Monetary Digest, January 1975
Twenty-four economists, as reported in the December 21st issue of BUSINESS WEEK, anticipate an average price increase of 8.7% in 1975. BUSINESS WEEK goes on to point out, “Last year, economists were humbled by their forecast performance for 1973. This year they are downright humiliated.”
The article points out that at this time in 1973, economists projected price increases of 6%. Instead, prices overall rose more than 10% in 1974 and have recently been rising at a much faster rate.
Living Within Our Means
The Congressional Joint Economic Committee estimates that the Federal Government will run a deficit of $23 billion for the fiscal year ending June 30, 1975. The Committee blames worsening economic conditions and reduced federal receipts. Anticipated outlays are $308 billion, versus about $285 billion in receipts. A budget deficit of $36 billion was forecast for the fiscal year ending June 30, 1976.
Rise in Silver Prices Predicted
Jerome Smith, author of SILVER PROFITS IN THE 70’s, predicts that by the second half of 1975 the silver shortage will be so severe that silver prices will be rising at a percentage rate “double the rate of increase in the gold price.”
Shakey Banks Being Watched
According to a spokesman for the U.S. Controller of the Currency, there are about 150 banks in the U.S. which are “subject to more than normal supervision.” This is an increase of 50% over the number being watched a year ago and is the highest total number in about twelve years.
The spokesman said the government puts banks on the warning list, “when they get the sniffles and we think they are getting a cold.” He added, “We keep them on that list until they have been released from the hospital.” He also indicated that the regulatory agencies acted tardily in the Franklin National Bank case.
The Federal Reserve System pumped 1.77 billion dollars into the Franklin in a futile rescue effort. The patient died of terminal pneumonia.
The above graph officially says that the consumer price index (1967 = 100) now stands at 154.3. “Officially prices have increased more than 10% this year alone.
In case you don’t like official figures and graphs, here’s what it says. — Your cost of living has increased 30% since January, 1971; your cost of living has increased nearly 16% since wage price controls were removed; your cost of living has increased over 12% in the past twelve months.
The graph also says that is the same rate of inflation continues for the next five years, your money will buy about one-half as much by 1980.
International Monetary Symposium
A Certified Mint representative will attend the 1975 International Monetary Simposium to be held in Miami, Florida, January 5-8. The speakers at the Symposium include U.S. Congressman Philip M. Crane, Dr, Henry Hazlitt, Professor Hans Sennholz, and many other long time students of our economic problems.
A report on the Symposium will appear in the February issue of MONETARY DIGEST.
Another Devaluation in 1975?
President Ford and French President Giscard d’Estaing have agreed that it would be appropriate for any government which wished to do so adopt current market prices as a basis of valuation of its gold holdings. The French recently devalued the Franc and it is not unreasonable to expect that the Ford administration will ask Congress to devalue the dollar in 1975.
Cries for More Inflation
In a recent editorial, BUSINESS WEEK joined the throngs of those importuning the government to expand the money supply. BUSINESS WEEK suggests an annual rate of 6% in order to stave off a sever recession.
In the same issue, BUSINESS WEEK has an article speaking favorably of accepting whatever deficit occurs with enough government spending to prevent a recession. As more and more influential people take their position, you can watch the purchasing power of your savings dwindle.
Silver Also Might Shine as an Investment After Ownership of Gold Becomes Legal
The Wall Street Journal
Monday, Dec. 16, 1974
by Gene G. Marcial
Staff Reporter of the WALL STREET JOURNAL
NEW YORK – Precious-metal analysts are watching closely to see what the effect the new gold-ownership law will have on the silver market.
Historically, gold and silver prices have tended to move together. Silver fanciers say the right of the U.S. citizens to own gold and to trade it on futures exchanges, beginning Dec. 31, introduces a still-uncertain element into the picture.
A number of analysts believe the new gold law eventually may increase rather than reduce speculative interest in silver, resulting in a rise in silver prices. This is particularly so, they say, because the fundamental supply-and-demand outlook for silver is definately bullish.
Friday, silver was quoted in the New York spot market at $4.26 a troy ounce, up from $3.05 a year ago, and the December futures contract closed at $4.27 an ounce.
Purchase of silver as a hedge against inflation steadily in recent years, helping drive silver prices to a record $6.49 an ounce in the New York spot market in February. Some analysts say this demonstrates silver’s price potential, and a few of them believe that silver prices of $7 to $10 an ounce are possible.
Metal analysts say U.S. speculators, particularly small and inexperienced ones, are going to be burned in their first venture into the gold market.
The reason, they say, is that foreign speculators who bought gold as recently as a year ago for less than $100 an ounce (compared with the London dealer price Friday of $179.75 an ounce) are waiting in the wings to unload. So, the reasoning goes ,after U.S. buyers rush into the gold market and drive up prices, the foreign speculators will sell, reap handsome profits and leave a collapsed gold market in their wake.
The treasury’s decision to sell two million ounces of gold from its reserves next month should lessen speculation in gold, says Walter Frankland, executive vice president of the Silver Users Association, a Washington D.C.-based trade group.
“The less speculation in gold, the more speculation in silver,” Mr. Frankland reasons. The government action will be a moderating influence on gold supply and prices, he says. The price of gold dropped $11.25 after the Treasury announcement, but has since-recovered 45 of the loss.
Free trading of gold in the U.S. also may bring an adjustment in gold prices to reflect supply and demand more accurately, observers believe. “This is bound to bring gold prices down to more realistic levels,” one analyst says.
In either event – speculative selling by foreigners or price adjustment to supply and demand – U.S. gold buyers hoping for a run-up in price are going to be disappointed, and then may begin to regard silver as a better haven for their money, some dealers handling precious metals argue.
And if gold prices remain “unrealistically high,” speculators might decide there is little chance of a further increase and turn to other commodities, including silver, says another observer.
While the gold-ownership law’s ultimate impact on the silver market is debatable, there is little argument that the fundamentals of silver suggest higher prices are ahead. Although 1974 projections point to slightly lower industrial consumption, the supply-and-demand picture still reflects one of a deficit in production. In the past 10 years, output has grown by just 2% annually while industrial demand has increased 6% according to one study.
Handy & Harman, a New York concern specializing in gold and silver, estimates non-Communist mine production in 1974 at 260 ounces, compared with industrial demand of 440 million ounces – or a deficit of 180 million ounces. The largest deficit was 214 million ounces in 1973. In the U.S., the biggest silver-consuming country, annual demand is five times domestic production.
Long-term correction of the shortage isn’t in sight. Secondary recovery of silver from photographic and electronic wastes doesn’t seem to be increasing much, and U.S. and foreign producers have few expansion plans.
Sunshine Mining Co., a major U.S. silver producer, “isn’t planning to open any new mines soon,” says Donald Long, chief geologist of the Kellogg, Idaho-based company. “We continue to speculate of the possibility that there may be areas worth looking into containing low-grade silver, such as in Nevada, but that’s all,” he says. Silver prices will have to rise and stay above $6 an ounce before the company can “seriously” consider mining the low-grade deposits, he adds.
The chronic deficit in silver output is due largely to the fact that about two-thirds of the silver produced is recovered as a by-product of copper, lead and zinc production. About 90% of the U.S. silver reserves are in deposits of these base metals. That inevitably links silver output with the economics of lead, zinc or copper mining; thus, rising demand for silver mightn’t in itself encourage more silver production.
Meanwhile, new uses for silver continue to be discovered. Richard L. Davies, executive director of the Silver Institute, an international association of miners and refiners, says 25 countries have reported new applications for silver this year in products ranging from carpets to missiles.
Currently, the U.S. photographic and electronics industries each account for 25% of total consumption. Another 15% goes into sterling ware and 12% is issued for collectors items such as coins and medallions. The remainder goes for such uses as electroplating, brazing alloys and jewelry.
Editorial
Now that we are about to regain the right to own gold bullion, hardly a day passes that gold “speculation” is not assailed in the newspapers or by news commentators. Always, they say that gold is a speculative commodity and that its price is no longer stabilized by governments, but is determined by emotion and the uncontrollable law of supply and demand. Therefore, it is subject to “violent” price fluctuations. Frequently, they add that gold pays no interest and you must rent a safety deposit box to store it.
Certified Mint maintains that these are the very arguments for the conversion of paper dollars to gold or silver. People get very emotional about their money when they see it buy less and less. Those who hold paper dollars are taking an emotional beating. No loner is the dollar as good as gold, but is a cheap substitute which is rapidly being exposed.
Considering the supply/demand fundamentals, there is no way that one can intelligently say that he would prefer to hold onto paper dollars instead of gold. While it is true that worldwide more gold is produced than is consumed industrially, there are always those people who are willing to pick up the excess. However, with the paper dollar the supply is limited only to the number which the Federal Reserve and Treasury Department decide to circulate. There are few commodities more in abundance than paper which when placed into a printing press quickly become “money.”
The disdainers of gold maintain that it pays no interest. However, to gain a real return, you must receive the rate of inflation plus additional interest. For example, if the rate of inflation is 10% and a person wants a 5% rate of real return, then he must receive interest of 15% to attain his goal. Therefore, with inflation at 12% and interest rates at 6%, you are paying 6% to leave your money in the bank.
But, perhaps the most disturbing aspect of this condemnation of gold is that these people have no solution to inflation other than continued government interference in the market place. Where were the experts in 1970 when they could have told us to buy gold at a fraction of today’s prices? If they see gold as such a bad investment today, why didn’t they see it when it was so good? Why people continue to listen to those who have been wrong so many times in the past is a point of amazement.