By Jeff Clark, Casey Research

Let’s explore the advantages of saving in gold and silver over dollars. Here’s a hypothetical look at what could occur over the remainder of this decade.

The charts below compare saving $100/month in gold and silver vs. an interest-bearing money-market account. For our projections, we assumed gold’s average annual gain of 18% since 2001 will continue through 2020. For the money-market account, we used an annual interest rate of 1% in 2012 and added 0.5% each year, so that by 2020 it’s earning 5%.

Here’s what would transpire by 2020:

If you invested $100/month from January 2012 through December 2020, your total contributions would amount to $10,800. In the money-market account, your savings would compound to $12,959.48, for a gain of 20%. For gold, however, the value of the metal would reach $27,025, for a return of 150.2%.

For silver, we’ll assume it matches its 25.3% average annual gain from the last ten years through 2020. Here’s how it would stack up against money saved in a money market account.

The money-market account would again gain 20%, but the value of silver would reach $39,302, for a total return of 263.9%.

[We caution against investing more money in silver than gold; the metal is much more volatile, and has large industrial applications that could hinder the price in a poor economy. And if fear is high, gold will be sought before silver.]

As you consider these data, keep in mind the power of dollar-cost averaging. Using this strategy to accumulate gold and silver will lower your cost basis automatically because you’ll buy more ounces when prices are low and less when they’re high. And that highlights another gain: Buying systematically removes emotion from the equation. “Buy on dips” is good advice, but it doesn’t tell you exactly when to buy. A commitment to dollar-cost averaging eliminates that question.

You may argue that interest rates will be higher later this decade, and you’ll probably be right – but we offset that likelihood by excluding any mania in precious metals. Also, taxes must be considered, as rates are higher on capital gains for gold and silver than for passive income, yet you’d still be left with a much greater return.

At the risk of repeating ourselves, at this point, with the monetary and fiscal predicaments confronting many of the world’s governments, and the probable responses they will employ, we recommend a good chunk of your savings be held in gold and silver.

Is There a Best Time of the Month to Buy Gold and Silver?

If you’re going to dollar-cost average your purchases, it might be useful to know if there are days of the month that are better to buy than others.

We measured the performance of both gold and silver for each day of the month from 2001 through 2011, and then calculated the average daily return.

Here’s what we found for gold.

Clearly, the 13^th, 15^th, and 23^rd are ideal days to buy since the price tends to be the weakest.

Here are the data for silver.

The 13^th and 15^th again stick out as good days to buy.

If you’re accumulating on a weekly basis, we found Tuesday is the weakest and thus a good time to buy (as well as Friday for silver).

A few things to consider if you decide to use this information:

• *The figures are averages, so there are days when prices bucked the trend. View these results as tendencies, not certainties.
• *These days might fall on weekends or holidays and so won’t be available every month.
• *The calculations use daily closing prices, which would be almost impossible for an investor to match.
• *The results measure past performance and can’t predict the future (though we see no reason for a significant shift).

That said, if you arrange to buy gold on the 13^th and silver on the 15^th of each month – or on Tuesday for either metal if buying weekly – your cumulative gains stand a statistically greater probability of being slightly higher. Again, your mileage may vary.

[Jeff Clark and Louis James, both on Casey Research's metals team, do their best to wring actionable ideas out of every possible bit of information they find regarding precious-metals investments. And now you have an unprecedented opportunity to hear them discuss their ideas and maybe even answer your question. Learn more, then act fast – you must sign up by midnight EDT on Friday, April 6.]

Analysts at influential investment banks are finally coming around to realizing the driving forces for gold and leading indicators are signalling renewed strength in the yellow metal.

Goldman Sachs: ‘Gold to hit $1,840/oz in six months’

Goldman Sachs, one of America’s most notorious banks, has often been incorrect in predicting a bursting of the gold “bubble” many times over the last decade’s bull run. In yesterday’s note, however, the wallstreet bank makes clear that they are now much more in tune with the driving forces of precious metal prices. We have made the case for precious metals based on a negative interest rate environment for some time, but we did not think our analysis would turn out be aligned with Goldman Sachs.

Here is what Goldman analysts say regarding gold in their latest report:

“Under our gold framework, US real interest rates are the primary driver of US$-denominated gold prices. However, after being remarkably strong in the first half of 2011, this relationship broke down last fall, with gold prices falling sharply in the face of declining US real rates, as tracked by 10-year TIPS yields. While gold prices have returned to trading with a strong inverse correlation to US real rates since late December, at sub-$1,700/toz they remain below the level implied by the current 10-year TIPS yields.

We believe that despite last fall’s decline in 10-year TIPS yields, the gold market may have been expecting that real rates would soon be rising along with better economic growth, leading to a sharp decline in net speculative length in gold futures. Accordingly, a simple bench-marking of real rates to US consensus growth expectations suggested a level of +40 basis points by year end. Our models suggest this higher level of real rates would be consistent with the current trading range of gold prices. As we look forward, our US economists expect subdued growth and further easing by the Fed in 2012, which should push the market’s expectations of real rates back down near 0 bp and gold prices back to our 6-mo forecast of $1,840/oz.”

In short, Goldman, and us, expects US real interest rates to decline as the perceived “economic growth” slows and the Federal Reserve jumps in with more monetary stimulus. The six month gold forecast of $1,840/oz by Goldman implies a 24% annualized rise in the price of gold going forward from today.

Bloomberg recently reported on Goldman’s call for gold, and you can see the video segment here (if reading an e-mail, visit GoldNews.com to see the video):

Macquarie Private Wealth: ‘Gold to hit $2,250/oz’

On an even more bullish tone from Macquarie in Canada, the managers of more than $100 billion in funds, expectations are for gold prices to soon top $2,000/oz. Macquarie’s reasoning is similar to Goldman’s in that they expect long term yields to come back down, the economy to slow, increased sovereign crises around the world, and additional Fed easing. Macquarie also points to the seasonal nature of gold and that March is traditionally a bad month, coupled with unusually high negative sentiment and the bargain prices being offered at present, indicating gold is likely very attractive now to longer term holders.

Macquarie presented the following images to help make their case:

By Vedran Vuk, Casey Research

Exchange-traded funds have been all the rage in recent years – they are easy to buy, easy to sell, and often have lower expense ratios than index mutual funds. But the Casey Research team dug deep into the complex world of ETFs and found that in many cases, their names can be utterly deceptive.

Here are a few excerpts of our revealing special report, The Top Ten Misleading ETFs.

Market Vectors Junior Gold Miners (GDXJ) – This ETF sure has a funny definition of a junior mining company. In my opinion, a junior miner is a small, speculative company just getting off the ground. Our publication, Casey International Speculator, specializes in this particular kind of company. If I had to put a number on the market cap, I’d say that junior miners fall under the $500 million mark. If you really want to push the definition to its limits, maybe a market-cap ceiling of $1 billion could still qualify for junior status.

Regardless of the exact line of demarcation, most of us can agree that “junior” means “small.” Furthermore, most investors can agree that market caps over a billion dollars are anything but small. A billion isn’t a major, but it’s clearly in mid-tier territory. That said, the Junior Gold Miners ETF’s top 10 holdings are all over a billion dollar or more. The top holding, with 5.23% of assets, even has a market cap of $2.4 billion – that’s not exactly a junior, to say the least, and neither are the other companies on the list:

SPDR Gold Shares (GLD) – Since the last two funds had problems with rolling over futures contracts, you might be thinking to yourself, “Well, why not just buy funds that actually hold the underlying assets?” That’s a genius idea… if it were only so simple. Even SPDR Gold Shares (GLD), a fund that holds physical gold, has much hidden in its fine print.

At first blush, most investors think that GLD securely protects their gold and that they can retrieve it upon request. Yes, GLD has a giant vault where gold is actually kept. However, exchanging your paper shares for gold is much harder than the click of a mouse that gets you into GLD.

First of all, to retrieve the gold one must have special permission – meaning one is either a broker or market maker. And there’s another footnote worth mentioning: Gold can only be redeemed at a minimum of 100,000 shares of GLD, equivalent to 10,000 gold ounces (a little over $17 million at current prices). For the high rollers reading this article, that might mean something. For the average Joe out there, that means you will never be able to redeem your GLD shares for gold. Those shares are nothing more than pieces of paper – or worse yet, electronic bytes in your account.

With a closer examination of GLD, even the high rollers are misled by GLD. Deep in the SPDR Gold Shares prospectus, the fund includes an option to redeem gold requests in cash rather than physical metal. So, even if you are holding $17 million in GLD, you still might not receive your gold upon request in the case of a crisis in the gold market.

But wait – there’s more. Though GLD seems like any other ETF, it isn’t. GLD is structured as a grantor trust. Hence, the investor doesn’t pay taxes similar to regular ETFs. Instead, the investor pays taxes on the underlying assets – in this case, gold. Unfortunately, gold is taxed for long-term holdings at a higher rate of 28% as a collectible instead of the 15% capital gains tax. What seems like a simple fund actually has a world of complicated specifics in the fine print.

iShares MSCI Emerging Markets Eastern Europe Index Fund (ESR) – What do you think of when someone says “Eastern Europe?” The Iron Curtain, stuffed cabbage, kolaches, pierogies… No, besides that. For anyone who’s been asleep for the past few decades, Eastern Europe now has more countries than most can count. In the Balkans alone, there’s Slovenia, Croatia, Bosnia, Serbia, Montenegro, Macedonia, and even Kosovo… not to the mention all the other countries, such as Romania, Bulgaria, Lithuania, Estonia, the Ukraine… and the list goes on.

With so many different countries and stock exchanges, an ETF would seem like a perfect way to cover them all. Unfortunately, the MSCI Emerging Market Eastern Europe Index Fund (ESR) will cover none of those countries just mentioned. In fact, the ESR does a better job of covering Russia, with a 76% allocation, than the rest of Eastern Europe – a whole 21% of the fund is invested in Russia’s Gazprom alone.

Besides Russia, the fund only holds a couple of other countries including Poland at 16%, the Czech Republic at 4.1%, and Hungary at 3.4%. Though some companies in the fund may serve Eastern Europe, this is hardly what most investors had in mind for an Eastern European ETF. If investors really want a Russian ETF, those are not hard to find.

[To find out what the other 7 ETFs are – and whether you might own one yourself – click here for your FREE special report, The Top 10 Misleading ETFs.]

According to Bloomberg’s news, today’s rebound of more than 1% in gold’s price is at least partly due to buying from China yesterday. Higher prices have deterred jewelry demand according to Thomas Reuters data, but the slack has largely been made up by investment demand. China’s buying is exactly the type of investment demand gold needs to solidify its price gains as purchases by China are unlikely to shift gears by market whims. Sovereign buyers have proven to be long term holders and governments in the far east have been the major accumulators over the last decade.

India was the largest buyer of gold last year, with China and Russia also adding notable quantities. Central banks in general have been net buyers of gold in the last few years for the first time since the end of the Bretton Woods monetary regime led to major sell offs. Despite recent buying by governments, gold still only accounts for less than 1% of total global assets, significantly below its historical trend, but this will change if buying patterns continue or intensify.

At the end of the Bloomberg segment, co-host Alix Steel questions whether or not retail demand can pick up for some speculated declines in investment demand. Those close to the research seem to think differently in that investment buying will more than make up for the shortfalls in jewelry sales. Thomson Reuters gold research team, GFMS, expects gold to hit around $2,000/oz in 2012, on increased investment demand (read more on this) despite higher gold supply and lower retail demand.

Watch the Bloomberg segment discussing China’s buying (visit GoldNews.com to watch the video if reading in an e-mail):

By Doug Casey, Casey Research

In an interview with Louis James, the inimitable Doug Casey throws cold water on those celebrating the economic recovery.

[Skype rings: It's Doug Casey, calling from Cafayate, Argentina. He sounds tired, but pleased with himself.]

Doug: Lobo, get out your mower; it’s time to cut down some green shoots again, and debunk a bit of the so-called recovery.

Louis: Ah. I have to say, Doug, the so-called recovery is looking more than “so-called” to a lot of smart folks. Even our own Terry Coxon says the recovery is real, albeit weak.

Doug: Terry’s probably looking at it by the numbers, some of which are reported to be improving. But let’s come back to the numbers later and start with fundamentals. The first order of business, as usual, is a definition: a depression is a period of time in which the average standard of living declines significantly. I believe that’s what we’re seeing now, whatever the numbers produced by the politicians may seem to tell us.

L: I was just shopping for food and noticed that the bargain bread was on sale at two for $5. My gas costs almost as much per gallon. That’s got to hurt a lot of people, especially on the lower income rungs. I don’t need to ask; a member of my family just got a job that pays $12 per hour – about three times what I made working for the university food service back when I was in college – and it’s not enough to cover his rent and basic bills. If his wife gets similar work, they’ll make ends meet, but woe unto them if anyone in their family crashes a car or requires serious medical treatment.

Doug: That’s just what I mean. Actually, the trend towards both partners in a marriage having to work really started in the early ’70s – after Nixon cut all links between the dollar and gold in August of 1971. Before then, in the “Leave It to Beaver” era, the average family got by quite well with only the husband working. If he got sick or lost his job, the wife was a financial backup system. Now, if something happens to either one, the family is screwed.

I think, from a very long-term perspective, historians will one day see the ’60s as the peak of American prosperity – certainly relative to the rest of the world… but perhaps even in absolute terms, even taking continued advances in technology into account. Maybe the ’59 Cadillac was the bell ringing at the top of that civilizational market.

My friend Frank Trotter, president of EverBank, was just telling me that the net worth of the median US citizen is only $6,000. That’s the median, meaning that half of the people have less than that. Most people don’t even have enough stashed away to buy the cheapest new car without going into debt. It used to be that people bought cars out of savings, with cash. Now they have to finance them over at least five years… or lease them – which means they never ever have even that trivial asset, but a liability in the form of a lease.

The bulk of the 49 percent below this guy don’t even have that – with the concentration of wealth among the top one percent, most of those below average have seriously negative net worth, at least compared to their earning capacity. In other words, the US, Europe, and other so-called First-World countries are in a wealth-liquidation cycle that will be as profound as it will be protracted.

By that I mean that people are on average consuming more than they produce. That can only be done by living out of capital – consuming savings – or accumulating debt. For a time, this may drive corporate earnings up, and give this dead-man-walking economy the appearance of returning health, but it’s essentially, necessarily, and absolutely unsustainable. This is an illusion of recovery we’re seeing – the result of our Wrong-Way Corrigan politicians continuing to encourage people to do the exact opposite of what they should do.

L: Which is?

Doug: Save. People shouldn’t be getting new cars, new TVs, and new clothes. They should be cutting expenses to the bone.

The Obama administration, just like the Baby Bush administration before it – there really is no great difference between the Evil Party and the Stupid Party – and its minions in the US and its cronies around the world, stubbornly stick to the bankrupt idea that economic growth is driven by consumption. This is confusing cause and effect. Healthy consumption follows profitable production in excess of consumption, resulting in savings – accumulated capital – that can either be spent without harm or invested in future growth.

Consumption doesn’t cause an economy to grow at all. To paraphrase: “It’s productivity that creates wealth, stupid!”

L: Policies aimed at encouraging consumption, instead of increasing production, are what turned the savings rate negative in the US and resulted in the huge sovereign debt issues we’re seeing in supposedly rich countries…

Doug: Well, the governments themselves have spent way more than they had or ever will have, and that’s par for the course when you believe spending is a virtue. However, it’s the false signals government interference sends to the market that caused the huge malinvestments that only began to go into liquidation in 2008. That has to do with another definition of a depression: It’s a period of time when distortions and malinvestments in the economy are liquidated.

Unfortunately, that process has barely even started. In fact, since the bailouts started in 2008, these things have gotten much worse. If the government had gone cold turkey back then, cut its spending by at least 50% for openers, and encouraged the public to do the same, the depression would already be over, and we’d be on our way to real prosperity. But they did just the opposite. So we haven’t yet entered the real meat grinder…

L: Those false signals the government sends to the market being artificially low interest rates?

Doug: Yes, and Helicopter Ben’s foolish leadership in the wholesale printing of trillions of currency units all around the world – I don’t really want to call dollars, euros, yen, and so forth money anymore. When individuals and corporations get those currency units, they think they’re wealthier than they really are and consume accordingly. Worse, those currency units flow first to the state – which feeds it power – and favored corporations, which get to spend it at old values. It’s very corrupting. There is also an ongoing regulatory onslaught – the government has to show it’s “doing something” – which makes it much harder for entrepreneurs to produce.

In addition, keeping interest rates low encourages borrowing and discourages saving – just the opposite of what’s needed. I don’t believe in any state intervention in the economy whatsoever, but in the crisis of the early 1980s, then-Fed Chairman Paul Volcker headed off a depression and set the stage for a strong recovery by keeping rates very high – on the order of 15-18%. They can’t do that now, of course, because with the acknowledged government debt at $16 trillion, those kind of rates would mean $2.5 trillion in annual interest alone – more than the government takes in taxes.

At this point, there’s no way out. And there’s much more tinkering with the system ahead, at the hands of fools who remain convinced they know what they’re doing, regardless of how abject their past failures have been.

L: And yet, the interventions seem to be working. The “orderly default” in Greece seems to have saved the Eurozone for now, and critically important employment figures in the US show definite signs of improvement.

Doug: Perhaps, but let’s take a closer look. I advocate the Greek government defaulting, overtly and immediately, on 100% of its debt, for several reasons. First, it would punish those who lent it money to do all the stupid and destructive things it’s done. Second, it would ensure that the Greek government wouldn’t be able to borrow again for a very long time. Third, it would liberate young and yet unborn Greeks, who are being turned into serfs by all that debt. It would also mean that most European banks would fail. Tough luck for those who relied on them. When new banks are established, it will serve as a lesson to people to be more careful about where they put their capital.

Anyway, it would be much less of a catastrophe than the way we’re currently heading.

Here in the US, the twelve-month fiscal deficit is still over $1.2 trillion, an extreme situation that is gutting the value of the dollar, because it’s mostly financed by the Fed buying US debt. It’s temporarily expanded the eye of the storm we’re in, but it’s done nothing to dissipate the storm itself. Their easy-money policies may have bought them a little more time, but they will only make it worse when we do exit the eye of the storm.

There’s a third definition of a depression that I use: a depression is the end phenomenon of an inflation-caused business cycle. Inflation is the sole cause of business cycles, and inflation is caused by governments and their central banks printing money. The government – the state – is 100% responsible for society’s economic problems. But it arrogantly represents itself as the cure. And people believe it. There’s no hope until the psychology of the average person changes.

L: As Bob LeFevre used to say: “Government is a disease masquerading as its own cure.” Want to update us on when you think the economy will return to panic mode?

Doug: Earlier this year, I was expecting it sooner than I do now. Unless some black-swan event upsets the apple cart suddenly, I would not expect us to exit the eye of the storm at least until after the US presidential elections this fall. Maybe not until early 2013, as the reality of what’s in store sinks in. I pity the poor fool who’s elected president.

In a way, I hope it’s Obama who wins, mainly because the worthless – contemptible, actually – Republican candidates yap on about believing in the free market, which means if one of them is somehow elected, the free market will be blamed for the catastrophe. Too bad Ron Paul will be too old to run in 2016, assuming that we actually have an election then…

L: So, what about those numbers, then? Employment is up, and the oxymoronic notion of a “jobless recovery” was one of our criticisms before…

Doug: Yes, but look at the jobs that have been spawned; they are mostly service sector. Such jobs can create wealth for certain individuals – it looks like we’ve put more lawyers to work again, as well as waiters and paper-pushers – but they don’t amount to increased production for the whole economy. They just reshuffle the bits around within the economy.

L: Unlike my favorite – mining – which reported 7,000 new jobs in the latest report, if I recall correctly.

Doug: Yes, unlike mining, which was more of an exception than the rule in those numbers. But that’s making the mistake of taking the government at its word on employment figures. As we’ve discussed before, if you look at John Williams’ Shadow Stats, which show various economic figures as the US government itself used to calculate them, unemployment has actually reached Great Depression levels.

The US government is dishonestly fudging the figures as badly as the Argentine government – which is, justifiably, viewed as an economic laughingstock in most parts of the world. One reason things are going to get much worse in the US is that many of those with economic decision-making power think Cristina Fernandez Kirchner is a genius. A little while ago, there was an editorial in the New York Times – the mouthpiece for the establishment – written by someone named Ian Mount. Get a load of this. I’ve got it in front of me.

If you can believe it, the author actually says: “Argentina has regained prosperity thanks to smart economic measures.” The Argentine government “intervened to keep the value of its currency low, which boosts local industry by making Argentina’s exports cheaper abroad while keeping foreign imports expensive. Argentina offers valuable lessons … government spending to promote local industry, pro-job infrastructure programs and unemployment benefits does not turn a country into a kind of Soviet parody.”

Well, no, I guess it turns it into something the US can ape. He goes on: “Argentina is hardly a perfect parallel for the United States. But the stark difference between its austere policies and low growth of the late 1990s and the pro-government, high-growth 2000s offers a test case for how to get an economy moving again. Washington would do well to pay attention.”

The guy has obviously never been here, though he admits that “Argentina is far from perfect.” His modest concession is that the taxes to imports and exports have “scared away some foreign investment, while high spending has pushed inflation well over 20 percent. And it would be laughable to suggest that the United States follow its lead and default on its debt.”

When I first read the article, I thought I was reading a parody in The Onion. I love Argentina and spend a lot of time down here. It’s a fantastic place to live – but not because of the government’s economic policies. Its only competition in state stupidity is Brazil, which regularly destroys its currency.

Fortunately, though, the Argentine government is quite incompetent at people control, unlike the US. It leaves you alone. And there’s a reasonable chance the next president down here won’t be actively stupid, which isn’t asking much. But it’s amazing that the NYT can advocate Argentine government policy as something the US should follow. A collapse of the US economy would be vastly worse than that of the Argentine economy – the US dollar is the world’s currency.

Here in Argentina they’re used to it and prepared for it to a good degree. Very unlike in the US.

L: In the US, the welfare state has bloated beyond imagination. The damage already done is less visible because where there used to be private charity soup kitchens, there are now “food stamps” that look like ordinary credit cards, making the destitute among us look like everyone else at the supermarket. There are 50 million recipients, and that number is growing, not declining.

By the way, John Williams is a speaker at the Casey Research Recovery Reality Summit we have coming up, April 27-29 in Weston, Florida. Perhaps this would be a good time to invite our readers down to hear John’s take on what the numbers really are – and to meet us. We’ll both be there.

L: What are the investment implications if the Crash of 2012 gets put off until the end of the year, or even becomes the Crash of 2013?

Doug: There are potentially many, but generally, the appearance of economic activity picking up is bullish for commodities, especially energy and raw materials like industrial metals and lumber. That’s not true for gold and silver, so we might see more weakness in the precious metals in the months ahead. I wouldn’t count on that, however, because government policy is obviously inflationary to anyone with any grasp of sound economics. That will keep many investors on the buy side.

Plus, the central banks of the developing world – China, India, Russia, and many others – are constantly trading their dollars for gold. There are perhaps seven trillion dollars outside the US, and about $600 billion more are sent out each year via the US trade deficit.

L: I know I bought some gold and silver in the recent dip and would love to have a chance to do so at even lower prices ahead.

Doug: That’s the logical thing to do, given the fundamental realities we started this conversation with, but a lot of people will be scared into selling if gold does retreat. A good number will sell low, after buying high – happens every time, and is a big part of why commodities have such a tricky reputation.

Most investors just don’t have the strength of conviction to be good speculators. Instead of looking at the world to understand what’s going on and placing intelligent bets on the logical consequences of the trends, regardless of what anyone else says or does, they go with the herd, buying when everyone else is buying and selling when everyone else is selling. This inverts the “buy low and sell high” formula. They let their thoughts be influenced by newspapers and the words of government officials.

L: In other words, everything you see calls for gold continuing upward for some time – years – making any big retreats along the way great buying opportunities for those with the guts to act on them. Same for silver, and doubly so for the precious-metals mining stocks, and triply so for the junior stocks.

Doug: Just so. I look forward to the day when I can sell my gold for quality growth stocks – but we’re nowhere near that point. But silver might correct less than gold if gold corrects due to the appearance of economic recovery – silver is, after all, an industrial metal as well as a monetary one.

L: Agreed. And I can see the positive implications for energy as well, but Marin – Casey Research’s chief energy investment strategist – was just saying that natural gas has dropped below $2. That’s apparently starting to force oil and gas companies to remove reserves from their books – because reserves need to be economic, not just exist – which the market isn’t going to like. He sees some great bargains on solid companies ahead, and not just “gas” companies as many oil companies, including the major ones, produce both. Marin said one major company gets half its top line from gas sales. This is a huge shift.

Doug: The devil is always in the details – it’s dangerous to oversimplify things, painting with a broad brush, as in, “A recovering economy will be bad for gold” or “A recovering economy will be good for energy.” You have to understand these markets well enough to really see how different forces and factors will affect them.

Marin is unquestionably one of the sharpest analysts I’ve met in my life. He’s actually something of a genius, both academically smart and very street smart, in addition to being a workaholic. He runs a lot of my money. He’s done spectacularly well, and I expect him to do even better, because he constantly learns. Not much gets by him.

L: Good reminder. So, if we’re looking at signs of economic recovery for a time, would you buy into copper, nickel, or other base-metal plays?

Doug: Well, just because we might see signs of a temporary economic recovery, that doesn’t mean we will – and even if we do, they could easily be swept aside by any number of events, such as Europe taking another turn for the worse, or Japan or China starting to come apart at the seams. But, as a hedge, some near-term bets on industrial metals might not be a bad thing.

L: How about agriculture?

Doug: That’s one thing for which demand can never go down. Economic upturns or downturns may affect the mix of what people eat, but they won’t stop people from eating – or, if they do, we’ll have more pressing concerns than which way to play the markets. I remain especially bullish on cattle.

L: Anything else?

Doug: [Laughs] Many things. The right technology companies should do well; finding ways to do things faster-better-cheaper always adds value. Select mainstream equities in currently profitable sectors might do well as well – but I’d be very careful there. I can’t stress enough how close to the edge of collapse the global economic house of cards is – it could take another year or more to topple, or it could be starting today.

L: Which leads to the other reason for owning precious metals – not as a speculation on skyrocketing prices, nor as an investment for good yield, but for prudence.

Doug: Yes. Gold remains the only financial asset that is not simultaneously someone else’s liability. Anyone who thinks they have any measure of financial security without owning any gold – especially in the post-2008 world – is either ignorant, naïve, foolish, or all three.

Look, we saw it coming, but everyone in the world could see Humpty Dumpty fall off the wall in 2008. Now we’re just waiting for the crash at the bottom, and no amount of wishful thinking otherwise is going to change that. It’s a truly dangerous world out there, and blue chips are no longer the safe investments they once seemed to be. You don’t have to be a gold bug to see the wisdom of allocating some capital – and not just a token amount – to cover the possibility that I’m right about what’s coming.

There’s some opportunity cost associated with taking out this kind of insurance, but it’s not catastrophic if I’m wrong, and the cost of failing to do so if I’m right is catastrophic. That really is the bottom line.

L: Financially. If you’re right about the coming Greater Depression, people also need to take steps to batten down the hatches on their physical life arrangements.

Doug: Right. As we’ve said many times now, your government is the greatest threat to your well-being these days. If at all possible, you should be taking steps to diversify your political risk. Foreign bank accounts are not illegal for most people in most countries, though they need to be reported. Getting one is a good start.

Buying real estate I like in various countries is one of my favorite ways to diversify risk in my life. That’s partly because I like speculating in real estate, but much more so because whichever government thinks you’re its tax slave can’t force you to repatriate real estate you own abroad. Most of all, it’s because it’s good to have places to go if things get ugly wherever you happen to be.

L: Very well. Any particular triggers you think we should watch out for – warning signs that we really are about to exit the eye of the storm?

Doug: In the US, the Fed being forced to raise interest rates would be one, or inflation getting visibly out of control – which would force a change in interest rates – would be another. Who knows – Obama getting reelected could tip the scales. War in the Middle East could do it, or, as we already mentioned, China or Japan going off the deep end. The ways are countless. Black swans the size of pteranodons are circling in squadron strength. A lot of them are coming in for a landing.

People will just have to stay sharp – sorry, there’s no easy way to survive a depression. As my friend Richard Russell says, “In a depression, everybody loses. The winner is the guy who loses the least.” It will take work and diligent attention to what’s going on in the world and around us. We at Casey Research will do our best to help, but each of us is and must be responsible for ourselves.

L: Okay then, thanks for the guru update. No offense, but in spite of the investments I’ve made betting that you’re right, I hope you’re wrong, because the Greater Depression is going to destroy many lives, and the famines and wars it spawns even more – millions, I’m sure. Maybe more. The mind balks.

Doug: Oh, I agree. I only wish I could believe otherwise, because I’m sure it’s going to be even worse than I think it will be… although I hope to be watching it in comfort and safety on my widescreen TV, not out my front window.

L: I think we need to find something more upbeat to talk about next time.

Doug: [Chuckles] Maybe. If there’s something important in the news, we should cover it. It’s sure to be fodder for comedy – at least black comedy.

L: As you say. ‘Til next week then.

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By Louis James, Casey Research

Economic crises signal that the current system isn’t working as expected and needs improvement. When it comes to monetary systems, questioning their fundamentals can lead to doubts about whether the preferred medium of exchange will continue to be preferred for long. The large-scale whirlwind of economic trouble around the globe has pushed some to rethink the role of gold in the economy – and to actually move toward bringing it back.

A month ago, a rumor that India is going to pay in gold for oil imported from sanction-struck Iran sent shockwaves through the markets. It was no small deal, both in principle and volume: India is one of Iran’s largest oil buyers, responsible for about 22 percent of total exports and worth about US$12 billion per year. China is next with 13 percent, and Japan is third with about ten. All of them are having a hard time dealing with Iranian oil imports, as the country is under sanctions caused by Western fears regarding its nuclear program.

Then an Israeli news site claimed exclusive knowledge of a possible workaround between India and Iran: settling the purchases in gold. Indian government officials refused to comment, which added to the speculation.

On the surface, the arrangement looked like a great way to settle the purchases via a stable medium: Iranian currency, the rial, is not widely used outside its border, and gold’s inherent anonymity would have provided a perfect way to avoid unnecessary attention from the global community. Ironically, it was precisely the fact that the settlement was planned in gold that attracted so much attention.

It proved to be nothing but a rumor, however: the sides decided to arrange the deal in a more tactical manner. India will partly cover the purchases with its own currency, and Iran will later use those funds to acquire imports.

But gold is not out of the equation yet. The US-initiated sanctions were effective, at least in the sense of making international institutions avoid the pariah nation. Reuters reported that Iran has failed to organize imports of even basic food staples for its population of 74 million. Prices on local markets rose sharply; and as the country neared parliamentary elections on March 2, the government was taking radical steps to provide citizens with basic necessities. One of those unconventional solutions was offering gold as barter for food.

“Grain deals are being paid for in gold bullion and barter deals are being offered,” one European grains trader said, speaking on condition of anonymity while discussing commercial deals. “Some of the major trading houses are involved.”

Another trader said: “As the shipments of grain are so large, barter or gold payments are the quickest option.”

Trading in gold rather than a fiat currency is “cashless.” That may sound as if there’s no medium of exchange, but that is of course a misconception: gold is history’s longest-standing medium of exchange.

As long as the sanctions remain in force and the Iranian government has limited access to international currency markets, gold will remain an obvious way to settle transactions. Decreasing oil imports to Japan, the world’s third-largest importer, will impact the Iranian economy further, draining foreign currency inflows. Lacking foreign currency may push the country to continue using its foreign exchange reserves, or gold, to cover its international liabilities. Oil looks like a viable, though less convenient, alternative as well.

The Iranian economy is in a state of crisis, and due to the lack of trust in its currency, leaders are increasingly resorting to extraordinary offers to trading partners. The situation would clearly worsen if the country enters a state of war. While that’s still speculation, imagine what would happen to the price of gold if a part of Iran’s 29-million-ounce gold reserve becomes a medium – not an object – of exchange in international trade.

That reduction in potential supply could be a game-changer, not only because of crisis-struck Iran, but because it could open the door for other countries to follow suit. The price of gold would likely respond very positively.

This scenario, while possible, may not happen very soon: large-scale trading in gold has occurred only rarely in recent years. Traces of deals are difficult to track down due to the anonymity of the yellow metal. This re-emphasizes our point regarding gold as money in extremis: when economic push comes to shove, gold will outlast any other medium of exchange in existence. As the evidence from Iran shows, even governments – the masters of the central banks – will resort to mankind’s oldest form of money when pressed.

Which brings us to this evergreen conclusion: Gold is one of the best assets to own in both good times and bad. It can rise with inflation in a surging economy, and it can be practical for exchange when times are bad.

Gold isn’t just a hedge; it’s money.

[There are many ways to take advantage of shifting attitudes toward gold… including buying in at deeply discounted rates. Get started today.]

The manager of the world’s largest bond fund, the Total Return Fund at PIMCO, Bill Gross, bashes the bullish prospects of bonds while simultaneously predicting QE3 and QE4.

Gold fell last week more than $50 after the Federal Reserve failed to give an indication of any further stimulus in their monthly policy statement Tuesday. The yield on the 10yr US Treasury bond shot up to over 2.30% for the first time since November 2011 as the market reduced their bets for further bond buying by the Fed. Gross, however, expects that this view will sooner or later change and we concur with this thinking.

Bull Market in Bonds is Over

Gross explains that with yields on all bonds coming close to the zero bound, there is no room left for price appreciation. Bond prices trade inversely to yields, and even though there may not be a bear market in bonds ahead, there literally is little to no room for further gains. The implication is that bonds will either stay steady or fall, and which route they take is up to the decision of the authorities who are manipulating their prices, i.e. the Fed.

Without the Fed the Lack of a Private Market is Revealed

Gross makes an excellent point in noting that every time central banks have tried to pause their balance sheet growth, thereby allowing long term market rates to rise, the equity markets and economy suffer dearly in nominal, mainstream measures. This just reveals that assets were buoyed up by central banks all the while long, and without continued artificial support, the markets will be deserted. Since the Fed has a phobia with allowing market declines, they always come back to the table in a seesaw effect we noted a while back.

QE3 and QE4 Await

A third and fourth quantitative easing program are in store, according to Gross, who predicts that the Fed will not stand idle while the market refuses to pick up overpriced bonds. Rising interest rates will start impacting the credit bubble, forcing a deleveraging which will prompt the Fed to reenter the scene in full force. The Fed will likely try do something like sterilized bond buying or some other misdirection of their actual intent, but make no mistake, their balance sheet will continue to grow and will not stop after just QE3.

See the full video interview (watch on GoldNews.com if reading through an e-mail):

Jim Grant, editor of Grant’s Interest Rate Observer, gave a couple excellent interviews this week that all should watch (the full video interviews are available at the bottom of the post). Let’s go over the main topics of discussion:

Fed’s “Sterilized” Bond Buying Plan

In his CNBC interview host Maria Bartiromo asks Jim about a recent report from the Wall Street Journal on a possible bond buying strategy being considered by the Federal Reserve. The plan, in its basic form, involves the Fed purchasing assets like mortgage-backed securities (MBS) and then immediately borrowing the money back from the seller with a short term contract. The Fed believes this plan would enable them to support the lowering of long-term interest rates while simultaneously tying up the money used to so, thereby preventing inflationary price pressures elsewhere.

However, like all the Fed’s plans, they try deal with the symptoms of a problem while aggravating the cause. In this case, artificially suppressing interest rates is bad enough, as Grant point out, the “Fed wants to manipulate long term interest rates lower… but in so doing it is manipulating perceptions of risk.”

The foolish attempt by the Fed to try sterilize their buying just adds insult to injury. Inherently, if the Fed is borrowing money, the money will have to be returned, so the “sterilization” is actually temporary. Moreover, for the Fed to borrow money, they must pay an interest rate, and in this case it will be a meta-market rate, thereby enriching banks further at the expense of many. The rate the Fed pays is also created by additional printing, so in the end the plan to prevent inflationary pressures actually creates more of them. And a last fact made clear by Grant is that the Fed’s plan entails borrowing short and investing long, which is the basic model of banks who create maturity mismatches and are at constant risk of bankruptcy.

Central Bank Balance Sheets are Out of Control

Grant is one of the few commentators who correctly focuses on the central bank’s balance sheet as a key metric for monitoring macro manipulation. Grant wisely asks, “What does the Fed have against the price mechanism?” Grant in the past has highlighted, as have we, the leveraged nature of the Fed’s balance sheet and its catastrophic growth and debasement. With all the focus on the Fed, however, people have missed the fact that the European Central Bank (ECB) has grown their balance sheet larger than the Fed’s despite the fact the Euro zone is a smaller economy than America. Grant says the ECB’s “balance sheet is positively exploding. It is one third larger than the Fed’s… the Fed is a piker compared to what the ECB has recently been doing.”

In any case, Grant easily and accurately generalizes all central banks noting that “they are printing by the tonne… interest rates have never been lower… central banks have never been easier… central banks are manipulating expectations about the future of long term interest rates.” Grant extends the point by noting that inflation is appearing in market assets that a directly impacted by ultra low interest rates. Grant questions why “companies that have not made a profit in five years are issuing debt as if the company was solvent… the Fed is dulling the risk censors of the entire market place. Is this good?”

History is Against the Fed

There are not really any empirical instances of stimulative measures proving to be more effective than allowing the market to resolve distortions, despite policy makers constantly telling us ‘things would be worse if we had done nothing’. The best example, brought to light by historian Thomas Woods, which is rarely faced, is the 1920-21 depression where nominal GDP collapsed by more than 20% and unemployment hit 14%. In that case, the fiscal and monetary authorities did the opposite of what is commonly expected in today’s mainstream; the government balanced the budget and did not print money. The result was a quick reversal of one of the largest economic shocks which was considered over in less than two years with unemployment falling to 3%.

Gold and its Standard Should Be Embraced

Grant is one of the few economic commentators with the cahonas to call for a return to the gold standard, understanding that gold provides an invaluable service in preventing manipulation. Grant calls for an “intelligent moves towards a sound currency… a currency that is based on a standard not the whim and discretion of a bunch of mandarins sitting in Washington, DC.” Grant even suggest that the Treasury issue longer dated bonds backed by gold as a way of bringing interest rates down in a sustainable, sound manner. Something that is unlikely to be considered seriously by those in charge, but an interesting idea nonetheless.

Grant’s main view of gold is that he sees its price movements as an important measure of the market’s faith in central banks. “The price of gold is as it were the reciprocal of the world’s faith in the deeds and words of the likes of Ben Bernanke,” Grant says.

See the full video interviews (available on GoldNews.com if reading an e-mail) on CBNC and Blomberg…

Goldcorp founder and CEO of McEwen Mining Inc, Rob McEwen, went on record with Bloomberg news offering fresh precious metal price forecasts. The Canadian based gold icon sees significant gains ahead for both gold and silver. McEwen expects gold prices to hit $5,000 per ounce, a 300% increase from current prices, and silver to reach $200/oz, a 600% rise from today’s price.

McEwen’s time frame is reasonably short, and sees prices reaching the predicted levels by 2015-2016.

Full statement from the Federal Open Market Committee (FOMC):

Release Date: March 13, 2012

For immediate release
Information received since the Federal Open Market Committee met in January suggests that the economy has been expanding moderately. Labor market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated. Household spending and business fixed investment have continued to advance. The housing sector remains depressed. Inflation has been subdued in recent months, although prices of crude oil and gasoline have increased lately. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects moderate economic growth over coming quarters and consequently anticipates that the unemployment rate will decline gradually toward levels that the Committee judges to be consistent with its dual mandate. Strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook. The recent increase in oil and gasoline prices will push up inflation temporarily, but the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Sarah Bloom Raskin; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014.