Merrill Lynch says rich turning to gold bars for safety

Merrill Lynch has revealed that some of its richest clients are so alarmed by the state of the financial system and signs of political instability around the world that they are now insisting on the purchase of gold bars, shunning derivatives or “paper” proxies.

Gary Dugan, the chief investment officer for the US bank, said there has been a remarkable change in sentiment. “People are genuinely worried about what the world is going to look like in 2009. It is amazing how many clients want physical gold, not ETFs,” he said, referring to exchange trade funds listed in London, New York, and other bourses.

“They are so worried they want a portable asset in their house. I never thought I would be getting calls from clients saying they want a box of krugerrands,” he said.

Merrill predicted that gold would soon blast through its all time-high of $1,030 an ounce, and would hit $1,150 by June.

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Silver has been Exploding for 5 years now

Whenever silver prices take a dip, people lament the delay in the rise in prices and ask me “When will silver prices explode?”

Well, it’s been exploding for 5 years now. In 2003, silver’s low point was $4.15/oz. in the spring. This year, silver is “about” $18. From $5 to $18 over 5 years is an “average” annual gain of a whopping 29%. It may not seem like a lot because we have such high expectations for silver (along with waiting during price consoladations lasting 1.5 years at a time), but let’s see what 29% gains per year really look like over the next 15 years. Most people don’t seem to understand the power of compounding gains. So, I made two charts to illustrate the points.

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Silver Prices Ready to Rocket; Four Reasons Why and Two Ways to Buy

Silver prices have vaulted an extraordinary 106% in the past two and a half years.

More impressive, silver prices have gained 33% since mid December.

Now, compare that to how U.S. stocks have fared since then: The Dow Jones Industrial Average has plunged 13.6%; The Nasdaq Composite Index tumbled 10.5%; The S&P 500 Index has fallen 11.1%.

Like gold, silver is a safe haven from inflation and a weak dollar. The prices of the two metals often move parallel to one another. However, silver is poised to rocket – handing investors not only gains in our bear-market economy, but steeper gains than gold.

James Turk, founder of GoldMoney, said in his annual forecast that the U.S. economy “will get much worse in 2008, making gold the premier asset of choice, but not the best performing precious metal. That honor will go to silver, which I expect will clear $30 in 2008.”

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