Gold has just fallen below US$1300/toz, silver has fallen below $20/toz. Why should I buy???!!!???

I'm not an investment analyst, I'm not a broker, I'm not an advisor. I'll say that now. (In fact this reminds me that I need to put that in the header.)

As we know, paper is subject to manipulation, its electronic equivalent even more so. The same thing applies for paper "gold" (such as the GLD index fund) and paper "silver" (such as the SLV index fund). These are only ETFs, exchange tracker funds. But that's where most of the trade takes place, in exchanges of paper, and not in the actual metal. ETFs and other paper or electronic forms can be shorted. Physical metal cannot be shorted: "I'd like to short 5 ounces of silver." Such a short can only be a paper short, "Ok, I'll write up an IOU for 5 ounces of silver, here's a piece of paper", like the old Dutch gold merchants used to do. If you're dealing with physical metal, you cannot sell metal that you don't already own... or more clearly, you cannot sell metal that you do not have in your possession. If it doesn't involve a physical exchange of metal, then it's a paper transaction. And these days, paper isn't even that, it's just random photons down a fibre optic cable.

So, what does all that have to do with the price of gold and silver falling? It's market manipulation.

Read my previous posts to see the effect of hyperinflation in Zimbabwe about 5 years ago, with gold going from Z(original)$3300/toz in 1994 to $23 million/atom in 2008.

The intrinsic value of all fiat currencies is ZERO. Do you think for one moment that the fiat currencies we use now are any different? USD GBP EUR CAD CHF CNY JPY INR RUB KRW KPW are all fiat. Their natural value is zero. They are backed by what? To paraphrase the US example, "the full faith and credit of the US government". Well, in the example above, we saw what happened with currency backed by "the full faith and credit of the Zimbabwean government". It isn't that Mugabe was a dictatorial SOB that was the problem, it was that the people lost the faith of "Dr" Gideon Gono's Central Bank of Zimbabwe (it is his name/signature that appears on my mock 100 trillion dollar bill). Ok, Mugabe being a dictatorial SOB may have been the problem, but why didn't the currency collapse in 1994, when we already knew he was a worse SOB than Ian Smith?

The problem is, ALL currencies are tied to USD; they may float freely, but what are they backed by? What's in the vaults of China, Japan, Russia, Canada, the UK, the ECB? USD. USD notes, T-notes, T-bills, all USD-denominated instruments. Why? Because that's what we need to buy the most important commodity for modern society. Oil.

China is a resource-rich country. Russia is a resource-rich country. They are mining gold and filling their vaults with it, as well as buying it on the world markets (which thanks to paper trading makes buying gold cheaper than mining). They have less need for USD. So once they ditch USD, all that currency will go floating back to the US, and it will cause an increase in the domestic money currency supply... which is the textbook definition of inflation. The US economy has been flooded with more USD chasing the same amount of product.

This is happening domestically in the US as well, to even greater effect. The Bernank has declared QE1 (Quantitative Easing 1), 2, and now, QE∞ effectively. In other words, keep the printing presses rolling! Except in these days of electronic currency creation, you don't even need that effort. The amount of USD in circulation (by the amount of assets and liabilities denominated in USD) is estimated to be in the quadrillions. Of what exists in paper (or rather electronically), this makes a few trillion seem like nothing. All of this money will, sooner or later, come home to roost.

The effect of this will be staggering. It is a mathematical certainty that USD will face a collapse such as ZWD, as it reverts to its natural value of zero.

The original ZWD ended up as being worth $23 million per atom of gold. If Helena had spent even £30 and bought a 1/10 toz (troy ounce) gold coin in 1994, then going back to Zimbabwe, she would have had 6 250 000 000 000 000 000 000 atoms of gold (1994 value), instead of its equivalent of Z$390 being .000017 of an atom (2008 value of the original ZWD) (a factor of 3.7×10^26).

The Zimbabwean dollar is was a small currency in southern Africa. The US dollar is the major reserve currency for the world. When the USD goes down, it will take the entire fiat market with it.

Do you want to spend the $150 now on 1/10 toz gold or 6 toz silver (even with the falling markets they seem like a ripoff), or when the currency collapses, see the same three $50 bills have more value as toilet paper than as money? Of course, in Canada (and Australia), as our banknotes are plastic, they can't even be used as toilet paper!