This is a great article debunking the flaws in gold and silver investment

1. V O T E D T H E W O R L D ’ S B E S T I N V E S T M E N T A D V I S O RY
January 28, 2011 Vol. 43, No. 1
A decade of gaining
18% a year — some ‘relic’
The lows of this manufactured correction will be the lowest prices we will see in 2011;
take advantage of this opportunity
By John Embry as truly spectacular rela- discredited argument that has nying financial turmoil, have with
tive performance. been trotted out by the anti-gold respect to his investments when
T
he past year Yet, most investors crowd over the past decade. one of our leading newspapers
proved to be didn’t participate. Gold Amongst the drivel included were publishes material like this?
another excel- was viewed as “a bar- 1.) The mistaken idea that jew- To buttress their argument, in
lent one for barous relic” by virtually elry demand is at all relevant the article they quoted a Canadi-
those investors who were everyone at the outset of when gold is re-establishing itself an investment manager by the
heavily committed to the the bull market in 2001 in its historical role as money. name of Tim McElvaine who said,
gold and silver sector. John Embry and only true contrari- 2.) The misguided suggestion “I’m as confused as the next guy
Gold chalked up its 10th ans, who closely studied that gold supply is going to rise about what’s going to happen
consecutive annual gain, rising the true fundamentals, climbed because of large increases in mine with currencies and whether Ben
over 29 per cent to a record Comex aboard at the beginning. As the production. Bernanke is right or wrong. But
closing high of $1,421.40 per bull market proceeded, more pro- 3.) The old canard that cen- I’m not sure a whole bunch of yel-
ounce. This is not to be sneezed at fessionals took note and such tral banks stand ready to flood low stuff in a warehouse is going
because very few markets ever hedge fund luminaries as John the market with their vast re- to do much.” Forgive me if I’m
achieve an unbroken 10-year Paulson, David Einhorn and serves (we’ve already seen that wrong, but I don’t believe I have
streak of higher closes. That this George Soros aggressively posi- act, it’s over). ever heard a single utterance on
occurred in the face of constant tioned their accounts. 4.) The popularity of gold ETFs the subject of gold from this gen-
market intervention by the anti- However, we are still a long which could lead to massive sell- tleman before. Perhaps it would
gold cartel amid a welter of nega- way from broad public participa- ing if gold enthusiasm waned (I have been more beneficial to the
tive mainstream commentary tion because most people still re- wouldn’t worry about that given reader to quote someone who has
makes it all the more remarkable. main totally unaware of what is the amount of paper gold that is been dead right on the subject
However, silver left gold in the unfolding. This, in the majority of in these vehicles). over the past 10 years.
dust in 2010, rocketing ahead by instances, isn’t their fault. They 5.) The underperformance of
over 83 per cent to close at a post- are subject to unrelenting nega- gold stocks in relation to bullion
Hunt high (achieved in 1980 when tive propaganda from the estab- (only true if you confine your “Gold is money. Every-
the Hunt brothers attempted a lishment and most investment analysis to the seniors) indicating thing else is credit.”
market corner) of just under $31 advisors keep their clients away that investors questioned the sus-
per ounce. Perhaps even more im- from gold and silver because it is tainability of the gold bull market.
— J.P. Morgan
pressive are the 10-year annual- “too risky.” Everyone of these inferences is
ized returns for the two metals A classic example of the above simply wrong and I find it beyond At this point, I feel it is abso-
with gold averaging 18.4 per cent was an egregiously awful article disappointing that a paper which lutely necessary to once again re-
(measured in U.S. dollars) over the on the subject that appeared in is regarded by many as Canada’s iterate a point that seems to elude
period while silver clocked in at the Dec. 11th edition of the finest would sink to publishing many observers. Gold is very sim-
24.3 per cent per annum. Toronto Globe and Mail. Entitled such rubbish. However, what I ply money, a reality that gets lost
When one considers that, The Case Against Gold and writ- find most reprehensible is the bla- at times when fiat paper currency
during the same decade, stock ten by some gold neophyte tantly obvious attempt by the au- enjoys a brief period of ascendan-
returns were disappointing, real named David Berman, it had to thor to once again mislead the cy. The great financier J.P. Mor-
estate in many markets was dev- rank with the worst and most public. What chance does the little gan captured this in a famous
astated and numerous debt in- misleading articles that I have guy, who is already being battered quote to the U.S. Congress in 1912
struments were in danger of de- ever had the misfortune to read from pillar to post by the econom- (ironically, exactly one year before
fault, this can only be construed on gold. It included nearly every ic contraction and the accompa- the U.S. Federal Reserve was cre-

2. ated) when he stated, “Gold is nies, they would have long since body holding let alone buying from this manufactured correc-
money. Everything else is credit.” been declared bankrupt. That this U.S. bonds must possess a finan- tion will be the lowest prices we
Gold and silver are constants. saga has unfolded when their cost cial death wish. will see in 2011, and thus it is es-
Their current appreciation relates of borrowing was neglible and A final consideration is the sential that investors take advan-
primarily to the debasement of they were the recipients of con- perilous condition of the U.S. tage of this opportunity.
the currencies in which they are siderable federal aid is even more banking system, which aside from In closing, I would like to
quoted, a debasement incidental- unnerving. That begs the ques- holding huge amounts of bad quote Bill Buckler, the publisher
ly which is rapidly accelerating. tion of what happens when inter- loans which are no longer valued of The Privateer in Australia and a
Thus the idea they are in a est rates truly reflect the risk in reflecting their true worth but are man who understands the true
bubble is beyond preposterous buying and holding their paper rather “marked to fantasy,” is sad- nature of money as well as any in-
unless one honestly believes that and federal grants run out. dled with trillions of dollars of dividual I have ever encountered.
the authorities can and will rein in At this point the focus has mo- derivatives, a meaningful amount He has also been absolutely right
the pace of money creation mentarily shifted to the travails of of which are essentially worthless. on gold and silver from the onset
throughout the world. The simple the periphery countries in the Eu- Without ongoing unlimited liq- of the bull market. In a recent
truth is that they can’t in our ropean Union but it won’t be long uidity, the banking system would publication he stated:
debt-logged universe unless they before it returns to America. undoubtedly collapse. “We have ALWAYS advocated
are prepared to accept a defla- I firmly believe that the states a private holding of physical
tionary crash that will make the and municipalities won’t be al- QE to Infinity gold (with silver a close second
1930’s look like child’s play. lowed to fail and default en masse for different reasons). These are
I believe the U.S. situation is and that massive amounts of fed- In my mind, all of the forego- not “investments,” they are the
instructive. At this juncture, what eral funding will ultimately be ing virtually guarantees what Jim only absolutely foolproof means
economic recovery there is owes forthcoming. This development, Sinclair, the true dean of the gold of financially insuring oneself
its existence solely to massive gov- in conjunction with the huge ex- experts, has brilliantly termed against ANY eventuality whatso-
ernment stimulus with budget isting federal deficit, will dramat- “quantitative easing to infinity.” ever. In a world in which honest
deficits measured in the trillions ically raise the U.S. Treasury’s re- We’ve seen QE1 and QE2, get money does not exist, the need
and a ridiculous monetary policy quirement for funds. ready for QE3 and most probably to own some is acute.” Well said,
based on zero-based interest Unfortunately, this will be oc- many more, all of which will be Bill, no one could state the case
rates. It is interesting to note that curring at a time when foreign wildly bullish for gold and silver more succinctly.
even in the face of improved eco- buyers, who are already stuffed prices as we move forward.
nomic growth statistics, the Fed- with U.S. debt instruments, are Fortunately, for those not al- John Embry is chief investment
eral Reserve is insistent that it becoming increasingly reluctant ready positioned or those de- strategist at Sprott Asset Manage-
can’t relent on its extreme mone- to buy anymore. sirous of adding to their hold- ment. Views expressed are those
tary stimulus. I totally agree with that mind- ings, the anti-gold cartel un- solely of the author and should
Perhaps, the condition of state set because in a situation where leashed a vicious paper-driven not be considered an indication
and municipal finances is telling the U.S. dollar remains extremely attack on both gold and silver as of trading intent of any invest-
the true story. In many cases, if vulnerable and U.S. interest rates the New Year opened. I believe ment funds managed by Sprott
these public entities were compa- have nowhere to go but up, any- strongly that the lows resulting Asset Management Inc.
© Copyright 2011 by MPL Communications Inc., Reproduced by permission of Investor's Digest of Canada, 133 Richmond St. W., Toronto, ON M5H 3M8