Interest Rates Low; Gold Prices Up!
(Bonds at 3%, or gold at 18% is an easy choice!)
Silver Stock Report
by Jason Hommel, June 30th, 2012
JH MINT, Inc., has over $1 million of silver and gold to sell. Visit us at www.jhmint.com
Silver and gold will continue to rise for years to come because the government continues to spend money it does not have.
If you invested $10,000 into bonds paying 3% in the year 2000, you would now have $14,258.
Had you put $10,000 into gold in the year 2000, you would now have $72,876 worth of gold.
Whoever said that "gold does not pay interest" gave "epic fail" investment advice, and got the concept completely wrong. It's not the interest, it's the capital appreciation that counts!
Gold is at all time highs, but we are nowhere near an ultimate market high yet, as gold is only $1600/oz. The prior high in 1980 was $850/oz., which would be $8,500 if you adjusted for inflation of the monetary base, which has increased ten times, from $1.8 trillion to about $18 trillion. In 1975, gas prices increased beyond $.50/gallon. Today, gas is nearing $5/gallon, nearly ten times as much.
In the year 2000, oil was $10/barrel. It recently went over $100. If gold had merely kept pace with oil, gold would be $2500/oz. or more. But gold will outpace oil, because gold is money, and oil is not. Oil is too bulky and costly for most people to store, but people will buy gold.
In 1980, they stopped the runaway bull market in gold prices, that threatened to destroy paper money, in two ways.
First, the Federal Reserve let interest rates rise to over 20%. Interest rates are low now. If they let rates rise, most businesses on Wall Street that are in debt will go bankrupt, and the stock market and bond market will both crash, and the government, too, would be paying $3 trillion per year in interest alone on the $15 trillion national debt. As it is, the government spends $3 trillion now, and only collects $1.5 trillion; hence the problem and impossibility of letting interest rates rise to let paper money compete with the returns of gold. The 20% interest rate alone would cause extraordinarily high inflation.
Second, in 1975, they introduced the futures market in gold, so that gold buyers could buy gold using paper leverage, and invest the difference into bonds. This diverted investment demand away from real gold, and back into paper money. These days, far too much silver and gold have been sold on paper that the paper metals markets are likely to become completely discredited before this gold bull market is over.
So, the two mechanisms used to reign in the gold price are not likely to be available this next time around. Thus, it is safe to buy gold for years to come.
Here are some more of my thoughts on why interest rates will stay low:
The trouble with JP Morgan and most of the derivatives in today's world is that the bulk of them are "interest rate derivatives". Also, the bulk of the derivatives are held by JP Morgan.
JP Morgan has roughly $80 trillion in notional value of derivatives, backed by $1.8 trillion now in capital?
The $80 trillion will implode, explode, default, whatever the term is, "cause massive losses" in the "too big to fail" bank if interest rates rise. See, JP Morgan is not just the silver short, they are the ones manipulating interest rates low, too. If they rise just a little bit, JP Morgan's capital base of $1.8 trillion is quickly wiped out on the back of the $80 trillion bets going wrong.
JP Morgan has two big problems; and the silver problem is the small one, and the problems are similar, there is nobody available to take the other side of the trade.
Who is going to take on the massive short position in silver? Nobody, that's what JP Morgan is there for.
Similarly, who is going to bet that interest rates will only keep going down, when the vast majority want to hold and own the opposite side of the trade, such as the "inflation indexed bonds" that ostensibly will go up when inflation does?
We have a mystery to explain here. We all know that interest rates must rise to contain the runaway bull market. The problem to explain is "why haven't they yet", and "when will they"? I think I just explained it.
They are not rising, because JP Morgan would implode, and the cost would be horrifically large bank bailouts (so large that it would cause massive inflation driving gold even higher) that would cause people to revolt if they knew about it.
The other problem is that letting rates rise causes bond values to drop, and bond values dropping while gold values are rising is not a good thing, as it causes people to sell bonds for gold, increasing the cycle, and they don't want to start that cycle.
Thus, the gold bull cycle has really not yet started.
And they will only let interest rates rise, when they let JP Morgan go under. That's my guess.
As I began to research this further, what I found was shocking.
The Federal Reserve now openly admits to manipulating interest rates!
"To provide further support for the U.S. economy, the Federal Reserve has purchased large quantities of longer-term Treasury and government agency securities in an effort to further reduce longer-term interest rates."
That was June, 25th, on the Fed website!
Then, 3 days later, I read that major banks are being investigated for manipulating rates? !!!!
UK probing more banks for interest rate fixing
"Osborne said Barclays was not the only bank to be involved in market fixing. Beyond the U.K., there are also investigations in several countries involving numerous global banking groups."
When writing about these topics, there are usually several things on my mind.
It boils down to what is the government doing and going to do; and based on that, what should we do?
U.S. Government is manipulating interest rates low, and succeeding.
Ultimately, the U.S. Government can only succeed at keeping gold from rising, if they let interest rates rise, so that bonds pay a similar rate as gold's capital appreciation rate.
"In its June 2012 statement, the Committee indicated that it anticipated that the federal funds rate would remain exceptionally low through at least late 2014."
See, that's over two more years of low interest rates, "through at least late 2014"!
The U.S. Government is afraid that if they let interest rates rise, it would crash the stock market, and bond market, and housing markets! All over valued in my opinion, and all need to come down further, in my opinion. The Fed states the same reasons:
"Low interest rates help households and businesses finance new spending and help support the prices of many other assets, such as stocks and houses."
Thus, with interest rates nearly guaranteed to remain low for at least the next two years, based on the Federal Reserve's openly stated market intervention, gold is a safe bet, because gold is going up by 18% per year on average, and will probably do better than that in the next 1-2 years. Gold is also on a price dip now, so gold will be exceptionally good to invest in now, for excellent returns over the next one to two years at the minimum, and probably excellent for the next ten years as well.
As always, silver is poised to outperform gold, given the tiny relative size of the silver market, and silver's consumption in electronics make that tiny market even smaller, and more prone to go up with even the tiniest investment.