For years, the head of Fanny Mae has bragged about lending money to low-income homeowners. Sounds great, right? Struggling Americans want to own homes just like everyone else, and along comes a White Knight with plenty of money to lend. And, you don’t have be all that qualified. Able to sign your name, fog a mirror? Viola! You have a home mortgage.

And, you couldn’t lose. The housing market was hot, up 17% to 20% annually in some areas, at higher rates in a few regions of the country. Why not buy? “If you can afford to rent, you can afford to buy,” said the posters in banks, which decided to get in on a good thing and also entered the mortgage business in a big way.

Fanny Mae and Freddy Mac, however, had the upper hand over banks. Fanny Mae and Freddy Mac are government sponsored enterprises (GSEs) and enjoy the implied backing the federal government. The implied government backing enabled them to borrow in the money markets at lower rates than other lending entities. That position resulted in Fanny Mae and Freddy Mac garnering 50% of the mortgage market in the US.

Under the laws that set up Fanny Mae and Freddy Mac, the federal government did not agree to back debt issued by the two lenders. Past Secretaries of the Treasury have said so. But, in the world of political expediency, Congress and the Fed stepped up to the plate.

So far, the U.S. government has not agreed to guarantee Fanny Mae and Freddy Mac debt. At this time, the Fed has announced that it will only buy Fanny Mae and Freddy Mac debt on the open market. That is a long way from guaranteeing the debt, but had the Fed not agreed to do make the purchases, Fanny Mae and Freddy Mac debt holders would have suffered huge losses.

As investors became aware that Fanny Mae and Freddy Mac did not have the capital to cover all the bad loans that they had written, Fanny Mae and Freddy Mac stock prices collapsed, losing about 85% in twelve months. Meanwhile, a large California mortgage lender, IndyMac Bank, was taken over by the FDIC, further spreading concerns about the banking industry.

Under such circumstances, gold and silver become of interest to an even larger number of people, and for good reason. Gold and silver are the ultimate monies. They cannot default; they need no government guarantee to maintain their values. Investing in gold and silver at this time makes sense.

A final note: Why was it that some investors knew to avoid Fanny Mae and Freddy Mac debt while huge financial institutions, such as insurance companies and mutual funds, got stuck? Primarily because those investors were attune to what was going on. Fact is, you cannot be attuned to what is “going on” by watching Establishment financial programs and by reading Establishment publications. You can learn what has happened by following Establishment sources, but it’s rare that you learn via Establishment media what is happening while it is happening.

One non-Establishment source is Weiss Research, founded by Martin Weiss, PhD, in 1971. Weiss’ understanding of banking and its inherent flaws, i.e., fractional reserve banking, gives him great insight into today’s financial markets. Visit his website at http://www.moneyandmarkets.com/. And, get more information about investing in gold and keeping up with silver prices on our website.

My advice on owning and storing gold: buy the physical gold and store it yourself. The form of the gold, be it Krugerrands, American Gold Eagles or gold bars, is not as important as taking physical possession.

CMIGS does not hold or store gold for its clients—we ship it to them—and we strongly warn against trusting a third party to look after one’s gold. Gold is too important to trust to someone else’s care.

However, Americans who put gold or silver in their IRAs have to use precious metals warehouses. For those investors who buy gold (and silver) outside IRAs, we recommend that they secure the metal themselves.

As to whether the gold or silver should be stored in a bank safe deposit box or secured away from a bank is a decision that each gold owner must make. Investors who own their homes have many more storage options than investors who live in apartments. Frankly, we caution against keeping gold in apartments; we think that bank safe deposit boxes are the preferred storage places for apartment dwellers.

A final note on storing gold or silver at home, whether a house or an apartment: never, ever store gold or silver in a bedroom. That’s the first place that a common burglar goes, looking for cash, guns and jewelry.

What about owning “other forms of gold,” such as ETFs, futures contracts and gold mining shares? With ETFs (Exchange Traded Funds) you do not own gold. You own shares in a company that owns gold. You get the price action dollar for dollar with prices of gold, but you do not own gold.

With futures contracts, by going “long” them, you have the “right” to take delivery of the gold represented by the contract when it matures. With futures contracts, you get dollar for dollar price action plus you gain the advantage of leverage, meaning that you have to put up far less money than if you were buying gold for physical delivery, such as from CMI Gold & Silver Inc.

As with ETFs, when you buy futures contracts you do not “own” gold. You have the right to take delivery of the gold represented by the contract when it matures and you pay the full value of the contract. As for the leverage that comes with futures contracts, it also works against you if gold goes down before it goes up. Futures contracts are not suitable for gold investors and should be left to commodity speculators.

Mining shares also provide greater leverage than the outright ownership of gold because stock shares trade “times earnings.” Further, if you select a mining company that makes moves that increases earnings, you usually see the price of the stock rise. But, with stocks, you in no way “own” gold, you own “proxy gold,” which should increase in value if you select a gold mining company that makes good business decisions.

In reiterate, it my position that persons wanting to hedge against inflation and protect against financial uncertainties should buy gold, be it gold bullion coins or gold bars, take delivery of it and secure it themselves. Leaving someone else to look after your gold is risky.

Still, I recognize that some persons’ circumstances are such that buying and storing offshore, i.e., out of the United States, makes sense. In the past, I’ve had no good recommendations for investors wanting to buy offshore other than to seek out a Swiss bank. Now, though, I do.

BullionVault is a highly-professional precious metals firm owned by Galmarley Limited, a UK-registered company located in West London. BullionVault offers its clients choices of storage in London, Zurich and New York. Obviously, if you choose New York, you are not going offshore, but with BullionVault you have the option of storing precious metals either in London or Zurich.

Additionally, the summer is normally a period of low prices for gold and silver, and that is the case this summer. Both metals’ prices are significantly below what they were in March when gold topped $1,000 and silver $21. But, this is not a slow summer for gold and silver. Presently, there is more than normal interest in both metals.

One reason, undoubtedly, is the widespread fear that Bush administration has plans for military action against Iran. If so, that military action would most probably be bombings of Iran’s suspected nuclear facilities, which Iran asserts are for peaceful purposes but the Bush administration says hold the capabilities for advancing Iran’s uranium enrichment program, which is necessary for the building nuclear bombs.

However, there is speculation that covert operations inside Iran have already begun. Seymour Hersh, a regular contributor to The New Yorker on military and security matters, wrote for the weekly magazine a piece titled Preparing the Battlefield.

Additionally, Hersh was interviewed on CNN where he reasserted his position that covert operations inside Iran have begun. Hersh further asserts that the Bush administration is determined to see to it that before it leaves office, Iran has no nuclear capabilities.

What would be Iran’s most likely response if Bush bombs Iran? According to many military strategists, that would be the closing of the Strait of Hormuz, through which 17 million barrels of oil flow daily. If you think that the price of gasoline is high now, try calculating the price if approximately 20% of the world’s daily consumption of oil no longer can make it to the market.

If the Bush administration takes military action against Iran, gold and silver prices will remain active this summer, very active. Actually, just the talk of the Bush administration attacking Iran will keep people interested in gold and silver this summer. Seasonally, the summer has been a favorable time to do some silver and gold investing. This summer looks better than past summers.

Today, with gold already having traded above $1,000 this year, $850 gold may not appear high, but for the 1970s $850 was astronomical. In 1973, when CMIGS was formed specifically to retail silver bullion to Americans, gold was trading below $100. (Silver was the product in 1973 because then it was illegal for Americans to own gold bullion. Americans effectively regained the “right” to own gold bullion January 1, 1975.)

Before gold made its 1970s’ move, a common question was, “How high do you think gold will go?” The standard answer was $300. Frankly, no one had any idea that gold would hit $850. For some unknown reason, $300 became the standard answer. But, as it turned out, $300 was far short of the top.

(Not all prognosticators failed to predict extremely high numbers for gold in the 1970s. The Aden sisters predicted $3,000 gold, but considering how far that prediction was off the mark, let’s say that few forecasters foresaw how high gold would eventually go.)

As for silver, there were not a lot of rash predictions. At the time, an abundance of silver lay in precious metals warehouses around the world. The U.S. Strategic Stockpile, for example, still held 139,000,000 ounces. The fear of sales from the Strategic Stockpile hampered predictions of high silver prices. In May 1973, Merrill Lynch published a “Situation Report” that predicted $2.75 - $3.00 silver “within the next 12months.” In that report, ML hedged its prediction by warning of “pending sales from the U.S. Stockpile assuming that they take place.”

In the 1970s’ gold-silver bull market, the sources of information about gold and silver were limited. If you wanted information about gold or silver, you’d head for the local library where you could spend hours trying to find relevant data. Further, you usually had to depend on Establishment publications.

Rarely does the Establishment present accurate, reliable facts, especially when it comes to investments. During my life, I’ve seen Establishment reports on subjects about which I knew something that were so far off that mark they were laughable. Often, Establishment reports are suspected “plants.” In my April 30 blog post, I questioned a Reuters’ article about silver.

With the advent of the Internet, however, things changed – and in a big way.

Today, the first resource for information on just about anything is the Internet. Plug gold into Google, and you get 886,000,000 pages to view, which are too many and too general. Change the search to gold coins, and your choices are reduced to 3,700,000, and you get more specific information. Still too many? Search for gold investments and get 400,000 hits. But, say you’ve heard that the Krugerrand is the best-known gold coin in the world and also carries the lowest premium of the modern gold bullion coins, then google Krugerrand and get 298,000 choices of pages to review. (By the way, if you search the Internet, there’s a 69% change you’re using Google, 17% chance it’s Yahoo!, with MSN, Ask and AOL fighting over the scraps.

According to Internet World Stats, some 1.4 billion persons are connected to the Internet and, therefore, have instant information about investing in silver or gold. Further, because of the Internet, potential investors wanting gold investment information are not limited to the publications that libraries choose to house, which are almost exclusively Establishment publications.

For example, the World Gold Council’s website, www.gold.org, contains a plethora of data about gold, everything from its history, to production and usage, to who owns it. Want to know how much gold the world’s central banks claim to hold? That data is found there.

Like to know more about silver? Visit www.silverinstitute.org, the website of The Silver Institute, a nonprofit association that “serves as the industry’s voice in increasing public understanding of the many uses and values of silver.”

Want to learn what a 34-year veteran of the gold-silver bullion industry has to say about buying gold and silver? Visit www.cmi-gold-silver.com. Our website has been declared by some visitors to be best on the Internet for basic information about what form of gold or silver to buy.

Although I’ve chosen only three resource sites, there are literally thousands of sources of information on the Internet about gold and silver, which means that 1.4 billion potential investors have easy access to information about gold and silver. Because of the Internet, this gold-silver bull market has the potential to dwarf the bull market of the 1970s.

Without a doubt, the masses believe that the arcane workings of the Fed and our monetary system are to be left to “the better educated,” to those who have “made a life of studying economics” and even have doctorates from Yale or Harvard. If you doubt this, try criticizing the concept of central banking (The Fed is our central bank.) in front of anyone with a college degree.

You may run across someone who is quick to criticize the Fed’s actions. “The Fed should lower (or raise) the discount rate,” is a likely comment. Those who really want to show their knowledge of our banking system may lay something like this on you: “The Fed should cut the minimum reserve requirements on CDs.” Better yet, you may get, “The Fed needs to raise the margin requirements on stock loans to cool stock market speculation.” Now you know you have a college graduate who sat through a couple of finance classes. This person has been completely indoctrinated into the world of central banking and government control of money. He (or she) is your average college graduate, and that is how the fraud of the Federal Reserve System is perpetuated. But, don’t even begin to try to get the average college graduate to discuss dumping the Fed and going back to the gold standard.

Fortunately, calls for dumping the Fed and returning to the gold standard come not just from “gold bugs” but also from economists who truly have made the study of economics lifetime endeavors. One such economist was the late, great Murray N. Rothbard.

Murray N. Rothbard was a scholar extraordinaire who made major contributions to economics, history, political philosophy, and legal theory. He developed and extended the Austrian economics of the legendary Ludwig von Mises and established himself as the principal Austrian theorist in the latter half of the twentieth century. Rothbard applied Austrian analysis to historical topics such as the Great Depression of 1929 and the history of American banking. Oh, yes, Rothbard received a PhD from Columbia University in 1956.

In 1995, Rothbard wrote a piece titled Taking Money Back, which was printed in the September and October issues of The Freeman. Taking Money Back outlined Rothbard’s reasoning and steps for dismantling the Fed and returning to the gold standard.

Lew Rockwell recently chose Taking Money Back as the lead article for his website, which has become one of – if not the most – popular free market, Libertarian websites on the Internet. Read Taking Money Back and learn that a truly learned man has called from dismantling the Fed and returning to the gold standard.

If you are interested in furthering your knowledge and understanding of money (and the flaws of our monetary system), start with a couple of Rothbard’s books. Excellent choices would be What Has Government Done to our Money?, The Case for the 100% Gold Dollar and The Case Against the Fed. All can be ordered from mises.org. If you want to learn the real cause of the Great Depression, order a copy of Rothbard’s America’s Great Depression.

These books will make you uneasy about the current financial state of affairs, but they will make you much more comfortable about investing in silver and gold.

Silver suffers bigger declines in falling markets but enjoys bigger gains in rising markets, which is to say that silver is more volatile than gold.

Big declines are enough to send new gold/silver investors back to the stock market. However, veterans of the precious metals markets know that large, sharp movements, up and down, often come on meaningless news. Since the first of the month, there has been talk of Treasury Secretary Henry Paulson’s frequent comments about a “strong dollar.”

Such talk is utterly ridiculous in the face of the U.S. fiscal policy of massive deficit spending and interest rates that are artificially depressed by the Fed. Still, what flies in the mainstream media affects gold and silver prices.

Veteran precious metals investors also know that gold and silver prices are seasonally low during the summer months. So, with gold and silver having suffered significant losses since their March highs, the worst may be behind us.

Still, with 2-1/2 months to go before summer ends, gold and silver could see additional sharp moves to the downside. And, they may see sharp upside moves, such as today. As this is written, gold is up $10 and silver $.20.

Investors thinking of adding to their gold and silver positions should take advantage of the traditional summer price weaknesses. Remember also: unless you are the luckiest person in the world, no matter when you buy gold or silver prices will go lower before they go higher.

I tell clients that investing in gold and silver is akin to playing football. If you’re not prepared to get knocked down, don’t play. Prices will fluctuate lower before they go higher. You just have to pick an entry level and buy. A year from now you’ll be happy you did; two years from now you’ll be delighted. This is a big gold/silver bull market, and it has a long way to go.

The destruction of paper money usually comes about after the abandonment of the gold standard and the institution of fiat money, which is money by governmental decree. The dollar is money by decree, “all debts, public and private.” However, in many cases, one fiat currency is introduced to replace another fiat currency. Brazil is famous for doing that.

Before moving on to the problems faced by the Zimbabwean gold miners, I should note that since the Bretton Woods Agreement of 1944, no country has been on the gold standard. The Bretton Woods Agreement established a gold exchange standard, under which the world’s currencies were redeemable in dollars, which were redeemable in gold. Although under the Agreement, currencies’ values were fixed relative to gold, central banks that were presented their nations’ currencies for redemption actually gave the redeemer dollars.

Zimbabwe is an economic cesspool, with government regulations of nearly every facet of economic activity. One control in Zimbabwe is that all mined gold is to be sold to the Zimbabwean central bank, the Reserve Bank of Zimbabwe (RBZ).

According to one source, gold miners are meant to be paid 35% of their production at the highly overvalued local currency and the remainder in US dollars. The RBZ pays partially in U.S. dollars because the gold mining companies need to buy equipment in foreign markets to keep operating. There is no market for Zimbabwean dollars outside Zimbabwe. Outside Zimbabwe, Zim dollars are paper.

While the official policy is for the RBZ to pay partially in U.S. dollars, the RBZ now has no U.S. dollars, or any other foreign currencies, and the gold mining companies are receiving only Zim dollars. Because Zim dollars cannot be spent outside Zimbabwe, the mining companies are unable to replace worn out equipment.

As a result, “Zimbabwe’s once proud and big gold sector could be set for a further decline,” says Tawanda Karombo, posting an article from Harare, the capital of Zimbabwe. Zimbabwe produced seven tons of gold last year compared to 11 tons in 2006, their lowest level in 90 years.

Although Zimbabwe’s gold production has never rivaled that of neighbor South Africa, for nearly a hundred years it has been a solid gold producer. Now, Zimbabwe’s gold production looks set to grind to a halt, which will be positive for gold investing.

ANZ Australian Economics Weekly says gold prices may “firm this week.” With gold having hit $930 Wednesday morning, I bet ANZ now wishes they had predicted rising gold prices this week. Analysts love to be right about predicting short-term price moves. Accurate predictions sell subscriptions.

Although ANZ advised that gold could firm this week because of surging oil prices, the analysis warned that concerns about oil prices were “re-setting” global inflation concerns, “which should trigger a catch-up rally in gold (compared to oil).” I guess that’s what we’re seeing with gold up $65 from this time last week.

Nevertheless, ANZ cautioned, “We expect gold prices to drift lower over the coming months, with increasing signs that the fall in the USD is near the trough.” Seasonally, the summer is the low period for gold and silver prices, so there remains the possibility that “gold prices may drift lower over the coming months.” Still, past summers have not had the dollar in so much trouble and real fears that the Bush administration may bomb Iran’s nuclear research facilities.

Mineweb.com reviewed ANZ’s analysis, for those who want to read it.

Meanwhile, Kevin McArthur, President and CEO of Goldcorp, a major gold mining company, said Tuesday that he is certain that investors will again see four-digit gold prices this year with the potential to “go well into the four digits.” Four-digit means above $1,000, and I guess that “well into the four digits” means something like $3,000 or $4,000 gold. McArthur didn’t give a time frame, but I don’t think he was predicting $3,000 or $4,000 gold this year.

I think that $3,000 - $4,000 gold is a real possibility, out there four to five years. A widened war in the Middle East, and it may not take four or five years.

Mineweb.com ran an article on McArthur’s comments, but the article is mostly about “greens” dominating the conference where McArthur made his predictions.

The third article, which you can listen to instead of read if you prefer, is titled Is the dollar doomed? and is more about the dollar than about gold. Because you can’t talk about a sinking dollar without talking about gold (if you’re giving an honest appraisal of the situation), the article really is quite good. Except where the speaker says, “Well, we don’t actually need a government run gold standard anymore.” Here, he covers himself by saying that there are places where individuals interested in investing in gold can go.

When a government is not on the gold standard, the door is wide open for inflation, exactly what we’ve had in the United States since 1971 when President Richard Nixon closed the gold window.

Meanwhile, resourceinvestor.com slapped gold around a little with an article titled Gold Demand Drops to Five-Year Low in Q1. The article, based on a GFMS study for the World Gold Council, noted reduced demand for gold, with the blame laid at the feet of higher gold prices. In India, for decades the biggest buyer of gold, demand shrank.

Here’ how resourceinvestor.com summed it up:

Gold demand in India, the world’s largest physical bullion consumer, was most severely affected by the movement in the gold price, falling 50% to 102.1 tonnes in Q1. Jewellery and investment demand, at 71.1 tonnes and 31.0 tonnes respectively, were half the levels of the correspondent quarter last year.

In almost an after thought, the resourceinvestor.com article noted:

In marked contrast to India, demand in China grew by 15% to 101.7 tonnes, with both jewellery and investment demand increasing during the first quarter as continued economic strength allowed consumers to increase their purchases regardless of the rising price. Jewellery demand rose 9% to 86.6 tonnes and investment demand surged 63% to 15.1 tonnes.

Somewhere a news outlet should broadcast that China is about to replace India as the biggest buyer of gold. Further, with China’s increasing prosperity and its people freer to buy gold, China’s impact on the gold market should be huge in the years ahead. Wonder why only the perpetual bulls seem to know what’s going on in China when it comes to gold?

London-Listed Silver ETF Unloading Holdings

A title with a negative connotation. However, the article itself was rather bullish on silver.

On reading the article, you will learn that although the small London-based ETF had about 3.5 million ounces (99 tons) worth of silver redemptions from February, the larger U.S.-based iShares saw an increase in holdings of 563 tons since February, for a net increase of 464 tons (nearly 15 million ounces). While the smaller ETF now holds a mere 285 tons, iShares holds 5,928 tons.

I found it interesting that in choosing the title for the article, the writer emphasized the action in the smaller fund. The writer also chose to quote two industry players who have negative outlooks for silver.

However, to his credit, the writer let Jeffrey Christian, CEO of CPM Group, counter. Christian said he did not agree with this contention that silver’s fundamentals are turning bearish.

In its 2008 Silver Yearbook, CPM Group predicted a third consecutive year of net buying by investors, with them buying a projected 74.9 million ounces of silver. In 2008, total supply is projected to increase 3.9% to 815.1 million ounces, while fabrication demand will rise 2.2% to 740.2 million ounces.

The difference between the 815.1 million-ounce supply and the 740.2 million-ounce industrial demand will be picked up, according to CPM Group, by investors. If investors buy more than 74.9 million ounces, we have upward pressure on the price of silver.

Additionally, the article discusses the differences in thinking about silver between Europeans and peoples in other part of the world. Europeans are not big fans of silver; however, North Americans, Indians, Chinese and Middle Easterners are.

All in all, the article’s an informative read about silver. Still, I wonder why writers so often attempt negative spins on silver when the fundamentals for investing in silver are so positive. For an example, see my April 30 post Reuters attempts hatchet job on silver.