Hello to All and welcome to the New Year. We hope that all of your Holiday Season was fantastic and we wish you the best for 2011. As always, we are grateful to you, our readers and customers, for your business and the many relationships that we have built over the years. We look forward to continuing to be your source for Precious Metals throughout 2011 – a year that we think could be a “banner year” year for Gold and Silver.
In 2010 Precious Metals outshined every investment class on the face of the planet. Silver soared from $16.85 on January 1st 2010 to $30.91 cents on December 31st 2010 producing stellar 75% returns for the year. Palladium nearly doubled over the same time period and Gold marched ahead, up over 29% for the year. Gold opened 2010 at $1096 per ounce and closed the year at $1421. Gold’s performance of 29% doubled the performance of the S&P 500, while Silver and Palladium tripled the performance of the S&P stock index.
We think that 2011 will be a dynamic year, literally history in the making. 2011 could be the year when it is realized that we are no longer in the great recession but that we could be heading for something far worse – An Inflationary, possible Hyperinflationary Depression. We think that mainstream Americans, once this inevitability is fully realized, will rush to hard assets like Gold and Silver. Analysts say that Gold could top $1700 in 2011 and we have heard reports that Silver could be as high as $40 by the end of this year. Some analyst like James Turk, go even further saying that within 3-5 years Silver could top $100.
Are Gold and Silver in a Bubble?
When terms like “bubble” are flung around, investors, quite naturally I would add, get a bit hesitant and anxious about their holdings in whatever asset class that is being referred to as being in a bubble. Over the last several months, a few analysts, however consistently wrong their predictions might be, have written and talked about the possibility of Gold and Silver being in a bubble. Talking heads and analysts that say gold is in a bubble, obviously are having trouble seeing the forest due to all of the trees. In fact, as of October 2010 the public had purchased $2.7 billion worth of gold and $155 billion worth of bonds.
When terms like “bubble” are flung around, investors, quite naturally I would add, get a bit hesitant and anxious about their holdings in whatever asset class that is being referred to as being in a bubble. Over the last several months, a few analysts, however consistently wrong their predictions might be, have written and talked about the possibility of Gold and Silver being in a bubble. Talking heads and analysts that say gold is in a bubble, obviously are having trouble seeing the forest due to all of the trees. In fact, as of October 2010 the public had purchased $2.7 billion worth of gold and $155 billion worth of bonds.
Which one would you say is in a bubble?
While our evidence shows that Gold and Silver aren’t in a bubble, “The Sovereign Man” a financial newsletter writer describes what a market top in Gold might look like:
“I’m sure you’ve seen those TV commercials, fliers, and billboards that say “WE BUY GOLD”. The business model is simple– they take in whatever gold you can find around the house (a false tooth, granny’s wedding ring, etc.) and trade you for worthless paper money.
If that’s not bad enough, they capitalize on people’s ignorance of the gold market and offer a ridiculously low valuation, sometimes less than 50% of the spot price for gold. People are getting ripped off, and they’re happy about it because they’re able to sell their ‘junk’ for a few extra bucks.
These are the types of things that are common in a rising bull market that has plenty of room to run– the public, largely ignorant about gold, is happy to trade physical wealth for worthless paper.
At the top of the market, we’ll be seeing the exact opposite. The public will have wised up; the vast majority of people walking the streets will know the price of gold and be able to distinguish a Maple Leaf from an American Eagle.”
Here at the Austin Report, we have been helping investors and collectors for over 20 years and we can promise you one thing – currently, less than 5% of the American population can distinguish a Canadian MapleLeaf from an American Eagle. In fact, recently, with gold over $1,000 per ounce, as a prank to show how totally unaware the mainstream public is regarding gold and its ownership, a person videotaped then posted on youtube his experience as he canvassed a shopping mall in an upper middle class neighborhood in California offering a Gold 1 Ounce MapleLeaf whose worth was more than $1,000 for $50 bucks. Guess how many buyers he found? Zero. If Gold were near a top he would have been bum rushed for offering a Gold at such a discount.
We think it is very clear which markets are in a bubble and it isn’t Gold and Silver by a long shot. In fact, there are important figureheads within the financial community, people like our client and friend Shayne McGuire, author of “Buy Gold Now” and more recently “Hard Money,” who say that the real gains in Gold and Silver haven’t even began.
Could Gold Really Top $10,000/oz?
$10,000 is a really big number for Gold, almost too big to fathom. Can it really get there or is this just hot air? For the answers to this question, in this section, we share with you a portion of an article from Shayne McGuire that was recently posted in NewsWeek. In it he explains the underlying fundamentals that could send gold past $10,000/ounce:
$10,000 is a really big number for Gold, almost too big to fathom. Can it really get there or is this just hot air? For the answers to this question, in this section, we share with you a portion of an article from Shayne McGuire that was recently posted in NewsWeek. In it he explains the underlying fundamentals that could send gold past $10,000/ounce:
“Gold used to be regarded as an investment for losers—for the crazies forever expecting the financial apocalypse. To the great economist John Maynard Keynes, it was a “barbarous relic” of a primeval economic past. Many people have abandoned that lousy stereotype, now that the debt-driven bubbles in stocks and real estate have burst. Following the collapse of the world’s largest bank, the Royal Bank of Scotland, and the largest insurer, the American Insurance Group, among many other notable institutions now owned and directed by Western governments, people have come to understand the need for time-proven financial insurance that can insulate their wealth from government and financial firms. And there’s only one viable and liquid investment that enables a person to pull his or her wealth out of the financial system: gold.
Buying gold has been the best method for shorting the government. Betting against government—that is, on a sudden, sharp rise in inflation—has strong odds in the midst of surging government deficits. Hyperinflation is fortunately a rare event, and it is unlikely to emerge at present. But consider that all 30 documented cases of hyperinflation—that is, a situation where prices rise by at least 50 percent per month—have been caused by deficits that got out of control. Hyperinflation invariably emerges in a deflationary environment of weak economic activity, such as the one that now threatens the United States, European nations, and Japan. It can erupt when the public grows wary of the money being printed in growing quantities by monetary authorities, which are forced to buy—to “monetize,” in the financial vernacular—a surging supply of government bonds that the markets no longer all want to buy.
Every currency in history has eventually fallen against gold—most dramatically in times like these, times of surging liabilities and an increasing inability to meet them. Gold is the only credible currency whose quantity cannot be expanded at will to meet the spending needs of governments in distress. By its very nature it remains scarce and rises in value as the supply of paper money grows. And I think it’s safe to say that following the most dramatic credit crisis since the Great Depression—one that is continuing to produce ripple effects, like events in Greece that are broadening into Europe itself—we are likely to see historic investment shifts that will provide great opportunities.
One major beneficiary will be gold. I strongly believe that present financial conditions are about to transform the investment strategies of the world’s largest investment funds in a way that will cause gold to surge substantially higher.
To understand why, consider present asset allocation at some of the world’s largest investment funds. Pension funds, like the one I work for, have a significant effect on the world’s markets, since they collectively manage $24 trillion. But gold plays a negligible role in their asset allocations. Teacher Retirement System of Texas, whose GBI Gold Fund I manage, probably holds a larger percentage of assets in gold than any other large ($10 billion and higher) pension fund in the world, but our holdings in the precious metal are modest in comparison with any major type of asset like stocks and bonds. And so it is with other pension funds. Since commodities typically represent around 3 percent of a typical fund’s total assets, and the precious metal makes up less than 5 percent of commodity allocation, that makes gold only 0.15 percent of a fund’s total assets. Add in the value of gold-mining stocks and precious-metals exchange-traded funds (maybe another 0.15 percent of total assets, at most), and a typical pension fund holds less than a third of 1 percent in gold—that is to say, virtually nothing.
But suddenly the financial industry is being forced to think long and hard about gold. Surging public debt in many of the world’s largest economies may be about to push the global government-bond market into a period of significant turmoil. If some part of the world’s $30 trillion in sovereign debt could be dumped by the world’s pension funds, insurance companies, banks, and individual investors, then where will that money flow to? Stocks? Real estate? Since pension funds already have high exposure to stocks and other assets like real estate and private equity, it seems reasonable to expect that some fraction of that capital—perhaps as much as $500 billion or more—could eventually flow into a time-tested real asset: gold. Most funds would practically be starting from zero, considering the low percentage of total assets the metal represents today.
The effect of suddenly moving a substantial amount of investment money into precious metals was best described in a telephone conversation I had with an industry expert: he said it would be like shoving an elephant into a mailbox. At $1,300 an ounce, all the gold in the world—all the jewelry, coins, bars, molars, and church art—is worth an estimated $6.5 trillion. But the vast majority of global gold, like the ring on my finger, is not freely traded. In fact, perhaps only 5 percent of all physical gold actually trades each year, which would make the investment gold market around $320 billion. The mining industry produced around 2,500 metric tons of gold in 2009, worth around $80 billion at the average price for the year. A little over half of every year’s gold production is used for jewelry and industry, so less than $40 billion was available to the global investment community.
That’s equivalent to about 20 days of trading in shares of Google—a single stock on the American market.
With these numbers, a large shift of funds into gold would cause it to rise sharply and fast. If it rose from the minuscule part it represents in the world’s largest portfolios today to just 1 or 2 percent of global assets under management, the price increase would be substantial. A rise to $10,000 an ounce is not out of the question. It wouldn’t be the first time gold has risen in such a way: The price of gold jumped 23-fold in the nine years ending in 1980. And at that time there was no question about the solvency of the U.S. government nor about the health of the banking system.”
Shaynes thesis can really be boiled down in a few short sentences – Institutional investors move markets. Institutional investors control huge amounts of money that is invested in stocks, bonds and structured debt. If institutional investors decided to put as little as 1% of their portfolios into physical gold and silver, it would consume the available supplies of gold and silver for years possibly sending gold prices through the $10,000 per ounce barrier. What could cause institutional investors to pull money out of stocks and bonds and put it in Gold and Silver? Probably the idea that the stock market is near a top and that without the Fed propping up the stock market that there would be no gains at all.
Shaynes thesis can really be boiled down in a few short sentences – Institutional investors move markets. Institutional investors control huge amounts of money that is invested in stocks, bonds and structured debt. If institutional investors decided to put as little as 1% of their portfolios into physical gold and silver, it would consume the available supplies of gold and silver for years possibly sending gold prices through the $10,000 per ounce barrier. What could cause institutional investors to pull money out of stocks and bonds and put it in Gold and Silver? Probably the idea that the stock market is near a top and that without the Fed propping up the stock market that there would be no gains at all.
Without Government Help Will Owning Stocks be Profitable in 2011?
Charles Biderman of Trim Tabs, a company that monitors money flowing into and out of equities, made a few comments on CNBC that were startling to say the least. He argues that there was no real explanation for stocks going up since his companies analysis showed that public money was flowing out of stocks all year, saying the only reason that stocks gained at all in 2010 is because of the Government constantly propping up the stock market through “quantitative easing” aka the official debasement of the United States Dollar.
Charles Biderman of Trim Tabs, a company that monitors money flowing into and out of equities, made a few comments on CNBC that were startling to say the least. He argues that there was no real explanation for stocks going up since his companies analysis showed that public money was flowing out of stocks all year, saying the only reason that stocks gained at all in 2010 is because of the Government constantly propping up the stock market through “quantitative easing” aka the official debasement of the United States Dollar.
“If the money to boost stock prices by almost $9 trillion from the March 2009 lows did not come from the traditional players, it had to have come from somewhere else. We believe that place is the Fed. By funneling trillions of dollars in cash to the primary dealers in exchange for debt, the Fed has given Wall Street lots of firepower to ramp up the prices of risk assets, including equities…. economic growth will not be sustainable without massive government support. Then even more QE will be needed, and stock prices could keep rising for a while. In our opinion, however, no amount of QE will be able to keep the current stock market bubble from bursting eventually.”
We believe that if there are any bubbles bursting in 2011, the Stock Market will definitely be one of them but watch for the grand finale of bursting bubbles – The dollar bubble and the hyperinflationary event it could possibly create. Unfortunately, we aren’t the only ones who feel this way.
What is it Going to Take?
Porter Stansberry, a financial analyst and founder of Stansberry & Associates Investment Research, and an extremely bright financial researcher, believes that we are headed for a currency wrecking hyperinflationary depression. During a recent interview Porter put it very succinctly:
Porter Stansberry, a financial analyst and founder of Stansberry & Associates Investment Research, and an extremely bright financial researcher, believes that we are headed for a currency wrecking hyperinflationary depression. During a recent interview Porter put it very succinctly:
People ask me when is this going to start (inflationary event)? My question to them is – what’s it going to take for you to realize that it is happening now? The fact of the matter is that it’s already unraveling. How big does America’s annual budget deficit, (now 14 trillion) have to get before you begin to question the solvency of the government? How much total debt can the economy hold before you begin questioning how these debts will be repaid? How high do Gold and Silver have to go before you realize that something is already happening? How many new rules and restrictions on trade capital and finance will have to be implemented before you finally realize that you are screwed?
Porter says that we are in the midst of one of the most catastrophic economic depressions that the world has ever seen and that history is currently unraveling before our eyes.
Take Action Now
The evidence that we have shared with you in this report lead us to believe that 2011 will be another tumultuous year in the financial markets and that our economic descent will continue and possibly quicken. We think that because of this erosion of wealth and the mass exodus out of stocks and bonds that the Federal Reserve will likely step in with another round of “quantitative easing” (official debasement of the dollar) and that Gold and Silver will be the big beneficiaries of the Governments reckless policies.
The evidence that we have shared with you in this report lead us to believe that 2011 will be another tumultuous year in the financial markets and that our economic descent will continue and possibly quicken. We think that because of this erosion of wealth and the mass exodus out of stocks and bonds that the Federal Reserve will likely step in with another round of “quantitative easing” (official debasement of the dollar) and that Gold and Silver will be the big beneficiaries of the Governments reckless policies.
All of this research and news is useless to you though if you can but don’t act upon it. We strongly recommend taking advantage of this temporary pullback we are seeing in Gold and Silver. For those of you sitting on investment cash trying to decide if you want to renew that CD that pays 2% per year while the rate of inflation is at least 7% per year, for those that are considering investing in stocks when the returns of the S&P were doubled by those of Gold and tripled by Silver and Palladium, and for those that are considering buying more bonds in a market that has been equated to the voyage of the Titanic, we say to you – “back away from your checkbook, sit down, relax, read this report again, and come to Gold and Silver: the harbor of safety during times of turmoil.” Don’t forget to take advantage of this temporary dip in pricing. Give your representative a call and speak with them about your financial situation and concerns – they would be glad to help tailor a package that best fits your needs. It could be your most important call of the year.
Thanks as always for your business; we look forward to your calls and emails.
Best Regards,
Gabe Elton | Gold & Silver Specialist
Direct: 1-800-552-4109| Office: 1-800-928-6468
Austin Rare Coins & Bullion
7200 N Mopac Ste 310 | Austin, TX 78731
Gabe Elton | Gold & Silver Specialist
Direct: 1-800-552-4109| Office: 1-800-928-6468
Austin Rare Coins & Bullion
7200 N Mopac Ste 310 | Austin, TX 78731
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