The Crime Against Silver

Richard (Rick) Mills /> Ahead of the Herd

As a general rule, the most successful man in life is the man who has the best information

In 1873, the Fourth Coinage Act was enacted by the US Congress. Western silver miners labeled this measure the “Crime of ‘73″ because it stopped the printing of US silver dollars. The US had, unofficially, abandoned its bimetallic standard in favor of a monometallic one – gold.

The supply of silver not being used for coinage increased – European Nations had just gone from a silver to a gold standard, the US was no longer coining silver dollars and these two factors, when coupled with massive new silver discoveries in the American west, caused the price of silver to collapse.

“There was once a time in history when people acted. . . . Farmers were trapped in debt. They were the most oppressed of Americans, they experimented with cooperative purchasing and marketing, they tried to find their own way out of the strangle hold of debt to merchants, but none of this could work if they couldn’t get capital. So they had to turn to politics, and they had to organize themselves into a party. . . . The populists didn’t just organize a political party, they made a movement. They had picnics and parties and newsletters and classes and courses, and they taught themselves, and they taught each other, and they became a group of people with a sense of purpose, a group of people with courage, a group of people with dignity.” Lawrence Goodwin, author of The Populist Moment

Western miners, seeking the right to turn silver directly into money, mid-western grain and southern cotton farmers (who both had immense debts because of price deflation caused by overproduction) rallied to silver’s cause and the movement became known as Free Silver. The Populist Party had a strong Free Silver element and its merger with the Democratic Party moved Democrats from being in support of a monometallic gold standard to the Free Silver position.

Free Silver supporters were called “Silverites.”

Silverite’s argued that silver should continue to be part of the monetary standard with gold, their slogan was “16 to 1″ – sixteen ounces of silver would be equal in value to one ounce of gold, using the ratio established in the Coinage Act of 1834.

Silverites also wanted “free coinage of silver” as authorized under the Coinage Act of 1792. Free coinage meant anyone who possessed uncoined gold could bring it to one of the United States Mints and trade it for its equivalent in gold coins, less a small deduction – Free Silver advocates wanted the mints to accept silver on the same principle. These inflationary measures would have increased the amount of money in circulation and helped debtors pay off their debts, while harming creditors and savers.

Opponents to the Free Silver movement were mostly the financial establishments of the Northeast – the moneylenders, creditors, banks, leaseholders, and landlords – they backed a monometallic gold standard – the expanding economy had constrained the money supply available on a gold only standard, this had made the dollar stronger and decreased prices, opponents of Free Silver wanted to keep it that way.

The Republican Party was against Free Silver, the party’s position being that the best way to national prosperity was “sound money.” Republicans favored a continued strong dollar, which rewarded savers and creditors.

Battle lines were drawn, on one side were the Free Silver proponents – miners, farmers, debtors and Democrats – who wanted a bimetallic standard, the free coinage of silver and inflation. On the other side of the line were the creditors and Republicans who wanted to keep a strong currency using a gold only standard.

Intense pressure caused the U.S. government to agree to the Bland-Allison Act of 1878, this act directed the Treasury to purchase silver at a high price. The Sherman Silver Purchase Act was enacted on July 14, 1890. It didn’t authorize the free and unlimited coinage of silver that the Free Silver supporters wanted, but it did increase, by a large amount, the amount of silver the government was required to purchase every month.

Using a special issue of Treasury Notes that could be redeemed for either silver, or gold, the US government became the second largest silver buyer in the world – after the government of India.

By 1893 the US was in one of the worst depressions in American history and people were turning in the new Treasury Notes for gold and depleting the government’s gold reserves. President Grover Cleveland (R) forced the repeal of both the Bland-Allison and Sherman Silver Purchase Acts.

Democrats failed to win any presidential elections in which the Free Silver issue was front and center. When a Democrat, Woodrow Wilson, won in 1912 he signed into law, in 1913, the Federal Reserve Act that created and set up the Democrats version of a Federal Reserve – having congressional oversight.

The Republicans had their own Aldrich Plan for a Federal Reserve – it gave control to private bankers. There was strong opposition, mostly from rural and western states. They feared that the Fed would become a tool of rich and powerful eastern bankers based in New York City – the “Money Trust.”

In 1913 the Pujo Committee Report concluded that a group of influential financial leaders had gained control of US manufacturing, transportation, mining, telecommunications and financial markets – no less than eighteen different major financial corporations were under control of a cartel led by J.P Morgan, George F Baker and James Stillman.

Silver metal was recognized as more precious than gold when bartering in ancient Egypt – this recorded as early as 930 BC. Silver’s use as money in coin form began around 2600 years ago. Silver and gold have stood the test of time, as a medium of exchange, a storehouse of value and a safe haven in times of turmoil.

Back to the future where we find the little bit of history, just presented, made even more fascinating by events unfolding in a Far Far Away place – Washington. Interesting to read a bit about the history of both sides in the now concluded debt ceiling debate.

“One might think that the recent drama over the debt ceiling involves one side wanting to increase or maintain spending with the other side wanting to drastically cut spending, but that is far from the truth. In spite of the rhetoric being thrown around, the real debate is over how much government spending will increase.

No plan under serious consideration cuts spending in the way you and I think about it. Instead, the “cuts” being discussed are illusory, and are not cuts from current amounts being spent, but cuts in projected spending increases. This is akin to a family “saving” $100,000 in expenses by deciding not to buy a Lamborghini, and instead getting a fully loaded Mercedes, when really their budget dictates that they need to stick with their perfectly serviceable Honda. But this is the type of math Washington uses to mask the incriminating truth about their unrepentant plundering of the American people.” Ron Paul (R)

Only a third of mined silver production comes from the production of primary silver mines, the rest comes from mined production of other metals, namely zinc and lead, 25% is from production of copper mines (Chile has very little primary silver production but is the fifth largest silver producing country) and the rest is from production at gold mines.

Mined silver production rose by 2.5 percent to 735.9 M oz in 2010 – gains came from primary silver mines and as a by-product of lead/zinc mining activity. Silver produced as a by-product of gold mining fell four percent in 2010.

Tom Albanese, CEO Rio Tinto Group, the world’s second largest mining company, said that the copper industry has struggled to maintain supply because of declining ore grades (ore grades averaged 0.76 percent copper content in 2009, compared with 0.9 percent in 2002), delays to mine expansions and disruption from strikes. Christine Meilton, chief consultant at CRU Group said there was a risk some copper projects, expected to come on stream in 2012 and 2013, will be delayed because of red tape, poor infrastructure and funding difficulties.

A Report by the APS Panel on Public Affairs and the Materials Research Society coined the term “energy-critical element” (ECE) to describe a class of chemical elements that currently appear critical to one or more new, energy related technologies.

“Energy-related systems are typically materials intensive. As new technologies are widely deployed, significant quantities of the elements required to manufacture them will be needed. However, many of these unfamiliar elements are not presently mined, refined, or traded in large quantities, and, as a result, their availability might be constrained by many complex factors. A shortage of these energy-critical elements (ECEs) could significantly inhibit the adoption of otherwise game-changing energy technologies. This, in turn, would limit the competitiveness of U.S. industries and the domestic scientific enterprise and, eventually, diminish the quality of life in the United States.”

The focus of the report was on energy technologies with the potential for large-scale deployment so the elements they listed are energy critical: silver was listed as one of their choices based on its use in advanced photovoltaic solar cells, especially thin film photovoltaics.

Conclusion

Silver investment rose by 40% during 2010 to 279.3 million ounces, almost double the amount for 2009. Demand increased to 167.0 M ozs (+5.1%) for jewelry and 101.3 M ozs (+22%) for coins. Other major usage categories are photography (72.7 M ozs, down 8.3%), and silverware (50.3 million ozs).

Industrial use accounted for the bulk of silver fabrication demand in 2010,  487.4 million ounces, up from 403.8 million ounces in 2009 – an annual increase of 20.7 percent.

Total silver demand in 2010 jumped 14.59 percent while the silver surplus – the difference between supply and fabrication demand – dropped 12 percent to 173.4 million ounces. Primary silver mining cash costs were unchanged at $5.27 an ounce in 2010.

The Federal Reserve first issued its debt based paper money in 1913. Since then the US dollar has lost plus 95% of its value. The history of fiat money has always been one of failure. The US dollar was backed by gold and silver, then just gold – the dollar use to be the rock all the worlds currencies were anchored to but when it became fiat, all the worlds currencies became fiat.

The Hong Kong Mercantile Exchange (HKMEx) has recently announced that they will roll out Yuan denominated silver futures contracts. This exchange will:

• Grant Asian investors direct access to silver futures
• Blunt U.S. dominance in silver trading by reducing the importance and influence of the Chicago Mercantile Exchange (CME)

According to the HKMEx China is already becoming a  factor in the silver market. From 2008 to 2010, silver demand soared 67% in China and China accounted for nearly 23% of global silver consumption in 2010.

In 2010 India consumed 2,800 tonnes of silver, 2011’s consumption is forecast to rise to 5,000 tonnes. India’s state-owned trading company -  Minerals and Metals Trading Corporation (MMTC) said it would import 1,200 tons of  Silver in 2011-12 as demand for the precious metal is rising fast.

The rising demand for silver bullion products with 99.99% fineness has started a new trend – silver denominated notes reminiscent of turn of the century American silver certificates are becoming quite popular in India, the difference is, these Indian notes are actually made of silver.

The silver notes closely resemble the country´s rupee and are very popular among the country´s younger generation and rapidly growing middle class. The nominal value of each note corresponds to its respective weight in silver – a note with a face value of 10 rupees is equal to 10 grams of silver.

Silver should be on every investors radar screen. Is it on yours?

If not, maybe it should be.

Richard (Rick) Mills /> rick@aheadoftheherd.com /> www.aheadoftheherd.com

If you’re interested in learning more about the junior resource sector, bio-tech and technology sectors please come and visit us at www.aheadoftheherd.com

Site membership and our AOTH newsletter are free. No credit card or personal information is asked for.

***

Richard is host of Aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 300 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Uranium Miner, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, and Financial Sense.

***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

Richard Mills does not own shares of any companies mentioned in this report.

As is often the case, this week’s significant price action in gold garnered media attention.  First Fox News’ Channel 10 came by yesterday for a live broadcast at 9:30 am, followed by a brief interview that aired for the evening news.   Later Channel 12 came by to get comments for their evening news.  This morning, a reporter called, wanting to develop a gold story for Channel 5.

Invariably, the reporters want to know if gold’s price action has resulted in increase calls.  Yes, we are seeing increased calls, but nothing like the volume of calls we received when the GFC (Global Financial Crisis) surfaced in 2008.  We could not handle the calls then.  What’s the difference?  Why the crush of calls in 2008 buy fewer calls today?  Doesn’t gold’s price surge signal significant problems?

First, gold’s continued move today to the upside does suggest real concerns, not only about the dollar but the euro and all other fiat currencies.  Just when the Europeans thought that they had calmed the waters with the Greek bailout, Italy’s problems surfaced.  And, last week the Bank of Japan sold huge quantities of yen in an effort the lower the yen’s value.  (Anyone old enough to remember when a strong currency was desirable?)

Still the 2008/2009 GFC more directly impacted average investors than does today’s currency crisis.  Average investors knew it was bad when Lehman Brothers failed , Merrill Lynch went bankrupt and was  forcibly rolled into Bank of America by regulators and mortgage companies went under.  Not to be omitted from the GFC was the housing collapse, which directly impacted millions of average Americans.   They understood what was happening in 2008/2009; they are not as attuned to S&P downgrading US debt.

Although average investors  can see a free-falling stock market, they have not yet reacted to it.  As the losses grow worse, many investors will pull out of stocks and move to the metals, proving a whole new group of buyers, which will send prices yet higher.

Finally, it must be noted that Congress’s failure to quickly agree to raise the debt ceiling contributed to rising gold (and silver) prices over the summer.  As the issue wore on, many investors looked  at the situation and did not like what they found.  They became precious metals investors and helped make this summer one of the strongest in decades.

Gold now has the media’s attention.  We can expect more frequent and hopefully better coverage as prices move higher.  We can also expect widespread coverage when there are significant price moves to the downside as there always are in bull markets.   Nonetheless, this is a precious metals bull market, brought on by a real currency crisis, which will not soon be resolved.

Congressman and presidential candidate Ron Paul recently introduced legislation calling for the federal government to cancel the $1.6 trillion debt held by the Federal Reserve.  Such a move creates legal challenges, one of which would be that the Fed would openly acknowledge that it is a private entity and that fedgov has no authority confiscate its assets.  (Fedgov had no “authority” to call in gold in 1933, but legal tests to that stood up.)

Yet the $1.6 trillion in Treasury debt was obtained via the Fed creating money “out of thin air,” to use an old and established description of what the Fed does when it buys debt (or other securities that it now owns).  Banks do the same when they make loans to consumers via fractional-reserve banking.

Another argument that can be expected: if the Fed has no debt to sell, it cannot shrink the money supply if it deems it appropriate.  This would be a smoke screen; it is highly unlikely we will ever again see the Fed decrease the money supply.  QE3 is right around the corner.

The following article is an update on the current technical position of the marketplace as I see it. Obviously the price action this week has been ugly as the situation in Europe has become front and center in the minds of traders and market prognosticators. The information below is an adaptation of what members of my service at OptionsTradingSignals.com received early today.

The S&P 500 sold off sharply earlier this morning and has since bounced higher. Price is drifting lower as I write this but on the shorter term time frame we may see a short / intermediate term bottom traced out during intraday trade today. It would make sense that prices would rebound after being so extremely oversold.

The 10 minute chart of the S&P 500 E-Mini futures chart below illustrates the intraday price action:

 

If the S&P 500 does carve out an intraday bottom, the daily chart of the S&P 500 below illustrates the key price levels that will come into play on a potential reflex rally:

The VIX is trading lower after popping higher this morning. The data coming out tomorrow and Friday may give traders an opportunity to get involved with a short side try on the VIX. However, I am going to wait patiently for the setup to present itself. Clearly any trade would be a shorter term type of trade as the VIX can behave wildly.

The usual suspects (IYT, XLF, EEM, IWM) are all trading to the downside again today. The financials (XLF) are showing relative weakness at this point in time. The rest of the usual suspects are all rolling over quite similarly to the S&P 500.

The daily chart of the XLF is shown below:

 

The U.S. Dollar Index futures are trading lower today and continue to base right at a key support level. If price breaks down we could see risk assets like the S&P 500 and oil push higher. For right now, the Dollar is trading well above key support.

Gold futures sold off sharply this morning but have since regained most of the intraday losses and are trading strongly to the upside from Tuesday’s close. Gold is starting to get a bit stretched to the upside and I am stalking a potential short trade on gold for the service. It would only be a short term trade, but I think a pullback is likely.

Silver futures have broken out and intraday price action has pushed silver above recent resistance levels. I’m not going to chase silver here as it could be the beginning of a failed breakout. However, if prices continue higher in coming days or price consolidates at this breakout level I will become interested in taking silver long.

For now, the precious metals are intriguing, but I like the price action in silver better than gold as we have more crisply defined risk levels as gold has runaway to all time highs.

The silver futures daily chart illustrates the key levels in silver:

 

Oil futures are trading sharply lower today and are coming into a key support level going back to late June. If those prices do not hold up, we could see oil trade down below the key $90/barrel price level. At this point in time, I am not interested in trading oil, but if price works down into the $85/barrel price level I will be interested in oil as a longer term trade for the service.

Lastly, Treasuries are really pushing higher recently. I am patiently stalking a long term entry on TBT for the service similar to the oil trade discussed above. For right now, I’m going to remain in cash and see how price action plays out. Members of my service have been sitting in cash for the past few weeks and we have sidestepped this entire selloff. While I’m sitting in cash for now, I have a growing list of names I am stalking for trades in the future.

Take a look at www.OptionsTradingSignals.com/specials/index.php today for a 24 hour 66% off coupon.

JW Jones

This material should not be considered investment advice. J.W. Jones is not a registered investment advisor. Under no circumstances should any content from this article or the OptionsTradingSignals.com website be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. This material is not a solicitation for a trading approach to financial markets. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This information is for educational purposes only.

David Banister- www.MarketTrendForecast.com

Back in Mid-May of this year we had a big rally in the Dollar and Gold was correcting hard.  There was a bit of Dollar Bull hysteria at the time which I felt was quite unfounded.  I wrote an article entitled, “The Dollar Bull Monkey Dance Will Soon End Badly, QE3 Next?”  You see, the collective herd psychology at that time, just a short ten weeks ago, was that Gold would drop hard at the end of QE2, and The Dollar would of course rally as high as 82, maybe more against the weighted index.

The dollar has dropped hard since mid-May as I expected and Gold has continued to rally as well.  I had forecasted $1627 for Gold back when we were under $1,500 and last Friday we closed at $1627 on the nose!  During the mid-May time, most disagreed with my QE3 forecast, and probably still do but I think the ships is soon leaving port.  This could blast Gold up to a target of $1805 on the high end and certainly into the low 1700’s to the $1730 per ounce range.

Gold has had a powerful  5 wave rally (Elliott Wave Theory)  since the October 2008 lows of $681 per ounce, and certainly one could argue that a correction would make sense fairly soon.  However, the fundamentals for Gold are only getting stronger as we have inflation climbing at an 8-9% real rate and interest rates continuing to drop.  This is creating a “negative” real interest rate environment amidst a continuing weaker US dollar.  Hence it is hard fundamentally to argue against Gold at this time, creating difficulty in forecasting the intermediate highs and lows.

With that said, assuming QE3 or some form takes place soon then my $1805 target is quite likely to be hit before we can look for any meaningful correction in the precious metal complex. With the ISM manufacturing index turning down sharply as reported this morning and other economic indicators and GDP report rolling over, a QE3 ship horn is likely to sound soon.  Below is my latest chart dated July 22^nd with Gold at $1599 at the time, outlining the likely interim moves in Gold using my crowd behavioral methodology that I employ at my forecasting service.

The combination of crowd behavior and fundamental analysis often delivers stunningly accurate forecasts in advance on the SP 500, Gold and Silver at TMTF.  Consider signing up for our regular updates and use our 72 hour coupon code at www.MarketTrendForecast.com

Since the first trading session in May we have seen the stock market sell off. The old saying “sell in May and go away” was dead on again this year. Here we are 7 weeks later with the stock market continuing to lose ground. This extended sell off has everyone all worked up that this is the beginning of another market collapse.

Let’s take a quick look at the SP500 hourly chart covering the month of June.

As you can see, price is still falling but every couple of trading sessions we get some big money players nibbling on stocks accumulating shares and running the market higher. This type of price action is typically an early signal that the market is trying to bottom.

 

 There are two key ingredients for a higher stock market and both have been missing from the mix for a couple months. The two key sectors which have a significant weighting in terms of the broader market are the financial and technology stocks.

Let’s take a look at the financial sector:

As you can see on the bottom of this chart, financials started to lag the market in late January. Ever since then this sector has been in a strong downtrend pulling the broad market averages lower with it. The good news is that this sector has just reached a major support zone and is looking ripe for a bounce and possible rally.

 

 The other main ingredient to a higher stock market is the technology sector.

Looking at the technology sector:

Here we can see technology stocks have been pulling back for several weeks. Tech stocks are now trading down at a major support zone and they look oversold. A bounce from this level is very likely in the coming week.

 

Weekend Trading Conclusion:

In short, I continue to feel the market is trying to bottom here and we are at the tipping point when things get volatile and choppy just before we get a trend reversal in the S&P 500. Keep an eye on the short term charts of financials and technology sectors. Once they start making higher highs and higher lows on the 60 minute charts I believe it will be the start of a nice bounce and possible rally.

Get my free weekly technical analysis on sectors here: http://www.thegoldandoilguy.com/trade-money-emotions.php

Chris Vermeulen

Richard (Rick) Mills /> Ahead of the Herd

As a general rule, the most successful man in life is the man who has the best information

A critical or strategic material is a commodity whose lack of availability during a national emergency would seriously affect the economic, industrial, and defensive capability of a country.

The report “Critical Raw Materials for the EU” listed 14 raw materials which they deemed critical to the European Union (EU): antimony, beryllium, cobalt, fluorspar, gallium, germanium, graphite, indium, magnesium, niobium, platinum group metals, rare earths, tantalum and tungsten.

The French Bureau de Recherches Géologiques et Minières rates high tech metals as critical, or not, based on three criteria:

• Possibility (or not) of substitution
• Irreplaceable functionality
• Potential supply risks

Demand is increasing for critical metals due to:

• Economic growth of developing countries
• Emergence of new technologies and products

Access to raw materials at competitive prices has become essential to the functioning of all industrialized economies. As we move forward developing and developed countries will, with their:

• Massive population booms
• Infrastructure build out and urbanization plans
• Modernization programs for existing, tired and worn out infrastructure

Continue to place extraordinary demands on our ability to access and distribute the planets natural resources.

Threats to access and distribution of these commodities could include:

• Political instability of supplier countries
• The manipulation of supplies
• The competition over supplies
• Attacks on supply infrastructure
• Accidents and natural disasters
• Climate change

Accessing a sustainable, and secure, supply of raw materials is going to become the number one priority for all countries. Increasingly we are going to see countries ensuring their own industries have first rights of access to internally produced commodities and they will look for such privileged access from other countries.

Numerous countries are taking steps to safeguard their own supply by:

• Stopping or slowing the export of natural resources
• Shutting down traditional supply markets
• Buying companies for their deposits
• Project finance tied to off take agreements

Many countries classify cobalt as a critical or a strategic metal.

The US is the world’s largest consumer of cobalt and the US also considers cobalt a strategic metal. The US has no domestic production – the United States is 100% dependent on imports for its supply of primary cobalt – currently about 15% of U.S. cobalt consumption is from recycled scrap, resulting in a net import reliance of 85%.

Although cobalt is one of the 30 most abundant elements within the earth’s crust it’s low concentration (.002%) means it’s usually produced as a by-product – cobalt is mainly obtained as a by-product of copper and nickel mining activities.

Today 40% of the cobalt consumed in the world originated as a by-product from copper production in the West African country of the Democratic Republic of Congo (DRC) – cobalt production in most other countries is a by-product of nickel mining.

The copper deposits in the Katanga Province of the Democratic Republic of the Congo are the top producers of cobalt and the political situation in the Congo influences the price of cobalt significantly. The politically unstable Democratic Republic of Congo contains half the world’s cobalt supply and represents the lion’s share of anticipated future cobalt supply – the DRC’s 2007 output was equal to the combined production of cobalt by Canada, Australia and Zambia.

In a nine billion dollar joint venture with the DRC China got the rights to the vast copper and cobalt resources of the North Kivu in exchange for providing $6 billion worth of road construction, two hydroelectric dams, hospitals, schools and railway links to southern Africa, to Katanga and to the Congo Atlantic port at Matadi. The other $3 billion is to be invested by China in development of new mining areas. Approximately half of  known global cobalt reserves are in the DRC, and close to 40%-50% of incremental cobalt production, over the next five years, is anticipated to emanate from the DRC.

At 19.7 percent of global supply Zambia is the world’s second largest producer of copper-cobalt. According to a recently released report by the Zambian Central Bank cobalt production rose to 2,236 tons in the first quarter of 2011 from 1,989 tons last year, exports increased to 2,279 from 1,977.

China is extremely short of cobalt concentrates and needs to import cobalt concentrates in large amounts every year. The leading global producers of refined cobalt are China (39%), Finland (15%) and Canada (8%). China is a leading supplier of cobalt imports to the United States.

The cobalt market is small in comparison with other base metals. Consumers purchase cobalt through negotiated agreements, bids, and open markets from producers, traders and to a lesser degree, government stockpiles and private inventories.

Uses

Cobalt is a strategic and critical metal used in many diverse industrial and military applications.

• Super alloys
• Renewable Energy Re-usable energy storage systems
• Wear resistant alloys
• Magnets
• Binder Material
• Thermal spray coatings
• Orthopedics
• Life Science
• Catalyst in de-sulfurizing crude oil and as a catalyst in hydrogenation, oxidation, reduction, and synthesis of hydrocarbons.
• Gas to liquid technology (GLT)
• Other Uses – Drying agents in paints, de-colorizers, dyes, pigments, and oxidizers. Promotes adherence of enamel to steel, and steel to rubber in steel belted radial tires

Conclusion

China seemingly has most of the DRC’s production of cobalt locked up, that’s up to 40% of global mined cobalt.

Cobalt is classified as a strategic/critical metal.

With the recent strong support for electric vehicles the use of cobalt in this sector alone has led to a formidable demand for the element and the US cannot continue to depend on its cobalt being supplied mostly from China.

There is no doubt in this author’s mind that cobalt’s profile will continue growing in the coming months and years.

Is cobalt on your radar screen?

If not maybe it should be.

Richard (Rick) Mills /> rick@aheadoftheherd.com /> www.aheadoftheherd.com

If you’re interested in learning more about the junior resource, bio-tech and technology sectors please come and visit us at www.aheadoftheherd.com

Site membership, and our AOTH newsletter, are free. No credit card or personal information is asked for.

***

Richard is host of Aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 300 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Uranium Miner, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, and Financial Sense.

***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

For site advertising rates contact: rick@aheadoftheherd.com

Richard Mills does not own shares of any companies mentioned in this report.

The Case Against the Fed – Murray Rothbard

In 1913 the United States Congress passed the Federal Reserve Act which created a central bank for America. With its charter came the ability to create money and credit for the country. And so it did. By the end of the 1920s the Fed had inflated the money supply so much that the government was forced to revoke the right of Americans to trade their Dollars for gold. With great irony the Congress later gave the Fed, as one of its mandates, the job of promoting price stability. So just how is the Fed supposed to fight inflation via its ability to create it? Even on the surface something is amiss with this relationship. In The Case Against the Fed, Murray Rothbard exposes the self serving fallacies of the Fed to arrive at the ultimate truth: If you really want to fight inflation, then you need to eliminate its primary cause, the Federal Reserve itself.

Making a case against the Fed begins by debunking the notion of an optimum supply of money. Throughout the history of central banking, the public has been conditioned to believe that expert management of the money supply is critical to economic growth. And in the case of the Federal Reserve, it is too important a task to risk politicization via oversight. The claim by central bankers is that they are responsible stewards of the public interest. They do not suffer the temptations of politicians to merely print money for their own self interests. They instead carry out the critical task of expanding the supply of money at a rate to match the needs of increased production or population growth or some other stated factor.

On the surface such explanations sound reasonable and have certainly been effective over the years at deflecting questions about the Fed’s purpose. But why must the money supply be expanded at all? Money itself is not wealth but simply a medium of exchange. Wealth is represented by the underlying goods and services that money may be exchanged for. When a bank creates new money or credit, the amount of real goods and services do not increase proportionately. Rather, the ultimate purchasing power of all money is reduced. But therein lays the catch. Those who receive the new money first are able to claim a greater share of real goods and services as they are able to secure them at the original prices. Those who receive the new money last suffer higher costs prior to experiencing any potential increase in wages. The end result is not a net increase in real wealth but rather a net transfer of existing wealth.

The key to understanding the importance of the Fed in supporting the power and profits of the banking system is to first understand what Rothbard calls the inherent fraud of our fractional reserve system of banking. The nature of the fraud lies in the fact that at any given time a bank has more obligations than reserves in which to meet them – a literal Ponzi scheme. It is at all times insolvent and its ability to continue in operation relies on the public’s general failure to grasp this concept.

In times past, a run on the bank meant its end as its insolvency was exposed. Depositors seeking their money found out the hard way that only a small portion of what they deposited remained available for withdrawal. The vast majority of it had been loaned out. This is the fundamental conflict of our banking system, the enticement to loan out money that is claimable on demand in order to simultaneously generate additional profit.

This practice is not just lucrative for banks but highly inflationary as well. Each dollar deposited is available to spend, while at the same time it has been lent out to be spent. As long as the majority of the dollars are simply transferred from account to account within the same bank this scheme continues unnoticed. It is only in times of crisis that a loss of confidence results in a run on the bank. Depositors fearing that not enough money exists, race to redeem their deposits before the limited supply of reserves is exhausted.

Beyond the loss of depositor confidence there is one other limitation on a bank’s ability to expand credit beyond its reserves. When money is transferred from an account at one bank to an account at another, the corresponding transfer of underlying reserves could expose the insolvency in the same manner as a bank run. To counter to this, banks could attempt to act as a cartel and simply accept each others notes in exchange for actual reserves. But in practice this is difficult to achieve as it requires all banks to expand at the same rate in order to evenly distribute the risk involved in holding such notes.

These two limitations have been the Achilles heel of the fractional reserve banking system since its inception. The real purpose of a central bank is to shore up the vulnerabilities in the banker’s profit mechanism. By serving as the lender of last resort to the banking system, coupled with the sole legal right to produce new currency, the Fed has the power to stop a bank run from threatening the system. They also serve as an effective cartelizing agent by requiring that all banks keep their reserves on deposit at the Fed. By maintaining these reserves in the form of Federal Reserve Notes, the Fed can assure that all banks inflate their credit evenly and do not lose reserves to one another.

In the end, Rothbard’s case against the Fed reduces to the fact that it is nothing more than a legalized counterfeiter that stands ready to bail out the inflation machine of fractional reserve banking. The notion that it is somehow required to manage economic growth or to fight inflation is patently false. It is merely the capstone on a system that exists to do nothing more than transfer wealth from the many to the few.

In an interview on the Today Show yesterday, President Obama again exhibited his woeful lack of economic understanding.

According to Obama, our economic woes are structural problems that have resulted from large increases in productivity – like installing ATM machines and getting rid of bank tellers. Yes, that’s probably it: machines cause unemployment.  Instead of using Caterpillar dozers to build roads, we should put 5,000 workers out there with shovels.

Let’s discuss one of the most basic economic fallacies that, apparently, even an Ivy League education can’t overcome: that of the scourge of machines. This one has been haunting public discussion since the dawn of civilization. This fallacy claims that machines, or productivity increases in general, are undesirable because they displace workers.

While it’s true that the immediate situation for the workers who lose their jobs will be negative, it’s not at all true for society as a whole.

Let’s carry this fallacy to its logical conclusion. If all machines and time savers are harmful to the economy, then clearly the ideal situation is one in which individuals spends their entire day rooting around for food, hopeful that they will find enough to survive, and repeat the process again the next day. No problems with employment here. But would happen to the standard of living?

If you haven’t read Henry Hazlitt’s Economics in One Lesson, then please do so (download pdf copy). As Mr. Hazlitt points out, the classic mistake of economists is to only consider effects on a small group in the short term, while ignoring the long term effects on society as a whole.

So what happens to our wanderer-gatherer society when someone discovers how to produce enough food for ten people each day? Ninety percent of the population is now out of work. But the cost of food (in terms of time and effort) has plummeted. So much so that the labor of the other ninety percent has been freed up to produce other desirable items such as wheels or houses or big screen TVs. Society as a whole is richer because of the increases in productivity.

The fact is economic growth, or a rising standard of living, is due to increased productivity. The more goods and services each individual is able to produce, the more that is available to society as a whole. Clearly machines and technology are great enablers of economic growth and not the other way around, as, sadly, our president believes.

For his latest piece over at Financial Times, Roger Altman fires up the economic fallacy machine and throws it into overdrive:  The economy needs more stimulus to recover; recessions must be avoided; we’ll solve our debt problem with more debt; and don’t worry, higher prices are temporary.

Let’s begin with this notion that a recession is a bad thing. Yes it’s certainly painful, like rehabilitation after an injury, but necessary in order to heal. A recession is a contraction in the economy due to the closing of failed businesses and the liquidation of bad investments. The process of clearing the market of these impediments is essential to growth. Critical capital tied up in these failed endeavors must be freed before it can be reinvested in more productive areas. It is these new investments that ultimately create new jobs and form the basis for future economic growth.

When government steps in to prevent this from happening, it only prevents the economy from repairing itself. The problems will continue to fester until they become so great that no amount of government interference can prevent the inevitable correction. When confronted with a looming recession, the cries should be not for the government to do something, but rather demands that it do nothing at all.

Stimulus spending is a political tool used to camouflage economic statistics in the short term. Temporary make-work programs do nothing to foster long term economic growth. Nor do they necessarily benefit individuals who have lost their jobs due to a failed business. The more troubling problem results from the fact that government has no wealth of its own. When government engages in artificial stimulus spending, it does so by plundering the private sector. Productive individuals are no longer able to employ the money that they have earned. The net result can only be positive if you believe that the government can allocate capital more efficiently than the free market. History and common sense tells us that this is not the case.

It makes no difference whether the source of this plunder is direct taxation, issuance of debt, or simply money printing. All is paid for in full by the private sector. The latter method is the most insidious as it steals the purchasing power from wages and savings. This is the source of the “temporary” higher gasoline prices Mr. Altman mentions. Does he believe that the 97% loss in the value of the dollar over the last one hundred years is also temporary?

In the end he leaves us in a conundrum where debt is threatening the future economy, yet still we must continue to rack up more, lest we threaten that same economy. In other words, the last stimulus failed to fix our problems, so let’s do it again.

Why on Earth do otherwise intelligent folks keep lobbying for failed policies? The answer is simple: Policies that are harmful to the economy as a whole are extremely beneficial to a select few. Fallacies are the means by which this select few convince the greater population to go against their own self interests.

I’ll leave it to the reader to decide for themselves whether Mr. Altman is one of the select few that benefits from the fallacies that he pushes.  Two good places to start would be the GM bailout and the Whitewater scandal.

Update: Further googling reveals that he is also a member of the Council on Foreign Relations and a regular attendee at Bilderberg.