May 8, 2024

The Gold Barbarians Talk Back

May 8, 2012 by 3 Comments

According to Warren Buffett, the decade long rally in gold has been based solely on fear and the greater fool theory.  Buffett, believed by many to be one of the greatest investors of all time, has gone out of his way lately to ridicule gold investors.

In his recent 2011 Letter to Shareholders of Berkshire Hathaway, Buffett notes that the purchasing power of the dollar “has fallen a staggering 86% in value since 1965”.  According to Buffett, the three major investment categories available to investors  are productive assets (such as stocks), currency based investments (such as bonds and bank deposits) and assets that will “never produce anything” (such as gold).

Buffett’s clear preference is to own productive assets.  Currency based investments are “the most dangerous of assets” according to Buffett and gold (the major asset  in the category of investments that  “will never produce anything”) is described as follows in Buffett’s Letter to Shareholders.

This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further.  Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future.

The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative.  True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.

What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis.  As “bandwagon” investors join any party, they create their own truth – for a while.

Charlie Munger, Berkshire Hathaway’s Vice-Chairman, in a recent CNBC interview, expounded on Buffett’s gold comments by stating that “Civilized people don’t buy gold.  They invest in productive businesses.”  By essentially calling gold investors “barbarians”, Munger turned things up a notch which elicited very compelling counterpoints from around the blogosphere.

The Munger Games – New York Sun

The fact is that people who bought gold a decade ago were far better positioned than those who put their money in Mr. Munger’s company, Berkshire Hathaway. For the value of a share of Berkshire Hathaway has collapsed over the past decade to barely more than 74 ounces of gold from the 238 ounces it was worth a decade ago.

Hmmm. Was it Ayn Rand on which Mr. Greenspan overdosed? In 1966, the future Fed chairman wrote for her newsletter an essay called “Gold and Economic Freedom.” It begins with the sentence “An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense — perhaps more clearly and subtly than many consistent defenders of laissez-faire — that gold and economic freedom are inseparable. . .”The essay ends with the assertion that “[i]n the absence of the gold standard, there is no way to protect savings from confiscation through inflation” and that “[t]he financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.”

And maybe the reason that Berkshire Hathaway shares have collapsed in value is that neither he nor Mr. Munger were paying attention to the civilizing effect of gold and economic freedom.

Financial Lexicon – “Civilized People Don’t Buy Gold”

For reasons about which a doctoral thesis could likely be written, humans have a long history of completely mismanaging fiat currencies. Throughout the countless historical examples of the leaders of nations destroying the value of that nation’s currency, gold, as a store of value, has stood the test of time.

Being aware of the historical inability of those who run nations to manage a fiat currency over an extended period of time without eventually destroying the purchasing power of the people is something that certain investors might not appreciate, understand, or care about. Warren Buffett admits that he won’t invest in things he doesn’t understand. And based on his and his colleague Mr. Munger’s comments on gold (not just the ones quoted in this article), it is quite clear they do not understand gold. Hence, they do not invest in it.

Warren Buffett clearly missed the first ten years of the gold bull market and his disdain for gold prevented him from achieving his primary investment goal of preserving purchasing power for his shareholders.  Over the past decade, Berkshire Hathaway (BRK.A) has underperformed both gold bullion and gold stocks.

Courtesy bigcharts.com

After over 10 years of being wrong, Buffett faces a major dilemma.  Can he afford to continue rejecting the one asset class able to escape the government’s pernicious efforts to destroy the purchasing power of the dollar?

Filed Under: Featured, Gold, Gold Stocks, US Debt Crisis Tagged With: , , , , , , ,

Fed Manipulating Markets In Zero Sum Game To Create Higher Inflation

March 8, 2012 by 4 Comments

Presidential hopeful Mitt Romney recently said that “You know, I’m not willing to light my hair on fire to try and get support. I am who I am.”  If only the Federal Reserve Chairman could be so restrained.  Based on recent comments from Fed Chairman Bernanke, it seems likely that he would gladly set both his hair and beard on fire in order to accomplish his mutually exclusive goals of increasing employment while maintaining price stability.

With a stubbornly high rate of unemployment, massive fiscal deficits, very slow economic growth, declining incomes and debt levels that are strangling the U.S. consumer, the Fed is facing a quandary.  How can economic growth be stimulated without simultaneously igniting inflation?

Lower interest rates, the most powerful tool in the Fed’s arsenal, has already been fully exploited while providing  a zero net benefit for consumers.  The zero sum game of lower rates did not prevent the housing market from crashing, has not helped it to recover and has resulted in dramatically reducing interest income for millions of consumers.  Every dollar of interest saved by one consumer means one less dollar of income for savers, many of them retirees who suddenly have seen their CD rates drop to near zero.

With rates at zero, the Fed is now forced to use the last resort option of QE, risking higher inflation as it stokes the economy with digitally created dollar bills.  Increased inflation is the high risk option that the Fed is willing to take as explained in  Bernanke Seen Accepting Faster Inflation as Fed Seeks to Boost Employment.

Federal Reserve Chairman Ben S. Bernanke spent six years pushing for an inflation goal. Now that he has it, some investors are betting he’ll breach the 2 percent target in the short run to lower unemployment.

“The chairman seemed to suggest they will tolerate a misdemeanor on inflation as unemployment continues to fall toward their goal” over several years, said Mark Spindel, chief investment officer at Potomac River Capital, a hedge fund that manages $250 million in Washington.

Policy makers at a March 13 meeting probably won’t deviate from their commitment to hold the main interest rate close to zero at least through late 2014, even if their forecast shows a burst of energy-driven inflation, said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. They’ll probably be more concerned that rising prices will hold back real spending, impeding growth and improvement in the job market, he said.

Crude oil prices have risen 32 percent since the end of the third quarter of 2011 and 6 percent this year. Energy prices could hold the Federal Open Market Committee’s inflation target benchmark, the personal consumption expenditures price index, above the Fed’s 2 percent inflation objective for much of 2012, Crandall said. The PCE rose 2.4 percent for the 12 months ending in January.

Also, workers have weak leverage for increasing wages to compensate for higher costs. Real average weekly earnings have fallen for 10 consecutive months on a year-over-year basis. As energy costs eat up more of consumer expenditures, companies have difficulty raising prices on other goods and services.

“To the extent that PCE inflation is somewhere around 3 percent while unemployment is still above 8 percent, I think there will still be no reaction from the Fed,” said Worah, who’s based in Newport Beach, California.

The expectation among investors that the Fed will allow for a temporary overshoot on the price goal has been “unambiguously bullish” for Treasury Inflation-Protected Securities, Worah said.

Gold, up 18% over just the past year, is also telling us that the Fed is likely to shoot past its goal of attaining a 2% inflation rate.  Furthermore, the Fed’s goal of accepting increased inflation as an acceptable risk for increased economic growth is a self defeating zero sum game.  By driving up inflation, the Fed has increased living costs for the average consumer, negating any positive net affect from stronger economic growth. Consumers, whose spending makes up 70% of GDP, ultimately can’t spend more without real income growth.

In an interview with CNBC, Jim Grant of Grant’s Interest Rate Observer, and a frequent critic of destructive Federal Reserve monetary policies, says the Fed is manipulating interest rates for the sake of achieving “desirable macro outcomes”.  Discussing the Fed’s latest scheme to expand money printing, known as “sterilized bond-buying”, Grant says he is uncomfortable with the program which will create inflation and distortions that will destabilize the entire debt market.

Grant also feels that Bernanke, a self proclaimed “expert’ on the depression of the 1930’s is making fundamentally flawed decisions to forestall Depression II that many feel is looming in front of us.  According to Grant, Bernanke can’t “stop talking about the ’30s”, but when the economy fell off a cliff in 1920 – 1921, the government actually balanced the budget and the Fed raised interest rates and the economy soon recovered on its own and not due to running “immense deficits”.

The full interview with Grant is worth listening to. Please click on this link if the video below does not play.


The Fed has only one hand left to play and it will continue to print money, a fact that has not gone unrecognized by the gold and precious metals markets.

Filed Under: Featured, Gold, US Debt Crisis Tagged With: , , , , , , , , ,

Gold and Silver News and Headlines – Gold Owners Get Nervous

March 8, 2012 by 1 Comment

Precious metals advanced across the board today, with palladium the stellar performer with a 2.86% gain.  Gold gained $9.70 to $1685.30, silver tacked on $0.48 to $33.53, platinum rose $18 to $1633.00 and palladium jumped $19.00 to $689.00.

Although precious metals recently hit a selling storm (see The Flash Crash in Gold), precious metals remain up strongly on the year and gold is up $257.20 per ounce or 18% over the past year.  The following chart show the gains for the year on the precious metals group.  All prices per the London PM Fix closing price.

GOLD SILVER PLATINUM PALLADIUM
JAN 3RD $1,590.00 $28.78 $1,406.00 $664.00
MARCH 7TH $1,677.50 $33.17 $1,627.00 $678.00
$ GAIN $87.50 $4.39 $221.00 $14.00
% GAIN 5.50% 15.25% 15.72% 2.11%

Here’s a brief round up of some of the latest thoughtful coverage on gold and silver related news.

Free Von Nothaus from the tyranny of unjust government actions – Judging Silver or Something Else?

As I look at the circumstances, I do not see that von Nothaus or his Liberty Dollar products victimized anyone. In contrast, those who chose to keep Federal Reserve Notes and coinage of the U.S. Mint have been victimized by loss of purchasing power. If anything, and I say this with all due respect, it seems to me that it would be more sensible and appropriate to prosecute those who have victimized American citizens through the depreciation of the “money” issued by the U.S. government.

US Mint Drops Price of Gold Products

With all of the pricing data now available, the US Mint’s gold numismatic products are set for a two tier decrease. This will reduce prices by the equivalent of $100 per ounce of gold content.

Owning gold is a “privilege, not a right”.  Why The US Confiscated Gold in 1933 and Can It Happen Again?

We previously stated that gold ownership was made illegal on 1st May 1933. What we did not tell you was that U.S. citizens, under Order 6102, were allowed to own up to $100 in gold coin [+5 ounces].

Congress could easily revoke the privilege again. In fact, at no time during this century has the U.S. government recognized the right of private gold ownership.

The privilege, not right, to own gold was restored to U.S. citizens on the 15th August 1974 (not 1971, when Nixon floated the USD against gold and stopped foreign central banks from converting USD to gold). It is pertinent to the thinking behind this series, to understand the importance to government of gold and that the right to confiscate may not be restricted to individuals or institutions but could embrace a nation or two.

It’s believed that some 60% of Germany’s gold is stored outside of Germany and much of it in the Federal Reserve Bank of New York. If this is the case one has to ask, in the light of the massive currency swaps engineered by the Fed and the E.C.B. to raise the two tranches of cheap money for European banks, “Was gold swapped too, or was it pledged as collateral?”

The public pressure to repatriate national gold reserves has heightened considerably in the last year. Should Germany want its gold back home, we ask, “Can it get it back or has it already been used in these ways?

Germany to Review Bundesbank Gold Reserves in Frankfurt, Paris, London and Federal Reserve Bank of New York

German lawmakers are to review Bundesbank controls of and management of Germany’s gold reserves.  Parliament’s Budget Committee will assess how the central bank manages its inventory of Germany’s gold bullion bars that are believed to be stored in Frankfurt, Paris, London and the Federal Reserve Bank of New York, according to German newspaper Bild.

There is increasing nervousness amongst the German public, German politicians and indeed the Bundesbank itself regarding the gigantic risk on the balance sheet of Germany’s central bank and this is leading some in Germany to voice concerns about the location and exact amount of Germany’s gold reserves.

The eurozone’s central bank system is massively imbalanced after the ECB’s balance sheet surged to a record 3.02 trillion euros ($3.96 trillion) last week, 31% bigger than the German economy, after a second tranche of three-year loans.

The concern is that were the eurozone to collapse, Bundesbank’s losses could be half a trillion euros – more than one-and-a-half times the size of the Germany’s annual budget.

In that scenario, Germany’s national patrimony of gold bullion reserves would be needed to support the currency – whether that be a new euro or a return to the Deutsche mark.

Bernanke Spooks Gold

Instead, this selloff was sparked not by a development, but a non-development. In his address to Congress, Fed Chairman Ben Bernanke offered no clue as to when the Federal Reserve would unleash its next round of quantitative easing.

The markets took this as a sign that the monetary madness is coming to an end, which would bode poorly for precious metals. Metals are increasingly seen as substitutes for continuously debased fiat money, and tend to do well when new liquidity injections are announced.

Bernanke’s failure to telegraph more printing means nothing. Investors are craving a return to normalcy, which means more prudent monetary policy. As a result, many are grasping at straws. But I believe these hopes are premature, and that gold will be buoyed by easy money for quite some time.

In addition, gold will likely be favored by the greatest financial struggle of the coming decade: China’s plans to replace the United States as the dominant economic power.

Buy Japanese Bonds At 0.05% And Get A Gold Coin

Japan began selling special government bonds Monday aimed at raising funds for reconstruction from the March 2011 earthquake and tsunami, saying it will present buyers with commemorative gold coins imprinted with an image of the “miracle pine” that survived the killer tsunami when the bonds mature in three years.

The coins — worth ¥10,000 each, and silver coins worth ¥1,000 — are engraved with the design of the 30-meter-high pine in Rikuzentakata, Iwate Prefecture, that was the only one of about 70,000 pines on a stretch of coast to survive the massive tsunami.

Peter Schiff on why Buffett is wrong about gold – Buffett’s Bursting Bubble

The gold doomsayers have found their champion in the media’s favorite financial advisor and one of the world’s richest men. Warren Buffett, the man dubbed the “Oracle of Omaha,” has repeatedly and publicly denied that gold is an investment, and called gold buyers “speculators” and people “who fear almost all other assets.” In fact, Buffett claims that gold’s rise has the same characteristics as the housing and dot-com bubbles, and it is only a matter of time before it reverses course. He doesn’t mean that the price will decline because of austerity measures and a free-market interest rate, mind you. He just asserts that because he’s deemed it a bubble, it will inevitably burst.

Gold prices will only go down when governments change course and make significant cuts. Until then, gold is not in a bubble. It’s the only way to protect your wealth; and in the current economic condition, it’s poised to go much higher. I think it’s high time Buffett takes to heart his father’s wise words: “For if human liberty is to survive in America, we must win the battle to restore honest money.”

The Volatile Ride To Higher Gold

Back in 1980, Phase Three only lasted for 21 days, but increased 66% in that time span. Considering the ten year time span of Phase One, and my projection for Phase Two, I feel that Phase Three (which starts in 2015) will last for six months and drive gold up to over $6,000 per ounce. If the world’s financial leaders decide to return to a Gold Standard, or if gold bullion confiscation becomes the government’s reaction to severe inflation, my projections would escalate. Possible other government reactions that can affect my projections negatively are: limiting gold ownership, restrictions on transporting or trading, and any Gold windfall profits tax.

 

Filed Under: Bullion Sales, Featured, Gold, palladium, Platinum, Silver, Statistics, US Mint Tagged With: , , , , , , , , , , ,

Bernanke Broods Over New Ways To Print Money – Waiting For Gold To Explode

March 8, 2012 by Leave a Comment

Perhaps it was the realization that the U.S. Federal Reserve was losing to the ECB in the money printing race.  Perhaps it was the realization that the only way to prevent a debt imperiled economy from imploding was by supplying new doses of the only remedy left in the Fed’s medicine bag.  In any event, Federal Reserve Chairman Bernanke made it clear today that his determination to continue quantitative easing has not diminished.

In an effort to silence critics who equate QE with currency debasement and inflation, the Chairman has come up with an improved version of QE that will boost the economy without creating inflation or boosting oil prices – in effect, the modern equivalent of turning lead into gold.  The new and improved version of QE even comes with a new and impressive sounding moniker -“sterilized bond-buying”.

The Wall Street Journal’s explanation of how this new money creation engine of the Fed would actually work probably left many lesser mortals scratching their heads.  See if you can follow how new money creation by the Fed creates wealth and prosperity, while maintaining a sound dollar and zero risk of inflation blow-back.

Third, in the new novel approach, the Fed could print money to buy long-term bonds, but restrict how investors and banks use that money by employing new market tools they have designed to better manage cash sloshing around in the financial system. This is known as “sterilized” QE.

The Fed’s objective under any of these programs would be to reduce the holdings of long-term securities in the hands of investors and banks. The Fed believes that reducing the amount of long-term bonds in the hands of investors drives down long-term interest rates, encourages more risk-taking, and thus spurs spending and investment by households and businesses.

Under the third approach, the Fed would create new money as it buys long-term bonds. But then it would effectively lock up the money rather than letting it loose in the broader economy. The Fed would do this by borrowing the money back from investors for short periods—say, 28 days—in exchange for some low interest rate it would pay investors.

Will this new genius wealth creation mechanism of the Fed actually work or will it wind up driving gold into the stratosphere as the average American finally begins to realize that not only does the Emperor have no clothes, but that he is also delusional?

Here’s the take on the new and improved QE (sorry, I meant to say “sterilized bond-buying”) by astute observer Jim Sinclair, who is never at a loss to expound on the monetary mess we are in.

This would be a hat trick because it assumes the Fed would borrow back funds they have created by good ole debt monetization. It assumes there is no purpose to QE in the first place. It is monetary double talk beyond MOPE or maybe MOPE at a spiritual level. It is an attempt to intellectually cloud the process and to give plausible believability to PR lies.

This is a statement that says we will step on the gas and then equally apply the brakes which means you go absolutely nowhere. It is a statement that is total gobbledegook to deflect the fact that QE is going to infinity. It is a statement that only those who do not understand monetary science might give credibility to.

The claim that QE can be controlled by equal stimulation and draining adds up to nothing whatsoever. The idea that the Fed could so perfectly orchestrate pulling and pushing is denied by the fact of where we are right now.

Only gold can protect you from this sinking ship without hope of rescue as there is no captain at the helm.

I am horrified by today’s total distortion of fact of how the monetary mechanism works by the Federal Reserve. We will win the war by jamming the accelerator to the floor and jumping on the brakes simultaneously, therefore stimulating the dead cat bouncing economies of the Western world to prosperity and avoid sovereign debt failure.

My god that is nonsense.

Meanwhile, for those keeping score, the European Central Bank has powered ahead of the Federal Reserve in the money printing race.  The Fed’s balance sheet has ballooned to triple its size from 2008 as the Fed printed $2 trillion in new dollars to purchase mortgage backed securities and treasury debt (effectively financing 40% of the U.S. Government’s deficit).  As of the end of February, the Fed’s balance sheet stood at $2.94 trillion.

Faced with the total collapse of the banking system, wild money printing by the European Central Bank (ECB) makes the Fed look like an amateur.  After dishing out $1.4 trillion to 800 problem banks since December, the ECB’s balance sheet has exploded to $3.96 trillion.

Other central banks worldwide are following the desperate actions of the Fed and the ECB.  The combined balance sheets of the ECB, Federal Reserve, England, Germany, Switzerland, Japan and China and Great Britain has expanded from $6 trillion in mid 2007 to over $15 trillion today.

Most of the central bank money has been used to liquify insolvent banks by purchasing bank assets of dubious value.  A good portion of the funds received by banks has in turn wound up as idle excess reserves, as the banking industry refuses to expand lending to already over-leveraged or insolvent borrowers.

There will be one surefire way to determine when the money created by the central banks eventually works it way into the real economy – the price of gold will explode upward with a concurrent rise in inflation and wide spread debasement of virtually every world currency.  In the meantime, as we watch the “QE to infinity” process unfold before our eyes, gold remains on the bargain table.

Filed Under: Featured, Gold, US Debt Crisis Tagged With: , , , , , ,

The Gold Bubble Debate And The Flash Crash In Gold

March 1, 2012 by 3 Comments

The “flash crash” in gold that occurred on Wednesday seemed to have as much logic behind it as the infamous stock market flash crash of May 6, 2010 when the Dow Jones quickly plunged 1,000 points for no particular reason.

Yesterday’s extraordinary price action in the precious metals has again resulted in mainstream press speculation about whether the “gold bubble” has burst.  For some perspective on that topic, Gold Bullion International has put together a great graphic – “Is Gold A Bubble?” which can be viewed below.

 

 

 

 

 

 

There is also a very bullish aspect to gold’s flash crash which has gone relatively unmentioned.  For every seller there is a buyer and someone was more than happy to buy millions of ounces of gold at a discount.  Discussing this bullish side of the gold smash down, Barry Stuppler of Mint State Gold asks “Who Bought The 34 Million Ounces of Gold?”

First of all, the volume for the CME’s most active gold contract, which is now April 2012, was 344,994 one hundred ounce contracts (34,499,400 oz was traded) a record high. Gold prices dropped $77 per ounce yesterday based on slightly negative news, specifically the lack of mentioning a possible QE3 by Fed Chairman Ben Bernanke. Mr. Bernanke’s congressional testimony does not change any of the fundamental reasons to own gold.

During my 50+ year career of trading gold I have seen similar exceptional days like this.  Traders call this type of day “shaking out the weak hands”, because many small investors and speculators are driven out of the market by stop loss sell orders and margin calls. So, who bought the 34 million ounces of gold and what will happen next?

I think that trading on today, Friday and Monday will tell the tale. If gold can stay above important $1,700 per ounce level by the end of Monday’s trading and hopefully rally above $1,725 per ounce, I believe this will tell us it was a cleaning out of small investors and speculators.  On the other hand if gold stays below $1,700 per ounce and begins trading at $1,680 or below, that could indicate that today’s rally was at “Dead Cat Bounce”.

Filed Under: Featured, Gold Tagged With: , , , ,

Gold and Silver Plunge On Bernanke’s Remarks – What Happens Next?

February 29, 2012 by 1 Comment

The price of gold and silver plunged today after investors concluded that the Federal Reserve had no immediate plans for further quantitative easing.  In testimony to Congress Fed Chairman Bernanke made positive comments on future U.S. economic growth.  When Bernanke gave no indication that further monetary easing  would be necessary, a selling stampede began in the precious metals markets.

In New York trading, gold closed down $87.20 for a 4.9% loss on the day and silver declined by $2.29, down 6.2%.  Platinum got rocked with a $40 decline to $1,685 and palladium gave up $18 to close at $707.

Why the violent sell off in precious metals when the Federal Reserve and other central banks worldwide are still printing money on a massive scale?  For some thoughts on today’s precious metals rout and what’s likely to happen next, here are some links to excellent gold and silver related stories and blog posts:

Gold Falls In “Manic” Plunge

Explanations from various money managers on why gold and silver sold off.  Investors expecting continued monetary easing were disappointed.  William O’Neill, partner at Logic Advisors said “Bernanke’s comments seem to have eliminated hope of U.S. quantitative easing coming anytime soon.”

Gold, Silver Tumble on Heavy Profit Taking

Importantly, the gold and silver futures markets were ripe for corrective, technical and profit-taking pullbacks following recent strong gains that had sent gold and silver prices to multi-month highs. The Bernanke testimony gave many traders and investors an excuse to “ring the cash” register and take some profits. Also, veteran commodity market watchers know these markets can make sudden, unexpected price moves to temporarily roil investors and traders.

Kitco Interviews GATA Chairman

Interview with GATA Chairman Bill Murphy on today’s smashdown in the gold and silver markets.

Bernanke Tries Talking Down Commodities

If one basically states that the economy is doing better – not out of the woods yet but better – and all the hedgies are leveraged to the gills because the FED GAVE THEM THE GREEN LIGHT TO DO EXACTLY THAT when it first announced that it would keep this near zero interest rate policy out to the end of 2014, then it is a simple matter of throwing a bit of uncertainty in that regards to generate a bout of selling. Toss in the same permabears as always capping at the highs of the day and the algorithms did the rest of the work as the stops were picked off.

First Eagle’s Eveillard Openly Suspects Gold Market Rigging

Gold fund manager Jean-Marie Eveillard has just told King World News that he suspects that today’s pounding of the gold price was a matter of central bank intervention:

Eveillard, who manages $50 billion in assets, is among the few respectables in the gold world, and his stunning acknowledgment today is the price the Western central banks must begin paying for their increasingly brazen market rigging. It is a sign that GATA is making progress, however slow.

Progress could be made a lot faster, as Eveillard and a few other respectables might blow the market rigging to smithereens if they mustered a little courage and activism, such as a donation to GATA, which has been documenting, litigating against, and screaming about gold market rigging for years:

Today Window Dressing Fall In Gold

Please do not be bothered by today’s intervention. The following news is what creates the absolute need for QE.

It is the thesis of my Formula of 2006 of no major recovery that gives the foundation to my thesis of QE to Infinity.

Has serial money printer Bernanke suddenly converted to become a staunch proponent of a sound dollar?  Don’t bet your gold on that one.  As noted in a previous post, The Federal Reserve Can’t Produce Oil, Food or Jobs But They Will Continue to Produce Dollars.

Late note – gold is up $20.60 in Asian trading.

Filed Under: Featured, Gold, palladium, Platinum, Silver Tagged With: , , , , , , , ,

What Is Google Trends Telling Us About Gold?

February 29, 2012 by Leave a Comment

It has been some time since we last looked at what Google Trends can tell us about the future price of gold.

Google Trends allows us to see volume trends for specific search items related to gold.  In the past, extreme spikes in search volume have correlated closely with major turning points in the gold market.  What is the predictive power of Google Trends telling us about gold today?

When we looked at Google Trends in March 2009, we examined search engine results for “Sell Gold” and “Buy Gold” (see What Can Google Trends Tell Us About Gold?).  It was observed that as gold was hitting its peak in March 2008, there was a spike in search volume for “Sell Gold”.  After the brutal sell off that correlated with the substantial decline in all asset categories due to the financial meltdown during 2008, there was a spike in “Buy Gold” search inquiries that correlated closely to the gold bottom in late 2008.

What is Google Trends telling us today, after gold’s increase of $183 per ounce since the beginning of the year?

As we can see from the chart below, a huge spike in search queries for “Sell Gold” corresponded closely to the all time high in the price of gold at $1,895 reached in September 2011.  The current lack of search volume queries for “Sell Gold” as well as the decline in news reference volume (despite gold’s large price increase since the beginning of the year) is a clear bullish signal for gold.

"Sell Gold"

 

Another indicator suggesting that the general public is totally apathetic on gold is seen by viewing the Google Trends results for “Gold Investment”.   Last year, search queries for “Gold Investment” spiked as gold was reaching its September highs.  Despite the huge gold rally of 2012, low news volume and search queries for “Gold Investment” indicate very low interest in gold and constitute a contrary bullish indicator.

"Gold Investment"

 

Finally, a look at the volume of search queries for “Gold” also indicates that the current gold rally has a long ways to go.  Even as the price of gold has increased non stop since January, the volume of search queries and news references has plunged.

"Gold"

 

The very low search inquiries for gold as shown in Google Trends is a strong contrary bullish indicator.  The risk of buying gold right now seems exceptionally low and the rewards exceptionally high.

Last year, Google Trends search inquiries on gold did not flash a sell signal until after gold had spiked by 26%.  If the same ratio applies going forward, “Google Gold Trends” won’t flash a sell signal until gold prices reach the $2,250 range.

Filed Under: Featured, Gold Tagged With: , , , , ,

Gold and Silver News & Headlines – February 2012

February 29, 2012 by Leave a Comment

Gold and silver continue their strong 2012 advance with relatively sparse mainstream press headlines.  Gold is now only $114 per ounce below the all time high of $1,895 reached on September 6, 2011 and silver looks more and more like it is getting ready to challenge the $50 range last seen in mid 2011.

Based on the closing London Fix Price, gold has advanced from $1,598.00 at the beginning of the year to today’s closing price of  $1,781.00, for a gain of 11.5% or $183 per ounce.  Silver’s advance has been even more dramatic.  Since the start of the year, silver has risen 23.7% to $35.60 per ounce, a gain of $6.82 per ounce.

Here are some recent links to excellent gold and silver related stories and blog posts:

One-Half Ounce Proof Gold Eagle Sold Out, Some Silver Products Suspended

The one-half ounce 2011 Proof Gold Eagles have sold out at the U.S. Mint.  The one ounce Proof Gold Eagle had previously sold out last October.  In addition, some silver numismatic product sales have been suspended pending pricing updates due to the rapid rise in silver prices.

The Financial System Is Sick – Are Precious Metals The Cure?

Over thousands of years, gold and silver are the only currencies that have not failed and have protected wealth.  With rampant worldwide money printing, the wealth of nations is being stolen through endless money printing.  Expect the severely undervalued gold stocks to rally strongly.

Gold Market of the 1970s Was A Dress Rehearsal

Jim Sinclair sees QE to infinity and persuasively argues that the only tool left in the toolbox is money printing which is required to prevent a global implosion from towering levels of debt.

Gold Should Be $2,100 – $2,200 Right Now

Great interview with Jim Puplava who discusses central bank money printing, financial repression, economic issues and why gold is undervalued by at least 22%.

Why The U.S. Government Confiscated Gold in 1933 – Can It Happen Again?

The U.S. government is already seizing the wealth of millions of Americans through financial repression.  Through executive order U.S. citizens were forbidden to own gold from 1933 through 1974.  Julian Phillips examines the reasons why this occurred and wonders if  it could happen again?

Silver Price Rises Twice As Fast As Gold As The Eurozone Floods With Money

Silver has been on a tear this year, up 24% compared to an increase of 12% for gold.  How should investors react to position themselves  if gold soars over $2,000 and silver spikes to over $50?

Ex-Fed Governor Warsh Again Confirms Gold Price Suppression

GATA highlights the role of governments in financial repression and suppression of gold prices.  Ex Fed Governor Kevin Warsh notes the growing call in Europe and the U.S. to devalue debts through money printing and higher inflation.  Warsh says that “Such an inflation tax would transfer wealth from those who have lent money, in good faith, to the borrowers.  Inflation is a blunt and inappropriate instrument for assigning winners and losers from profligate fiscal policy or excessive borrowing by private individuals and firms.”

If Gold Could Talk

Terrific article on the enduring characteristics of gold, why gold is money and how much gold should an investor own?  Be prepared to get your checkbook out after reading this article.  Whatever amount of gold you currently own, it’s not enough!

Filed Under: Bullion Sales, Featured, Gold, Gold Stocks, Silver, US Debt Crisis, US Mint Tagged With: , , , , , , , ,

Gold Remains The Best Alternative To Paper Money

February 27, 2012 by 3 Comments

Two examples of the frustrations that some gold investors have gone through in the past year offers a valuable lesson to long term gold investors.

  1. During 2011, despite being heavily invested in gold, John Paulson’s Gold Fund wound up losing 11% of its value.  This despite the fact that gold bullion gained $142.50 during 2011, closing the year at $1,531.00, up 10.2% (see How Did An Investment Pro Lose Money Investing in Gold?).
  2. Investors in the $4.4 billion Vanguard Precious Metals Fund (VGPMX) which holds almost all of its assets in a diversified portfolio of precious metal mining stocks dropped by a stunning 27.4% last year, declining from $26.71 on January 3rd to $19.39 on December 30, 2011.

In both of the above cases, the declines in value were primarily due to the large under performance of gold stocks to gold bullion during 2011.  Nonetheless, nothing stings more than picking the right asset class only to somehow wind up losing.  An investor bullish on gold and investing completely in gold stocks would have had a disastrous year.  An investor with a large position in gold, diversified across gold mining stocks, gold bullion and gold ETFs would have performed substantially better.

Although gold stocks can often outperform gold bullion, many investors may lack the expertise to pick the best gold stock or gold mutual fund.  The best strategy for most small gold investors is to buy physical gold bullion at regular intervals with a commitment to a long term holding period.  Over the years, I have seen far too many uninformed investors who want a position in gold wind up trading speculative junior gold stocks, often times resulting in large losses.  Gold mining stock prices can be volatile and even when an investor selects quality gold stocks, the temptation to liquidate a position during  price weakness often results in losses.

The gold investor who has purchased gold bullion consistently over the past decade has been amply rewarded and there is no reason to expect this trend to change.

Meanwhile, John Paulson remains committed to gold and recently told Bloomberg News that he personally owns over half of the $1.2 billion Gold Fund he manages.

John Paulson, the hedge fund manager seeking to rebound from record losses in 2011, told investors his Gold Fund will outperform his other strategies over five years, according to a person with knowledge of the matter.

The billionaire, at a meeting yesterday at the Metropolitan Club in New York, said the metal is the best hedge against currency debasement as countries inject money into their economies, said the person, who attended the event and asked not to be named because the information is private. Paulson also cited gold as a hedge against the euro currency, as a breakup may occur, and an eventual increase in inflation.

The manager told clients his own money comprises 55 percent of the Gold Fund’s $1.2 billion in assets, the person said. The fund, which can buy derivatives and other gold-related securities, declined 11 percent last year after the metal slumped 14 percent in the final four months.

Europe’s sovereign-debt crisis may continue to affect bullion in the near term, Paulson, whose firm manages $23 billion, said this month in a year-end letter to investors. The metal serves as the best long-term alternative to paper currencies, he said.

“We remain excited about the outlook for the Paulson Gold Funds over the next few years,” he said in the letter. “We would argue that the potential upside in gold outweighs the potential downside.”

In addition to his Gold Fund, Paulson also holds a large position in the SPDR Gold Trust (GLD) ETF, valued at $2.9 billion.  As of February 24, 2011, the SPDR Gold Trust holds 41.3 million ounces of gold valued at $73.4 billion.

Filed Under: Featured, Gold, Gold Stocks Tagged With: , , , , , , , ,

Are Gold Investors Nuts?

February 20, 2012 by Leave a Comment

How many of the countries best financial advisors are telling their customers to invest in gold?  Despite the fact that gold has gone up for the past eleven years, a Barron’s survey shows that gold remains distinctly out of favor by mainstream investment advisors.

Barron’s interviewed 51 of the countries most successful investment advisors from each of the fifty states plus the District of Columbia.  Although investment returns were not disclosed, Barron’s selected the best investment pros based on the amount of assets managed, revenues generated, gain in the number of clients and the quality of their practices.

The 51 pros selected by Barron’s are the best in the business, work hard, serve wealthy sophisticated clients and manage hundreds of billions of dollars of wealth.  According to the survey, the most common investment strategy of the top financial advisors was to generate income flows and potential capital gains by owing high quality blue chip stocks.  Most of the advisors were optimistic, predicting that dividend paying stocks would outperform government securities on which yields have plunged to all time lows.

Of the 51 advisors interviewed, only two specifically recommended a small portfolio allocation into gold.  The investment advisor from Iowa recommended that clients make “sure 3% to 5% of their portfolios are in gold” and the investment pro from Nebraska suggested a 10% position in gold mining stocks.

The number of investment pros recommending gold was surprising low, especially after considering the potential for another financial meltdown precipitated by sovereign debt crises, rampant money printing by central banks and towering levels of debt that threaten to crush the world economy.

Gold - courtesy kitco.com

Gold has proven to be a vehicle for wealth preservation over thousands of years and is insurance against financial disaster.  Has the increase in gold since 2000 already fully discounted the worst possible economic and financial scenarios?

Barron’s smart money pros apparently think that gold’s run is over.  Are gold investors nuts to argue with the world’s best money managers, especially after an almost 7 fold increase in the price of gold since 2000?  What do you think?

More on this topic: Gold Bull Market Could Last Another 20 Years With $12,000 Price Target

Filed Under: Featured, Gold, Gold Stocks Tagged With: , , , , ,