V A L U E S Date Silver Price in USD Jay PF Index in USD Gold Price in USD Oz. of Gold / 1 USD JPF Index /Gold DJIA Dow/Gold 01-01-2000 5.00 100.00 282 0.003546 0.3546 11,650 41.3121 01-01-2010 16.92 396.85 1,097 0.000912 0.3618 10,600 9.6627 07-31-2010 17.97 398.19 1,181 0.000847 0.3372 10,466 8.8620 08-31-2010 19.37 416.07 1,248 0.000801 0.3334 10,015 8.0248   P E R F O R M A N C E Period Jay PF % Chg in USD Gold % Chg in USD USD/Gold % Change JPF Index /Gold % Change DJIA % Chg Dow/Gold % Chg 08-01-2010 to 08-31-2010 (June 2010) +4.49% 5.67% -5.37% -1.12% -4.31% -9.45% 01-01-2010 to 08-31-2010 (YTD 2010) +5.82% 13.76% -12.10% -7.84% -1.26% -16.95% 01-01-2000 to 08-31-2010 (128 mos.) +316.07% 342.55% -77.40% -5.98% -14.03% -80.58%   Notes: (1) "USD/Gold % Change" is simply the reciprocal of the gold price in dollars. You cannot precisely compare the dollar with gold without adjusting for interest. The dollar earns interest. Gold does not. With interest rates near zero, this seems insignificant, but over time it is not. Interest rates must eventually rise. On the other hand, GATA and other experts on gold claim that the price of gold has been artificially manipulated downwards for many years by concentrated short selling on the futures markets. Some experts also believe that a significant percentage of physical gold supposedly held by futures exchanges does not exist. Furthermore, central bankers regularly talk down gold. After all, it competes with their fiat currencies and threatens their job security. (2) The Dow Jones Industrial Average (DJIA) does not include dividends given to shareholders. These are typically reinvested, but nowadays the dividends are usually quite small. It also does not include the brokerage fees and capital gains taxes that usually accompany investments in the stock market.

In August I switched a 5.3% position in physical gold to silver in the form of SVRZF (Silver bullion Trust). This transaction is listed under Jay’s Recent Transactions, and was the only transaction for the month. It is discussed in detail in the article, The Logic of Switching Some Gold Into Silver. Here is my portfolio as of August 31, 2010:

CASH	34.5%	(MINIMUM 30%)  (US Treasury Bills 4.2%, HAGRF 5.6%, Bank deposits & Money Market 24.6%)
GOLD & SILVER	48.8%	(MINIMUM 30%) Gold – 11.1% (1-oz Kruggerands)                          Silver – 37.7% (90% coins 20.5%, 1-oz eagles 2.6%,                                                  1000-oz bars 2.9%, SVRZF 11.8%;                                                  note: silver was up7.8% for the month)
MINING SHARES	4.9%	SLW 4.9%
NON-GOLD & SILVER PHYSICALS	9.7%	Oil & Gas W/I – 9.6% (Non-publicly traded investment)
PUTS & CALLS	2.1%
TOTAL	100%

Comments

My portfolio gained 4.49% in August, and is up 5.83% year to date. Gold was up 5.7% for August and silver was up 7.8% for the month. Both metals are close to making new highs for the bull market which began at the turn of the century. I believe they will break above their highs by the end of the year, but there’s no way to know. Since they are both near major resistance levels, there could be another downward correction before new highs are reached.

Last month I made the statement that I was amazed at the unanimity of my experts today. The thought occurred to me that this might be a good time to briefly survey their key thoughts and strategies. Below I will survey two of them, Jim Rogers and Richard Russell. Perhaps I will focus on some of the others in the next report.

Jim Rogers

Rogers has been rather quiet lately, I would imagine because he has made very few changes in his portfolio. There’s not that much to talk about. He is apparently content to hold his current position and wait patiently for the next great opportunity to present itself. On August 25, he said, “If the world economy gets better that’s good for commodities demand. If the world economy doesn’t get better, stocks are going to lose a lot as governments will print more money…Everyone should be raising interest rates, they are too low worldwide…I would resume buying China’s stocks if they were to tumble as they did in the aftermath of the global financial crisis in 2008, when they plunged 65%. I haven’t bought since the fall of 2008. If it were to happen again, I hope I’m smart enough to buy again.”

My comments on Rogers' comments – What a masterpiece of brevity in summarizing his current strategy! He doesn’t give specific allocation percentages. What we know from studying him for years is that he is currently invested primarily in commodities and cash awaiting the bubble phase of this secular bull market. He is out of bonds and out of stocks except for his position in Chinese stocks bought at bargain prices and awaiting another opportunity to buy them, and has a big cash position awaiting the next great opportunity which might arise. There are a few other details, but this is the big picture. One which I would make special mention of is that he loves to add to an asset which is in a secular bull market, but which is down significantly from its all time high. Every few weeks recently he has mentioned silver, pointing out that it is down about 70% from its all time high. This has special significance to me because he is not one who harps on the special merits of gold and silver in terms we hear from the “Hard Money Community,” but simply likes to invest in any asset he believes is selling at bargain basement prices well below its intrinsic value. Each time he repeats this I think of his famous statement, “When I see money lying in the corner, I just walk over and pick it up.” He’s referring to his “hated asset” category, meaning assets nobody wants, so all you have to do is walk over and pick them up, if you have the capital and the patience to wait for the market to recognize the value and bid the price up. He’s been mentioning silver for over four years, demonstrating that he has the patience to wait until the price adjusts, or until he believes it is no longer a hated asset. I’m convinced he will be rewarded for his patience.

Richard Russell (www.dowtheoryletters.com)

On August 16, he said, “As far as the stock market is concerned all news has to do with events that have happened. News is ancient history, and where the news is concerned, the only thing I look for is the stock market’s REACTION to the news. And today, the news is so mixed, it’s such a combination of good and bad reports, that the stock market has a hard time knowing what to react to…As far as the stock market is concerned, subscribers know my position. Stay out of it. It is over-priced, over-populated and over-loved…Every primary bear market brings about one massive shocker. In the bear market of the 1930s, it was the epidemic of bank failures and the collapse of the Dow to the unbelievable value of 41.22 on July 8, 1932. What could be the shocker of this bear market? This is obviously a Russell guess, but I believe the shocker of this bear market will be the collapse and death of fiat money. Bear markets exist for the purpose of getting rid of the corruption and lies and garbage of the preceding bull market. Fiat money is a lie and basically man-made garbage. I don’t believe it will survive this bear market. Already almost every fiat currency in the world has lost purchasing power against real money – gold. I believe through suspicions and competitive devaluations, a decline in the value of fiat money will continue through the bear market years ahead.”

On August 27, he said, “I believe this bear market means to take us back to basics and truth. That alone implies the end of the central bank-created money and the rise of gold and probably silver. It may also end that immoral inflation machine, the Federal Reserve. Wall Street and its bankers now run the nation. That too will end. As for Obama and his cohorts, they’ll be caste out of office as they should be. Obama is anti-capitalist from his head to his toes. This nation was founded on free enterprise. Obama doesn’t know the meaning of the word. As for Congress, they are clueless. They’re going along with Obama the way they went along with Bush Jr. as they turned over to Bush the capability of starting a war on his own. I was disgusted with Congress then, and I’m disgusted with Congress now. Here’s a question I’ve asked myself. Back in 1971 when France wanted gold to settle its accounts with the US, why did Nixon shut the gold window? Why did Nixon want to keep our gold? If the Fed can manufacture junk and call it money, why didn’t Nixon insist that France accept dollars? Why did Nixon want to hang on to our gold, if the dollar was considered (at the time) as good as gold? The history of money in the US is a legend of lies, manipulation, immorality and greed. I think this bear market will end those lies, one way or another.”

And finally, again on August 27, he said, “Gold is in the process of breaking out of the head-and-shoulder bottom as I thought it would. This move is capable of taking gold to a new record high. Monthly gold continues to climb and always above its rising 50-month moving average. Question in New Yorkese, ‘So what’s not to like?’ Silver joins gold. This morning silver broke above out of a huge triangle. This is bullish for the whole precious metals spectrum.”

My comments on Russell's comments – The main one! Better listen to this old man. He began writing his investment newsletter in 1958. It has become the longest continuously running newsletter in history. He’s not always right, and he doesn’t know the future, but his letter has outlasted hundreds of others which have come and gone over those 52 years. Here’s my opinion on the main reason. Every investment has two elements, a potential gain based on how low it is priced relative to its intrinsic value, and the risk of loss based on the potential effect of unknown future events. (See Jay's Working Hypothesis for an explanation of how the experts assess these). These two elements are often referred to as the “reward/risk” ratio. The average investor isn’t very good at assessing either, and I wonder if even a tiny percent of them realize that of the two elements, the far greater determinant of investment returns over long periods of time is proper risk control. A simple numbers exercise will help focus on this. If your portfolio declines by 50% (as the Dow did in 2008), it is then in a position of having to earn a 100% gain just to get back even. Today the Dow is still well below its 2008 high. By comparison, Russell’s portfolio is well above its 2008 high. The experts know how to assess reward/risk. They help you avoid the big losses which will sabotage your opportunity to produce consistent gains over time. Notice how this idea comes out in Russell’s comments above.

Like Rogers, Russell does not give exact allocations for his portfolio, but he does give us enough information to get the big picture, and it’s clear his portfolio is allocated very similarly to Rogers (which is in primarily commodities and cash). We’ve known for some years that he is mainly in cash and gold. Notice also that, like Rogers, he often mentions silver. I suspect strongly that he owns silver. It’s clear to me that both men consider the reward/risk ratio of silver to be among the best choices available to us in the investment world today.

Final thought - an opportunity of a lifetime

As I have so often done in recent months, I am giving the last word to silver. Ever since I wrote Investment Letter No. 8 (November 11, 2007) suggesting that silver offers us the best risk-adjusted potential for gain of any publicly traded investment of which I am aware, that conviction has only grown stronger. Primarily due to the excellent research and analysis of Theodore Butler and Jason Hommel, my interest in silver has multiplied. On the date Letter 8 was written, my allocation to silver was about 20% of my portfolio. The logic contained in Jason Hommel’s recent report, When Will Silver Prices Explode? (ANYTIME!) is almost unassailable. I recommend it to you. Then just this month, one of my favorite analysts, Chris Weber, who writes The Weber Global Opportunities Report, made special mention of silver. He had not mentioned it in this way previously, at least while I have been a subscriber.

I am sensing that the “silver opportunity of a lifetime” may be soon gone for good. I want to be very careful here. I have no way of timing events in the investment markets. Nor do my experts by their own admission. That’s why Jim Rogers has been patient for four years waiting for the opportunity in silver to materialize, mentioning it every few weeks and likely adding to his position on price declines.

Again, I want to reemphasize that I do not make specific recommendations to my readers. But I do pray for all of you, that God will lead you to do what is best for you. I do share my convictions and my actions with you for whatever benefit they might have. So, let me put it in these words. I sense the train could pull out of the station any day, and if I am not on it, the last great investment opportunity of my life with it, meaning, if I did not have the maximum allocation to silver that I am comfortable with, I wouldn’t wait another day to get it.

Make plans by seeking advice; if you wage war, obtain guidance. (Proverbs 20:18 NIV)