Silver is the Precious Metal of Choice
Kenneth Schortgen Jr
In older times, financial planners would say to buy safe assets like annuities or bonds for wealth protection. Realtors would tell us that land is the way to go since they aren't making any more of it, and the business world would try to sell you on the value of the stock markets to grow your investment dollars.
Those financial vehicles are fine, only when used in the proper cycle of the markets. However, with the current recession we are in, NONE of these products are anywhere near safe, nor viable as the government works to create inflation through the Fed's quantitative easing.
So what are we left with to invest in, especially for wealth protection? The answer is tangible assets you can hold in your hand, and that have the fluidity to sell when necessary.
Bill Gross of Pimco, the largest bond dealer in the country, came out this week and said the 30-year treasury is done... history. The actions of the Fed to print money through QE1 and soon to be QE2 will end the market for these long-term bonds.
We at PIMCO join with Ben Bernanke in this diagnosis, but we will tell you, as perhaps he cannot, that the outcome is by no means certain. We are, as even some Fed Governors now publically admit, in a "liquidity trap," where interest rates or trillions in QEII asset purchases may not stimulate borrowing or lending because consumer demand is just not there. Escaping from a liquidity trap may be impossible, much like light trapped in a black hole. Just ask Japan. Ben Bernanke, however, will try - it is, to be honest, all he can do. He can't raise or lower taxes, he can't direct a fiscal thrust of infrastructure spending, he can't change our educational system, he can't force the Chinese to revalue their currency - it is all he can do, and as he proceeds, the dual questions of "will it work" and "will it create a bond market bubble" will be answered. We at PIMCO are not sure.
But either way it will likely signify the end of a great 30-year bull market in bonds and the necessity for bond managers and, yes, equity managers to adjust to a new environment.
The stock markets have been booming in anticipation of the FED's QE2 actions, and much of the money invested over the last few months into companies is not from retail investors or mutual funds, but primarily financial institutions such as JP Morgan, Citi, and Goldman Sachs using free money from the Fed at low interest rates. What you have seen since the DOW cracked 10,000 this last time is mostly HFT trading used to make the markets mask the true state of the economy. If QE2 starts to cause massive inflation as expected, then the markets will assuredly go up in a parabolic curve because the value of money will inflate them as well. In 1920's Germany and Zimbabwe earlier this decade, both of their stock markets soared to massive highs just before the currency collapsed and went hyper-inflative.
When you then look at what will be of value, and not tied to paper, you have to reckon hard assets, or other currencies that will benefit by a dollar crash. There are few world currencies that are strong enough on their own at this time to hold in lieu of the dollar, but two that have potential are the Canadian Loonie, and the Swiss Franc. Their monetary policies and lack of debt will make them very enticing as we go into QE2.
However, since America doesn't have places to exchange for currency at our corner banks, what is left is the universal money known as gold and silver.
Gold now is at a price where most could not afford to purchase, especially since it climbed over $1300 and is holding above that line. However, silver is still low enough where the common American and investor alike seeking wealth protection can buy some with a large potential for profit and protection.
Silver has been held down in price for years due to bank manipulation. In fact, the CFTC came out recently and said that there is more paper sold in the silver ETF's by 100 fold than actual silver available for delivery. That news, along with other factors may be changing, and a recent lawsuit against JP Morgan and HSBC could break this manipulation into one of the biggest short squeezes of all time.
Technically, silver is on pace to break the $30.00 barrier, and possibly by the end of November. James Turk, a commodities analyst out of London, provided a chart and technical layout for $30.00 within the next 3 weeks.
Silver is also one of the most highly used metals in industry, and will be a catalyst for any future recovery. By holding physical silver, especially when market manipulation by the banks may be coming to an end, your advantages far outweigh the limited disadvantages and bear the potential for both profit and wealth protection.
Remember... up until the late 19th century, the gold/silver ratio was at 10:1 or 15:1. If that natural ratio comes back into play, then silver right now would be at $136.00 an ounce. And that doesn't take into account their is LESS silver above ground than gold, and gold isn't used in todays technology or industry as silver is.
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