People often say that the US dollar is no longer backed because it is no longer backed by gold or silver. The truth is that the US dollar is a promissory note backed by the ability and willingness of American taxpayers to pay the value of the dollar.

The currency value of the US dollar is the perceived value of the US government’s ability to collect taxes and repay its debts. This being the case, let’s review the fundamentals of the US economy and dollar.

GOVERNMENT DEBT:
DEBT TYPE	DEBT AMOUNT
Federal Government Sector debt - a record high in 2010.	$13.4 Trillion
State & Local Government Sector debt - a record high.	$3.1 Trillion
Un-funded Social Security contingent liabilities estimated looking forward	$17.5 Trillion
Un-funded Medicare/Medicaid contingent liabilities	$89.3 Trillion
Total Government Liabilities	$123.3 Trillion

Source: http://www.ncpa.org/pub/ba662

The above summary calculates the current unfunded federal, state and local government liabilities to be 123.3 Trillion. I have seen several other estimates running as high as 200 Trillion; however this article will continue to use that figure. If we take that $123 trillion in government liabilities and divide it by the 111 million households in the US we find that the average household liability to the government for its promises is $1,108,108. In other words the average household would need to pay $1 million each in additional taxes in order to pay for the unfunded liabilities. Government budgets are not currently balanced and are unlikely to become balanced as tax revenue declines during the recession. However, assuming government budgets were balanced let’s consider the following chart:

Average Household Government Liabilities:	$1,108,108
Average Household Income Before Taxes:	$67,163
Average Household Federal Tax:	$22,929
Average Household State and Local Tax:	$6,783
Average Household Income After Taxes:	$37,451
Income As a Percentage of Government Liabilities:	3.4%

Sources: US Census Bureau, The Heritage Foundation, CNN Money

Total household income in the US is roughly 3.4% of total government liabilities already in place without future unbalanced budgets. In other words, if everyone living in the US spent their entire income after taxes - without food, clothing, or shelter - they could pay the interest only on that obligation as long as the interest rate was less than 3.4%. This is a good argument for keeping interest rates low indefinitely. Since people generally need food, shelter and clothing, let’s look at household budgets to see how much more they can afford to pay the government:

Given that the US savings rate of disposable income is hovering around 0%, it is clear that the average household already spends everything it earns buy its food, clothing, and shelter. One problem is that while the government has indebted itself beyond the brink of physics, another problem is the average American household has done the same. According to the Grandfather Economic Reports, the household sector has an additional $12.8 trillion in its own debt - and the interest rate on that debt is much higher than the government’s treasury interest rates.

It is often argued that the government can raise tax rates and increase its revenue. Sounds like a great idea, but it once again defies physics. Even assuming that households pay 100% of their income in taxes without any loss in GDP, the unfunded liabilities couldn’t be paid. In addition, the higher tax rates go, the lower tax revenues go and vice versa. If the government reality wanted to increase its revenue it would have to lower tax rates. As tax rates increase, taxpayers increasing turn to Fight, Flight or Fraud to avoid paying more taxes. This trend can be seen clearly below:



In the past, debts were manageable and households saved so the US dollar had perceived value. Some of this perceived value still exists. However, today it is clear that the US government will be unable to fulfill its obligations. While people may perceive or believe in the US dollar and government, the truth is that both are insolvent. It is only a matter of time before perception catches up to reality. If the government diluted $123 trillion in obligations against the current M3 monetary supply of roughly $14 trillion in an orderly fashion, the dollar would fall in value to about 11 cents in today’s dollars.

While the US is insolvent, it is not bankrupt. Bankruptcy is the realization of insolvency. As long as investors are willing and able to purchase and hold government bonds the liabilities can be refinanced. It is only when these promises can’t be delivered upon that participants will be forced to realize default and it may be possible to push this off for years.

The US is not the only country with unsustainable unfunded liabilities. Both the US and Greece have unfunded liabilities exceeding 800% of GDP, The European Union’s unfunded liabilities are 432% of GDP.


Source: Jagadeesh Gokhale, "Measuring the Unfunded Obligations of European Countries," National Center for Policy Analysis, Study No. 319, January 22, 2009 and Eurostat

The US along with most other industrialized nations are undeniably past the point of no return on the path towards a historical renaissance. There is no way out, but to go forward. While many free market proponents are pushing for smaller government, balanced budgets, increased savings, and criticize the Federal Reserve for its inflationary policies, it makes much more sense to support the nation’s current trajectory because it is much easier to go forward than back and it is too late to change inevitable outcomes. The more intervention and liabilities taken on by the government, the faster the realization will become. Despite fairy tale stories by the media and politicians, the laws of mathematics dictate that the dollar and the US economy will default either through the default of obligations or default of the currency itself through inflation.

For more investing information, up to date news, articles, analysis and charts visit Tradeplacer.com

In April 2008, legendary gold investor Jim Sinclair made a $1 million bet that gold would exceed $1650 by January 14th 2011. At the time, Sinclair had stated that he believed his bet was conservative and that gold would probably be much higher. However, with gold hovering near $1200 the market is betting against him and there are only 5 months remaining. Intrade, a predictive betting market, currently has the odds of gold exceeding 1550 by the end of 2010 at 5 percent. This implies that anyone willing to take Sinclair's bet today from the long side is unlikely to win - but also that the payoff would be enormous if payouts were based on the perceived odds using call options.

A $450 increase in gold would be an increase of 37.5 percent, a rate of $90/month or roughly $4 per trading day for 5 months. On an annual basis, this would be near a 100 percent return. Perhaps there is something that Sinclair knows and others don't.



Projecting an exponential moving average, gold would be around $1300 by January. However, gold tends to have larger seasonal moves during the August to January timeframe. Comparing the change from August lows to January highs over the last 10 years, gold rose by an average of 20 percent. Using this average, gold would be roughly $1440 by January. This isn't enough to win the bet, but few investors would be disappointed with such a move. Once in the last 10 years, the 37.5 percent increase was exceeded. From August 2007 to January 2008, gold rose by 40 percent from $657 to $924. The second largest move was between August 2005 and January 2006 when gold rose by 32 percent from $431 to $569.

Given the above data, the odds of gold topping $1650 by January still seem low - perhaps near 20-25 percent. However, Sinclair may be factoring in the likely hood of an event that could launch gold higher. If any of the events below occur, gold could easily top $1650:

War/and or Oil Crisis - Increased tensions in various strategic locations throughout the world could cut off the supply of oil to the US. Potential locations include Iran, Iraq, Pakistan, Venezuela, and Russia.

Major Currency Devaluation - This could be either the US dollar, Euro, or Yen. It could happen over night or over a weekend. Gold would likely gap much higher on such news, just as when it was revalued in 1933 from $20 to $35 an ounce overnight.

Quantitative Easing 2.0 - The Federal Reserve could initiate another round of financial asset purchases. This would not have the same effect as the first round. Equity markets would likely see little gain; however precious metals would be given a stronger dose of buying.

While it is difficult to estimate the odds of these events, they are more likely than most perceive. Perhaps Sinclair will win his $1 million after all. However, if he proves to be wrong on his bet then investors should be grateful that they have more time to buy gold on dips.

Silver has a history of undergoing massive spikes that look more like a heart rate chart than a stock or commodity chart. Due to silver's conductive and reflective properties, it has been considered a strategic metal for industrial uses since the introduction of electronics. It is the only commodity that has a users association lobbying for the organizations that consume it. Industrial use of silver has been relatively stable; however it is important to note that industrial use of silver has been greater than or near equal to production - which has thinned the market probably more than any other commodity. The reason for this is that both mining supply and industrial production have been near equal and stable. What is left at the margin are investors and speculators which are setting the price - not based upon 600-800 million ounce in global production or consumption but 50-100 million that is the remaining marginal amount that buyers and sellers can get their hands on. When investors aren't buying, the silver market is calm as a pool of stagnate water. However, when investors seek protection from inflation investors line up in a very thin market to produce shock waves.

1980

During the inflation panic of the 1970's the Hunt Brother accumulated a position of around 100 million ounces of silver. They started by taking physical delivery, however they continued buying futures contracts until the price of silver spiked to $50 in January of 1980. The COMEX, then changed the exchanges rules to only accept liquidation orders, and the price of silver subsequently collapsed to the $4 area. Gold trader Jim Sinclair was involved in the liquidation for the Hunt Brothers and still seems fearful of what he witnessed.

1983

Global central banks eased the money supply and credit in reaction to a recession in the US. This led to a return of inflation fears, and silver spiked from $5 to $14.72 in 1983. In the aftermath it fell back to the $4 area.

1987

A decrease in global silver supply, along with economic concerns led to another spike from $5 to $11. It once again fell to the $4 area.

1995

According to reports by Martin Armstrong, and an anonymous trader on ZeroHedge, PhiBro, a trading arm of Solomon Smith began to accumulate futures, and exercise out of the money call options to take delivery through Republic Bank. The CFTC approached PhiBro, and demanded to know the buyer. PhiBro never revealed the buyer, but was quickly forced to reverse the trade. The net effect was a small blip of the silver price in the $5 area. Although it wasn't revealed, there are reports that the buyer was Warren Buffett.

1997-1998

In a similar replay to 1995, Phibro began entering large call option orders through Republic Bank, except this time the buyer takes delivery in London, out of the jurisdiction of the COMEX. In both 1995 and 1998 out of the money calls were purchased and later exercised. The word was leaked that the buyer is Warren Buffett and other traders begin to accumulate positions. Armstrong claims that Republic Bank tried to make it look like he was the buyer; however US regulators tracked the positions to London and discovered it was indeed Warren Buffett who had taken delivery of 87 million ounces with intent to take nearly another 42 million ounces. Buffett publicly announced the investment stating “In recent years, widely-published reports have shown that bullion inventories have fallen very materially, because of an excess of user-demand over mine production and reclamation.” Silver spiked from $4 to 7 and fell back to $4 again.

Buffett never spoke of silver again until 2006 when he admitted he sold it shortly after buying it in when he was quoted as saying “I bought it very early, I sold it very early. Other than that it was perfect”. It is believed that regulators strong armed Buffett into selling the silver back with the threat of being targeted as a manipulator. It is not believed that Buffett had the intent to flip silver for a small profit, nor that he was attempting to manipulate the price.

2000-2008

Given the fundamentals of a long term supply deficit and depletion, in conjunction with negative interest rates, silver could no longer be held at $4 an ounce when it cost $6-$8 to produce it as pointed out in a previous article. An inflationary boom launched all commodities into a bull market. This time though, buyers were not a billionaire or large hedge funds. Instead small investors and smart money bought silver based solely on its fundamental value. Price spikes were mitigated such that both gold and silver rose in a measured slope.

In early 2008, the financial markets began to collapse with the dollar. Speculators were beginning to attack the world's reserve currency and silver hit a peak of 21. It remained at high level until the summer of 2008 when a large amount of silver was shorted. Numerous reports indicate that these trades were being made through JP Morgan, which is also the custodian of the SLV silver ETF. Gold was also shorted in conjunction with a swap of Euros for dollars. The effect was an immediate reversal of a large dollar short trade, collapse in precious metals and the subsequent crash of 2008. Silver fell to the $8 level.

-present

Inflationary policies quickly pushed gold to new all time highs, and silver back up to the $19 level. The structure of the precious metals markets have changed substantially from small value buyers and smart money to larger and more influential institutions and hedge fund managers such as John Paulson and George Soros. This is the classic description of the second phase of the bull market. However, the focus of these funds remains gold.

The word is out amongst large investors on the street to avoid buying silver or be made an example of. There is one thing common amongst billionaires - they all have a lot to lose and must maintain a co-existence with governments and bankers.

As Armstrong has pointed out, no one has survived a run on silver. The Hunts were bankrupted, and Buffett only escaped by immediately closing out his positions. Buffett won't speak of it again, and two of the best known gold traders – Jim Sinclair and Martin Armstrong not only avoid trading it, but even discussing it. It is unlikely that another billionaire will attempt to take delivery of 50 or 100 million ounces of silver again. However, the recent bull market has clearly been base building, similar to what was seen in the 1970's prior to the 1980 silver spike. The larger the base, the larger the spike - and the 1970's silver base pales in comparison to the 2000 base. When the next silver spike does occur there may only be one short seller, but there will be thousands of marginal physical buyers that have simply lost confidence. There will be no Hunt Brother or Warren Buffett to call up and threaten or strong arm, and there will be no one to reverse the trades on. It will be the public, or small retail investor acting in panic.

Some Mining Investors are Already Witnessing Hyperinflation Over the last decade, investors seeking protection from inflation have been accumulating gold and silver mining shares. Gold and silver have appreciated by more than 300 percent from their lows, so it would be logical to assume that mining shares have performed even better given their inherent leverage in earnings potential. Ironically, some of these investments have already suffered from their own hyperinflation in the form of share dilution. Just as governments have mismanaged their budgets and printed too much money; some mining companies have done the same to the detriment of their shareholders.

Coeur d' Alene (CDE), an American silver miner, is one such company. It has diluted its shares so much that on May 27, 2009 it had a reverse 10 for 1 stock split. This article will use post split adjusted figures. Governments often do the same thing with their failed fiat currencies. In the wake of Germany's Weimar Republic hyperinflation, a new Rentenmark was created that was equal to 1,000,000,000,000 of the old German Marks. While not as bad, CDE's shares outstanding have risen from 2.4 million in 1999 to over 80 million in 2009 - a factor of more than 33.



The majority of miners do issue shares in order to raise capital that is invested in projects with double digit returns; however this hasn't proven to be the case for CDE. $1000 invested in CDE in 1999 would now be worth only $440, while an investment in silver would have grown to $3300, and PAAS would have grown to $4220. Clearly not all precious metals investments are the same, and not all mining companies track the price of gold or silver over the long run.



Despite the all time highs seen in gold and a large increase in the price of silver, CDE was unprofitable in 2009 and the share price continued its long term trend downwards. Management's compensation was able to hit a new high though.

	2005	2006	2007	2008	2009
Executive Compensation	2,325,837	3,254,007	5,677,971	5,064,010	5,997,589
Dennis Wheeler, CEO of CDE	1,459,901	1,897,946	2,560,960	2,245,362	2,527,319

It is possible to be right about a major bull market, but still lose money if the wrong investments are chosen. Investors should be careful to only invest in mining companies that restrain themselves from over-dilution. Furthermore, if mining companies such as CDE lose half their value in a 10 year bull market due to share dilution, there is a significant risk that they won't survive a bear market in precious metals.

With the price of gold hovering near 67 times the price of silver, a logical deduction must be that silver is much more abundant, and easy to acquire than gold. To the contrary, evidence proves otherwise. In fact there is very little silver to be found anywhere.

Known Above Ground Silver Holdings
Form	Ounces
Silver ETF SLV	295,313,780
US Eagles Minted	240,418,077
COMEX Warehouses	114,102,049
Estimated Private Bullion (non eagles or maples)	120,000,000
Central Fund of Canada	75,209,103
LBMA Estimated stocks	75,000,000
Canadian Maples Minted	21,303,000
Silver ETF ZKB - SWISS	7,397,885
BMG Bullion Fund	5,033,609
Total	953,777,503

There is nearly twice as much gold as there is silver in the form of investment grade above ground bullion and coins, and that ignores that fact that 52 percent of the worlds gold is kept in jewelry. While there is an 953 million ounces of above ground silver, there is an estimated 1,803 million ounces of above ground gold in bullion form.



It is important to note a few structural differences in the holdings of gold and silver as well. Approximately half of the above ground gold bullion is held by governments. There are no known silver reserves held by governments. While governments have historically sold their gold to finance their budgets and keep the gold price contained there is no similar readily available entity that could sell silver bullion. Precious metals investors often hold onto their precious metals for time periods measured in years, decades, and lifetimes. Most private investors will not sell their bullion for a 10 percent or possibly even a 100 percent gain. Therefore, even if there are nearly 1 billion ounces of silver in existence, the question remains on how much of that is actually for sale at anywhere near today’s prices.



The implied dollar value of all the silver bullion is tiny compared to gold, or other assets. In fact, measured in dollar value, silver is 1/127th of gold. Many investment funds have more than $16.88 billion however gold is more readily available to purchase in larger dollar amounts. Silver may be one of the most neglected and unloved assets of this century. Perhaps, the reason why silver is so cheap, is ironically because it is too rare to be invested in by asset managers. Or is it?

One way to value something is by its replacement cost. Appraisers and insurers often use the cost to replace an investment as a baseline of value. In analyzing the silver market, one way to value silver is by measuring the real cost of producing an ounce of silver. This value does not include any premium from investment demand or industrial demand, but it provides a pricing floor because companies don't stay in business for long by losing money.

With the price of silver near its highs this decade and far from its bottom of $3, it would be easy to assume that miners are highly profitable. Considering first quarter earnings from the top four pure silver miners (PAAS,CDE,HL,SVM, Excluding SLW because it doesn't mine, and SSRI because its arguably an explorer), just how much are they earning from these high silver prices?

Company	Earnings	Silver Produced	Breakeven Silver Price
PAAS	$19.1 million	5.5 million ounces	$3.47 below spot
CDE	-$8 million	1.3 million ounces	$6.15 above spot
HL	$18.4 million	2.5 million ounces	$7.36 below spot
SVM	$9.8 million	1.08 million ounces	$9.07 below spot
Total	$39.3 million	10.38 million ounces	$4.33 below spot

The average realized sales price of the silver sold was around $16.90. Averaging the earnings and production from all four companies, the breakeven spot price of silver was $12.57. However, it should also be noted that the majority of these earnings did not actually come from silver production, but the byproduct sales of base metals. Silvercorp (SVM) recorded a negative silver cash cost of $4.61 per ounce, and Helca (HL) recorded a negative silver cash cost of $3.03 per ounce. Without sales of other metals, many of the worlds silver mines would be still unprofitable at these prices.

Miners often provide financial figures that sound too good to be true. For example, Pan American Silver's cash cost per ounce of silver net of byproduct credits was only $4.35. While this sounds fantastic, it doesn't include many other fixed and variable business costs such as infrastructure, maintenance and exploration that is vital to replace consumed resources over time.

While these mining companies have excellent potential and leverage to the silver price, their financial statements also provide a window into just how profitable they will be at lower silver prices. A 30 percent decline would render the industry unprofitable, and if prices fell further mining production would be delayed or canceled. In addition, if energy and water prices spike, or if wages rise, a similar outcome could occur. Despite rising %500 percent in the last 10 years, the price of silver is scraping its own floor.

Dust off your pom poms, the Dow has just crossed the 10,000 level to the upside. Most people aren't partying like its march 1999 though – when the Dow first crossed that level. It has crossed the same level more than 30 times over the last 11 years, and the same exuberance has worn thin.

Perhaps investors are less exuberant because the Dow today buys so much less than it did in 1999. Today's Dow 10,000 is worth less than 7,500 when factoring in the governments CPI index. Compared to the price of oil in 1999, the Dow has fallen to around 2,650, and compared to gold its worth only 2300. The Dow to Gold ratio has fallen from 37 to 8.

Not only has the Dow remained flat since 1999, it has lost anywhere between 25 and 80 percent of its value, depending on the comparison involved. The concept of compounding has remained the same, but now in reverse. Losses in both nominal and real terms compound to create larger losses.

While equities have not provided returns or protection from inflation over the last 11 years, commodities and other real assets managed to gain in value and have acted as a pillar of financial stability. Gold and silver have performed exceptionally well, and proven that it is possible to generate positive inflation adjusted returns in precious metals. In other words, gold and silver not only acted as a store of value, but also provided returns beyond that which can be discounted by a rise is prices or monetary supply. Make no mistake, over the long run precious metals are not expected to rise at a faster rate than inflation. However, buying precious metals at the right time and price can yield outstanding returns just as the Dow did from 1980 to 1999.

Where are we in this investment cycle? Gold and silver were considered too risky at 270 and 3. When they are considered no risk buys, then you can look for similarities to 1999 - and we are far from such sentiment.

Mainstream media has interpreted the recent announcement by China that it will allow their currency to float more against the dollar to be a positive signal for the global economy and beneficial for the US. This stream of political spin, that came from the White House and Congress, will prove to be as false as talk of a long term recovery last year.

Politicians are claiming that the move, which will lead to a higher Yuan, was made to appease American officials. They also claim that China wouldn't allow their currency to float higher if their leaders were concerned over a double dip recession. For this reason, the announcement was perceived to be a sign that China is bullish on the markets and economy.

Let there be no mistake; China will revalue their currency on their terms when the timing is most beneficial for China. A more likely scenario is that Chinese officials are anticipating the next phase of the recession and realize it is an opportune time to decouple their currency from the dollar. Despite common misinformation, a strong currency supports a strong economy. The dollars relative strength during the last century is a testament to this. The Chinese realize this and do not want to dragged down with the western economies as they drown in debt and currency debacles. China wasn't calling a bottom in the stock market, they were calling a top in the dollar.

Would it have made sense to revalue the Yuan against the dollar a couple of years ago when the dollar index was threatening to break below 70 and everyone was short the dollar? The near financial collapse launched the dollar higher to its current level near 90, and the Chinese Yuan went along the ride by default. Had the Chinese decoupled earlier their currency would have been trashed just as the Australian and Canadian dollars were.

The coming weakness in the global economy has already begun and will in the near term continue to increase demand for the dollar and treasuries. This will be an opportune, and possibly the last great time to exit the dollar. By decoupling when the dollar is near its peak, the Chinese currency will be launched at a moment of strength and might even give them the chance to sell some dollar based assets before the next round of quantitative easing begins.

Conforming to the statistical odds, gold and silver have both met strong resistance levels. Gold has made several attempts at the 1260 level and been subsequently pushed back down to the 1230 area.

Silver has a much more developed band of resistance between 19 and 21 that stretches back to its 2008 highs. At this point the ceiling above silver seems impenetrable, however this 2 year band will fuel an explosive move when the level is finally pierced.

Both metals are facing strong head winds, that make their performance much more impressive when taken into consideration. Global liquidity is drying up rapidly, and equities are dragging everything lower as money managers sell assets across the board. Historically, the next 3 months are the weakest for precious metals, especially silver. The fact that both metals are threatening their long term resistance levels at such a weak period is a precursor to the next up leg that will likely begin in the fall. In the interim, the precious metals will likely correct low enough to frustrate the bulls wanting a higher price, and shallow enough to frustrate those hoping to get in at lower prices.

However, such frustrations with gold and silver are surely better than what general equities investors will endure.

Read more...

In an effort to increase liquidity for collectible assets, TradePlacer.com is pleased to announce the launching of its real-time auction marketplace for gold, silver, platinum, wine and other items. After over a year of development, the marketplace was built to leverage state of the art technology capable of handling large trading volumes, and is offering incentives for beta users.

Unlike traditional auctions, TradePlacer.com buyers and sellers are able to set their own prices and quantities. Users are able to resell items that they won previously back into the same auction before it expires. A trading order book lists all bid and ask prices and quantities for full transparency, and trades are matched in real-time by TradePlacer.com's proprietary trade matching engine. This enables users to trade real assets such as gold and silver bullion, and wine in real-time, much like they are trading a stock. While some users may choose to only buy items for delivery, other users may sell, or trade items for profits before an auction closes.

Initial items listed include gold and silver coins, junk silver, and other bullion. Users are also encouraged to suggest new items to be listed. It's completely free to sign up and place orders. If a user's price is matched, they become an auction winner. Users are allowed to cancel and change their orders at any time until they are matched. A small commission is only charged for successfully fulfilled trades.

For more information on how to trade gold, silver, platinum, wine and other collectibles please visit TradePlacer.com

If you are a business interested in listing your gold, silver, wine or other items on TradePlacer.com for free, please contact us at info@tradeplacer.com

With the stock market up over 50% last year, talk of a V shaped recovery, green shoots, and other aberrations, most analysts expected the economy to resume growing as if 2008 was some sort of unpredictable outlier. With interest rates at 0, and massive government spending programs, the biggest concern for mainstream media was that the economy might grow too fast.

However, it seems evident that even the Federal Reserve doesn't believe in the green shoots theory anymore. Despite government intervention, economic indicators are rolling over, money supply measured by M3 is declining, and financial stress is increasing. Europe is now in an economic crises that could easily spread, and oil is filling the Gulf of Mexico. Risks of a shock to the financial system are everywhere.

Some analysts have been arguing that interest rates must rise to compensate bond holders, however the European crisis has been a gift to the dollar and treasuries so interest rates have remained low. A spike in interest rates appears unlikely in the near term.

If the current trajectory continues, there could be another sharp correction in equity markets globally but US assets may perform the best in comparison, especially treasuries. This could trigger another bout of financial asset deflation and panic. But what can the Fed do now that interest rates are at 0? Will Robert Prechter finally be right after so many years?

Unlikely.

The Fed will never be out of bullets as long as there is a fiat currency - for better or worse. The Fed would probably resume quantitative easing programs on an astronomic scale. And it might even work for a while.

Read more...

There are a lot of options for you when it comes to investing, like stocks and bonds. So why would you even consider investing in gold and silver? Are they not too risky, especially for beginners in the market, and even for those who are already been trading for quite some time? You can bring down the risk level as long as you have some ideas about proper asset allocation of gold and silver.

Studies have shown that an allocation of an investment portfolio in gold and silver can protect against inflation, hedge against a market downturn, and increase overall performance over the long run. But what is the right mix of gold and silver in your portfolio?

Portfolio experts advise having an asset allocation of anywhere between 5% and 25% in precious metals. Your asset allocation in gold and silver depends greatly on your individual needs, risk profile, and also to a large degree upon the other investments in your portfolio. For example if most of your assets are already real estate, oil trusts, or other commodities, your are also hedged against inflation and may not need a large portion of your money allocated towards gold or silver. On the other hand, if you have no commodities exposure, and hold long term bonds, it may be best to allocate a significant portion towards precious metals.

An allocation of precious metals may be broken down further into equities, such as gold and silver miners, and bullion. From there, advisors also suggest breaking down the allocation between gold and silver. Larger investors may also acquire platinum, but the core holdings should be gold and silver.

Now, is it better to invest in gold, or in silver? While both are good choices, a half and half plan is not necessarily the ideal way to build your portfolio. Gold is much less volatile than silver, investors looking for liquidity in something that they can sell quickly may want to start with gold. However, silver has more upside potential over the long run and will likely benefit more from an economic recovery due to its industrial uses. For this reason, investors looking for a return on capital may want to allocate a larger proportion towards silver.

During a bull market in precious metals, it is better to invest more on silver; perhaps ten percent of your portfolio is silver and five percent in gold. This is because silver rises faster as compared to gold.

One place to build a precious metals portfolio is Tradeplacer.com

Read more...

Gold broke a new record high of $1260, taking out its previous high of $1250 in December. This area is considered a key pivot point for a number of reasons. Investors must now decide if they want to buy in hopes of a decisive breakout, or wait for a correction.

The initial spike to $1250 was propagated after India made a surprise move to buy half of the IMF's gold for sale in November for around $1040 per ounce. China was thought to be the most likely buyer of that gold, and news brought in panic buying from both institutions and individuals. When gold reached $1250 on a buying frenzy in December, Chinese officials announced that it was overpriced, and gold has since proceeded to correct.

The correction caught some institutions off guard such as Hedge Fund manager John Paulson who saw a 14% loss in the first month of his newly launched gold fund. But the correction didn't last long, and wasn't very deep. The $1040 level has held strongly, and it is increasingly looking like Marc Faber could have been right once again when he declared that gold would never trade under $1000 again. Even small dips in the metal are attracting buyers now institutional who may have missed lower prices and are taking every opportunity they can to accumulate. The result has been shorter and shallower dips. Should this area of resistance be broken to the upside, gains will soon be measured in hundreds of dollars rather than tens. Jim Sinclair has been $1 million on a breakout of gold to $1650 by early 2011. While it seems a far reaching target for 6 months, a breakout in gold now would increase the odds substantially.

While some analysts argue that this breakout is imminent, others are more cautious. Summer is the weak season for gold, and has been known to have sudden downward spikes. Also, gold has traded upwards largely on the backs of European buyers exiting the Euro. In Euro terms, gold is very extended and could be due for a correction. Another reason for caution is the divergence between gold and other precious metals. Silver is still struggling to regain its peak of $21 in 2008. Platinum is far from its highs. In addition, many gold and silver miners are far below their 2008 highs, even though gold is much higher. These non-confirmations are a warning signal that instead of breaking out, gold could be in the process of double topping.

Falling stock prices and a slowing economy could cause the metals to correct, but even if a double top occurs and gold heads back down, it could all be part of an extended cup and handle pattern leading to a larger breakout towards the end of the year. It now appears to be only a matter of time.

Read more...

Nearing the 2-month anniversary of the BP Oil disaster, let's evaluate the current situation. BP initially claimed that 5,000 barrels per day were leaking, and recent estimates have been increased to about 40,000 barrels per day - every day for nearly 60 days now.

Every effort that BP has made to stop the flow has failed - proving that they had no viable plan to manage such a scenario. At this point the company's most likely successful solution will be to wait until August before another oil well is drilled which can relieve the pressure of the first.

Rather than create a solution for the problem, BP executives have focused on trying to talk their way out of the problem. BP has guaranteed to clean up the mess - which is clearly a lie. If with all their resources they can't stop an oil leak within a two month period - they will never have the competence or capability to actually clean up a layer of oil covering the bottom of the ocean floor. One of two things will happen first - either BP will enter bankruptcy protection, or they will lawyer they're way with the US government to limit its liability to a nominal amount following the path of Exxon after the Valdez spill in 1989. Unfortunately, in either case the living plants and animals of the Gulf will pay for it with their lives.

Energy expert and peak oil visionary Matt Simmons concurs, and is warning that the disaster is far worse than the media is projecting. He was recently quoted by Fortune in stating "They have about a month before they declare Chapter 11. They're going to run out of cash from lawsuits, cleanup and other expenses. One really smart thing that Obama did was about three weeks ago he forced BP CEO Tony Hayward to put in writing that BP would pay for every dollar of the cleanup. But there isn't enough money in the world to clean up the Gulf of Mexico. Once BP realizes the extent of this my guess is that they'll panic and go into Chapter 11."

The implications of the leak to the environment, economy, and political system are immense. The aftermath will likely be a halt to deep sea drilling in the Gulf of Mexico and potentially globally for the foreseeable future. This couldn't have happened at a worse time and will exacerbate the production decline of oil leading to an even more severe. The next time oil prices reach $150, supply shortages will likely be curbing industrial growth - putting a very real constraint on the global economy.

Because it takes a large amount of energy to produce real assets, the long term effect will an increase in the accumulation of hard assets such as gold, silver, and other collectibles.

Read more...

Since last March, the S&P 500 has rallied from a low of 666 to over 1100. But just how much juice is left? Economic indicators have already peaked and debt on every economic level from the individual on up to governments continues to expand. While Keynesians may applaud debt growth, or even just argue that it is better than the alternative, they are missing a cardinal rule. Money diverted towards debt payments, is diverted away from income producing capital investment.

The proliferation of government expansion and debt expansion is strangling economic progression. Analysts willing to take this in account must admit that even the best case scenario will see slow growth for the foreseeable future. The burden of government and debt is too great to be ignored.

Considering this, the equity markets are likely to be capped with a hard ceiling. While the S&P could rally higher especially now that it is oversold, the risk seems larger than the reward at this point. Investors buying into this market now for a 10% gain could easily see a 20% loss before this year is over.

For those wishing to take risks by speculating, hard assets are setup for a much better risk to reward ratio. Both gold and silver have been forming price bases since last year, and could breakout by the end of the year. If for some reason the precious metals do not breakout, it would likely be due to a collapse in the stock market. In such a case, gold and silver will most likely hold up better anyways as they did in 2008. While the summer is traditionally a weak season for precious metals it may offer an excellent opportunity to accumulate silver and gold in small amounts as a hedge against the softening economy.

Read more...

Bordeaux wines are produced in the Bordeaux region, near the Southeast coast of France. Bordeaux is considered to have some of the best vineyard areas in the world, with productions including table wine to the most prestigious wine. Some of the most well-known wine from Bordeaux includes red wine from Medoc and Saint-Emilion, white wine from Graves, and dessert wines from Sauternes. With average vintage production reaching seven hundred million bottles of Bordeaux wines, you would need wine guides to make sure you have a good wine in your hands.

Comparing Bordeaux wines requires that you understand some things about Bordeaux, its history and also the region, so that you can make full use of the knowledge in wine trading.

Origin

You already learned a bit of Bordeaux in the previous paragraphs, and you know that it is in France. There are many other vineyards in France and in other regions of the world, and there was an issue when other vineyards and wine makers outside of Bordeaux began labeling their own wine "Bordeaux" after seeing how lucrative the business is. This resulted in the imposition of a law that only wines produced from Bordeaux could carry the name and, consequently, each wine were labeled based on their origin.

Grapes

Although any wine from the region is classified as Bordeaux, collectible quality wines are usually red blends of 70% Cabernet Sauvignon, 15% Cabernet Franc, and 15% Merlot grapes. Almost all wines are blends, although the percentages and grapes can of course vary.

Wine Age

One thing to consider when comparing wine is the vintage, a fancy name for the year that the wine was produced. It is said that the older the wine is, the better it is. While that may be true, it does not necessarily tell everything. There are years when the weather, harvest and process were all good, and there are times when it is not so. Do not grab a wine just because you noticed it is the oldest in the market. It may well be one that was produced during a bad year.

Chemicals and Fertilizer

You should also take note if a particular region is known to use chemicals herbicides and fungicides and fertilizers. These particular areas usually produced wine with decreased value.

Six Main Styles of Wines

There are six main classifications of wine that will be outlined here, including four red that is based on the region, and four white, which is based on sweetness:
1) Red Bordeaux and Bordeaux Superieur - these are the cheapest among the wines, and are allowed to be produced all over the region, more often sold with commercial brand names rather than as classic wines.
2) Red Cotes de Bordeaux - these wines are somewhere between the red Bordeaux and other more popular wines.
3) Red Libourne - these wines are known to have more fruit concentration and more tannin.
4) Red Graves and Medoc - these are classic wines that should be cellared before it is drunk.
5) Dry white wines - these wines are allowed to be produced throughout the region, but the most popular ones are from Graves.
6) Sweet white wines - these wines are made from grapes from Semillon, Sauvignon Blanc and Muscadelle, although the best known appellation is Sauternes.

For more information on how to invest in wine, visit Tradeplacer.com which has a real-time auction that allows you to set a bidding price for wines that you want to buy.

Read more...

On Friday, silver traded as an industrial metal and fell with the stock market. However, today it clearly traded as a precious metal and more than made up for its earlier decline. While gold was up 1%, silver was up over 4.5%.

Anyone trading gold for silver Monday morning as I had suggested over the weekend would definitely be please. The gold to silver ratio moved back down from 70 to 68. The ratio remains far from the historical ratio of 15 to 1, but its not bad for a one day move. While I do expect the ratio to revert to historical norms, there is no indication that it will happen anytime soon. In order for that to happen the perception of silver will have to change to a store of value first, and industrial metal second. Ironically, it is the use of silver as an industrial metal that will make this transition so severe when it finally occurs.

In the meantime, traders may look to play the range of the gold and silver ratio by opening pair trades near 70, and closing or reversing them near 60.

Read more...

The Dow Jones closed down over 300 points on Friday, due to a heavy sell off on the realization that US job growth is only evident in government hiring. Unfortunately, government hiring doesn't contribute to economic growth, and instead crowds out private industry.

Investors looking for shelter found few safe places, but a notable one was gold. Gold was up $12 on Friday, while every Dow stock was down. Gold continues to hover around $1200, proving its stability and frustrating buyers waiting for it to fall back to $1000. It may never happen.

Some proponents of precious metals have argued that mining stocks and other resource equities are an equivalent to gold, however Friday's trading action has once again shown that assumption is false. While mining stocks may prove to be a great investment over the long run, there is no replacement for physical gold. GDX, the Market Vectors Gold Miners ETF was down 2% on Friday and offered no protection.

Silver was also dragged down with industrial metals, and the gold to silver ratio has once again topped 70. In recent months the gold to silver ratio has oscillated between 60 and 70, so it may be a good opportunity to trade gold for silver.

Read more...

The Hunt brothers' story is a fascinating tale that sounds like a movie, except it is a true story. The Hunt brothers, Nelson Bunker Hunt and Herbert Hunt, had an amazing run, making billions in the silver market, and just as quickly lost it all. Whether this was due to the Hunt brothers' desire to corner the silver market and eventually control the market, or simply an attempt to make more money, or maybe even a way to protect them from a possible impending financial crash and hyperinflation, no one can really be sure. But they were definitely movers and shakers in the industry.

The Hunt brothers' father is H.L. Hunt, who was born in Illinois. Despite the fact that his father is quite wealthy, H.L. went out and worked in various odd jobs until his father died when he was twenty two years old. H.L. took his inheritance and tried a lot of different businesses, such as cotton farming and oil drilling. He was also known to be quite a successful gambler, and he does not hesitate to push all his chips on the table.

H.L. had a total of three wives, two of which he had simultaneously. Just the same, he was able to provide for his children and wives after being successful in the oil industry.

The second eldest son, Bunker, inherited the business, after the eldest son Hassie developed a mental condition leading to his incapacitation early in life.

Like his father, Bunker was also quite a gambler, ending in big gains in different businesses together with his brothers. While building on his Libyan oil lease, he noticed a possible danger in worldwide economy due to several factors, not the least being the Vietnam issue causing doubt in the U.S. government and Libya going into transition. He also was concerned that US inflation would get out of control. He started to acquire silver, since during that time it was illegal for U.S. citizens to own gold.

During this time came a hard hit, when other oil companies gave in to Qaddafi's demands of royalty payment from foreign oil companies. Bunker started to buy silver in a big way with his brother Herbert, and by 1974 they had fifty five million oz of silver.

Concerned about government confiscation, Bunker decided to ship their silver to Switzerland, their brother-in-law Randy Kreiling held a contest, the winners of which will become bodyguards for the delivery of silver to different storage facilities in Switzerland, via specially chartered 707 jets and armored cars traveling in the dark of night.

Bunker also tried to form a group of people, by meeting with wealthy Arabs, who will pool their silver together. The group continued to accumulate silver and in 1979 the price jumped from $6/oz to an all time high of $48.7. At the time, it was estimated that the hunts controlled one third of the entire world's supply of silver.

Unfortunately, in a panic move to curtail gold and silver's ascent, COMEX, the US exchange for silver changed some rules in the market about handling silver and contracts to prevent further buying. This resulted in a drop in the price of silver. Bunker looked around Europe for possible buying partners to help push up the price of silver. But the more the price dropped, the harder it became for them to borrow money.

Ultimately, the Hunt brothers ran out of cash and decided to, in Bunker's own words to Herbert, "Shut it down." They ended up owing 1.5 billion dollars.

Fearing financial disaster, Fed Chairman Volker approved a bailout plan for the Hunt brothers. A group of banks loaned them 1.1 billion dollars. Volker also raised interest rates dramatically to fight inflation that was careening out of control. Reagan's presidency somewhat cleared the fog, and gave a new optimism to the people and somewhat balanced the economy.

The question still remains though as to whether silver could spike again, and if it does will the government have the power to stop inflation or the rise of silver.

Read more...

American Silver Eagle Coins are one of the most popular and best ways to invest in silver. They also make great keepsakes and gifts. These are considered to be the most beautiful of the silver coins ever minted in the history of United States of America.

Minted since 1986, it is the United State Mint's Dollar coin minted specially for silver bullion for collectors. This paved the way for commercial success of silver and gold bullion coins that were sold to the public. These are deemed as the official silver bullion of the USA because of the purity, content, and actual weight. There are several investors and bullion collectors across the globe interested in the American Silver Eagle coins.

Design of American Silver Eagle Coins:

The silver proof coin has an Adolph A. Weinman's full-length figure of Liberty on its obverse side. The Liberty is enveloped completely in the U.S. Flag with her right hand extended while her left hand holds branches of laurel and oak. The coins reverse side has a heraldic eagle with a shield. The right talon has an olive branch while the left holds arrows. This was specially designed by the United States Mint engraver John Mercanti. This in short portrays the stand of United States over the world conditions.

The U.S. mint restarted issuing Silver Proof Sets in 1992. This continues till date mainly because of its popularity. Silver Proof Set collections are easy to collect is one is planning to start a collection. The specifications indicate that the American Eagle Silver Proof Coin has a purity of 99.9%. The face value of the one ounce coin is 1 dollar. The dimensions are marked at 1.598 inches in diameter. The coin weighs around 1.0000 troy ounces and contains around 0.999 silver troy ounces. These are constant favorites among the collectors and are available in plenty until the next release. 1987 was the first year of mint of a Silver Proof.

Tips for Potential American Silver Eagle Coin Investments:

1. The largest portion of the value in the coin is the silver content, so focus on quanity instead of buying mint condition coins which are graded by PCGS and NGC. These coins will be the backbone of your silver coin portfolio and help you in a better way and this will help you to keep readily liquidated silver bullion coins.

2. If you buy a sealed mint box you may be lucky enough to find some mint condition coins for free, which you may be able to resell for a higher price.

3. Check the date of the coin and see how many were minted in that year. Some coins are given an extra premium due to low availability.

4. Compare the coin's premium over the price of silver. The premium can fluctuate, especially when the coins are in high demand.

The American Silver Eagle is hard to come by and collectors are on constant look out for these coins. No matter how much you invest in American silver eagle coins, it is easy to buy in small or large quantities at a site such as tradeplacer.com to build and fortify your precious metals portfolio.

Read more...