bulk of global growth.
On average, commodity-consumption growth averages 2.5%, yet here we have steel growing at 5% over a 10-year period and China’s steel consumption growing at 17%. It’s unprecedented. That, in turn, has caused a shortage of metallurgical coal. Met coal is breaking out and will probably reach a new high shortly because China has gone from being an exporter to an importer. Iron ore is now within about $10 of its all-time high. About 10 years ago, China was about 70% self-sufficient in terms of iron ore; now it’s 30% self-sufficient, so China is driving up the iron ore price, as well.
TGR: It’s a similar story with copper.
WA: Yes, copper made a new high last week and China consumes 38% of the world’s copper; it’s only 15% self-sufficient, so 85% of its copper comes from offshore. The rapid growth in China is being driven by the need to move people from the country into the cities, and the country consumes a lot of material when it constructs new buildings, rail lines, power facilities, bridges and ports. China is transforming from an agrarian to an urban society, having moved about 15 million people per year into cities over the last 15 years. It’ll likely have to do that for another 10, maybe 20 years.
China is only 43% urban but it will likely become at least 60%, maybe even 70% urban within 20 years. This is putting a strain on the global supply of industrial materials—prices for many of which are at or close to all-time highs, which is inflationary. The mining industry has a pattern of looking for new mines and developing new properties but when you grow at a rate that’s faster than the historical norm, it puts extra strain on the industry. We’re not going to run out of these materials but we must go look in more remote locations to find the materials.
TGR: What about inflation in the U.S.?
WA: Here in the U.S., the government is out of control. Our government spending is frightening. Last year, we had a $1.6 trillion deficit. It’s coming down a bit this year, but it’s still going to be very high. The deficit is about 10% of GDP; historically, it peaked at 4%. Government spending is about 25% of GDP. We haven’t seen these numbers since the end World War II. We’re in uncharted territory—the government is spending too large a share of our GDP. The interest on our debt, as forecast by government budget office, is going to go from $350 billion this year to $900 billion within five years. Forget healthcare, social security, Medicare or Medicaid—we’re going to add +$500 billion to the interest expense. This will drive the dollar down and result in serious inflation.
In the case of China, industrial demand is pushing up commodity prices and creating inflation. As far as the U.S. is concerned, you can’t have this pattern of government spending in the reserve currency of the world without causing serious problems. There is every reason for investors to go into the gold market to put a certain percentage of their assets in gold for protection against super inflation.
TGR: Do you think these factors will push gold to an all-time nominal high in 2011?
WA: Gold made a new high late last year. It has made a new high 10 years in a row. We think it will make a new high of $1,600 this year and $2,000 within the next one to three years. We suggest buying on a correction; it probably won’t go much lower. We believe holding 5%–10% of one’s assets in gold makes sense.
TGR: Among other financial services, Casimir Capital puts together financings for companies, many of which are junior miners. Why does Casimir focus on the junior mining segment of the market?
WA: I wrote a piece on the junior gold industry recently, which makes a number of points. One is that the denominator is obviously much smaller for the gold juniors. If both a major and a junior gold exploration company find a 1 million-ounce (Moz.) gold deposit, it’s going to have a much more significant impact on the junior explorer’s share price. Only about 5 out of every 100 exploration discoveries is really of interest to majors because most of the very large gold properties have already been found.
It’s extremely difficult to find an exciting new gold property. So, if you’re spending money on gold exploration, the probability is you’re going to find a small gold deposit. But in many cases, the gold majors are prospecting for new exploration properties in their corporate finance department. They’re looking at and frequently buying intermediate or small gold companies with substantial gold deposits that the majors can develop themselves.
TGR: Yes, the gold majors essentially use the junior explorers as their exploration arm.
WA: Exactly. It’s like their exploration department. Gold deposits will be in production anywhere from 5–20 years. They’re generally small. Majors have to replace their depleting resources, plus people expect growth. It’s very expensive for a major to go out and find, and then develop gold properties. If, however, a junior develops a 0.5 Moz. deposit, it doesn’t have to build as much infrastructure. Developing a property as a junior is just a lot less expensive than it is as a major.
TGR: But they’re selling the gold for the same price.
WA: Exactly. The index we put together last year showed the juniors appreciated about 49% in 2010, whereas the majors were up roughly 27%.
TGR: Before we let you go, could you give us your outlook for gold over the next few months?
WA: Let’s go back to the event-driven motivation for moving the gold price. The events we don’t yet know about will likely determine the direction of the gold price. The underlying momentum is positive when you look at the U.S. budget, government spending and Europe’s sovereign debt problems. And the problems that governments have created will only get worse as populations age and Social Security obligations become greater—that’s certainly a problem. We’re all aware of those slower-moving issues, but I think what drives gold in the short term are events in the Middle East and any sovereign debt default. Unless there’s a major unexpected event, we’ll probably see the gold price break out to a new high in the second quarter. We’re roughly halfway through the first quarter now, so we look for the gold price to be rangebound the next two to six weeks before breaking out in the second quarter. But it’s subject to material impact by unexpected events, which always have a way of happening.
TGR: Thank you for talking with us today, Wayne.
Mr. Atwell has more than 35 years of experience in the field of investment analysis for the metals and mining industries. He currently serves as a managing director of Casimir Capital L.P. From 1991–2006, Mr. Atwell was a managing director at Morgan Stanley where he was the Global Group Team leader in equity research and built and managed a 12-member global metal and mining team of analysts. From 1983–1991, Mr. Atwell was a VP at Goldman Sachs covering the metals and mining industries. He was also a VP and principal in the privately held Davis Skaggs, a regional research firm, from 1977–1983. And from 1969–1977, he worked for Merrill Lynch as a senior metals and mining analyst. Mr. Atwell has toured 200 mines and 300 steel mills on six continents. He was selected as one of the 10 best buy-side stock pickers by Institutional Investor magazine several times and was rated as one of the top analysts in metals and mining by Institutional Investor and Greenwich Associates for more than 20 years. Mr. Atwell graduated from Pennsylvania State University in 1969 with a degree in mineral economics. He earned his MBA from the Stern School of Business at New York University in 1974.

---

Visit The GOLD Report – a unique, free site featuring summaries of articles from major publications, specific recommendations from top worldwide analysts and portfolio managers covering gold stocks, and a directory, with samples, of precious metals newsletters. To subscribe, please complete our online form, or send an email with the word ‘Subscribe’ in the subject field.

The GOLD Report is Copyright © 2008 by Streetwise Inc. All rights are reserved. Streetwise Inc. hereby grants an unrestricted license to use or disseminate this copyrighted material only in whole (and always including this disclaimer), but never in part. The GOLD Report does not render investment advice and does not endorse or recommend the business, products, services or securities of any company mentioned in this report. From time to time, Streetwise Inc. directors, officers, employees or members of their families may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise. Streetwise Inc. does not guarantee the accuracy or thoroughness of the information reported.

…

The Gold Report is published by Streetwise Inc. Information provided here should not be considered as advice or as an offer or enticement to buy, sell or trade; nor shall any errors or omissions be the basis for any claim, demand, or cause for action. The contents of this publication, including any opinions and analysis, are strictly intended for educational use. Furthermore, information obtained from all quoted sources is believed to be reliable and is offered in good faith. Northwest Territorial Mint does not accept responsibility for any trading losses incurred from reliance upon this information. Readers are encouraged to consult with a financial advisor before making major investment decisions.

Northwest Territorial Mint makes no assurances about any other web site which you may access through this one or which may link to this web site. When you access a non-Northwest Territorial Mint web site, please recognize that it is independent from Northwest Territorial Mint, and that Northwest Territorial Mint has no control over the content on that web site.

>Currency Chaos: Where Do We Go From Here?

>

‘The most important initiative you could take to improve the world economy would be to stabilize the dollar-euro rate.’

By JUDY SHELTON

Global monetary relations are in disarray. Exchange rates fluctuate wildly among the world’s major trade partners, spawning talk of protectionism and a currency war. Gold is soaring as the dollar slides, and economists debate whether the biggest threat to U.S. recovery is deflation or inflation.
We need a giant of economics to help explain all this and recommend a remedy. Where in the world is Robert Mundell when you need him?
As it turns out, Mr. Mundell—the Columbia University professor who advocated the hard-money, low-tax policy mix that broke stagflation in the early 1980s, and who received the Nobel Prize in 1999 for his work on exchange rates—happened to be in New York this week. It’s a lucky break. When he’s not at his 500-year-old castle in Italy, the “father of the euro” is usually en route to his next lecture somewhere in the world.
“What is wrong with the global economy today?” I ask him. “How do we fix this monetary mess?” We are sitting on a comfortably worn sofa in the parlor of his apartment near campus, drinking tea. Plush fabrics drape the walls, along with Baroque paintings in ornately-gilded frames. And there are piles of books in the adjoining rooms. Really. Thick piles of books are stacked in corners, heaped against walls, balanced on short wooden tables.
“The problem started before World War I,” Mr. Mundell commences. “The gold standard was working fairly well. But it broke down because of the war and what happened in the 1920s. And then the U.S. started to become so dominant in the world, with the dollar becoming the central currency after the 1930s, the whole world economy shifted.
“Think of it like the solar system: It started with gold at the center, as the sun, but then Jupiter got bigger and bigger until all the planets started circulating Jupiter instead.”
“And the U.S. is Jupiter?” I deduce.
“Yes,” he affirms, “and the spread of the dollar was just miraculous as it became the anchor for the Bretton Woods fixed exchange rate system after World War II. The price of gold was fixed at $35 an ounce in 1934, but by the time the U.S. got through the Korean War, the Vietnam war, with all the associated secular inflation, the price level had gone up nearly three times.
“Gold became very undervalued; European countries traded in dollars for gold until the U.S. lost more than half its stock. The U.S. went off gold in 1971, under Nixon, and nobody else has gone on it again.”
Mr. Mundell, 77, is clearly in his element as he traces the monetary history of the last century. Like his apartment, he radiates a charmingly disheveled elegance, jaunty in jeans and an open-necked cream shirt.
“So our problems today,” I posit, “are related to the fact that the Bretton Woods system of fixed exchange-rates linked to gold broke down?”
“The system broke down,” he hastens to explain, “not because of fixed rates. Fixed exchange rates operate between California and New York . . . the system broke down because there was no mechanism to keep the world price level in line with the price of gold.”
Atop the closest mound of books is a volume titled: “Shaping the Post-War World: The Clearing Union.” It features the collected writings of John Maynard Keynes from 1940-1944, when the famous British economist was helping to design a new international monetary order to provide a stable foundation for a world economy devastated by war.
“Are you thinking,” I venture, “that maybe it’s time to start figuring out the design for a new international monetary order? Should the U.S. offer new proposals regarding exchange rates and monetary policy?”
Mr. Mundell, who is Canadian, looks troubled. “I don’t think the U.S. has any ideas, they don’t have strong leadership on the international economic side,” he replies. “There hasn’t been anyone in the administration for a long time who really knows much about the international monetary system.”
He elaborates that it would not be possible today to forge a monetary system with the dollar as the key reserve currency, as President Franklin Roosevelt and Treasury Secretary Henry Morganthau did in the 1940s. “To be fair, America’s position is not nearly as strong now,” he concedes. “But what has disappointed me is the reluctance of the U.S. to take into account this big movement in the rest of the world to do something about restoring stability to the international monetary system.” He frowns. “They ignore it, as if the dollar’s exchange rate is a mere domestic matter.”
I take a sip of tea. “Do you think it has to do with our relationship with China?” The U.S. is threatening to impose tariffs on Chinese goods if Beijing doesn’t make them more expensive by revaluing its currency.
“The U.S. berates China for its exchange rate policy, which Washington doesn’t like,” Mr. Mundell says, noting that discriminatory tariffs against China might not be legal under the treaty provisions of the World Trade Organization. “But one-sided pressure on China to change its exchange rate is misplaced.”
Shaking his head, Mr. Mundell asserts: “The issue should not be treated as a bilateral dispute between the U.S. and China. It’s a multilateral issue because the U.S. deficit itself is a multilateral issue that is connected with the international role of the dollar.”
He goes on to explain that the dollar bloc includes China and other Asian countries—except Japan—but that the euro now constitutes the rest of the world. “The euro today is the counter-dollar,” he says. “The most important initiative you could take to improve the world economy would be to stabilize the dollar-euro rate.”
He thinks the European Central Bank, along with the Federal Reserve, should intervene in currency markets to limit movement in the world’s single most important exchange rate, pointing out that the dollar and euro together represent 40% of the world economy.
“If the U.S. demurs, are we headed toward a global currency war?” I ask.
Mr. Mundell looks tentative. “I don’t think it will come to a currency war,” he says. “The U.S. is still very powerful; it would be an unequal battle. But it’s important to have a high-level conference to explore opinions for reforming the world monetary system. The Europeans should be involved, as well as emerging countries.” He mentions that French President Nicolas Sarkozy recently spoke about the need to bring experts together for an intellectual discussion on the issue, perhaps in China.
“So you think a fixed exchange-rate system is more conducive to global free trade and global economic recovery than floating rates?” I ask.
Mr. Mundell registers surprise that I would even inquire. “The whole idea of having a free trade area when you have gyrating exchange rates doesn’t make sense at all. It just spoils the effect of any kind of free trade agreement.”
oming from the man who helped design Europe’s single currency, it makes perfect sense. Since its introduction in 1999, the euro has eliminated exchange-rate fluctuations among the 16 trade partners who have adopted it. In just over a decade, the euro has become the world’s second largest reserve currency after the dollar, and the second most-traded currency in foreign-exchange markets.
Which brings to mind another question. “What do you think about the rise in currency trading by banks, with some $4 trillion now turning over daily in global currency markets?”
Mr. Mundell thrusts out his arms. “It’s part of the sickness of the system! These currencies should be fixed, as they were under Bretton Woods or the gold standard. All this unnecessary noise, unnecessary uncertainty; it just confuses the ability to evaluate market prices.”
Mr. Mundell has a knack for boiling things down to simple terms. He grew up on a four-acre farm in Ontario, went on to earn a Ph.D. from the Massachusetts Institute of Technology, and would ultimately challenge the renowned Milton Friedman at the University of Chicago during the late 1960s. Both economists were strong proponents of free markets, but Mr. Mundell disagreed with Mr. Friedman’s advocacy of floating exchange rates.
The sound of a buzzer indicates lunch has arrived. Mr. Mundell suggests that we continue our discussion at the table and politely invites his assistant Ivy Ng, who has been taking careful notes, to join us.
“We’ve been talking about the possibility of global monetary reform,” I continue, deciding to switch gears. “Let’s talk a bit about domestic monetary policy. What do you think the Federal Reserve should be doing right now?”
It’s a seamless transition for Mr. Mundell. “The Fed is making a big mistake by ignoring movements in the price of the dollar, movements in the price of gold, in favor of inflation-targeting, which is a bad idea. The Fed has always had the wrong view about the dollar exchange rate; they think the exchange rate doesn’t matter. They don’t say that publicly, but that is their view.”
“Well,” I counter, not particularly savoring the role of devil’s advocate, “I suppose Fed officials would argue that their mandate is to try to achieve stable prices and maximum levels of employment.”
Mr. Mundell looks annoyed. “Well, it’s stupid. It’s just stupid.” He tries to walk it back somewhat. “I don’t mean Fed officials are stupid; it’s just this idea they have that exchange-rate effects will eventually be taken into account through the inflation-targeting approach. In the long run, it’s not incorrect—it takes about a year. But why ignore the instant barometer that something is happening? The exchange rate is the immediate reaction to pending inflation. Look what happened a couple weeks ago: The Fed started to say, we’ve got to print more money, inflate the economy a little bit. The dollar plummeted! You won’t get a change in the inflation index for months, but a falling exchange rate—that’s the first signal.” Clearly on a roll, I press a bit. “You mentioned gold?”
‘The price of gold is an index of inflation expectations,” Mr. Mundell says without hesitation. “The rising price of gold shows that people see huge amounts of debt being accumulated and they expect more money to be pumped out.” He purses his lips. “They might not necessarily be right; gold could be overvalued right now.”
Sensing that the soup is getting cold, I decide to cut to the chase: “What would be your winning formula today? What advice would you give to Washington that would help turn around our moribund economy?”
He pauses to think, but only for a moment. “Pro-growth tax policies, stable exchange rates.”
And then, with his spoon poised over his own bowl, he smiles sweetly and beckons for us to begin. “Buon appetito.” Ms. Shelton, an economist, is author of “Money Meltdown: Restoring Order to the Global Monetary System” (Free Press, 1994). She is co-director of the Sound Money Project at the Atlas Economic Research Foundation.

>Silver Hits 31-Year High as Mints Ration Silver Coins

>

By TSX Gold

 

Intense investor demand for bullion pushed silver to a new record today, touching a 31-year high of $31.77 an ounce before settling at $3.57, up 94.1 cents (+3.07%) on the day.
Mints in several countries, including Austria, Canada and the USA, sold record numbers of silver coins in January, and selling has reached such a fever pitch that these mints have had to ration their selling. In a Financial Times interview, Royal Canadian Mint head of bullion sales David Madge said, “We have sold everything we can produce in silver, and have demand for at least twice that volume.”
The price of silver increased by an impressive 84 percent in 2010 (outperformed only by palladium’s 96 percent rise), and with the fundamentals that drove silver up last year still in place, many analysts see silver growing substantially in 2011, although a repeat of last year’s 84 percent rise is unlikely.
Silver continues to out-perform gold, as illustrated by the silver-gold ratio (the number of ounces of silver that buys an ounce of gold) falling under 44, its lowest point in almost five years. Gold is currently down 2.5 percent from its 2010 close, although its price appears to be back on the upswing.
Silver, like gold, is currently reaping the benefits of investor anxiety over the heightening turmoil in the Middle East, as well as a declining U.S. dollar, which is taking a hard hit from rising U.S. unemployment, rising inflation, and the U.S. Federal Reserve’s ongoing quantitative easing program, which is printing $75 billion in new greenbacks each month.

Source: Gold Investor & Jay Taylor

More on this topic  

 

Why I’m Buying Silver at $30 (Learn Mining News, 2/22/11)

Silver Headed to $50 an Ounce in 2011 (Wealth Daily, 2/25/11)

---

Related posts

• All That Glitters Is Silver
• The Sprotts Expect Silver to Keep on Sizzling

>Gold and Silver Break Out as Political Unrest persists

>

By ROBERT LENZNER

Gold bullion closed at $1438 after hitting $1442, and will rise as  investors try to protect themselves  in  a world gone mad with chaos and blood. Silver actually hit a new 35  year peak  at $37.19, and  getting closer to the $40-$50  goal we set last fall.
Gold is no longer  just a  hedge against QE2  and  inflation– or a  hedge against deflation. Or a hedge against a declining dollar. Today, gold  has become an expression of the instability spreading from Tunisia to Egypt to Libya  to Syria, to Yemen, to Saudi Arabia, to Iran, to Bahrain– and those  street  dissensions to come, conceivably in Kuwait, UAE, and elsewhere. Oil supplies  are threatened. Buy gold and silver.
You don’t believe? Look at a chart of gold against silver. They are  moving in  absolute tandem now.  Any Sheikh trying to preserve  his fortune must own gold and silver.
In the US the price  of GLD, the largest gold ETF, hit a peak of $140 and looks set to breakthrough that mark tomorrow or the  next day. Let’s see if net selling turns  into net  buying. Are you listening Soros and Paulson, and their camp followers?
Then, there’s the Wikileak’s impact on gold and silver. The FT reported a few days ago, via  cables  released by  Wikileaks,  that  more central banks are plowing into gold, playing catch up with China, Russia  and India.
Listen up!. Iran,says the Bank of England via the FT, is making “a significant move… to purchase gold. Likewise, the Qatar  Investment Authority, no slouches, and Jordan’s central bank are  putting   reserves into gold. I must call my friend at  the Bank of Israel to find out what he’s doing. I’m sure I won’t get anywhere.
Imagine; gold and silver at new peak prices. While oil is only at $106– high for sure, and going higher in fits and starts, and copper has eased recently  as the Chinese reduced their purchases. A  shocking development. Goldman Sachs is still bullish.