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POSTED ON September 28, 2010  - POSTED IN Original Analysis

By Peter Schiff

Gold first broke $1,200 on December 2, 2009; nine months later, instead of witnessing the birth of the full-on gold boom I have long anticipated, the yellow metal has gained a modest 4%. Fortunately, it has spent the summer solidly above $1,150, which should put to rest the claim that we are seeing an exponential gold bubble like we saw in 1980. And those waiting for the “big pullback” to $8-900 might be seeing the futility in their cause. But I never doubted the strength of this secular bull market. In fact, I still maintain that gold is grossly undervalued. So, what’s holding gold back?

First, it’s important to account for the season. While everyone is at the beach, on their boats, or switching apartments, very few are out buying gold. June and July have always been low-volume months in the gold market. August tends to pick up a bit, and then by September, we’re off to the races. The fact that gold hasn’t had a major pullback this summer is very bullish for the fall.

POSTED ON September 3, 2010  - POSTED IN Key Gold Headlines

Sinai Says Fed’s Statement Means “Gotta Buy Gold”
Bloomberg – The FOMC policy statement on Sept. 21 said that inflation too low for the Fed to achieve its dual mandates of price stability and maximum employment. This language was much more aggressive that previous statements, and lays the groundwork for a second round of ‘quantitative easing,’ i.e. money printing. Respected private economist Allen Sinai explains that the statement was “code for: ‘we don’t want to go the way of Japan so we’re going to print money.'” How does one trade this information? “You gotta buy gold,” says Dr. Sinai.
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Gold Bull Market Has a Long Way to Go, Says Jim Rogers
Kitco News – Famed commodities investor Jim Rogers describes the recent gold rally as a direct response to aggressive money printing by the governments of the United States and Japan. Both manage what have traditionally been considered “safe haven” currencies, so their devaluation efforts have destabilized the currency markets. Rogers says a gold bubble will form one day, but not anytime soon — because gold is still an unusual investment for financial professionals, and very rare among retail investors. As recently as this year, he asked the money-manager audience at one of his lectures how many had ever owned gold and only about one in four raised their hands. He recommends everyone own some gold in their portfolio, but sees silver as having even greater potential for gain.
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POSTED ON August 31, 2010  - POSTED IN Original Analysis

By Peter Schiff

As gold hovers near $1,200 an ounce and pundits speculate about a ‘gold bubble’, it’s important for investors to remember that a mere decade ago the picture was very different. In the year 2000, gold sat at an unimpressive annual average of $279 an ounce – a two-decade low. At that time, most analysts thought gold was finished as a monetary metal. They said its price would never recover and only kooks with tin hats would invest in it. I was one of the very few financial commentators publicly saying that gold was not only viable, but entering a long-term uptrend.

With the benefit of hindsight, we can all see that the consensus was wrong. Gold has performed remarkably against the Dow, NASDAQ, and US real estate. The reason I was able to confidently forecast this result is because I ignore the ‘certainties’ determined by Wall Street consensus, and instead study the fundamental trends.

2000’s – The Great American Century?

Ten years ago, the United States was the world’s largest consumer of energy, house prices were steadily appreciating nationwide, the government was running a budget surplus, and there was widespread consensus that the world had entered a period of Pax Americana – stability brought about by permanent US dominance.

Overseas, the euro was just getting to its feet, no Western country could even imagine facing default, and the only BRICs anyone had heard of were the ones used to build houses. These circumstances were extremely bearish for gold, especially as the dollar was at a multi-year high against other major currencies.

But I correctly perceived that this grand tapestry would quickly unravel.

The Tortoise & The Hare

China started moving toward a market economy in the late 1970s. In the ensuing decades, their economy grew exponentially as more than a billion people won the economic freedom to compete in the world economy. While others were stuck in the Cold War mentality of the US versus the Soviet Union, where the Soviets’ collapse guaranteed America’s perpetual dominance, I was paying attention to this Chinese freight train that was gaining on us at a million miles an hour.

I saw that while the entire Third World was embracing capitalism, the West was embracing ever more lavish entitlements, ever more debt, and was using inflation to pay for it all. Developing economies were buying many of these new dollars, thus keeping the dollar index deceptively high; but all chickens come home to roost and I knew this inflation would come back to haunt us.

Moreover, all the money printing was creating tremendous distortions in the domestic economy – first the dot-com bubble, then the housing bubble, then the financials bubble, all the way to the current Treasuries bubble.

2010 – The Great American Collapse

Today, China is the world’s largest consumer of energy, American house prices are at generational lows, Washington is running deficits in the trillions (an order of magnitude used only sarcastically back in 2000), and the United States is suspending military exercises because they might upset the Chinese government.

Since 2000, the euro became the world’s backup reserve currency, Iceland’s economy collapsed, Greece averted this fate only by the grace of its neighbors, and savvy American investors have turned to the BRICs for growth and preservation of capital.

This transformation of the global economy, and the turbulence that accompanies it, has been bullish for gold. We have now seen the yellow metal reach new nominal highs, causing former critics to go silent for awhile, then re-emerge claiming there is a ‘gold bubble.’

Bubble or Bull?

In response, I will return to the only strategy that ever matters to long-term investors – analyzing the fundamentals. The truth is the fundamental trends haven’t changed.

The US government continues to add new spending programs (Obamacare, homebuyers tax credit, extended jobless benefits) and new regulations (1099s for small transactions, bank taxes, credit card fee limits), undermining our competitiveness and driving us deeper into debt. Though the euro has grown up somewhat, it is still too young and too troubled to take the place of the dollar as the world’s reserve. The Chinese government has maintained a counterproductive peg between the yuan and the dollar which is only beginning to be relaxed. This process would have to be completed before the Chinese currency could win reserve status.

In short, the dollar is closer than ever to collapse and there is no other national currency ready to take its place. I believe the world may soon discover that there is no better alternative than history’s proven money – gold.

Some of you might be familiar with these arguments, and say they are old hat. The same Wall Street analysts who missed the dot-com bubble and the real estate bubble are now warning that gold has already had its run up and is way overvalued. However, they were making this same argument back in 2006, with gold at $600/oz.

Meanwhile, in April of that year, I wrote a commentary with a few personal observations: none of my mining stocks had split, precious metals investors were not rubbing shoulders with real estate moguls or dot-com millionaires, and I was still running my gold investment division with only one employee. On TV, Flip That House wasn’t followed by Deal That Gold. My taxi driver wasn’t offering me hot bullion tips. In fact, nine out of ten people you stopped on the street couldn’t even tell you the current price of gold within $200! And that’s still the case today.

A Healthy Appetite For Gold

A decade after gold started its current bull run, we are still at half its inflation-adjusted peak. The run-up has been slow and orderly, with the price consolidated over the last three months at around $1,200. Dips like the recent drop below $1,160 have been correctly identified as bargain buying opportunities.

Despite a long rally without a major reversal, Wall Street aurophobes still refuse to see gold as a good investment; but they were wrong on the fundamentals in 2000, and the fundamentals haven’t changed. As the world edges closer to the collapse of the US dollar system, gold prices have nowhere to go but up.

I continue to recommend that investors hold five to ten percent of their wealth in physical precious metals. Aside from the likelihood that gold and silver will rise in price, precious metals offer timeless benefits, such as financial privacy, elimination of counter-party risk (if you store them yourself), as well as protection from government confiscation, onerous securities regulation, and punitive tax rates.

Unfortunately, there are a lot of scammers out there who take advantage of rational interest in gold coins to sell people irrational investments. That is why I am so proud to finally offer a straightforward, ethical, no-gimmicks way to buy gold and silver coins and bullion, Euro Pacific Precious Metals. My company does not sell numismatics, proof sets, commemoratives, leveraged contracts, or any product that distracts from our goal: preservation of your capital. I encourage you to add precious metals to your portfolio now, because those waiting for a big correction before coming aboard may just miss the train entirely.

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POSTED ON August 31, 2010  - POSTED IN Original Analysis

The following article was written by Mary Anne and Pamela Aden for the August 2010 edition of Peter Schiff’s Gold Letter.

7 Gold has been rising steadily for the past decade. In recent years, the rise has gained momentum, in large part thanks to the world’s central banks.

“Follow the money” is a secret that smart investors have known about for years. In a nutshell, it just means go where the money goes.

Well, the world’s central banks have a lot of money, and they’ve been buying gold. This is expected to continue, and it’ll keep upward pressure on the gold price.

POSTED ON August 31, 2010  - POSTED IN Key Gold Headlines

Prices Excluding Food, Energy in US Rise More Than Forecast
Bloomberg – Trouble in the eurozone may be helping to bolster the US dollar, and hold down the CPI, as investors seek perceived safety. Meanwhile, retailers are aggressively cutting prices in an attempt to improve weak sales figures. Nonetheless, the “core” Consumer Price Index (CPI) increased slightly in June, surprising many analysts who were bracing for deflation. More Americans are losing their jobs, and yet the cost of living continues to climb.
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Silver – The Next Belle of the Ball?
Barron’s – Gold is trading at 66 times silver, compared to a historic average of 16 times. Many analysts, notably Jim Rogers, expect this gap to narrow. While Jim Turk points out that silver is more volatile than gold, he believes the gold/silver ratio will return to 20:1. With gold at its current prices, this would mean a silver price of about $60/oz – a gain of some 240% from current levels. Reasons to be bullish on silver include safe haven demand like gold, but also strong industrial demand for use in solar panels, water purification plants, and as an antibacterial agent.
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The Death of Paper Money
Daily Telegraph – Celebrated conservative columnist Ambrose Evans-Pritchard discusses the renewed interest in studying past episodes of hyperinflation. Each one starts with a passive increase in the money supply [the Fed more than doubled the US dollar supply after the 2007 credit crunch], which may not affect general price levels for a long time. But, once it does, the currency system can collapse in a matter of weeks. Germany, Austria, and Hungary provide examples of this after World War I. Each saw civil society disintegrate as starving urbanites fled into the countryside to pillage farms. “The winners,” Pritchard recounts, “were those who – by luck or design – had borrowed heavily from banks to buy hard assets.”
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