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Welcome to the July 2013 edition of my monthly Gold Letter.

As Thomas Paine so eloquently wrote, "These are the times that try men's souls." Of course, Paine was referring to a much greater struggle than making personal investment decisions, but I'm finding inspiration in the words of that pamphlet now.

Great endeavors often come at great expense. Great bull markets often see great corrections. But great men persevere.

As mainstream analysts sound the death knell for gold and silver, I hope this letter will help you keep perspective and avoid costly decisions driven by fear. When the market behaves irrationally, it is nothing more than a discount to the wise.


Peter Schiff
Euro Pacific Precious Metals
By Peter Schiff

Peter SchiffGold's second quarter price plunge is now the largest on record, dropping 23% in the last three months to finish a little over $1,200. Wall Street is gloating that a new metals bear market is upon us. A Duke professor even forecast gold returning to its "fair value" of $800 or lower. Naturally, he was quick to point out that he wasn't offering investment advice, only academic speculation.

For those of us who examine commodity fundamentals, the overwhelming conclusion is that the yellow metal simply cannot stay at these low prices for much longer. Gold is nearing a point at which miners are forced to scale back their operations, thereby pinching supply. Not only is diminished production likely to halt gold's downward trajectory, but an imminent supply crunch could also propel gold back to new highs. The likelihood of a strong rebound is supported by both a struggling mining industry and gold's performance during the last great bull market of the 1970s.

Domestic Policy vs. Commodity Fundamentals

If you listen to the US financial media, you might think gold's price is solely determined by events in the domestic economy. The generally accepted narrative of gold's correction is fairly straightforward: the US economy is slowly recovering with seemingly low inflation, and the Federal Reserve is now hinting at unwinding its quantitative easing programs by this time next year.

I've argued against these renewed recovery fairy tales for months, reminding my readers and the media that the fundamentals of gold remain very strong. The recovery mindset is mostly driven by misguided consumer sentiment, unreliable government data, and, most importantly, the Fed's ongoing injections of cash into the economy.

As far as tapering or even ending QE, even the IMF agrees with me that the Fed has "no clue" how to do this. Last month, when Bernanke simply mentioned the idea of halting QE within the next year, global markets went into a tailspin. Imagine how much worse things would be if the Fed were to stop talking and actually take action to taper.

Meanwhile, it is important to remember that gold is a global commodity. While the US has a huge impact on global financial markets, gold itself has no special allegiance to any particular nation-state.

With the latest drop in gold's price, the time has come to take a closer look at these commodity fundamentals.

A Looming Supply Crunch

It's now common knowledge that the cost of mining an ounce of new gold is much higher than ever before. Lately, $1,200 has been quoted as the price point at which the majority of gold companies cannot mine profitably. Therefore, it should come as no surprise that the current price squeeze will affect mine production.

Of course, junior mining companies tend to have a higher cost of production and will therefore be hit first and hardest by this price correction. The larger miners benefit from economies of scale and may gain market share from struggling juniors.

This is by no means a recommendation to sell mining shares, but the industry is facing challenges that should propel gold prices even higher in the next leg of this bull market. This supply squeeze will not reverse immediately when gold resumes it ascent. Re-starting shuttered mines is not something that happens overnight in an operation as difficult as gold mining. Plus, given the sharpness of the recent decline, and the negative sentiment that punished gold mining shares even more, companies will be extremely reluctant to increase capital expenditures or green-light new exploration projects. After all, why commit capital when fears of another sharp sell-off could wipe out the viability of those projects? Instead, gold companies will be far more likely to return any extra earnings to frustrated stockholders in the way of dividends, or simply use the cash flow to buy back their own highly discounted shares. Dividends and share buybacks may raise stock prices, but they will do nothing to increase gold production.

Gold prices may have to raise well north of $2,000 per ounce - and stay there for a considerable period of time - before shell-shocked CEOs commit more funds to exploration and development. For buyers and holders of physical gold, the implications are a textbook lesson straight out of Econ 101: less production equals even higher prices when demand increases. Given that physical demand has remained strong despite the recent correction, and that it will likely strengthen further as gold prices recover, the dollar weakens, and inflation concerns become more widespread, we may still be in the early stages of the mother of all gold bull markets!

An Equal and Opposite Reaction

Since the drop in the gold price is not based on any fundamental realities, the more the metal "corrects," the more drastic the eventual rebound will be. It's like pulling back the rubber band on a slingshot - investors think that the price of gold is falling back to a natural range, but in fact it is being stretched downward artificially.

When the reality of gold's diminishing supply hits home, that rubber band will snap back with a vengeance. And like a slingshot, it will most likely continue in the other direction, possibly launching the price to new record highs.

I'm not going out on a limb when I make such a prediction. In my latest commentary for my brokerage firm Euro Pacific Capital, I compare the current slump in the price of gold to the slump that occurred in the mid-1970s, after which gold skyrocketed to its all-time peak in 1980. Allow me to excerpt from that piece here, which I began by quoting directly from a New York Times article published on August 29, 1976:
Two years ago gold bugs ran wild as the price of gold rose nearly six times. But since cresting two years ago it has steadily declined, almost by half, putting the gold bugs in flight. The most recent advisory from a leading Wall Street firm suggests that the price will continue to drift downward, and may ultimately settle 40% below current levels.

The rout says a lot about consumer confidence in the worldwide recovery. The sharply reduced rates of inflation combined with resurgence of other, more economically productive investments, such as stocks, real estate, and bank savings have combined to eliminate gold's allure. Although the American economy has reduced its rapid rate of recovery, it is still on a firm expansionary course. The fear that dominated two years ago has largely vanished, replaced by a recovery that has turned the gold speculators' dreams into a nightmare.

At the time this article was written gold had fallen to $103 per ounce, a decline of nearly 50% from the roughly $200 it had sold for in the closing days of 1974. The $200 price had capped a furious three-year rally that began in August of 1971 when President Nixon "temporarily" closed the gold window and allowed gold to float freely.

Although the writer of The Times piece did not yet know it, the bottom for gold had been established four days before his article was published. Few realized at the time that the real economic pain of the 1970s had - to paraphrase The Carpenters' 1970s hit - only just begun. When inflation and recession came back with a vengeance in the late 1970s, gold took off - to quote another 1970s gem - like a skyrocket in flight. By January 1980, gold topped out at $850 an ounce. The second leg of the rally proved to be bigger than the first.

The parallel between the 1970s and the current period are even more striking when you look closely at the numbers. For example, from 1971 to 1974, gold prices rose by 458% from $35 to $195.25, which was then followed by a two-year correction of nearly 50%. This reduced total gains to just under 200%. The current bull market that began back in 2000 took a bit longer to evolve, but the percentage gains are very similar. (We should allow for a more compressed time frame in the 1970s because of the sudden untethering of gold after decades of restraint.) From its 1999 low to its 2011 peak, gold rose by about 650% from $253 to $1895 per ounce, followed by a two-year correction of approximately 37%, down to around $1190 per ounce. The pullback has reduced the total rally to about 370%. The mainstream is saying now, as they did then, that the pullback has invalidated fears that rising US budget deficits, overly accommodative monetary policy, and a weakening economy will combine to bring down the dollar and ignite inflation. But 1976 was not the end of the game. In all likelihood, 2013 will not be either.
Critics will point out discrepancies between present circumstances and the '70s, most notably the seeming absence of rampant inflation. I've addressed this criticism time and again, urging people to wake up to the real inflation abound and not place their faith in the government's unrepresentative CPI numbers. Also remember that the inflation problem in the '70s got worse as the decade progressed. In 1971, when Nixon first imposed wage and price controls in a misguided attempt to combat it, the inflation rate was only 4%. If we still used the same methodology today to compute the CPI as was used back then, I believe the current rate would register at least that high - if not higher. Since the Fed continues to throw even more fuel on the inflation fire now than it did then, expect it to burn much hotter and gold to shine even brighter as a result.

Look at the cost of gold mining just discussed if you want a good example of real-life inflation. Gold had never touched $1,200/oz until a few years ago, yet now mining operations need at least that price to break even. This is largely due to the hidden effects of inflation lowering the value of a dollar, and therefore increase the dollar costs associated with mining gold. How is it possible that so many gold mines that were able to profitably mine gold at $300 per ounce are now losing money at $1,200 if inflation has really been as low as officially reported?

My long-time readers already know what a great buying opportunity lies in front of us. Some of you may have even lived through the 1970s and missed that magnificent hard asset rebound.

Opportunity is knocking again.

Peter Schiff is the Chariman of Euro Pacific Precious Metals.

If you would like more information about Euro Pacific Precious Metals, click here. For the fastest service, call 1-888-GOLD-160.
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The Fiat-Free Festival

By Mike Finger of Euro Pacific Precious Metals

Pic: Mike FingerJune marks the beginning of summer - a season of beach vacations, garden bounties, and general disinterest in the market. It is well-known that precious metals and other commodities typically face malaise at this time of year as speculators unwind their trades and potential buyers spend their spare cash instead on hotel rooms and recreation.

But in recent years, June has come to mark a time of great rejoicing for those of us most passionate about a sound money economy. Last Sunday, many of us returned from what can only be described as the largest face-to-face alternative currency economy in the world. The Porcupine Freedom Festival just celebrated its tenth year, dubbed "PorcFest X," with record attendance and alt-currency activity.

PorcFest is a production of the Free State Project, an effort to get 20,000 liberty activists to concentrate in New Hampshire in order to achieve their motto of "Liberty In Our Lifetime." The Festival started as a way to introduce people to the state and persuade them to move (as I did two years ago), but it has quickly grown to become a mecca of the "bohemian bourgeoisie," as described by Jeffrey Tucker.

Apart from the right to carry a sidearm, there is likely no other issue more important to this crowd than monetary freedom. And in this crowd, they practice what they preach. At PorcFest, everything from festival tickets to gourmet food to custom clothing to film screenings can be purchased with silver or gold.

The most commonly circulated precious metals are fractional silver coins, such as the Mercury dimes you might find in a bag of junk silver or similar-weight rounds from a private mint. As precious metals barter has expanded outside the hardcore sound money community, junk silver bags have actually gone into short supply. That is why Euro Pacific Precious Metals will soon be announcing the release of our own Silver Barter Bags, filled with fractional silver rounds from top-grade private mints.

The festival has a vendor area called "Agora Valley" where these silver rounds traded freely. "Agora" refers to "agorism," a philosophy of freely trading goods and sound money outside of government taxation and regulation. Products on offer included cold-brew latt├ęs from fresh-ground beans, pasture-raised burgers, Ron Paul campaign souvenirs, bitcoins, fresh-squeezed juices & vegan fare, consignment goods from a pop-up flea market, comic books, wood furniture, breakfast burritos, handmade jewelry, and a spectrum of other items.

Gold obviously appears less often in this context because most purchases are less than the ~$125 spot price of a 1/10 oz of gold, the smallest unit commonly traded. As Peter has emphasized numerous times in the Gold Letter and elsewhere, gold is primarily for saving and silver for spending. However, that is not to say gold didn't make an appearance. Thursday night, there was a competition called The Agorist Pitch - like Shark Tank, in which entrepreneurs compete for funding. First prize was a full ounce of gold! Needless to say, the competition was intense.

Finally, it's worth noting that the Festival itself actually created a trading silver currency that was liquid for the week. The privately minted rounds (pictured below) were sold and bought back at the same price, so attendees could spend them at vendors and the vendors could turn them in for dollars if they wished. Only one person sold back his silver. After all, when you spend silver or gold, you're not only paying your tab, you're actually giving the recipient an investment that requires no further action on their part! It's a win-win, which is what trading on the free market is supposed to be. Picture: Silver Rounds from Porc Fest

Overall, PorcFest X was a wondrous week full of people that believe in sound money, personal liberty, and free trade. Of course, Team Schiff was there in full force. Andrew Schiff, Director of Marketing/Communications at Euro Pacific Capital, played mandolin by the campfire. The Peter Schiff Show's Paul Maresca piloted the massive tour bus some attendees affectionately dubbed the "Schiffmobile." And Peter himself was on hand to partake in the sound money economy and provide a warm introduction to two-term Governor of New Mexico and Libertarian presidential candidate Gary Johnson. Rumor has it that some of the team even joined the AK Rifle Shoot!

For those of us who spend our career anticipating a post-dollar economy, PorcFest was living proof that the world will go on. Gold and silver have always been money, with only the past few generations taking a bizarre turn into worthless paper currency. It is astounding how quickly people adapt to trading directly with precious metal coins. And that is fortunate, because we are now in an era in which users of paper currency are losing their purchasing power - fast. I encourage all of our readers to take a page from the PorcFest playbook and start forming barter communities where you live. Each step into the stable precious metals economy is one step further away from the crumbling US dollar.

Mike Finger is Director of Marketing Communications at Euro Pacific Precious Metals and Editor of Peter Schiff's Gold Letter. He has been involved with Euro Pacific Precious Metals from its founding in early 2010. A student of philosophy, politics, and economics from an early age, Mike is driven by Euro Pacific's mission of helping investors diversify out of fiat money and its derivatives.
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Cartoon: Bernanke Misses The Landing
(Click to enlarge)

Jon Pawelko publishes the web comic Lampoon The System to poke fun at insane economic policies and educate the public on sound economics.

Click here for more cartoons and information on his just-updated anthology book, available for only $15.
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By Jeff Clark of Casey Research

The historical record shows that those who get washed out during big corrections miss the greatest buying opportunities of a bull market.

With that as context, what can we expect from gold moving forward? Let's start with the short-term...

Full market capitulation is underway. Headlines about gold are almost universally negative today and all about selling. This feeds on itself, and the process may not be over. In this kind of environment, prices will overshoot to the downside. In other words, the bottom may not be in.

What if we get more short-term pain?

Differentiate between short-term sentiment and long-term reality. It's not deleveraging and fear that has hit our sector like it did in 2008 - it's renewed confidence in the broader markets and lack of higher inflation rates that many expected by now. The current thinking by sellers is that crisis has been averted and therefore there's no need to own gold.

Contrast the selling by these short-sighted investors against record levels of buying by central banks. China and India are gobbling up 20% of global annual production, and there is runaway demand at mints.

Fundamentals dictate long-term trends - and fundamentals don't lie. The longer our fiscal problems are allowed to fester, the greater the eventual structural damage to global economies and standards of living. These forces will sooner or later come to a head, and will play out for several years.

The broader investment community does not yet see a compelling reason to invest in gold - but when inflation starts pinching pocketbooks and budgets, a sea change will take place. Remember, roughly 98% of US investors don't own gold - that will change when higher rates of price inflation begin making headlines.

Should gold end the year down, it will not mean the bull market is over. It will mean that inflation remains contained and that we have a longer-than-expected buying opportunity. My suspicion is that it will also mean the turnaround will be stronger and longer than we've seen before.

Let the sea change come when it comes.

In the meantime...

Prepare yourself psychologically and financially to act. Emotional investment decisions rarely pay off, so don't succumb. Easy to say, hard to do, I know. We at Casey Research understand the fear - but giving up and selling is the worst thing to do right now. It locks in a loss and leaves one wondering when to buy back in - if at all. We heard emotional outbursts in late 2008, too - and that was the best time to buy in years, precisely because so many people were giving up.

The bottom line is that we're looking for onramps, not exits.

The best onramps, profit-wise, come when most other investors are heading out of a sector. Is that what's happening with gold right now? Is it a dead cat? Or is this a protracted lull... just giving the bull time to catch its breath?

Only time will tell for sure - but investors who wait for the answer will likely miss a once-in-a-lifetime profit opportunity that could be life changing. Don't be among those investors.

Jeff Clark is the editor of BIG GOLD, Casey Research's monthly advisory on gold, silver, and large-cap precious metals stocks.

Worried about your dollar dominated assets and want to know more how to diversify your wealth outside of the US? Check out our free webinar, Internationalizing Your Assets, featuring Peter Schiff.
The Future of Gold w/ Peter Schiff and Stefan Molyneux

Stefan Molyneux, host of Freedomain Radio, conducted an exclusive interview with Peter Schiff in June. Molyneux is a renowned libertarian philosopher and has guest hosted The Peter Schiff Show several times. In this video, Peter and Stefan have a broad conversation about the precious metals market, as well as the past and future US economic crises. This is a great place to get a firm understanding of the global economy's trajectory since 2006 and how gold can help you to survive the real crash ahead.

The Future of Gold - and the Libertarian Vision! Peter Schiff on Freedomain Radio

When exactly does my price get "locked in" when buying metals over the phone?

With the current volatility in the precious metals markets, many customers worry about locking in a price when buying metals remotely. When buying from Euro Pacific Precious Metals, your price will be locked in the moment you and your metals specialist verbally agree to the terms of the transaction, including the quantity and type of product. Within about five minutes of making this agreement, we will email you a confirmation and invoice with the agreed upon price.

Generally, we ask that clients send payment the same day via wire or electronic check deposit. However, once we have established a relationship with a client, we are flexible with this timeline and will happily extend a grace period of an extra day or two. We even accept paper checks in the mail from our longtime clients.

Euro Pacific Precious Metals is unusual in that we will almost always lock in a price without having received a down payment on the purchase. Most major precious metals dealers require partial or even full payment before the purchase price is locked in.

It should come as no surprise that our clientele is extremely trustworthy, and we are proud to report that we have a less than 0.1% renege rate on our sales. Customers appreciate the trust we extend to them and likewise extend theirs to us.

Do you want to learn more about the process for purchasing precious metals?

Please call 1-888-GOLD-160 (1-888-465-3160) to speak with a Precious Metals Specialist, request a callback at a time convenient for you, or click here to chat with a Specialist right now.

Deutsche Bank Opens Asian Gold Vault
The Wall Street Journal - Deutsche Bank has opened a gold vault in Singapore with a 200 metric ton capacity in order to capitalize on rising Asian demand for the metal. The opening goes hand-in-hand with Singapore's goal of becomeing a new center for bullion trading. Last year, Singapore dropped its goods-and-services tax on gold and now hopes to increase its share of world gold demand to 10-15% in the next decade. "Gold has traditionally been stored in London, Zurich, and New York, but there is a serious shift in dynamics going on as the global financial crisis continues to evolve," said Mark Smallwood, head of Asian-Pacific wealth planning for Deutsche Asset & Wealth Management.
Read Full Article>>

US Mint Silver Sales Set Record High for First Half of 2013
The Wall Street Journal - US Mint silver bullion coin sales hit a record of 23.3 million ounces for the first half of 2013 - two weeks before the end of June. Declining prices and tight supply are credited. In particular, record sales in January and April supported the record and prompted the mint to begin allocating silver coins to authorized dealers. High demand also forced premiums as high as $5 to $8 for a single American Eagle bullion coin, whereas traditionally premiums range from $1 to $3.50.
Read the Full Article>>

Platinum Demand Likely to Increase in 2013
Forbes - CPM Group predicts that platinum demand will increase in 2013, outstripping supply once again and supporting an increase in the price. The rising demand is attributed to positive investor sentiment and increased industrial demand. Demand grew only 0.1% in 2012, but should increase about 0.9% this year. Platinum supply dropped 10.6% from 2011 to 2012, largely due to a 12% drop in South African production. In 2013, CPM Group expects South African production to rise again so long as no prolonged labor strikes occur.
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Moscow Exchange to Trade Physical Gold & Silver
Russia Today - The Moscow Exchange will begin trading physical gold and silver by the end of 2013 and plans to add platinum and palladium in 2014. Right now, the market only trades futures. The hope is that adding physical metals will increase liquidity and the number of participants in the exchange. "We are a gold-exporting country. We produce a large number of precious metals. However, the trade volume is still significantly lagging behind our peers. Our commodity market is not transparent," said Mikhail Orlenko, director of the Moscow Exchange commodity market.
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IMF: Fed Has "No Clue" How to End QE
Reuters - The International Monetary Fund said that global markets overreacted to Ben Bernanke's statement that the Federal Reserve will end its quantitative easing by mid-2014 if the US economy continues to improve. "The Fed has no clue what will happen when it starts selling assets," said Olivier Blanchard, IMF's Chief Economist. Contrary to Bernanke's statements, other Fed officials backpedaled on the idea of ending QE any time soon. Nevertheless, equity, bond, and commodities markets around the world plunged on Bernanke's comments. Blanchard noted that the dramatic reaction is largely due to the speed of the supposed halt to QE, which would inevitably provoke volatility if the Fed were to make good on its claims. The IMF has recommended the Fed maintain QE until at least the end of 2013.
Read Full Article>>

Do you have a firm understanding of the Euro Pacific investment strategy? Would you like to earn a living by promoting sound money and a fundamental investment approach? Euro Pacific Precious Metals is looking for a new assistant to train into a junior broker. If interested, please submit your resume and cover letter to jsosnay [at] europacmetals [dot] com.
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In This Issue
Green Investors Missing Golden Opportunity
- Peter Schiff
Letter From the Editor: The Fiat-Free Festival
- Mike Finger
Top Gun Ben Overshoots The Runway
- Lampoon the System
What Are Reasonable Gold Market Expectations?
- Jeff Clark
Featured Video: The Future of Gold (Video)
Questions From Our Customers
This Month in Gold
EPPM Employment Opportunity
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