Silver prices up and strong: Want to buy your next house with silver?

Silver prices are climbing fast and gold is soaring above $1400 an ounce. Is it time to stock up on bullion?

Shannon Stapleton / Reuters
A 999 + fine silver 1000 troy ounce Engelhard silver bar is placed on the floor of the New York Stock Exchange Nov. 9. ETF Securities brought the silver bar to Wall Street to celebrate the recent listing of the ETFS physical precious metals basket shares. If silver prices continue to rise, more investors may look for precious metals shares like ETFS.

Front and center today, we have gold and silver piling on to their strong performance versus the dollar yesterday. Gold tipped the scales at over $1,400 yesterday afternoon, and hasn’t looked back, adding another $9 this morning! I think that Friday’s sell-off was profit-taking by the hedge funds, etc. and what we are seeing now is more of the “run to wealth providers” as more and more analysts believe that the FOMC is just kidding itself if it thinks $600 billion of quantitative easing (QE) is going to be enough!

In fact, Laurence Meyer, former Fed Head, and vice chairman of Macroeconomic Advisors had this to say about the latest announcement by the Fed Heads of their QE2…. “This is not a very powerful program. The more reluctant they are to expand the balance sheet, the less stimulus they will be putting into the economy and the weaker the recovery will continue to be.” Before the FOMC announcement last week, Meyer had calculated what would happen if the FOMC pumped $1.5 trillion into the economy via QE2… He estimated that if that happened, 2/10ths of a percentage point would come off of the unemployment rate, and economic growth would increase by 3/10ths of a percentage point.

OK… You all know that I’m not enamored with most of these guys that believe that quantitative easing when the market is flush with liquidity like it is right now, is the most prudent thing to do… But now I’ve got to ask the question… Is risking runaway inflation, and the other dastardly things that go along with a ballooning balance sheet for a central bank, worth 2/10ths of a percentage point gain in unemployment, and 3/10ths in GDP growth? I hardly think so! And if little old me sitting here without the gray matter that all the researchers for the Fed Heads have, sees that, then these guys should see it too!

Hey, one thing that got lost in the shuffle last week was the fact that the European Central Bank (ECB) decided to begin an exit from the stimulus they have provided the economies of the 16-nation Union. Of course, that doesn’t exactly mean they are going to exit from the stimulus, but, at least the ECB is talking about it, which is in a completely opposite direction from the FOMC… The implied move to exit does this, folks… It pushes interest rates higher, even if the “official rate” isn’t moved by the ECB. To prove this point, look at Denmark, who has a peg to the euro (EUR), which leads them to keep their interest rates in line with the ECB… After the ECB announcement last Thursday, Denmark has been in panic mode, because if the Eurozone rates begin to move higher, then Denmark will have to keep up, otherwise the peg to the euro gets all out of whack…

You wouldn’t believe the strong move higher versus the dollar that the Chinese allowed the renminbi (CNY) to have overnight! WOW! This is the largest move I’ve seen the Chinese allow since the dropping of the dollar peg in July of 2005. OK… I’ve got to think that this is just “window dressing” for the G-20 summit this weekend in Seoul… The Chinese can point to the move the renminbi has made in the past couple of months, and say, “Hey! We’re doing our part!”

The move could also be to appease the lawmakers in the US and keep them from voting to approve trade sanctions versus China. That could be a case of too little too late, but we’ll have to see, as the mood in Congress could have very well changed since last Tuesday. Again… I’m not for any protectionism measures, as I see grave things, or I should say, grave unintended consequences coming from protectionism measures… Can you say Smoot-Hawley? I thought you could! For non-history buffs, go ahead and Google Smoot-Hawley, and you’ll see that most economists blame these protectionism measures as one of the key reasons the Great Depression was so bad.

If you do not stop to learn from the mistakes that took place in history, then you will repeat them… It’s that simple…

OK… Enough of that! I would love to be in the room this weekend at the G-20 meeting, or better yet a fly on the wall in the back room discussions and deals… I see where US Treasury Secretary Geithner is softening his tone toward the demands for an agreement on Current Account Deficit targets… That’s not a good thing, folks… Wouldn’t it be better for Geithner to come out sandbagging the target and then slowly adjust them higher, than to come out with both guns a-blazin’, and have to back off, and look weak? I’ll tell you what I saw when I heard that he had backed off his earlier demands for Current Account Deficit targets…that we’re going to slide right back into the deficit hole we came from without any change to our deficit spending ways.

So… Did you hear about the kiwi-fruit problem in New Zealand? Apparently, New Zealand kiwi-fruit vines are showing problems and now the US has banned kiwi-fruit imports from New Zealand. This industry accounts for about 1 billion, which for New Zealand is BIG! And that’s the reason for the weakness in the New Zealand dollar/kiwi (NZD). Remember about six years ago, when the pound sterling got the snot knocked out of it, when the mad cow problem rose up? It will take some time for the water to pass under the bridge for New Zealand, just like it did for the UK, but it will…

I’ve gone this long without talking about the dollar and the currencies, except renminbi and kiwi… So… The dollar’s rally was stopped yesterday mid-morning, and the currencies rallied Monday afternoon. There wasn’t much movement overnight, and we’re back to selling dollars this morning…

Did you see where German Finance Minister: Schauble got a little feisty with his counterpart in the US, Tim Geithner, because of Geithner’s constant criticizing of countries for achieving high export surpluses and not doing enough to stimulate their domestic economies. This one hits home with Germany so Fin Min Schauble had this to say back to Mr. Geithner… “The German export successes are not the result of some sort of currency manipulation, but of the increased competitiveness of companies. The American growth model, on the other hand, is in a deep crisis. The United States lived on borrowed money for too long, inflating its financial sector unnecessarily and neglecting its small and mid-sized industrial companies. There are many reasons for America’s problems, but they don’t include German export surpluses.”

You tell him! Besides… Germany has not played the Asian game of weakening their currency to gain exports… Germany has had to live with the offset currency to the dollar’s weakness for the last eight years!

OK… I’m going to go back to China for a few minutes… I gave a presentation last week and made the call that the Chinese renminbi would be the next reserve currency of the world. It could take 15 years, but… At the rate the Chinese are adding countries to do currency swap agreements, it could be even sooner… Well, then today I see on the Bloomie a story that plays well with that call… HSBC Holdings Plc believes that the currency swap agreements in place right now, will begin to be about $2 trillion annually within 5-years, and will equal at least 1/2 of China’s total trade…

That’s right! As I’ve explained before, but for those that either are new to class or missed class… These currency swap agreements that China signs with other countries, allows a greater distribution of the renminbi, for the trade that goes on between China and the other country is only in those two currencies… US dollars are removed from the settlement… For instance, if China buys $1 billion worth of oil from Brazil, the trade is not settled in dollars, as it was in the past. It is a swap of renminbi and real…

The list of countries wanting to remove dollars from their trade settlements, for renminbi is just going to grow, folks… And that’s not a good thing for the dollar… In fact, it’s an awful thing for the dollar…

But remember, before you get mad at China for doing this to the dollar, you need to remember this was all brought on by our deficit spending… Another of those unintended consequences to deficit spending, eh?

And then coming back to gold for a minute too… The latest problems in the Eurozone periphery countries is helping to drive gold higher, too… I didn’t want you to think that I didn’t see that going on…

Then there was this… Have you ever heard of The National Inflation Association? (NIA) Well you should! My fave managing editor, Kat Van Rohr, sent me a link to a story that will shake you to your roots… $77 for a can of coffee? Or $15 for a Hershey bar? Well, the NIA guys believe that inflation is coming our way like a Tsunami! Here’s a snippet…

The average American family currently spends only 13% of their total annual expenditures on food and they spend 34% of their total annual expenditures on housing. NIA projects that by the year 2015, Americans will be spending as much as 40% of their annual expenditures on food, and as little as 10% of their annual expenditures on housing.

NIA believes that because this decade’s Real Estate bubble was so large, Real Estate prices will likely overcorrect to the downside and the median US home will be worth only 500 ounces of silver at some point this decade. Therefore, if you buy just $13,000 worth of physical silver today, NIA believes you will be able to pay cash (without any mortgage) for an average American home within the next 5 to 10 years.

I believe that we’ll see inflation like this, but I think what we’ll see first is corporations trying to keep a lid on prices and they’ll do that by reducing the size of the item you buy… We’re beginning to see this already, with cereal boxes shrinking, and your local sandwich shop has probably reduced the size of the sandwich you used to buy. (Which for me could be a good thing!)

To recap… Gold and silver were the star performers yesterday, with gold trading past $1,400, and silver trading past $27… Today there’s more gold and silver buying, and now silver is trading over $28! WOW! The thinking that the FOMC’s $600 billion QE isn’t going to be enough, and the Eurozone periphery country problems is really pushing gold and silver higher, and higher… Kiwi is getting sold on the news that kiwi-fruit vines have a disease, and the US has banned the fruit from New Zealand. And the Chinese renminbi takes a huge step up in value versus the dollar overnight…

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