After the Fall: How Far Can Gold and Silver Climb?

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The Daily Reckoning | Tuesday, September 27, 2011 Cash as a Correction King: The middle class case for US dollars, BUT...could gold go to $2,330...$6,227...even $15,234 per ounce anyway? Plus, Bill Bonner on military misadventures, self-inflicted wounds and plenty more... ------------------------------------------------------- Special Offer Ends on Thursday, September 29th at Midnight! New Weapon Technology Set to Soar Iraq. Afghanistan. Libya. Syria. Iran. The list of countries in turmoil goes on and on. And our military is being stretched to its breaking point. That's why this ONE tiny company's revolutionary new weapon breakthrough couldn't come at a better time. This secret technology is set to supercharge our military well into the 21st century. And save countless soldiers' lives along the way. And right now, you can get all the details on this explosive company, priced under 22-cents a share, in resource expert Byron King's newest report. Click here for all the details. Uneasy Lies the Head that Wears a Crown Why the US Dollar is (for Now) Still in Demand Bill Bonner Reckoning today from Buenos Aires, Argentina... Cash is king. Ai yi yi... Last week was the worst for investors in 3 years. Even gold melted down, as we thought it eventually would. The only things to go up were US Treasury debt and the dollar. As expected, the Great Correction is doing its work. So far, the stock market has held up as well as it has. But now it seems to be selling off. And gold is selling off too. Rich people buy gold. They can afford to. They know the end of the dollar is coming — sooner or later. They can wait. But the middle classes need dollars. Debtors need dollars. Consumers need dollars. Almost everybody needs dollars. In a correction, cash is king. And the king of kings is the dollar. Here’s CNN confirming what Dear Readers already know: ...the data [from the census] gave the first glimpse of what happened to middle-class incomes in the first decade of the millennium. While the earnings of middle-income Americans have barely budged since the mid 1970s, the new data showed that from 2000 to 2010, they actually regressed. For American households in the middle of the pay scale, income fell to $49,445 last year, when adjusted for inflation, a level not seen since 1996. And over the 10-year period, their income is down 7%. “Economists talk about the lost decade in Japan. Well, with these 2010 data, we can confirm the lost decade for the American middle class,” said Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities. Sure, it’s fair to say Americans at all levels of income, from rich to poor, were hit hard in the decade that started with the dot-com boom and bust, and ended with the Great Recession. But according to the census data, those losses disproportionately hit the lowest 60% of Americans, while the richest 40% actually gained wealth, relative to the entire US economy. The middle classes need dollars. They want dollars. Because it’s a currency — believe it or not — that you can still trust. No thanks to Bernanke, Obama, et al. Instead, our gratitude goes to the Great Correction itself. It’s doing the work of an honest central bank. It is making the dollar respectable again. Thanks to the Great Correction the greenback can hold its head up. Uncle Sam’s money is Number One. How so? In a correction, almost everything goes down. And almost everyone gets scared that his investments and his savings (which he put into stocks on the advice of his financial magazine) will go down too. Your editor says that in the long run gold will be a better place for your money than dollars. But everyone can’t wait for your editor to be proved right. Most people have bills to pay. And you don’t pay bills with gold. You pay them with dollars. And imagine that you are a European or an Asian investor? What are you going to do with your money? Put it in a French bank or a Greek bond? Nope. You want something safer. You want a US treasury bond. And as long as the Great Correction is allowed to continue...US Treasury debt will be a good place for your money. The trouble is, we don’t know when the feds might run in...like a bull in a china shop...and break all the teacups. So, here at The Daily Reckoning at least, we’ll stick with our gold through this correction, confident that when we come out the other side the dollar will be among the porcelain shards and gold will still be standing tall. When we entered this Great Correction we figured the process would take a few years. We felt like a judge had just given us a prison sentence. “Five to ten,” said your honor. Now, it looks like it will take longer. We figured the feds wouldn’t be able to finance their deficits for very long. That would force them to hit the panic button and begin dropping dollars from helicopters. But what the market is showing us now is that this Japan-like phase can last a long, long time. Because the correction itself is making the dollar and dollar debt more attractive! Get this: the yield on 10-year US Treasury debt is now lower than the yield on the S&P. The longer the correction goes on...the deeper it goes...the more people will want the safety of US notes and bonds. And the more they buy Treasury debt...the lower go the yields... Meanwhile, stocks should go down...pushing up yields. That’s what happens in a correction. That’s what happened in Japan over the last 20 years. Most likely, we’ll see yields of 5% on the S&P before this is over. That’s because prices will be cut in half. Meanwhile, we’ll see yields on bonds go down to 1% or so on the 10- year bonds. This correction means business. It appears to be even more powerful than we imagined. It is not merely correcting a bull market and a credit bubble. We don’t know for sure, but it may be correcting an empire, modern government, the dollar-based monetary system...and who knows...maybe an entire civilization. We’ll just have to wait to see how far it goes. External Advertisement Does Your CoQ10 Really Work? If You’re Taking the Wrong Kind You May Be Wasting Your Money! The many health benefits of taking Coenzyme Q10 are already well established... Yet many patients I talk to in my practice tell me they don’t feel any different after they start taking CoQ10. When they show me the bottle, I immediately know why. As it happens, most of the CoQ10 they are taking never makes it to their cells where it can do the most good. In fact, most people over 50 have a hard time converting CoQ10 into its usable form. The lion’s share of the valuable CoQ10 enzyme disappears — making it impossible to give your cells the protection and nourishment they need. Fortunately, I’ve found a simple way to solve this problem forever... Click HERE and get the most powerful, most effective form of CoQ10 on the planet — NOW! The Daily Reckoning Presents After the Fall: How Far Can Gold and Silver Climb? Frank Holmes 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. Regards, Jeff Clark for The Daily Reckoning P.S. 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. A Wealth Chance This Extreme Pops Up Once Every Few Lifetimes Only 62 people know exactly why these four companies could change the world. Starting right now, you’re #63 on the inside. That means you’re on the verge of massive wealth. Click here for the full story — you can’t afford to miss this epic, one-time wealth chance. Bill Bonner When Empires Collapse Bill Bonner Dear Reader, do you recall our Daily Reckoning interpretation of the Iraq War? Well, we didn’t either. But then we remembered. How could the Bush Administration do something so stupid? It played right into the terrorists’ hands. It put the empire on course for bankruptcy. While stirring up enemies everywhere. Our interpretation of this was that George W. Bush and the neocons were not really trying to protect the US; they were trying to destroy it. Otherwise their actions made no sense. After all, they aren’t stupid. In other words, they were just the witless tools of history. America had gotten too big for her britches. She had no foreign enemies that were up to the challenge of bringing her down. She needed to do the work herself. So far, so good. The empire is going broke...and nobody seems able to do anything about it. What’s more, the work of destruction goes on! IMPERIAL INERTIA Michael Brenner 19 September 2011 The United States’ audacious bid to dominate the greater Middle East by military force is going at close to full throttle. This is despite the talk in Washington about over-extension, budgetary constraints, and war fatigue. Three stories this week reveal this dismaying truth while conveying the flavor of the prevailing mindset in the White House and the security agencies. First is the revelation that the imperial-scale American embassy complex in Baghdad already needs expansion to accommodate the 6,000 mercenaries there to ride shotgun for the 9,000 civilian employees whenever they clamber out of their bomb-proof offices. That number includes roughly 1,200 US officials and 7,800 hired help from places like Bangladesh and Sri Lanka to do the laundry, clean the rooms and serve the food. The mercenaries also will guard the citadel and its satellite fortresses in Basra, Mosul and Erbil. These Blackwater types have the additional duty of escorting salesmen and agents for American businesses selling and servicing weapons for the Iraqi military. The forces commander-in-chief will be Hillary Clinton. They are in addition to the 10,000 troops that Washington is trying to impose on the reluctant Iraqi government and thousands more on call next door in Kuwait,... The second story recounts the Obama administration’s plans to escalate further the drone campaigns in Yemen and Somalia. There is a mild debate between those who want to restrict assassinations to (supposedly) identified leaders of al-Qaida in the Arabian Peninsula and al-Qaida in East Africa. Others are keen to expand the target list to include (suspected) foot soldiers; other radical Islamist groups who use violence against people on our side, i.e. remnants of the Saleh regime in Yemen or those who currently reside in the presidential palace in Mogadishu (with an American-sponsored African Union force having taken the baton from the Christian Ethiopians whom we earlier inflicted on the Muslim Somalis in a foregone bloody failure to hold at bay the Islamists); and even radical fundamentalist organizations only potentially hostile to the United States. In this latter perspective, a manifest threat to the United States is unnecessary for targeted killings and Special Forces operations. Again, there is no public statement of exactly why it is imperative to do these things that not only violate international law and national sovereignty but are counter-productive by their provoking bitter anti-American feelings among the natives — leading some to contemplate doing us harm directly. Finally, there is the mounting military campaign to eliminate all anti-American groups in Northwest Pakistan — be they local al-Qaida residue, some variety of Taliban, the Haqqani network, their Kashmiri and Punjabi based allies and whomever else gets in the way... Regards, Bill Bonner, for The Daily Reckoning ------------------------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com Give Collapse a Chance Fake Fixes for the Real US Debt Problem When Economic Growth is a Thing of the Past Extreme Moves Leave Markets in Rare Territory How to Promote Growth by Debasing Your Currency Gold and Silver See Tons of Selling The Daily Reckoning: Now in its 11th year, The Daily Reckoning is the flagship e-letter of Baltimore-based financial research firm and publishing group Agora Financial, a subsidiary of Agora Inc. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Published daily in six countries and three languages, each issue delivers a feature-length article by a senior member of our team and a guest essay from one of many leading thinkers and nationally acclaimed columnists. 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