Hi, this is Jennifer from the Discount Silver Club, writing to you on a beautiful fall afternoon. Silver has surged above $7 an ounce twice this month, a feat it hasn't equalled since April. Even though silver has increased in price, historically speaking it's still very cheap.

Federal Reserve Says Dollar Must Plummet

In July, I wrote about the trade deficit, and the weakening dollar failing to boost exports. Last week, the President of the Federal Reserve Bank of Dallas, Robert McTeer, stated that the US Dollar hadn't fallen far enough. He said, "Over time, there is only one direction for the dollar to go -- lower." In his opinion, there are only two ways to remedy the trade deficit: debase the dollar, or have US incomes plummet so that consumers can afford fewer imported goods.

I would argue that both options will occur. Foreigners will eventually tire of low returns on Treasury debt. The Federal Reserve can't raise interest rates too quickly, or many corporations and homeowners will go bankrupt. When foreigners sell U.S. Treasuries, they increase the supply of dollars, and decrease the amount of their home currency in circulation. As more dollars enter the economy, their value decreases through oversupply, leading to consumer inflation. Imported goods will become more expensive as the dollar falls against other currencies.

Since America imports most everyday products, and much of its energy, prices could increase rapidly. This inflation takes money out of your pocket, as real wages never keep up with the cost increases in essential products. Even if you earn more money, you can buy fewer goods with it. Fortunately for silver investors, precious metals hold their value in an inflationary environment.

I was surprised to see a Federal Reserve official speak so frankly about currency issues. Then I discovered that he is the lone candidate for Chancellor of Texas A&M University, and will likely retire from the bank. Coincidence, or not?

Russian Central Bank Confirms Manipulation

In my July 28th newsletter, I mentioned that an official from the Russian Central Bank, Oleg V. Mozhaiskov, confirmed that the gold market is manipulated. Although the speech was given at the London Bullion Market Association meeting in June, the LBMA refused to release a transcript. Recently, the Bank of Russia sent out its own translation of his remarks.

Mozhaiskov criticizes the U.S. government repeatedly in his speech. He states that America owes more money to its creditors than there are dollars in circulation. The U.S. doesn't practice fiscal "discipline" because its dollars are accepted as a reserve currency, despite the lack of gold backing. In Mozhaiskov's view, American authorities care less about the viability of the dollar than foreign creditors do. The central banker condemns the "social and economic injustice of a world order that allows the richest country in the world to live in debt, undermining the vital interests of other countries and peoples."

He analyzes the factors which contribute to the price of gold, and determines that banking interests set the price, often below the cost of production. Mozhaiskov notes that the derivative position in gold far exceeds similar positions in other commodities. He asserts that central bank gold leasing depresses the gold price even more than excessive derivatives do. He praises investors who sell dollars and buy real assets such as gold, which act as a safe haven when currency crises occur. (To read the whole speech, see http://www.gata.org/RCBTakesNote.html).

While I agree with Mozhaiskov that gold is a good investment, I believe silver is even better. The gold/silver ratio is currently 60 to 1, while historically the ratio has been 17 to 1. Silver is significantly undervalued, and should appreciate at a faster rate than gold. Add increasing industrial demand, and a 15 year supply deficit, and the outlook is even more bullish.