The majority of people who hold precious metals as a hedge against a falling dollar won't sell at market price until they see a resolution of the debts of western nations. Mainstream media, the majority of the public and value investors all believe that the precious metals are in a bubble. But that is because they do not understand the foundations underpinning a move into hard assets.
In this regard there are two camps:
1. The camp who believes that we live in a grand new world where governments can centrally plan economies better than the free market itself and where acceptance of government-sponsored, unbacked fiat paper monies is just a normal, unquestioned part of life.
2. The camp who sees central banks as being artificial and dangerous and who are quite surprised that this era of unbacked fiat currencies has lasted this long (nearly 40 years since the “Nixon Shock” on August 15, 1971).
Those in Camp #1 will never buy precious metals until it is already too late and the fiat currencies have all collapsed.
Those in Camp #2 will never sell their precious metals until they see an indication that the unpayable debts and deficits of the majority of western nations have reached a resolution – either by default (bankruptcy of the nations) or by hyperinflation (bankruptcy of the currency).
Which brings about an interesting state of affairs. Unlike any and every other bubble in the history of mankind, the holders of precious metals will not sell their holdings for fiat currency, at any price.
They may sell their precious metals to buy another asset which they deem as being undervalued in terms of gold or silver – which may mean they sell their precious metals, briefly, for fiat currency but then quickly sell that fiat currency in favor of another asset.
But for those who own precious metals for safety and/or profit against the assured demise of the global financial system there is no price at which they would sell their precious metals in favor of fiat currency.
Of course if someone offered you $10,000 per ounce today for your gold you would be crazy not to accept it. However, most holders of gold would sell at $10,000 and then immediately sell the fiat currency and repurchase the gold at the current market price near $1,400 to buy even more gold.
The majority of people who hold precious metals as a hedge against a falling dollar won’t sell at market price until they see a resolution of the debts of western nations.
However, the great majority of people who hold precious metals as a hedge against the destruction of the US dollar reserve based financial system will never sell their precious metals, at market price, until they see a resolution of the debts of the western nations.
This amazing scenario is playing out as we speak.
Reports have been coming in from all corners of the world over the last few months stating shortages in physical gold and silver bullion.
The operating capacity of domestic gold refineries in India have reached very low levels due to scarcity of scrap. Currently domestic gold refineries are operating between 25-30% of their installed capacity as against 35-40% around the same time last year. According to Ajay Mitra of the India and Middle East office of the World Gold Council, “Used gold sales have declined steadily in the last one year as consumers are holding jewellery in anticipation of higher prices.”
They aren’t so much anticipating “higher prices” of gold & silver as they are anticipating “lower prices” in their fiat currency. Until there is any indication that the ongoing, systematic destruction of fiat currencies worldwide will cease then there is no reason for anyone to sell their precious metals in favor of holding the fiat currencies.
Canada’s biggest bullion bank, ScotiaMocatta “sold out” of all its silver coins and bars in January. They have apparently sourced some new supply of silver coins but as of the time of writing they still show 100 oz. Silver Bars as being “sold out”.
Eric Sprott, one of the smartest men in the precious metals business stated that he expects gold to hit $2,150 and silver to hit $50 this year citing extreme shortages and great challenges to secure 15 million ounces of silver for his fund. He stated that “no supply exists in volume except from the margin of immediate producer output”.
MOVE INTO BULLION AND PRODUCERS THIS YEAR
Up until this year it has been relatively safe to “play” in things such as gold/silver ETFs, futures and other “paper” assets. TDV believes that 2011 will be the last year in which it is still relatively easy to find and purchase gold/silver bullion and that those who have not yet begun to do so consider making this move immediately.
TDV issued a Special Report to subscribers entitled "How to Own Gold" on November 8, 2010 which includes more specific details on how and why to move into bullion products.
As well, as Eric Sprott pointed out above, one of the only liquid sources of gold and silver bullion now and in the future may be actual producers. The TDV Portfolio available to subscribers contains numerous large, mid and small cap producers. These equities may rise exponentially if it becomes clearer to the public that they are one of the only sources of accessible bullion available on the market.
Remember to diversify geographically to reduce political risk. We attempt to include miners from different parts of the world as part of this strategy. To date we have miners in Papua New Guinea, Ghana, Canada, Brazil, Nicaragua and more included in the TDV Portfolio. The above is an excerpt from the March Issue of The Dollar Vigilante (TDV).
ABOUT THE AUTHOR Jeff Berwick
Jeff Berwick was the founder of Stockhouse.com in 1994 and was the CEO of Stockhouse until 2002. After Stockhouse Jeff began writing The Dollar Vigilante, a free-market financial newsletter focused on covering all aspects of the ongoing financial collapse. The newsletter has news, information and analysis on investments for safety and for profit during the collapse including investments in gold, silver, energy and agriculture commodities and publicly traded stocks. As well, the newsletter covers other aspects including expatriation, both financially and physically and news and info on health, safety and other ways to survive the coming collapse of the US Dollar safely and comfortably. You can sign up to receive the FREE monthly newsletter, the Basic Newsletter ($15/month) or the Full Newsletter ($25/month) with specific stock recommendations and updates at the Subscriptions page of the website at DollarVigilante.com.
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