Financial markets are watching the Federal Reserve this week to see if they change any of their language regarding monetary policy going into 2015. Janet Yellen will give a statement on Wednesday, and how she addresses interest rates is of particular interest. Economists are expecting the Fed to drop the phrase “considerable time” from their statement, which could indicate an interest rate hike in the first half of next year. This would be the rational course of action if the US economy is actually improving, as the Fed claims.
However, as Peter Schiff has been saying for some time, the economy is not really improving. Peter expects that the Fed will find more excuses to not only keep interest rates down, but to actually start up another round of quantitative easing before too long.
Enter renowned financial manager Bill Gross. Last week, he suggested that the plummeting price of oil might be that very excuse.
In spite of the government’s ongoing narrative of a US economic recovery, major news outlets continue to remind us that life isn’t getting easier for most Americans. The Wall Street Journal recently published a lengthy expose on the rising cost of basic necessities. This chart shows how much more middle-class American households are spending thanks to 12.4% inflation since 2007.
The Silver Institute forecasts that demand for industrial silver will increase by 142 million ounces by 2018 – a 27% rise from 2013 levels. The majority of this growth will come from the electronics sector, where silver is used as one of the most reliable and efficient electrical conductors on earth.
However, every major application of industrial silver will experience considerable growth by 2018. These include batteries, ethylene oxide (EO), photovoltaic power, automative, brazing and alloys, bearings, printed silver inks, medical, and water purification. Here’s a break-down of silver demand by geographical region:
The United States Mint has officially sold a record amount of silver two years in a row. As of Monday, US Mint sales of American Silver Eagles for 2014 reached 42,864,000, surpassing the total annual sales of 42,675,000 in 2013. The US Mint temporarily sold out of Silver Eagles earlier this year and had to begin offering them on an allocated basis.
As you can see in this chart from Smaulgld, US Mint silver sales really took off seven years ago and have remained robust. We have every reason to believe that this record demand will continue in the coming years.
Last week, Peter Schiff defended the intrinsic value of gold by briefly explaining how many uses it has beyond bullion investment. Many people have no idea how integral gold is to products they rely upon every day, not to mention exciting technologies of the future.
People who argue that gold is becoming less useful in the modern world simply don’t understand the basic fact that the applications of gold are expanding every year, not shrinking. Either that, or they expect the human race to abruptly curtail its exploration of space, stop making high-end electronics, and find a more stable element for use in medicine. On top of that, gold detractors must assume that the age-old association of gold with prestige, success, and wealth is going to suddenly vanish from the earth.
So what makes gold so valuable outside of its monetary value?
The national debt of the United States officially surpassed $18 trillion this past week. The news has been making the rounds of every media outlet, with many economists reminding us of the very shaky footing of the US economy. However, there are other analysts who play down this outrageously irresponsible amount of debt.
In his latest in-depth commentary, David Stockman explains the larger narrative of US fiscal policy that delivered this growing debt load. Stockman should know something about the topic. He was Director of the Office of Management and Budget under Reagan back in the early 1980’s, which is when US debt passed $1 trillion for the first time.
Think about that – it took more than 200 years for US debt to reach $1 trillion. But as Stockman points out, the last $1 trillion of debt accumulated in about 1 year.
China has officially surpassed the United States as the largest economy in the world, based upon economic output as measured by the International Monetary Fund. China’s production of real goods and services will touch about $17.6 trillion this year, while the US will produce $17.4 trillion.
This gap will continue to grow, according to the IMF. By 2019, China is projected to produce about $26.8 trillion, while the US will produce about $22.1 trillion. That translates to a growth rate of more than 52% in the next five years for China, while the rate of US economic growth will be nearly half of that – just 27%.
An article on MarketWatch explores this news in more detail, and touches on the profound implications of this trend. :
Yes, all statistics are open to various quibbles. It is perfectly possible China’s latest numbers overstate output — or understate them. That may also be true of U.S. GDP figures. But the IMF data are the best we have.
Make no mistake: This is a geopolitical earthquake with a high reading on the Richter scale. Throughout history, political and military power have always depended on economic power. Britain was the workshop of the world before she ruled the waves. And it was Britain’s relative economic decline that preceded the collapse of her power. And it was a similar story with previous hegemonic powers such as France and Spain.“
This is, of course, a long-term development. The US will continue to dominate the world for some time, but the winds are changing. Those winds are blowing East, to a land where the government and people still inherently understand the value of real money – physical gold.
More than three years ago, a jury found Bernard von Nothaus guilty for “making, possessing and selling his own coins,” which Nothaus had dubbed the Liberty Dollar. This week, a judge has passed a very lenient sentence on Nothaus despite pleas for a long prison term from the prosecution. More importantly, the judge ruled that the $7 million worth of confiscated silver be returned to Nothaus.
Nothaus was selling silver bullion coins that the government claims too closely resembled American silver coins. Therefore, Nothaus was a counterfeiter in the eyes of the government. The prosecuting attorney even went so far as to claim that Nothaus was attempting to “undermine the legitimate currency of this country,” and that this was “a unique form of domestic terrorism.”
Here’s a picture of the coin – anyone familiar with US Mint silver coinage can clearly see that the Liberty Dollar is different.
The truth is that Nothaus simply wanted to get physical silver into the hands of Americans, while simultaneously educating them about the loss of purchasing power in the dollar.
India – once the world’s largest gold consumer – has eased restrictions that had limited its gold imports and allowed China to overtake it in gold consumption. The so-called “80:20 rule” has been dropped, which required gold importers to reexport at least 20% of their imported gold. The rule was supposed to shrink a high current-account deficit, but it also led to a surge in illegal smuggling across the country.
In the immediate future this is positive news for gold investors – the second largest consumer of gold in the world will likely very soon begin to officially buy more gold.
Swiss Vote “No” on the “Save Our Swiss Gold” Initiative
Wall Street Journal – Swiss voters voted down the Swiss gold referendum that would have forced the Swiss National Bank to hold 20% of its assets in gold. About 78% of voters were against the initiative, which was heavily opposed by the SNB and much of the Swiss parliament. Opponents said the measure would have made it too difficult for the bank to maintain its monetary policy that depends on pegging the Swiss franc to the weaker euro. Advocates for the initiative hoped it would strengthen the weakening Swiss franc. The measure would have also prevented the SNB from selling gold and required it to repatriate its gold. The SNB currently has 1,040 metric tons of gold, only about 7.5% of its assets.
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Netherlands Repatriating Gold Reserves from US
Wall Street Journal – The Dutch central bank (DNB) will be moving some of its gold reserves held at the New York Federal Reserve back to the Netherlands. The DNB currently holds 11% of its 612 metric tons of gold reserves domestically and wants to increase that to 31%. Currently, 51% of its gold reserves are stored at the NY Fed, but this will drop to 31% after the repatriation. The DNB is the latest European central bank to express concerns about the safety of its gold reserves held abroad, following the example of the German gold repatriation effort begun in 2013. According to the DNB, the repatriation will have “a positive effect on public confidence” by distributing its gold reserves in “a more balanced way.”
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