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The Dollar: The World’s Primary Reserve Currency

July 2003

Americans enjoy the highest standard of living in the world. Yet, few Americans understand that the dollar’s status as the world’s primary reserve currency contributes tremendously their lofty lifestyles.

A reserve currency is one that has gained such acceptance that central banks include their investments in that currency as part of their reserves. In addition to dollars, other reserve currencies are euros, yen, and pounds; however, 85% of the world’s central bank reserves are dollars. In the world of paper currencies, the dollar is king of the hill.

The dollar achieved this esteemed status because it was once redeemable in gold, which is the ultimate currency reserve. Nearly every central bank in the world owns gold. However, from time to time, some central banks reduce their gold holdings. Two central bank gold sales are noteworthy.

In early 2002, the Bank of England concluded a series of high-profile gold auctions that comprised the most notorious central bank sale in memory. Over a three-year period, the Bank sold 395 tons of gold in public auctions while it traded at its lowest prices in decades.

Since May 2000, Switzerland’s central bank has been selling gold in an ongoing liquidation of approximately half of its gold holdings. The sale was narrowly approved a couple of years ago in a nationwide referendum, which earmarked much of the proceeds for “humanitarian efforts worldwide.”

The Swiss have made their liquidation low profile by quietly feeding the gold into the market, at a time when the price of gold has been rising, proof that central bank gold sales do not always cause the price of gold to fall. The Swiss have sold 760 of the 1300 tons they plan to liquidate. Now, back to the dollar.

Until August 15, 1971, foreign governments could submit paper dollars to the Fed (actually, the Federal Reserve Bank of New York) and receive gold. For a short period after World War I, the British pound sterling also was redeemable in gold, but the Brits overvalued their pound sterling and gold flowed steadily out of England, until 1931 when the Bank of England ceased redeeming pounds for gold. This left only the US dollar redeemable in gold, but when President Nixon “closed the gold window” in 1971, the world went on a paper money standard.

For forty years (1931-1971), the dollar was the only currency redeemable in gold, and it became the world’s preferred currency. Even after Nixon closed the gold window, the dollar retained its number one position because no other currency was redeemable in gold. And, since the world was going on a paper money standard, it stuck with the dollar, which was the most widely used currency. Still, other considerations help keep the dollar as the world’s primary reserve currency.

At the time, the United States was the industrial might, with a plethora of products that the world’s consumers wanted; consequently, dollars could still be converted into tangible goods. Finally, lurking in the background was the hope that someday the dollar again would be redeemable in gold, an idea that will not-and should not-die.

The primary reason Nixon stopped redeeming dollars for gold was the financial drain of the Vietnam War. Wars are economic burdens, and, typically, nations at war “tighten their belts.” However, Lyndon Johnson, Nixon’s predecessor, had decided to give the American people both “guns and butter” during the Vietnam War. In other words, he continued with massive increases in social programs, which John Kennedy had begun.

Whereas Kennedy had his New Frontier, Johnson had his Great Society. The result was inflation, rising prices, and a “run on the dollar,” which culminated with Nixon’s closing the gold window. Since then, the world has been on a paper money system dominated by the dollar.

Europeans have long resented the dominance of the dollar, which is one reason the European Union was formed. Individually, no European currency had the strength to challenge the dollar. (Charlie de Gaulle went to his grave hating France’s backseat position to the United States.) However, the creation of the European Union’s euro established competition for the US dollar.

In past writings, we have likened the dollar’s unique reserve status to a credit card that is paid by someone else. Australian Geoffrey Heard, in a controversial treatise titled Not Oil, But Dollars vs. Euros, says the dollar’s status is like writing checks that are never presented to the bank. We think it is a fair comparison.

Written before Operation Iraqi Freedom began, Heard’s article asserted that the United States was going to invade Iraq not because of its oil but because the US did not want OPEC nations to start selling their oil for euros instead of dollars, hence the title of his discourse. According to Heard, because since 1971 OPEC has priced its oil in dollars, this makes the dollar the world’s de facto international trading currency.

“If other nations have to hoard dollars to buy oil,” Heard says, “then they want to use that hoard for other trading too. This gives American a huge trading advantage and helps make it the dominant economy in the world.” Although there is truth in Heard’s assertion, OPEC’s pricing oil in dollars is not the only reason the dollar is the world’s de facto currency, and OPEC chose the dollar for good reasons.

The International Monetary Conference, held in July 1944, in Bretton Woods, New Hampshire, where representatives of 44 countries outlined rules for post World War II international trade, officially made the dollar the world’s only reserve currency. The conference put the world on a gold exchange standard, which made the dollar equal to gold. Before the outbreak of World War I, the world was on the gold standard, which meant that trade imbalances were settled in gold. After Bretton Woods, trade imbalances could be settled in dollars or gold. In recent years, other currencies, including the euro, have gained reserve status.

The Bretton Woods Conference, as it is now commonly called, put the dollar on that pedestal not because the United States had remained virtually untouched by WWII and controlled the bulk of the world’s industrial might, but because the dollar was redeemable in gold. Consider these statistics: In 1948, the world’s official gold holdings were 30,183 tons, of which the United States claimed 21,682, or 72%.

In 1944, no one at the conference would have suggested that the world go on a fiat paper money monetary system; yet, that is where we are today. No currency is redeemable in gold, and the US dollar remains the world’s dominant currency.

However, in 1999 Iraq insulted the United States and its dollar. Iraq started pricing its oil in euros, in what Heard considered “a European Union beachhead” in the confrontation between the established dollar and the upstart euro.

As noted above, Europeans have long resented the US being able to finance its affairs with printing press money, and that resentment became the driving force behind the formation of the European Union and its euro, which was designed to compete with the dollar. While average Americans have no idea what it means for the fiat dollar to be world’s reserve currency, the heads of the European countries do, and they want a “piece of the action.”

Heard argues that the US-led invasion of Iraq was not about oil but to prevent the euro from gaining a “beachhead.” As everyone might guess, when Iraqi started exporting oil in mid-June, it no longer priced its oil in euros. (UN Resolution 1483, adopted May 22, handed total control of Iraq’s oil resources to the US and the UK.)

Further, following its early June meeting in Qatar, OPEC announced that despite “a very difficult situation,” it would “stick with the dollar.” After the pounding we gave Iraq, OPEC’s decision was an easy one. However, the idea that oil could be priced in euros is still alive.

According to a Reuters’ release on June 16, the European Union’s top energy official, Loyola de Palacio, said that she could see the euro replacing the dollar as the main currency for pricing oil. She was commenting on remarks made earlier in the day by the Malaysian prime minister, who had said it was time to review the dollar’s energy pricing role.

Asked if a switch to pricing oil in euros was possible, the EU official said: “Of course, in the oil market and in any market. The euro’s a stable and a strong currency. The role of the euro is going to be increased step by step. It’s normal.” She also said that European Commission President Romano Prodi several times had raised the issue of pricing oil in euros.

Here we have two spokespersons, from two governments as far apart geographically and culturally as they can get, talking about the euro replacing the dollar as the world’s primary currency. And, these are not the only governments discussing the dollar’s envied position.

On June 30, representatives of 13 Asian countries, including the economic giants Japan, China, and South Korea, will meet to discuss the issuance of “cross-border debt” between the countries, under a plan called the “Chiang Mai Initiative.” The plan calls for the central banks of these nations to increase their holdings of each other’s currencies, which would reduce their holdings of dollars. The Chiang Mai Initiative effectively would elevate those 13 nations’ currencies to reserve status-at least in Asia.

If implemented, the Initiative would damage the dollar’s status in Asia. Still, other nations, including those in the European Union, may look askance at calling Myanmar’s kyat a reserve currency. The gathering of the 13 nations, however, shows worldwide concern about the dollar.

So, just maybe Geoffrey Heard was right that the US-led invasion of Iraq did have something to do with the pricing of oil. Not everyone, however, was swayed by Heard’s arguments.

The esteemed John Mauldin blasted Heard’s essay, calling it “one of the more boneheaded pieces of conspiratorial economic garbage that I have read in quite sometime.” Although CMi respects John Mauldin’s work (The April Monetary Digest carried Mauldin’s writings on the precarious position of private pensions.), we disagree with many of his criticisms of Heard’s treatise.

For example, Mauldin wrote, “Heard’s thesis is based upon the presumption that the US wants to maintain a strong dollar . . .” However, your editor has read Heard’s piece several times but does not draw that conclusion. Further, Heard never talked about the “strength of the dollar,” nor about a “strong dollar policy.”

Heard talked about the Bush administration wanting to keep the dollar as the world’s reserve currency. Heard did not discuss the possibility of a 20%-30% drop in the value of the dollar against other currencies. On the other hand, Mauldin did. He wrote, “As long time readers know, a 20-30% drop in the dollar does not bother me. The US went through such in the 1980’s, and life seemed to go on just fine, thank you.”

There is a world of difference, however, between the dollar dropping 20%-30% and it being replaced as the world’s primary reserve currency.

The Bush administration may welcome a significant drop in the dollar-over time-despite statements to the contrary. A weaker dollar would go a long way toward alleviating-but not reversing-our massive balance of trade deficit because our exports would be cheaper to foreigners and imports would be more expensive to Americans. However, the Bush administration would not want to see the dollar replaced as the world’s primary reserve currency.

As it is, the United States has the world’s central banks soaking up all the dollars that the Fed prints. Here’s how it works. The Fed prints dollars with which it buys US government debt, primarily Treasury bills and notes-and quite possibly also the government’s long-term 30-year bonds. This buying drives up the prices of the debt, and those that sell have fresh cash to invest elsewhere.

Some of the fresh cash makes into the mortgage market, where Americans borrow against their houses and use the proceeds to pay for imports, such as Japanese cars and trucks, Taiwanese computers, and all the Chinese goods that Wal-Mart sells. (Who hasn’t read about the “need” for the consumer to continue buying?) The dollars make their way to Japan, Taiwan, and China (the really big suppliers of foreign goods to the US) where the exporters convert the dollars into local currencies.

As the dollars are converted into Japanese yen, Taiwanese dollars, and Chinese yuan, the conversions put upward pressure on those currencies. A conversion into another currency is “buying” that currency, which causes it to rise in value. If it rises too high, that crimps exports. And, because Japan, Taiwan, and China have economies designed to export, they do not want their currencies increasing in value, especially relative to the dollar.

So, the central banks of those countries print their currencies to pay for the dollars. This increases the supply of local currencies and keeps them from rising too much against the dollar, thereby keeping exports cheap. (Increase the supply of any commodity, including paper currencies, and their value will fall-all other things remaining equal, i.e., no increase in demand.)

Consequently, dollars stack up at the local central banks. Wanting to “get a return on their reserves,” the central banks invest their newly acquired dollars in US Treasury debt. This, of course, means that the central banks of Japan, Taiwan, and China are big lenders to the US federal government. In fact, these are the three biggest lenders to the US. Something like 95% of these three countries’ foreign exchange reserves are in dollars.

As everyone knows, the dollar is fiat money, legal tender by government decree. The dollar is not redeemable in gold. Holders of dollars can do three things with them. One, convert to other currencies. Two, buy US assets, such as Treasury debt, corporate debt, stocks, real estate, etc. Or, dollar holders can buy goods made in America. With the US running a trade deficit of about $500 billion a year, it is clear that foreigners are not interested in buying many American-made goods.

The net result of this paper money scheme is that the United States prints little pieces of paper-dollars-and buys the world’s goods. Dollars have no intrinsic value. They are paper, a useful commodity but an inexpensive commodity, which is found in abundance worldwide.

Still, the world’s central banks put those dollars in their vaults (generally in the form of US Treasury debts) and call those dollars “assets.” In short, the world gets little pieces of paper, and Americans get tangible, useful goods-real wealth. Any wonder Europeans resent the United States’ position as the supplier of the world’s primary reserve currency?

A look at changes in central bank reserves since the end of World War II shows how the US has taken advantage of its paper money dominance. Over the 20 years from 1949 to 1969, while gold was still the important central bank reserve, central bank gold holdings climbed 5,664 tons, from 30,623 tons to 36,287 tons, for an increase of only 18%. However, total reserves, which included dollars as agreed at the Bretton Woods Conference, rose 55%. Although gold was still considered the ultimate reserve, the dollar had begun making inroads.

Today, 32 years since the closing of the gold window in 1971, central bank gold holdings total 32,291 tons, 3,996 tons less than when Nixon closed the gold window. However, since 1971, world central bank reserves have surged 2000%. With a reduction in gold holdings, this means that the 2000% increase has been entirely in paper dollars. (Of the 32,291 tons official holdings, the US claims 8,149 tons, or 25%-a significant drop from 72% in 1949.)

The world is on a fiat paper money system, and the United States dominates the printing of fiat currencies, and that near-monopoly enables Americans to consume the bulk of the world’s goods (including about 25% of the world’s oil). Even a 20% to 30% decline in the dollar, such as John Mauldin almost welcomes, would not knock the dollar off its perch. The dollar would be damaged, but as long as central banks continued to stash away dollars, our monopoly would remain intact. Nonetheless, a big decline in the dollar would cause serious problems for Americans.

Our imports, including oil, cost more every time the dollar takes a hit on the currency markets. This reduces our standard of living, simply because our dollars buy less. Yet, in world trade we have a unique position because we get to buy-via the Fed’s paper money-real goods without having to produce real goods.

While it is true that we produce much in America, daily we become more dependent on foreign goods. Some day, foreigners will want real goods in exchange for their goods, not more paper dollars. If a huge quantity of dollars were rushed back to the US in search of real wealth (real estate, commercial property, businesses, perhaps anything tangible), we would see massive price increases. Under such conditions, gold and silver would again be recognized for what they are: the only real monies.

Further, such conditions would cause gold and silver to gain in value not only against paper currencies but also against other tangible assets. In other words, it will take less gold and silver to buy other assets, as the people of the world turn to gold and silver to avoid paper money. They will want to store their wealth in “safe havens,” not in money that can be created with a computer keyboard.

All the worlds’ central bankers know the significance of the dollar being the world’s primary reserve currency. However, would the Bush administration go to war, as Geoffrey Heard has charged, to protect that coveted position? Probably.

Keeping the dollar as the world’s primary reserve currency is that important. Still, the dollar’s days are numbered. Sometime in the future, the euro will stand as the dollar’s equal in international trade and as a reserve currency. Our hope is that the euro does not replace the dollar-as, undoubtedly, Charlie de Gaulle would want.

Before anyone considers this an endorsement of the euro, it is not. The euro is only another paper currency. When the European Central Bank lowered its interest rates in early June, it showed that Europe is capable also of printing too much paper money, just like our Fed. Gold and silver are the safe havens for now-maybe for a long time to come.

Drastic Measures

Japan is facing economic woes now stretching more than a decade in duration. Countless “fiscal stimulus” packages, including programs such as building roads that lead nowhere, have been tried. The result: the Japanese government now has debts equal to 150% of Gross Domestic Product. Further, this year’s budget has already been busted.

This fiscal year, projected tax revenues come to 42 trillion yen, while spending is now set at 85 trillion yen. More than half Japan’s budget (43 trillion yen) will be borrowed. Relative to GDP, Japan has greater debt than the United States, which has the highest aggregate official debt burden in the world.

Last year, Moody’s, the western world’s largest debt rating service, slashed Japan’s government debt to a grade lower than Botswana’s. Japan is now the lowest rated among the world’s leading industrialized nations.

Meanwhile, Japanese banks and insurance companies have suffered also, so much so that some teeter on bankruptcy. Japanese banks, unlike US banks, can invest in stocks and count the value of such stocks as part of the bank’s capital. (US banks are restricted to buying US government-backed debt.)

In 1990, the Nikkei 225 was just short of 40,000; today, it is about 9,100, a level that impairs the banks’ capital. Compounding the problem, Japan’s banks have huge loans to Japan’s insurers, which have been hit by interest rates having been driven to zero in attempts to revive economic activity.

The Japanese cannot be faulted for not trying. Unfortunately, most of their efforts center around having a currency that can be printed at will.

For example, on June 10 the government confirmed plans to pour $17 billion in Resona, a bank that found itself short of capital. Public funds will be used, which means that the Japanese people bear the burden of the loan, just as Americans do when our government spends money it does not have. To bailout the insurers, the Japanese took some really drastic-and immoral-steps.

Two days after the announcement of the Resona rescue, the lower house of parliament passed a law allowing ailing insurers to cut the rates of return they had guaranteed to policyholders from around 5% to 3%. With 10-year bond yields below 0.5%, this may not be a big enough cut to save the weakest insurers, which means further payout reductions are possible.

The new law will force policyholders, who now take precedence over holders of subordinated debt in bankruptcy proceedings, to take a backseat to owners of the insurers’ subordinated debt, which are the Japanese banks. So, here is another rescue that will fall on the backs of the Japanese people. And, still more unconventional moves are in the works to rescue Japanese businesses.

On June 11, the Bank of Japan (Japan’s central bank) said it would buy as much as $8.5 billion of corporate debt to help companies hurt by the nation’s three recessions over the last ten years. At least half the debt will be backed by the assets of small and medium-sized companies with capital of $8.5 million or less.

Normally, central banks eschew privately issued debt. In fact, our central bank, the Federal Reserve, buys only US government-backed debt and foreign currencies. But, these are tough times in Japan, and drastic measures are required. In the name of stimulating the economy, the Bank of Japan is going to buy assets that some private concerns would not buy.

All these efforts are for a good purpose; but, the efforts are flawed. The printing of new money to paste over past mistakes can only put off the day of reckoning. Printing new money and passing it out to mismanaged businesses will not solve the problem. Printing of new money will, however, shifts the burdens from the businesses to the people. Unfortunately, similar problems are developing in the US, and we can expect similar “solutions.”

The pension plans of some major corporations are in trouble (See the April issue of Monetary Digest.) And, insurance companies will face the same problems as are the Japanese insurers-if interest rates remain low for a long time. However, the most likely cause of the massive printing of paper money will be the federal government’s mismanagement of its financial affairs. (See $44.2 Trillion and Counting, page 6.) Further, the budget deficits faced by many states could cause increased printing.

Politicians, being the creatures they are, will not make the hard corrective measures needed to balance budgets, those measures being spending cuts and tax increases. Politicians lose votes when they cut programs or raise taxes. Consequently, the problems will continue to mount. Already, many politicians are calling for federal government bailouts. Since our fedgov is operating in the red, any rescue will be with freshly printed money. Considering the current state of affairs, is there any hope that the paper dollar will survive?

Private Storage Facilities

Many investors dislike storing their precious metals investments in banks, for several reasons. One, banks are subject to governmental control. Two, in the Great Depression, thousands of banks closed, leaving safe deposit boxes inaccessible. Three, in some states on the death of a signatory, safe deposits boxes are closed until government agents verify the contents.

Frankly, it is unlikely that we will face bank closures as in the 1930s because today the Federal Reserve can print all the money it wants to keep banks open. When was the last time anyone heard of a bank closing and depositors losing money? Today, when a bank gets in trouble, the regulators arrange a merger or buyout, and depositors often do not even know there was a problem.

Further, in the 1930s there was no FDIC insurance to guarantee depositors. Yes, we recognize that the FDIC has only about 1% of funds needed to bailout all the deposits it insures, but there is the implicit understanding that the Fed, with its printing press power, stands behind the FDIC. So, the likelihood of massive bank failures is highly unlikely. Still, there other reasons, some of which are not discussed here, for storage outside the banking system.

In talking with clients, we know that many hide their metals at home. This has its advantages and disadvantages. First, metals stored at home are readily accessible, even weekends. However, metals stored at home rarely fall under homeowners insurance, except for small amounts, usually less than $1,000.

Clients that do store at home need to make certain that their stashes will not be discovered by common thieves. Typically, burglars head first for the bedrooms, where they hope to find cash, jewelry, or guns. Any metals stored at home should be difficult to get to, not easy.

Another danger of storing at home. Over the 30 years that CMi has been in business, several of our clients have had their metals stolen. Invariably, the theft was by a family member or by a “friend” of a family member. Be careful whom you let know you are buying precious metals.

Investors who want private storage facilities may want to consider a vault operated by Ganem Jewelry, which has gained a stellar reputation over its 22 years of doing business in the Phoenix area. Ganem’s vault is located at its Tempe, Arizona store. The structure is state-of-the-art, steel-framed and encased in three feet of concrete.

Inside the vault are keyed safe deposit boxes of various sizes. The smallest is 3″X5″X24 for $40 a year; the largest is 44″X10″X24″ for $555 a year. Two alarm systems protect the vault, one for the jewelry store and a second for the vault. Investors wanting more information can call 480-820-1122.

$44.2 Trillion and Counting

In late May, the White House shelved a Treasury Department commissioned study that showed the net liabilities of our fedgov to be $44.2 trillion. By comparison, current official debt stands north of $6.46 trillion. Other comparisons: $44.2 trillion is roughly equivalent to four years of US economic output or more than 94% of all US household assets.

Originally, the results of the study were to be included in the Bush administration’s budget report for fiscal 2004. However, it was deemed not wise to give such powerful ammunition to the opponents of the president’s tax cut, which was part of the bill that set forth the 2004 federal budget. (Although White House spokespersons have denied “shelving” the study, they have not denied the study’s findings.)

The liabilities arise from “fiscal imbalances” because of “generational imbalances.” In short, the US population is no longer growing fast enough to keep the fedgov’s Social Security/Medicare Ponzi scheme going. Stated another way, politicians have promised too much. Further, if no remedial action is taken before 2008, the “imbalance” rises to $54 trillion. Medicare will consume-if no changes are made-80% of the imbalance. Social Security and federal retirement programs make up the bulk of the balance.

The authors of the study suggested some remedies. One, double payroll taxes (FICA, or Social Security, if you prefer) immediately and forever; two, raise income taxes by more than a third; or three, cut Social Security and Medicare benefits in half.

It is highly unlikely that this matter will be addressed before it is a real crisis, i.e., there is no money left in the Treasury. The politicians in Washington couldn’t care less what happens after they leave office.

The fedgov’s unfunded liabilities have been written about before. The Taxpayers Union used to do annual studies, which the media ignored. Only gold bugs paid attention. Now with the Treasury having commissioned this doomsday study, will the media ignore is it? Probably.

(Here is something else the media choose not to discuss. With two months to go in fiscal 2003, the official budget deficit has already set a record, having just passed the $290 billion mark. The Treasury’s official “debt to the penny” is up $370 billion.)

Years ago, Monetary Digest warned that Social Security was the greatest Ponzi scheme ever devised. There is no way our fedgov can meet the obligations imposed by Social Security and now Medicare. CMi believes that one measure to reduce the fedgov’s liabilities will be to declare Social Security and Medicare welfare programs, eligible only to the indigent.

This means that despite having paid into Social Security their entire adult lives, many Americans may not receive a penny if they have also set aside funds for their retirements. If they can’t declare themselves indigent, they will not be eligible for Social Security.

Logically, the study should have a major impact on precious metals prices. However, with the media not making the study an issue, the study will be something discussed only in publications such as Monetary Digest. Still, some investors will find out about the study and will comprehend the seriousness of its implications. Those who do so will seek safe havens. Because gold and silver have stellar track records as safe havens during times of fiscal insanity, many investors who today have never considered gold and silver will turn to them.

There is also the probability that the conclusions of the study will be discussed abroad more than in the US. Approximately 85% of the world’s central bank reserves are in dollars. And, some studies estimate that 85% of the world’s commerce is conducted in dollars, which means that millions of foreign individuals own dollars. Those individuals should be interested to know that the issuer of dollars has nearly seven times the liabilities that it publicly admits.

Considering the massive foreign holdings of dollars, the study’s findings should increase interest in gold and silver. And, rightfully so.

Gold and silver not the same, but both precious metals

Articles about gold and silver often use gold to denote both, for two reasons. One, it makes the writing easy and concise.

Two, in today’s society, gold is the senior metal. Being scarcer, it is higher valued. Further, few governments count silver among the reserves that backup their currencies. Additionally, over the last 50 years or so industrial demand for silver has grown from some 250 million – 300 million ounces a year to nearly 900 million. Because of that, many analysts call silver an “industrial metal,” ignoring (or not knowing) the fact that silver has been used as money more than gold.

CMi believes that silver belongs in the metals portfolio of every investor who can handle its bulk and weight, silver’s only drawbacks. (Ted Butler says the problem with silver is that investors get too much value for their money.)

CMi further believes that silver will outperform gold over the next few years, the next decade, and probably even longer. Silver will respond to financial and political crises, and the industrial demand will continue to pull silver out of the market. In many instances, silver used for industrial purposes will not be recycled, as it is in the photographic industry. The silver story is an exciting one.

An excellent source of information on silver and developments that should affect silver’s price is, the only sight on the Internet dedicated to silver and silver stocks. David Morgan, editor, is uniquely qualified to publish He has a background in engineering and an advanced degree in Economics/Finance.

Morgan searches many popular and obscure publications to pack with information that most Internet browsers would never find. In many instances, he provides links to other sites that have posted articles on silver, and often gold. Links to recent Ted Butler commentaries are posted. The good news is that is free.

However, if you want still more information-and especially information about silver stocks-Morgan publishes a monthly newsletter, The Silver Investor Newsletter. It’s $99 by email, $112 for a hard copy via the Post Office. If you have thousands of dollars invested in silver, $99 is a small cost to be kept informed as to what is happening with silver.


Before the invasion of Iraq, the price of gold pushed up just shy of $390 in Asia, and gold coin buyers did their part. The demand was such that backdated Gold Eagles cost more than current year 2003 Gold Eagles. However, all that changed quickly as the invasion went well for the US.

Gold quickly retreated to $320, disappointing a lot of buyers who had thought gold could top $400. From the $320 level, gold began a strong rally, which showed that gold is in a bull market. The bears had talked about gold below $300.

Meanwhile, the rally off $320 brought many gold coin sellers to the market, and today, backdated Gold Eagles sell $5 to $6 less than 2003 coins. The people who had thought about selling during the pre-invasion move came back when gold bounced off $320.

Gold bulls wonder why anyone would sell at these levels, but they need remember that gold traded below $300 for four years, which means many gold coin buyers now have profits. Remember also that many gold coin buyers jumped in simply because gold was low, not because they have a mistrust of paper currencies, as do most gold buyers.

Gold coin selling also has caused Krugerrand prices to fall. Rands can be bought at $6 to $7 back of Gold Eagles.

Despite the gold’s strong performance, silver has yet to make its move. We believe it will be only a matter of time that silver put in its bottom in November 2001 when it traded at $4.04. With platinum trading just under $700, we think it should be sold, not bought.

Investors who prefer bullion coins can go with either Gold Eagles or Krugerrands. The 1-oz Perth Mint Lunar Series gold coins are our recommendations for investors who want to “bet” on premium increases. In 1999 and 2000, the 1-oz Gold Dragons, which has sold out, sold at only $6 to $8 above Gold Eagle prices. Today, Gold Dragons trade in the secondary market at the $450 level.

See our web site for more information on these coins. For more information on silver bullion products, visit

Readers wanting to discuss these recommendations, or any aspects of the precious metals markets, are welcomed to call us at 800-528-1380. We take calls Mondays through Fridays, 7:00 a.m. to 5:00 p.m. Actually, sometimes we take calls before 7:00 and we often take call after 5:00. Occasionally, we’re in the office Saturdays.

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