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The Ultimate Gloom And Doom Guide To Gold And Silver

|Includes: SPDR Gold Trust ETF (GLD), SIVR, SLV, UGL

Unfortunately I could never get this published but it is a pretty good article. It has been sitting in my drafts for a few weeks but I though I would share it, Enjoy.

In 2008 readers watched the financial markets correct via the start of the Great Recession. Instead of letting the correction run its course, the government decided trying to inflate its way out of the recession via spending rather than facing true problems.

Fast forward to today and the problems are far from resolved. Let's review the financial problems in the world to emphasize hedging bets by putting a portion of your investments in gold and silver.

Methods to Invest in Gold and Silver

We would recommend that you hold (at the very least) 10% of your investment assets in physical silver and gold. The only downside to holding gold and silver is that you have to store the metals in a secure location, and they can be illiquid compared to holding a stock or an ETF. If this is a problem for you, you may consider investing in a Gold ETF like the SPDR Gold Trust (NYSEARCA:GLD) or ProShares Ultra Gold (NYSEARCA:UGL) Another option for investors would be the iShares Silver Trust (NYSEARCA:SLV) or Physical Silver Shares (NYSEARCA:SIVR) Both would be a good choice to capitalize on silver while maintaining liquidity through the stock market. Now let's look at some reasons to invest in gold and silver.

National Debt Is Growing Exponentially!

In our previous silver article (October 2012), the national debt was 16.1 trillion dollars. According to the national debt now stands at 16.46 trillion. That is over a .02% increase in just 100 days. Like a credit card addict charging unheeded, eventually the interest will eat you alive. If our government cannot cut spending, this will lead to further inflation and further devaluation of the dollar. We can only hope that our government will find the will to cut spending and break the vicious cycle. However the question at hand is, do you want to commit your finances to such hope?

Printing Money & Inflation

If only we could operate like the Federal Reserve and the Treasury: "Need more money? Print it up!" The line in red is the official government CPI (Consumer Price Index). Why the CPI is useless is because of this:

"Core inflation is most often calculated by taking the Consumer Price Index (NYSEARCA:CPI) and excluding certain items from the index, usually energy and food products. Other methods of calculation include the "outliers" method, which removes the products that have had the largest price changes. Core inflation is thought to be an indicator of underlying long-term inflation."

To look at a better measure of inflation we need look no further than, represented by the blue line. Looking at "true" inflation we can see quite a discrepancy. Just to hold your current purchasing power you have to make quite a gain per year on your investments.


Yet Another Fiscal Cliff

Another fiscal cliff is just right around the corner according to the Washington Post:

"The U.S. government may default on its debt as soon as Feb. 15, (half a month earlier than widely expected), according to a new analysis adding urgency to the debate over how to raise the federal debt ceiling."

"The analysis by the Bipartisan Policy Center reports that the U.S. government will be unable to pay all its bills starting sometime between Feb. 15 and March 1."

Of course both sides will wait to the absolute last second to come to any sort of deal, but what it ultimately means for Americans is an increase in the debt ceiling. This will help silver out in the long run because the worse things get financially, the more people will flock to the safety of the metals market.

RBC is predicting that if the looming fiscal cliff is not resolved, another downgrade against America's credit rating might occur, much like the downgrade in 2011:

"RBC Capital Markets is calling it: the U.S. is going to lose its triple-A rating from another rating agency. This one may matter more because it would affect how investors have to look at the government's debt."

"In the absence of a grand bargain in the next two months, it is likely that the U.S. is downgraded," analysts led by Tom Porcelli, RBC's chief U.S. economist, wrote in a note Thursday.

"This downgrade is likely to have a more significant market impact than the S&P downgrade" in 2011, he said."

European Unemployment Problems

How will the economy in Europe affect the price of metals? The world economy is very interconnected and the unemployment situation in Europe is growing worse day by day. If any one of these nations were to default, it could spread throughout Europe and then jump the Atlantic Ocean to affect America. As the situation in Europe deteriorates, this will affect the global economy and fear and uncertainty will increase; with this will come a rise in the price of gold and silver.

The map below shows unemployment in the 15-24 year old range. The darkest areas have greater than 40% unemployment, followed by the 30%-40% range, and then the 20%-30% range and so on. Clearly Spain, Italy, and Greece are suffering from extreme amounts of unemployment among the 15-24 year old age group.

Looking at the unemployment and factoring in the national debt problems of each of these nations, we can see that Europe has some serious challenges ahead of it. As the situation worsens, the residents of these countries will naturally flock to the protection that gold and silver offers. As demand for the metals increases -- so will the price of the metals.

Supply of Silver is Constrained

We could expand upon the supply issues of silver, but honestly -- fellow author Katchum has written an excellent article that covers exactly what we would point out.

"First, the most important indicator for the physical market are silver sales at the U.S. Mint. In mid-December 2012, they shut down the sales of American Eagles for about 3 weeks. Then they started selling silver coins again on the 7th of January 2013. Investors started with a buying frenzy of 4 million silver coins in just one day. As of yesterday, the U.S. Mint had sold 6 million ounces of silver coins. That's already equal to the amount of silver that has been sold the entire month of January 2012. But the U.S. Mint announced several days ago that they are again suspending the sale of silver coins. That's how crowded the physical silver market is."

Take the time to read his article as it is very informative.

Germany to Take Gold Back

In other news, Germany has announced that it is going to take all of its deposits of gold from foreign banks. Metals broker Blanchard reports:

"In what could be a watershed moment for the price, provenance, and future of physical gold, not to mention the "stability" of the entire monetary regime based on rock solid, undisputed "faith and credit" in paper money, German Handelsblatt reports in an exclusive that the long suffering German gold, all official 3,396 tons of it, is about to be moved."

"Specifically, it is about to be partially moved out of the New York Fed, where the majority, or 45% of it is currently stored, as well as the entirety of the 11% of German gold held with the Banque de France, and repatriated back home to Buba in Frankfurt, where just 31% of it is held as of this moment. And while it is one thing for a "crazy, lunatic" dictator such as Hugo Chavez to pull his gold out of the Bank of England, it is something entirely different, and far less dismissible, when the bank with the second most official gold reserves in the world proceeds to formally pull some of its gold from the bank with the most."

This shows the Germany lacks faith in the U.S. and it could cause other foreign governments to pull their gold from the Fed as well. Now the real question is does the Fed actually have enough gold on hand to 'pay' everyone off or have they been playing games? reports:

"What is news is that courtesy of the supplied calendar of events in the Buba statement, it will take the Fed some seven years to procure Germany's 300 tons of gold. This is the same Fed that, in its own words, holds some "216 million troy ounces of gold" or some 6720 tons, in its vault 80 feet below ground level."

"Putting the above in perspective, the amount of gold that Germany will have to wait 7 years for is shown in red. The amount of gold the Fed supposedly holds, is shown in yellow with a shade of tungsten. Why it will take the Fed 7 years to part with an amount of gold that is less than 5% of its total holdings is anyone's guess...

Unless of course, the bulk of the gold in the column on the right has been rehypothecated numerous times to serve as collateral for countless counter parties, and it is no longer clear just who own what to anyone."

Counter Arguments

World governments could magically start acting with financial responsibility but this is rather unlikely. Politicians have a long history of spending, printing up money, and defaulting that goes back centuries.


As a nation, we face many challenges: Out of control spending, high national debt, an already weak dollar, inflation, and unemployment. These factors can easily lead to great demand for gold and silver. Gold and Silver is also a no brainer investment. Buy them in physical form and just forget about them. They will appreciate in price given time. Rest assured the politicians are working 24/7 to keep the printing presses going and help out your investment.

Owning the metals results in an anchor for your investment holdings. As things get worse gold and silver typically appreciate in price. Gold and silver are the ultimate hedge play against hard times, and they provide you with a solid night's sleep due to the safety they bestow.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.