Gene Arensberg, precious metals analyst and author of the popular Got Gold Report, reiterates in his recent report his bullishness for silver. Although Arensberg is bullish on gold over the longer term, he sees the potential for more immediate upside action in silver.

Arensberg notes that iShares Silver Trust (SLV), the largest silver ETF, lost no holdings in the last reporting week but gained 42.07 tons the prior week. Further, the trust continues to hold more silver than the original custodian agreement called for, now reporting 8,766.93 tons of the metal. SLV turned out to be much more successful than anticipated. Still, Arensberg recommends that SLV investors convert their shares to physical silver.

He notes that premiums on the common forms of physical silver are “. . . back to normal or near normal and availability seemingly adequate regionally, now might be an excellent time to convert shares of SLV into the real deal physical metal.” Later in the report, Arensberg says, “Call it intuition, or trader’s instinct, or whatever, we believe those planning to convert gold and silver ETFs into physical metal might want to do so with a sense of urgency now (emphasis his), as we doubt that premiums will remain near normal for an extended period. Regardless if gold and silver move substantially higher or lower we expect to see premiums moving higher toward the end of the year and maybe much sooner.

From my perspective, I see premiums on physical silver and gold products about as low as they are going to get.

Increasing Arensberg’s bullishness on silver is his analysis of the large commercials’ positions in the silver futures markets. The LCs have increased their short positions in gold, but have steadily refused to take bigger short positions in silver. See Arensberg’s Got Gold Report for his analysis.

Finally, Arensberg recommends that long-term precious metals holders consider switching from gold to silver because of not only market conditions but also because of the gold/silver ratio, which is hovering in the 70:1 area. This is a recommendation with which I agree.

Historically, silver has outperformed gold (on a percentage basis) in all precious metals bull markets. Now, the silver market is experiencing a genuine shortage that should cause silver to continue its trend of outperforming gold.

Most Americans have absolutely no idea of the causes of our ongoing financial crisis. Newscasters, most of whom are completely oblivious to any understanding of economics, spread the blame from greedy speculators to incompetent businessmen, missing the mark completely. Many economists simply point to the boom-bust business cycle but have no idea what causes the boom-bust cycle. Now, economists and laymen alike can grasp the reasons for boom-bust cycles, thanks to a New York Times bestseller Meltdown.

Buy a copy of Meltdown and go directly to chapter four: How government causes the boom-bust business cycle, where you learn that the blame for the boom-bust business cycle and today’s financial crisis lies with our central bank, the Federal Reserve System. Chapter four explains how the Fed’s screwing with interest rates distorts the business community’s perception of what’s really happening in the economy. As a result of these misconceptions, resources are allocated to the wrong places because Fed-induced, artificially low interest rates send the wrong signals.

The brilliance of Meltdown is that it is written so that readers need not be economists to grasp rudimentary understandings of the Austrian economic theory, and understandably so. The author, Thomas E. Woods Jr., is not only a senior fellow at the Ludwig von Mises Institute, which means he hangs with some smart people, but is the author of nine books, including The Church and the Market: A Catholic Defense of the Free Economy, which won in 2006 the prestigious Templeton Enterprise award. Woods has edited and written forewords for such esteemed writers as Murray N. Rothbard. The foreword for Meltdown was written by none other than world’s most popular U.S. Congressman, Ron Paul.

Meltdown is essential reading for anyone in the gold market and for anyone who is even considering investing in gold. 162 pages of text, 192 including sources. Buy Meltdown now at the reduced price of $21.

In an article posted on resourceinvestor.com, Scott Wright, an analyst for Zeal LLC, makes a case for speculating in small silver mining companies, commonly called “juniors.” In doing so, Wright uncovers one of the compelling reasons why silver production will suffer in the future.

Most small silver mining companies have little cash flow from which to fund exploration programs, or even to evaluate and develop deposits already discovered. Therefore, “junior” silver mining companies regularly sell shares to raise capital.

However, the recent global stock panic saw across-the-board selling of all assets and hit commodities stocks particularly hard. Many silver stocks saw 70%+ declines, with the juniors suffering the worst of the damage by far. With their shares selling at such low prices, the mining companies are not selling shares because doing so would cause them to give up huge percentages of their companies. Until investors regain faith in the junior silver mining companies’ stocks, those companies will be husbanding their resources, seeking first to survive, then to look for new deposits.

Although most silver investors buy silver because of concerns about the dollar, this development makes investing in silver bullion even more attractive. Here’s a link to Wright’s article, which provides other good insights into the silver market.

US News, a mainstream media publication if there ever were one, interviewed Congressman Ron Paul about his bill to audit the Fed. Amazingly, the magazine allowed the congressman to lay it on the line about the nefarious central bank.

Although Paul would prefer that the Fed be abolished, he knows that bills to abolish the Fed go nowhere. Considering how ignorant most Americans are about Fed, it is understandable that our representatives in Washington do not know much more about the Fed.

Further, the media have long held the Fed in adulation. The Fed is beyond criticism, except for comments about whether the Fed should raise or lower interest rates. Never do the media discuss the immoral fractional reserve banking system, of which the Fed is part and parcel.

Additionally, whoever heads the Fed is nearly worshiped by the media. Always, the Fed Chairman is portrayed as the most brilliant economist in the land. How dare a congressman from a rural Texas district suggest that the great and wonder Oz be banished! However, with Paul’s bill to audit the Fed, the camel’s nose may be in the tent.

More than a few Americans were watching when the Treasury passed around hundred of billions of tax dollars under the TARP bailout, and now there’s “all this talk about transparency” at the Treasury, which prompted interest in what the privately-owned Federal Reserve System does. With greater understanding of the Fed, perhaps a great debate (and it would be great!) would follow about abolishing the Fed.

For the interview, read Exclusive Conversation With Ron Paul: The Future Of The Federal Reserve.

(By the way, if you had been following me on Twitter, you would have learned about this interview hours ago.  On Twitter, I’m theoldgoldguy.)

As noted on this blog before, the IMF wants to sell gold to fund more international welfare programs but must have the approval of the US Congress before it can sell any gold. In a February 2008 post, I speculated that approval under a new Congress would be likely. Now, approval appears imminent.

This week a House-Senate committee will meet to reconcile differences between the House and the Senate in the Supplemental Budget Appropriations Bill. Buried in the bill is approval for the IMF to sell gold. No one is objecting to the sale.

To some, talk of a major institution selling gold is frightening. But, as I noted in the February 2008 post, the gold market has seen IMF sales before and has weathered them nicely.

As the mainstream media report the approval, there may be some downside movement in gold, but at least one gold analyst and investor sees the IMF sale as positive for gold.

Brian Kelly, writing for seekingalpha.com, sees China stepping forward and buying the gold. Kelly doesn’t think that it’s a coincidence that Treasury Secretary Timothy Geithner just ended a trip to China.

By all reports, Geithner avoided all contentious issues with China, such as massive Chinese theft of intellectual property or revaluing the Chinese currency. Instead, he sought a “greater role for China in the International Monetary Fund.”

Kelly further speculates that a sale to China would upset “India and several of the Gulf States as they all have expressed interest in purchasing the gold. If this occurs, nothing could be more bullish for the price of gold.”

Frankly, I haven’t seen anything substantive about India or any Gulf States wanting to buy the IMF gold. But, I guess it could be true. If I were sitting the gargantuan quantities of dollars that those nations hold, I’d want to buy gold. I just wonder if Kelly really has such information or is he, as a gold investor, simply wishing a major buyer would step forward.

Regardless, when news comes out that Congress has approved the sale of IMF gold, it will roil the markets. Bargain hunters may have opportunities to buy on dips in price. And, if Kelly is right about India and some Gulf States wanting to buy the IMF gold, he will certainly be right about that being bullish for gold.