International Buying & Your Shot at 1,000% Gains

By Jeff Clark, Senior Precious Metals Analyst

 

As a gold investor in North America, it sometimes feels like I'm living in some far off land where everyone believes in fairy tales and unicorns.


Most people around me don't seem to see anything wrong with the Fed creating $65 billion a month out of thin air, hey, it's not $85 billion anymore, what a relief! It's business as usual for the US government to spend billions more than it takes in, and a public debt hovering at $17.2 trillion—up from $7 trillion just 10 years ago—seems no more alarming than a rainbow.

No surprise then that these people don't feel any need to own assets that might help them in times of crisis. Hard assets like…..gold.

I'm reminded of a visit I made to China several years ago. One night, I awoke in the middle of the night—something was crawling under the bed sheet. I shot up like a cannonball, trampolined out of bed, and hit the light switch. I searched and searched for whatever bug had made its way under the sheet, but never did find the little vermin. Still, I was so creeped out, I spent the rest of the night on the couch.

I told the staff the next morning what happened—and they did nothing. They just stared at me. They spoke English, so it wasn't that they didn't understand me. It was just that none of them seemed to think it was a big deal. One of them even chuckled. They obviously didn't appreciate the potential health hazard and had no sense of customer service. I left bemused, wondering how people could accept bedbugs as normal—or even if they did, how they could not care about a customer's experience. It was like being on another planet.

I have some of those same feelings when I think about mainstream investors today. How can they not appreciate the potential financial hazard inherent in something as obviously dangerous as today's unprecedented levels of money printing? How can they not care that they have nothing solid, like gold, at the core of their investment portfolios? It's like these people think they live on Planet Sesame Street.

Most people seem to really believe that today's heavy-handed government interventions are not only the right course of action, but will have no negative fallout. Massive currency dilution, unstoppable tides of rising debt, and never-ending fiscal imbalances are hardly a way to cure decades of money mismanagement, and certainly aren't consequence-free. How is it that this is not obvious to all?

I honestly don't know. Perhaps people are aware at some level, but the truth is just too awful to face, and so people don't.

Very few of my friends and neighbors own any gold. Rarely am I asked about it anymore, even by those who know what I do for a living. The doctor I saw last month gave me the distinct impression I could be doing better things with my money. Most of the mainstream media ignore gold, while many of the big banks loudly proclaim their latest short position as if they had some sort of divine insight.

I'm starting to feel like the proverbial lone voice in the woods….

 

But We're Not Alone!

As deluded as most Americans seem to be, that is definitely not the case for everyone in the world—the Japanese, for example, are much more prudent and levelheaded.

I wonder if my fellow citizens would feel differently if they lived in any of these countries where people have witnessed economic insanity firsthand, and are acting accordingly:

Japan was a net importer of gold in December, the first time in almost four years. Net purchases totaled 1,885 kilograms (60,604 ounces). It was only the tenth time Japan was a net monthly buyer since the end of 2005. There are reports that Japan's pension funds, which hold the world's second-largest pool of retirement assets, are buying gold.

Dubai gold jewelers just reported the strongest gold sales in seven years. Pure Gold Jewelers, one of the largest dealers in the country, reported a 25% increase in gold jewelry sales during the Dubai Shopping Festival this year.

The state of Gujarat in India reported that silver bullion imports hit a five year record from April 2013 to January 2014. Imports were more than 450% higher than the same period a year ago. The Indian government has since hiked the import duty on silver to 15%, the same rate as gold, and official imports in January subsequently fell. Smugglers will surely add silver to all those secret luggage compartments they've been using for gold.

Australia's Perth Mint said gold sales jumped 41% and silver 33% in 2013. In January, gold demand was up 10% and silver 8%.

Mexico's pension funds are now investing in gold after strict investment regulations were recently lifted. The World Gold Council says it spoke to 10 of the country's most influential pension fund managers (with over $160 billion in assets) and was told that they began investing in gold and commodities in 2013.

Central banks were once again big buyers last year. Of those that have reported so far…

• Turkey purchased 150.4 tonnes (4.83 million ounces)
• Vietnam 110 tonnes (3.53 million ounces)
• Russia 57.3 tonnes (1.84 million ounces)
• Kazakhstan 24.16 tonnes (776,762 ounces)
• Azerbaijan 16.02 tonnes (515,054 ounces)
• Sri Lanka 6.51 tonnes (209,301 ounces)
• Nepal 6.22 tonnes (199,977 ounces)
• Ukraine 6.22 tonnes (199,977 ounces)
• Indonesia 4.04 tonnes (129,889 ounces)
• Venezuela 1.87 tonnes (60,121 ounces)

 

And of Course, There's China….

 

Last year's record import number is impressive enough, but it's the pace that's mind-blowing. 1,139 tonnes is…

• More than 2011 and 2012 imports combined.

• Over 42% of global mine production last year.

• Roughly twice as much as the amount GLD sold in all of 2013.

 

Meanwhile, Back in the Good Ol' US of A…

Gold coin demand for 2013 jumped 24%. Some headlines have pointed out that January 2014 gold and silver coin sales were down compared to a year ago—but January 2013 was the all-time record for single-month sales. Further, Eagle and Buffalo gold coin sales were more than double December's sales, and were the highest since last April. Silver coin sales in January were almost four times more than in December.

There, now I feel better.

Even if you sometimes feel like a lone wolf investing in this market, understand that worldwide demand for gold and silver bullion continues unabated. If you live in the US, realize that people in many other countries are seeing more positive headlines about gold, have more friends who own gold, and heck, could even walk into a bank to buy gold.

I don't think the people in these other countries are stupid. Whatever consequences result from the historic levels of currency dilution across the globe, they seem as sure as I do that they'll be good for gold.
What should you buy? I first recommend buying gold and silver bullion to establish a financial safety net. And then, to maximize gains on the more speculative end of your portfolio, you should look at Louis James' just-released "10-bagger List for 2014" in the February issue of International Speculator. A 10-Bagger is a stock with the potential to gain 1,000% or more—that's not a typo, we really did make 10 times our money on junior gold stocks the last time the sector rebounded, and Louis thinks that's about to happen again.

For example, one of those prospective 10-Baggers is a junior with a multimillion-ounce gold project that's run by one of our Explorers League honorees. This company is on the verge of securing the funds needed to build its exceptionally high-margin gold mine, but it's on sale. Speaking of the potential, Louis said: "If the company delivers, it'd be easy to see these 40-cent shares trading for $4" by 2015.

Investing in these stocks, and there are nine of them on Louis' list, could quite literally make you a fortune, but the opportunity to get in on the ground floor is fading fast.

Click here to learn more about Louis' 10 Bagger List for 2014 or watch the recording of our just aired one hour video event "Upturn Millionaires" to learn why the time to act is now.


International Buying & Your Shot at 1,000% Gains

Gold Stocks Are About to Create a Whole New Class of Millionaires

By Jeff Clark, Senior Precious Metals Analyst

Bear markets always end. Has this one?


Evidence is mounting that the bottom for gold may be in. While there's still risk, there's a new air of bullishness in the industry, something we haven't seen in over two years.

An ever growing number of industry insiders and investment analysts believe the downturn has come to a close. If that's true, it has immediate and critical implications for investors.

Doug Casey told me last week: "In my lifetime, the best time to have bought gold was 1971, at $35; it ran to over $800 by 1980. In 2001, gold was $250: in real terms even cheaper than in 1971. It ran to over $1,900 in 2011.

"It's now at $1,250. Not as cheap, in real terms, as in 1971 or 2001, but the world's financial and economic state is far more shaky.

"Gold is, once again, not just a prudent holding, but an excellent, high-potential, low-risk speculation. And gold stocks are about to create a whole new class of millionaires."

Just a couple of months ago, you would have had a hard time finding even one analyst saying something positive about gold and gold stocks—even some of the most bullish investment pros had gone silent.

But that's changing. Case in point: When Chief Metals & Mining Strategist Louis James and I attended last week's Resource Investment Conference in Vancouver, we witnessed quite a few very optimistic speakers.

Take Frank Giustra, for example, a self-made billionaire and philanthropist who made his fortune both in the mining sector and the entertainment industry. He's the founder of Lionsgate Entertainment, which is responsible for blockbuster movies like The Hunger Games, but he was just as heavily involved with mining blockbusters such as Iamgold, Wheaton River Minerals, Silver Wheaton, and others.

More Upturn Advocates Here's a quick scan of the growing number of voices that think the decline is over, some of which are outright bullish: "The worst is over with gold. It's time to call your broker." —Frank Holmes, US Global Investors "Sentiment is as black as night on gold, so I’m actually long on some gold miners." —Jeffrey Gundlach, bond guru and DoubleLine Capital founder "We'll see a gradual recovering throughout the year, because all the negative factors are already in the price." —Eugen Weinberg, head of commodities research at Commerzbank "Looking ahead, the downside risks seem to be diminishing, and overall we feel that the big shocks we've seen over the last two or three years are done..." —Marc Elliott, Investec "The mainstream narrative on gold is changing, indicating a possible bottom." —Bron Suchecki, Perth Mint "Orthodox investments are working on a cyclical peak, as precious metals are working on a cyclical bottom. The big pattern could be fully reversed by February-March, with gold becoming one of the best-performing sectors through the rest of 2014. The advice is to seriously reduce exposure in stocks and bonds and get fully invested in the precious metals sector. This should be completed in the first quarter." —Bob Hoye, Institutional Advisors

"I'm telling you, you've seen the bottom of the gold market," he told the rapt audience at the conference, offering a bet to the Goldman Sachs analyst who claimed gold is going to $1,000.

The stakes: Whoever loses has to stand on a popular street in downtown Vancouver dressed in women's underwear.

Tom McClellan, editor of the McClellan Market Report, stated in a recent interview on CNBC: "The commercial traders are at their most bullish stance since the 2001 low, and they usually get proven right. It's a hugely bullish condition for gold, and I'm expecting a really large rebound.

"The moment we see a major gold producer announce that it's curtailing production or it's going out of business," McClellan continued, "that'll be the moment we mark the low in gold. I expect to have one of those announcements any minute. We're getting down to the production price of gold right now, and they won't continue producing gold at that level for very long."

Are they just guessing? To answer that, first consider the historical context of this bear market—it's getting very long in the tooth:

• The current correction in gold stocks is the fourth longest since 1879. The decline of 66% ranks in the top 10 of recorded history.

• In silver, only two corrections have lasted longer—the ones that ended in 1936 and 1983.

Some technical analysts have pointed to positive chart formations, most notably the powerful "double bottom" that can portend a strong upward move. Based on intraday prices…

• Gold formed a double bottom last year, hitting $1,180.64 on June 28 and $1,182.60 on December 31, a convincing six-month span.

• Silver formed a higher low: $18.20 on June 28 vs. $18.72 on December 31, a bullish development.

• Gold stocks (XAU) formed a slightly lower low: $82.29 on June 26 vs. $79.73 December 19, 2103, a difference of 3.2%. However, as our friend Dominick Graziano, who successfully helped us earn doubles on three GLD puts last year, recently pointed out…

• The TSX Venture Index, where most junior mining stocks trade, has stayed above its June low. In fact, it recently soared above both the 50 day and 40 week moving averages for the first time since 2011.

Meanwhile, Goldcorp (GG) sent a huge bullish signal to the market earlier this month. It decided to pounce on the opportunities available right now, launching a takeover bid of Osisko Mining for $2.6 billion. The company wouldn't be buying now if it thought gold was headed to $1,000.

As Dennis Gartman, editor and publisher of The Gartman Letter, says, "It's time to be quietly bullish."

The smart money, like resource billionaire Rick Rule, is not just quietly bullish, though—they are actively buying top-quality junior mining stocks at bargain-basement prices to make a killing when prices rise.
To make sure that you can invest right alongside them, we decided to host a sequel to our 2013 Downturn Millionaires event, titled Upturn Millionaires—How to Play the Turning Tides in the Precious Metals Market.

Back then, we made a strong case for this once-in-a-generation opportunity—but it was still undetermined when the bottom would be in. It looks like that time is now very near, and we believe it's time to act.

On Wednesday, February 5, at 2 p.m. EST, resource legends Frank Giustra, Doug Casey, Rick Rule, and Ross Beaty, investment gurus John Mauldin and Porter Stansberry, and Casey Research resource experts Louis James and Marin Katusa will present the evidence and discuss the possibilities for life changing gains for investors with the cash and courage to grab this bull by the horns.

How do we know the absolute bottom is in? I'll answer that with a quote from a recent Mineweb interview with mining giant Rob McEwen, former chairman and CEO of Goldcorp:

"I'd say we're either at or extremely close to the bottom, and as an investor I'm not prepared to wait to see if the bottom's there because it's very hard to pick it. Because … if you're not taking advantage of it right now, you're going to miss a big part of the move. And when you look at the distance these stocks have to travel to get to their old highs, there's some wonderful numbers in terms of performance that I think we're going to see."

Granted, these voices are still in the minority—but that's what makes this opportunity wonderfully contrarian.

After all, once "Buy gold stocks" is investor consensus, we'll be approaching the time to sell.
Our Upturn Millionaires experts believe that our patience is about to be rewarded. And when that happens, gold stocks will be easy doubles—and the best juniors potential ten baggers.

Don't miss the free Upturn Millionaires video event—register here to save your seat. 

Even if you don't have time to watch the premiere, register anyway to receive a video recording of the event.)

Hitch a Ride on This Supply Crunch

By Jeff Clark, Senior Precious Metals Analyst

Can you name a commodity that's currently in a supply deficit—in other words, production and scrap material can't keep up with demand? How about two?


If you find that difficult to answer, it's because there aren't very many.

When you do find one, you might be on to a good investment—after all, if demand persists for that commodity, there's only one way for the price to go.

At the end of 2012, the platinum market was in a supply deficit of 375,000 ounces. Much of it was chalked up to the sharp decline in output from South Africa, where about 750,000 ounces didn't make it out of the ground due to legal and illegal strikes, safety stoppages, and mine closures.

The palladium sector was worse: It ended the year with a huge supply deficit of 1.07 million ounces—this, after 2011, when it boasted a surplus of 1.19 million ounces. The huge reversal was due to record demand for auto catalysts and a huge swing in investment demand—going from net selling to net buying in just 12 months.

What's important to recognize as a potential investor is that the deficit for both metals isn't letting up, especially for platinum.

Since platinum supply is dwindling, let's take a closer look…...

Will the Supply Deficit Continue?

 

According to Johnson Matthey, the world's largest maker of catalysts to control car emissions, platinum supply will decline to 6.43 million ounces this year, largely due to lower Russian stockpile sales. But the company claims the decline will be made up by a 7.4% increase in recycling.

Ha. Projections on scrap supply are almost always wrong. Analysts said in early 2012 that supply from recycling would grow 10-12% that year—but it declined by 4%.

There are critical issues with scrap this year, too…

• Impala Platinum ("Implats") reported a 17% decline in output, not due to decrease in production but in scrap supply. Other companies have not reported this problem, but Implats is one of the biggest producers of the metal.

• Recycling of platinum jewelry in China and Japan is falling and is on pace to be 12.9% lower than last year.

• European auto sales are declining, so one would think demand would be the most impacted. However, this has major implications for supply, too: The average age of a car in Europe is eight years, with more than 30% over 10 years old. When a vehicle exceeds 10 years, the wear and tear on the catalyst is so significant that a substantial portion of the platinum has already been lost. So the jump in supply many are anticipating will be much less than expected.

Some of these declines are offset by scrap from auto catalysts in the US, but this obviously hasn't made up for all of it.

Demand Isn't Letting Up Either

 

Platinum demand is driven mostly by the automotive industry and jewelry, which account for 75% of world demand. What happens in these two sectors has a significant impact on the metal.

We'll let you draw your own conclusions from the data…...

The Cars

• Auto industry analysts forecast total monthly sales in the US last month will reach about 1.23 million for passenger cars and light trucks, up 12% from 1.09 million in October 2012.
• China, the world's largest auto market, saw a 21% rise in passenger car and light-truck sales in September to 1.59 million units, an eight-month high.
• PricewaterhouseCoopers forecasts that sales of automobiles and light trucks in China will have nearly doubled by 2019. This trend largely applies to other Asian countries too, becoming a constant source of demand for both platinum and palladium.

The Politicians

Both platinum and palladium will benefit from new regulations that take effect in 2014 in Europe and China:

• Europe's new "Euro 6" emission regulation will force diesel vehicles to have new catalysts going forward.
• China has already accepted tighter emission standards that will substantially push platinum demand in the country. It's worth mentioning that car markets in China and other emerging countries are at the "Euro 4" level, so they have some catching up to do before reaching US and European levels.

The Investors

NewPlat, a platinum exchange-traded fund, launched in South Africa on April 26 and has already seen an inflow of 600,000 ounces through the end of September. This unprecedented surge is expected to lift platinum investment demand by 68% to a record 765,000 ounces.

The Jewelers

Jewelry is the second-largest use for platinum, representing 35% of overall demand.

China dominates this market, and demand has doubled in the past five years. According to ETF Securities, China is well on its way to make up around 80% of total platinum jewelry sales in 2013—their report calls Chinese platinum demand "a new engine of growth."

Johnson Matthey expects the interest for platinum jewelry to soften in China this year. However, a recent article in Forbes suggests the opposite may be happening:

A good proxy for Chinese platinum jewelry demand is the volume of platinum futures traded on the Shanghai Gold Exchange. Average daily platinum volume on the exchange in 2013 is running near 45% above 2012 levels, recently reaching a new record high this year.

Another indicator of Chinese platinum jewelry demand is China platinum imports. The latest data on China platinum imports for September showed the highest level since March 2011 at 10,522 kilograms (or approximately 338,300 ounces).

And this from International Business Times…

Net platinum inflows into China hit their highest levels in two and a half years … China's net imports of platinum rose by 11%, to hit almost 70 metric tons for the first three quarters in 2013, higher than the 62 metric tons from the same period last year.

Overall, platinum demand is expected to be greater than ever before, reaching a record 8.42 million ounces this year. And this while supply continues to decline.

This supply/demand imbalance will likely continue for at least several years, perhaps a decade. Prices haven't moved all that much yet, but that doesn't mean they won't. Prices of commodities with a supply/demand imbalance can only stay subdued for so long before reality catches up. Either prices must rise or demand must fall.

The other metal to take advantage of right now is gold. While there's no supply crunch, the gold price is so low right now that it practically screams to back up the truck.

Learn in our free Special Report, the 2014 Gold Investor's Guide, when and where to buy gold bullion… the 3 best ways to invest in gold… and more. Get your free report now.


Don't miss this weeks free webinar: How to Boost Your Returns With One Secret ETF Strategy

Jeff Clark: Poor Economy = Low Gold Price?

By Jeff Clark, Senior Precious Metals Analyst

Despite some positive data, the global economy is showing signs of slowing, a remarkable development in itself when you consider all the money printing and deficit spending that's transpired over the past few years. According to the IMF's overview, global growth was less than expected in the first quarter of 2013, at just over 3%, which is roughly the same as 2012. The lower-than-expected figures were driven by significantly weaker domestic demand and slower growth in emerging-market economies, a deeper recession in the euro area, and a slower US expansion than anticipated. The report concludes that the prospects for the world economy remain subdued.

Many investors consider a weak economy to be a bearish environment for commodities, including gold. Doug Casey says we have entered into what will become known as the Greater Depression. That's as bearish as it gets, so should we expect gold to decline if the bears are right?
One of the most rocky economic periods in modern times was the late 1970s. For those who don't remember, the period was characterized by:

• Unexpected jumps in oil prices, leading to soaring gasoline prices and rationing
• A falling dollar
• High and accelerating inflation
• Record interest rates
• Bank failures
• Wars, including the Iranian Revolution (1978), the Iran-Iraq war (1979), the Russian invasion of Afghanistan (1979), and the Iranian hostage crisis (November 4, 1979 to January 20, 1981).

Outside of the Great Depression, it's hard to identify more trying economic circumstances.
Here's a closer look at the three-year period from 1977 through 1979. In the following chart, we looked at the economic indicators that affected citizens and investors the most, showing which were getting better and which, worse. These factors would all have affected market sentiment and the appetite to invest in gold at the time...

You can see that by the time 1979 hit, inflation was rising, gas prices were soaring, incomes were dropping, and mortgage rates were climbing. The S&P was rising, but not so much in real terms. GDP growth was high, but it was clearly not a rosy time for consumers or workers. Key points:

• Nominal GDP in 1979 increased 10% year over year, but it was 4.5 percentage points less than in 1978, when the economy expanded a whopping 14.5%. Real GDP changes didn't reach those highs but kept to the trend: in 1978 the growth was 5.6%, while during 1979 the economy expanded only 3.1%, notably slowing down.
   
• Inflation was dramatically accelerating. The '70s was a hard time for the dollar, much of it connected to the energy crisis. Annual inflation grew from 5.7% in 1976 to 7.6% in 1978, and accelerated to 11.2% in 1979. Prices were up significantly, especially those that had energy costs associated with them, squeezing the average American budget tighter and tighter.
   
• Gasoline prices rose almost 37% in 1979. This obviously impacted spendable income. It would be the equivalent of national gasoline prices hitting $4.54/gallon by December after starting the year at $3.32.
   
• Real disposable personal income slowed in 1979, growing only 1.2%, compared to a 3.5% growth rate just a year earlier.
   
• Mortgage rates were already high—and then shot higher. The interest rate to mortgage a home went from 8.8% in 1978 to 11.2% in 1979. Home values were rising dramatically due to inflation, though rate increases cooled the pace, as values slowed to a 14.7% rate in 1979 vs. 15.3% in 1978.
   
• Real manufacturing and trade sales (listed as Real Trade Sales in the chart) weakened from 7% in 1977 to 2.4% in 1979. This is a broad indicator that includes manufacturing, merchant wholesalers, and retail sales. The likely culprit for the drop was falling personal incomes as prices were rising.
   
• The S&P 500 went from negative territory in 1977 to logging a 12.3% gain in 1979. As inflation rose, so did nominal stock prices, but the real gain was a mere 1.1%.
   
• Unemployment was decreasing during this period, from 7.1% in 1977 to 5.8% in 1979. This may seem at odds with a slowing economy, but labor looked cheap since prices were growing faster than wages. Also, unemployment is a lagging indicator—and it sharply worsened later, when another recession hit in 1980.

So how did gold perform during this challenging economic environment?

The gold price rose 23% in 1977 and 37% in 1978, both of which are considered economic expansion years. But as things worsened in 1979, the price accelerated and went into a mania, ending the year with an incredible 127% return.
While there are many variables at play and no two economic time periods will be the same, this history lesson signals that a sluggish economy is not necessarily an obstacle for gold doing well. Indeed, some of these factors directly contributed to the rush to gold, which is not just a commodity, but the single best tool for storing and transferring wealth (money) ever devised.
In short, there is no contradiction between Doug Casey's gloomy global economic outlook and his bullishness on gold. In our view, the former is the reason for the latter, and a very good reason to buy. If the history of the current bull cycle for precious metals even slightly rhymes with what happened in the 1970s, the market mania that lies ahead should bring us the biggest and fastest gains on our investments to date.

Tomorrow's BIG GOLD outlines why we think buying this month will reward investors not just in the long-term but quite possibly in the short-term as well. The bullion discounts we offered last month have been extended for 30 days solely for BIG GOLD readers—this is the time to pounce, so take advantage of weak prices while they're still available.

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Recent Action in Silver ETFs Is Bad News for Precious Metals Bears

From Author Jeff Clark, Senior Precious Metals Analyst.....

Two weeks ago we looked at the difference between gold ETF outflows vs. physical gold purchases, and showed that most sales were coming from the former while aggressive buying was coming from the latter.


This week we examined the same data for silver – and discovered a rather striking trend. Not only are silver ETFs seeing no net outflows, their holdings are increasing. Bearish investors who treat the two precious metals as being the same, interchangeable thing, and sell silver along with gold are at risk of missing the boat.

Here's how holdings in SLV, the world's largest silver ETF, compare to those of GLD…

The divergence between gold and silver funds is clearly evident. As of March 28, SLV holdings stand at 344,128,478 ounces, up 5% so far this year and just 7% below 2011's record high.

It's not just SLV. As a group, silver exchange-traded products (ETPs) have seen their holdings rise for four consecutive months.

Why the stark divergence between the two precious-metals funds?

As most readers know, silver has a dual nature, serving as both a precious metal and an industrial metal. As a precious metal, it's a store of value like gold – but since roughly half of its use is devoted to various industrial applications, its performance has a strong correlation to economic growth. And since most mainstream analysts are bullish on the global economy, the current surge in silver ETFs is likely a result of this optimism. After all, if you see economic recovery ahead, industrial demand for the metal will grow and the price would be expected to rise.

Further, these massive inflows are occurring at a time when the silver price is mostly flat, whereas the previous peak in holdings took place when the price was soaring (spring 2011). Here's a picture of SLV holdings since January 2012, along with the silver price.

What's interesting is that the increase in SLV holdings has not had a significant impact on silver's price – yet. Since the price usually receives a boost when industries start buying more of it, many of these "paper" buyers are likely adding silver in anticipation of economic recovery, the very reason others are selling gold.

Let's take a look at physical demand.

As with gold, buyers of physical silver tend to have a long-term investment horizon and buy mostly from a currency standpoint. With prices near the bottom of their 22-month range, many investors continue to see opportunity: January sales of American Eagle silver bullion coins spiked to an all-time record of 7.5 Moz, and February's demand was 3.4 Moz, up 126% from last February's sales of 1.5 Moz. Cumulative silver coin demand for the first two months of this year already hit 10.87 Moz, a full third of total coin sales in 2012.

You can see that silver is being sought by both paper and physical buyers.

Whether it's mainstream investors buying in anticipation of economic recovery or physical buyers loading up due to currency concerns, investors collectively see big potential for silver.

Investor Implications: Is Silver a No-Lose Proposition?

 

It's a simplistic conclusion but not necessarily inaccurate: silver rises if the economy improves and industrial demand grows – or it rises if the world's major currencies continue to be debased, regardless of whether the economy is on the mend. Two different reasons, the same investment solution.

What if we get both outcomes: a robust economy and high inflation? That, of course, would be music to the ears of silver owners... the demand from industry strains supply, while bullion owners refuse to sell. Prices would go ballistic.

Does this mean silver is a no-lose proposition? Of course not. No investment comes without risk. An outright depression would be destructive to industrial demand. Roughly two-thirds of silver is used in industry and jewelry, so Doug Casey's Greater Depression could severely impact the biggest portions of current demand. The same events would increase monetary demand for silver, but the two trends may not have equal weight on the price of silver at the same time. We thus wouldn't make silver our sole investment, but we see a lot of upside in the metal under current market conditions.

At the end of the day, we're more inclined to buy silver for the same reasons we buy gold. While a case can be made for an improving economy, there's an overwhelming one already built for government money-printing to result in a massive loss of purchasing power, and that argues for seeking the safe haven of precious metals – both of them.

Don't miss this opportunity: Prices are low right now, and that makes it time to buy.

It's an even better time to buy gold and silver producers – especially select junior mining companies. Right now, the sector is so badly beaten down that even the best-of-the-best outfits are selling at discounts of 50% or more, giving you a rare opportunity to get in at the bottom of what could be the next great investment bubble.

To help you more fully appreciate the magnitude of this opportunity – and to give you concrete investment strategies – some of the world's top natural-resource speculators and economic minds will appear in a special, online video event on April 8, titled Downturn Millionaires. They include: contrarian investment legend Doug Casey; Agora Inc. publisher Bill Bonner; Sprott US Holdings Chairman Rick Rule; Mauldin Economics Chairman John Mauldin; and Casey Research Chief Metals and Mining Investment Strategist Louis James.

The event is free and is a must-see for serious investors. Get more information and register today.


The 2 Energy Sectors You Should Invest in This Year
 

The Chess Game of Capital Controls

From Jeff Clark, Senior Precious Metals Analyst

The best indicator of a chess player's form is his ability to sense the climax of the game.

–Boris Spassky, World Chess Champion, 1969-1972

You've likely heard that the German central bank announced it will begin withdrawing part of its massive gold holdings from the United States as well as all its holdings from France. By 2020, Bundesbank says it wants half its gold reserves stored in its own vault in Germany.


Why would it want to physically move the metal from New York? It's not as if US vaults are not secure, and since Germany already owns the gold, does it really matter where it sits?

You may recall that Hugo Chávez did the same thing in late 2011, repatriating much of his country's gold reserves from London. However, this isn't a third-world dictatorship; Germany is a major ally of the US. So what's going on?

Pawn to A3

On the surface, it may seem innocuous for Germany to move some pallets of gold closer to home. Some observers note that since Russia isn't likely to be invading Germany anytime soon – one of the original reasons Germany had for storing its gold outside the country – the move is only natural and no big deal. But Germany's gold stash represents roughly 10% of the world's gold reserves, and the cost of moving it is not trivial, so we see greater import in the move.

The Bundesbank said the purpose of the move was to "build trust and confidence domestically, and the ability to exchange gold for foreign currencies at gold-trading centers abroad within a short space of time." It's just satisfying the worries of the commoners, in the mainstream view, as well as giving themselves the ability to complete transactions faster. As evidence that it's nothing more than this, Bundesbank points out that half of Germany's gold will remain in New York and London (the US portion of reserves will only be reduced from 45% to 37%).

Sounds reasonable. But these economists remind me of the analysts who every year claim the price of gold will fall – they can't see the bigger implications and frequently miss the forest for the trees.

Check

What your friendly government economist doesn't reveal and the mainstream journalist doesn't report (or doesn't understand) is that in the event of a US bankruptcy, euro implosion, or similar financial catastrophe, access to gold would almost certainly be limited. If Germany were to actually need its gold, regardless of the reason, any request for transfer or sale would be… difficult. There would be, at the very least, delays. At worst such requests could be denied, depending on the circumstances at the time. That's not just bad – it defeats the purpose of owning gold.

But this still doesn't capture the greater significance of this action. First, it reinforces the growing recognition that gold is money. Physical bullion isn't just a commodity, a day-trading vehicle, or even an investment. It's a store of value, a physical hedge against monetary dislocations. In the ultimate extreme, it's something you can use to pay for goods or services when all other means fail. It is precisely those who don't recognize this historical fact who stand to lose the most in an adverse monetary event. (Hello, government economist.)
Second, here's the quote that reveals the ultimate, backstop reason for the move: Bundesbank stated it is a "pre-emptive" measure "in case of a currency crisis."

Germany's central bank thinks a currency crisis is really possible. That's a very sobering fact.
We agree, of course: history is very clear on this. No fiat currency has lasted forever. Eventually they all fail. Whether the dollar goes to zero or merely becomes a second-class currency in the global arena, the root cause for failure is universal and inevitable: continual and perpetual dilution of the currency.

Some level of currency crisis is inescapable at this point because absolutely nothing has changed with worldwide debt levels, deficit spending, and currency printing, except that they all continue to increase. While many economists and politicians claim these actions are necessary and are leading us to recovery, it's clear we have yet to experience the fallout from spending more than we have and printing the difference. There will be serious and painful consequences, sooner or later of an inflationary nature, and the average person's standard of living will be greatly reduced.

And now there are rumblings that the Netherlands and Azerbaijan may move their gold back home. If this trend gathers steam, we could easily see a "gold run" in the same manner history has seen bank runs. Add in high inflation or a major currency event and a very ugly vicious cycle could ignite.

Checkmate

If other countries follow Germany's path or the mistrust between central bankers grows, the next logical step would be to clamp down on gold exports. It would be the beginning of the kind of stringent capital controls Doug Casey and a few others have warned about for years. Think about it: is it really so far-fetched to think politicians wouldn't somehow restrict the movement of gold if their currencies and/or economies were failing?
Remember, India keeps tinkering with ideas like this already.

What this means for you and me is that moving gold outside your country – especially if you're a US citizen – could be banned.

Fuel would be added to the fire by blaming gold for the dollar's ongoing weakness. Don't think you need to store gold outside your country? The metal you attempt to buy, sell, or trade within your borders could be severely regulated, taxed, tracked, or even frozen in such a crisis environment. You'd have easier access to foreign-held bullion, depending on the country and the specific events.

None of this would take place in a vacuum. Transferring dollars internationally would certainly be tightly restricted as well. Moving almost any asset across borders could be declared illegal. Even your movement outside your country could come under increased scrutiny and restriction.

The hint that all this is about to take place would be when politicians publicly declare they would do no such a thing. You could quite literally have 24 hours to make a move. If your resources were not already in place, even the most nimble of us would have a very hard time making arrangements.

Once the door is closed, attempting to move restricted assets across international borders would come with serious penalties, almost certainly including jail time. In such a tense atmosphere, you could easily be labeled an enemy of the state just for trying to remove yourself from harm's way.

The message is clear: storing some gold outside your country of residence is critical at this point, and the window of time for doing so is getting smaller.

Don't just hope for the best; do something about it while you still can. The minor effort made now could pay major dividends in the future. Besides, you won't be any worse off for having some precious metals stored elsewhere.

If you're moved to take action, know that you're not alone. It's critical that you take these first steps now, while you still can. The best chess players in the world aren't that way because they can see the next move. They're champions because they can see the next 14 moves. You only have to see the next two moves to "win" this game. I suggest making those moves now before your government declares checkmate.

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