Among gold and silver investors there is a common cry to get rid of the Fed and return to the gold standard. However, with the Establishment having controlled our schools and universities for decades, the masses are duped into believing that the money and banking are much too complicated to be understood by anyone but those educated at our “more esteemed” universities.

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.

Yesterday, gold fell $26.70 in the cash market for a 3% decline. Silver suffered a 3.35% fall. The declines added to gold’s and silver’s losses since the middle of March, when they hit decades-high prices. (Actually, gold hit a record high, but silver is still far short of its 1980 high of $50.) Gold’s mid-March through June 10 decline: $134.50 for a 13.4% drop. Silver slipped $4 for a slightly larger decline of 19.3%.

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.

Perhaps the fundamental fear behind every gold investment is that the paper money being gotten rid of could become worthless. In theory (probably in actuality), that fear rests with any currency not redeemable in gold or silver, which means all the world’s currencies. No world currency, not even the fabled Swiss franc can be redeemed for gold or silver at the Swiss National Bank, which is Switzerland’s central bank, the equivalent of the U.S. Federal Reserve Bank.

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.

The last few posts were about silver because that’s the way the news fell. Now, we have a plethora of articles about gold, some worth reading and one worth listening to if you prefer not to read.

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?

Resourceinvestor.com titled a recent article about ETF silver holdings thusly:

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.