The federal government is getting increasingly grabby with Americans’ pensions, just as we have been warning for over two years.
Yesterday, the media widely reported that the U.S. Treasury has begun “extraordinary measures” to fund the government behemoth in the absence of spending cuts by Congress – or an increase of the federal government’s borrowing limit above $14.3 trillion. As of yesterday, federal employee pension funds are being raided to fund government operating deficits.
Independent Living has been warning of a larger scheme afoot to steer 401(k) and IRA monies into risky U.S. bonds. This week’s development shows just how realistic this threat is, as the government funding crisis unfolds.
Gold:Silver Ratio Snaps Back
During the violent silver shakeout that sent prices plunging more than 30% during the first week of May, gold predictably held up better. Gold tends to be less volatile generally, and as the May issue of Independent Living cautioned, the gold:silver ratio was extremely overextended to the downside and due to rebound in gold’s favor.
Rebound, it did! At the time the May issue went to press, the gold:silver ratio stood just above 32:1. We forecasted that a 30% up move in the ratio was likely to transpire. It happened even faster than we anticipated! Gold surged almost 40% relative to silver in just two short weeks. The ratio now stands at 44:1, meaning it now takes 44 ounces of silver to buy one ounce of gold.
As a consequence of the incredible swiftness of silver’s downside move, many of our readers weren’t able to act on our latest suggestion to sell some silver and switch it into gold when the time for executing the ratio trade was most favorable. Intense physical demand combined with speculation had caused silver prices to be temporarily overextended to the upside, and the company supervising U.S. paper trading markets orchestrated a takedown. The Chicago Mercantile Exchange, which owns the COMEX, hiked margin requirements for silver futures five times successively to induce profit taking and bail out long-suffering silver shorts.
In any event, those who were able to switch out of silver when the white metal was in the mid to upper $40s should now be looking to buy back. Silver prices could be destined for a period of basing out as we head into the seasonally quiet late spring to early summer, giving you ample time to accumulate before the next upsurge. But regardless of the calendar, the ideal time to begin accumulating is right after a dramatic shakeout – which means, right now.
Silver Longs, Hang Strong – the Best Is Yet to Come
Silver has actually only dropped to its March 2011 lows.
A sideways consolidation over the next several weeks would give silver a chance to find final support at its uptrending 50-week moving average. The consolidation phase could have an upward bias, though, in which case the price bottom might already be in. Some bullish analysts, such as James Turk, think that, in lieu of a consolidation, a “V” bottom will form – producing a sharp, swift climb up to new highs.
Nobody can see into the future, of course. Uncertainty regarding the U.S. economy and monetary system is a primary reason to hold a core position in precious metals at all times.
We continue to suggest having a sizeable stake in both gold and silver. Aggressive investors who are willing to endure greater volatility in exchange for potentially greater reward can once again overweight silver. We expect the gold:silver ratio to move below 20 and perhaps to as low as 10 before the bull market is over, as silver outperforms.
Is Canadian Fiat Money Better than Ours?
Douglas S. writes: I live in Washington State and not too far from the Canadian Border, so the banks here carry some Canadian money for exchange. In lieu of your recommendation for gold and silver, would having Canadian paper money be better than holding U.S. dollars?
I wouldn’t put a whole lot of faith in the Canadian dollar as a long-term store of value, but yes, I’d rather stash away Loonies than Greenbacks. Canada is rich in natural resources and is one of the fastest-growing developed countries in the world, with a lower unemployment rate and a much lower government budget deficit than the U.S. – factors that should allow its central bank to pursue sounder monetary policy than the hyperstimulative, debt-monetizing Fed.
The Canadian currency has been steadily strengthening against the U.S. dollar, and we certainly expect that trend to continue. That said, I believe it’s unwise to hold any national currency in large amounts, as competitive devaluations continue to cause the purchasing power of ALL currencies to fall against real assets.