Liberty Maven

by Peter Schiff

The markets are going through another sell-off phase, yet the traditional notions of a ‘safe haven’ are changing. No longer is the US dollar the default shelter; instead, gold, the Swiss franc, and the Japanese yen are the preferred assets.

All three of these havens – gold, francs, and yen – have been surging upward this month. Two of them, however, are being actively devalued by central banks desperately (and foolishly) trying to curtail appreciation. The Swiss and Japanese are enlisting both policy measures and all the banker-speak they can muster to stem the tide of investment flows into their currencies.

The game is Last Haven Standing, and Spielberg has already acquired the movie rights.

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I wish I received a birthday card containing over $1.5 million. In about 24 hours, Ron Paul’s Birthday “money bomb” has reeled in just that. While I’d probably spend the money on silver or gold, Ron Paul is going to spend the money on spreading the liberty message via his 2012 presidential campaign. And the way Ron Paul spends money that 1.5 million will go a long way.

by John Browne, Senior Market Strategist at Euro Pacific Capital

The basic unwillingness of politicians to face economic and financial realities has caused the United States and European Union to face currency collapse. The politicians are content literally to paper over the problem with massive amounts of newly printed currency. This means that savvy investors, facing major real losses, are turning increasingly to gold. In essence, even though currencies are no longer on a gold standard, they are increasingly being “redeemed” for gold in the marketplace.

For decades, fiscally irresponsible US Administrations have gradually reduced the world’s richest nation, with a currency perceived as ‘good as gold,’ to the position of the largest global debtor, with a debased currency. Furthermore, US stock markets have offered little real return. Indeed, the Dow stands just below 11K, down over 3K points from its all-time high on October 9, 2009. Discounting for inflation shows a loss close to 4K points, or a fall of over 25 percent from its all-time high. Meanwhile, equities in emerging markets have often shown handsome returns.

The recent political wrangling in Washington has damaged the financial credibility of the United States, prompting a long overdue debt downgrade by ratings house Standard & Poor’s. This removes a fundamental pillar supporting the dollar as the global reserve asset of choice.

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by John Browne, Senior Market Strategist at Euro Pacific Capital

Last week Fed Chairman Bernanke raised eyebrows and denied history when he asserted in front of Congress that gold doesn’t qualify as money. Yesterday he took the unprecedented step of announcing that the Federal Reserve would keep interest rates near zero for at least the next two years. In very short order thereafter it required much more of the money that he believes in (U.S. dollars) to buy the money that he doesn’t believe in (gold).

In any event, it was beyond unusual for the Fed to make such an explicit time commitment on monetary policy. To underscore this fact, three voting members of the Federal Open Market Committee came out against the policy. Such dissent within the Fed’s ranks has not been seen in decades. But Bernanke’s shameless appeasement of market fears did interrupt, if only for a few hours, the free fall on Wall Street. Wiser investors, understanding how a more activist Federal Reserve will destroy the value of the dollar, moved to gold, pushing the metal up to north of $1,750 per ounce.

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by John Browne, Senior Market Strategist at Euro Pacific Capital

Although I believe gold still faces a very rosy future, an agreement in Washington that avoids default and growing concerns of a global economic slowdown could create significant near-term headwinds for gold investors.

While the dysfunction of the US government is on stark display over the debt ceiling negotiations, other areas of the world show similar policy confusion. In the European Union, great doubts exist as to how the leaders will be able to stem the tide of serious sovereign debt contagion without inviting recession and an uptick in inflation. In China, commentators seem to lack confidence that the economy can maintain its impressive growth rate if its major trading bloc partners fall back into recession. This uncertainty has created a level of financial fear that has contributed to gold’s run up to more than $1,600 per ounce. However, this also means that any weakening of these fears could lead to a pull back in gold. An agreement in Washington, however meaningless, may be such a trigger.

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by Peter Schiff

Imagine a day when you go to buy a quart of milk, ask the price, and the cashier says, “that’ll be a tenth ounce silver.” As the US dollar’s decline accelerates, several efforts around the country are trying to make this vision a reality.

Historically, paying for items in silver or gold was actually quite common. We happen to live in an unusual time and place where generations have grown up trading exclusively in paper. While my parents still used dimes made of silver, we have now gone several decades with no precious metals in any of our official coinage. But this system of money by government fiat is unsustainable.

While the practice of bartering precious metals directly for goods and services has continued on a small-scale over the last few decades, the 2000s saw the beginning of organized efforts to revive gold and silver as money.

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by John Browne, Senior Market Strategist at Euro Pacific Capital

This week, in the second in a series of less-than-impressive press conferences, Fed Chairman Ben Bernanke offered market observers little hope that any additional quantitative easing programs are on the horizon. The Chairman continues to cling to the position that the economy is improving (with the recent “soft patch” attributable to external forces) to the extent that additional Fed support will be unnecessary. Left unsaid was any guidance as to who the Chairman believes will buy the massive amounts of Treasury debt formerly swallowed up by the QE II program?

The logical conclusion is that Bernanke believes that there will be massive private sector demand for U.S. Treasury securities. If so, how long can it be expected to last? If the economy improves, as Bernanke expects, would it not be logical to assume that private investors would direct capital to more promising sectors than ultra low yielding U.S. sovereign debt? Clearly something does not add up. Judging by the Chairman’s halting delivery and sheepish demeanor, it appears as if he knows his position is untenable.

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by John Browne, Senior Market Strategist at Euro Pacific Capital

This week saw the type of downside volatility in the precious metals market that will be remembered for years to come. For those of us who have been long gold, and silver in particular, the memories will not be pleasant. While many had been expecting a pullback in silver, when the violence did come it was nevertheless shocking. Silver shed one third of its value in less than one week. And while gold was pulled down by the general sell off in all commodities (oil, copper, coffee, etc.) the yellow metal shed only 6.5% during the carnage. Those mild losses should remind us that  gold is not just another commodity, but has monetary qualities that tend to smooth out volatility. But will silver survive the vicious downturn?

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by Peter Schiff, CEO of Euro Pacific Precious Metals and author of the hit economic parable How an Economy Grows and Why It Crashes

I have worked on Wall Street my entire life, and one thing I’ve learned is that large institutional investors, like pension funds and endowments, rarely veer from the herd. They manage too much of other people’s money to stick their necks out alone – if their investments go bad, at least they can point to everyone else who fared just as poorly.

For this reason, these funds are often lagging in their perception of crucial market changes – changes such as a doomed currency. While many of us are buying precious metals to hedge against the collapse of the dollar, gold and silver have been taboo investments on Wall Street for years. Fund managers are taught that gold is a “barbarous relic” – much better to stick with government bonds and blue-chip stocks. That’s what everyone else is doing.

But there are early signs that the herd is changing direction.

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by John Browne, Senior Market Strategist at Euro Pacific Capital

Despite loud huzzahs from a variety of boosters who proclaimed that Chairman Bernanke spoke with gravitas and wisdom at the first ever Federal Reserve press conference, the wider investing public clearly saw the performance as unconvincing. During and immediately after the proceedings the prices of gold and silver rose strongly to new highs as the U.S. dollar plummeted. The affair seemed to solidify the understanding that Bernanke and his cohorts have no intention whatsoever to reverse the current trend of inflation and a weakening dollar.

With all the preliminaries swept away, it appears that the great dollar slide that we have long feared will not be interrupted. In the last year alone, the dollar has fallen 25 per cent against the Swiss Franc, (the gold standard of fiat currencies) – with one quarter of that decline coming since the beginning of April alone. Against gold itself (the gold standard of all forms of money), the decline has been even worse, 31 per cent so far this year, and 8 per cent this month.

Ominously, the dollar index (the broadest measure of dollar strength) is just a percentage point or two above the all time lows that it set before the financial panic of 2008 sent spooked investors into the apparent safety of America’s deep and liquid Treasury market. It appears that spell has now been fully broken.

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