Canadian Frustration with Precious Metals

There has been a lot of rumbling from Canadian investors that precious metals are not making them the kinds of gains that U.S. investors are having. I have to agree we are not making the same returns on our metals but I beg everyone not to panic, hold out a little longer and you’ll see the profit for your perseverance.

I also want people to recognize that while U.S. gold investments are doing great it’s at the cost of huge (but hidden) inflation as oil, food, imports all go nuts because of U.S. dollar devaluation. If your $10,000 of gold goes up 15% and all of your household expenses follow it up 15%, have you gained?

So how will we get rich? You ask!

I don’t claim we necessarily will get rich; I do believe that in the end we will do much better than those sitting on stocks, bonds and cash. The only way we will get rich involves huge positions or such economic calamity that while you might get rich most of your families and friends will get wiped out. Instead we should hope for healthy gains without an implosion as a preferable scenario to getting rich and watching the markets burn.

The first goal of metals investment should be to retain wealth; fiat money is devaluing around the world, even in Canada. Despite the insane strengthening in the Canadian dollar in the last year we still have inflation as oil, food, services have all increased in price in the last 12 months. While Canadian dollar strength has mitigates much of this inflation we are still losing value as we purchase our day to day needs. The chance of a calamity such as a U.S. currency collapse or hyper-inflation is not huge but big enough to warrant continued holding of a 5-10% in your portfolio, do not panic and sell.

Secondly, the BoC will eventually feel the heat from the tourism, manufacturing, and agriculture sectors that are already loosing customers and jobs due to the exchange rate. To fight this trend the BoC (and the ECB) will have no choice but jump into the U.S. dollar race to zero. Once again Canada will ease interest rates, pump monetary creation and allow our dollar to weaken towards some predetermined sub parity goal that is satisfactory to industry. I firmly believe that the Gov and industry would be quite happy with a long term 0.90-0.95 cent dollar.

Why Hold?

Recent metals strength supports the long term trend of higher prices.

Recent Canadian Dollar strength allows us to buy on the upward trend with more abandon than we would at a 0.90 dollar, use it and enjoy, more ounces is your goal

There is no danger of U.S. credit tightening; therefore gold will not weaken dramatically.

Should the U.S. dollar collapse in the interim the flood of money into metals will boost prices much faster than any other currency will move, there is still safety and potential in metals, even with a bloated Canadian dollar.

Eventually the BoC will have no choice but to weaken the loonie and when it does those who hold metals will see very large appreciation over a short period of time.

So have no fear folks, even we Canadians will have our opportunity to make money in metals. For the more adventuresome investor it might be time to buy U.S. dollar positions after Wednesday’s upcoming Fed announcement. Canadian industry cannot afford a 1.05 currency right now (which we did hit today) and something will be done to weaken its value. Had I more capital and the stomach for futures I’d be betting against the Canadian dollar very soon. Of course I’m no expert but consider these things before you bail on your pretty shiny bars and coins.

On other topics, I attended the Cambridge House Investment resource Conference show in Toronto last week and with the exception of one speaker with a silly and unrealistic view of the peak oil problem I enjoyed the speakers. Over the two days I gained a lot of information on various companies and an overall feel for the U.S. and global market. I look forward to next year’s conference and I recommend anyone who has the chance to attend any of the other shows in Vancouver, Phoenix, Calgary, to do so!

Despite my previous reluctance, I think I'll highlight a few of the companies I saw and discussed with reps at the show. I won't make any recommendations or speculate on prices I'll just show you the companies that rightly or wrongly appealed to me.

Institutional storage and defrauding metal investors

I’ve lashed out a few times against the idea of paper silver but nothing I could write would be any more compelling or accurate as this article by silver expert Ted Butler. If any of you have bought or have considered buying paper silver as an investment then I ask you to read the article in full.

If you currently hold these products please make the effort and demand proof of real, physical silver to back your claims. If silver appreciates these organizations likely have enough money to redeem your certificate, but that’s not the point! Simple supply and demand requires that a product bought on the open market decreases supply, as supply shrinks the price should go up. If the purchase is not made supply does not shrink and prices will not rise.

So while you might still see silver rising and you may have made some money your personal purchases and those of countless others who bought paper silver have taken no metal off the market therefore you’ve lost potential profit.

In this one case Morgan Stanely has potentially defrauded 22,000 customers by charging storage on metals that don’t exist. They also robbed these clients of potential gains because their purchases did not alter the price 1 iota. Granted these 22,000 clients were not all silver investors, probably the majority were not silver investors but if on average these 22,000 held only 100oz(a modest amount considering Morgan Stanely storage claims) that would be 2.2 million ounces less sitting in the Comex. The defence that this was standard procedure in the industry makes it safe to assume other companies representing tens of thousand other investors have not bought silver to match their pool accounts or certificates. With my meagre understanding of the law I would say this is fraud; criminal charges should be levelled against Morgan Stanely and regulators should demand full accounting of all products claiming to represent metals. The Judge involved should not allow a settlement that does not make Morgan Stanely admit guilt or make them immediately buy all outstanding metals.

Is it possible that there are more paper claims on silver than there is real silver to back them? Hell Yes.

Futures alone represent much more silver than exists but since few people trade futures to take possession it never seems to matter. This level of storage fraud however opens up the possibility that certificates, pool accounts etc. also represent all or at least a good portion of existing silver. Silver that has not been bought, silver that remains on the market to suppress the price, silver that enriches companies with so few ethics they will sell you nothing with a straight face or sell the same thing twice, thrice ……..!

If you know anyone with paper silver share this article, and the link to Ted Butler


If you have paper silver, demand proof it exists, demand delivery or cash it out and buy physical.

If you deal with Morgan Stanely, don’t!

Another week closer to meltdown

We had a great metals week followed by a bad metals week which is to be expected as profit taking and a U.S. dollar bounce back were bound to eat away some of the gains. Does this mean it’s over? Hell no it’s just normal market action and it’s doubtful we will see a massive correction of recent gains considering nothing has changed to make things suddenly better.

The end of last week was a momentous occasion a real bank Failure! We’ve seen many non bank lenders close doors, go bankrupt or get bought in the last year but an announcement that NetBank had filed for bankruptcy was the first failure of a real bank in several decades and definitely a sign that problems are progressing up the food chain.

There are claims that the failure the failure of NetBank is a sign of the instability of the Net banking format and that the “branchless” bank business model is a failure. Is it a good sign or a bad sign that ING another bank of the same model is buying some of NetBank’s assets? The article claims ING is not a good performer compared to its peers and the business model as a whole is not a good performer.


On the U.S. economic front, today’s unemployment report shows the biggest jump of new claims in 4 months signaling further employment weakness.

In other relevant news Vietnam will refrain from buying anymore U.S. dollars in their attempt to keep the greenback strong. They claim the practice has been fuelling local inflation but the haircut they've been taking on the dollars value is just as likely a cause, Qatar move to divested itself of 59% of its dollar holdings in it’s $50 billion sovereign fund is another hit against the dollar

These moves cannot be good for the dollar's value and risks pushing other large dollar holders to follow their lead. A dollar run looks more possible every week, so don’t be fooled by this weeks dollar strengthening, the trend is and will remain downward.
Metals trend continues upward as will energy’s.

In fact, in the time it took me to write this the U.S. dollar has turned back down likely on the employment stats and metals regained their early losses and a bit extra. Don't worry, nothings changed.
PAPER BAD, METAL GOOD

The gold sovereign picture signifies nothing other than I think they are pretty and I'd like a bag of them.

Picking up Pennies

I was at the park with my boys on the weekend and as I crossed the road I saw a scattering of pennies on the ground. Now many people would sneer or make a snide comment that I bothered to bend over and pick them up considering how little a penny is worth. I do this habitually not because I’m that frugal but rather to see what I will find. This time I was quite surprised to find a rather nice example of a 1929 Canadian penny much like the image shown. If not for a recent blemish probably caused by a car driving over the coin on the road it might have been worth grading.

I found it interesting to speculate on how this coin escaped someone’s personal collection or how it managed to survive in circulation. It was an easily leap to believe that some light fingered child took them from home and dropped them, satisfying my curiosity by blaming someone’s else’s kid my mind then sped (crawled more like it) to new speculations to the relative value of this penny.

A little research today showed me that in 1929 Bread was 10 cents/lb, a cabbage 2 cents, coffee 45 cents/lb, round stake 51 cents/lb.

This of course was the end of the 1920’s boom just before the Great Depression and the decade of stagnation that would follow it. Look ahead a few years from the minting date you find beef, eggs, bread, lard, etc usually less than ½ of the 1929 prices. Cash was king in the thirties as low consumer demand, low liquidity, innovation all drove prices down and down. Those who held jobs often did well, they saved and could even buy up the assets from the less fortunate who had suffered unemployment, foreclosures, and hopelessness. People who had debts soon found that the assets they secured their loans with, land, stocks, etc had become worth less than their obligations and they defaulted. Like today’s victims of the housing bust many lost everything.

So what is that penny worth today? Measured by the Bank of Canada’s inflation calculator, similar goods purchased by my penny in 1929 would cost 12 cents today, representing 1200% of inflation or a 3.25% annual reduction in purchasing power of who ever horded that penny.

My penny’s real is worth only 8% of its original buying power

However once you realize that no one has any savings today and when money is spent it's actually money leveraged over the life of a 25y mortgage it would make a 1929 penny's equivelant value 24 cents, making todays penny worth 4% of the origian. Even better over one of those new 40y mortgages it would be about 36 cents, less than 3% or its original buying power. I don’t even care to figure out what a penny on plastic would be with all those minimum monthly payments. So my penny has gone from a real value of 1 cent or ½ a cabbage to next to nothing

What does this all mean?

Inflation is steadily eating away at any fiat money you attempt to save or horde

Fiat money is a scam that does not maintain its value over time.

Credit gives you at temporary consumer purchase “fix’, but unless you are buying a real asset that appreciates over time you are paying far too much and are even lowering you purchasing power more through your own impatience.

The system is not sound and despite claims that it can’t happen, fiat currencies have failed through out history, depressions and hyperinflation have occurred, fiat money will always lose value over time.

Gold and Silver unlike paper assets have always had a value.

Having some silver and gold is only logical given the historical precedents.

Bending over for a penny is really not worth it!

The Fed Panics and Blinks

Ok, I'm gonna start gloating at the water cooler tomorrow, "Oh, Things aren't that bad", "I can't happen in the developed word and certainly not in the U.S.", "but it's the worlds reserve currency" yada, yada, yada, I've heard it all.
"Ha" I'll say "you're all wrong and I was right", Dumb asses!

It's been a couple of rough days since the middle of last week, we've seen the run on Northern Rock in the U.K. with a reported 4 billion dollars withdrawn by clients in the last two days of business despite BOE claims there was no problem and a bucket of liquidity added to the sector.

Added to Northern Rock's troubles are the trouncing stock values of other U.K. banks are taking. Apparently both Alliance & Leicester and Bradford & Bingley have seen their stock values battered in trading today and a sector wide bailout will be needed or there will be failures.

With the worsening housing situation, disappointing employment numbers and the backdrop of U.K. banking chaos, the Fed saw the blood in the water, panicked and cut interest rates by 50pts to 4.75% for the overnight rate and 5.25% for the discount rate. Needless to say the stock market bounced, metals which had be placid all day took off after the Fed annoucement and the Canadian Dollar was up 98.69 vs the greenback at the time of this writing. In fact, every major Currency with the exception of the Yen ran down the U.S. dollar today with the U.S. Dollar Index landing just a blip above 79.

Silver out performed gold a little and the silver gold ratio is closing finally.

Silver was up .20 and Gold was up a solid 7.30

The BOC must be worried about our relative dollar strength and will soon do something to appease exporters, so you can expect the BOC to loosen credit as well. While we have dollar strength buy metals because when the average U.S. citizen begins to seek safe havens like gold to escape currency death, no other fiat currency will keep up. If you are planning a U.S. trip do some part of your currency exchange now. While we will reach U.S. dollar parity this has been too much to fast and I would not be surprised to see some retrenchment before we hit par.

Canadian Banks are relatively safe compared to most of the world, however it would still be prudent to check your depositor insurance caps, move to more than one bank and stash 3-6 months of cash in a home safe or safety deposit box. Should we ever have a run on banks there is simply not enough printed money to cover deposits, most money now is 1s and 0s floating in the ether. Northern Rock's computers crashed during this weeks bank run which would have meant no tellers/ATMS/debit cards. How much cash to you carry day to day.

Future warning signs to watch.

U.K housing could be reaching it's peak

Spain's current account deficit is growing and unsustainable

The possibility China is dumping U.S. treasuries