-- Posted 22 November, 2005 | | Source: SilverSeek.com
Last week, Bill Murphy wrote a summary of The Manipulation Of The Gold Market.
I strongly suggest you read that link. There are several MAJOR developing news stories that all indicate that Gold and Silver will head much higher in price. It appears that the recent rise in gold & silver could be attributed to any one of them!
Here is a summary of them. There is a copper shortage; and a possible impending copper default! The world copper inventory is down to two days use, due to "just in time" inventory, and a bias by "regulators" against longs which prevents intelligent stockpiling. A Chinese State copper trader sold up to 200,000 tonnes of copper in futures; selling copper he did not have. China says they are not obligated to pay; other traders say that is nonsense. Selling physical metal that does not exist is not only a problem for the copper futures market. Palladium traders defaulted on their futures at $1000/oz. several years ago, in 2001.
Watch this copper story develop; defaults will cause people to want the real thing, and not promises; and this means that gold and silver could go up in price. But it's not just copper. Every one of the base metals have increased. They all are making new highs... Experienced traders have never seen this kind of a swing, ever. Why now? The population has more than doubled since 1950: From 2.5 billion people, to over 6 billion today. These people are ready to compete with the industrialized world. China is building an infrastructure. Silver Users Fear Silver Shortage
The Silver User's Association claims that the proposed Silver Exchanged Traded Fund, which needs 130 million ounces of silver, will cause a silver shortage. This is about $1 billion worth of silver, a tiny sum in financial terms. This means that silver will likely go up in price, as investors love a shortage, which, itself can cause higher prices. Add investor demand to the mix, and silver prices will soon head much, much higher.
The Fed, by early 2006, will no longer report M3 statistics (which is how much money is in the U.S. banking system, currently about $10 trillion); and Bernanke, the inflationist, will soon be at the helm of the Fed. Ben Bernanke is known as "helicopter Ben" due to his flippant remarks that the Fed could prevent deflation by dropping cash into cities from helicopters! But seriously, Dr. Gary North, famous theologian and gold advocate, noted that Bernanke wrote in a paper three years ago that the Fed could buy up stocks, bonds, housing, and even gold mines, to prevent asset deflation. This is all highly inflationary, meaning the $22 trillion in bonds will go down in value as interest rates go up, and as gold and silver go up. Several central banks state they will be buying gold: Russia, South Africa, South Korea, Argentina; while other banks hint at buying gold: China, Japan, etc.
The U.S. government will soon force companies to pay pension obligations. The Senate just passed pension regulation reform. GM's pension is under-funded by $31 billion, says the New York Times this weekend! GM has only $19 billion in cash, and is losing $4 billion per year, as they are losing $1500 per car sold, and GM is losing market share. If GM goes bankrupt (and they are technically bankrupt now) then about $300 billion in bonds default! What will that mean? GM stock will be worthless, and the bondholders will own GM, which may be worth less than $30 billion, so bondholders stand to lose more than 90%. A $300 billion default in the bond market is huge; and could inspire up to $1 trillion invested in bonds to sell for something else that cannot default; such as gold and silver.
The annual demand for physical gold stands at about 5000 tonnes annually; at $500/oz., that's about $80 billion dollars. Imagine if gold demand went up over ten fold, to $800 billion worth? Gold is going up! And silver will outpace gold due to the silver shortage. Over 95% of all gold ever mined is still with us. About 90% of silver mined has been consumed. Silver stocks now are dirt cheap! Ever since April, 2004, when silver topped out at $8.40, the silver stocks have gone down. The market does not seem to believe that silver prices are headed higher! It seems as if traders left the metals, and invested in oil stocks. But oil is now way too expensive as compared to silver, since historically, you could buy a barrel of oil with one or two ounces of silver.
If you like oil, you should buy silver and silver stocks now, while they are cheap, because silver has to slingshot upwards in price just to catch up. And I think silver will exceed oil, due to the silver shortage, and inflation, and collapse in the bond, housing, and stock markets. No, you can't eat silver, but you can't eat stocks or bonds, either.
-- Posted 22 November, 2005 | |