Gold, Silver Set to Soar

by Addison Wiggin & Dave Gonigam – March 3, 2011

  • "Upside blowout" in gold, "explosive action" in silver…Resource guru Rick Rule’s latest outlook
  • Wall Street cheers jobless claims, service sector numbers…The 5 offers a cautionary note
  • Food prices reach another record…Chris Mayer on the "white rock" poised for profit
  • The pitfalls of currency trading, from a guy who wrote the book (two, actually) on forex
  • Readers indulge in freewheeling (but civil) discussion of labor unions


  Oil and precious metals are taking a breather on rumors of a peace plan for Libya. We’ll believe it when we see it, but for the time being, the black goo is off nearly a buck…back to $101.30

  Gold has pulled back from this week’s record highs too, but again not by much. The spot price as we write is $1,424.

“Gold it is no longer a contrarian buy,” warns our friend and Vancouver stalwart Rick Rule, stepping back and looking at the longer-term picture. “But we need to remember that all of world demand is denominated in U.S. dollars, and if the denominator is declining, the numerator only needs to hold even to rise in price.

“So the baseline move in the gold price is accounted for by the deterioration in the U.S. dollar. On top of that, we have continued currency crises in Europe, widespread and serious political instability in the Middle East and North Africa and surprisingly strong physical demand from India and China.”

“This could be the prelude to an upside blowout.”

  In the panic trade of 1979-80, gold shot up from $520 to $850 in less than three weeks. That’s 63%.

By Feb. 1, 1980, it was back to $620. The price topped $700 a couple more times in 1980 but didn’t challenge the panic spike high of $850 again until 2006—26 years later.

We have seen only a gradual increase in the gold price during this current bull market. But just in case history continues its habit of rhyming, you might want to be positioned for another spike, and soon—not in another two or three weeks. Here are some more ideas on getting in while the gettin’s still good.

  Silver is following gold on the way down this morning. But again at $34.40, it remains at dizzying heights.

“The situation in silver seems to be a shortage in the March delivery,” Rick Rule continues. “There is more silver called for delivery than there is silver to deliver.”

“Anecdotally, my sources tell me that demand for physical silver is outstripping demand for gold on dollar for dollar basis in European and North American markets.”

“Certainly, what is of interest to me is the limited availability of new mine supply in view of increasing demand," Rick says, pointing to the figures we noted on Tuesday—investment demand growing 18% this year, but new mine supply only 8%.”

“In addition to the near term, you could see explosive action in silver in the future.”

“You could also see a sustained two or three year bull market in silver simply because supply isn’t sufficient to meet intermediate-term demand.” For six ways to capitalize on this trend, look here.

[Ed note. You may also want to lock in your spot at the Agora Financial Investment Symposium, where Mr. Rule will be a featured speaker. Early bird registration is still available, but we’re about to open the doors to a much wider audience. If you’re planning to attend, now is the time to let us know. Call Barb Perriello at (800) 926-6575. Remember, if you’re a Reserve member, your registration fee is included with your membership.]

  Stocks are up big this morning.

As we write, the Dow is up 170 points and has recovered the last two days of losses. Among the data points traders are chewing on…

  • First-time jobless claims fell last week to 368,000. That’s not a number that indicates actual job growth, but it is the lowest it’s been in three years
  • The ISM services index rose in February from 59.4 to 59.7. Like the ISM manufacturing survey, 50 is the dividing line between expansion and contraction.

Unfortunately, a good portion of the latter number is driven by the “prices” component, which is rising…and the “inventories” component, which had been shrinking, but now is growing. Hello, margin squeeze.

  Worldwide food prices hit another record during February. The U.N. Food and Agriculture Organization’s price index rose another 2.2%. That’s the eighth straight monthly rise, and the third month the index has eclipsed its previous 2008 high.

  “There is no substitute for it,” says Chris Mayer identifying a natural resource that’s critical to food production. “And most of the world’s mines are in decline.”


Along with nitrogen and potash, it’s one of the three main ingredients in fertilizer. “Demand for the rock is growing as demand for food rises,” Chris says. No doubt, with wheat up 110% in the last year, corn up 87% and soybeans up 59%.”

“In the last food crisis of 2008, the price of phosphate rock soared to nearly $400/tonne. Then it crashed, like everything else. But it’s been making its way back up. Today, it’s about $150/tonne.”

“With all that’s happening right now, doesn’t it seem reasonable to think we’ll see another test of that peak? I think so.”

Think of the oil story, Chris says. From an early 2009 low of $33 a barrel, oil is back above $100. “As with oil, phosphate production is concentrated. Whereas some 75% of the world’s oil reserves are in the hands of OPEC, about 90% of the world’s phosphate is in the hands of just five countries: Morocco, China, South Africa, Jordan and the U.S.”

“As with oil, more and more countries need to import it, and it is getting hard to find big, low-cost supplies." And then there’s this: "There is no significant new supply coming until at least 2014.”

“All of this above will make phosphate a hot commodity in the next few years.”

Chris recently recommended a phosphate company he reckons could make four times your money. It’s in the current issue of his premium advisory, Mayer’s Special Situations. And for just a few more hours, you can snag a membership at half off.

Act now and you’ll also get a special report identifying a little known oil play that’s attracted the attention of everyone from George Soros to T. Boone Pickens. But this is your final chance: This offer expires at midnight tonight.

  The U.S. Mint is curbing production of its collector-grade Silver Eagles to make sure it can meet demand for bullion-grade coins.

Not that it’s any huge surprise now that it’s 2011, but the Mint has made it official it won’t issue any uncirculated Silver Eagles dated 2010.

The proof issue didn’t come out till Nov. 19 last year.

“The United States Mint will resume production of American Eagle Silver uncirculated coins,” reads a Mint statement, “once sufficient inventories of silver bullion blanks can be acquired to meet market demand for all three American Eagle s ilver coin products”—that is bullion, uncirculated and proof.”

  “Separating the unions into two groups,” writes a reader trying to understand WTF is going on in Wisconsin, “has helped me understand the debate in Wisconsin and elsewhere.”

“Leave private unions out of this for the time being, and see the reality. Public employees have a good deal and haven’t been coerced. They aren’t required to work in dangerous mines, or beaten to go back to their desks. They also have the power of voting for their top-level supervisors. The safe guards are already in place. Unionizing is superfluous for the public employee.”

“But the downside is huge. When you have a public employee union, you have a powerful donor putting millions into the election of politicians friendly to the union. Those politicians then offer a pay raise to the union when they are elected. The union donates (pays) to get that friendly politician re-elected.”

“It’s a cycle that we need to break, because it gives the politician too much power in elections and the union too much power at the bargaining table, leaving the tax paying public without a prayer of balancing the budget.”

“Taxes go up and everyone pays to benefit a few—the union and the politicians. We are giving a few privileged people the power of the state (and the state’s police) to get pay and benefit increases, while the rest have to beg or go without.”

  “As I see it,” writes another reader who sees a much more sinister motive behind the proposal to limit collective bargaining, “the battle over collective bargaining is a brilliant maneuver to divide and conquer the middle class.” By pitting the ‘haves,’ the union workers, against the ‘have-nots,’ the private sector workers, the middle class is left to fight it out among themselves, and will eventually split apart.

“This class division will open the door for downward pressure on wages and benefits. During the ‘good old union daze,’ the rising tide raised all boats. Middle-class wages, benefits and standards of living increased for all. 

“But as we are about to see, when the tide goes out, the middle class, or what’s left of it, will be stranded on the dry rocky bottom and all the gains of the last century will be gone with the tide.”

  “In the 1950’s, 50% of U.S. workers were unionized,” writes a third reader. “These were considered middle-class jobs and allowed more time with the family, and thus the 40-hour work week. Since the Reagan administration and union busting became popular, we have seen the middle-class shrivel. Unions in America are less than 20% of the jobs now. The corporate greed has created multi millionaires out of the few on the backs of the middle and poor classes.”

“If the super rich had their way, there would be no 40-hour work week. No coffee breaks through the day. No vacations. No safety in the work place.”

“Unions created a lot of what non union workers enjoy and expect in today’s work world. Sometimes, employers pay a little more to keep the unions out, which is fine. Would you get those benefits if it weren’t for unions in the first place?”

“Eventually, someone will comment that unions make people lazy, or that they work more than 40 hours a week anyway. My response will be that unions aren’t perfect, because as in almost all work places, someone will abuse the system that was created for them. And even union members work more than 40 hours a week. We’re just compensated for it.”

“Thank you for taking the time to read my post.”

  "Nothing is perfect,” responds another, “but unions are OK, and so is management.” Unions should be free to strike, and not work somewhere, and management should be free to hire other willing people if it suits them. I don’t agree with this:

“’If the super rich had their way, there would be no 40-hour work week. No coffee breaks through the day. No vacations. No safety in the work place.’”

“In nations like France, unions totally rule, and it has been discovered that they are the ones willing to riot and burn if they don’t get their 35-hour work weeks. Is it just the cruelty of the super rich that drives the growing realization that France simply cannot afford those benefits?”

“There is no such thing as a free lunch, and all union power in the world cannot create one. Things have to be paid for, with actual profit, or eventually, they will not exist, because they cannot exist.”

  “Growing up,” adds a fifth, providing a real life example, “my father worked for a small plastic mold injection company that provided the dashboards for General Motors’ Baltimore-based Astro miniv an plant.”

“My dad’s company was located just a few miles north of GM’s Baltimore plant. Their proximity to GM’s plant was the clincher behind them claiming an exclusive contract to produce the dashboards. GM wasn’t their only client, of course, but it was far and away their largest.”

“He was originally hired as the quality control manager, later promoted to assistant plant manager, and eventually to plant manager.”

“He loved his job and was proud of the work he and his team produced. Whenever he saw an Astro van in a mall parking lot, for example, his face would light up. He’d quickly walk up to it, look inside the window, and inspect his company’s handiwork.”

“‘Look here,’ he tell me as he picked me up to peek inside the window, ‘no cracks, peeling or sun damage…that’s good work!’”

“But as vividly as I remember those dashboards, I also remember the weeks in which my dad would suffer through union negotiations. He’d come home late each night completely defeated. He told me how the workers always wanted more money. More benefits. More job security. More time off for lunch. More…everything.”

“The problem was, of course, that the mini van was going out of style. The SUV was taking over. His company wasn’t making enough of a profit to meet the wants of the union workers.”

“’Despite us showing the union our financials,’ he’d try to explain to me, ‘they still don’t understand that the money is just…not there.’”

“’But if we don’t give ’em what they want, they’re going to strike. Which means that we’ll shut down GM’s entire Astro v an production line. Which means that eventually GM will pull their business from us…and then everyone will be out of work!’”

“In fear of a strike and pressure from GM to not shut down production, the company would, eventually, give in to the unions. And eventually, the company’s margins got squeezed. Labor and benefit costs ate up all of the profits. When the Astro van’s sales began to seriously decline, red ink showed up everywhere.”

“In the end, GM’s Baltimore-based Astro van plant, and in turn my dad’s small plastic plant, shut down.”

“Despite seeing the declining sales and profits, the unions never understood that it wasn’t that the companies didn’t want to be fair with their workers—but rather, it was a simply fact that the money just…wasn’t there.”


Addison Wiggin
The 5 Min. Forecast

P.S. “Twice now you’ve mentioned there are 46 states festering in financial sewers; might you share the names of the other four?”

“Retirement is upon me, and I’m living in the hell hole of Massachusetts. I’m anxious to flee to a low-tax, gun-friendly-therefore-low-crime state where local and state corruption is somewhat muted. Not to mention Massachusetts’ universal health care fraud that’s doubled my premiums this year.”

“Thanks, I appreciate any help. Consider it a public service.”

The 5: Four states report no shortfall (so far) in 2011—Alaska, Arkansas, Montana and North Dakota. Gold, guts and guns, baby. And bourbon.

P.P.S. Meanwhile, your absolute final chance to loot Iran’s largest oil field…and grab a half-price subscription to Mayer’s Special Situations…ends at the stroke of midnight tonight. Here’s where you can act.

“Go for it, Abe,” writes a reader who saw yesterday’s overtime briefing. “More slow learners like me need to know how forex works and how to move money without loosing one’s butt.”

With that in mind, Abe Cofnas returns today with a quick rundown of the hidden risks behind forex’s most fantastic gains. Tomorrow, he’ll show you the anatomy of a winning trade and how you can ride shotgun while he unveils a first-in-kind exchange and strategy to which no other newsletter in North America offers access.

Trading Secrets of a $4 Trillion Market, Part II

The Risks

Not so long ago, Europe’s interest rate decisions mattered only to governments, banks, multinational corporations and international investors.

But these days, thanks to the ever-growing foreign currency markets, more people are paying attention than ever before. By the end of the day, the European Central Bank’s euro-moving decision could bring millions of traders big profits…or big losses.

And it’s almost guaranteed that the number of currency traders who suffer losses will eclipse the few who see gains. That’s because, as I said yesterday, currency trading carries some unique risks…and many new traders don’t understand them until it’s too late.

Take forex trading itself. Trading currencies can be fun and profitable. Trades develop quickly, meaning you could see profits in days, sometimes even hours. But for newcomers, the learning curve is steep…and the risks don’t always outweigh the rewards.

One reason forex trading is risky is that the trades often involve a lot of leverage. Typical transactions are huge—far beyond the means of most individual investors. But retail forex brokers let you put up a fraction of the money to buy a position and then they put in the rest.

If you know anything about “leverage,” you know that it means a small change in prices can be magnified into a comparatively huge return. Of course, that sword cuts both ways—losses are magnified, too. Make too many losing trades and you’ll quickly be scrounging to add money to your account.

Another supposed benefit of retail forex brokers is that they don’t charge commissions. True enough. Instead, they make it up on the spread—the narrow middle ground between buying and selling a currency. The more you trade, the more they make…so not only do they have an incentive to keep you trading…they also have incentives for you to lose!

Now, I’m not saying forex brokers are out to screw you. But I’m confident they look forward to a constant stream of new customers who are too new to understand the market.

One final consideration—timing. If there’s a market open somewhere in the world, so is forex. That means news can affect your positions at any time. Bad news out of Europe or Asia could devastate your portfolio while you sleep.

Of course, forex isn’t the only way to trade currencies. The Chicago Mercantile Exchange offers futures options and contracts. Next to forex, these are the best proxy for currency values.

But trading them can get even more expensive than forex. Figuring out your profits and losses can be tricky, too. In the case of futures contracts, you also have to deal with leverage…except in this case, you could end up losing more than your original investment!

Tomorrow, I’ll tell you about a third way my readers had a chance to make as much as 1,329% in four days using new trading instruments, with plenty more gains where those came from.

But for now, let’s keep in mind we’re talking about a fast-paced, adrenaline-filled trading environment where the risks are high…but the wins can be quite satisfying.

Until tomorrow…I’m Abe Cofnas.


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