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November 2008 Silver Investor www.silver-investor.com

November 2008 Silver Investor www.silver-investor.com

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Panic, global panic is what we are watching. This is more than a credit crisis. At this point, the paper money system has failed, yet the mainstreamfinancial power brokers are doing everything in their control to try to keep thesystem going. With each new intervention, the market is clearly stating thiswill not FIX the problem. There is no trust left in the system . . . the financialplayers do not trust each other.This does not mean that the world has come to an end or commerce willgrind to a halt. What we are witnessing is that the pricing mechanism hasfailed. No one knows what anything is worth. What is a second mortgageworth? What is a credit derivative worth? What is Ford Motor worth?Certainly, many are asking, “What are commodities worth and in particularthe precious metals and their underlying equities?”Professor Roubini states that all assets are at risk and to move into cash ornear cash (T-Bills). We are not favorable to getting aggressive in the miningsector yet but see too big a risk of a U.S. dollar failure—death of the dollar—to not highly recommend that you decide whether you have enough gold andsilver coins in your possession. If you have already secured your position then“Hundreds of hedge funds will failand policy makers may need to shutfinancial markets for a week or moreas the crisis forces investors to dumpassets.” (Bloomberg, Oct. 23)Professor Nouriel RoubiniClick Here To Watch VideoReminder! David Morgan will be out of the office for the next few weeks while at theSilver Investment Summit in the UK. Our support team will be available during hisabsence. The summit starts Wednesday, 5th November 2008 London. DavidMorgan will be speaking at this event. Details can be found here:www.silversummit.co.uk
 Volume 10 - Issue 11 - November 2008Published by: David Morgan
David Bensimon gives update
Page 14
 Asset Allocation
Page 18
Interview with Anglo Far East
Page 6
MONEY, METALS AND MINING
Hyperinflation OR Deflation?
Page 2
 Anglo Far-East Has been called"The Original" Private gold andsilver custodian.Privacy, InternationalDiversification of Your BullionHoldings, Extraordinary Governance.Learn More Here...
 
2WWW.SILVER-INVESTOR.COMTHE MORGAN REPORTNovember 2008 Copyright © 2008
relax and know you have protected yourself, because bothgold and silver are the money of last resort. If you do nothave any or enough silver and gold coins, then considerbuying what you need, even if you need to pay a hugepremium.Many have asked about the deflation versus inflationargument again and this is natural because we all want toknow, and as investors we need to understand how to bestapproach what lies ahead. We have been so devastatedthat personally it makes little sense to sell any preciousmetal at all, and in most cases holding onto your mining equities is probably the bestchoice presently. There is the exception ofselling if you know the company is basically not going to remain in business and/or it isto your tax advantage to take the loss. We’ve received many letters and one of thebest was this blurb:“The Fed is spending money at anastronomical rate. It’s creating this money out of thin air by monetizing bad debts andwhatever else it has to. Remember, this ison top of all the other ongoing governmentexpenses and it’s extremely inflationary.“Normally, there is a lag of about a year or so betweenmoney creation and inflation but eventually, what’srecently happened will result in massive inflation, a muchlower U.S. dollar and a soaring gold price. This isinevitable, but, as our dear friend Chris Weber points out,not necessarily.“The bottom line is this: If the banks start to lend again,then the economy will be on the road to recovery andinflation. But we know the banks are scared and they’rebeing extremely cautious, for good reason. So if the banksdecide not to lend and instead just sit on their cash, thenthe inflation process will freeze.“In other words, the risk of deflation has greatly increased.Inflation is not a given, and much will depend on what thebanks do or don’t do in the period just ahead. The Fed isproviding the ammunition but the banks have to use it. Ifthey don’t, the outcome could be much different than whatmost analysts feel is a done deal.”First, I know Chris Weber and find him to be one of thebest in the newsletter business; in fact, we have postedsome of his writings with his permission. I agree and havenever ruled out deflation entirely. As a matter of fact, whenI began speaking in public, my initial case was fordeflation. At this point, let me be extremely clear: My viewis not necessarily correct but it has been thought throughcarefully. About a year ago I interviewed Bob Hoye, a devoteddeflationist, and then David Bensimon the followingmonth, and he saw inflation with a huge spike in interestrates. Clearly, I saw logic in both arguments andconcluded that we would experience a deflationary scarebut the Fed and all central banks would do everythingpossible to print their way out of the mess. We have gone well beyond a deflationary scare, andassets are deflating at the same time the credit supply keeps increasing. Even gold (Bob Hoye’s favorite—goldonly!) is not doing that well in U.S. dollar terms, but goldhas hit highs in terms of other national currencies. So far,the gold and silver mining stocks have been a disaster. So,in essence even the strict deflationists have gotten it partly wrong, at least so far; however, to be fair, most advocatea strong cash position.Let us first look at the facts and then perhaps we can usethis information to help determine the most likely outcomein the future. The first fact is that it is almost impossible toget real gold and silver anywhere.For example, this is just some of what I received thismonth.From Hugo Salinas Price, who longtime readers will knowis instrumental in getting the silver Libertad to circulate inMexico alongside the peso:“Our central bank has informed us as of this morning thatthey will only be able to supply us with 60,000 ‘Libertad’ounces from here to December 2008. Banco Azteca has instock only 15,000 ounces at this time. Banco Azteca has
 
Copyright © 2008 November 2008THE MORGAN REPORTWWW.SILVER-INVESTOR.COM3
been selling 60,000 ounces a month in August and inSeptember.“Question: How is it possible that a country which is eitherNo. 1, or No. 2 (Perú sometimes exceeding Mexicanproduction) cannot supply silver coin?“Question: Is there some sort of agreement at high level,to restrict the amount of silver coin that the population canobtain?“Question: Does this measure go beyond the scarcity ofsilver at the present ‘paper price’ of silver, to a deliberaterestriction of silver coins to be placed in the hands of thepublic?“This restriction on supply on the part of the Banco deMéxico, which mints the ‘Libertad’ ounce, is disturbing tosay the least.Hugo Salinas PriceThis came in at the last moment:“We've been informed that the Bank of Mexico isexplaining the measures it has taken to restrict access by Mexicans to possession of Libertad ounces, as follows:‘The House of Money has an excess of work and becauseof this it cannot mint the coins which the public isdemanding.’”Then we received this from a reader about the Perth Mint.“Looks like the Perth Mint is shifting production to just 1-ozroos? The newsletter I get from a dealer had the followingat the end. Demand must still be going gangbusters.‘Quote:
Important Update- As of today 20th October 2008 thePerth Mint has halted production for any new orders of allbullion gold & silver coins except for the 1oz GoldKangaroo’s. This decision has come in the wake of unprecedented quantities of orders which the Perth Mintare currently working on filling by striking more coins 24hours a day 7 days a week. We will be able to take ordersfor 1oz Perth Mint Gold Coins locking in prices howeverthey will incur delays in delivery beyond our control.
’”Then I received this, from India no less, wanting to buy 10tons on a monthly basis.“Our requirement at the moment will be around 10 tonnes(10,000Kg) for our firms at Delhi, Ahmedabad, and Jaipurper month. Please be informed that direct import of silveris not allowed in India. It has to be routed through Banksin India which we will arrange. You have to ensure that thesupplier is of repute and the goods are LBMA certified sothat our bank do[es] not hesitate to get into a deal with thesupplier. Currently we are importing silver from AGR MATTHEY for your information.”Of course we know that the U.S. Mint is stated they are notminting any more gold or silver for a while, and BillMurphy had this comment, “Regarding the ‘blanks,’ theMint says it doesn’t have to keep up with Gold Eagle,Buffalo coin demand, even normal demand. They areavailable, but the Mint won’t pay the premiums others willto get the supply. There is NO shortage of blanks. What afarce!”So if we looked from an extreme perspective we mightconclude that Mexico, the U.S., and Australia are allworking at capacity and cannot meet demand, or perhapsit’s something to the effect that those governments do notwant a rush into gold and silver to take place? Regardless,people all over the world are seeking to hold the realmetal.Many have started to take delivery from the COMEX andthis is the best way to buy physical at the lowest premium,but these are roughly 1000 troy ounces. As far as resellingthese bars, personally I have never had a problem buthave not sold back to the COMEX, just to some of themany dealers I know on a first-name basis. In these cases,as long as the bar is stamped with a COMEX-knownhallmark, they are happy to pay spot price or perhaps afew pennies less.If this type of demand continues, it has to be puttingpressure on the silver market, and if perhaps as little as 25million ounces were moved off the Exchange, it might beenough of an impact for the COMEX to put an end to thedelivery option—something many of us have stated was adistinct possibility. Were this to happen, the physicalmarket would most likely explode, because the perceptionwould become reality: “Silver is indeed scarce and now Ido want it!”However, I wish to explore the idea that Hugo SalinasPrice posed, namely, “Is there some sort of agreement athigh level, to restrict the amount of silver coin that thepopulation can obtain?” We do NOT want to state this isthe case but merely wish to explore what this could meanfor the COMEX. If this were true it would put the COMEXin a very interesting spot, because wouldn’t this mean they too could be asked to slow down or stop delivery ofcommercial silver bars?Finally, Jim Sinclair states, “Gold is a currency. Papercurrency insures nothing. Gold is insurance. Gold is not acommodity. Gold will trade at a minimum of $1650

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