Brief History of Gold and Money:
Gold has been used as money for more than 5,000 years and has proven to be the best and the safest form of money.
Gold has been virtually replaced as money in the United States since the Federal Reserve Bank was created in 1913. Since then Gold has generally not been
recommended as a suitable investment by the major brokerage houses, banks, the government and the media. Today, everything is different…very
different indeed. Merrill Lynch is extremely bullish on silver and gold, projecting the price of gold to go to $1,200 to $1,500 in 2009. Citibank has also
gone on record stating that gold could reach $2,000 an ounce.
Why the huge turnaround? It seems the roosters of fiat currencies are finally coming home to roost. Central banks are running short of gold and now again buying. The U.S. “officially” owns 261 million ounces of gold (if they really have it). If the $14 trillion in U.S. fiat money (Federal Reserve Notes and digits on computers) were backed by the U.S. stockpile of gold, gold would have to be valued at $53,639 per ounce.
Here is a broader perspective. The total value of all paper money and bonds in the world is about $100 trillion, and all the gold ever mined in all of human
history is just less than 5 billion ounces. Those 5 billion ounces would have to be valued at $20,000 per ounce to back up the world’s supply of
paper money and bonds. At $1,000 per ounce, there is about $5 trillion dollars worth of gold in the world. However, there are $500 trillion in
derivatives, $60 trillion in bonds and $40 trillion in paper money. Conclusion, based on the rubber band effect, paper money must go down in value and
gold must go up.
Annual gold production from mining is about 2,500 metric tons, or 80,377,500 ounces, as there are 32,151 troy ounces per metric ton. If China were to purchase 80 million ounces of gold using only $160 billion, which represents just 10% of its holdings in U.S. securities, the price of gold could immediately jump to $2,000 per ounce and the dollar could lose 50% of its value overnight.
According to an article dated June 2009 by Andrew Frye, published in Bloomberg.com
"Northwestern Mutual Life Insurance Co., the third-largest U.S. life insurer by 2008 sales, has bought gold for the first time the company's 152-year history to hedge against further asset declines."
"Gold just seems to make sense; it's a store of value," Chief Executive Officer Edward Zore said in an interview following his comments at a conference hosted by Standard & Poor's in Brooklyn. "In the Depression, gold did very, very well."
Northwestern Mutual has accumulated about $400 million in gold, and Zore said the price could double or even rise fivefold if the economy continues to weaken. Gold gained 10 percent last month, the most since November. The commodity has more than tripled since 2000, rising for eight straight years. Gold futures for August delivery slipped $4.80 to $975.50 at 4:03 p.m. in New York.
"The downside risk is limited, but the upside is large," Zore said. "We have stocks in our portfolio that lost 95 percent." Gold "is not going down to $90."
Is there something that management of Northwestern Mutual knows that you and I don't?
To learn more about gold go to: http://www.gold.org/.
Brief History of Silver:
Silver has also been used as money for more than 5,000 years. Silver also backed U.S. currency as $1, $2, $5, $10, $20 bills
which used to be denoted as “Silver Certificates,” meaning they were backed with silver held in the U.S. Treasury or Fort Knox. Gold used to
back $100, $500, $1000 and even $100,000 “Gold Certificates.” All U.S. dollars (Silver and Gold Certificates) have been replaced with Federal
Reserve Notes which are no longer backed by gold or silver. In 1965, President Nixon stopped the production of U.S. dollars, halves, quarters and dimes
that contained 90% silver and 10% copper. To learn more about the history of U.S. currency, Silver and Gold Certificates go to: Silver Certificate and Gold Certificate.
No doubt you will recall a scant two or three years ago silver and gold were held in very low esteem by the major brokerage houses, banks, the government and the media. It seems that only the silver and gold bugs and the gloom and doomers were touting the high intrinsic value of these two shiny precious metals. Now nearly every media, including the Wall Street Journal is admitting serious recession or even depression.
If you think that gold has the strong possibility of greatly increasing in value, take a very close look at silver, as it is poised to soar much higher than gold. About 10 years ago, M3 (U.S. money in circulation) was about $4 trillion and silver was at $5/oz. By the spring of 2009, M3 now exceeds $14 trillion and silver (as of this writing) is presently around $13/oz. Relative to the recent increase in money supply, silver should be priced around $45/oz just to maintain the ratio of 10 years ago. Silver is hugely under priced, even though silver has all the same intrinsic monetary properties as gold.
The historic price ratio for the past 5,000 years of silver and gold is 16:1, meaning 16 ounces of silver would buy one ounce of gold. Today that ratio is about 77:1 (silver at $13 and gold at $1,000) With the rubber band effect in play, just getting back to the 16:1 ratio, you would make about 5 times more money investing in silver than in gold.
Silver prices could not only get back to the 16:1 ratio, they could exceed it in the very near future. More than 95% of all silver produced each year is consumed by industry, which leaves very little remaining for investors like you and me to purchase. Each year silver mines produce about 650 million ounces of silver. Two hundred million ounces come from recycling and about 100 million ounces from investor or government sales, totaling about one billion ounces. Of the total approximately:
- 42% is consumed by industrial use
- 28% for Jewelry
- 20% for photography
- 5% in coins and medallions
Fifty million ounces represents five percent of the worldwide annual silver production and that is all that is available to be purchased by investors. If just 5 million Americans woke up tomorrow and suddenly decided to purchase just 10 ounces of silver each (about $130), in just one day they would buy up the world’s annual available amount currently going into coins and medallions.
Based on the above facts and due to the current economic conditions, the demand for both silver and gold could skyrocket in the near future. Therefore, the most important and most patriotic thing individual citizens can do is protect themselves by converting 10% or more of their assets into silver and gold.
How do silver and gold stack up against real estate today? Has the real estate market bottomed out or are prices going to decline even more? Official government spokespersons are testing the waters saying, "Looks like the decline is slowing," meaning maybe we are nearing the bottom. Our resources tell us that with huge interest rate adjustments in prime mortgages coming in 2010 and the just beginning decline in commercial real estate, the real bottom could not arrive for another three to ten years. Although we do not recommend it, we have heard of several folks who have sold their homes, are now renting at super cheap prices and have poured their equity into silver and gold.
To learn more about the history, supply and demand and other important facts of silver go to http://www.silverinstitute.org/.
