We have spent most of the year watching gold, silver and the companies that produce these assets fly higher. We are now seeing a pullback that, in my opinion, could be a positive development.

While it is entirely possible that those “in charge” are performing a smash down- as they have been doing for many years- it appears to me that it is a bit more than just that. I say this mainly because they have been intervening in the “markets” all year and it hasn’t worked up until now.

It is entirely possible that after a MAJOR run-up that many who have had major gains have decided that now is the time to take profits. It is also entirely possible that there is a more sinister reason for this. That would be that there is a SERIOUS liquidity crisis taking place and gold is giving a warning that something big is about to happen. I say this because there are warnings from JP Morgan and many others about loan losses on subprime, private market and commercial real estate debt.

This is a classic illustration of how too much debt can crush an economy. While the debt seems to be issued in unlimited amounts, we have a limited amount of assets or COLLATERAL. As that collateral sinks in price- think about automobiles being a depreciating asset and commercial real estate prices crashing in many major cities, the loans in many cases are underwater leading to defaults.

On top of this consider that 64% of US families live paycheck to paycheck, over 35% of families couldn’t pay a $400.00 surprise bill and millions of layoffs taking place- what do you think may happen going forward to housing prices? I’m sure the banks have a good idea!

Another possibility is that the developed nations of the west may be banging the price to try and convince the global south and BRICS, SCO, ASEAN, and others that gold is “risky” even though central banks list it as “riskless” on their balance sheets. Why would they do this? They want everyone settling trade in US dollars while the BRICS and others are constructing a trade system that settles in local currencies and ultimately in GOLD.

While we can’t be sure exactly what is happening, it could be a combination of all four possibilities. Intervention to help the banks close out naked shorts, those speculators that bought gold and silver to ride the wave higher selling and possibly some forced selling to create liquidity. The Fed could be piling on to make the dollar appear strong.

The only thing that wouldn’t make sense in this scenario is that in the event of a major liquidity crisis ALL asset classes would be getting sold off. That has not happened YET.

Just as unusual as the gains have been, the current pullback has been just as unusual.

So why could this be positive for those who are in gold, silver, and mining companies?

The facts are these:

· The lack of supply for silver and gold has not been changed. Central banks are still buying, there are reports of major supply problems- particularly in silver and if you want physical metal the premiums are extremely high as I am writing this.

· If we look at history and there is a liquidity crisis brewing gold has generally led the way in letting us know- like in 2008 when gold fell from around $900.00 to $700.00 prior to and during the debacle and flew up to $1900.00 between 2009-2011. During the great depression gold was revalued +75% and while the stock market crashed 90% gold mining stocks rallied 575%. Why? When there is a loss of confidence there are very few places to find trust. Gold has been money for 5000 years and has outlasted ALL fiat currencies in history. When people start to question the “Promise to Repay” they will likely be looking for hard assets and dumping paper.

· While many people have had facts and theories about why gold has had such a large rise in the past few years all I hear right now about the current pullback are theories because the supply and demand numbers don’t make any sense when looking at the price action.

· There is NO ASSET that goes straight up or straight down. The pullback looks to me to be an opportunity for those left out to participate and to form a new floor where higher highs can be launched from.

At the end of the day nothing has changed. Wars are still raging globally. Global debt is still rising exponentially. Bills are being paid with “money” conjured up from nowhere to pretend we are still solvent leading to FAR more debt and deficits with no apparent way out other than to “print” and devalue the currencies or stop- and see an immediate default.

Either way- gold wins. In a default just about nobody will trust any promise to repay. In a default stockholders get wiped out first. Where can you go? Silver, on the other hand, will do better in an inflationary environment which is what I am expecting. Nobody wants to see a collapse on their watch. This is why I expect an inflationary outcome leading to FAR higher prices for everything.

Be Prepared!

Any opinions are those of Mike Savage and not necessarily of those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information in this report does not purport to be a complete description of securities, markets or developments referred to in this material. The information has been obtained from sources deemed to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.

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