A number of market analysts and gold-industry insiders are warning about a possible shortage of gold supply. Barrick CEO Jamie Sokalsky recently stated that since gold production is inelastic (i.e., insensitive to price changes) there will be a very limited increase in supply from gold producers, even during sharp increases in the gold price. Rick Rule, a billionaire and avid gold investor, pointed out that while we’re seeing spectacular demand, a number of issues will make supply very tight in the future, especially among retailers.

The issues facing gold miners are well known: depletion of existing mines, lower grades, and fewer new discoveries — especially big and rich ones. Further, miners face increased calls for nationalization, demands from workers for higher pay or from local communities for better infrastructure, and — of course — environmental concerns. Many mining company representatives say it’s getting harder to not only find large deposits but to get those deposits into production. Some estimate it now takes twice as long as to go from discovery to production vs. a decade ago.

These warnings aren’t always taken seriously, especially by those who see that mine production has been growing. At first glance, they’re correct — but only if you look at the short-term picture. The following chart shows that global mine production has indeed been rising since 2008. From 2009 through 2011, output rose an average of 3.9% per year. However, we know that a good chunk of this increase is due to China, and upon excluding its output, you can see how it alters the global picture.

What’s important about China’s production is that unlike most other countries, it doesn’t reach the world market, since China doesn’t export gold.

Further, while some point to the growth in production since 2008, output is still 12.8% below the year 2000 level. And there are reasons to believe the gap between global mine production vs. mine production excluding China could widen. MarketWatch reports that China’s Ministry of Industry and Information Technology has said that China wants domestic gold production to reach 14.5 million ounces by 2015, an increase of approximately 25% over last year’s levels. Given that what’s produced in the country stays in the country (where there is escalating domestic consumption), a “widening of the fundamental market shortage,” as per the MarketWatch article, seems almost certain.

Since global production is lower without China’s production included, we decided to examine total supply (mine production plus scrap), backing out Chinese production and adjusting for Chinese gold imports. How much gold is left for the rest of the world after the Chinese take what they want? The contrast surprised even us.

Total gold supply has been growing since 2006, reaching a record of 120 million ounces in 2011. However, as you likely know, China’s consumption is second only to India’s — and could soon reach number one. China’s gold imports from Hong Kong have soared, hitting a record 13.5 million ounces last year, with 16.5 million ounces imported through August of this year. Upon adjusting for China’s imports, gold supply for countries outside China has actually been falling since 2009!

That’s Not All

Another trend to take in to account is China’s growing interest in natural resources — basic materials, energy, and others. What gets underreported, however, is that the Chinese are also purchasing gold mines. Here is a list of Chinese gold-mining acquisitions over the last year:

• November 2011: Baiyin Nonferrous Group completes a takeover of Gold One International, a gold operator in South Africa.
• December 2011: China Gold International Resources Corporation buys a gold mine in Central Asia, and is reported to be looking at Canada and Mongolia for its next targets. (It bought Canadian gold miner Jinshan a few years ago.)
• December 2011: The Chinese take control of A1 Minerals, a gold exploration and production company, and rename it Stone Resources Australia.
• December 2011: Shanghai investors buy a controlling stake in the Australian-owned Zara gold project in Eritrea.
• April 2012: Sovereign Gold partners, along with Jiangsu Geology & Engineering, pay $4 million for a 30% interest in two gold tenements (an area of land in Australia where the holder may conduct exploration or mining activities). In November 2012 the firm increased its funding to fast-track exploration and development of the projects.
• August 2012: A subsidiary of Zijin Mining Group (China’s top gold producer by output) buys more than 50% of Norton Gold Fields, acquiring a large, operating gold miner.
• August 2012: China National Gold Corporation announces a $3.9 billion bid to acquire African Barrick Gold, Tanzania’s largest gold miner. If the deal is approved, China National Gold’s production capacity will double.
• September-December 2012: China’s Shandong Gold Group announces its intention to purchase 51% of Australian gold miner Focus Minerals, which has four active mines in Western Australia. The deal is expected to be completed early this month.
• November 2012: China-based Western Mining Group, through its subsidiary, buys all the outstanding shares of Inter-Citic Minerals, a Canadian-based gold exploration and development company..

The facts can’t be denied: China is on the hunt for gold deposits and mines. These gold-focused deals will add more ounces to the country’s pool of gold assets. Just the three most recent acquisitions (Focus Minerals, Norton Gold Fields, and Inter-Citic Minerals) contain 12.5 million ounces of gold resources.

As the Chinese have publicly stated before, acquiring large amounts of gold on the open market would almost certainly drive prices higher, as well as trigger greater volatility. One way to get around that is to purchase deposits that either are or will be producing the precious metal, allowing them to accumulate the gold before it hits the international market — and at cheaper prices than spot. In spite of the gargantuan quantity flowing through Hong Kong, it’s entirely possible that we are underestimating China’s demand.

In light of all this, it seems clear that concerns about future supply are real.

What to Expect

There are some clear implications for us investors:

Supply will get tighter. It’s not because there’s a lack of metal in the ground. It’s increasingly critical to ask whether any given deposit is economically viable, politically feasible, and ecologically agreeable. Despite increased budgets on exploration (last year the gold industry spent a record $8 billion) and despite a 570%+ increase in the gold price since 2001, discovery rates are still decreasing. It’s clear that the gold industry is unable to grow supply to a significant degree in spite of increased spending and increasing margins.

Chinese production won’t show up at your local dealer. The country is keeping it all. When you read about growing global supply, you have to subtract what China produces and imports to determine what’s really available. As Chinese appetite continues to grow, this could become a front-and-center issue.

China will likely cause an even bigger imbalance. As our research shows, China’s share of supply is increasing, while the rest of the world’s is decreasing. Meanwhile, there is every reason to believe it will continue to acquire gold-mining assets. We think positioning yourself in likely takeover targets is a wise speculation (whether China is the buyer or not). That’s exactly what many of us at Casey Research are doing.

A public rush for metal will empty the shelves. There’s no rush like a gold rush, and if we enter a mania period, bullion will be hard to come by at retail outlets. Why wait for that? A mania is when you want to sell.

Our advice is simple: make sure your personal gold reserves are in place before a gold supply crunch becomes reality. And for leverage on the likely resulting mania, build a portfolio of the best of the best gold stocks.

Inside the Mind of a Multimillionaire

Did you ever wonder how famous investors and self-made multimillionaires think — what it is that makes them so successful? Then you should let Doug Casey give you a piece of his mind.

Doug’s new book, TOTALLY INCORRECT, showcases radical libertarian thinking and unwavering free-market advocacy… not to mention his irreverent and hugely entertaining personality.

“There is no other modern American critic who is half as brilliant. Doug is the only person on the scene today who could rightfully claim Mencken’s mantle. What’s in this book will show you the world in a new light. It will allow you to see the world as it really is… which is a gift everyone should enjoy.”

– Porter Stansberry, founder and CEO of Stansberry & Associates Investment Research

Special, limited-time offer: Pre-order a paperback copy of TOTALLY INCORRECT today and save 45% off the bookstore price. Click here for details.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

The Best of Jeff Clark

Have you ever wondered what the typical Chinese gold investor thinks about our Western ideas of gold? We read month after month about demand hitting record after record in their country — how do they view our buying habits?

Since 2007, China’s demand for gold has risen 27% per year. Its share of global demand doubled in the same time frame, from 10% to 21%. And this occurred while prices were rising.

Americans are buying precious metals, no doubt. You’ll see in a news item below that gold and silver ETF holdings just hit record levels. The US Mint believes that 2012 volumes will surpass those of 2011.

But let’s put the differences into perspective. This chart shows how much gold various countries are buying relative to their respective GDPs.

It’s widely believed that the majority of the gold flowing into Hong Kong ends up in China, so its total is probably close to double what the chart reflects. Even if none of it went to China, coin and jewelry demand is 35 times greater than the US, based on GDP.

The contrast between how our two nations can buy bullion is striking…

• In China, you can buy gold and silver at the bank. My teller looked at me oddly when I asked.
• Bullion is available for purchase at Chinese post offices. I wonder how my local postman would respond if I asked for a tube of silver Eagles.
• Mints are readily accessible to retail customers. Here, I can only order proof and commemorative products from the US Mint and am forced to go to an independent dealer.
• A new product design is manufactured every year. This being the Year of the Dragon, many bullion products are emblazoned with dragons. You can still buy last year’s rabbit, and next year it will be a snake. The US has two designs, the Eagle and Buffalo; the latter was introduced in 2006 and is available only in gold (if you see a silver Buffalo, it is a “Round” manufactured by a private mint, not the US Mint).

Some will point to cultural affinity to account for the differences. There’s some truth to that, though this is a much greater factor in India. Even there, gold jewelry is not viewed as a decoration or an adornment; it’s a store of value. It’s financial insurance in a pretty bow. In India, gold can be used as collateral, regardless of its form. It’s not just an investment that they’re trying to make money from; it’s more important than that.

But certainly the differences can’t all be attributed to culture…

You’ve likely heard how government leaders in Beijing have been encouraging citizens to buy gold and silver. This would be akin to seeing your local Congressman or President Obama appearing on TV and imploring you to buy some gold and silver. (Utah made gold legal tender, but it was mostly a symbolic move.)

Chinese radio and TV spots, along with newspaper ads, talk about “safeguarding your wealth” and putting “at least 5% of your savings” in precious metals. I haven’t seen this here except from dealers on cable TV. Can you imagine Ben Bernanke appearing in a commercial during American Idol, encouraging you to buy gold Eagles?

No, what I hear from politicians about precious metals is nothing but the sound of crickets chirping, save Ron Paul. And the mainstream continues to claim gold is in a bubble. We’ve pointed it out before, but in case any of them are reading, there are two criteria for a bubble: first, a massive price increase, such as the gold price doubling in less than 7 weeks like it did in 1979-’80… which, of course, hasn’t occurred in this bull market. (Yet.)

The second criterion is widespread participation on the part of the public. I don’t hear celebrities and TV anchors bubbling on about the latest gold stocks. Most people I know outside Casey Research aren’t talking about the great price they got on a silver Maple Leaf. Most investors I talk to say their friends, family, or co-workers aren’t scrambling to snatch up gold Eagles. And the #1 reason we’re not in a bubble is because Eva Longoria still hasn’t asked me out on date — something she’d only do because I’m a gold analyst.

And with apologies to those of you who do know history, I think the Chinese have studied history a little better than many of us. The lessons are right in front of us, though I don’t hear this kind of data very much on CNBC…

• Morgan Stanley reports there is “no historical precedent” for an economy that exceeds a 250% debt-to-GDP ratio without experiencing some sort of financial crisis or high inflation. Total debt (public and private) in the US is 300%+ of GDP.  
• Detailed studies of government debt levels over the past 100 years show that debts have never been repaid (in original currency units) when they exceed 80% of GDP. US government debt is approaching 100% of GDP this year.  
• Peter Bernholz, a leading expert on hyperinflation, states emphatically that “hyperinflation is caused by government budget deficits.” This year’s US budget deficit will be about $1.3 trillion. It’s expected to total $6 trillion during Obama’s first four years in office.

What do we hear instead? That the country will drop into recession if current amounts of spending and outlay of benefits are reduced. I think it is quite the opposite; it will be worse if our leaders continue down this path of debt, deficit spending, and printing money.

What I’d love to see on CNBC is a spot with Doug Casey saying this: “Anyone who thinks they have any measure of financial security without owning any gold — especially in the post-2008 world — is either ignorant, nave, foolish, or all three.” I bet that’d get the airwaves buzzing.

It must seem strange to many Chinese that we continue to believe in our dollars, Treasuries, and bonds more than gold and silver. And it’s not just China that would view our investing habits as peculiar. Indeed, as the above tables implies, our views on precious metals are in the minority.

My fear is that regardless of what form the fallout takes, many of my friends will be caught off guard. Probably many of yours, too. As the value of dollars continues to decay and inflation creeps closer and closer and then higher and higher, many investors will feel blindsided. Many Chinese citizens will not.

Given China’s aggressive buying habits, my suspicion is that many of them will probably wonder why we didn’t see what was happening all around us, why we didn’t learn from history, and why we didn’t better prepare.

Part of the reason why American dollars are losing value can be traced to Chinese actions as well: Realizing that the US government was not going to rein in its profligate spending, the Chinese have stopped investing in the US economy and are now dumping dollars. This, of course, simply adds to the US government’s problems… but it provides ways for you to turn a tidy profit.

Inside the Mind of a Multimillionaire

Did you ever wonder how famous investors and self-made multimillionaires think — what it is that makes them so successful? Then you should let Doug Casey give you a piece of his mind.

Doug’s new book, TOTALLY INCORRECT, showcases radical libertarian thinking and unwavering free-market advocacy… not to mention his irreverent and hugely entertaining personality.

“There is no other modern American critic who is half as brilliant. Doug is the only person on the scene today who could rightfully claim Mencken’s mantle. What’s in this book will show you the world in a new light. It will allow you to see the world as it really is… which is a gift everyone should enjoy.”

– Porter Stansberry, founder and CEO of Stansberry & Associates Investment Research

Special, limited-time offer: Pre-order a paperback copy of TOTALLY INCORRECT today and save 45% off the bookstore price. Click here for details.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

The Best of Jeff Clark

While many of us at Casey Research don’t like making price predictions, and certainly ones accompanied by a specific date, it’s hard to ignore the correlation between the US monetary base and the gold price.

That correlation says we’ll see $2,300 gold by January 2014.

There are plenty of long-term charts that show a connection between gold and various other forms of money (and credit). Most show that one outperforms until the other catches up. But let’s zero in on our current circumstances, namely the expansion of the US monetary base since the financial crisis hit in 2008.

Here’s the performance of the gold price compared to the expansion of the monetary base since January 2008.

(Click on image to enlarge)

You can see the trends are very similar. In fact, the correlation coefficient is an incredible +0.94.

Since the Fed has declared “QEternity,” it’s logical to conclude that this expansion of the monetary base will continue. If it grows at the same pace through January 2014, there is a high likelihood the gold price will reach $2,300 at that point. That’s roughly a 30% rise within 15 months.

And by year-end 2014, gold could easily be averaging $2,500 an ounce. That’s 41% above current prices.

Some may argue that there’s no law saying this correlation must continue. That’s true. And maybe the Fed doesn’t print till 2014. That’s possible.

But it’s not just the US central bank that’s printing money…

• European Central Bank (ECB) President Mario Draghi has declared that it will buy unlimited quantities of European sovereign debt.
• Japan’s central bank is expanding its current purchase program by around 10 trillion yen ($126 billion) to 80 trillion yen.
• The Chinese, British, and Swiss are all adding to their balance sheets.

The largest economies of the world are all grossly devaluing their currencies. This will not be consequence-free. Gold and silver will be direct beneficiaries — as will mining companies — starting with rising prices.

There are other consequences, both good and bad, of gold hitting $2,000 and not stopping there. We think investors should be prepared for the following:

• Tight supply. As the price climbs and attracts more investors, getting your hands on bullion may become increasingly difficult. Delivery delays may become commonplace. Those who haven’t purchased a sufficient amount will have to wait in line, either figuratively or literally.
• Rising premiums. A natural consequence of tight supply is higher commissions. They won’t stay at current levels indefinitely. Premiums doubled and more in early 2009, and mark-ups for silver Eagles and Maple Leafs neared a whopping 100%.
• Swelling profits for the producers. If margins on gold production average $1,000 per ounce now, what will earnings be like when they average $1,500? At $2,000? Gold can rise much faster than operating costs, so this could happen. Imagine what this could do to dividend payouts, especially those tied to the gold price and/or earnings.
• Tipping point for a mania. There will be an inflection point where the masses enter this market. The average investor won’t want to be left behind. Will that happen when gold hits $2,000? $2,500?

The message from these likely outcomes is to continue accumulating gold — or to start without delay. Waiting will have consequences of its own.

People say that there’s nothing certain in life except death and taxes. In my view, $2,300 gold is a close second.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

The Best of Jeff Clark

Inflation is a natural consequence of loose government monetary policy. If those policies get too loose, hyperinflation can occur. As gold investors, we’d like to know if the precious metals would keep pace in this extreme scenario.

Hyperinflation is an extremely rapid period of inflation, but when does inflation (which can be manageable) cross the line and become out-of-control hyperinflation? Philip Cagan, one of the very first researchers of this phenomenon, defines hyperinflation as "an inflation rate of 50% or more in a single month," something largely inconceivable to the average investor.

While there can be multiple reasons for inflation, hyperinflation historically has one root cause: excessive money supply. Debts and deficits reach unsustainable levels, and politicians resort to diluting the currency to cover their expenses. A tipping point is reached, and investors lose confidence in the currency.

"Confidence" is the key word here. Fiat money holds its purchasing power largely on the belief that it is stable and will preserve that power over time. Once this trust is broken, a flight from the currency ensues. In such scenarios, citizens spend the money as quickly as possible, typically buying tangible items in a desperate attempt to get rid of currency units before they lose value. This process increases the velocity of money, setting off a vicious cycle that destroys purchasing power faster and faster.

The most famous case of hyperinflation is the one that occurred in Germany during the Weimar Republic, from January 1919 until November 1923. According to Investopedia, "the average price level increased by a factor of 20 billion, doubling every 28 hours."

One would expect gold to fare well during such an extreme circumstance, and it did – in German marks, quite dramatically. In January 1919, one ounce of gold traded for 170 marks; by November 1923, that same ounce was worth 87 trillion marks. Take a look.

(Click on image to enlarge)

Inflation was at first benign, then began to grow rapidly, and quickly became a monster. What’s important to us as investors is that the price of gold grew faster than the rate of monetary inflation. The data here reveal that over this five-year period, the gold price increased 1.8 times more than the inflation rate.

The implication of this is sobering: while hyperinflation wiped out most people’s savings, turning wealthy citizens into poor ones literally overnight, those who had assets denominated in gold experienced no loss in purchasing power. In fact, their ability to purchase goods and services grew beyond the runaway prices they saw all around them.

One can’t help but wonder how the people whose wealth evaporated in Germany during this time felt. In effect, they were robbed by the government – they were on the losing end of a massive transfer of wealth. Of course, there are two sides to the story, as those who held significant amounts of gold and silver were the recipients.

We can’t help but speculate about whether most citizens dismissed the idea of inflation during the calm period in 1920-’21. Did respected economists scoff at the idea that Germany could suffer hyperinflation, just before it struck? Did some politicians proclaim that "a little inflation would be good?"

Those who today argue that our obscene debt levels, runaway deficit spending, and money-printing schemes are sound strategies and believe they won’t lead to out-of-control inflation might want to rethink those beliefs. We’ve seen this movie before: it doesn’t have a happy ending.

The historical record is clear on what happens when countries embark on fiscal and monetary paths today’s leading economies are embracing. If gold’s recent price performance is anything like the calm before Germany’s hyperinflationary storm, this is a time to be accumulating more gold.

Keep in mind that hyperinflation is not a rare event. Since Weimar Germany, there have been 29 additional hyperinflations around the world, including those in Austria, Argentina, Greece, Mexico, Brazil, Taiwan, and Zimbabwe, to name a few. On average, that’s one every three years or so.

While hyperinflation devastates those who experience it, there is a healing aspect to it. Since the responsibility for this type of disaster lies solely at the feet of government, there may be some Darwinian justice to the way hyperinflation purges the perverse fiscal and monetary imbalances from an economy. After the Weimar Republic hyperinflation, the second half of the 1920s was a strong period for Germany, with low inflation and steady growth.

It’s no secret that many currencies around the world, including the US dollar, are choosing the path of inflation. If we were to slip into hyperinflation, there will be disastrous consequences for those unprepared. Given that the US dollar is the world’s reserve currency, the problems would spread to practically every country on earth. Hyperinflation will shake people’s confidence not only in the US dollar, but in the paper currency system as a whole.

What will actually come to pass, we don’t know. What we do know is that the measures to cure hyperinflation include tying the currency to a hard asset or even replacing it with one. When creditability in fiat money dissipates, gold may be the only viable option left standing.

Again, the investment implication is obvious: continue to accumulate gold.

How much is enough? Well, how many ounces do you own in relation to your total assets? Anything less than 5% will not offer you a sufficient level of protection in a high inflationary environment.

Another way to look at it is this: how many ounces do you need to cover your monthly expenses? In Weimar Germany, inflation rose uncomfortably for two years – and then pinched harder, spiraling into a destructive hyperinflation for another two. Consider what it would take to maintain your standard of living for a couple years instead of just a couple months.

And don’t listen to any government’s ongoing pronouncements of confidence in the current system, along with the mainstream media’s noisy and frequently inaccurate portrayals of the gold market. (For example, these two headlines appeared on the same day: Gold Edges Lower as Worries over Europe Simmer; and Gold Settles Higher on Spanish Bailout Plans.) In a world awash in ignorance about real money, if not deliberate obfuscation, you have to study the relevant history, draw your own conclusions, and stick with them.

This example shows how gold can perform during hyperinflation. If that worst-case scenario comes to pass, will the example your family’s finances sets be a positive or a negative one?

Don’t let your family be one of the millions slowly being robbed by the US federal government’s policies that are, among other things, eroding the value of its dollar. Start preparing yourself now, and you can not just survive what looks to be ahead – you and your family can thrive. And that, ultimately, is what investing is all about.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

The Best of Jeff Clark

It may feel like I’m out of touch with the precious metals markets to broach the subject of a mania today, but I think the table is being set now for a huge move into gold and silver.

There are, however, very valid reasons to reasonably expect a mania in our sector. For one thing, manias have occurred many times before, but the main issue is that a mania in gold and gold stocks is the likely result of the absolute balloon in government debt, deficit spending, and money printing. Saying all that profligacy will go away without inflationary consequences seems nave or foolish. Inflation may not attract investors to gold and silver as much as force them to it.

Now, one could make the argument that any rush into gold and silver will be muted if no one has any savings, especially given that demographers say a quarter of the developed world will soon be retired. But even if individuals are wiped out, the world’s money supply isn’t getting any smaller, and all that cash has to go somewhere.

I wanted to look at cash levels among various investor groups to get a feel for what’s out there, as well as how money supply compares to our industry. Data from some institutional investors are hard to come by, but below is a sliver of information about available cash levels. I compared the cash and short-term investments of S&P 500 corporations, along with M1, to gold and silver ETFs, coins, and equities. While the picture might be what you’d expect, the contrast is still rather striking.

(Click on image to enlarge)

Naturally, not all this money or even a big chunk of it will be used to buy GLD, Barrick, or American Eagles, but it’s clear that if any significant fraction of the cash sloshing around the economy were to be used to buy gold, it would have a major impact on the price of gold — which would trigger the mania I fully expect. Let’s take a quick look at what kind of impact our sector could experience if just a small amount of available funds were devoted to various forms of gold and silver.

• The entire worldwide value of all gold exchange-traded products (ETPs) currently represents just 2.1% of the cash and short-term investments held by S&P 500 corporations. If 20% of these companies decided to put a mere 5% of their available holdings into these precious metals vehicles, their value would more than double.  
• If just 1% of the physical currency (M1) floating around the system were used to buy gold Eagles, it would be 13 times more than the entire value of all coins purchased last year.  
• If corporations chose to invest 1% of their cash in silver ETFs, it would surpass the total current value of all such ETFs.  
• If corporations moved 5% of their “short-term investments” evenly into gold stocks, the market cap of every gold company would increase by 20%.  
• If they chose silver stocks, they’d each grow by a factor of six.  
• Five percent of M1 would increase the market cap of gold producers by 14%. The same fraction would be 3.4 times bigger than the entire current value of all primary silver producers.

This is just S&P 500 corporations — there are many more corporations in the world, as well as pension funds, hedge funds, sovereign wealth funds, mutual funds, private equity funds, private wealth funds, insurance companies, and other ETFs.

It’s striking, when you really stop to think about just how big the impact could be if some significant fraction of the larger financial world started chasing the small niche market that is gold. Such cash inflows will send our industry to the moon.

In the meantime, keeping our eye on the big-picture forces that have yet to play out is the plan to follow. Sooner or later, though, I’m convinced the catalysts will kick in that will pull/push/drag/compel/force the mainstream into our sector. I suggest beating them to it.

And when the mania arrives, we’ll all wonder why anyone doubted it in the first place.

Jeff Clark has been delving into a variety of data to try to figure out recent precious-metals market moves, in order to spot a shift in trends. That’s important because being ahead of the trend gives investors maximal profit opportunities. Another solid analysis Jeff wrote is What Volume Tells Us about Gold Stocks.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

The Best of Jeff Clark

It wasn’t a fun week for gold. By the close on Friday, the metal was down 6.7% (based on London PM fix prices), the biggest weekly decline since September. It got downright irritating when the mainstream media seemingly rejoiced at gold’s decline. Economist Nouriel Roubini poked fun at gold bugs in a Tweet. Über investor Dennis Gartman said he sold his holdings. CNBC ran an article proclaiming gold was no longer a safe-haven asset (talk about an overreaction).

While the worry may have been real, let’s focus on facts. Have the reasons for gold’s bull market changed in any material way such that we should consider exiting? Instead of me providing an answer, ask yourself some basic questions: Is the current support for the US dollar an honest indication of its health? Are the sovereign debt problems in Europe solved? How will the US repay its $15 trillion debt load without some level of currency dilution? Is there likely to be more money printing in the future, or less? Are real interest rates positive yet? Has gold really lost its safe haven status as a result of one bad week?

And one more: What is the mainstream media’s record on forecasting precious metals prices?

Our take won’t surprise you: not one fact relating to the trend for gold changed last week. We remain strongly bullish.

So why did gold, silver, and related stocks fall so hard?

The reasons outlined in this month’s BIG GOLD are still in play (the MF Global fallout, a rising dollar, year-end tax-loss selling, and the need for cash and liquidity to meet margin calls or redemption requests). Last Wednesday’s 3.5% fall took on a life of its own, selling begetting selling, fear adding to fear(especially the case with gold stocks). None of these reasons, however, have anything to do with the fundamental factors that ultimately drive this market. Once those issues shift, then we’ll talk about exiting.

So, should we buy now? Is the bottom in?

Let’s take a fresh look at gold’s corrections and compare them to the recent one. I’ve updated the following chart to include the recent selloff.

[How do I calculate the data? I look for the periods in every annual gold chart that represent a distinct fall greater than 5%, then measure the highs and lows.]

(Click on image to enlarge)

Our recent drop equals 12.5%. This isn’t to suggest that the correction is over, but it does show that we’ve already matched the average decline, which is also 12.5%. This comes on the heels of the 15.6% fall in September. You’ll notice something else: We’ve now had three major corrections (greater than 5%) in one year, the first time that’s happened in this bull market.

The worst-case scenario would be a drop that matched the biggest on record, 27.7%. From $1,795 – the recent interim peak price – that would take us to $1,295. That wouldn’t be fun, but a fall to that level would not by any stretch signal the end of the bull market, nor a fall into unprofitability for our producers. And it would represent a true blood-in-the-streets buying opportunity. After all, that’s exactly what happened in 2006 and again in 2008, and in both instances gold eventually powered much higher. The bears were wrong then, and they’ll be wrong again this time, even if that extreme scenario were to come to pass.

Here’s the updated picture for silver:

(Click on image to enlarge)

Silver’s volatile nature really comes through in these data, which measure corrections of 10% or more. The recent decline tallies 18.4%. It, too, comes on the heels of a recent correction, a 35.2% tumble in September. The average of these declines is 20.3%, which would take our current correction to $28.22, close to last Thursday’s price. Like gold, we’ve now had more corrections this year (four) than we’ve ever had in this bull market.

The worst plausible scenario we see for silver in the near term would be a fall to $16.32, matching 2008′s 53.9% drop. But you’d have to be awfully bearish to think it will plummet that far.

These data should actually give you some comfort. We’ve been here before. We’ve seen worse before. And yet, in every instance, gold and silver eventually climbed higher. So, unless you really believe that Obama and Merkel have brought happy days back to the world economy, precious metals will resume their ascent, and probably sooner rather than later. And when they do, you may well never be able to buy at these prices again. Those who were too scared to buy at $560 in 2006 and $700 in 2008 missed out on what were some of the greatest buying opportunities of this bull market.

Would I buy now? Given that each metal has already met its average decline, and that both have seen more corrections this year than any other, we’re likely closer to the bottom than the top. So yes, I added an extra contribution to my favorite bullion accumulation program last week.

Either way, my advice is to spend a little more time watching the drivers for gold and a little less time worrying about the price. Until those things change, look for an entrance, not an exit.

We don’t know if gold has bottomed or not, but we do know that selloffs like this are great buying opportunities. This is especially true with gold stocks – get the newest recommended gold producer in BIG GOLD at a lower price than when we first bought. Meanwhile, International Speculator recently identified two new stock recommendations in the December issue. Join us in picking up the best companies at some the lowest prices we’ve seen in a long time.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

The Best of Jeff Clark

Most gold followers know the metal has a seasonal tendency to perform better in the fall and winter than in the spring and summer. Indeed, since 2001, the annual high for the gold price has occurred after Labor Day every year except two (2006 and 2008). Further, that peak was hit in November or December in seven of the last ten years.

So, are we destined for new highs in the gold price between now and New Year’s Eve? And what about gold stocks?

Perhaps one way to answer the first question is to determine if gold has been following its seasonal price trends so far this year. If it has, we might have a reasonable expectation of higher prices ahead. Let’s take a look…

The following chart shows the average monthly performance of the gold price from 2000 to present, along with its returns so far this year.

(Click on image to enlarge)

As you can see, this year’s gold price has followed the typical seasonal pattern in every month but three. This is actually a strong correlation, because seasonal patterns are adhered to only about two-thirds of the time. (The performance appears more volatile than normal, but it’s not; the averages are a composite of eleven years’ worth of data.) You’ll also notice that gold has had only three losing months this year.

If this trend were to continue, it suggests that gold’s 2011 high may yet be ahead, meaning the September 5 price of $1,895 (London PM Fix) would be eclipsed.

Here’s the picture for gold stocks (as measured by the AMEX Gold Bugs Index).

(Click on image to enlarge)

As a group, gold stocks have performed in the opposite direction of the seasonal pattern in six of ten months so far this year. This might speak to some of the frustration we gold stock investors have had, particularly after they bucked the trend in May and August with big sell-offs.

This doesn’t mean, of course, that gold stocks won’t rise over the next two months. In fact, the average cumulative gain of gold stocks during this 60-day period is 11.8%. You’ll also see that November is typically the second strongest month of the year.

Perhaps another way to determine if a new high for gold is just ahead is to look at its average return from the summer low to the fall high. (We detailed this measurement previously.) To summarize, since the bull market began in 2001, the average gain in the gold price from the summer low (June, July, or August) to the autumn high (September through December) is 20.7%. Our summer low this year was $1,483 on July 1, so $1,790 would match the average… a price we’ve already exceeded.

Of course, this ignores the effect of another country in Europe blowing, up or the Fed instituting another QE program, or Israel attacking Iran, or…

The largest autumn gain has been 33.5% (2009); if this year’s climb mimicked it, the price would hit $1,979 before year-end. That’s a 10.7% jump from $1,787, a relatively big climb in a short period of time, but I wouldn’t dismiss it given the precarious state of the world’s economies and finances.

In the big picture, though, all this talk about where gold might go in the short term is just for fun. It’s clear that sooner or later we’ll be looking in the rear-view mirror at a $2,000 gold price. And even that level is well short of any inflation-adjusted price.

The ocean barge of inflation hasn’t hit our beach yet — but it’s been spotted offshore. Buy gold and silver — along with their stocks — because higher prices are ahead, regardless of what they do in any given month.

And because if you don’t own enough gold, it is definitely your season.

Gold stocks have historically outperformed gold by 3 to 1, but right now they're seriously underperforming the yellow metal — a situation that's long overdue to correct.  Free Report shows you how to profit from this anomaly.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

The Best of Jeff Clark

While we’re convinced that our gold and silver investments will pay off, they don’t come without risk. What do you suppose is the biggest risk we face? Another 2008-style selloff? Gold stocks never breaking out of their funk? Maybe a depression that slams our standard of living?

Though those things are possible, we at Casey Research don’t see that as your greatest threat:

"Your biggest risk is not that gold or silver may fall in price. Nor is it that gold stocks could take longer to catch fire than we think. Not even the prospect of the Greater Depression. No, your biggest risk is political. As bankrupt governments get increasingly desperate for revenue, any monetary asset held domestically could be a target. It is absolutely essential that every investor diversify themselves politically. In fact, at this point, it is the one action that should be taken before anything else." ~ Doug Casey, September 2011

I know many reading this are prudent investors. You own gold and silver as solid protection against currency debasement, inflation, and faltering economies. You set aside cash for emergencies. You have strong exposure to gold stocks, both producers and juniors, positioned ahead of what is likely the next-favored asset class. You feel protected and poised to profit.

Yet, despite all this preparation, you remain exposed to one of the biggest risks.

Similar to holding a diversified portfolio at a bank without checking the institution’s solvency, many investors keep their entire stash of precious metals inside one political system without considering the potential trap they’ve set for themselves. While storing some of your gold outside your home country is not a panacea, it does offer one important thing: another layer of protection.

Consider the exposure of the typical US investor: 1) systemic risk, because both the bank and broker are US domiciled; 2) currency risk, as virtually every transaction is made in US dollars; 3) political risk, because they are left totally exposed to the whims of a single government; and, 4) economic risk, by being vulnerable to the breakdown of a single economy.

Viewed in this context, the average US investor has minimal diversification.

The remedy is to internationalize the storage of some of your precious metals. This act reduces four primary risks:

Confiscation: We don’t know the likelihood of another gold confiscation. But we do know that things are working against us – particularly for US citizens. With $14.7 trillion of debt and $115 trillion of unfunded liabilities, the US government will likely pursue heavy-handed solutions. Under the 1933 FDR "gold confiscation" in the US (the executive order was actually a forced delivery of citizens’ gold in exchange for cash), foreign-held gold was exempted.

Capital Controls: Many Casey editors think some form of capital controls lie ahead, limiting or eliminating a citizen’s ability to carry or send money abroad. If enacted, all your capital would be trapped inside the US and at the mercy of whatever taxing and regulating schemes the government might concoct. Although you might be able to leave the country, your assets could not travel with you.

Administrative Action: There are plenty of horror stories of asset seizure by a government agency without any notice or due process, possibly leaving the victim without the means to mount a legal defense. Having some gold or silver stored elsewhere provides what could be your only available source of funds in such a scenario.

Lack of Personal Control: Having gold and silver stored elsewhere adds to your options. You will have a source of funds available for business, entrepreneurial pursuits, investment, or pleasure.

Notice above we said these risks can be reduced, not eliminated. There is no perfect solution; US persons could, for example, be compelled to pay a "wealth tax" on assets held worldwide, or even repatriate them in a worst-case scenario. Absent a crystal ball, the political diversity of asset location is an essential strategy against an uncertain future.

Foreign-held assets also require greater awareness and planning:

1. Access to your metal or sale proceeds may not be quick. Therefore, this option is for those with some gold and silver stored at or near home. We do not recommend storing all your precious metals overseas; that defeats one of its purposes, to have it handy for an emergency.
2. While we think the US poses the greatest threat, a foreign government could move to control certain assets as well. The risk varies by country and is generally greater within the banking system than with private vaulting facilities.
3. Understanding and complying with reporting requirements is essential.

The bottom line, though, is that foreign-held precious metals can mitigate risk and give you more options. And as your metal holdings grows, diversification becomes more crucial.

Given our current rapacious climate, it’s likely that simply buying gold won’t be enough. We strongly suggest every investor diversify one’s bullion storage outside their current political regime. The option may not be available someday, leaving you vulnerable without a secondary source of bullion.

We advise taking advantage of the opportunity before it is gone.

There are ways to invest in gold without paying current prices for the metal itself. Learn how big investment funds are accomplishing this today… and how you can do it, too, to maximize your profit potential.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

The Best of Jeff Clark

By almost any measure, gold stocks are undervalued. Should we load up?

After completing my research on this question, I'm convinced more than ever that we at Casey Research are in the right place. See if you agree…

Let's first get a handle on the degree of undervaluation. The more undervalued, the lower the buying risk. A fairly valued stock, on the other hand, requires added caution.

Gold accelerated higher last month, peaking around $1,900/ounce, while gold stocks lagged. Here's a chart of the HUI-to-gold ratio (HGR). In a rising gold environment, a climbing HGR indicates that gold stocks are outperforming the metal; a falling HGR means they're trailing gold.

Today's 0.33 HGR means gold stocks as a group have not been this cheap, relative to their underlying metal, since January 2010. And a lower ratio hasn't been seen since February 2009, when recovering from the 2008 global meltdown.

Also consider that the GDX (Gold Miners ETF) is about the same price as last December, while gold is up 30%.

I think there's a more compelling situation that demonstrates the undervalued nature of gold stocks. It's hard to read a mining company's quarterly report these days without hearing about u201Cgrowing margins.u201D The gold price has risen faster than operating costs across our industry and lifted profit margins of the better-run producers.

Higher margins are key to growing earnings and cash flow, which in turn lead to rising stock prices. Have gold mining equities kept pace with ever-increasing margins?

Gold mining companies are earning record margins, averaging a whopping $1,268 per ounce last quarter. In both nominal dollars and percentage above costs, margins have never been this high for the gold producers. Stock prices, however, have not responded in similar fashion.

This is a potentially significant point, because margins of this magnitude will be ignored only so long. When the broader investing community begins to take notice, investors will snap up these highly profitable stocks and push prices higher. The u201Ccatch upu201D in gold stocks could be tremendous.

The conclusions from these data seem clear: Gold stocks, as a group, are undervalued. The incredible profit margins generated by our sector will attract investors — sooner or later. And picking the better stocks, like most of those in BIG GOLD, is more profitable than buying a gold stock fund.

We're in the right place.

The question, of course, is timing. We don't know when gold stocks will begin to catch up. And the data don't suggest they must rise right now or that they've hit bottom. Contributing to their price weakness is concern that the recent surge in the gold price isn't sustainable. I can also tell you that the u201CCasey consensusu201D sees the risk of another significant decline in the broader markets as a distinct possibility, and if one materializes, gold stocks could undergo a temporary swoon.

We're convinced they'll someday hit lofty levels, but for now we maintain the same refrain: keep one-third of assets in cash. This reduces risk and gives us a nice pile of funds to deploy during any selloffs.

In the big picture, gold has ratcheted steadily higher throughout the rallies and corrections, a trend we're confident will continue for some time. As the price sets new highs and margins remain robust, our sector will attract more attention. We must patiently stay the course until those new realities begin to set in.

Make sure you have exposure to gold stocks, but it's not yet time to jump in, yelling u201CGeronimo!u201D

As fiat currencies accelerate their inevitable paths to eventual destruction, gold will ascend. How far and how fast remain to be seen, but you can get insights and actionable advice on gold and gold stocks — and much, much more — from the recently held Casey Research/Sprott Summit, When Money Dies. You can learn what legendary investors like Rick Rule and Doug Casey are doing and recommending… get invaluable insights from analysts including Adam Fergusson and Lew Rockwell… from audio recordings of the entire event that are available to order now.

Reprinted with permission from the Daily Reckoning.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

The Best of Jeff Clark

It may not feel like it after a 12% correction in the past 30 days, but Mike Maloney – founder of GoldSilver.com – is convinced that we’re in a gold bull market that will be life changing for those who participate. I interviewed him for our current edition of BIG GOLD and am sharing some of what we talked about here. You may be shocked at what you read, because he’s devoted a larger allocation to gold and silver than we have. See why he’s convinced a bubble is ahead for precious metals, how high prices will go, and why he stores some gold overseas.

Jeff Clark: For those who don’t know you, why is Mike Maloney such a big believer in gold and silver?

Mike Maloney: Around 1999, my mother needed help with the estate my father had left her. My sister and I interviewed a dozen financial planners and picked the one that had the most glowing recommendations and gave him control of the assets. He lost about 50% of them in the next year and a half. What I’ve found is most financial planners get it wrong. They’re always chasing yesterday’s news. To be fair, there was a market crash, but with 50% of her assets gone by 2001, I ripped everything away from him, moved it to cash, and started studying the economy like crazy.

I discovered that the people concerned about budget deficits and trade imbalances at that time were in the precious metals sector, the hard money advocates. All the rest of the economists and newsletter writers didn’t really care. Concerns about international trade imbalances and how they were going to come back to bite us one day were coming from the hard money analysts. They also wrote about monetary history, something I just fell in love with. The fact that things just repeat over and over again is amazing.

I have hard data from 1918 to today, and anecdotal evidence before 1918, that shows that throughout history a society has a certain amount of real money – gold and silver. Then they either come out with debased coinage, or paper representations of gold and silver and expand the currency supply, which eventually cause prices to rise. People then realize there was something wrong with the currency and they rush back toward gold and silver to protect their purchasing power… and in doing so, they bid up the value of the gold and silver in the country until it matches the value of the circulating medium.

It appears to me this process has been going on since 407 BC, with the first great inflation in Athens. I have charts in my book, Guide to Investing in Gold and Silver, starting in the year 1918, showing the value of the gold held at the United States Treasury compared to the value of all of the base money or paper currency, and it was a 1:1 ratio.

Jeff: So history shows that the value of gold eventually equals the value of all paper money in circulation?

Mike: Yes. Back then, the US dollar was a claim check on real money – gold. Base money was the number of US Treasury gold notes in circulation. Before World War I, base money equaled the value of the gold held at the US Treasury. Then we established the Federal Reserve and did a bunch of deficit spending for WWI, expanding the currency supply, so now there wasn’t enough gold to cover all the dollars they printed. In 1934 the price of gold was changed to $35 per ounce and the values of base money and gold at the Treasury were once again in equilibrium.

Then we expanded the currency supply to pay for WWII, Korea, and Vietnam, and in the ‘70s the price of gold rose until its value at the Treasury exceeded base money. But, for a short time in 1980, the value of gold at the Treasury not only exceeded the base money, it surpassed base money plus outstanding credit card balances. This is important because credit cards are replacing cash in circulation, so you must include it if you want to estimate a price target.

Jeff: So how high do gold and silver go?

Mike: When I finished the book, it required a $6,000 gold price to cover base money plus outstanding revolving credit. I’m not saying that that’s going to happen, but if history were to repeat, that would be the price.

However, since the book was written, Bernanke created a whole bunch of base money to bail out the banks, and now it takes a $15,000 to $20,000 gold price. One caveat is that $1.6 trillion of excess currency is sitting on banks’ balance sheets. It has yet to enter circulation, and if it never does, then this price target changes. My point is that prices are a moving target. Putting a dollar figure on them is an exercise in stupidity, I think, because the dollar is always changing. You can’t use it as a measuring stick.

My target for gold is that it should be equivalent to 1/40 of a single-family, medium-priced home, or two shares of the Dow. So gold will probably buy you about 12 times more stocks and 3 times more real estate in the future than it does now. So those are my prices.

And silver will leverage you to that. There is more gold on the exchanges and with the dealers that investors can buy than there is silver. Their current prices do not reflect this. Gold is way too cheap compared to dollars, and silver is too cheap compared to gold.

Jeff: Sounds like it’s not too late to buy gold and silver.

Mike: No. What investors need to be aware of is that we are on the last legs of our currency system. History shows that the world sees a brand-new monetary system every 30-40 years – and ours is 40 years old. Right now all currencies on the planet are backed by debt. All of the previous transitions were baby steps from something (gold) to nothing (debt). In order to give confidence back to the currencies, we’ll have to go from nothing (debt) to something (most likely gold again) in one big, huge, gigantic leap. This will cause an economic convulsion the likes of which the world has never seen.

The end of this precious metals bull market will be marked by panic buying. Gold and silver will be going into an astronomical bubble one day, probably the biggest bubble in financial history. That is why I think gold and silver are still fundamentally undervalued.

Jeff: Investors reading this might be a little skeptical that a bullion dealer is telling them to buy gold and silver. Do you mind sharing what percentage of your assets is held in gold and silver?

Mike: My personal portfolio is 100% in gold and silver. I have no other investments. I am completely committed to this because I absolutely believe it. I spent 2-1/2 years writing what is now a bestselling book on gold, and I opened a precious metals dealership. There isn’t anything I do, no action I take, that isn’t somehow connected to gold and silver.

Jeff: What separates GoldSilver.com from other bullion dealers?

Mike: Everybody at GoldSilver.com invests in gold and silver. They have all been invested in precious metals since I started the company in 2005. Everyone is absolutely committed and very knowledgeable. So we are all on the same side of the boat as Casey Research. If you become a gold and silver client, you’ll know we’re invested just like you are. We’re walking the walk and talking the talk.

We also have a team of researchers who are constantly analyzing where we are in this bull market. It’s in our best interest to try to find the top of this bull market and sell when the time is right. I believe we can multiply your winnings by letting you know what we’re doing when it comes time to sell. The way I’ve set up my company is that if you don’t win, I don’t win.

Another thing you should know is that I am not a gold or silver bug. I couldn’t care less about these metals. They are just in their cycle right now and will be the best performing asset for the coming years – period – just based on history.

There are these brief moments in history where the safe-haven asset also becomes the asset class with the single greatest potential gains in absolute purchasing power. We’re in one of these cycles right now; as the currency supply gets ramped up and people realize there is something wrong with it, they’ll rush back toward gold and silver and bid the price up until it matches the value of the currency supply.

Jeff: You’re increasing the number of storage facilities outside the US; why should a US citizen consider storing bullion outside the country?

Mike: Some investors are concerned about “confiscation,” which is technically incorrect. The US government never confiscated gold; they “nationalized” it. In 1933, they bought it from US citizens at full face so that the Treasury could hold it as an asset for the entire nation. That’s the very definition of nationalization.

Jeff: Are you saying you don’t think gold could be confiscated?

Mike: It’s possible, but I don’t believe it would happen in the United States. More than half of our currency resides outside the border. We’re the only country in that situation. If Obama passed an executive order today once again nationalizing gold, I believe that banks and brokerage houses around the world would suspect something was wrong with the dollar, and they would immediately dump their dollars and buy gold and silver. That would cause the dollar to fall to zero and send gold and silver to infinity in a matter of weeks. I would hope there is someone in the government smart enough to know this. If so, then it makes nationalization very unlikely.

Jeff: Good point.

Mike: But I do believe that it is good to have some geographical diversity. I think we’re going to see governments trying to limit our financial freedom even more than we’ve seen since 9/11. They’ll do this by instituting such draconian capital controls that today’s IRS will seem magnanimous by comparison. I want to be able to travel freely and have access to my funds no matter what happens. Therefore, I keep some of my gold in offshore storage accounts in several countries.

Jeff: But why go to the hassle and bother with the reporting requirements?

Mike: Because if you’ve got ownership outside the country, you may be able to retain it, even in a nationalization. The point is, we don’t know the future. All we can do is look at what’s happening, try to figure out what governments are going to do, and then protect ourselves with a little bit of diversity. And of all the assets you could own offshore, I believe none are safer than physical gold or silver.

Jeff: Do you think foreign storage puts a target on my back with government officials?

Mike: Well, they want to make sure you’re declaring any capital gain. And I do think that precious metals investors will see some sort of windfall profit tax when the government tries to punish those nasty gold speculators that caused the dollar to crash. They will always point the finger anywhere but where it belongs – which is squarely at the government and the Federal Reserve. People are just trying to protect themselves from government stupidity and the Fed by buying gold and silver.

I think the reason they require the reporting is to make it difficult for people to cheat on their taxes. I don’t think it’s going to make you any more of a target than anybody else if you report everything. If you play within the rules, you’re not a target. I myself walk the straight and narrow. I make sure I comply with everything the IRS and the Treasury require.

Jeff: What about the small investor? Do you have any advice for the person who has limited funds?

Mike: Yes. It only takes $40 to become a silver investor. Regardless of what your income level is, you’re going to come out much better in the end. And once you take the leap and become an investor, your mindset changes and you find yourself starting to plan. A lot of people are not really planning on the future that much – but once you buy an ounce of silver and become educated, you give yourself a tremendous advantage over the rest of the population.

So just buy small quantities of silver. It has such leverage to it. And silver will probably go into some sort of super-spike that you will want to catch, which means you probably need some sort of guidance. That’s where subscribing to newsletters such as yours is very, very important for anybody who’s going to get into this.

Jeff: Thanks for your time, Mike. And we appreciate the discount you’re offering our readers.

Mike: You’re very welcome.

Want to take advantage of the special discount on storing bullion outside the US? Goldsilver.com is giving us six months’ free storage at a non-bank, Canadian vault. And the normal storage fees are the cheapest we’ve seen, with an order process as easy as buying bullion. Get the referral code with a risk-free trial to BIG GOLD. The savings from this one order alone will more than pay for your subscription, and more importantly, allow you to easily internationalize your bullion storage.

Reprinted with permission from the Daily Reckoning.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

With gold a stone’s throw away from $2,000 and already up 27% on the year, the objective investor might begin wondering how much higher both it and silver can climb. After all, gold is nearing its inflation-adjusted 1980 high – and that peak was a spike that lasted only one day.

So, how much return can we realistically expect in each metal at this point? And is one a better buy than the other? There are dozens of ways to calculate price projections, but I’m going to use data based strictly on past price behavior from the 1970s bull market.

First, let’s measure what today’s inflation-adjusted price would be if each metal matched their respective 1980 highs, along with the return needed to reach those levels:

Based on the CPI-U (the government’s broadest measure of inflation), gold is a couple of jumps away from matching its inflation-adjusted 1980 high $2,330. Silver, meanwhile, has much further to climb and would return over four times our money if it reached its former peak.

But the CPI is a poor measure of real inflation. Let’s use John Williams’ Shadow Government Statistics calculations. His data are much closer to the real world, and the statistics are calculated the way they were during the Carter administration, stripped of later manipulations.

Check out how high gold and silver would soar if they adjust to this level of inflation:

Clearly, both metals would hand us an extraordinary return from current prices. Those are some admittedly high numbers, but keep in mind that’s what the CPI figures above would register if government officials had never changed the formulas. What’s tantalizing about these levels is that we’re not even halfway to reaching them.

Let’s look at one more measure. I think another valid gauge would be to apply the same percentage gain that occurred in the 1970s. From their 1971 lows to January 1980 highs, gold rose 2,333%, while silver advanced an incredible 3,646%. The following table applies those gains to our 2001 lows and shows the prospective returns from current prices:

Gold would fetch us nearly four times our money, while silver would provide a quintuple return.

Regardless of which measure is used, it’s clear that if gold and silver come anywhere close to mimicking the performance of the last great bull market, tremendous upside remains.

One might be skeptical because these projections are based on past performance, and nothing says they must hit these levels. That’s a valid point. But I would argue that we’re in uncharted territory with our debt load and money creation – and neither shows any sign of ending. We had a lot of problems in the 1970s, but our current fiscal and monetary abuse dwarfs what was taking place then. The need to protect one’s assets gets more pressing each day, not less so. That, to me, is the key signaling this bull market is far from over.

One may also be skeptical because the media continue to claim gold is in a bubble. To date, their proclamations have been nothing but a great fake-out, every time. Want to know when we’ll really be in a bubble? When they stop saying it’s one and actually start buying and recommending gold. When they begin running 15-minute updates on the latest gold stock. When you are sought out relentlessly by your friends and relatives because they know you know something about all this “gold and silver stuff.”

All told, I think the baked-in-the-cake inflation – rooted in insane debt levels and deficit spending – will be one of the primary drivers for rising precious metals this decade. This means the masses will look for a store of value against a plunging loss of purchasing power. Enter gold and silver.

The current correction may not be over, and we can count on further pullbacks along the way. But the data here suggest the upside in gold and silver is much bigger than any short-term gyration – or any worry that may accompany it.

Reprinted with permission from the Daily Reckoning.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

With gold a stone's throw away from $2,000 and already up 27% on the year, the objective investor might begin wondering how much higher both it and silver can climb. After all, gold is nearing its inflation-adjusted 1980 high — and that peak was a spike that lasted only one day.

So, how much return can we realistically expect in each metal at this point? And is one a better buy than the other? There are dozens of ways to calculate price projections, but I'm going to use data based strictly on past price behavior from the 1970s bull market.

First, let's measure what today's inflation-adjusted price would be if each metal matched their respective 1980 highs, along with the return needed to reach those levels:

Returns Needed to Match Inflation-Adjusted Price Metal Inflation-Adjusted Price Percent Climb to Match 1980 High Gold $2,330 30% Silver $136 246% As of 9-19-11

Based on the CPI-U (the government's broadest measure of inflation), gold is a couple of jumps away from matching its 1980 high of $850. Silver, meanwhile, has much further to climb and would return over three times our money if it reached its former peak.

But the CPI is a poor measure of real inflation. Let's use John Williams' Shadow Government Statistics calculations. His data are much closer to the real world, and the statistics are calculated the way they were during the Carter administration, stripped of later manipulations.

Check out how high gold and silver would soar if they adjust to this level of inflation:

Returns Needed to Match ShadowStats Alternate CPI Metal Price to Match ShadowStats CPI Percent Climb to Match ShadowStats Gold $15,234 755% Silver $348 785% As of 9-19-11

Clearly, both metals would hand us an extraordinary return from current prices. Those are some admittedly high numbers, but keep in mind that's what the CPI figures above would register if government officials had never changed the formulas. What's tantalizing about these levels is that we're not even halfway to reaching them.

Let's look at one more measure. I think another valid gauge would be to apply the same percentage gain that occurred in the 1970s. From their 1971 lows to January 1980 highs, gold rose 2,333%, while silver advanced an incredible 3,646%. The following table applies those gains to our 2001 lows and shows the prospective returns from current prices:

Returns Needed to Match 1970s Total Percent Gain Metal Price to Match 1970s Total % Return Percent Climb to Match ’70s Return Gold $6,227 249% Silver $160 307% As of 9-19-11

Gold would fetch us two-and-a-half times our money, while silver would provide a quadruple return.

Regardless of which measure is used, it's clear that if gold and silver come anywhere close to mimicking the performance of the last great bull market, tremendous upside remains.

One might be skeptical because these projections are based on past performance, and nothing says they must hit these levels. That's a valid point. But I would argue that we're in uncharted territory with our debt load and money creation — and neither shows any sign of ending. We had a lot of problems in the 1970s, but our current fiscal and monetary abuse dwarfs what was taking place then. The need to protect one's assets gets more pressing each day, not less so. That to me is the key signaling this bull market is far from over.

One may also be skeptical because the media continue to claim gold is in a bubble. To date their proclamations have been nothing but a great fake-out, every time. Want to know when we'll really be in a bubble? When they stop saying it's one and actually start buying and recommending gold. When they begin running 15-minute updates on the latest gold stock. When you are sought out relentlessly by your friends and relatives because they know you know something about all this u201Cgold and silver stuff.u201D

All told, I think the baked-in-the-cake inflation — rooted in insane debt levels and deficit spending — will be one of the primary drivers for rising precious metals this decade. This means the masses will look for a store of value against a plunging loss of purchasing power. Enter gold and silver.

The current correction may not be over, and we can count on further pullbacks along the way. But the data here suggest the upside in gold and silver is much bigger than any short-term gyration — or any worry that may accompany it.

There's another way to get into gold on the cheap, and without worrying about your timing lining up with a correction. Read this free report to learn how the big investment funds are buying gold at a fraction of its current price… and you can, too.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

Is the mania here?

When most investors hear the word “mania” they think of a runaway market induced by greed. You know, that animal-like instinct we all occasionally feel, the one promising riches from a market on a rip-roaring tear.

Gold is up 28% since July 1, a mostly one-way rocket ride that’s transpired in just 36 trading days. It’s up 35% year-to-date, and it’s still summer. But it isn’t greed driving our runaway gold price.

Welcome to the Fear Mania.

Pick your headline – the downgrade of US debt, solvency concerns with European banks, the sudden negative outlook for the global economy, or crashing stock markets. While none of those are exactly shocking developments to most readers here, it caught much of mainstream off-guard, driving them to safe havens. Gold has responded.

Here’s some evidence that we’re in a fear mania. First, as economic fears suddenly took a turn for the worse, investors didn’t rush into stocks. They didn’t even really pursue other precious metals.

Here’s a look at how the four primary precious metals have performed as fear in the marketplace increased. Notice how the returns shifted as the gloom ratcheted up.

What Metal Performs Best in a High Fear Environment? Asset YTD Return Return From April 1 Return From June 1 Return From August 1 Gold 35.0% 31.9% 23.5% 16.6% Silver 42.7% 15.4% 13.1% 10.3% Platinum 8.3% 7.2% 4.0% 6.9% Palladium -4.5% -0.7% -2.1% -7.6% Prices through August 22

Since industrial and jewelry uses comprise roughly 93% of all demand for both platinum and palladium, a reasonably positive economic outlook is required for these metals to perform their best. We don’t have that right now, and when a strong economy will return is highly debatable.

Silver started the year with a bang – but even it lagged gold as negative economic news made bigger headlines. Industrial use alone comprises 52% of all demand for silver, so it, too, is vulnerable in a slowing economy. (The price will soar again, though, as we’ve seen the past few days, when bad economic news leaves the front page and investors once again pursue it as an alternative currency.)

There are more clues we’re in a fear mania. Many U.S. investors don’t realize this, but only 8% of bullion and jewelry demand comes from North America. A full 92% of the critical drivers of physical demand originate elsewhere. Gold in these countries (China, India, Vietnam, Indonesia, South Korea, Thailand, etc.) has been intertwined in culture, religion, and economy for 2,000 years. We can thus garner hints about the gold market from these regions, where the metal is a longstanding and ingrained part of the financial makeup.

First, are they pulling back on their purchases in light of rocketing prices? Or perhaps even selling to grab a profit? The World Gold Council reported last week that “signs of strength in the market remain concentrated in India and China… It is quite hard to see what is going to dent strength of demand at the moment.” And this from the UK: “Even at these elevated price levels, interest in physical gold remains excellent,” said Ross Norman, CEO of Sharps Pixley.

A second clue from this large group comes from scrap sales. One would think now is the optimal time to cash in your old gold jewelry, with prices reaching such unexpected highs. So scrap sales are up, right?

From the Wall Street Journal yesterday: “Scrap sales are down by 50%-60%. People are feeling that gold is the only safe place left for investments,” said Pawan Chokshi, an Ahmedabad-based bullion dealer. “There are hardly any scrap sales happening and I think that’s a phenomenon cutting across India. Even at these prices, people are feeling that it’s better to invest in gold rather than sell their old gold.”

Martin Grubb of the WGC said this to Reuters last week: “The price elasticity of recycling seems to be changing. Normally, you would see a lot of recycled gold coming back into the market at such a high gold price – but recycling was very muted in the second quarter, and so far the evidence is that there isn’t a lot of recycling coming back now, either.”

According to Grubb, these regions have adjusted to the current price environment and expect the upward price trend to continue. If fear were muted, scrap sales would be rising at these price levels, not falling dramatically.

And last, don’t forget central banks. South Korea just disclosed a big bullion purchase, buying 25 tonnes last week, more than doubling its holdings. Mexico, Russia, and Thailand have already been major buyers this year. In fact, year-to-date, governments have almost tripled their net gold purchases over 2010, increasing their holdings by 203.5 tonnes this year, up from a 76-tonne rise last year.

Central banks have “fiat fear” and are diversifying their reserves away from the dollar and other afflicted currencies. And this is not a trend that will change on a dime, as most of these countries have a tiny percentage of their reserves denominated in gold. They’ll be buying for quite some time. Remember, they were net sellers of gold for 23 years, becoming buyers just last year.

The bottom line is that gold is doing exactly what it’s supposed to do. Global fear is high, and these are the exact circumstances where gold fulfills its ultimate role.

There are direct investment implications here. First, if you believe there is further shock-and-awe type bad news ahead, you’ll want to favor gold over most other assets and even other metals. Second, prices in a mania tend to go higher and further than what most expect. I certainly wouldn’t chase it here, but I wouldn’t be without some exposure either. Last, high levels of fear also increase volatility. Expect big swings in gold going forward, and that includes corrections. The next one could be a doozy.

In the big picture, think about this: The relentless rise we’re witnessing is just the beginning. We haven’t even hit an inflation-adjusted price from 1980 yet; we’re at least 21% away from that, and that’s assuming the government measures inflation correctly. Here’s an excellent video demonstrating that we’re not yet in a bubble; it also shows just how high the price could climb.

You might not think the price will fetch the high four-digits in this Fear Mania. But don’t forget what comes next.

The Greed Mania.

Owning physical gold is good protection from the sinking value of the US dollar; investing in the right gold miners can yield even higher returns. BIG GOLD focuses on the larger miners that have strong profit potential, and will help you build your wealth. Give it a ninety-day risk-free trial.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

Some folks collect guns and never shoot them. Some people acquire guns for the sake of owning them, showing them off to others, and generally babying them. It was due to these people that the term "safe queen" was coined. There is nothing wrong with collecting things. And with guns in particular, all you have to do is buy one to find out that it is hard to be satisfied with just one gun. But some of us don't have the money, time, or interest to indiscriminately accumulate a collection of firearms as an end unto itself. We want to assemble an array of firearms qua tools, suitable for the variety of applications for which we anticipate needing that sort of tool. Each person's lot in life is different, so no single list of "must have" guns can be truly authoritative.

Possible uses for firearms

Guns are useful for lots of different things: hunting, home defense, personal protection outside the home, paramilitary operations, and target shooting. These different applications present their own unique demands, and the firearm that is best suited for one is often ill-suited for the others.

A hunter in the swamps of lower Alabama will never have the opportunity to take a thousand yard shot in that area because the ground cover is too dense and elevations don't provide a vantage point from which to make such a long shot on game in that region. A rifle that is capable of accurately throwing a bullet that far can be a fun hobby gun for such an individual, provided he has access to a long-distance shooting range, but the extra weight of a bull barrel, adjustable stock, large optics, and other accouterments reduce mobility. Likewise, a varminter in "big sky country" might find a .22 pistol utterly useless for shooting critters to which he never gets closer than seventy-five yards. We can look at the different classes of firearms and determine which of these fits into our lives and what qualities we should look for in a specimen from each relevant class.

Some guns are designed to perform very well in a limited, specific role. For example, the rifle carried by a modern biathelete is a creature of the competition context and the sport's rules: .22 caliber, at least 7.5 pounds in weight, highly adjustable stock, short lock time, and capability to operate reliably in cold, snowy conditions. While these specifications may make such a rifle a good rabbit gun and an excellent target gun, a shorter, lighter gun with fewer frills can be had for far less money and still serve well in those roles.

Weapon engagement zones

A weapon engagement zone (WEZ) is a space of defined dimensions within which a particular weapon is to bear primarily responsibility for engaging targets. The best way to think about this is the "sweet spot" for each weapon — the range for which the weapon is optimized. Working our way out from CQB distances to long-range, a variety of different firearms present themselves as most suited for each zone: concealable handgun, full-frame handgun, shotgun, assault rifle, battle rifle, precision rifle, and heavy precision rifle.

The outer zones beyond 800 yards are likely not of concern to individuals primarily occupied with home defense preparations. My suggestion is to prepare for the innermost zones — mousegun, full-size handgun, and shotgun — first and then work through to the outer zones as needed given your particular geographical and socio-political contexts and whatever shooting or hunting sports you enjoy.

(NB: Firearms of each class are capable of sending rounds well past their optimal WEZ — sometimes several miles farther — so always be sure of your target and what is beyond it.)

Handguns

Handguns are lightest and smallest, and they are the firearms best suited for close-in confrontations and personal protection while outside of one's home. Handguns are also near the top of the list for home defense, since they can typically be fired with one hand, meaning that your other hand is free to manipulate doorknobs and light switches or to fend off an attacker as you bring the muzzle to bear. And of course, they are easier to carry on your person or in your car than would be even the smallest shotguns or rifles.

The most easily concealable handguns are small and light for convenient everyday carry, an important consideration, but their diminutive size limits their firepower in terms of ammunition type and ammunition capacity. Compared to full-size pistols, affordable mouseguns like the Kel-Tec P3AT and Ruger LCP are tougher to shoot, with sights that are harder to see, heavier trigger pulls, and less gun to hold onto. Casual shooters will find it very difficult to reliably connect using these pocket pistols at ranges greater than ten yards. Full-size handguns, like the SIG Sauer P226 or Glock 17, are much easier to shoot well, with the novice shooter likely maxing out at around thirty or forty yards. Many handguns, especially larger models chambered in major calibers, are also useful for hunting a variety of game.

I offered more substantial advice for first-time handgun buyers in a previous article.

Shotguns

Shotguns are versatile weapons that may be used for hunting, sport shooting, or defensive purposes within forty or fifty yards. They are very different from rifles and handguns in that their barrels aren't usually "rifled" — grooved so as to impart a stabilizing spin to a projectile — they are capable of projecting a pattern of pellets rather than a single projectile, and they operate at much lower chamber pressures. A shotgun may be loaded with many different types of ammunition: smaller, more numerous shot pellets for smaller game, larger "buckshot" pellets or slugs for larger quarry, and a variety of specialty rounds including less lethal options, breaching loads, and others. Shotgun rounds that fire multiple projectiles in a pattern make it much, much easier to shoot moving targets like birds and squirrels.

Shotgun projectiles are propelled at a relatively slow velocity. Although they are capable of imparting more energy into a target at close range than are pistol rounds, this energy dissipates with smaller shot sizes that make for a vastly greater surface area for the same total mass. As a result, a shotgun may be a good choice where over-penetration is a concern, such as in a home defense scenario. Be advised thought that, like pistol and rifle bullets, shotgun slugs and buckshot are capable of penetrating multiple interior walls and still retaining enough energy to injure or kill. According to one writer's tests we can expect the following penetration characteristics:

Type

Equivalent interior walls penetrated

12 gauge shotgun, 2 " birdshot

1

12 gauge shotgun, 2 " #4 buck

3

12 gauge shotgun, 2 " #1 buck

3

12 gauge shotgun, 2 " 00 buck

4

12 gauge shotgun, 2 " 1 oz rifled slug

6+

.22 LR pistol

3

9mm pistol

6+

.45 ACP pistol

6+

5.56 x 45mm rifle

6+

Additionally, the pattern of shot thrown by a shotgun gives the shooter a greater chance of scoring a hit within the weapon's effective range, with the pattern spreading out to three to six feet in diameter at forty yards, depending on the choke used and other variables. Rifled slugs greatly improve a shotgun's potential for accuracy at longer ranges and make the gun more useful for taking large game. An advantage of the common pump shotgun models — the Remington 870 and Mossberg 500 — besides the multitude of readily available accessories, is that the barrels are easily swapped out, and additional barrels are readily available in local gun stores or for purchase from internet vendors. This means that budget-minded individuals can buy a sporting shotgun with a longer barrel more useful for hunting and later, for a modest sum, purchase a shorter barrel more suited to defensive applications.

Assault rifles

From fifty yards to two hundred fifty yards, no weapon is better suited for quick, accurate defensive shooting than the assault rifle or its semi-automatic civilian equivalent, the modern sporting rifle. Firing intermediate power rifle cartridges like the 5.56 x 45mm and 7.62 x 39mm, rifles of this type — first developed in the early twentieth century — don't quite have the power of a traditional hunting rifle. However, these cartridges are much shorter and lighter than their full powered counterparts, meaning that it is easier to carry more of them, a very good thing if you are expecting a gun fight. The lower recoil from these intermediate power cartridges also means that the user can send follow up shots downrange more rapidly than a full power rifle's recoil impulse would allow.

Full power rifle rounds are accurate out to distances of 800 yards or more, but the trajectories of bullets fired from AR and AK-type rifles drop quickly after a couple of hundred yards. Even so, assault rifles are far more accurate than pistols. They are much more powerful, too, with the 5.56 x 45mm round from an AR capable of transferring three to four times as much energy into a target as the 9 x 19mm round. These rifles are also capable of bringing down game as large as a deer, though the conventional wisdom is that the 5.56 x 45mm round is undersized for humanely harvesting deer.

There are many options available to American buyers, with the AR and AK designs being the most popular — and most controversial — exemplars of this class. Because of their popularity, magazines and accessories for these models are readily available. Other options include Ruger's venerable Mini-14 and Mini Thirty rifles, the featherweight Kel-Tec SU-16, and the ultra-affordable SKS, the standard version of which has a fixed magazine which must be reloaded one round at a time or with stripper clips.

Battle rifles

Battle rifles are easily differentiated from assault rifles by comparing the potency of the rounds they fire, ammunition capacity, and weight. Rather than firing an intermediate cartridge like the assault rifles, battle rifles fire full-powered cartridges like the .30-06 Springfield, 7.62 x 51mm, or the Russian 7.62 x 54mmR. Although these cartridges are heavier than the intermediate cartridges, they are far more powerful and capable of reliably bringing down targets at greater ranges. The 7.62 x 51mm cartridge, for example, is capable of communicating twice as much energy into a target as the 5.56 x 45mm. Penetration through cover is far superior as well, and the effective range of the 7.62 x 51mm is 800 yards or greater. Battle rifles are capable of reaching and neutralizing tougher and more distant targets than assault rifles, but this comes at the cost of higher recoil, smaller magazine capacities, and heavier, more expensive ammunition.

These rifles are not as abundant on the American market as AK and AR rifles, but many options are available. Some shooters, particularly those who enjoy an AR-15, swear by rifles patterned off of Eugene Stoner's AR-10 design. Others are convinced that the Springfield M1A is the best battle rifle to be had. The Heckler & Koch G3 and Fabrique Nationale FAL have their own factions of devotees as well. The Spanish CETME rifle is an affordable option that shouldn't be overlooked, especially since many of the parts are interchangeable with G3 components, both guns having been developed in a collaboration between H&K designer Ludwig Vorgrimler and the Spanish government small arms establishment. The new, hard-to-find Kel-Tec RFB from George Kellgren employs an ambidextrous bullpup design and molded polymer components for a shorter, lighter battle rifle suitable for urban environments. It is worth noting, however, that some folks argue that all bullpup designs are fundamentally flawed.

An excellent bargain still readily available on the surplus market due to miscalculation by twentieth century communist central-planners is the Soviet Mosin-Nagant rifle. This bolt-action rifle been in continuous service in one part of the world or another since 1891. It has a much lower rate of fire than the semi-automatic battle rifles listed above, but it can be had at a price that is nearly an order of magnitude cheaper: about $100. Surplus 7.62 x 54mmR ammunition is relatively inexpensive and widely available, just be warned that you will experience variations in quality and performance.

Precision rifles

Precision rifles are rifles mechanically capable of shooting groups that are one minute of angle or better within the rifle's intended engagement zone. Such a rifle will, in the hands of a proficient marksman, post shot groups smaller than one inch at a hundred yards. If chambered for a full power cartridge, like 7.62 x 51mm, and fitted with adequate optics, these sorts of rifles can reliably hit man-sized targets out to 800 yards and beyond. Since the 7.62 x 51mm cartridge (called ".308 Winchester" on the adoring commercial market) is a NATO standard round, it is widely available, as are ballistics tables and other information on the many different .308 loads. Modern battle rifles are typically chambered for this ammunition type, so the same ammunition will fire in both sorts of rifles. Be advised, though, that ammunition specifically intended for use in a precision rifle will be manufactured to tighter tolerances and is much more expensive than military surplus rounds that are just fine for a battle rifle.

Many modern bolt-action deer rifles would serve well in this role, as has been proven by the military track records of the Remington Model 700 and the Winchester Model 70, the former of which was the basis for the United States Army's M24 and the United States Marine Corps' M40, and the latter of which was used for a number of years by U.S. Army and Marine snipers, including the legendary Carlos Hathcock. An excellent choice in class is the Savage Model 10FP, which boasts an extremely strong action and features an adjustable trigger assembly, free-floated barrel, and other accuracy enhancing features.

Hathcock's 1967 record-setting 2500-yard single-shot kill with his Browning M2 machine gun and Unertl scope inspired gun-makers to create a new class of heavy precision rifle based around the .50 BMG cartridge. The cartridge was originally designed by John Browning for anti-aircraft use at the end of the first world war, but as a scaled-up version of the successful .30-06 Springfield cartridge it had the potential for excellent accuracy at previously inconceivable ranges. Barrett Firearms Manufacturing is far and away the best known maker of fifty caliber rifles. These extreme long-range capabilities come at a price, both in terms of weight — 25–30 pounds to lug around — and price — $3500–$8000 before you've even bought the requisite optics or the $3/round ammunition. The size of the .50 BMG round also means that there is a tremendous recoil impulse to deal with, something that Barrett and other designers tackle with gargantuan muzzle brakes. While the Barrett brake is very effective in taming the recoil generated by the .50 BMG, it does so by directing a substantial amount of pressure and noise back towards the shooter, kicking up a sizable dust cloud, and making serious (perhaps even redundant) ear and eye protection absolutely mandatory for safe shooting.

A more portable and more cost-effective substitute for the .50 BMG rifles can be had in rifles chambered for the .338 Lapua Magnum cartridge. The .338 was conceived of in 1989 specifically for use in long-range sniper rifles, and since its inception it has proven effective in that role, with the longest .338 Lapua Magnum kill logged at 2707 yards by a British sniper in 2009. The Savage 110 BA is a nicely equipped .338. With a sticker price of nearly $2000 it represents the lower end of what one might expect to spend on a precision rifle built around this special purpose round.

All precision rifles, no matter how finely tuned, depend on the skill of the shooters employing them. Mastering the fundamentals of rifle marksmanship can guarantee that a shooter connects with his targets within a few hundred yards, but at longer ranges an assortment of factors affect the trajectory of a bullet, including wind, temperature, and humidity. At extreme ranges, gyroscopic drift and even the rotation of the Earth may have to be accounted for in plotting a point of aim. While the ticket price for these rifles is substantial, accumulating the knowledge and experience necessary to take full advantage of their capabilities is even more daunting.

Practice

Before tying up a substantial sum in a precision rifle with all the bells and whistles, it is worthwhile to establish good shooting habits through lots of practice. A .22 LR rifle can be had for a very modest sum and fires a low-recoil, inexpensive, and ubiquitous ammunition type that is perfect for getting lots of practice. Although the extremely successful Ruger 10/22 semi-automatic rifle is more versatile for applications like small game hunting, as an old Boy Scout I prefer the bolt-action rifles with which I learned basic marksmanship. The process of opening the breach, manually loading each round, sliding the bolt forward, and locking the bolt down before firing incentivizes the shooter to make each shot count. This works to counteract the urge that a frustrated or excited shooter might have to just start banging away without really concentrating on trigger control, breath control, and sight picture.

Dick Clark [send him mail] is an attorney who lives in the American Great Plains region.

I outlined last week the increasingly bullish consensus among analysts about gold stocks. The same pattern exists with gold itself; growing numbers of analysts have either joined the movement or have upped their bullish outlook.

The following comments and developments have all been reported just this month. It presents quite a convincing case when one strings them together like this. Keep in mind that this is what these analysts and managers are telling their clients.

SICA Wealth Management’s Jeffrey Sica: “Right now, I think gold looks better than ever.” He sees a “painfully high probability” of troubling events occurring in the months ahead. “There has been a general loss of confidence in the ability of central banks and governments to manage the economy. That will continue to give gold and other precious metals a boost.”

Empire Economics chief economist Clifford Bennett expects gold to come close to $2,000 an ounce this year and $2,200 an ounce within 18 months. “There is risk in the second half of the year of a bit of a ‘panic spike,’ if you like, as everyone thinks there isn’t enough to go around and starts to hoard. That’s when you’ll really see gold take off towards $2,000 an ounce.”

Franco-Nevada Chairman Pierre Lassonde said the coming mania in gold will make the 1970s run look like child’s play. “In 1980, the only players, or the dominant players, were the Americans. Today the dominant players are China and India; 58% of all the gold sold this year will be sold in these two countries. When we reach that mania phase… watch out, because it will truly make your head spin.”

Antaike analyst Shi Heqing had this to say about Chinese investors: “Record high prices won’t scare away investors… they are likely to chase the rally and continue to buy gold because paper money feels increasingly worthless and they are worried about inflation.” Shi expects China’s gold demand to rise about 20%, due in no small part to the country’s 6.4% inflation rate.

Reuters: “The case for gold in the longer term is still very strong,” said a Singapore-based trader. “Gold may appeal to new classes of investors who previously avoided the market in favor of more mainstream investments like bank deposits, bonds, and equities. Potentially there’s a whole new market for small-sized gold bars if these investors lose faith in paper.”

Newedge USA predicted gold will hit $1,800 and silver $70 by year-end due to investors seeking a haven asset and physical demand from Asia. “Gold is an excellent hedge in troubled times” said Mike Frawley. “Demand will be very strong long-term from Asia, and the economic trend in the West is improving.”

FX Concepts founder John Taylor: “Gold will climb to $1,900 by October.”

SMC Global: “Evidence of sluggish U.S. growth has shaken investor confidence. Concerns about rising inflation here have also boosted appetite for gold ETFs. Demand is high from small players.”

Minerals and Metals Trading Corp’s Ved Kumar Prakash reported “skyrocketing” demand for gold in India. He predicted that given the company’s brisk sales, gold imports would jump by more than 40% this fiscal year.

The Swiss Parliament is expected later this year to discuss the creation of a gold franc. “I want Swiss people to have the freedom to choose a completely different currency,” said Thomas Jacob, the man behind the gold franc concept. “Today’s monetary system is all backed by debt – all backed by nothing – and I want people to realize this.”

An “Iranian gold rush” is under way, according to an article by Reuters. “Usually as the price of an item increases, demand will decrease – but in the case of gold, it seems that higher prices are creating more demand,” said an unnamed Tehran gold retailer. “The reasons that people are drawn to these safe assets – gold coins and hard currency – are firstly a limited choice of investment opportunities, and secondly a fear from the weakness of the national currency,” said an economist who asked not to be named.

The Utah Legal Tender Act was signed into law by Governor Herbert last month. “Good monetary policy is an important part of a healthy and prosperous economy,” said Senator Mike Lee. He and other Republicans also introduced legislation to eliminate federal capital gains taxes on gold and silver coins. “Since the Federal Reserve Act of 1913, the dollar has lost approximately 98% of its value. This bill is an important step towards a stable and sound currency whose value is protected from the Fed’s printing press.”

CIBC World Markets’ Peter Buchanan remains bullish even if the debt ceiling talks resolve. “Even in the likely event Congress agrees to a debt ceiling rise, recent uncertainties are likely to reinforce central banks’ ongoing efforts to diversify from the dollar into gold and other assets.”

Citigroup Global Markets reported that silver may more than double to $100 an ounce if the current bull market follows similar patterns seen between 1971 and 1980. “If the final rally in the last bull market repeated, then we can expect $100 over the long term… While the high so far this year was at the same level as the peak in January 1980, we are not convinced that the long-term trend is over yet.”

Gold Forecaster analyst Julian Phillips: “This is not typical of a ‘bull’ market that will eventually fall back from whence it came. We believe gold is not in a ‘bull’ market, because it is changing its shape and nature permanently. Our reasoning is not academic posturing, but a reflection of the realities that have taken place over time and those that confront us now. Because it is perceived to be an alternative wealth-preserving asset, a counter to a failing monetary system, it is not a simple commodity moving up and down with the flows and ebbs of economic cycles; it is a valid measure of monetary values.”

American Precious Metals Advisors Managing Director Jeffrey Nichols: “A recent survey of 80 central bank reserve managers predicted that the most significant change in their official reserve holdings in the next 10 years will be their intentional build up in gold reserves. They also predicted that gold will be their best performing asset class over the next year, and sovereign debt defaults will be their principal risk.”

Gloom Boom and Doom editor Marc Faber: “I just calculated that if we take an average gold price of say around $350 in the 1980s and compare that to the average monetary base and the average U.S. government debt in the 1980s…and then if I compare this to the price of gold to today’s government debts and monetary base, gold hasn’t gone up at all. It’s actually gone against these monetary aggregates, and against debt it’s actually gone down. So I could make the case that gold is today probably very inexpensive.”

GoldMoney founder James Turk: “In reality there are very few participants currently in the gold market… when I look at the price action, it suggests to me that a lot of this big money on the sidelines wants to be in. Therefore we are seeing some aggressive bidding on any pullbacks.”

Reuters Money reports that eBay’s “gold and silver outpost” has seen gold bullion sales jump more than 60% from 2007 through 2010. More significantly, “almost half of the silver and gold buyers in the first quarter of 2011 never purchased these items on eBay before.”

Sprott Asset Management chief investment strategist John Embry: “I think it will be really exciting when silver clears $50, because then it will be in absolutely new ground. There is, without question, major physical shortages of physical silver, and demand is robust. Once silver gets rolling, it’s going to levels people cannot imagine.”

It’s hard to go one day without seeing comments like these. The chorus is growing, and as these bullish views spread further and further into the mainstream, the number of investors attracted to precious metals will swell and continue to drive prices higher.

Is this growing consensus the sign of a top? As I said about gold stocks, taking the contrarian view in response to this information would be the wrong move. Fiscal and monetary issues are getting worse, not better, and I think we’re simply seeing more investors recognize the inevitable. We’ll worry about exiting this sector when real interest rates are positive and the dollar is once again a revered currency. Until then, it’s hard to imagine a scenario that isn’t bullish for gold. Any pullback should thus be viewed as a sale price.

Is the impetus for a mania building? I don’t know if we’re on the doorstep of that phase or not, but the fundamental reasons to hold gold are as strong as they’ve ever been. Indeed, it’s getting more critical to have meaningful exposure to precious metals. Keep in mind that when the debt ceiling talks reach a resolution – whatever it may be – the fundamental problems of excessive debt and further deficits will still be unresolved.

Will gold correct if agreements are reached on the debt talks? Probably, but I think the more appropriate question to ask is this: If these analysts are correct, do I own enough ounces?

Jeff Clark – editor of BIG GOLD for Casey Research – puts his money where his mouth is. And his mom’s money, too: Learn how he boosted her IRA by over 90%!

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

My local newspaper ran a story about the escalating battle between Amazon.com and the state of California. At issue is the collection of sales tax: Governor Jerry Brown signed a law requiring online retailers to collect state sales tax on purchases made by CA residents.

Before the ink dried on the legislation, Amazon severed ties with its estimated 10,000 affiliates in CA. These are – or were – small businesses that earned commissions on customers who clicked through their website to the online bookseller.

The immediate effect, of course, is not an increase but a reduction in tax revenue for the state, due to the loss of taxable income from the affiliates. And Amazon isn’t the only company that’s taken action; Overstock.com is doing the same thing, as well as others that don’t make the news. As usual, the government overlooked the unintended consequences of their legislation.

But the issue is greater than just the immediate tax ramifications. And it’s bigger than just Amazon. There are long-term consequences for tax revenue, employment, and perhaps even the quantity and quality of the goods and services being offered in the state.

With the biased newspapers, it starts with the “fairness” issue. Most seem to make no distinction between the type of businesses operating within the state, pointing to the “unfair advantage” Amazon has over storefront locations like Barnes and Noble. If B&N has to collect the sales tax, why shouldn’t Amazon?

This reasoning is typical shallow journalism and overlooks previous Supreme Court rulings. The high court ruled in 1992 that an out-of-state retailer cannot be forced to collect sales tax unless it has a physical presence in the state. It’s not the level playing field that prejudiced reporters try to claim; brick and mortar retailers use roads and other resources paid by local taxpayers, while the out-of-state company has an almost zero footprint. This was the crux of the Supreme Court ruling.

Nevertheless, California tried to tax the Internet in 2000 and again in 2009, with legislation declaring that affiliates, even though not employees of the company, constituted a “physical presence.” Both governors at the time vetoed it. The third time was a charm, though, and CA is now the ninth state to pass a law taxing Internet sales.

Amazon has already introduced a ballot referendum to overturn the law, though some lawmakers (all Democrats) claim the ballot initiative is unconstitutional. It’ll likely go to court, and if it qualifies for the ballot, voters like me will probably see it next year in our little white booklet.

Let’s not forget that the tax is already supposed to be paid by the consumer. I add sales tax for Amazon and other online purchases to my income tax return every year. I’m sure many people don’t, but I’m also certain the government’s projected tax revenue from this law is overblown.

In my mind, there’s a more fundamental question for those making the fairness argument: Who is responsible for whose mistakes? Government is in desperate need of revenue – but whose fault is that? Why should Amazon be responsible for the fiscal irresponsibility of the California legislators? It’s no secret the state has major financial shortfalls – but how’d they get there? Under Gray Davis, the state went from a budget surplus to a budget deficit in less than four years. We’ve never recovered. Why is that suddenly the problem of a business that works in a different state? Shouldn’t the government be cutting back on their budget?

The long-term consequences on tax revenue are obvious. It seems a tenet of common sense that lowering tax rates attracts more business and thus more tax revenue. That’s a simplistic view, but the direction is correct. More businesses would move here if the state government passed laws that enticed them to do so, and maybe I would spend some money on these goods and services and thus create more tax revenue.

Amazon decided against moving to the San Francisco bay area, in spite of it being one of the best sources for technical talent, due largely to the tax structure of the state. “It didn’t pass the small state test,” said CEO Jeff Bezos. It’s a well-known fact that many businesses decide against headquartering in the state due to the high-tax/high-regulation atmosphere. And many are leaving for the very same reasons. This all reduces long-term tax revenue.

Then there’s the employment issue. Current actions by state leaders are driving this source of employment away, along with many others. Think about it: if the primary source of your revenue came from businesses and workers paying taxes, wouldn’t you do everything in your power to attract businesses and employ workers? This certainly doesn’t seem to be the path government leaders are pursuing.

Last, these actions ultimately lower the quality and number of goods and services available to me and my fellow Californians. This is not the case with Amazon and most other online retailers, as we can still place orders. But the underlying message to businesses considering CA as home is the same: You better think twice about coming here.

This trend is well underway, and with fewer companies wanting to do business in the state, the eventual result is fewer products, scarcer services, fewer choices overall, and lower quality. If you doubt that, just look at how difficult it is to open a bank account in Switzerland; it’s almost impossible now for a U.S. resident to do this, and it wasn’t that long ago that the Swiss would do anything to attract U.S. customers. It’s the same principle here; you make it too onerous to do business here, they’ll go elsewhere, reducing the options available to residents.

What can be done? Reversing this vicious cycle will have to include government leaders. And it starts with them answering one simple question: Businesses and consumers will always react to new laws and revised tax structures; what reaction do we want them to have? Do we want them to react like Amazon? Or do we want them to be knocking on our door to come here?

Until government leaders understand, on their own or through voters, that it is businesses and workers they want to see prosper, no one will, including the State. And that applies to the U.S. of A., too.

It’s not just state governments that are broke, though – the staggering debt of the federal government and the Fed’s pumping newly printed greenbacks into the economy make the dollar lose more and more of its value. Protect yourself with gold, silver, and sound large-cap precious metals stocks that can weather any storm. Try BIG GOLD today for only $79 a year… and find the best investments to preserve your nest egg.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

In spite of constant headlines about debts and deficits, most Americans don't really believe the U.S. dollar will collapse. From knowledgeable investors who study the markets to those seemingly too busy to worry about such things, most dismiss the idea of the dollar actually going to zero.

History has a message for us: No fiat currency has lasted forever. Eventually, they all fail.

BMG BullionBars recently published a poster featuring pictures of numerous currencies that have gone bust. Some got there quickly, while others took a century or more. Regardless of how long it took, though, the seductive temptations allowed under a fiat monetary system eventually caught up with these governments, and their currencies went poof!

You might suspect this happened only to third world countries. You'd be wrong. There was no discrimination as to the size or perceived stability of a nation's economy; if the leaders abused their currency, the country paid the price.

As you scroll through the currencies below, you'll see some long-ago casualties. What's shocking, though, is how many have occurred in our lifetime. You might count how many currencies have failed since you've been born.

So what's the one word for the u201Cthousand picturesu201D below? Worthless.

Yugoslavia — 10 billion dinar, 1993

Zaire — 5 million zaires, 1992

Venezuela — 10,000 bolvares, 2002

Ukraine — 10,000 karbovantsiv, 1995

Turkey — 5 million lira, 1997

Russia — 10,000 rubles, 1992

Romania — 50,000 lei, 2001

Central Bank of China — 10,000 CGU, 1947

Peru — 100,000 intis, 1989

Nicaragua — 10 million crdobas, 1990

Hungary — 10 million pengo, 1945

Greece — 25,000 drachmas, 1943

Germany — 1 billion mark, 1923

Georgia — 1 million laris, 1994

France — 5 livres, 1793

Chile — 10,000 pesos, 1975

Brazil — 500 cruzeiros reais, 1993

Bosnia — 100 million dinar, 1993

Bolivia — 5 million pesos bolivianos, 1985

Belarus — 100,000 rubles, 1996

Argentina — 10,000 pesos argentinos, 1985

Angola — 500,000 kwanzas reajustados, 1995

Zimbabwe — 100 trillion dollars, 2006

So, will a similar fate befall the U.S. dollar? The common denominator that led to the downfall of each currency above was the two big Ds: Debts and Deficits.

With that in mind, consider the following:

Morgan Stanley reported in 2009 that there's u201Cno historical precedentu201D for an economy that exceeds a 250% debt-to-GDP ratio without experiencing some sort of financial crisis or high inflation. Our total debt now exceeds GDP by roughly 400%.

Investment legend Marc Faber reports that once a country's payments on debt exceed 30% of tax revenue, the currency is u201Cdone for.u201D On our current path, analyst Michael Murphy projects we'll hit that figure by October.

Peter Bernholz, the leading expert on hyperinflation, states unequivocally that u201Chyperinflation is caused by government budget deficits.u201D This year's U.S. budget deficit will end up being $1.5 trillion, an amount never before seen in history.

Since the Federal Reserve's creation in 1913, the dollar has lost 95% of its purchasing power. Our government leaders clearly don't know how — or don't wish — to keep the currency strong.

Whether the dollar goes to zero or merely becomes a second-class currency in the global arena, the possibility of the greenback being added to the above list grows every day. And this will lead to serious and painful consequences in our standard of living. While money is only one of many problems we'll have to deal with, you can protect your assets with the one currency that can't be debased, devalued, or destroyed by irresponsible leaders.

Don't be the investor who dismisses this message from history. Use gold (and silver) as your savings vehicle. Any excuse you have now will be meaningless and irrelevant when we enter that fateful period. Make sure you own enough precious metals to make a difference in your portfolio.

Because when it comes to money, worthless is not a fun word.

Owning physical gold is good protection from the sinking value of the U.S. dollar; investing in the right gold miners can yield even higher returns. BIG GOLD focuses on the larger miners that have strong profit potential, and will help you build your wealth. Give it a ninety-day risk-free trial. Details here.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

Have you considered what will happen to your portfolio – and all the other areas of your life – if the dollar fails? The ramifications will be widespread, painful, and inescapable if you’re not properly diversified.

Last month, I attended the Global Currency Expo sponsored by EverBank. The overarching theme, as you might expect, was that diversification out of one’s home currency is paramount. While there were plenty of traders on hand, it was the big-picture talks that had the most pressing messages.

I came away feeling that I needed to reexamine my exposure to the dollar. Have you considered what will happen to your portfolio – and all the other areas of your life – if the dollar fails? The ramifications will be widespread, painful, and inescapable if you’re not properly diversified.

With that in mind, I want to pass on some highlights from a few speakers, along with their investment recommendations… many of which were framed as the “trade of the decade.”

Frank Trotter of EverBank Direct stated that the U.S. dollar “will see a significant decline in the next 5-10 years.” His five favorite currencies for the next decade are the Swedish krona (which he thinks is better than the Swiss franc), the Norwegian krone, the Australian and Canadian dollars, and a surprise, the Brazilian real.

Eric Roseman of Commodity Trend Alert warned that we’ll see a food crisis within three to five years. He’s convinced China will become a net importer of agriculture, which will have major ramifications around the globe. His trade of the decade is the exchange-traded note for grains, JJG.

Sean Hyman of World Currency Watch said his trade of the decade is the Singapore dollar (SGD). “Buy it and forget it.”

Doug Casey also spoke; he laid out five “sure things” for the next ten years:

1. Short bonds/bet on rising interest rates
2. Short the yen/go long on Japanese small- and mid-cap stocks
3. Borrowed money: “It’s an excellent way to short the dollar, and you get a tax deduction.”
4. Gold: “It’s not cheap, but it’s going higher. Buy it and store it abroad.”
5. Small-cap mining stocks

Rodney Johnson, president of HS Dent, got some audible groans from the audience when he claimed the trade of the decade was the U.S. dollar versus the euro. He’s convinced that deflation is coming and that inflation hedges will get hurt. He predicted that the dollar will rebound and that interest rates and prices will fall. While it’s always healthy to check one’s assumptions, I heard no reason to change my mind about the dollar’s long-term woes. Interestingly, most of the speakers do expect the dollar to temporarily strengthen this summer, though they have no doubt the currency is ultimately headed to the graveyard.

But the most thorough and convincing presentation by far came from Chuck Butler, president of EverBank World Markets and a 35-year currency analyst. If anyone knows currencies, it’s him. It’s been said that he’s advanced awareness of the currency markets more than almost any other banker working today.

Chuck outlined the case against the U.S. dollar with damaging conviction. He pointed out that the pound sterling was the world’s reserve currency until WWII, and “we became the reserve currency by financing England because they couldn’t pay their debts and had diluted their currency… They needed assistance from other countries to service their debt and had overextended their military.” Sound familiar?

He noted that China, with little fanfare, started signing swap agreements in 2009. To date, they’ve signed agreements with much of Asia, the European Union, Canada, Russia, Brazil, Belarus, Argentina, and will soon with Japan and Korea. There are even rumors of them working on currency swaps with the Arab nations. He reminded us that China’s president recently stated publicly that the U.S. dollar is a “product of the past.”

The scary ramifications of this were couched in a stark warning: “The U.S. dollar will lose its reserve currency status sometime between 2014 and 2020. There will be no trumpet; it will just happen.”

He said SDRs (Special Drawing Rights) from the IMF may be used first, but that it won’t matter since the dollar losing its reserve status is “inevitable.” He, too, felt there will likely be some strength in the greenback this summer, but that this will change nothing in the long-term picture.

When it comes to preparing one’s investments for this eventuality, Chuck stated that “94% of investment return is based on the asset-class selection, and a low covariance with other assets.” On a practical basis, this means owning an investment that is not correlated with U.S. stocks, and one that is not denominated in U.S. dollars. He said the key to diversification is applying the same logic you would to stocks: “You wouldn’t buy just one stock, so why would you own just one currency?”

He likes the renminbi, which can be played via CYB or CNY. He also likes the Singapore dollar, the Norwegian krone, and the Swedish krona.

The point of the weekend was to examine one’s portfolio from the point of view of a failing currency. It won’t matter too much how diversified your stocks are if they’re all exposed to the same currency. If this outlook turns out to be correct – and I see no way around it – then the U.S. dollar will undergo a sea change that will erode and ultimately destroy any investment backed by it.

So, how much exposure do you have to the U.S. dollar? And what happens to your portfolio when the greenback reaches its ultimate resting place? Even if you think it avoids becoming fancy green toilet paper, prudence suggests that you at least consider preparing your investments for a prolonged erosion. By the time you carry your investment “bucket” to retirement, the persistent leak from dollar devaluation could buy half of what it did ten years earlier. Will this be acceptable to you and your family?

Gold and silver are one of the easiest and simplest ways to diversify out of the dollar, regardless of one’s portfolio size. They are a confidential, personal, and immediate purchasing-power protector. Pretend your financial life depends on it, because the abuse continually heaped upon the dollar doesn’t come free of consequences.

FREE Special Report: Learn all about how, when and where to buy silver… which forms of silver are the best to own… and why we could soon be running out of silver altogether… in Casey Research’s 2011 Silver Investing Guide. Read and download it for free here.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

The gold price has been rising steadily for almost a year now, with nary a correction. It fell only 4% last month, and the biggest decline since last July was January’s 6.2% drop. These barely register as “corrections” when one considers that we’ve had 18 of them greater than 5% since the bull market began in 2001.

We’re getting used to a persistently rising gold price. Any decline is met with more buying, pushing the price to new highs. But how long can we realistically expect this pattern to continue?

The answer will ultimately be determined by the fundamental factors pushing on the price – more Greece, more money printing, and more economic bad news will all drive gold higher. But even then, have we really said goodbye to big corrections?

History can provide a clue. If we could find a time period within a gold bull market where the price sidestepped major falls, then it might be reasonable to think we’ve entered a period where it will continue steadily climbing. On the other hand, if gold saw big corrections even during, say, a mania, we might need to be on the lookout for them no matter how bullish the factors are today.

Here’s a chart of the corrections that occurred during the final two years of the 1970s mania – one of gold’s biggest parabolic runs in history.

During this historic run, there were seven significant corrections. On average, that’s one every 3½ months and a 10.1% decline. You’ll also see that they were very sharp; four lasted less than ten trading days and all were less than a month. This all occurred in the middle of the mania.

If history is any guide, our correction in January was small, and will be the first of many.

In fact, historical precedent shows that volatility is the norm, even during the Mania Phase of a gold bull market. Big moves, both up and down, are common. I can’t point to a date on the calendar, but sooner or later we’re going to have another downturn, and it won’t be the only one.

This means that great buying opportunities will present themselves regularly. And not just for gold but also for silver. To find out how and when to buy, and what forms of silver you should own, read our FREE 2011 Silver Investing Guide.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

CPM Group recently released their 2011 Silver Yearbook, one of the industry’s most comprehensive sources of information on the silver market. Though mostly a reference book, I uncovered some interesting facts that paint a decidedly bullish picture for the metal going forward.

If you’re a silver investor, or are concerned about the recent selloff, you may find the following data very compelling. It provides an inside track on the market and will certainly make us all more knowledgeable investors.

For fun, I put what I read into the form of a quiz. See how many you can get correct…

1) The #1 driver for silver’s price increase in 2010 was:

1. Investment demand
2. Fabrication demand
3. Lower supply

While both fabrication demand and supply rose last year, investors bought 142 million ounces of silver – the third highest level on record, and the highest since 1980. This pushed the price into record territory.

It’s noteworthy that investment demand was higher last year than during the recession year of 2009. This suggests that investors buy silver more out of dollar devaluation and inflation fears than simply due to an economic contraction.

2) Silver mine production:

1. Exceeds demand
2. Matches demand
3. Falls short of demand

Silver produced from worldwide mining totaled 667 million ounces last year – but total demand hit 986 million ounces. Despite the fact that mine production has increased 33% since 1999, it falls far short of supplying the market’s needs.

While scrap coming to market makes up the difference, this gap is one of the more critical issues going forward. The delicate balance between supply and demand will become increasingly precarious as overall demand continues to grow.

3) Household demand for silver (cutlery, flatware, and candlesticks) hasn’t risen in ten years. Jewelry fabrication is up but a blip. Silver use in photography continues to fall. So, true or false?: Total demand is falling.

False. Industrial use has more than made up the difference from declines in other uses, and is pushing demand to new levels. Since 1999, consumption in electronics has increased 120%. Silver usage in solar panels began in 2000 and is up 640% since then. Silver was first used in biocides (antibacterial agents) in 2002 and, while a small niche, it has already grown sixfold. In fact, new uses for silver are being found almost every day, particularly in the biocide arena, making it increasingly difficult to catalog all its growing applications.

The Silver Institute forecasts that total industrial use of the metal will rise 36% over the next five years, to 666 million troy ounces annually. That’s a lot of silver, meaning this portion of demand – which is roughly 60% of all fabrication – isn’t letting up any time soon.

4) Silver represented what percent of global financial assets at the end of 2010?

1. 1.7%
2. 0.7%
3. 0.07%
4. 0.007%

D. In spite of last year’s record-high prices, silver is, by any account, a miniscule portion of the world’s wealth.

The ratio’s high occurred in 1980, reaching 0.34% of financial assets. Silver as a percentage of global assets would have to grow over 48 times to match the record. It is true that many more paper assets exist today than 30 years ago, but the renaissance in silver will continue to increase its portion of worldwide assets.

5) The largest manufacturer of silver coins is the U.S. Mint, which sold 34.7 million ounces last year, about 46% of the world total. What country is the second largest?

1. Austria
2. Canada
3. U.K.
4. South Africa

The Austrian Mint contributed 15% of total silver coin sales last year (11.4 million ounces), an increase of 26% over 2009.

Still, the American Silver Eagle rules the global roost. Given how recognizable it is around the world, it’s what to buy if you don’t own enough metal.

6) Of the following groups of countries, which is increasing silver production and which is in decline?

1. Mexico, Australia, China, Argentina
2. Peru, U.S., Canada

Countries in group A are increasing production, while to the surprise of many, each one in group B is in decline.

This has direct ramifications for your silver stock investments. Total newly refined supply is expected to surpass one billion ounces for the first time in history this year, so make sure you have some exposure to countries where production is growing.

7) The average cash cost to produce an ounce of silver from primary silver mines is:

1. $7.16
2. $6.16
3. $5.16
4. $4.16

Of the 30 primary silver mines in the world, average cash cost rang in at $5.16 per ounce (net of byproduct credits). This is almost double 2002 levels. The silver price has risen 650% in the same time frame, however, so margins have risen in spite of higher costs.

8) The only governments that hold silver in inventory are the U.S., Mexico, and India. How many combined ounces do they hold?

1. 55 million
2. 155 million
3. 255 million
4. 355 million

Only 55 million ounces are estimated to be stored in these three countries. This equals only 5.6% of annual global demand. Governments held approximately 355 million ounces in 1970, but this has diminished largely due to the U.S. decision to stop using silver in its currency in the 1960s and other governments following suit.

No other countries are believed to hold any silver in inventory. Mine production and scrap supply had better keep up, because there is no backup source.

9) China accounts for how much of worldwide mine production?

1. 9%
2. 11%
3. 14%
4. 16%

Chinese mine supply totaled 102.7 million ounces last year, 16% of global production. China is the third largest silver producer, behind Mexico and Peru.

Mine production in China has more than doubled just since 2000, largely due to Beijing’s decision to deregulate the state-controlled market the year before. This trend is certain to continue, due to rising silver prices and the fact that many parts of the country are underexplored. If you don’t own a Chinese silver producer, you’re missing out on some of the most explosive growth around the globe.

10) What is the weakest month of the year for the silver price?

1. January
2. June
3. July
4. October

Summer is usually the most sluggish time of the year for silver, and July is historically the weakest. Got your dealer’s number handy?

It’s clear that the forces underpinning the silver bull market aren’t going away any time soon. Demand is high, but it’s not an anomaly when viewed through an historical lens. Silver has been used as money for over 3,000 years, and the word for “money” in many languages is “silver.”

Meanwhile, our current monetary issues are far from over, won’t be easily resolved, and will take years to play out. Precious metals are proven forms of protection for this environment. Silver, along with gold, is your best defense against unsustainable fiscal imbalances and massive currency debasement, and will be a profit center for years to come.

Learn everything you need to know about silver – when to buy, what to buy, and how the silver bullion squeeze could affect the market. Read it now… in the free 2011 Silver Investing Guide.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

I heard some disturbing reports about silver supply last month that I felt every investor should know. And while precious metals are currently in correction mode, the long-term concerns with supply won’t disappear anytime soon. In attempt to get a handle on the bullion market, I spoke to Andy Schectman of Miles Franklin, who has contacts that run deep in the industry. What he sees everyday might just compel you to count how many ounces you own…

Jeff Clark: Andy, tell us about your industry contacts and how you get the information you’re privy to.

Andy Schectman: We source our product from three of the largest six primary U.S. mint distributors. Having 20 years of experience with these sources, as well as the dealers in the secondary market, we’re as tied into the industry as anyone.

Jeff: You made some interesting comments to me about supply and premiums. Tell us what you’re hearing and seeing in the bullion market right now.

Andy: I feel as though I’m the boy who cries wolf or that I’ve been beating the same drum for too long. But in reality, it has been my feeling since late 2007 that ultimately this market will be defined less by the price going parabolic – which I think ultimately will happen – and more by a lack of supply. You see occasional reports that state it’s just a lack of refined silver or lack of silver in investable form. But as far as I’m concerned, there is a major supply deficit issue, and it’s getting worse.

Take the U.S. Mint, for example. Right now, as we talk, you can barely get silver Eagles. We’re seeing delivery delays of three to four weeks, and premium hikes of a dollar or more in the last three weeks. Most of the suppliers in the country are reluctant to take large orders on silver Eagles because they don’t know (a) when they’ll get them, and (b) what the premiums will be when they arrive.

I was talking to the head of Prudential Bache and asked him about silver Eagles. He said, "You know, as soon as the allocations come in, they’re sold out. We can’t keep them in." This is coming from one of the largest distributors of U.S. Mint products in the country.

And this is all occurring in an environment that has only minimal participation by the masses. Few people in this country have ever even held a gold or silver coin. So, if it’s this difficult to get bullion now, what’s it going to be like when it becomes evident to the masses they need to buy? This is what keeps me up at night.

Jeff: Some analysts say it’s a bottleneck issue, that the mints have enough stock but just need more time or more workers to fabricate the metal into the bars and coins customers want.

Andy: No, I don’t believe that. What business do you know that if they had that much profit potential wouldn’t increase production and hire more workers to meet demand? To me, the “inefficient model” argument is an excuse.

Look at what the U.S. Mint alone has done: they haven’t made the platinum Eagle since 2008. They make maybe one-tenth as many gold Buffalos as they do gold Eagles. They’ve made hardly any fractional-ounce gold Eagles. Heck, they can’t even keep up with the demand for the products they do offer. Does that sound like a bottleneck to you? Or is it because there is far more demand than there is available supply? It’s pretty clear to me it’s the latter.

Jeff: What are you seeing in the secondary market; are investors selling bullion?

Andy: There is no secondary market. Absolutely none. Nobody is selling back anything, at least not to us. Think about that: if this was a traditional investment and your portfolio went up 100% in the last year, like silver has, you’d think some investors would take some profits and ride the rest out – but nobody’s selling anything.

This is why I think the lack of supply is the single biggest issue in this market. And in time, I think it will become much more obvious. [Ed. Note: We’re using the term “secondary market” in this instance to mean sellers of bullion and not the scrap market.]

There are only five major mints – U.S., Canada, South Africa, Austria and Australia. Yes, there is a Chinese Mint and a couple Swiss Mints and some private refiners, but they amount to very little in the overall scheme of things. We’re in a situation where the mints are limiting the selection and raising the premiums, and this is occurring at a time when most people own no bullion. As it becomes more apparent that people want bullion instead of paper dollars, I think you’ll see premiums go parabolic and supply get even tighter.

Jeff: Are you getting a lot of new buyers to the bullion market?

Andy: More than ever. One of the interesting things we’re seeing is a lot of younger people dipping a toe in the water, buying little bits of silver here and there. We’re also seeing bigger orders, as well as more frequent phone calls from financial advisers asking us if we can help their clients. So yes, the base is broadening.

Jeff: That’s very interesting. So are you seeing more demand for gold or silver right now?

Andy: 90% of the new business is in silver. And I think that’s indicative of the state of the economy. People are trying to get into precious metals, but they think gold is too high. I think they’re buying silver because they realize the fundamentals for owning gold also apply to silver. They think the profit potential is better in silver, too. This has actually made the supply for gold better than it is for silver right now, and a lot of that has to do with price.

Jeff: Why are premiums fluctuating so frequently?

Andy: Premiums are almost impossible to gauge right now. Because the availability of product is getting smaller and smaller and the demand is getting stronger and stronger, premiums are changing literally overnight. And it doesn’t take many large investors around the country to force premiums higher.

The net of this is that it’s really hard for us to be able to say what the premium for a specific product will be two weeks out.

Jeff: You mentioned increased interest from fund managers. Tell us the kind of comments you’re hearing and why they’re buying bullion.

Andy: I think it’s coming from their clients. It’s my impression that people are taking it upon themselves to study a little bit more, to be more accountable for their assets, and I think they’re telling their financial advisors to buy gold. And in some cases it’s because they don’t want a paper derivative.

It’s no secret that financial advisors don’t like gold and silver. Once money goes to a bullion dealer, it’s not coming back to a stock portfolio anytime soon, so they discredit it. But now it’s my impression they’re being asked by their clients to buy it. So it’s not necessarily because the financial advisor wants gold as much as it is the client requesting it.

Here’s a good example. There’s a firm here in Minneapolis that represents the Pillsbury fortune, and they asked me to talk to their partners about precious metals a few months ago. At the end of the conversation they said, "Okay, we’re going to place an order for one of our clients.” Upon hearing it was for one client, I thought it would be in the range of $50,000 to $100,000. Well, the order was for $5 million.

There are two astonishing things about this. First, that’s twice as big as the largest order I’ve ever had. It was one order, for one client, who’s brand new to the market. How many more potential buyers are out there like that? Second, they made it abundantly clear to me that it was out of pressure from one of their clients that they sought me out. So clients are increasingly demanding bullion, regardless of what their financial advisers say.

Jeff: Hearing about all this new buying might make some think we’re near a top in the market. Could that be the case?

Andy: No, no [chuckles]. I think Richard Russell says it best: "Bull markets die of exhaustion and overparticipation." Well, we’re nowhere near that point when so few people in this country own gold and silver. Heck, I’m a bullion dealer, and most of my peers don’t own any gold and silver! Yes, you’re seeing more commercials, but there are just as many commercials to buy gold as there are to sell it. I think that’s an indication this market is not exhausted.

Remember that in the year 2000 everyone and his brother had some NASDAQ shares. That’s an example of an exhausted or overparticipated market. We’re nowhere near that.

Jeff: Where are the best premiums for silver?

Andy: The very best buy in silver right now is junk silver. And by the way, I think the term “junk” is unfair. It isn’t junk anymore. It used to be junk in the ‘90s when silver was 3 or 4 bucks an ounce and it was sold basically at melt value and carried no premium. So I’d call it “90% dimes and quarters.” Anyway, junk silver has the lowest premium right now and, in my opinion, offers the best upside potential.

Next would be 10- and 100-ounce silver bars. And then one-ounce silver coins – but the Eagles are very expensive at the moment, if you can get them. The Austrian Philharmonic has the best value in a one-ounce silver coin right now, and they’re available. But again, premiums for all silver coins are escalating.

Jeff: What about gold?

Andy: Gold is not as bad. In fact, I would say that gold availability is decent right now for one-ounce coins and bars. There isn’t much available in fractionals. And Buffalos are still kind of hard to get. Other than that, the one-ounce coins with decent availability are Canadian Maple Leafs, Australian Kangaroos, and Krugerrands. And they all have decent premiums.

Jeff: So the take-away message is what?

Andy: First, I think you said it best with your recommendation to “accumulate.” Not only will it smooth out the volatility in price and premiums you pay, it will also give you a bird in the hand. If I’m right about this market, and I really believe I am, it will be defined by lack of availability of refined product. To combat that, just accumulate month in and month out, and be thankful when you’re able to get what you want.

Second, it’s about the number of ounces you own. You want to get as many ounces as you can without being penny wise and pound foolish. Stick with the most recognized products – don’t buy 1,000-ounce bars, for example, because they’re illiquid. You want to maximize your liquidity, and you do that by buying the most common forms of bullion – one-ounce coins, bars, and rounds; 10- and 100-ounce products; and junk silver.

Last, keep in mind that premium and commission are two different animals. Commission is what the dealers make on top of the premium. Premium is what the industry bears. So if the U.S. Mint is selling silver Eagles for $3 over spot to the distributors, that’s before they’re marked up to the public. So even though the “premium” is high, you’re actually going to get most of that back when you sell. [Ed Note: It’s not uncommon for the buyer to recapture most of the premium when they sell, particularly during periods of high demand.]

So, buy gold and silver while it’s available, even if you don’t buy it from me, because if I’m right, getting it at all could soon be your biggest challenge.

Jeff: Thanks for your insights, Andy.

We just concluded our spring Casey Summit, "The Next Few Years," a truly blockbuster event that included detailed investment recommendations from 35 of the most successful experts. We covered all facets of precious metals, energy, interest rates, the economy, real estate, and more. It’s the single best way to prepare both your finances and family for what’s ahead. You can catch every minute of the entire Summit with a full 20-hour audio CD set, available here.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

You’ve probably heard the term “smart money” used by various pundits, a reference to those investors and institutions that are consistently better at making money than the uninformed masses. Which begs the question: are you one of them?

To answer that query, let’s first describe smart money (not to be confused with the magazine by that name) so we have an idea of what makes this group of investors successful…

Smart money buys when others are fearful. A good example of this is last year’s Gulf oil disaster. Wild speculation of British Petroleum’s ultimate demise caused panicked bouts of selling. The stock lost roughly half its value in less than two months. To use a classic idiom, there was blood in the streets – and that, of course, was the time to buy. The investor who did so is currently up 50%, and that’s not even measuring from the stock’s absolute bottom.

Smart money sells when others are greedy. My colleague Doug Hornig is a perfect example of selling when others are greedy. In the Nasdaq hysteria of the late 1990s, Doug had accumulated a number of Internet stocks and watched his brokerage account swell to a level he’d never seen before. The greed around him was palpable; everyone was talking about the latest stock pick, the classic sign of a mania in full bloom. “But I’d had enough,” he told me. “My positions had logged spectacular gains, and bottom line, I knew this couldn’t go on forever.” He sold his Internet stocks prior to the 2000 top, just as the greed reached a pinnacle.

Smart money sees trends others don’t. Doug Casey urged readers in 1999 to buy gold, convinced from his own research and study that a bull market was about to get underway. But he couldn’t get an audience; no one wanted to talk about the metal or mining stocks. It goes without saying that he and many of his readers have since profited enormously, with many stocks earning doubles on top of doubles.

Smart money ignores the headlines. Beyond the traditional advice of “Buy the rumor/sell the fact,” smart money largely ignores the blather from mainstream media and instead focuses on the factors that ultimately drive headlines. When it reaches mainstream coverage, the smart money is already invested. And is looking at what will be tomorrow’s headlines.

Smart money plays the big trend, not the gyrations. What do Jim Rogers, Marc Faber, Rick Rule, Doug Casey, and Warren Buffett have in common? None of them “traded” their way to riches. They identified the fundamental factors driving the trend, bought big, and held on. No technical analysis, no trend lines on a chart, no fancy signals from moving averages. And they didn’t get scared out at the first drop in price.

Smart money doesn’t count its money before it’s made. These investors understand there are no sure things, and further, that no one is going to bail them out if their analysis turns out to be wrong. They keep a realistic expectation – and an eye – on their investments. And if they take a loss, they learn from it and refuse to let it keep them from investing again.

And the one that’s becoming increasingly critical to businesses and investors…

Smart money ignores official government reports and relies on its own research. There are copious examples of government reporting that is patently off base. The best current example is the Department of Labor’s CPI number. It claims that core inflation is a mere 1.1%. When looking at all your expenses over the past year, have they risen just 1.1% since last spring?

Here’s what real inflation looks like compared to what the U.S. government reports.

Costs in every major area of our lives have risen greater than what the government states in its core figure. The smart money ignores the official report and instead focuses on its own research and data.

With that description of smart money, the next logical question to ask is, what are they looking at now?

To answer that question, understand the time horizon they have in mind. They’re not looking at next week or next month like a trader would, nor so far out that it will take the rest of their life to realize a profit. The smart money is looking at the likely trends over the next few years.

Therefore, I think they’re asking themselves questions like these:

• Is real inflation likely to rise or fall over the next few years?
• Is it more probable that interest rates will remain depressed or move higher?
• Is the U.S. dollar likely to be stronger or weaker in the next few years?
• What is the best way to hedge against egregious debt and runaway government spending?
• Which assets are most likely to make money over the next few years? Which should be avoided?
• Is it time to invest in real estate again, or will it take the rest of my life to see big profits?
• Will the global economy be on solid footing during the next few years?
• Is oil – or something else – the best energy investment?
• Are gold and silver in a bubble, or will they push higher in the coming years?

The answers to those questions will dictate how the smart money invests for the next few years.

When it specifically comes to gold and silver, they ignore the bubble talk and instead focus on facts and trends. While they acknowledge that precious metals have risen tremendously over the past decade, they’re analyzing the factors that will either continue to drive prices higher or take them lower. So they’re looking at supply and demand trends; fiat currencies and if they’re likely to be further diluted; the logical outcome of too much debt and too much deficit spending; the direction of inflation; gold’s role as a store of value and if there are reasons for it to remain; and just as important, how the greater masses are likely to react to all this.

Once you address those topics, you can determine if we’re in a true gold bubble. And your answer to those questions will determine the action you should take at the next correction.

How does Doug Casey answer the question as to whether we’re in a gold bubble? Here’s what he told me:

“The peak is not going to be here until you hear the money-honeys talking about gold on television and all your friends are talking about the latest silver stock. Don’t worry about charts. Don’t worry about statistics, lines on charts, supply and demand figures, or any of that. The best indication of where the market is at any moment isn’t mathematics. It’s psychology. Watch the public’s psychology.”

While new investors are beginning to enter our sector, the psychology of the gold market is not like the crazed hysteria with the Internet stocks in late 1999. Yes, gold is not cheap, but if we were in a bubble, those shouting “Bubble!” would be buying gold, not bashing it. By Doug’s definition, it’s when their psychology has turned from negative to giddy that will mark the top.

If your own research tells you this isn’t a true bubble in precious metals, then you might embrace the next correction instead of fearing it.

What is the smart money doing with bets on interest rates, energy, commodities, and real estate? And what do they think about the economy and the likelihood of another recession? Is a global currency war about to erupt? And with the anticipated change in the Fed’s quantitative easing policy, how big and long of a correction do they see coming with gold and silver?

None of us can be smart money in every aspect of investing – but you can find out what they’re thinking and how they’re positioning their own portfolios. Our sold-out spring Casey Summit "The Next Few Years" will be a truly blockbuster event that includes detailed investment recommendations from a whopping 35 of the most successful experts. They will cover all facets of precious metals, energy, interest rates, the economy, real estate, and more. It’s the single best way to prepare both your finances and family for what’s ahead. You can catch every minute of the entire Summit with a full 20-hour audio CD set – but hurry, our early-bird discount is available only till April 29.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

CPM Group recently released their 2011 Gold Yearbook, an invaluable resource for us gold analysts. Mostly a reference book, even a gold enthusiast might find it dry reading. But I loved it, and as I studied it on a plane, I kept finding data that made me perk up.

To have a little fun with it, I thought I’d summarize what I read in the form of a quiz. See how many you can get correct. Regardless of your score, I’m sure you’ll agree with the ramifications each point makes for the gold market.

I’ll start off easy…

1) The main driver behind rising gold prices over the past decade is:

1. Increased jewelry demand in India
2. Greater industrial uses of the metal
3. Investment demand

Worldwide investment demand for gold totaled 44 million ounces in 2010. Because of the growing demand by investors, prices have been forced upward.

Five exchanges began trading gold contracts for the first time in 2010, and three more introduced mini contracts, collectively the largest number launched since the early ‘80s. There are now 24 gold vending machines in seven countries, with three more countries adding machines this year. Households in developing countries are now moving away from gold jewelry and buying coins and bars for their savings. I could go on, but suffice it to say that investment demand will continue to be very strong.

2) True or false: recovery from gold scrap was lower in 2010 than 2009.

Scrap rose three consecutive years in a row – until last year. Gold supply from scrap fell 2.1%, to 42.2 million ounces.

This is significant because gold prices were higher, which would normally increase the amount of scrap coming to market. One of the primary reasons scrap dropped is because investors are holding on to their metal, reportedly because they believe prices are headed higher. Isn’t that one reason you’re holding on to your bullion?

3) There are many reasons investors have been buying gold over the past 10 years, but what is the #1 reason?

1. Safe-haven asset
2. Gold coins and bars have become more intricate, widespread, and beautiful
3. Supply and demand imbalance

Global fears increasingly led investors to purchase large volumes of gold in 2010 for safe-haven purposes, despite record price levels.

High levels of investment buying are expected to continue in 2011 because virtually none of the economic, political, and monetary concerns have been resolved.

If you got all three answers correct, you’re an investor who understands the basic reasons for owning gold and that those reasons are still in play.

Now let’s step it up a little…

4) Gold represented what percent of global financial assets at the end of 2010?

1. 3.1%
2. 0.7%
3. 1.6%
4. 2.4%

The estimated value of investor gold holdings stood at $1.5 trillion at the end of last year, about 0.7% of global financial assets.

While up nine years in a row and triple what it represented in 2001, gold is still a miniscule portion of the world’s private wealth. It represented 2.8% of global assets in 1980, four times what it does today.

5) How many central banks increased their gold holdings in 2010?

1. 9
2. 12
3. 15
4. 19

Russia, Thailand, Belarus, Bangladesh, Venezuela, Tajikistan, Ukraine, Jordan, Philippines, South Africa, Sri Lanka, Germany, Kazakhstan, Mexico, Greece, Pakistan, Belgium, Czech Republic, and Malta = 19. Central banks as a group are expected to continue to be net buyers of the metal for the foreseeable future.

It’s interesting that most purchases were from developing countries, unsurprising when you consider they’ve accumulated over $5 trillion in foreign exchange reserves just since 2002.

6) Compared to 2009,U.S. Mint gold coin sales in 2010 were:

1. Down 12%
2. Up 8%
3. Up 5%
4. Up 3%

The U.S. Mint sold 1.43 million ounces last year, down 12% from the 1.62 million ounces sold in 2009. You might think this is negative until you realize that global coin sales rose 21% last year, reaching 6.3 million ounces. Makes you wonder what other countries know that many North Americans don’t.

Supply problems continue to plague the U.S. Mint, evidenced by the fact that Buffalo sales were suspended for half the year.What happens when the greater population begins to clamor to buy gold? Bottleneck, meet desperation.

7) CPM estimates that the fiscal and monetary imbalances, especially in developed countries, could take how long to resolve?

1. 1 year
2. Decades
3. 5 years
4. 2 years

Rigid social contracts are so deeply ingrained, especially in the developed world, that it will take decades to resolve the monetary imbalances.

This sobering fact means gold will likely be in a bull market for many years to come. There are very few options to deal with the overwhelming debt burden in most of these countries: raise taxes, cut spending, increase growth, or print money. Guess which one is most likely? Inflation from currency dilution is baked in the cake and will spur further gold demand and light a fire under the price.

If you got these four questions correct, I think it means you’re an astute investor who doesn’t worry about day-to-day price fluctuations and instead focuses on owning enough ounces to protect your assets from the huge and intractable fiscal problems that still have to be faced.

Now here are some questions for those of you who love gold stocks…

8) What was the industry-average cash cost to produce an ounce of gold last year?

1. $509
2. $498
3. $544
4. $474

Cash costs have tripled since 2002 and rang in at $544 last year. They will certainly be higher again this year.

In spite of higher costs for the producers, margins actually rose due to higher gold prices. Margins in 2010 averaged $680, and were only $114 as recently as 2002.

We’ve got some of the most profitable companies in BIG GOLD, along with a number of producers that have big growth coming online over the next one and two years. Buy these stocks before that growth happens; if you shell out the bargain basement price of $79 now, I think your portfolio will be very happy when it comes time to renew.

9) The average grade of gold mined on a worldwide basis last year was how much?

1. 5.11 grams/tonne
2. 3.54 grams/tonne
3. 2.96 grams/tonne
4. 1.83 grams/tonne

The second lowest level on record – 1.83 grams per tonne – occurred in 2010. While not entirely negative since higher gold prices allow producers to go after lower-grade deposits, this leads to higher costs for both discovery and production. It is undoubtedly true, though, that one of the main reasons grades are lower is because the easy fruit has been picked in many regions around the world.

This is bullish for those explorers that can find and develop higher-grade deposits and is where much of our speculative dollars should be focused. Our mining exploration advisory International Speculator tells you which companies are the best of the best, outperforming the S&P by 8.4 times last year. So if you’re not reading the International Speculator yet, you’re missing out on some spectacular profits.

10) The most popular region for exploration spending is where?

1. Latin America
2. Canada
3. Nevada
4. China

Roughly 25% of all global exploration money is devoted to Latin America. The biggest beneficiaries are Peru, Mexico, Brazil, Chile, and Argentina.

If you’re investing in gold and silver explorers, make sure you have exposure to this region, as odds are high there will be a number of major discoveries made here.

If you got these three questions correct, you’re well in touch with the gold stock market, and I hope you’re taking advantage of the picks we offer in BIG GOLD and International Speculator.

This data clarifies and confirms why many investors own gold and continue buying it. It paints a decidedly bullish picture for the metal, in spite of record price levels. Monetary issues are far from over, won’t be easily resolved, and will take years to play out. Banks continue buying, and investors aren’t selling. The U.S. Mint can’t keep up with demand, and yet gold is underowned when compared to other major asset classes. Costs are rising for the producers, but margins are rising faster for the better-run companies.

When looking at the big picture for gold, I for one draw comfort from knowing I’ve got some ounces tucked away. I hope you, too, see gold for what it is – protection against unsustainable fiscal imbalances and massive currency debasement, and a profit center for years to come.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

It’s no secret that the silver market is red hot. As I write, silver American Eagles and Canadian Maple Leafs are sold out at their respective mints. Buying in India has gone through the roof, especially noteworthy among a people with a strong historical preference for gold. Demand in China continues unabated. Silver stocks have screamed upward.

So, as an investor looking to maximize my profit, I have a natural question: is the silver trade getting too crowded, meaning we’re near the top? Have the masses finally joined the party such that we should consider exiting? After all, it’s not a profit until you take it, and you definitely want to sell near the top.

There are several ways to measure how crowded the silver market might be. I prefer to look strictly at the big picture and not get caught up in the weeds. This means I’m looking for signs of market exhaustion or the masses rushing in. Nothing says “peak” more than an investment everyone is buying.

So how crowded are silver investments right now? Let’s first look at the ETFs.

At $35 silver, all exchange-traded funds backed by the metal amount to $20.7 billion. You can see how this compares to some popular stocks. All silver ETFs combined are less than a quarter of the market cap of McDonald’s. They’re about 10% of GE, a company that still hasn’t recovered from the ’08 meltdown. Exxon Mobil is more than 20 times bigger. And this isn’t even apples-to-apples, as I’m comparing the entire silver ETF market to a few individual stocks.

This is even more interesting when you consider that it’s the ETFs where most of the public – especially those that are new to the market – first invest in silver. So while the metal has doubled in the past seven months, total investment in the funds is still far beneath many popular blue-chip stocks.

Okay, maybe all this money is instead going into silver mining stocks. How does the market cap of the silver industry compare to other industries?

While you fetch your magnifying glass, I’ll tell you thatthe market cap of the silver industry is $73.1 billion. It barely registers when compared to a number of other industries I picked mostly at random. The dying newspaper industry is over 26 times bigger. Drug manufacturers are 213 times larger. Heck, even the gold market is 19 times greater. And here’s the fun one: the market cap of the entire silver market, with all its record-setting prices and stock-screaming highs, represents just one-third of one percent of the oil and gas industry.

To be fair, there are a number of sectors that are smaller than silver. Radio broadcasters ($43.2B), video stores ($10.9B), and sporting goods stores ($2.5B) have puny market caps, too. But then again, who’s buying DVDs or baseball mitts to protect their wealth from a coming inflation?

Silver hardly resembles the picture of an investment that is too crowded.

I’m not saying one should rush to buy silver right now. After all, it has doubled in seven months. Unless this is the beginning of the mania, prudence would certainly be called for at this juncture. The price will always ebb and flow in a bull market, and an ebb is overdue.

The question, of course, is from what price level it occurs. What if a correction doesn’t ensue until, say, a month from now, and the price falls back to… where it is now? I remember some articles in January that insisted silver would fall to as low as $22, and, well, they’re still waiting and have in the meantime missed out on some huge gains. For silver to fall back to $22 now would require a 40% drop; not impossible, but I wouldn’t hold my breath.

Fixating on market timing takes your focus off the ultimate goal. In my opinion, instead of worrying about what will happen next week or even next month, focus on how many ounces you have, and then buy at regular intervals until you reach your desired allocation. This has the added benefit of smoothing out your cost basis. And don’t forget to buy more as your assets and income increase.

This is a market where you’ll want to be well ahead of the pack. Someday in the not-too-distant future, average investors will be tripping over themselves to join in. That will make the market caps of our silver investments look more like some of the others in the charts above. And that will do wonderful things to our portfolio.

You won’t find better, more in-depth information on silver than in BIG GOLD’s just-published 2011 Silver Buying Guide. Including: The behind-the-scenes forces pushing up the silver price… Is now a good time to buy, or should you wait for a correction?… A candid interview with a bullion insider and what worries him right now… a new silver stock pick… and much more. Get one year of BIG GOLD, including the 2011 Silver Buying Guide, for only $79 – with 3-month money-back guarantee. Learn more here, or go directly to the BIG GOLD Order Form.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

It feels a little callous writing about Japan with respect to precious metals after the country suffered such a terrible tragedy. However, I think it’s worth discussing because there’s a lesson in it for all of us. In fact, I think the moral could be couched in terms of a warning.

Japan’s Background with Precious Metals

It’s commonly known in Japanese culture that citizens harbor gold to protect against unforeseen events. The gold isn’t sold unless it’s needed for an emergency. With respect to the Japanese government, the country’s central bank is the 8th largest holder of the metal (including the IMF and GLD). Beyond investment, Japan represents about 6% of worldwide gold fabrication (excluding investment demand), the majority of which is in electronics. Scrap recycling has been heavy in recent years, while jewelry demand is low.

Regarding silver, the tiny island represents about 9% of global demand. Industrial uses comprise the biggest part of that, which includes the automotive industry, construction, medical uses and solar. Jewelry and silverware have minimal end-use, and photography, like most everywhere else, has been falling heavily.

Japan’s Trend with PMs

While the percentage of Japan’s buying to worldwide demand won’t drastically change in reaction to the recent disasters, they, like several other countries, are pursing another tactic to get minerals. The government is considering revising its mining law, specifically when it comes to seabed mineral exploration and extraction. This is noteworthy because Japan hasn’t touched its mining law in 50 years. To be sure, revisions will be stricter for permitting and monitoring, but the process will be streamlined for Japanese companies.

Why now? As an executive at Mitsubishi Materials put it, “it’s an issue of national interest” because China, Russia, and South Korea are already exploring parts of the country’s exclusive economic zone. They are undoubtedly feeling the pressure of not only wanting what they think is rightfully theirs, but also of wanting to capitalize on high metals prices.

The Lesson from Japan

Premiums for gold and silver there have risen in response to the disasters, which isn’t surprising. Japanese investors scrambled for physical metals after the earthquake, immediately pushing premiums to three-year highs. And it wasn’t just buyers in the earthquake, tsunami and nuclear-plant zones; those in less affected parts of the nation have been rushing to buy precious metals, too. The end result is that available supply has been glutted.

The reactionary buying in Japan could not just support metals prices, but push them higher. This is certainly due to the draining of supply, but also because it’s complicating delivery and exacerbating fabrication problems. The country is a net gold exporter, but there may not be many planes and boats loaded with bullion leaving ports anytime soon, given that many modes of transportation are down and the distribution of more urgent food and other supplies is complicated.

This could dry up gold supplies elsewhere in Asia, as Japan exported 2.7 million ounces last year. While this is only roughly 2.3% of global supply, these ounces are concentrated in Asia, a region that has already seen many countries’ citizens hoarding precious metals. If supply becomes scant across Asia, it’s easy to see how this could light a fire under prices.

As Mark Pervan, head of commodities research at ANZ, said, "This is a buy-on-the-dip opportunity. Investors, not just Japan but globally, have been looking for a trigger to get back into the market. The rise in premiums in Japan could be it."

The lesson is this: When disaster strikes, it’s almost certainly too late to buy. Not only will you pay a higher premium, you may have difficulty getting your hands on bullion. You have to purchase your insurance before adversity hits.

And the warning is this: We saw how supply dried up and premiums skyrocketed during the market meltdown of 2008. Europe saw the same result when Greece imploded. We’re now seeing it happen in Asia due to Japan’s woes. We keep seeing this picture repeat. While no one wants to bet on calamity, is the U.S. really immune from trouble? Are you?

Even if no natural disaster strikes North America, there’s a certain hazard that’s inescapable at this point. The abuse being heaped upon the U.S. dollar has not fully played out. Sooner or later the decline of the mighty greenback will affect almost every area of your life. In fact, what does your day involve that doesn’t require money? Eating, showering, driving, working, shopping, entertainment – all of these will be grossly impacted by the demise of the currency unit used in this country.

The monetary base continues to explode. With no fanfare, it set another new record last week – $2.35 trillion. It’s up 18.7% just since New Year’s eve, and 39.2% since December 2008. These actions will have consequences. They will lead to a monetary earthquake.

Your heart went out to the people of Japan when you saw the pictures of the devastation from the earthquake. Will you be ready when the currency earthquake hits here? One of these days it’ll strike, and then it will be too late to buy.

I hope you have sufficient asset protection to withstand the monetary storm that’s building off our coast.

That asset protection is easy to come by – by loading up on gold, silver and large-cap precious metals stocks that can weather any economic storm. And in the meantime you’ll make handsome returns… like the 90.4% gains Jeff secured for his mom’s IRA, and his subscribers’ portfolios. Read more on how he does it and how you can profit.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

It's official: the greatest number of responses to any article I've written since joining Casey Research was to Robbed!, the story of my friend's gold being stolen and the suggestions for storage. It's clear the article struck a nerve — from those who've also been a victim of theft, to those who were simply looking for additional ideas for storage locations.

Based on the number and quality of responses, I thought it would be useful to pass some of them along. Here are the (edited) emails I received, along with our comments…

Other Stories of Stolen Gold:

u201CI had 136 American gold Eagles stolen from my home… $198,500 worth of gold. Besides the loss, I will lose the tremendous appreciation of the next few years. So be warned: HIDE YOUR GOLD!u201D

u201CAnother sad story of robbery was the report of a Canadian man being robbed of his entire life savings. The article says he was punched, stabbed and tied up by home invaders who made off with his life savings in silver bars. The two thugs, wearing fake police uniforms, made off with $750,000 in silver the man had bought as an investment last year.u201D

Comment: There are more horror stories than I think most of us are aware of. The message is the same: the gold and silver bullion you possess is valuable, and will be increasingly so, so tell only one other person. And to determine if your home storage is really secure, think like a thief: how likely would someone intent on robbing you find or get to your valuables?

Additional Storage Locations:

u201CJust wanted to offer an additional storage method… I suggest private vault storage… only you and the one person you trust have this information. I use Mountain Vault in the Phoenix area. Good prices: only a few hundred dollars for 3″ or 6″h x 10″w x 24″ deep. You can pack a lot of gold Eagles in there!u201D

Comment: Private vault storage is a great option, of course, but at this point it's not widespread enough to make it available to most people — and you want to be relatively close to your precious metals. It's also generally more expensive than most other storage choices. The advantage it holds over a bank safe deposit box is that it's outside of the financial system. If you're within an afternoon's drive of one and can justify the cost, it's definitely worth checking into. Google u201Cdepositoryu201D and your state or province.

u201CSome upscale jewelry stores have storage options.u201D

Comment: Jewelry stores make me nervous; they might be an easy target if Doug Casey is right about a Greater Depression.

u201CThere is one other option you forgot to mention: Build a storage or garden shed out back. Have a safe built into the floor. You can access the gold without being seen, day or night. Tell only one other person (such as your adult child) the combination. Do not have a key, only a combination. If you are robbed, they will not kill you because then they won’t have the combination. If someone breaks in and heads for the shed and tries to dig it out of the ground, tell the cops to go find the contractor who installed it!u201D

Comment: An alternative worthy of consideration. Just be sure that if you go this route, the safe is protected from the elements — you don't want rainwater seeping in, for example. Also, my father knew a man whose family was tortured until he gave up the combination to his safe. While a combination safe is preferable to a key lock, don't think you're immune. Keep the safe hidden and tell only one confidant. Last, hiring a contractor is something to avoid if possible; all it takes is for them to tell one other person.

u201CBury a pop can a foot above your buried gold so that if someone used a metal detector, they'd find it and stop digging.u201D

Comment: Something to consider if you go the u201Cmidnight gardeningu201D route. Keep in mind, though, that all they'd have to do after removing the pop can is wave the detector over the hole again.

u201COn the subject of storing bullion and home safes, Liberty safes are some of the best on the market. What sold me is, they will replace the safe and its contents if damaged or broken into. I didn’t find any other company with as good a product or warranty.u201D

Comment: The guarantee is worth checking into if you're buying a home safe. However, keep in mind that no safe is 100% secure; a safe buys you time, nothing more. Meaning, hide your safe or store it under the floor where something could be placed over it (a refrigerator in the garage, for example).

u201CKeep two safes — a decoy one and the u201CMcCoyu201D safe.u201D

Comment: Not a bad idea if you're storing a lot at home. Get a cheap safe from an office supply store for the decoy one, and put some metal or jewelry in it that's less valuable so the thief thinks he got your stash.

u201CKeep in mind that someone could follow you home from a coin shop.u201D

Comment: Yes, be alert of your surroundings when you're handling gold. If you suspect someone is really following you, drive to the police station.

Also, my friend installed a security system at his home, complete with cameras. While most of his gold is no longer stored there, he'll have a video recording if someone tries again. A nanny cam could work, too, and they're not expensive.

Bank Safe Deposit Boxes

u201CThe bank can access a safe deposit box only if the owner is deceased and no one claims it.u201D

~ Bank official

Comment: Several readers wrote in to say they'd been told there were circumstances under which a safe deposit box could be accessed by the bank (confiscation) or restricted from access by the owner (locked down during a natural disaster, for example), but most of these comments sounded more like an internal comment from a local bank rather than a broader instruction.

The statement above is what my local bank told me and is generally the case with the bankers we spoke to. That's not to say the rules couldn't change (and perhaps with little notice), but generally speaking, the bigger risk here is that the contents aren't insured (think of the banks washed away by the tsunami in Japan).

I also got a response from Frank Trotter at EverBank, a banker David Galland knows well and someone we trust…

u201CWe have always noted that there are two key elements for holding gold:

1. If you're holding it as an investment, then minimize the cost of holding and maximize the liquidity. This was the concept behind the development of our EverBank Metals Select Pooled accounts, and is in place at a number of other institutions. We also think this should be the primary focus of investing in gold.
2. We do not view holding the metal as an investment, but rather a self-insurance. If you are holding for emergency, then cost and convenience are not the primary drivers. Of course each individual has to assess what they consider an emergency to determine how to hold the metal, but if you are holding for emergency, then you must control the metal directly. I think we can all find scenarios where it would be impossible to access any business storing anything for you; will the employees come in, are all businesses closed by order, is there unrest near the facilities, etc. In major emergencies, it is certainly illogical that overseas transportation would be available if that is your selected location, and so on.

u201CBasically, we view investments in metals in cost-efficient and liquid instruments to be primary to hedge against inflation and geopolitical events, and holding metals yourself to be the only way to effectively hedge against dislocation of civil society.u201D

Coin Storage

u201COn burying coins: do not put silver coins, or even gold for that matter, directly in touch with PVC. It is highly reactive with silver, and silver is found in most alloyed gold coins in some amount. Here’s a link to a good short articleabout it. Most coin dealers use mylar coin u2018flips' which are hard and brittle, but I often get sovereigns and even silver Eagles in so-called u2018soft' flips which can contain PVC. I remove them and put them in hard plastic non-PVC holders, of which there are a number on the market.u201D

Comment: To confirm this, I spoke to a couple dealers:

Van Simmons/David Hall Rare Coins: u201CPVC holders were common, but not any longer. The industry has changed, in part, because PVC used to cause what was called the u201Cgreen gunge,u201D especially with copper and nickel coins.u201D

Andy Schectman/Miles Franklin: u201COver a long period of time, it could put holes in bullion. The reader is correct that you should store your coins in the stiffer plastic holders, not the softer u201Cflips,u201D though no reputable dealer would use those these days.u201D

Insuring Your Metal

u201CYou mentioned your friend decided not to make a claim with his insurance company because they may not have paid it or dropped him from coverage. I talked to my insurance agent, who is a personal friend I trust, and was told that in my case it covers only up to $2,000 worth. I recall the underwriter wanting to know what my safe was like, how heavy it was, etc., then wanted to know how much gold and silver I had and in what forms (I was told there are different rules for bars vs. coins). They also required a current appraisal of everything I had. In the end, they would insure it as a u2018rider' with a premium of 1.5% of the value per year. Not only would I have been uncomfortable giving them all the data they were asking for, but I also didn’t want to pay them 1.5% annually.u201D

Comment: While it may seem wise to insure your metal, it breaks one of the golden rules of home storage — you've got to tell other people what you have. If you go that route, consider who else your agent has to discuss your policy with (corporate office, admin staff, etc.), who has access to the paperwork, etc. Bottom line: I would pursue this route only if you had substantial holdings, had a security system at your home, and kept some of your holdings elsewhere.

The bottom line is to review your storage methods so that you're confident your physical assets are secure. If you u201Cthink like a thief,u201D you might find where you need to make some changes. And don't forget that no storage location is 100% secure. Therefore, one of the best ways to store your physical gold is to diversify your locations. The more you have, the more you should utilize several methods for holding metal.

Last, as I stated before, don't let this scare you off from buying bullion. It's still the asset that offers the best monetary protection for the foreseeable future. Not owning it may leave you feeling robbed when you go to use your paper dollars and find they won't buy you as much as you thought. That's not a theft you can prevent — unless you own gold.

The March issue of BIG GOLD just named the top major gold producer in the industry — and our Buy Under price was just hit. Find out who we think has the best potential of the million-ounce producers, along with our recommended bullion dealer list and the coin with the lowest premium in the industry. Try BIG GOLD for only $79 per year today, with 3-month money-back guarantee.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

In January, Jeff Clark of Casey Research's BIG GOLD advisory set out to get opinions from some of the smartest, most accomplished investors in the gold industry — where is the gold price going to go, how volatile will the markets be, what's the outlook for precious metals stocks? Read on for some of the most insightful answers you'll see anywhere…

Rick Rule is the founder of Global Resource Investments, now part of Sprott, one of the most acclaimed and sought-after brokers in the natural resource industry. Rick has spent 30 years in the sector and is a regular speaker at investment conferences in the U.S. and Canada. He and his staff have an extraordinary record of success in resource stock investing.

James Turk is the founder and chairman of GoldMoney.com. He's authored two books on economic topics, published numerous articles on money and banking, and is co-author of The Collapse of the Dollar. He's a widely recognized expert on precious metals.

John Hathaway is portfolio manager of the Tocqueville Gold Fund, the third best-performing gold mutual fund in 2010. He is a Harvard grad with 41 years of investment management experience.

Charles Oliver is senior portfolio manager of the Sprott Gold and Precious Minerals Fund (and several others). Charles led the team at AGF Management that was awarded the Canadian Investment Awards' u201CBest Precious Metals Fundu201D in 2004, 2006, and 2007.

Adrian Ash runs the research desk at BullionVault, one of the world’s largest online gold ownership services. A frequent guest on BBC News in London, his views on the gold market are regularly featured in the Financial Times, The Economist, and many others.

Ian McAvity has been writing the Deliberations on World Markets newsletter since 1972. He was a founder of the Central Fund of Canada (CEF), Central Gold Trust (GTU), and Silver Bullion Trust (SBT.U).

Ross Norman is co-founder of TheBullionDesk.com, an online provider of precious metals news, analysis, and prices. Ross has won several awards from the London Bullion Market Association for his price forecasting, winning in 2002 and 2006. He now runs Sharps Pixley, which sells bullion in the UK and continental Europe.

BIG GOLD: Gold was up 30% in 2010; to what do you attribute its rise?

Rick Rule: Gold is unique, in that both primary investment psychology motivators — greed and fear — drive the price. Gold markets ricochet between greed and fear buying, and we are starting to see that in the markets now. The fiat currency weakness, both the dollar and the euro, are the motivators for the fear buyer, and the momentum caused by fear buyers is the motivation for the greed buyer.

James Turk: Two things. First, policies like zero interest rates and quantitative easing are eroding the purchasing power of all the world’s currencies, so it is no surprise that commodity prices — which are always sensitive to currency problems — are soaring.

Second, as people increasingly recognize the difference between owning paper gold and physical gold, the demand for physical continues to climb. Given that it is a tangible asset, physical gold does not have counterparty risk and therefore protects wealth when stored properly. It is the ultimate safe haven.

John Hathaway: Growing distrust of fiat currencies. 

Charles Oliver: In reality, the true value of gold does not change. What has changed is the decrease in value of the fiat currencies used to measure the gold price. In 2009 and 2010, the U.S. debased its currency via direct money printing and a massive quantitative easing program where the government purchased $1.5 trillion of mostly its own bonds. 

The U.S. government will buy another $600 billion of its bonds in 2011 concurrent with running the largest deficit in its history. With this in mind, it is no surprise that the gold price rallied.

Adrian Ash: Last year’s eurozone debt crises gave only a foretaste of the sharp spikes in physical demand we could see as the single-currency experiment unravels, while the Fed’s fresh dose of debt-monetization (aka QE) lit a fire under institutional gold buying. China’s surging demand continued to make gold a strong emerging-Asia play, too.

The underlying cause, however — boring but true — was negative real interest rates. Cash in the bank now means certain losses, failing to keep pace with inflation as badly as in the late 1970s. So once again, cautious savers are choosing hard assets instead of government-controlled currency, and gold is the stand-out alternative because it’s tightly supplied, indestructible, debt-free, and truly stateless.

Ian McAvity: I believe gold’s rise should be recognized as a devaluation of the three major currencies in gold terms — the U.S. dollar, euro, and yen. That focused global attention on gold as the oldest and most credible currency in its traditional role of a store of value. This trend is now a decade old and may be entering the phase for acceleration, now that the major currencies and sovereign debt issues are both coming under the microscope.

Ross Norman: Really, it was more of the same from the previous 10 years — but particularly so the economic-related issues from the last two. The gold price fundamentally reflects the debasement of currencies — gold is not expensive, but the currencies you buy it with are worth less simply because we are printing so many of them. If you genuinely believe that global growth is established, that debt repudiation will be carried through (the public will willingly take their fiscal medicine), and that economic stability will be restored without a hiccup, then don’t buy gold. The trouble is, few believe that story, and hence the 30% gain in gold.

BG: What forces will move gold this year? And what’s your price projection for 2011? 

Rick Rule: I suspect that this year will give us extraordinary volatility across all markets, including bullion. I think the eventual direction is higher, because of the well-catalogued failures of collectivism. But I suspect we will have some event-driven spike in metals prices, although I couldn’t forecast which of many possible events will occur.

I have no earthly idea where gold will close, but to be a good sport and play the game, I’ll say $1,750.

James Turk: The same forces will move gold higher this year, which I expect will reach $2,000, probably in the first half.

John Hathaway: A reversal of spreading distrust of government policies, central bankers, and paper currencies can only be accomplished by high real interest rates. The secular direction of the gold price will remain higher, and conversely, the valuation of paper currencies will trend lower, without a restoration of respectable real interest rates, which in my opinion, would be in the neighborhood of 4% on a sustained basis. In the absence of such a change, there is no telling where the price of gold, in U.S. dollar terms, could go.

In my opinion, gold is no different than any other market in that it assesses current fundamentals and discounts the future. Just exactly what it is reflecting at any given moment is the real challenge. In my opinion, the gold market has only partially reflected the monetary debasement that has taken place since the credit implosion of 2008, and it has not yet begun to assess the damage yet to come. 

Without knowing what further convoluted and extreme measures yet to be implemented by this administration and the Fed, it is impossible to place a number on the future price.

Charles Oliver: Global currency debasement will continue in 2011.  The European sovereign debt crisis continues to unravel in slow motion, and it looks highly likely that the Europeans will magically create lots of money to backstop the debt of the next European government that finds itself on the verge of bankruptcy. I expect this backdrop will help propel gold to around $1,700 by yearend. 

This level is supported by an upward trend channel that commenced in 2008 with a 2011 yearend range of $1,550 to $1,750. I also believe gold could break through the upper boundary of these trend-lines should some unexpected event occur.

Adrian Ash: Headline debt crises aside — Portugal, Spain, California, take your pick — 2011 will see negative real interest rates force ever more cash savers to choose gold (and also silver) instead. Simply extrapolating the current bull run’s annual gains would see 2011 end with gold some 20% higher at $1,695 per ounce, averaging $1,450 across the year. Even on the official CPI measure, U.S. savers have now been underwater for 24 of the last 36 months after inflation.

But no one at the Fed, not even sole dissenter Thomas Hoenig (no longer a voting member in 2011), wants to see positive real returns paid to cash. The ECB, Bank of Japan, and Bank of England all look stuck near zero interest rates, too. And while Beijing might hike Chinese lending rates, it fears sucking in yield-hungry money from the West. With China’s deposit rates left untouched at barely half the pace of inflation, the early gold-demand spike around Chinese New Year (Feb. 3rd) could prove dramatic.

Ian McAvity: I don’t do specific forecasts in my work, but I think there’s a prospect of gold pushing into the $2,000-$2,400 range this year, or perhaps 2012. This presumes an element of monetary panic relating to the U.S. dollar or euro during the year. A gold price of $2,400 would be the CPI-adjusted equivalent of 1980′s $850 in current dollars, so this is not an unrealistic number.

Ross Norman: After 10 successive years of price strength during which gold rose fivefold, it is tempting to ask if prices are now peaking; we think not, and fresh all-time highs of $1,850 are in prospect. The list of forces on the buy side remains as long as your arm. But on the sell side there are potentially miners reentering hedging/forward-selling programs, central bank disposals, and possibly some contrarians — these are unlikely to be significant and, in short, with few sellers the scales should continue to weigh very significantly in favor of the bulls.

With gold's entrenched trend line to draw on, the adage “The trend is your friend” seems likely to hold true. A twenty-something percent increase looks likely for the year, and the gold chart should maintain a steady 45-degree climb after a period of consolidation during Q1.

Our outlook for gold in 2011: Average $1,513; high $1,850; low $1,350.

BG: How volatile do you expect gold to be? What’s your low price that would present a good buying opportunity? 

Rick Rule: Volatile on steroids! If we have a replay of the liquidity crisis of 2007-2008, gold could crack $1,000 on the downside. I don’t time these things; I build cash when values in other sectors are not available, and bullion for me is a form of cash.

James Turk: I do not expect gold to be volatile. It looks to me that the gold price is ready to accelerate to the upside, and I do not expect there to be any significant price corrections because the demand for physical metal is just too strong. There is always a lot of money on the sidelines ready to buy any dip. 

Any price below $1,500 represents a good buying opportunity because I do not expect gold to remain below that price much longer.

John Hathaway:If the Fed announces an end to quantitative easing, gold could drop $200. In the greater scheme of things, such an announcement would change nothing.

Charles Oliver: I expect volatile currencies and governments for the next several years. Which means that gold and other hard assets priced in U.S. dollars will remain volatile. The current bottom of my gold trend channel is $1,300, so if it dropped that low, I think it would make a great buying opportunity. If gold broke below $1,300 (which I do not expect), then you might see it test the $1,000 level. That level was resistance for several years, but now it is a major support level, one I believe may never be breached again.

Adrian Ash: Gold volatility actually fell in 2010, hitting 5-year lows even as the dollar price took out new record highs above $1,400. So while gold keeps making headlines, it’s more overreported than overinvested, and that’s likely to keep any dips shallow, especially as larger investment institutions in the West look to steadily build their positions. Demand from Indian households — the world’s No.1 physical buyers — is again adjusting to new rupee highs, too.

That said, keep an eye on the start of new quarters (April, July, Oct.) as investment funds will hold on to winning positions to impress their clients, only to take profits the very next day (witness July 1, 2010 and New Year 2011 already).

If you’re trying to pick the bottom of a pullback, it’s worth noting that gold hasn’t fallen vs. the dollar for more than two months running since 2001.

Ian McAvity: Volatility will be much greater. India paid $1,045 for 200 tonnes of gold from the IMF — that’s a critical level and would be a great crash-scenario buy point, but I doubt we’ll see it. The last important breakout occurred at $1,260 and should be support and an attractive buy level; below that, $1,160 to $1,200, if it’s part of a general market wipeout. I’d bet that gold comes screaming back from such a decline if Bernanke and the ECB proceed with QE3 or QE4 to fight it.

Ross Norman: Fear and uncertainty are running high, and that should almost certainly translate into greater price volatility. I think we are close to the low for the year (we see that at $1,350), and it is quite healthy to see some of the excessive speculative froth being blown off the market just now. It makes a more compelling case a month or so from now.

BG: Gold stocks as a group did not outperform gold in 2010 — will that change in 2011? And if the broader markets sell off, will gold stocks fall along with them or trade on their own? 

Rick Rule: Interesting point; the stocks did not outperform bullion, even as the companies actually began to feel the positive impacts of higher gold prices and massive capital programs.

I do think select stocks will broadly outpace the bullion markets in 2011. The senior producers are doing something they have not done for decades — earning good money! Their reinvestment options are constrained because most of them have already launched and funded major capital programs for whatever internal growth is available to them. Surplus capital can go to increasing dividends, buying back stock, and to acquisitions. Juniors who make attractive discoveries that can reduce depletion charges and lower a major’s overall cash costs will be bought at startling prices.

If broader markets decline as a consequence of an event, particularly a liquidity-driven event, the gold stocks will decline with them. If a broader market decline occurs as a consequence of debt and equity overvaluation and earnings disappointments, the markets will decouple as they did in the late 1970s.

James Turk: The mining stocks will continue to outperform in 2011, but by a much larger margin than last year, and are still relatively cheap compared to bullion. Remember, the mining stocks were in a bear market from the collapse of Bre-X in 1997 to the collapse of Lehman Brothers in 2008. After Lehman, even the best-quality mining stocks were unbelievably cheap. It was a capitulation low, where emotion prevailed over logic, which is how all bear markets end. This new bull market will drive the mining shares to what will probably be unbelievable heights when we look back a few years from now.

John Hathaway: Gold stocks are generally cheap relative to bullion. The XAU [Philadelphia Gold/Silver Index] trades at roughly 15% of the bullion price vs. a historical norm of more than 20%. Gold stocks could do fine even if gold is flat, something I don’t expect. If we have another 2008 style sell-off, gold stocks will be hurt again in the short term, but the stage would be set for much higher highs for the metal and the stocks.

Charles Oliver: In 2010, the large-cap stocks that dominate the weighting in most gold indexes underperformed the gold price. However, the mid-cap stocks had a great performance in the first part of 2010. In the latter part of the year, the small-caps roared to life and outperformed most other groups. 

I expect that 2011 will initially be similar to the end of 2010; however, in the second part of the year, I am concerned that the general stock market may be due for a correction that could impact all stocks and sectors. If there is a modest, orderly pullback, gold stocks could rally (much like they did in 2002), though you may see an increased focus on the bigger, more liquid names first. With this in mind, and the relatively cheap large-cap stocks, I have been increasing my weighting of larger-cap names.

Adrian Ash: So long as deflation (i.e., default) threatens credit markets, unencumbered gold is going to appeal more than geared production, especially to those cautious savers now being forced out of cash by negative real rates. Yes, you’ve got to expect the kind of gold mania that Doug Casey has long forecast to light a fire under the broader gold-mining sector. But another broad sell-off in world equities in 2011 would only compound the last decade’s disillusion with risk investments.

Ian McAvity: The major gold stocks have not performed well against gold since 2003. They will get decent spurts, but long-term reserve replacement and premium-priced M&A [Merger and Acquisition] takeovers dilute their shareholders. The lows for gold stocks may be governed by the magnitude of any crash-like decline in the stock market. If the S&P or Dow falls 20% or more within a 3-month or less window, the margin clerks will sell every bid on anything. I prefer the metal to the major miners.

Ross Norman: I would not anticipate a broader equities sell-off. It does seem that most asset classes are performing strongly, and that may be a secondary consequence of QE. Broadly, I take a similar, and positive, view of mining equities as I do for gold. Should there be an equities correction, then in all likelihood mining shares will also retrace to some extent in the same way that a rising tide lifts all boats.

BG: Silver was up 81.9% in 2010, but is still below its 1980 nominal high. What’s your outlook for silver in 2011?

Rick Rule: The near-term outlook for silver is very bullish, as a consequence of physical supply shortages. Longer term could be problematic as a consequence of Indian dishoarding, an event last seen in earnest in 1997.

James Turk: I expect silver to reach $50 in Q1 2011. It may then take a breather, but eventually — and probably later in 2011 — silver will climb above $50.

John Hathaway: More volatility than gold.

Charles Oliver: In the earth’s crust, the ratio of silver to gold is 17:1. For most of the last 650 years (except the last 100) the monetary exchange rate was also around 17:1. In fact, when the United States was on a bi-metallic reserve standard, the U.S. government mandated “The Coinage Act of 1834,” putting the gold/silver ratio at 16:1. In 2010, the ratio moved from around 60 to below 50. I expect this trend to continue in 2011 and think the metal could trade up to and beyond $50 in the not-too-distant future.

Adrian Ash: Silver’s primary use is industrial, rather than as a store of wealth like gold. So it should be more vulnerable to the economic cycle (see the post-Lehman price collapse), and you could argue it’s simply tracking the huge rally in base metal and energy prices. But looking at that 1980 high — forced by the Hunt brothers’ speculative corner, rather than a jump in use — I think something else is going on, and silver is being remonetized by private wealth in the same way gold has been remonetized since hitting “trinket” prices in the late 1990s.

A much smaller and tighter market than gold, silver is both more attractive and responsive to sudden inflows of cash. As with gold, silver’s volatility fell in 2010, but it was more than twice the average level (daily basis) of the last four decades. Price-wise, another year like 2010 would see the $50 peak taken out. The biggest surprise is that the mainstream press hasn’t stoked the idea of a “silver bubble” like it has done for gold since 2009.

Ian McAvity: If gold runs above $2,000, I expect the silver/gold ratio to reach the 36:1 level, which would mean a price somewhere between $55 and $66. I view that ratio as a material driver of the silver price, trading off its long monetary metal history, apart from its attractive supply/demand profile. The 1980 spike to $50 was a very brief spike that isn’t really a meaningful measuring point, in my view. The monthly average London Fix for January 1980 was $39.27, and gold’s monthly average peak was $675.31; those are more realistic prior peak levels to measure against.

Ross Norman: After the 2010 rally, it might seem churlish to expect much more in 2011 for silver. Early 2011 profit taking has seen silver decline more than most assets, underlining the strong speculative element in the recent price run, and this also confers some weakness to its case. However, the investment community has taken silver to heart, and contrary to its modestly attractive fundamentals, the market prices are likely to overperform again. Unlike in 2010, we expect silver’s price action to conform more closely to that of gold — firmer, but a little more rational.

Our outlook in 2011 for silver: Average $37; high $44; low $27.

BG: What’s your best advice for precious metal investors in 2011?

Rick Rule: Be prepared for the most volatile market of your life, and use that volatility to your best advantage.

James Turk: It is the same advice I have been giving for more than a decade; continue accumulating the precious metals, and if you are inclined to take the investment risk, the mining stocks as well. We need to recognize one salient fact: national currencies are being destroyed and their purchasing power eroded by misdirected government policy. Consequently, gold and silver are safe havens and the best way to protect your wealth.

John Hathaway: Have at least 10% of your liquid assets in precious metals and related mining stocks. Keep your bullion outside the U.S. A good way to do so is through Gold Bullion International, which can be accessed through their website. Unless you want to spend a lot of time researching the gold-mining industry, consider investing in a well-managed precious metals mutual fund. There are a number, but I am partial to the Tocqueville Gold Fund, one of the top performers last year.

Charles Oliver: All the fundamentals – excessive government debt, high budget deficits, runaway healthcare costs, growing Social Security payments, demographic trends — lead to one conclusion: Governments are bankrupt and are going to debase their currencies via money printing, quantitative easing, off-balance-sheet transactions, and whatever other tricks they can pull off. The bull market in gold is alive and well and has a heck of a lot further to go. Buy it. 

Adrian Ash: Next to overtrading, the biggest profit killer in gold this last decade has been to trust clever hedge funds trying to beat the metal. Sure, the best mining stock funds have delivered fantastic returns, but they struggled to outperform gold in 2010, and there’s no certainty that will continue. But if you’re right to buy gold for defense, then it's best to simply buy and hold until the prime drivers — abysmal monetary and fiscal policy across the West — are reversed. Oh, and of course, be sure to visit BullionVault for a free gram of gold, too!

Ian McAvity: For individual investors, don’t go crazy with leverage or portfolio concentration. No matter how much of a gold bug you are, keep in mind we’re in a period where the mistakes (QE2 is one of them) will compound the second half of the ongoing financial disaster that started in 2007. 

Ross Norman: For followers of cycles, 2011 looks like the year that the Kondratieff Winter begins to bite — a period normally associated with debt repudiation, trade wars, and firm commodity prices. A winter that puts Europe into hibernation, and the smart money acquires a protective coat. This is to say, buy gold, including the leveraged 2:1 ETFs.

These world-class experts are right to bank on gold and silver — because the U.S. dollar keeps losing more and more of its value. Watch this eye-opening video on how China and Russia are plotting to dump the dollar in the near term… why you should be worried… and what to do about it.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

You already know the basic reasons for owning gold – currency protection, inflation hedge, store of value, calamity insurance – many of which are becoming clichés even in mainstream articles. Throw in the supply and demand imbalance, and you’ve got the basic arguments for why one should hold gold for the foreseeable future.

All of these factors remain very bullish, in spite of gold’s 450% rise over the past 10 years. No, it’s not too late to buy, especially if you don’t own a meaningful amount; and yes, I’m convinced the price is headed much higher, regardless of the corrections we’ll inevitably see. Each of the aforementioned catalysts will force gold’s price higher and higher in the years ahead, especially the currency issues.

But there’s another driver of the price that escapes many gold watchers and certainly the mainstream media. And I’m convinced that once this sleeping giant wakes, it could ignite the gold market like nothing we’ve ever seen.

The fund management industry handles the bulk of the world’s wealth. These institutions include insurance companies, hedge funds, mutual funds, sovereign wealth funds, etc. But the elephant in the room is pension funds. These are institutions that provide retirement income, both public and private.

Global pension assets are estimated to be – drum roll, please – $31.1 trillion. No, that is not a misprint. It is more than twice the size of last year’s GDP in the U.S. ($14.7 trillion).

We know a few hedge fund managers have invested in gold, like John Paulson, David Einhorn, Jean-Marie Eveillard. There are close to twenty mutual funds devoted to gold and precious metals. Lots of gold and silver bugs have been buying.

So, what about pension funds?

According to estimates by Shayne McGuire in his new book, Hard Money; Taking Gold to a Higher Investment Level, the typical pension fund holds about 0.15% of its assets in gold. He estimates another 0.15% is devoted to gold mining stocks, giving us a total of 0.30% – that is, less than one third of one percent of assets committed to the gold sector.

Shayne is head of global research at the Teacher Retirement System of Texas. He bases his estimate on the fact that commodities represent about 3% of the total assets in the average pension fund. And of that 3%, about 5% is devoted to gold. It is, by any account, a negligible portion of a fund’s asset allocation.

Now here’s the fun part. Let’s say fund managers as a group realize that bonds, equities, and real estate have become poor or risky investments and so decide to increase their allocation to the gold market. If they doubled their exposure to gold and gold stocks – which would still represent only 0.6% of their total assets – it would amount to $93.3 billion in new purchases.

How much is that? The assets of GLD total $55.2 billion, so this amount of money is 1.7 times bigger than the largest gold ETF. SLV, the largest silver ETF, has net assets of $9.3 billion, a mere one-tenth of that extra allocation.

The market cap of the entire sector of gold stocks (producers only) is about $234 billion. The gold industry would see a 40% increase in new money to the sector. Its market cap would double if pension institutions allocated just 1.2% of their assets to it.

But what if currency issues spiral out of control? What if bonds wither and die? What if real estate takes ten years to recover? What if inflation becomes a rabid dog like it has every other time in history when governments have diluted their currency to this degree? If these funds allocate just 5% of their assets to gold – which would amount to $1.5 trillion – it would overwhelm the system and rocket prices skyward.

And let’s not forget that this is only one class of institution. Insurance companies have about $18.7 trillion in assets. Hedge funds manage approximately $1.7 trillion. Sovereign wealth funds control $3.8 trillion. Then there are mutual funds, ETFs, private equity funds, and private wealth funds. Throw in millions of retail investors like you and me and Joe Sixpack and Jiao Sixpack, and we’re looking in the rear view mirror at $100 trillion.

I don’t know if pension funds will devote that much money to this sector or not. What I do know is that sovereign debt risks are far from over, the U.S. dollar and other currencies will lose considerably more value against gold, interest rates will most certainly rise in the years ahead, and inflation is just getting started. These forces are in place and building, and if there’s a paradigm shift in how these managers view gold, look out!

I thought of titling this piece, “Why $5,000 Gold May Be Too Low.” Because once fund managers enter the gold market in mass, this tiny sector will light on fire with blazing speed.

My advice is to not just hope you can jump in once these drivers hit the gas, but to claim your seat during the relative calm of this month’s level prices.

If this is the kind of in-depth information you’d like to utilize for your investments, give BIG GOLD a risk-free try with 3-month money-back guarantee.

Jeff Clark is editor of BIG GOLD in Casey’s Daily Dispatch.

One of my best friends recently discovered, to his shock and dismay, that five one-ounce gold coins had been stolen from his home. I feel especially bad because I had encouraged him to buy some physical metal, giving him some tips and pointing him to the better dealers.

What’s especially disconcerting about the theft is that my friend had the coins stored in a safe, hidden from view, securely locked, with the key hidden. He thought his gold was safe, a reasonable assumption given the precautions he’d taken.

But all those measures weren’t enough. Based on what he knows, he strongly suspects it was a relative, partly because of this person’s background and partly because they were one of few familiar enough with the house to know where the key might be. The police unfortunately don’t have enough evidence to make an arrest – fingerprints, for one, couldn’t be successfully lifted from the safe.

My friend was in shock for several days. While it didn’t represent all the gold he owned, it’s not insignificant; with gold at $1,400/ounce, that’s seven grand the thief made off with. He’s further consternated by how it went down; the robber only took part of his stash, evidently to make it look like his gold hadn’t been disturbed. The key had also been put back in its place, and for this reason he can’t pinpoint a specific time period the coins were stolen.

The cost to him has been more than monetary; he loved his bullion coins and had collected at least one from almost every country that produces them. He told me he occasionally took them out of the safe because they were, in his words, “beautiful… and I just loved the weight of them in my hand.” His stash was starting to build up to a point where he had enough “savings” for almost any emergency. The pain deepened further when he learned that thanks to current IRS rules, he can’t even write off the loss. (He’s forgoing a homeowner’s claim, given the industry’s reputation for dropping customers for making “small” claims.)

Needless to say, my friend is no longer storing his gold (and silver) in that safe. He’s the kind that would normally shy away from using a bank safe deposit box, but not anymore. Even with that, though, he knew this method wasn’t perfect and so explored all his options. He’s decided to follow the suggestion I outline at the end.

After the dust settled, he told me that yes, he felt violated; yes, he’s still angry; and yes, it’s made him suspicious of others around him, a feeling he hates. “But what I suddenly realized,” he said, “was how valuable gold is becoming again. It’s not a ‘barbarous relic’ anymore… it’s not a pretty coin or a hunk of metal or a commodity or even an investment. It really is money, and it’s scary to think how dicey things might get when everyone sees gold as money again.”

My friend is not poor; there were other valuables the thief could’ve snatched. He took the gold.

So what about you? How safe is your safe? Are your clever hiding spots clever enough?

Here’s a quick checklist of the three most common places to store your gold. My friend overlooked one of the basic rules of home storage, so I hope you’ll review where and how you store your precious metals so that you can avoid the same pain and loss he experienced…

Safe deposit box

The easiest and simplest way to store gold is in a safe deposit box at your local bank. If you go this route, use a local bank. You want to be able to get to your gold in an emergency, which is one of the reasons you own it in the first place. So don’t keep it in a different state or a distant city. Keep it close.

However, as my friend acknowledges, a safe deposit box isn’t perfect. First, your access is restricted; you can only get to the gold during regular banking hours. Second, safe deposit boxes are not insured against robbery. And last, a bank box compromises your privacy. It provides a generous clue for the government, in case it ever decides to repeat FDR’s 1933 confiscation of gold.

A related option would be to use a depository or private vault. They’re outside of the financial system, though they tend to be on the expensive side. And they’re not plentiful, so you may not live near one.

Bury it

This is where the term “midnight gardening” comes from; people bury their gold at night so others won’t notice the digging. The alternative is to find a separate reason for the excavation, such as fixing a pipe or removing a stump, and work in the daylight.

Either way, before those of you who are used to clean fingernails pass on this method, consider its advantages: it won’t be damaged in a fire, and a burglar would need to know where to dig. A lot can happen in the world that won’t disturb buried gold.

A few practicalities, if you decide to go the shovel route. First, use the right container, something airtight and waterproof. This is especially important if you are storing numismatics or are burying silver in any form. We’ve been told those water bottles that hikers use work pretty well, but choose one heavy enough to stand up to years of erosion and persistent insects. Another choice is a small section of PVC pipe from your local hardware store; cap the ends and then bury it in a shallow puddle of cement.

Don’t use a coffee can, since the color on the metal can bleed. To protect from scratching, put each coin in a plastic baggie or something similar.

Where do you bury it? Your location should be neither too easy nor too difficult to find. Not too easy, so that the gold won’t be found by a thief. But not so difficult that years later, you or your heirs have trouble locating it. Complicated instructions (including treasure maps) can get muddled with time and create the risk your gold will never be dug up.

Find a place, on property you own, that you’ll always remember but that isn’t obvious if someone learns you’ve buried something valuable.

Keep in mind that most modern metal detectors can operate to a depth of about 4 feet for objects as large as a stash of coins or bars. There’s also ground-penetrating radar, used primarily by forensic investigators, that can detect where digging has occurred, as well as satellites that can pinpoint where ground has been disturbed.

Hide it in your house and/or use a home safe

Indoor storage is practical for smaller quantities. You can probably think of dozens of places in your home where no one would think to look. Avoid any place obvious, such as a jewelry box or cookie jar. The disadvantage of this method is exposure to, as my friend can tell you, theft, along with fire, flood, and other natural disasters.

Consider using a safe, ideally one secured to the floor. As one dealer said, “A safe can be brought in on a two-wheeler and taken out on a two-wheeler, if it hasn’t been attached to a building or at least hidden.” I’ve heard good things about Liberty safes, and they have a replacement guarantee. For obvious reasons, my friend is now gun-shy about using a safe with a key lock.

If you use a floor safe, locations for it include the garage, under a refrigerator, or anywhere you can place something over it. Another option might be under the floor of a storage or garden shed; you can both install and access it without being seen, day or night. We recommend installing it yourself, and some of the kits make it easier than you it might expect. We wouldn’t hire a contractor.

Before you buy a safe, however, I recommend reading this article from a veteran bullion collector: How Safe Are Safes? (If you can’t log in because you’re not a BIG GOLD subscriber, why not try it today risk-free for only $79 per year? Details here.)

Leave the right trail

However you store your gold, let exactly one person know the details. It needs to be someone in whose honesty and discretion you have complete confidence. It will be that person’s job to access the gold if you are incapacitated or die. If you are using a safe deposit box, his or her name should be included in the box registration, and they should know where to go to get the key.

Tell one person, but only one. No one else should know. This is especially important if you’re using home storage. You don’t want to come home someday to find your house turned upside down because someone heard you’re living in a treasure chest. Even worse would be to come home and find a looter waiting to have a chat with you. My friend kept quiet about his gold, but admitted some family knew about it. That’s all it took.

There’s just no other way to say it: Keep quiet about your gold.

Unless you’ve reached a point in life where you are depending on your children for help with your affairs, a child is not a good choice as your gold storage confidant. Kids talk, and you don’t know whom they might tell or how far the story might travel.

But you do need to tell someone, regardless of your storage method. I heard of an old miner who – no kidding – left a treasure map for his kids, to help them figure out where he’d hidden his gold. But someone else found the map – and his kids never got their inheritance. And what if the kids had received the map but weren’t very good treasure hunters? I’ve read similar stories about descendants who knew that gold had been left for them but had no idea where it was.

What if more than one person already knows you have gold? Review your home storage methods to be absolutely sure they are adequate, or use one of the other methods.

So what’s the best place to store your physical gold? Well, your choices boil down to three: store your gold in a safe deposit box, bury it, or hide it indoors. Each method has pluses and minuses, but probably the best method is a combination of them all. In other words, diversify your storage locations. My friend could’ve been wiped out if the robber hadn’t been trying to be sneaky.

Last, don’t let this scare you off from buying bullion. It’s still the asset that offers the best monetary protection for the foreseeable future. Not owning it may leave you feeling robbed when you go to use your paper dollars and find they won’t buy you as much as you thought. That’s not a theft you can prevent – unless you own gold.

Today it is more important than ever to allocate some of your portfolio to gold and silver. Right now China, Russia and other countries are plotting to dump the U.S. dollar – and they have started to hoard gold in never-before-seen amounts. Don’t wait until it’s too late to jump on the runaway gold train… watch this free video for more information.

Jeff Clark is editor of Casey's Gold & Resource Report in Casey’s Daily Dispatch.

It’s hard to believe that less than three years ago, silver was $8.80 an ounce. Since then it has nearly quadrupled in value (up 385%) and more than doubled in the last 12 months alone.

That’s great for those who already own the metal – but is it too late for the rest of us to get in?

To answer that question, BIG GOLD Editor Jeff Clark sat down with our friends of The Daily Crux. Read what he had to say about the silver rally, and why you should view any correction as good news.

Crux: Jeff, silver has had an incredible run over the past year or so… Where do you think it’s headed next?

Jeff Clark: Well, that’s probably the most common question we get these days. Silver has definitely been very exciting. The price has basically doubled in a year, and many of the stocks have done much better than that… So you could be forgiven for asking how long that can continue.

I think the bullish case for silver going forward comes down to three main factors.

The first is industrial demand. Everyone knows industrial use is much greater for silver than gold, and that does make it more susceptible to an economic slowdown. But what’s interesting is these industrial uses are growing rapidly.

For example, all of the following uses for silver are increasing: medical, electronics, food processing, water treatment, paper, building materials, wood preservation, textiles, consumer products… the list goes on and on. Every bandage-maker, for example, now offers a silver-based product. You can buy silver-laced toothbrushes, hairbrushes, combs, and make-up applicators. In England, you can buy silver-based soap.

The takeaway is that all these uses are on the rise, so even in an economic slowdown, there is a higher level of base demand. The demand for any individual application could decline, but the total number of applications for silver is increasing. Over time, I think we’ll see increasing levels of demand.

The second major factor is investment demand. Investment demand is soaring and can’t be ignored. The U.S. Mint sold more one-ounce Silver Eagles in January than in any other month since they began creating them in 1986. China’s net imports of silver quadrupled in 2010. Against all this you have the fact that most Americans don’t own any gold or especially silver. So even though there’s already incredible investment demand, the potential for it to increase is still tremendous.

The third factor is supply. Ask yourself what’s wrong with this picture: Total global demand for silver is about 890 million ounces a year. Worldwide mine production is about 720 million ounces a year. Scrap currently makes up the difference, but I think the crucial point to recognize is that producers can’t dig up enough silver to meet current demand.

So what happens if industrial uses continue to rise? What happens if investment demand continues growing? What happens if we do get some type of currency collapse? What happens if Doug Casey is right and we get a true mania in gold and silver?

We had bottleneck issues with physical supply in 2008, where mints across the world couldn’t keep up with orders. A lot of it was due to them being unprepared for the rush, and they’ve since improved some of their operations. That’s great.

But even with all the improvements, even after adding equipment, even after adding staff, even after adding work shifts… they’re still having issues. Over the past three or four months, we’ve been hearing about mints having delays, temporarily running out of stock, etc. So it’s still a problem.

And if all the factors I just mentioned come into play, then I think you could say "Bottleneck, meet desperation." Regardless of how well prepared a manufacturer might be, demand at some point could legitimately overwhelm the system, and I think that’s a very real possibility. Anything could happen. But the scary thing is, we may not have enough supply to meet demand if we get a mania.

So based on these factors, my view is that silver can continue rising for quite some time. I don’t think it stops until SLV, the silver ETF, is a favorite of the fund managers… until Silver Wheaton is a market darling of the masses… until Pan American Silver is Wall Street’s top pick for the year… That’s when I’ll be looking for the end of this silver bull market.

Crux: Speaking of a mania, just how high do you think silver could go? Clark: Many people don’t realize this, but silver rose 3,646% in the 1970s, from its November ’71 low to its January 1980 high. If you were to apply the same percentage rise to our current bull market, silver would climb another 500% from here, and the price would hit $160 an ounce.

Those are just numbers, but it shows that we have an established precedent for the price to go much higher.

It’s the fundamentals, of course, that will determine how high the price ultimately goes. Show me a healthy dollar, show me no threat of inflation, show me a responsible government that stops printing money… Show me a repentant Iran and North Korea… Show me that the sovereign debt issues in Europe are resolved… Show me positive real interest rates… Show me that unemployment is plummeting, that bank closures have stopped, that real estate is recovering…

Show me all that and we’ll talk about the gold and silver run being over… But until those things start changing in a big way, I’m buying.

Crux: Silver bears often suggest that a large part of the rally in the last bull market was due to the Hunt brothers, who were accused of trying to corner the market. What do you say to that? How much do you think they attributed to the price rise in the ’70s?

Clark: Well, I’m skeptical that the reason silver went as high as it did was primarily due to the Hunt brothers’ activity in the market. It’s interesting to note that they bought silver primarily because they mistrusted the government, and because they thought silver was going to be confiscated. Remember… gold ownership was illegal when they first started buying silver in the early ’70s.

Yes, they bought a lot of silver… But if you look at the correlation, you’ll notice the price didn’t necessarily move up when they bought. In fact, when the rumors that they were trying to "corner" the silver market really started going mainstream, which was in the spring of 1974, the silver price dropped solidly for the next two years. One would think that the price would’ve risen, not fallen, if silver was being "cornered."

Secondly, if you look at price charts, silver moved in lockstep with gold back then. They rose and fell pretty much together. They both peaked on the very same day, January 21, 1980. So unless the gold market was equally spooked by what the Hunt brothers were doing with silver, it seems a stretch to assume they were the primary cause of the rise.

Last, as my editor pointed out, you have to consider that it was the mainstream media that largely promoted this idea the Hunts were "cornering" the market. With that in mind, one has to be suspicious that was, in fact, the case.

To be clear, I’m sure they had some effect, but to suggest they were the main impetus behind silver’s tremendous rise doesn’t seem wholly accurate. And look at the price today… It’s outperforming gold in our current bull market, just as it did in the ’70s, and there’s no Nelson Bunker Hunt around.

Besides… who’s to say that we won’t see other "Hunts" come along today and try to buy up large quantities of the metal? I wouldn’t rule it out.

So again, I think it’s more important to look at silver’s fundamentals for any kind of price projection than a one-off event. And those fundamentals are very bullish.

Crux: What are the bearish arguments for silver?

Clark: Well, I touched on it earlier… but if the economy crashes, silver is likely to suffer more than gold due to its large industrial use component. Another factor is that silver is not bought by central banks, so one source of demand for gold is not present with silver. But I think the bigger trend of a currency crisis is going to dwarf those concerns… And I think that silver will do very well in that environment.

Silver is more volatile than gold, but that just means you get better opportunities to buy it cheaper, and probably make more money on it if you sell near the top.

So yes, there are bearish arguments for silver, and one has to be prudent in buying it – you don’t want it to be the only asset you own, for example. But it would be equally a mistake to not own a meaningful amount.

Crux: So… is today a good time to buy?

Clark: Well, how many ounces do you own? And what percentage of your assets do those ounces represent?

There’s your answer. If you have minimal or no exposure, I suggest buying. Don’t rush out and spend all your available cash, because there will always be corrections, but the less you own, the more you want to make a plan to add a meaningful amount to your portfolio.

Remember… silver is a currency replacement just like gold. It’s money… and therefore you want to make sure you own enough for both protection and profit. If you don’t own enough, I suggest going into "accumulation" mode… buying some on a regular basis, like dollar-cost averaging.

Our recommendation in Casey’s BIG GOLD– which is a conservative letter, by the way – is that approximately one-third of your investable assets be devoted to the precious metals market. That includes gold, silver, and precious metal stocks. That may sound extreme to some, but we think the risk to currencies right now is extreme. Therefore, being overweight precious metals is justified. Obviously, each individual investor has to be comfortable with what they do.

Crux: Do you a recommend a certain percentage of ounces in silver versus gold?

Clark: We generally recommend you hold more gold than silver. We suggest approximately 70%-80% in gold versus 20%-30% in silver. Depending on your situation and risk tolerance, you may wish to have more or less in silver, but again the point is to have meaningful exposure.

Crux: For individuals who are new to buying precious metals, what are your preferred ways to purchase silver?

Clark: The options are becoming more and more mainstream, so it’s getting easier to buy both metals. The alternatives are growing, and they’re also improving. You basically have two choices: You can either buy and store it yourself, or you can buy and have someone else store it for you. Ideally, you want to do both… you want to diversify.

There are risks to storing metals yourself, such as theft, loss, or fire. You can put it in a safe deposit box, but then it’s in the financial system and it’s subject to banking hours and could even be susceptible to confiscation, though I’m skeptical that will actually happen. But I do think everyone should have some physical silver handy, at least a couple months worth of expenses.

So the short answer is to diversify what you buy and how you store it. For physical silver, I would stick to buying the popular one-ounce bullion coins – Eagles, Maple Leafs, etc.

You can also buy silver funds and ETFs in your brokerage account or online, and there are definitely some advantages to doing that. They’re easy to buy, sell, and trade. There’s no need to mess with the storage yourself, and it’s especially beneficial for those who have larger holdings. You can put $50,000 worth of gold in the palm of your hand – but $50,000 worth of silver would require a small suitcase, so space is an issue. A lot of online options now have delivery alternatives available, and some even have free storage. Options here include the various ETFs, closed-end funds, online options like GoldMoney or BullionVault, and certificate programs like the Perth Mint Certificate.

So find a couple options you’re comfortable with, diversify your holdings, and just continue to buy on the dips, with the intention to hold until the bull market is over.

Crux: How about silver stocks. Can you give us a favorite?

Clark: Well, it’s pretty clear the go-to stock in the silver industry – in my opinion at least – is Silver Wheaton. It’s definitely been a sweetheart the past two years. It’s given us everything we could want in a silver stock.

The stock suffered badly in the meltdown of ’08, and things did get a little dicey at the time, but I remember thinking that unless the world comes to an end and the silver price never recovers, this company is going to survive and bounce back – in part because of management and in part because of the business model. They have no exposure to mining costs, for example.

Shares back then were around $3… If you bought at the time, they’re now a ten-bagger. So it’s been an incredible run.

The question, of course, is going forward: Since the stock is already at $35, can it be another ten-bagger from here?

Well, the company expects to increase "production" by 70% by 2013. And their costs will basically stay stagnant. Meanwhile, imagine where the silver price could be in the next two to three years, and you can see this company can make enormous amounts of cash. Some of that is probably priced into the stock already, but you can’t deny where this company is headed over the next few years.

In the bigger picture, you have to look at our currency issues – they’re very real. They’re deep. They’re intractable. So when I look at what is likely to happen to the dollar and thus what level of inflation is probable, I think silver will go substantially higher, which means Silver Wheaton is going to go much, much higher. Only if you believe deflation ultimately wins the war and that inflation doesn’t occur do you think silver or Silver Wheaton won’t do well.

Could it have a big correction? Well, it recently dropped as much as 28%, but sure… it could easily fall more than that in a major correction. But if that happened, I’d consider it a big buying opportunity.

In my opinion, the bigger the correction, the bigger the buying opportunity, because I really believe the future is very bright for that company.

Crux: Sounds good. Any parting thoughts?

Clark: If you’re bullish on gold, I think you need to be bullish on silver, unless you think inflation will never come to pass. Regardless of the short-term fluctuations in the market, it’s only a matter of time before the currency issues punch us in the gut and inflation really takes off.

Second, remember that silver will be volatile, but focus on the fundamentals and use selloffs as buying opportunities. Until the fundamentals driving the bull market change, buy.

Bottom line, the bull market is far from over. I think it’s going to go much longer and much stronger… So buying on dips is the best advice I could give anyone.

Crux: Thanks for talking with us, Jeff.

Clark: You’re welcome. Thanks for having me.

Editor’s Note: Readers of Casey’s BIG GOLD can access Jeff’s full list of the world’s best gold and silver stocks, along with Casey Research’s preferred and trusted precious metals dealers. Get your three-month trial with a full money-back guarantee today.

Jeff Clark is editor of Casey's Gold & Resource Report in Casey’s Daily Dispatch.