Precious metals: questions/comments/lots of concerns

Economics Economics Questions
1

http://www.youtube.com/watch?v=eb1n1X0Oqdw

Let me say that I agree completely with the reputable economists and financial gurus as they give their take on gold and silver in the presentation contained in the link (OK, Gerald Celente comes off as a bit of a kook sometimes, but like the others, he’s been consistently right).

I draw a slightly different conclusion, and would appreciate a few serious responses to it.

I believe the banks have one last hand to play, and it will hurt us.

Scenario: Banks have sold off far more gold and silver certificates than they can possibly cover, and if the dollar tanks, holders of such certificates will want to cash in, believing they actually own rights to the physical metal. This could result in a massive run on banks and financial institutions-- deja vu all over again.

The banks’ challenge: Drive down the demand for physical gold and silver, while at the same time acquiring enough precious metal to cover their obligations-- cheap!

The banks’ solution: Get the Fed to raise interest rates, driving down the price of gold, just as it happened in the early '80’s. Citizens and investment groups will sell their metal back to the bank at rock-bottom prices. Ordinary people holding onto gold and silver will find their investments shrink substantially. Banks will acquire the precious metal they need to cover their debts. But that crisis will be over, since so few people will actually be demanding it. Those average Americans who actually see this coming will not invest in precious metal, unless they have lots of ready cash on hand. Interest rates will be far to high at this point to justify the risk of taking out a loan.

Of course, my inner-conspiracist tells me that this was the plan from the very beginning.

I don’t like to draw this conclusion. I myself am heavily invested in precious metals, and I’m too chicken to sell it off, regardless of what I see happening in the market in the next five years (I figure that’s about all the time we have left).

Serious responses only, please.

2

Your proposed solution would bankrupt the financial institutions. Raising rates to 1980 levels (22%!!!) would spell doom for them. They probably wouldn’t even be solvent if rates went up to 5%. Hell they are barely functioning as it is with rates near zero.

3

One of the advices I always give to people is to buy physical gold and silver and hold on to them. This is your contingency/retirement fund, not a quick get rich scheme. My grandmother still has all the gold she bought back in the '70s and '80s and holding dear to it. Despite high prices she isn’t selling a single ounce: that’s because it’s her contingency fund. Earlier this year I had an half baked idea to sell some of the gold sterling pounds I have or perhaps to trade them in for silver and/or Mexican pesos but in the end I am holding on to them.

Personally I don’t see the US dollar “tanking” anytime soon. Sure, it will lose even more value, but it won’t be destroyed overnight. Interest rates are bound to stay very low for quite a long time and not because Bernanke has promised so: low interests are part of the “Japanese strategy” to freeze the economy, with a bit of inflation sprinkled on top to ensure assets prices are on a steady rise. Sure, raising interests would see us out of this damn recession in a couple of years but the resulting “political pain” is seen as so inacceptable as to preclude this exit strategy. Ronald Reagan could afford the “political pain”, Barack Obama cannot.

Moreover the dollar is not the most threatened currency at the moment: that would be the euro. But that’s another story.

4

1. I have not seen a gold or silver certificate in decades. Who are all these people who saved those pieces of paper? Are they enough to cause a massive run on banks?

2. Let’s assume there are billions of such things somewhere. The banks do not have to honor them. They can say “Go my son to the US govt that issued these things, not to me.” The govt will say “You are 40 years too late. Richard Nixon declared in 1971 that we will no longer honor these things.”

In order to attract eople to buy US bonds, the govt will also have to raise interest rates. But the govt borrows massive amounts of money. They cannot possibly pay the interest on a loan if it’s high. That’s the problem that Greece is having.

Of course the US can print money to repay [which Greece cannot do] but then the price of gold willl go through the roof.

5

I hope financial institutions do drive down the price of precious metals. I’ll just buy more of them :smiley:

6

lol :slight_smile:

7

Dave – It’s U.S. currency that cannot be redeemed for gold, not certificates isued by investment firms. Many major investment firms offer silver and gold certificates, as well as gold and silver ETF’s, gold-backed IRA’s and other precious metal securities that do not involve issuing the actual metal. I was seriously considering investing in gold the gold certs offered by Euro Pacific Capital from the mint in Perth, since they are issued directly from the mint and do not involve the entanglements inherent in investing with larger firms.

So please, next time do the five minutes of research that takes to discover this.