Buy and Sell Gold Bullion Bars in Singapore

Gold bullion or coins, which is better?

2009-01-29T03:03:00.000-08:00

Commodity Online
Most of us are aware of the gold daily "spot" price that is updated and made available to us by the media. What the "Spot" value shows is the exact value of the one troy ounce of .999 fine gold bullion is at any given moment.

Gold bullion is usually presented in the form of bars and they do not have any numismatic value at all. Instead, the true price of gold bullion is judged squarely on its melt value.

When gold jumps $15 on one day, the price of the bullion jumps the exact same $15. If the “spot” value of gold falls $3 another day, then naturally, the gold bullion’s value falls down as well. Gold bullion is most often traded in 100-bar lots, named “contracts.”

Generally, the contracts are sold and bought without any physical exchanging of gold taking place. This is sometimes referred to as “trading paper gold.” The farther out the expiration date on the contract is, the higher the future value of the gold contract will be. The distinction between the daily “spot” price and the future delivery price is based on the interest of the money which is put up by the person guaranteeing the contract.

One of the advantages of buying gold bullion is that it is one of the most liquid tangible assets in the world, thus making it valuable everywhere you go.. No matter where you are - New Deli, Madagascar, France – everyone is familiar with the value of an ounce of gold.

However, one of the disadvantages of gold bullion is that a profit can only be made if the price of gold goes up. Any revenue you receive will be tied into the daily “spot” value of gold, unlike numismatic gold and to a somewhat lesser extent semi-numismatic gold. Buying Krugerrands, and other rarities Such items as Krugerrands, Canadian Maple Leafs, and American Gold Eagles, are also considered to be bullion gold. These are frequently called bon "coins," although they aren't coins at all, as they were never intended to circulate.

Semi-Numismatic Gold
According to US based International Rarities Corporation (IRC), a facilitator for investing in gold and silvercoins, semi-numismatic gold coins of USA and other countries behaves differently from bullion in the sense that apart from spot price variations that affects its prices, coin gold will rise on its own depending on how far demand outstrips supply. This is because supply of coins is fixed as they aren’t being made anymore. The mintage figure for a circulated $20 Liberty gold piece of 1898 will be the same 500 years from now as it is today and was over 100 years ago.

The term "semi-numismatic gold" usually refers to circulated United States gold coins struck prior to 1934 that carry a relatively small premium over their melt value.

Unlike bullion gold, semi-numismatic gold involves actual coins of the realm, both from the United States and foreign countries. The prices, at times, will rise and fall with the price of "spot" gold, but at other times semi-numismatic gold will rise on its own, as demand outstrips the supply. This happens because the supply of semi-numismatic gold is a fixed quantity, and a large gold strike in South Africa (or anywhere else, for that matter) won't affect the supply. Why? Because unlike gold bullion bars and gold bullion "coins," they simply aren't making them any moreYes, the supply will be much less due to attrition, but the mintage figure is a constant.

Another popular semi-numismatic coin is the Swiss 20 Franc gold piece. This coin is about the size of a United States $5 gold piece, and contains a little less than one-fourth of a troy ounce of gold, according to IRC.

Semi-numismatic coins do not offer the best of both worlds, but they offer a significant segment of both worlds, and make a viable investment alternative for certain portfolios.

Quality Numismatic Gold
IRC claims it is special to them. This category covers the very finest United States gold coins minted before 1934. These are the third-party certified coins of the highest quality that are hand-picked by the veteran senior numismatists at IRC.

Quality numismatic gold is restricted to Mint State 63 and better US gold coins. This includes high quality $20 St. Gaudens gold coins that were issued from 1907 through 1933, choice hand-picked $20 Liberty gold coins that were minted from 1850 through 1907, attractive $10 Liberty gold pieces that were struck from 1838 through 1907, dazzling $10 Indian gold pieces that were issued from 1907 through 1933, and other beautiful and desirable United States gold rarities. These coins are the performers, the ones with the best track records, the issues with the greatest demand and the smallest supply, according to IRC coins

(Courtesy: PRLog.org & IRCcoins.com)

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GoldTraderAsia.com - Where to Buy and Sell Gold Bullion Bars, Gold Ingots, Gold Coins Collection and Gold Jewellery in Singapore.

To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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Official Google Blog: 100,000th knol published

2009-01-17T09:46:00.000-08:00

Official Google Blog: 100,000th knol published

China Confidential: Gold Bullion and Equities Expected to Keep on Rising

2009-01-04T09:46:00.000-08:00

China Confidential: Gold Bullion and Equities Expected to Keep on Rising

Randgold Resources: In Gold We Trust

2009-01-02T10:47:00.000-08:00

In the closing weeks of 2008, Americans have once again been shocked by a massive Wall Street scandal. Former Nasdaq chairman, Bernie Madoff was arrested for masterminding a $50 billion fraud. The "Bernie Mad(e)off-with-investors'-money" Ponzi scheme is just the latest Wall Street scandal to see the light of day.

I firmly believe that the Madoff $50 billion Ponzi scheme will be just the first of many Wall Street frauds that will be revealed in 2009. In the past, Americans trusted their hard-earned savings to Wall Street bankers, brokers, fund managers, and so-called professional money managers.

I seriously doubt that most Americans will do so in the future. Many Americans are now very understandably asking, “In whom can we trust?”

In Ben We Trust?

Americans should also be asking that same question with regard to the Federal Reserve's attempt to inflate its way out of massive US debt and a nasty downturn in the economy. This economic downturn is different in that it was born not just from excessive speculation but also of massive leverage and downright fraud. So there are an awful lot of excesses that need to be wrung out of the system.

The debts of the United States already stand at five times America's annual GDP and rising rapidly. Some Americans, such as us here at Oxbury Research, are now questioning how these huge loans will ever be repaid. Unfortunately, the answer is that the loans will be repaid by every current holder of US dollars and by future generations of Americans. It is sad that generations still unborn will be paying for the immense greed of a few.

Both President-elect Barack Obama and Fed head Ben Bernanke are students of the Great Depression and FDR's economic policies. I only hope that they don't adopt all of FDR's policies, particularly what FDR did in 1934.

First, FDR confiscated all gold from American citizens. Then, more importantly, FDR devalued the US dollar by 75 per cent versus gold. Since the US was still on a gold standard, all Americans and all overseas holders of US dollars lost 75 per cent of all their monetary wealth almost instantly. This was the easy way for the US government to wipe out 75 per cent of its national debt in one day!

Can something similar happen again? I believe it can. This time, however, the US government will be more subtle. The Federal Reserve will simply “print” so much money that the value of the US dollar will decline steadily which, in turn, will allow the US government to pay back their debt with much “cheaper” dollars.

Ben Bernanke is already rapidly going down that path and creating incredible amounts of “funny money” almost daily. The effect of his policy will be the same as FDR's policies were in 1934 – a drastically reduced lifestyle for most Americans.

In Gold We Trust

What can someone do to preserve their purchasing power and to preserve the wealth that they do have for their descendants? I believe the answer lies in something that has been a store of wealth for people for thousands of years – gold.

Gold is respected throughout the world for its value and rich history. Coins containing gold first appeared around 800 B.C., and the first pure gold coins were struck during the reign of King Croesus of Lydia about 300 years later.

There are myriad reasons to own gold. Some of the reasons would include: US dollar weakness, inflation, deflation, supply & demand, geopolitical risks, and diversification. A wonderful article titled Eight Reasons to Own Goldwas written by yours truly and can be found at Investopedia.com, which is an online subsidiary of Forbes magazine.

There are, of course, numerous ways for investors to own gold – gold bars and bullion, gold coins, gold ETFs such as GLD, gold mutual funds, or individual gold stocks. Today I want to draw investors' attention to one specific gold stock – Randgold Resources.

Randgold Resources (GOLD)

Randgold Resources is a gold mining company with major gold mines located in politically-stable areas of Western Africa. Major discoveries to date include the 7.5 million ounce Morila deposit in southern Mali, the 7+ million ounce Loulo deposit in western Mali, and the 4+ million ounce Tongon deposit in the Ivory Coast.

Gold production at the company's flagship Loulo mine in western Mali is being expanded. Higher output from the Loulo mine means that Randgold Resource's annual gold production will jump 50%, rising from 400,000 ounces in 2008 to more than 600,000 ounces in 2011.

Randgold Resources trades on the Nasdaq exchange under the symbol of GOLD. It is a very liquid stock with average daily volume in excess of 1 million shares. The company's market cap is in excess of $3 billion.

Randgold Resources is one of the few mining companies whose shares have actually risen in 2008! I believe that this is so because the company is extremely well-run. The company's CEO, Mark Bristow, has stuck to a “boring” long-term strategy and has eschewed deal-making and debt.

Mr. Bristow has instead focused on organic growth. He pursued only projects that would generate returns of at least 20 per cent, and repaid any debt incurred out of cash flows. As a result of Mr. Bristow's conservative strategy, the company is completely debt-free and has more than $250 million of cash sitting on its balance sheet!

Randgold Resources's stock price has ranged between $22.28 and $56.28 over the past 52 weeks. The stock is currently trading near $43. I believe that this price offers an excellent entry point for investors looking to own a high-quality, well-run gold company.

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GoldTraderAsia.com - Where to Buy and Sell Gold Bullion Bars, Gold Ingots, Gold Coins Collection and Gold Jewellery in Singapore.

To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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Looking at the Market Through Slightly Bullish Lenses

2009-01-02T10:45:00.000-08:00

As of the close on Wednesday we got another buy signal on the markets and I thought to myself that the whipsaws occurring these days are ridiculous. I’ve said this before that almost every time for the past two months the market looks like it wants to move in one direction and starts to gain steam it reverses course.

Looking at the chart below (click to enlarge), I drew some simple lines connecting recent highs to lows and lows to highs to show how much it resembles an EKG. If you're a swing trader like myself it makes it really difficult to enter positions and hold them longer than a few days because the trend reverses so quickly. For this reason I’ve mostly been trading gold/silver as the trend there seems to be a little bit longer, not changing every 4th day.

But the last time I got a bullish sign on the Dow I entered some longs and did fairly well, so near the close Wednesday I decided to enter a few long positions despite what common sense is telling me. What I mean by that is that it doesn’t feel quite right to buy this light volume holiday rally, but I’ve read that the difficult trade to make is more often the profitable trade. In fact, most traders I follow on Twitter or blogs I read seem convinced this market is going to roll over and play dead starting in January.

I wouldn’t be surprised to see heavy selling starting as early as today, but that’s one reason why I think we may move slightly higher than most expect. I’m not calling for a new bull or anything, just a continuation of this current bear market rally and I’m positioning my portfolio accordingly.

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To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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Remember What Happened In the Market a Year Ago?

2009-01-02T10:43:00.000-08:00

In looking through material from exactly one year ago in preparation for tomorrow's all-important (and exceedingly difficult) predictions for the new year, the following chart popped up from the January 2nd post titled "That was interesting".

It seems that the first day of trading last year set the tone for the next six months.

While broad equity markets set out on their year-long decline, oil began at just under $100 a barrel and got a good head start on its move to almost $150 from which it began tumbling in July. Similarly, gold was priced about $50 below where it stands today but was getting ready to surge to over $1,000 in March when the Bear Stearns leg of the credit crisis began.

A short excerpt:

Well, that really started the year off with a bang. Of course it probably wasn't the kind of a bang that most people were expecting but it was a bang nonetheless.

Oil hit $100 for the first time (briefly, so they say) and finished at over $99. This Bloomberg report said, "Three-figure prices may bring energy costs near the tipping point that will cause global economic growth to falter."

Didn't they say that about $50 and $60 and $70 and $80 and $90?

Gold made a new all-time high at over $860 closing in New York at $856.70. This Bloomberg report noted, "Investors are pouring money into the precious metal as part of a commodity surge with the dollar under pressure from the prospect of more cuts in U.S. borrowing costs."

Memories...

When the damage was tallied, it turned out to be one of the worst opening days in history. A USA Today report the next day was the subject of this post that contained an interesting graphic and some bad math along with some ominous parallels courtesy of Floyd Norris.

USAToday reports on yesterday's dismal performance of U.S. equity markets noting that the decline was the steepest opening day loss since 1983.

Hopes for a strong start to the new year barely lasted a half-hour Wednesday as stocks ran smack into the exact same fears that caused so much trouble in 2007.

All three major stock market indexes started sliding following a morning report showing manufacturing activity slowed in December, and the selling accelerated after oil prices briefly spiked above $100 a barrel. The news fanned concerns that the economy could be teetering on the edge of recession — and triggered Wall Street's worst January-opening performance in 15 years.

Maybe my math is wrong, but that looks more like it should be 25 years, not 15 years.

Floyd Norris at the New York Times reported on the relative damage to the S&P 500 via numbers provided by Howard Silverblatt. In this tally, yesterday's 1.4 percent plunge ranks as the 6th worst start to the new year.

Every one of the previous five came when the economy was in a recession, or not far from one.

Here’s the list:

1932, down 3.7% on the first day. Thus began the last year of the worst part of the Great Depression. The National Bureau of Economic Research thinks the recession that began in August 1929 lasted until March 1933.

2001, down 2.8%. A recession began in March.

1980, down 2.0%. A recession began that month.

1949, down 1.6%. A recession had begun in November 1948.

1983, down 1.6%. A recession had ended in November 1982.

Now even if you make the leap that this somehow forecasts the economy, it doesn’t do much for the stock market investor. The stock market had great years in 1980 and 1983, and a good year in 1949. On the other hand, getting out at the beginning of 1932 or 2001 turned out to be a wise decision.

Today should be better.

Though it wasn't known until almost a year later, a recession was already officially underway at the time and, as it turns out, the next day was indeed better. After the 1.4 percent drop on Wednesday, the S&P 500 finished Thursday exactly where it began at 1447.16.

On Friday, however, the index plunged a whopping 2.4 percent (no, it doesn't seem like a lot now, but it did back then) before going on to lose five percent for the month of January in the beginning of what would turn out to be the worst year for stocks since the Great Depression.

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To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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Gold Shines Brighter Thanks to Fed

2009-01-01T09:28:00.000-08:00

By Don Miller

The currency markets' reaction to the Federal Reserve’s recent interest rate cuts has ignited a rally in gold, as investors weigh the benefits of owning the yellow metal versus U.S. Treasuries and the dollar.

As a result, gold has started to shine again as a stable source of value at a time when the dollar and other commodities – like oil and copper – have fallen hard. The spot price of gold has climbed above $870 an ounce on the New York Mercantile Exchange, up about 20% from its October lows.

Gold has been on a roller coaster ride in 2008, moving from its all time high of $1035 in March, to as low as $681 an ounce. Some of that decline occurred during the recent stock market plunge. Many investors were forced to liquidate profitable gold positions in order to raise money to cover their paper losses.

Its decline was then accelerated by the recent onslaught of financial bailouts, as many investors held a preference for liquidity and safety in the form of cash holdings guaranteed by the U.S. government. That was reflected in the skyrocketing prices of government bonds and investments in government-backed banks, which also lowered yields.

But with the Fed’s recent decision to cut its target interest rate to a range of 0% to 0.25%, the dollar has suffered a significant decline. Suddenly, foreign investors who were scooping up dollars have cut back on their flight to safety, knocking the dollar index ((NYBOT: DX)) down 10% in the last month. The index reflects the dollar’s value against the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona, and Swiss Franc.

The Fed’s interest rate cut may also have given gold a comparative boost in the eyes of investors. Gold, which never pays interest, suddenly doesn’t look so bad when compared to T-bills, which also are paying zero interest lately.

Volatility has risen this year compared to previous years, and the last few months have been the most volatile of all – an indication of investor ambivalence. But any uncertainty about the increasing price of gold may have been waylaid by the Fed’s recent rate cut and its dampening effect on the dollar and Treasuries.

Consequently, don’t expect this rally to be short-lived. As we pointed out in our 2009 Outlook Report on Gold, the fundamentals in the market hold the promise of more gains ahead.

It appears unlikely central bankers around the world will stop stimulating economies, printing money and doing whatever it takes until growth and confidence are restored – even if the cost is rampant inflation.

Consider these wild card inflation indicators that Money Morning Contributing Editor Martin Hutchinson believes will carry gold prices to $1,500 an ounce by the end of 2009:

Over $7 trillion of freshly minted U.S. dollars are now in circulation with the aim of saving the global financial system.

The incoming Obama administration has promised that another $1 trillion or so stimulus package is on the way.

It’s likely the Fed’s interest rate cuts will soon be followed by central banks around the world.

These economic stimuli are designed to do one thing – get the consumer spending again.

The bailout of the banks was the first step, but the banks are still keeping a tight rein on credit. Now the government is trying to get easily available, cheap money back into the hands of the consumer by running the printing presses around the clock.

“The government is pumping money in so many banks, and that money has to come out somewhere,” said Hutchinson.

Some of that money will “come out” into the economy in the form of higher stock prices. That will make consumers wealthier, and could give them more confidence in the economy. More confidence means more spending. As that happens, prices for goods should begin ticking upward, giving another booster shot to gold prices.

For instance some of that money is already going into gold bars and coins. In fact, the U.S. Mint was forced to suspend sales of the popular American Eagle and Buffalo gold coins for extended periods twice in the last year. The mint was unable to secure enough gold blanks from suppliers to match demand.

“I’ve never seen a case where demand was so high and supply was so short,” Chicago coin dealer Harlan Berk told the Associated Press.

With massive amounts of capital floating around, the time it takes to re-inflate the global economy will be far shorter than most analysts expect. Governments fear deflation more than anything. It appears they will only fight inflation when they are assured they have won the first battle, which is growth at any cost.

When inflation kicks in, the dollar’s buying power will suffer long-term. In fact, we expect a decline in all the world’s paper money, over time. Historically, investors in gold have prospered during periods of weakening fiat currencies.

That leaves gold as a bright light in the investment world, making it an odds-on favorite to open a new leg of a long-term uptrend.

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GoldTraderAsia.com - Where to Buy and Sell Gold Bullion Bars, Gold Ingots, Gold Coins Collection and Gold Jewellery in Singapore.

To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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Gold Ends 2008 Higher for US, UK and Euro Investors; Stocks Suffer Record Rout

2008-12-31T13:02:00.000-08:00

London Gold Market Report
By: Adrian Ash, BullionVault

THE PRICE OF GOLD BULLION slipped into the New Year's shutdown on Wednesday, ending 2008 a little shy of 3% above the close of 2007 for US investors at $865 an ounce.

The last London Gold Fix of the year also pegged the Gold Price in Euros at €614 for French, German and Italian buyers – more than 7% higher from 12 months ago.

UK gold investors saw the price end 2008 at £596 per ounce, fully 40% better from New Year's Eve 2007.

"Thin market volumes limited any major moves on the upside," reports Manqoba Madinane for Standard Bank in Jo'burg, "which kept precious metals under pressure in aftermarket activity [late Tuesday].

"The US Dollar did not weaken as much as we may have anticipated following worse-than-expected consumer confidence data – which also weighed on precious metals. This may have been a result of increased investment flows into US equity markets, shielding the greenback from economic headwinds."

US stock futures pointed higher as the last session of 2008 drew near. European stock market also gained before the lunchtime close. But like the S&P on Wall Street, both London and Frankfurt shares finished the year more than 30% lower overall, suffering their worst ever 12-month loss.

"We're dealing with something that is really historic and we haven't had a playbook," says US Treasury secretary Hank Paulson in an interview with the Financial Times.

Ignoring his own role in creating the credit bubble when he led Goldman Sachs as the investment bank's CEO, "The reason it has been difficult is, first of all, these excesses have been building up for many, many years," Paulson goes on.

"Secondly, we had a hopelessly outdated global architecture and regulatory authorities in the US."

Now those "excesses" are to be compounded by record levels of government debt and all-time lows in global interest rates – apparent solutions which have so far failed to stem capital losses and dividend cuts for equity buyers.

The outlook for Gold in 2009, in contrast, continues to hold strong – if only because everything looks so weak in comparison.

Adrian Ash
BullionVault

Gold price chart, no delay | Gold investment – simple, safe & efficient

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – where you can Buy Gold Today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2008

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GoldTraderAsia.com - Where to Buy and Sell Gold Bullion Bars, Gold Ingots, Gold Coins Collection and Gold Jewellery in Singapore.

To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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The Intrinsic Value of Gold

2008-12-31T12:51:00.000-08:00

It is said that gold is precious because it doesn't oxidize, it is relatively scarce, it is beautiful, and it is the only thing proven to hold its value over long periods. If gold is a good store of value, maintaining its purchasing power relative to other things over time (e.g., one ounce of gold buys about 20 barrels of oil on average), then it must have some intrinsic value around which its actual value fluctuates.

This chart is a crude attempt to find that intrinsic value, which I'm guessing is about $400/oz. give or take a bit. My rule of thumb for interpreting gold prices (which I don't try to predict) is that when gold trades above its intrinsic value, as it is now, that means that people are willing to pay a premium for its qualities. It's trading at a premium today because monetary policy is accommodative, and because geopolitical tensions (e.g., India/Pakistan, Israel/Hamas) are elevated. Gold tends to trade below its intrinsic value (e.g., in the 1950s and 60s) when monetary policy is tight and inflation risk and geopolitical risk is relatively low.

So if you are considering buying gold these days, you need to keep in mind that it is somewhat expensive. That's not to say it can't pay off, but there is a hurdle that needs to be overcome (i.e., fears of rising inflation and geopolitical disasters need to be realized) before gold prices can move higher. In addition, there is the issue of timing: over the next 10-20 years I would predict that gold will tend to drift back to its intrinsic value, thus rendering it a very poor investment—and don't forget that gold is one of the very few things that doesn't offer any yield. But that doesn't rule out gold going to $1500 should the Fed fail to withdraw in a timely fashion the massive amount of money it has supplied to the market in recent months.

Something to think about.

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To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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Don't Miss the Coming Gold Bull

2008-12-31T12:47:00.000-08:00

With the massive monetary expansion experienced in recent months and the promise for unprecedented levels of money and credit supply increase in coming months, the United States Federal Reserve looks on paper to be sending America straight into hyperinflation. Germany's post-World War I Weimar Republic, post-World War II Hungary, 2001 Argentina, and present day Zimbabwe are all analogous examples of massive debt monetization, which all led to hyperinflationary disaster. Never before has the entire world's economy been linked to one nation's, however, as is the case today with the United States.

In a case of economic mutually assured destruction, foreign creditor nations and their central banks can't afford to spark a run on the US Dollar, because it would kill their own export-based economies, as well as devalue their debt repayments and foreign exchange reserves. But the United States has been financing consumption through debt for decades and has resorted to monetary expansion to finance its debt and deficit spending, which is only going to increase with Barack Obama's infrastructure and social programs. The Troubled Assets Relief Program (TARP) itself amounts to $700B, all of which will essentially be "printed." Foreign demand for US debt is all but gone, as creditor nations are now attempting to unwind their USD positions. Huge creditor nations like China and Iran were net sellers of US Treasuries in recent months, attesting to the weakening of the American debt bubble. So where's all this excess liquidity go?

The answer is gold, and it is the only way to prevent the hyperinflationary scenarios referenced above from materializing in the United States.

The Fed has been on a money printing binge of unprecedented proportions, but has been able to thus far "trap" the excess liquidity from reaching the consumer level, which is what causes price inflation. It started a massive foreign currency sale this summer through the Exchange Stabilization Fund (ESF) that led to a supply increase of Euros and suppression of dollar usage. It has been liquifying troubled banks by issuing them T-bills financed through monetization in exchange for toxic assets by utilizing reverse repurchase agreements. And it has used the recent deleveraging and commodity collapse (partially caused by credit defaults in many of the overleveraged institutions that were supporting the commodity bull) to supply the temporary demand for US Dollars and feeding its own foreign exchange reserves.

But the excess liquidity thus far is trapped in time-sensitive and manipulated instruments now, and without a demand for American debt, it has to go somewhere. As T-bills expire and the stock market descends further, actual currency is going to be released out of sequestration into the economy. The Fed cannot allow the market to breach below its November lows, unless it wants widespread insolvency in insurers and banks, which are legally required to halt operations in the event of insolvency. I've heard estimates of 7500 and 8000 in the Dow as being minimum support levels that, if broken for an extended time, would lead to economic collapse in America as financials would all go under. To prevent this and to finance Obama's deficit spending, actual dollars will have to be injected into the system and they will be.

Weakness in the dollar causes strength in gold, which is something the Fed (through America's banks) has been suppressing for years. COMEX shorts dominate this suppression of gold prices, but this act will be discontinued to prevent economic collapse. Allowing gold's price to rise to current fair levels (and then rise further to represent gold's rising fundamentals) will soak up much of the excess liquidity, preventing hyperinflationary price increases in consumer goods. Gold reached backwardation this month, signifying the big gold market manipulators are abandoning their short positions.

Ben Bernanke is a proponent of dollar devaluation against gold and is a staunch advocate of Frank D. Roosevelt's decision to do so in 1934 during the Great Depression. Dollar devaluation is one of the government's most prized tools, as it allows debts to be paid back in devalued nominal terms, transferring risk and purchasing power destruction to American taxpayers, who have no clue what is going on. Inflation is a tax on the people and with a fiat currency, a power-limitless Fed can (and has) tax the hell out of the American people.

The dollar, and fiat currency as a whole, faces collapse now, however, as the artificial wealth created and used in the past few decades is now showing its nature as being just that-- artificial. The global monetary system will have to return to some sort of precious metal backing, directly or indirectly, and surging gold prices is essential for this to occur.

Rising gold prices represents the excess liquidity being soaked up and also causes nominal equity values to rise without dramatic rises in consumer goods. Gold has little utility outside of store of value, which is why its price hasn't collapsed at nearly the same rate other commodities, like oil and natural gas, have. As crude and steel suffered demand destruction from consumers losing wealth quickly, gold was barely touched at all and in fact probably would have shown even more strength hadn't it been for the aforementioned manipulations of the Fed and the global deleveraging of financial institutions.

Creditor nations like China and Iran are buying as much gold as is possible without dramatically disturbing prices, and Iran has said it wants to convert the majority of its foreign exchange reserves into bullion. Gold-buying sentiment is getting stronger as the massive seigniorage of the Fed, and with gold shorts being abandoned by the Fed, the huge demand is finally going to surface into price expansion.

Technically, gold appears poised to break out of its countertrend down move in its primary bull, leading to much higher prices soon. It broke out of its 50DMA on strong volume recently and is approaching a 200DMA breakout. With backwardation occuring this month, all indicators point to gold surging in the coming months.

Gold and gold miner stocks are also looking quite bullish. I recommend Royal Gold (RGLD), which recently broke out of a great long-term base, as well as El Dorado Gold (EGO), Goldcorp (GG), Iamgold Corp (IAG), Barrick Gold (ABX), Randgold Resources (GOLD), Jaguar Mining (JAG), Anglogold Ashanti (AU), Agnico-Eagle Mines (AEM), and Newpont Mining (NEM) for the coming year. Also, look into buying the Ultrashort 30-year Treasury Bond ETF (TBT) as the US debt bubble collapses and debt monetization starts to show up in the Fed's balance sheets. I do suggest buying lots of bullion, however, as stock market returns are in nominal dollar-denominated terms.

The American total credit market debt to GDP ratio is at unprecedented highs, well above 350%, and this with ridiculously manipulated inflation numbers artificially deflated through hedonics. The government deficit could top $2 trillion next year. And the Fed is going to print money to pay for it all. The only way to prevent hyperinflation is to return to some sold of hard asset-backed monetary system and to allow gold's price to rise dramatically.

My prediction: gold breaks $2000/oz in 2009 and $10,000/oz by 2012.

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Portfolio Advice for 2009: Stick to Gold, Stay Away from Stocks

2008-12-31T12:45:00.000-08:00

By Eric Roseman

Records were broken in 2008 - money-losing records from an investor’s perspective.

U.S. stocks will record their worst calendar year since 1931. As measured by the S&P 500 Index, the broader market tanked 40% this year while the Dow Jones Industrials fell 36%.

U.S. stocks are already “dead money” since 1996. They’ve shown no net gain at all - including dividends. The ongoing market environment is eerily similar to another period of dismal returns - from 1966 to 1982. During those 16 years, the Dow and S&P 500 Index posted zero profits. Adjusted for soaring inflation, the markets actually recorded a loss.

Global equities as measured by the MSCI World Index posted its worst year since inception in 1969. International equities fared even worse with European and Japanese stocks down more than 45% and the MSCI Emerging Markets Index clobbered - down 53% in 2008.

World Markets Got Trashed in 2008

For stocks, the ongoing bear market has resulted in record mutual fund outflows as investors continue to dump their holdings and run for cover into money market funds.

Unfortunately, money market funds are now paying barely any yield at all since the Fed slashed interest rates to effectively 0% on December 16.

Only Treasury bonds, European and Japanese government bonds yielded a profit for investors in a wickedly harsh year for investors. As a currency investor, naturally you already know that the Japanese yen was also a winner against the dollar and euro as the “carry-trade” came to a crushing halt.

So Much for “Diversification”

With the exception of super-safe and low yielding U.S. Treasury bonds, yen and gold, the entire gamut of assets from stocks to non-Treasury bonds all plummeted in 2008.

Commodities, certain currencies, fine art and hedge funds all succumbed to brutal price declines. Overall, 2008 was the first losing year for U.S. and global stocks since 2002 and the worst period to be invested in financial and hard assets in more than 75 years.

Stop-losses rang out like pinball machines in 2008. Diversification across sectors, industries, countries and currencies proved futile. Almost everything was pummeled. By October 10, a panic gripped world markets as the threat of systemic collapse threatened the viability of the banking system.

Chaos to the Rescue

In late 2007, I introduced the TSI Chaos Portfolio to my Sovereign Society readers. It’s a U.S.-based portfolio of six equally-weighted investments, including short-term Treasury bonds, gold, Japanese yen and reverse-index funds that bet against the S&P 500 Index. Recently I added a seventh safe-haven - short-term German government bonds.

This cost-effective strategy dominated my recommendations in 2008 rising more than 17%, including dividends.

For growth investors, hedging your market exposure is vital in a secular bear market. I continue to like the TSI Chaos Portfolio in 2009 even though the stock market has probably suffered the bulk of its declines at this point.

Volatility will remain rampant in an uncertain economic environment marked by growing consumer credit woes, massive government bond issuance to support gargantuan fiscal spending plans and weak corporate earnings. Investors must hold downside market protection.

Short Most Commodities, But Stock Up on Gold/Silver

Starting in October 2007, I recommended my Commodity Trend Alert (CTA) subscribers begin to bet against oil and gas stocks as a way to hedge against the energy sector. At the time, oil prices were racing to US$100 a barrel and the oil stocks were in the midst of a multi-year bull market. We all know how that story fared in 2008.

Since peaking in July, the benchmark CRB Index has crashed more than 50% as the entire commodities complex continues to aggressively deflate in a rapidly slowing global economy.

To protect our natural resource exposure in CTA, I immediately issued a series of reverse-index purchases betting against commodities. We were most successful betting against industrial metals or base metals, as copper and other metals collapsed. That position, still open, has gained a cumulative 80% since August 2008.

And since September, CTA has been riding a broad commodity index to the basement as part of our reverse index strategy - up more than 60%. We also maintain hedges against gold, oil, gas and long-term Treasury bonds.

Gold has also been a strong performer compared to most other assets in 2008. Significantly, gold is the only asset that is completely outside the credit system and the only asset that has no liability.

In 2008, spot gold prices gained a modest 1% - not much in absolute terms but certainly impressive compared to other plunging assets. Silver, more of an industrial metal and therefore more vulnerable to broad economic trends, declined 18%.

Looking ahead to 2009, growth investors will only reluctantly return to stocks. Losses have been massive for investors since late 2007 as mutual fund redemptions hit records.

Stocks might indeed offer better values compared to mid-2007 after plummeting more than 40% from their highs. But domestic consumption in the United States, Japan and Europe is depressed and likely to remain under threat as unemployment rises and savings rates begin to rise again.

The correlation between a higher savings rate and corporate earnings is negative. It’s difficult to be bullish on earnings when the world’s largest economy will remain mired in a period of sluggish growth, debt retrenchment and rising job losses. The same is true for Japan and Germany - the second and third largest economies, respectively.

This is not the time to be aggressively buying stocks. Odds are prices will get cheaper again following any bear market rally. That’s certainly been the case every time stocks have rallied off their lows since October 2007.

Instead, make sure your portfolio includes gold, portfolio hedging strategies and income from high quality investment-grade corporate bonds in 2009.

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Will the New GCC Single Currency Include Gold?

2008-12-31T12:44:00.000-08:00

Gulf Cooperation Council leaders yesterday concluded their 29th annual summit meeting in Muscat, Oman with a final approval for the creation of a single currency for the six-nation economic bloc, still targeted for 2010.

Saudi Arabia is the largest economy in the GCC and boasts substantial gold reserves. But whether gold will be included in the currency basket has not yet been decided.

Golden opportunity

GCC assistant secretary-general Mohammad Al Mazroui told Gulf News: ‘We first have to decide on the location of the Central Bank, then the Central Bank and Monetary Council will have to decide on the gold reserves for the Central Bank’.

The creation of the GCC single currency - likely to be known as the Khaleeji which means Gulf in Arabic - is a major gold event for two reasons.

First, the breaking of their dollar pegs by the Gulf Arab nations is clearly dollar negative. Secondly, any inclusion of gold either as a part of the monetary basket, or in the reserves of the new GCC Central Bank will create additional demand for the precious metal.

2009 deadline

The project is gathering pace, and no lesser a figure than Saudi Arabia’s King Abdullah has directed that GCC economic integration committees speed up their work and complete the whole exercise by September 2009.

It is only a couple of months since a group of Saudi businessmen allegedly bought $3.5 billion worth of gold, believed to be the largest ever single transaction for the precious metal. Perhaps in 2009 it will be gold rather than local currencies which become of interest to speculators about monetary reform in the GCC.

Gulf countries are keen to break away from the link with the US dollar because it ties them to inappropriate monetary policies that exaggerate the boom-to-bust cycle in their economies.

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Gold Prices Could Double...or More than Double

2008-12-30T12:42:00.000-08:00

Running into year-end 2008 with a hatful of fears, losses, hope and questions?

Here's another puzzler to ponder as the $3 trillion of tax-funded bailouts now promised worldwide slowly roasts every bond holder's goose over Christmas ...

As a proportion of global investable assets, gold hasn't been this strongly weighted for the last 15 years.

But seeing how this financial crisis is the ugliest since the Great Depression, World War I or perhaps even earlier (depending on which political hack, wonk or meddler you speak to), it could double yet again - if not rise more than tenfold.

Either that, or the value of paper assets - meaning stocks and bonds - could tumble in half. If not sink by more than nine-tenths.

Am I kidding? No more than anyone else.

Tessa Jowell, a UK minister, reckons this downturn is "deeper than any we have known." Mervyn King, head of the Bank of England, says it's the worst financial crisis since before the Great War.

And given that "when investor stress reaches extreme readings" people buy gold - as John Hathaway at Tocqueville Asset Management put it in a 2006 paper - then we should expect the valuation of all the gold in the world to rise accordingly.

People turn to this rock, after all, when paper's too scary to own. Have we reached an "extreme" amid this financial end of days ...?

First, let s try (if we can) to ignore the $596 trillion worth of "notional" value outstanding in credit, currency, stock-market and collateralized derivatives.

Let's also put the Western world's real estate markets to one side, as well. The idea that housing is a tradable asset only shows up every generation or so. In between, the slumps and dips just make bricks and mortar somewhere to live in - not retire on.

That leaves us, pretty much, with stocks and bonds. And as the good folk of World Financial Exchanges will show in their data just as soon as 2008 croaks out, last year's peak of $90 trillion is set to take a knock. By our reckoning here at BullionVault, in fact (and with thanks to the Bank for International Settlements' latest figures), that gross market capitalization will show a fall of one-quarter and more in global equities and tradable debt.

On the other side of the trade, in contrast, gold priced in dollars actually rose in 2008, notching up its seventh annual gain on the trot. (That's not to say it won't fall next year; for now, the gold price in 2009 is not our beef.) And with the total, above-ground stock of gold now standing around 165,500 tonnes (guesswork courtesy of GFMS, the World Gold Council and ourselves), that puts the notional value of all gold ever mined in the world at some $4.6 trillion.

Yes, that's a very rough guess fashioned without a sharp pair of scissors. And yes, it includes all central-bank gold hoards, jewelry, tooth fillings, mobile-phone chips and Goldschlager flakes ... as well as gold bullion bars, coins and exchange-traded holdings.

But comparing all the gold in the world against stocks and bonds shows a far less than "extreme reading" for investor stress. So far, at least.

Back in 1980, for instance - when the Iranian crisis and war in Afghanistan last sent gold to a nominal peak at $850 an ounce - "the $1.6 trillion invested in gold exceeded the market value of $1.4 trillion in US stocks," according to Peter Bernstein in his classic tome, "The Power of Gold."

U.S. equities today stand closer to $13 trillion. Every ounce of gold ever mined is worth barely one-third.

Put another way (and yes, the numbers are rough once again), "We calculate the market cap of all above ground gold, including central bank reserves, equals about 1.4% of global financial assets," wrote Tocqueville's John Hathaway almost three years ago.

"In 1934 and 1982, when investor stress reached extreme readings, that percentage was between 20% to 25%."

In short, the mass people choosing to buy gold today remains tiny compared with the value which the world still puts on paper. And it's only when paper collapses in value - an event you might expect during the worst post-World War II crisis - that gold is likely to hit its true peak for this investment cycle.

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The Gold to Oil Ratio Does Matter

2008-12-30T12:40:00.000-08:00

Seasonally, oil (USO) is extremely weak from October through December. In 2008 oil started October at about $100 and ended December around $40 or around a monstrous 60% decline. Oil is strongest seasonally from July through September with the strongest individual months being January and August. Oil’s 200dma sits right around $100, appears to have hit around its bottom and the 200dma is exerting a gravitational like effect pulling oil prices up.

By contrast gold’s 200dma is at about $860 per ounce. Gold (GLD) has recently passed through its strongest seasonal period from September to December. It maintains the uptrend from January to March, is asleep the rest of the year except for a strong rally in May. While seasonality is helpful, it does not etch the future in bullion and this year has been different.

The recent financial turmoil has caused tremendous technical damage to gold almost as if it was done intentionally to stunt its bull market during all of the financial carnage. GATA asserts that when the news is really bad gold goes down. Well, the last half of 2008, when gold should have performed well seasonally, it swooned from over $1,000 per ounce to the $680’s while Lehman Brothers (LEHMQ.PK) evaporated, Fannie (FNM) and Freddie (FRE) were nationalized and bailouts were served every night on the news. Such suppression has only wound the spring that much tighter.

It is important to keep in mind that both of these commodities are still in strong secular bull markets. The FRN$ is in a strong secular bear market as is the DOW and real estate. The Gold/Oil ratio is now about 23 barrels of oil per ounce of gold. The 200dma is about 9.5 and the historic average is around 15.

The extremes happened in 1974, 1986 and 1988 as the ratio approached 30 and 1977, 2001, 2008 at about 8 and 2006 at around 6. For these relative prices to return to more normal ratios something is going to give. Oil is either going to go up, gold is going to go down or to move into some sneaky calculus the rate of oil’s rise will be faster than gold’s. The silver (SLV) to oil ratio is not nearly as extreme as gold to oil but silver will most likely follow gold, either up or down, at a faster rate of change.

This is where geo-politics arrives. Are the oil producers willing to take so little value in exchange for their precious black gold? With Peak Oil (mp3) asserting itself the oil producers should hold the bargaining power. The latest IEA numbers indicate an extremely serious steeper than expected 9.1% decline rate. Yes, the Canadian Oil Trusts will rise in value as a safe, secure and stable source of oil. But perhaps the oil exporters should sit on their oil and let the importers roil and writhe in pain as E. M. Forster’s 1909 essay The Machine Stops is played out. After all, a barrel in the future will be worth more than a barrel today. Obviously, the collapse will not be televised.

At all times and in all circumstances gold remains money. It is the most powerful currency in the world. Oil is the world’s primary energy source which is why the gold to oil ratio is important. Gold is the most effective tool humans have to perform mental calculations of value. By analogy it is the tool used to determine how many calories an apple provides and how many calories it takes to collect and process the apple so it can be eaten.

Producing gold is essentially converting energy into bullion. How many calories go into producing a one ounce gold coin? In some cases to produce a single ounce hundreds of tons of rock are moved. Ultimately, money is about energy. To make it personal, how much value should you put on that nice steak dinner, bottle of water from Fiji or 3,000 mile Ceaser salad? Well, think through the supply chain and how much energy the good or service represents.

The world has a very serious problem. Because it has used a fiat currency with no definition or basis in reality for nearly 100 years and because oil production was constantly increasing during that time the effects of unwise capital investment were masked. Energy Return On Energy Invested (EROEI) calculations were not even performed. A fiat currency attempts to sustain the unsustainable while a commodity-based currency employs the strict laws of reality to ensure the unsustainable is not encouraged.

In other words, no one knew or calculated either how many calories the apple supplied or how many calories it took to procure and process the apple. The entire infrastructure of the entire world was built using mental calculations of value based on a derivative illusion. As natural and economic law assert reality and gold begins circulating as currency in ordinary daily transactions the distortions will be removed and the gross misallocations of capital will be revealed. I wonder what such a world will look like? Will The Machine Stop?

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Manipulation in the Gold and Silver Markets

2008-12-30T05:54:00.000-08:00

This article deals with the manipulation that has been occurring in the gold and silver markets, and offers a solution. While this scandal has been going on for many years, at last more and more people are becoming aware that it is going on.

One of the first people to document the ongoing attempts to suppress the gold price was Frank Veneroso.

Next was Bill Murphy of GATA.org. GATA continues to press the issue. GATA has discovered that the IMF instructed its member banks to treat gold that had been leased to bullion banks and sold into the market, as if it were still in the vault! Imagine if an entrepreneur was running his business in this underhanded manner – how long would the government allow that?

A few years ago John Embry, while he was Portfolio Manager at RBC Global Investment Fund - a multi-billion dollar resource fund at the Royal Bank - prepared a memo for the bank’s clients that detailed the manipulation in the gold market.

Ted Butler has written extensively on the manipulation in the silver market.

This is something I have observed first hand since I became interested in silver in the mid-1960’s. It seemed that every time silver reached a peak, an invisible hand came out of nowhere and knocked the price back down to the starting point again. I wrote an article about this titled: ‘Once upon a time, in Never-Never Land’.

Every time a geo-political event, or a serious economic happening, such as the collapse of Bear-Stearns, causes gold to rise, (as it would be expected to do since it has always been a ‘safe haven investment’), the price immediately gets trounced, and investors and producers accept this new price as ‘THE price’, since the new event has now been discounted.

Whenever common sense tells you something is happening that should cause a rise in the price of gold and silver, you can count on intervention to cap the price. As a result, millions of investors and mining companies have lost billions of dollars that they would have earned if these markets had been allowed to run their normal course.

The manipulation is obvious in the following charts:

Charts courtesy www.kitco.com

This chart shows steady buying interest that took price from the low at 955.00 on July 14th to 985.00 the next day. The buying took place in Asia, then Europe, and carried over for about an hour in New York, when suddenly, in the space of minutes, an unseen entity dumped gold in the form of futures contracts (green line), without any attempt to obtain the best price possible. In about 5 minutes the gold price was down by 15.00, and the rise was over, as price drifted sideways for the rest of the day.

It was discovered later that several large banks, suspected to be HSBC (HBC) and JPMorgan Chase (JPM) and possibly one other bank, had switched from being ‘net long’ 5,381 gold contracts at the beginning of July 2008, to being ‘net short’ 87,609 gold contracts by the end of July. That is a 94,000 contract ‘turnaround’ and smacks of blatant interference in the market place, since these banks do not produce gold, nor are they likely to be hedging against that much gold in the vaults, since they do not own physical gold. Such a dramatic switch without any change in fundamentals is beyond reason.

Featured is the daily gold chart from October 13th. The blue line shows steady demand followed by consolidation early Oct 14th as recorded via the red line. Then a mysterious seller showed up shortly after the COMEX began trading in New York, and in the space of minutes the price was knocked down by 30.00. This is totally illogical, since the seller has no interest in obtaining the best price. His only interest is to destroy the price.

“In 1980 we neglected to control the price of gold. That was a mistake.” Paul Volcker.

“Central banks are ready to lease gold, should the price rise.” Alan Greenspan during Congressional testimony July 24/1998).

Featured is the price action right after the COMEX began trading in New York on October 16th. Within a few minutes the price was knocked down by 35.00 (green line), after the price had established a solid trading range between 830.00 and 850.00 during the previous two days (red and blue lines). This illogical dumping of gold contracts caused margin related selling to bring the price down another 15.00 before bargain hunters were able to level the price around the 800.00 mark.

These are just some of the examples of ‘irrational behavior’ on the part of several large traders on the COMEX, whose actions are not being controlled by the people who oversee the COMEX. While this article deals primarily with gold, the same manipulation exists in the silver markets. To repeat an earlier comment, ‘millions of investors (including miners) have lost billions of dollars because of the manipulation’. The US government is able to interfere in the markets by way of the Exchange Stabilization Fund which is run by the Federal Reserve and the Treasury Department. The size of the manipulation referred to in this article could not take place without the encouragement that is very likely provided by people who are highly placed in government.

Cause and effect

The effect of this manipulation in the gold and silver markets is an artificial low price. In view of the fact that bullish events are not being allowed to permit prices to rise, nevertheless these events will eventually have a positive effect on the price. The cause is real, but the effect is delayed. The steam in the kettle continues to boil, despite the lid being clamped down. The artificial low price stops the development of mining projects that would have been profitable at the higher price. The artificial low price also cuts into profit margins at every producing mine, making it more difficult to obtain funding for exploration to increase resources. Every mine in the world is at all times a ‘depleting asset’ and needs exploration to postpone the day when the last ounce is mined.

THE MANIPULATORS ONLY HAVE TWO WEAPONS.

The ammunition used by the manipulators is provided by two sources: Central banks (including the IMF), and the COMEX. While there is nothing anyone can do about the gold selling that originates with the central banks, there are ways to choke off the amount of precious metal that flows into the COMEX warehouses.

Those of us who are tired of the manipulators picking our pockets need to become active.

In 1978 – 1979 it was a rising silver price that caused gold to rise – silver was the leader. It makes sense therefore to concentrate on silver, especially since the central banks do not have hoards of silver.

A SOLUTION!

Mining companies that supply silver to the COMEX need to find a way to turn their silver into small bars (1 oz to 100 oz), and 1 oz rounds and sell these to the public. Already some mines are doing this by selling from their websites, and they are obtaining a hefty premium over the spot price. If your production is limited, join forces with a mine that is already merchandising silver products, or form a sales organization with other small mines. Hire some cracker-jack salespeople; there is a big market out there! Starve the COMEX if you want to see silver sell to realistic prices. Adjusted for inflation, the silver price of 48.00 that we saw in February of 1980, is trading at $4.00 today.

Next, instead of keeping money in the bank, or in various kinds of short-term notes, mining CEOs should store up silver, and show us that they believe in the product they are producing. Instead of cash on hand, buy futures contracts, and keep rolling them over.

Coin dealers and wholesalers need to buy 5,000 oz bars from the COMEX, take delivery, and contact a refiner who will turn the silver into retail products. If your operation is not large enough for a 5,000 oz purchase, then buy silver from people like Jason Hommel, who was smart enough to start doing this on a large scale.

Investors who can afford to spend $55,000.00 should consider buying a silver contract from the COMEX and taking delivery. James Sinclair at JSMineset.com will show you how to go about that.

Finally, anyone who holds any kind of a certificate that promises to deliver silver needs to make sure that the bank or institution that stores the silver is willing to provide bar numbers. Otherwise, when the day comes to collect, you may find that the silver does not exist. On my website you will find an article that I wrote about a fund that stores gold and silver at a bank in Western Canada. They invite auditors twice a year to audit the inventory.

The Madoff scheme is but one example of the lack of oversight on the part of people who have been placed in the position of protecting the public. In the US Congress, two of the people responsible for the mess that was created by Freddie Mac and Fannie Mae, Congressman Barney Franks and Senator Chris Dodd, are now part of the group that is trying to ‘fix’ the problem. The foxes are in the henhouse! It was Franks and Dodd, who for years received money from Fannie and Freddie, while they stood in the way of people who wanted to tighten the lending standard at these two mortgage lending institutions. Whatever happened to responsibility? Where is the outrage?

Featured is the weekly gold chart. The price is ready to breakout on the upside. The supporting indicators are positive (green dashed arrows). The 7 – 8 week cycles have been short (twice at 6 weeks). We are due for a longer cycle. A close above the blue arrow will indicate that week #4 is the start of a run up to the green arrow. Once 925.00 is reached, then 975 is next. Since Labor Day, the Federal Reserve’s assets (including huge amounts of toxic assets) have increased from 905.7 billion to 2.3 trillion dollars. This, along with the increase in the monetary base is going to add to price inflation and will cause a lot of investment money to enter the gold market. The gold rally that started in November has only just begun.

Featured is the weekly silver chart. The price has been rising since late October. The supporting indicators are positive (green dashed arrows). A close above the blue arrow sets up a target at the green arrow.

Thanks to Eric Hommelberg for the idea to use ‘historic spot charts’ to make my case. I applied the 11th commandment: “Thou shalt use every good idea thou comest upon.”

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To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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Gold Delivers One of "Very Few" Positive Returns for 2008; Outlook Strong for 2009

2008-12-30T05:43:00.000-08:00

London Gold Market Report
By: Adrian Ash, BullionVault

THE WHOLESALE PRICE OF PHYSICAL GOLD slipped in London on Tuesday, retreating 2% from yesterday's early 11-week high to trade at $871 an ounce.

World stock markets rose and crude oil fell in thin holiday trade. Bond prices pushed higher again, driving yields still further below inflation.

"By and large, the market is unwilling to trade gold from the short side," notes the latest Gold Futures analysis from Mitsui, the precious metals dealer, in London.

"While scrap selling across traditional hubs placed an obvious ceiling on gold scaling $900, this appears to have dissipated for now."

Indeed, "Gold is set to close the year as one of the very few assets posting a positive 2008 return," Mitsui goes on – "a very significant achievement [that] bodes well for the year ahead."

Looking to Gold in 2009, "as the current deflation reality eventually abates and inflation looms large over the market," says Mitsui, "in such environments gold theoretically should flourish."

Overnight, however, the US Dollar leapt 4¢ against the European single currency, driving it back to $1.3950 and supporting the Gold Price in Euros above €615 an ounce.

That put gold more than 5% higher for French, German and Italian investors from the close of 2007.

Versus the British Pound, the price of Gold continued to hold north of £600 an ounce, more than 37% above its closing level last year.

London's FTSE100 index, in contrast, has dropped one-third of its capitalization. Interest paid to cash-in-the-bank now trails the rate of inflation by the worst margin since 1980.

"The Israel-Hamas tension [has] continued lending support to gold," said Shuji Sugata at Mitsubishi Corp. Futures & Securities in Tokyo to Bloomberg today.

Preparing the outlook for Gold in 2009, "we may see some technical selling and year-end book squaring after the recent gain."

Tocom gold futures closed Tuesday – the last day of 2008 trading – some 16% lower from New Year's Day. The first annual loss in almost a decade came as the Japanese Yen leapt on the forex market, delivering its strongest performance since 1989.

Bruised by this same "risk aversion" – a flight to cash that saw domestic Japanese investors begin to unwind $6 trillion-worth of offshore investments – the Nikkei stock index ended the year more than 42% lower, its worst ever 12-month loss.

On the monetary front, meantime, the US government promised $5 billion to buy equity in GMAC, the struggling auto and mortgage finance company, in one of the last desperate acts of the Bush administration.

The White House also vowed late Monday to extend the tax-funded loans to General Motors by a further $1 billion.

"Technical momentum signals are still warning of further upside potential for the Dollar," reports Manqoba Madinane for Standard Bank in Johannesburg.

"This could see the Dollar endure volatile swings if [today's Consumer Confidence & Case-Shiller Home Price] data comes in worse than expected. This might then create a negative feedback loop, causing further drainage of tactical investment flows from precious metals today – further compromising upside potential."

Adrian Ash
BullionVault

Gold price chart, no delay | Gold investment – simple, safe & efficient

President of Euro Pacific Capital on Gold and the Dollar

2008-12-30T05:38:00.000-08:00

Mike Norman, HardAssetsInvestor.com (Norman): Well, he's back. Mr. Doom and Gloom is here ... Peter Schiff, president of Euro Pacific Capital and author of the new book just out, "Bull Moves in Bear Markets."

Peter Schiff, president of Euro Pacific Capital (Schiff): "The Little Book ..."

Norman: "The Little Book ..."; it's in The Little Book Series. Well look ... the last time you were here, things were kind of going your way, but it looks like things have turned upside down.

All kidding aside, I know your big thing over the last seven or eight years has been gold. We're very supportive of gold on this show; we think that probably people should have some gold as part of their overall portfolio mix. But let's just look at what happened.

Several weeks ago, the U.S. stock market had its worst week in history ... even going back to the 1930s ... worst week in history. I saw a breakdown of various assets - all assets really - stocks, bonds, gold, commodities, oil. Gold was at the bottom of the list. The top-performing asset, and something that you hate, was the U.S dollar.

So how do you explain that? If we are going through the worst economic and financial crisis in history - precisely what gold is supposed to protect against - why would it perform so bad?

Schiff: Well, I think it will perform very well; you got to give it a little bit more time.

Norman: More time or more decimation?

Schiff: No, what's happening right now, Mike, is just de-leveraging, and so gold is going down for the same reason a lot of stocks are going down, a lot of commodities are going down. There's a lot of leverage in this system, there's a lot of margin calls, a lot of liquidation; a lot of people are having to sell whatever they own to pay off their debts.

Norman: But look at where the money is going ... the money is going into U.S. sovereigns, Treasuries ... it's going into the U.S. dollar.

Schiff: For now.

Norman: Why for now?

Schiff: Right now there's some perception of safety there, but it's the opposite of the leveraging. If you're selling your assets, you're accumulating dollars; but ultimately right now, it's like there's been this gigantic nuclear explosion in the United States, and everybody is running toward the blast. Pretty soon they're going to figure out they're going in the wrong direction.

Norman: You always talk about gold as a currency, and we have seen currencies appreciate - the yen, for example, the dollar tremendously, for example, but gold has not held up.

Schiff: Well, if you actually look at gold versus other currencies, in the last couple of weeks gold has made new record highs in terms of the South African rand, the Canadian and Australian dollars ... so gold was not doing as poorly as many of the currencies, and I think this is all short term.

I think you're going to see a lot of money moving into gold, and if you look at how much gold has gone down from the peak, the peak was about a thousand ... it's off about 25%. Stocks are off 40%. Gold is still up during this year against the Dow.

Norman: Let's see the performance from this point forward; we'll look back at this again and we'll revisit this issue.

Let's talk about something else, something that you have also ... and I just mentioned it ... the U.S. dollar. You were very, very negative. In the last month, we have seen unprecedented actions by the U.S. Fed in terms of expansion of the monetary basis; in other words, printing money ... what you call printing money ... and despite that, the dollar has remained incredibly strong.

How do you explain that according to your logic?

Schiff: Everything the government is doing is inherently negative for the dollar, and all of this...

Norman: It's not playing out that way.

Schiff: It will; you've got to give it time.

I remember when I was on television talking about the subprime and people were telling me it's no big deal, and I said, just wait a while; give it time

Look, everything that we're doing - all the bailouts, all the stimulus packages - this is all being financed by inflation. It's inherently terrible for the dollar.

Norman: But you just said yourself that everything is deflating.

Schiff: But right now, Mike, you're getting this de-leveraging, and this is benefitting the dollar, so despite the horrific fundamentals for the dollar, it's going up anyway.

But ultimately, when this phony rally runs out of steam, the dollar is going to collapse, and that's when we're going to have a much greater crisis because now you're going to have a collapsing dollar, which is going to push long-term interest rates up, commodity prices up.

Norman: I still don't understand why the dollar is going to collapse. So you're saying that the Fed is just going to allow ... or leave this enormous amount of liquidity in there, that at some point down the road, if we recover, they're not going Scto take it out?

Schiff: Look, they have no control over it. The Fed is trying to artificially reflate our phony economy, right?

We had this economy that was based on Americans borrowing money and then spending it on products. We have this huge debt finance bubble which is collapsing, and it's being supported by foreigners.

But when this artificial demand for Treasuries goes away, the Fed is going to try to print a lot of money and the dollar is going to get killed.

Norman: All right; I'm going to ask you to hold on. Folks, check back because we're going to do the second part of my interview with Peter Schiff, so check back to this site. This is Mike Norman; bye for now.

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What Does Gold's Price Behavior Mean?

2008-12-30T02:44:00.000-08:00

I am no gold analyst, but the metal has always interested and perplexed me. It is supposed be a hedge against inflation as also a savior in bad times – depression/deflation scenarios.

A Business Week report explains:

It can be argued that gold's price spike to a record high of almost $1,030 an ounce last March had more to do with a surge of strength in commodities as a whole than anything specific to the yellow metal. Unable to buck the general sell-off in commodities since the summer, gold sank to a low of $680 in November before rebounding above $800 as the end of the year approached. Now that a new era for commodities seems to have begun—one likely to be characterized by greater price stability—any future gains by gold will have to come on its merits as a perceived safe-haven store of wealth, a hedge against inflation, and as a desirable component of jewelry.

…. cited questions he has received as to whether gold is still a safe haven asset—and if so, why the metal hasn't performed better during the recent economic tumult. Meger believes gold remains a safe haven asset and says it has weathered much smaller percentage decreases in price than have other commodities while avoiding the extreme volatility seen in other financial instruments. In fact, some of the selling pressure has been the direct result of gold's function as a store of wealth with easy liquidity, he points out...

The true inflection point for gold, however, will come when concerns about deflation give way to inflation worries, Meger predicts...

Much like the stock market, which is way ahead of the economy, the price of gold is reflecting the market's belief that the worst of the recession is over, he says.” (All emphasis added.)

The main point is that gold can be sold in times of chaos and disorder, and hence you should invest in it if you expect a major deflation/unemployment/depression scenario. Also, in case of expectations of inflation or high-inflation when the value of currency is falling rapidly, gold can be a proxy as it is real, compared to fiat money (fiat or order by the government that it should be accepted as a means of payment), which is created out of thin air without any real asset backing. As the trust in a given currency bursts, gold increases in value as it is anticipated that gold can be used as currency for payment of goods and services if the currency fails.

Further this distrust in the fiat currency makes governments and central banks jittery, and more so in the case of US dollar, which is a reserve currency for many countries/institutions. The fear that this reserve currency may now change to gold because of the lack of faith in US dollar has lead to manipulation theories where various central banks are supposed to have sold gold in a coordinated fashion to strengthen the US dollar, and the spike from July in USD was as a result of this effort which also squeezed the dollar shorts. Gold in other words is an inverted dollar.

Source: gold-eagle.com

What I understand is that the current move up above $800 is because of the weakening of the dollar due to the Fed rate cut to zero. However, it is expected that ECB and BOE will also follow with their own ZIRP (Zero interest policy) and it would be interesting to watch how US dollar and gold behave thereafter. Also, the current geo-political situation in the Gaza strip and the Indo-Pak situation is supposed to have given it a further push.

Another point made by the Business Week article referred to above is:

Not everyone favors gold, even as a mere hedge against inflation. Historically, the returns on the physical commodity are miserable, although commodity futures are "somewhat more favorable as a diversifier," according to Rick Miller, founder of Sensible Financial Planning and Management in Cambridge, Mass.

Those looking to gold as a store of wealth as part of a doomsday portfolio are better off holding gold coins, which they can keep in their physical possession.

"If the worst happens and you want gold because nothing else is worth anything, being able to say 'I have shares in this gold ETF' and going to the vault of a bank to get it out is unlikely to cut much ice," Miller says.

Prices of gold coins have spiked in the last six to seven weeks due to a shortage of supply and a jump in demand, even as gold futures prices have come down on the Comex division of the New York Mercantile Exchange. The American gold eagle, one of the three most popular gold coins, is now selling for the spot price of $845 plus a premium of $80 to $100, compared with the usual premium of 4.5% to 6.0%—or $38 to $51…

That indicates small investors are moving more and more into gold because they're worried about the economy… (All emphasis added.)

So while physical demand has been strong, the question that arises is why did gold fall to $680? The manipulation theory explained above has been given by many. It is a fact that the paper gold market is 40 times the physical one and the former sets the price. The other reason is the deleveraging or forced selling due to the credit crisis.

If gold prices are the leading indicator, what is its behavior telling us about the possible future economic conditions? It appears to be a ‘heads you win-tails you win’ asset class both in a potential inflationary (or hyperinflationary as some think) situation and deflationary or depression conditions – desire to hold gold should be pre-dominant in both situations. In such a situation, shouldn't gold prices already be at the levels they are projected to be - at $2000+? Why this hesitancy? Is the behavior giving some other signal? Or am I missing something? I look forward to readers’ views and comments.

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GoldTraderAsia.com - Where to Buy and Sell Gold Bullion Bars, Gold Ingots, Gold Coins Collection and Gold Jewellery in Singapore.

To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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Four Reasons for an Immediate Rise in Gold

2008-12-29T02:42:00.000-08:00

Gold hit $884 as this post was written early on Monday 29th December, the day that Indian astrologers have down for a stock market crash. That would seem unlikely given thin holiday trading. But a further rise in the gold price, even if short-term, looks probable for four reasons:

Geopolitics: Israel has attacked Gaza with considerable loss of life, a reminder of the chronic political problems of the Middle East with Iran and Pakistan other possible flash points. Arabs are big investors in gold and respond to disruptions in their own backyard.

Physical delivery requests are mounting at the Comex futures exchange which could well result in an immediate shortage of gold at the year-end. The futures market looks about to breakdown, giving control of the gold price back to the physical market where available stocks are low.

Gold preserved value through the storm of 2008, and 2009 looks no better, while investors are increasingly concerned about the bubble in the bond market. In the investment cycle the next step is a bond crash and a flight to precious metals.

The dollar rally looks to have already broken down, so look for a swift reversal to dollar devaluation and gold appreciation. That would also boost the oil price, usually a positive for gold, and also linked to geopolitical instability in the Middle East.

Gold Hits 12-Week High for Dollar Investors on Israeli Attacks, Breaks New Record at £600 for UK Buyers

2008-12-29T02:40:00.000-08:00

London Gold Market Report
By: Adrian Ash, BullionVault

THE PRICE OF GOLD jumped once again in thin Asian trade early Monday, adding to Boxing Day's 3% gain to reach an AM Gold Fix in London of $881 an ounce – the best level vs. the Dollar since Oct. 10th.

Trading almost 5% higher from the start of 2008, Spot Gold prices also jumped to a 3-week high against the Euro before slipping lower as the single currency strengthened to $1.4330 on the forex market.

Measured against the British Pound, Gold Bullion continued to hit new all-time highs, breaking above £600 an ounce for the first time ever.

Sterling sank to just 2¢ above parity with the European single currency, down more than 42% from its all-time top of March 2000.

"[Gold is] pushing higher due to increased geopolitical risk in the Middle East," writes Manqoba Madinane at Standard Bank in Jo'burg, pointing to Israel's rocket attacks on the Gaza Strip.

"Further geopolitical tension should inflate the risk premium in current precious metal prices. Barring any significant decline in financial market systemic risk, this should translate into increased upside potential in the near term."

"Gold is obviously gaining a lot of favor as a safe haven asset again," agrees Darren Heathcote at Investec Bank in Sydney, speaking to Bloomberg by phone.

"The weaker Dollar and rising oil prices also helped," he added.

Today crude oil rose almost 3% to break back above $40 per barrel. Base metals held flat as London trade remained thin.

Soft commodities rose pretty much across the board.

"What was surprising was the timing of the violence between Israel and Hamas," noted Adrian Koh at Phillip Futures in Singapore to Reuters this morning. "That's the thing that caught everyone by surprise.

"The markets are still very much in thinned-holiday trade and the news of the violence basically spurred buying and pushed prices past key resistance levels."

Looking ahead to Gold in 2009, prices "should continue to rally into the New Year," says today's note from Mitsui here in London, "with the initial target the psychological level of $900 and above that the technical resistance at $930 an ounce."

The precious metals team peg minor support at $870, with a firmer floor now sitting at $850.

Adrian Ash
BullionVault

Gold price chart, no delay | Gold investment – simple, safe & efficient

Gold Poised to Move Higher

2008-12-28T02:55:00.000-08:00

Gold belongs in every investor’s portfolio. It is totally unique among financial assets, a physical metal commanding timeless and universal intrinsic value. It is a rock of stability in a chaotic world, a stark contrast to the complex web of mere promises to pay that is our modern faith-based financial system. Without gold, true diversification and protection from systemic risk is impossible.

Gold’s fundamentals are dazzlingly bullish. Like everything else on the planet that is freely bought and sold, gold’s price today and in the future is a direct function of its supply and demand. As long as its global demand exceeds its global supply on balance, gold’s price will continue powering higher in its secular bull. While it has already come far from its humble beginnings in the $250s in April 2001, it has a long way to run yet.

When I first started recommending physical gold coins to our subscribers in May 2001 in the $260s, gold was widely derided as an anachronistic relic. Not surprisingly after nearly quadrupling in the years since, it has earned vastly more respect today. Still, most mainstream investors have yet to understand gold’s bullish fundamentals so unfortunately they are missing out on the vast opportunities to come.

It is for these gold neophytes I am penning this essay. I will explore gold’s key fundamental drivers, both from the supply and demand sides. After you digest this high-level overview of gold’s fundamentals, you’ll have a much better idea of whether you should add some gold to your own investment portfolio. In order to streamline the enormous body of research underlying this effort, I’ve divided this essay into sections.

Supply - Mined Supply. Ultimately all gold is painstakingly chiseled from the bowels of the earth. But even with the best modern mining technology, this rare metal is still exceedingly hard to produce. Today’s gold miners face nearly insurmountable challenges on a myriad of fronts. It is really a wonder that any gold is produced at all when you consider just how difficult it is to bring new supplies to market.

First explorers have to find gold deposits. This isn’t easy. Not only is gold very scarce in the natural world, but prospectors have been scouring the planet for millennia looking for it. Most of the low-hanging-fruit gold deposits have probably already been found. It costs millions to explore, with very high odds of failure. And if a promising ore target is found, tens of millions more must be spent to drill and sample it to determine if it is economically viable. This risky exploration and proofing process takes years.

And once a deposit looks economically viable, the real fun begins. Miners must spend years more developing a mining plan and having it approved by various government authorities. At any stage in this long arduous journey, the government can torpedo the whole project resulting in a total loss. Unlike most businesses, mines cannot be moved when problems arise. So gold miners are totally at the mercy of corrupt bureaucrats. Extortion is common and even outright nationalization is a very real threat in many parts of the world. Radical fringe environmentalists constantly try to derail mining projects too.

After the government permits are obtained, construction must begin. This costs hundreds of millions, sometimes well over a billion, in today’s environment. Since gold mining is so risky the banks are often unwilling to loan money to miners, and if they do they demand onerous terms. So the companies have to issue shares in the equity markets to finance these projects. While financing was already difficult to obtain before the credit crisis and stock panic, many miners today are finding it impossible to come by now. Without financing, mines cannot be built.

Even if a miner somehow overcomes the long odds and brings its mine into production, often a decade after the deposit was first found, more challenges await. Even with extensive drilling before mining, the geology of the ore can vary dramatically from plan. This results in lower production, higher costs, and lower profits. Since gold is often only found in hostile climates today, bad weather can interfere with production in a variety of ways. Friendly governments can be usurped by unfriendly ones, raising the risks of crushing taxes or even confiscation.

For these reasons and many more, global gold production is actually falling despite the relatively high gold prices. Annual gold mined today, which is 70% of the world’s supply, is running over 4% lower than when this bull began in 2001! Global reserves are also shrinking, despite vast sums being spent on exploration. My business partner Scott Wright recently wrote an excellent essay, with charts, on worldwide gold production and reserves if you want to dig deeper. Despite this powerful gold bull, miners are falling further behind.

With mined gold supply heavily constrained despite the best efforts of the world’s elite miners and the strong gold-price incentives to produce, any demand growth cannot be satiated with mined gold. And even if gold mining somehow becomes easier (geopolitics are less hostile, for example), it will still take the better part of a decade before new supplies can be brought online. This is incredibly bullish for gold!

Supply - Central Bank Sales. Over centuries, central banks have accumulated vast hoards of gold bullion. Some of this was purchased righteously, but much was obtained via plunder and confiscation. Central banks as a group are the largest participants in the gold market. Thus they have become something of a bogeyman in the gold world. Many investors live in constant fear of future central-bank gold sales.

Seven years ago when gold was under $300, central banks made me anxious too. But they don’t any longer. Despite the mystical aura of dread surrounding them, they are merely gold investors like me. While their collective scale is very large, these behemoths are run by mere mortals who cannot see the future either. Whether buying or selling gold, central banks operate within the same market constraints as the rest of us.

In the entire history of the world, analysts estimate that about 162,500 metric tons of gold have been mined. Incidentally gold is so dense that a metric ton of it will fit in a solid cube less than 15 inches square. Thus all the gold ever mined anywhere would fit in a cube less than 67 feet per side! Of this global above-ground gold supply, as of Q3 2008 the world’s central banks held 29,784t. Thus the CBs control just 18% of the world’s total above-ground gold. Investors control a far-greater 82%.

Since this gold bull began in 2001, mined production has averaged about 2,500t per year. So if the world’s central banks decided to sell all their gold today, it would be like 12 years of production hitting the markets all at once. The gold price would utterly crash in such a scenario, it would be apocalyptic. Thankfully it will never happen for a wide array of reasons. First, 107 sovereign countries own this gold and they are never all going to agree on anything, let alone a coordinated gold dump.

Of this 29,784t of official gold holdings, 8,134t (27%) belongs to the United States. Many gold conspiracy theorists believe a big fraction of this gold has already been stealthily sold into the marketplace. This is very bullish if true since it reduces the threat of future sales. Even if the US still holds this gold though, the US dollar would probably collapse if an announcement was made that the US was dumping its gold reserves. It is extremely unlikely. 10,911t (37%) of this CB gold is held in the Eurozone, and this gold is a very high percentage of these countries’ total foreign-exchange reserves (58% in aggregate).

So European CBs have been selling gold aggressively to diversify since at least 1999. That year they met and formed what was later called the Central Bank Gold Agreement. They agreed to limit their collective gold sales to 400t annually over 5 years. In March 2004 in CBGA 2, this agreement was extended and expanded to a 500t-per-year maximum for another 5 years. While these targets haven’t always been hit in a given CBGA year (ending September), they are a good proxy for European CB sales as a whole.

Since 2000, European CBs alone have sold between 400t to 500t of gold annually. These are indeed big numbers, adding 16% to 20% to the global mined supply. Without these sales, gold’s price would have gone much higher. But even with them, gold has still nearly quadrupled since early 2001! This means even heavy sustained CB selling is not big enough to offset the growing investment demand for gold. So far in this secular gold bull, despite the CBs’ giant selling campaigns, gold has still powered higher.

Central banks are not an apocalyptic threat for gold. Every year European CBs sell gold, which makes their “market share” of total above-ground gold dwindle. And every year more gold is mined, further reducing CBs’ relative footprint in the gold world. Thus with each passing year, with every tonne of CB gold sold, central-bank impact and relevance in the gold market gradually fades. They are nowhere near as big of a threat today as they were in 2001 and with each passing year their positions continue to weaken.

And not all central banks are sellers. 10,739t (36%) of CB gold is held outside of the US and Europe. These Asian central banks will probably increasingly buy physical gold bullion. While Western CBs’ gold holdings generally represent 50% to 75% of each country’s total forex reserves, in Asia gold is just a few percent. Japan’s 765t of gold are just 2.1% of its forex reserves. China’s 600t are merely 0.9%. Russia’s 473t are only 2.1%. And India’s 358t account for a paltry 3.1%. These growing Asian giants need to diversify into gold, not out of it like the Western CBs. They will add to overall global investment demand.

The International Monetary Fund holds 3,217t (11% of official gold). Potential IMF gold sales are a perennial threat trotted out every few years to scare gold investors. Even back in 2001 IMF sales were discussed often, yet big IMF selling has still not come to pass in the 7 years since. Even if the IMF can get permission from its 185 member countries to sell gold, which is very unlikely for political reasons, the IMF gold cannot stop this secular gold bull. Bring it on, the Asian CBs would love to own the IMF gold.

At any rate, the key thing to remember about central-bank gold sales is they have been large and constant since gold was in the $250s. Yet even with this supply headwind, gold still nearly quadrupled to just over $1000 by early 2008! Even the worst that central banks could throw at gold wasn’t enough to seriously retard its secular bull. And with each tonne they sell, their relative share of above-ground gold (along with their relevance) dwindles. CB gold is finite. It is central banks that are the anachronism, not gold.

Demand - Investment Demand. With mined supply shrinking and central bank hoards dwindling, gold supplies are very constrained. And no matter how high the gold price goes, mining is not going to get much easier and in fact will probably continue to get more difficult. And central banks are not going to be able to conjure up more gold out of thin air like they do with their fiat paper currencies. With flat-to-shrinking supplies, demand is the wildcard that will drive gold prices in the coming decade.

Unlike all other commodities which are primarily used for industrial purposes, almost all gold demand is investment-driven. Gold’s intrinsic value has persisted for millennia, outliving every government, currency, and nation the world has ever seen. Gold is not a faith-based promise to pay like every other financial asset. Its innate value makes it easily negotiable, for anything anywhere, no matter what happens. Physical gold bullion should be the foundation of every investor’s portfolio.

All the demand categories below are subcategories of investment demand. For a broad array of reasons today, all kinds of investors all over the world are increasingly interested in gold investing. And in the financial world, the higher the price of anything goes the more people become interested in it. Performance and returns attract in capital, which creates a virtuous circle driving even higher prices. So a secular gold bull gradually becomes a self-fulfilling prophecy until supply once again eclipses demand.

Demand - Monetary Inflation. Inflation is always and exclusively purely monetary in nature. When central banks create fiat money out of thin air, it eventually filters into the real economy to compete for finite goods and services. Relatively more money bidding on relatively less goods and services means higher general prices. Inflation is devastating for investors, an immoral stealth tax levied by corrupt governments. Gold is the only financial asset that thrives in inflationary times.

And boy are we seeing inflation today! The socialistic financial-market bailouts, which now exceed $8 trillion in the US alone according to Bloomberg, are the biggest single inflationary event the world has ever witnessed. During the Great Stock Panic of 2008, within a matter of months Washington and the Fed inflated, spent, or guaranteed the equivalent of 55% of the entire GDP (all goods and services produced annually) in the whole United States of America!

This near-hyper inflation alone is exceedingly bullish for gold. But unfortunately central banks relentlessly inflating their money supplies is not an isolated event reserved for crises. They are always doing it! Since January 1980, the US Federal Reserve has grown MZM money by an astounding 10.4x! There are an order of magnitude more dollars floating around the world today than 3 decades ago. This equates to an 8.7% compound annual growth rate over 28 years.

This wouldn’t be a big deal if the underlying economy grew by 8.7% a year as well. If the pool of goods and services on which to spend money grows as fast as the money supply, there is no inflation. But obviously this is not the case. Since January 1980 US nominal GDP has only grown by 5.3x, only about half as much as the money supply. And the Fed is not alone here, all over the world broad money supplies in first-world nations generally average growth rates of around 7% annually.

At 7% annual growth rates globally, there is 6.6x more paper money in circulation today than there was in early 1980 at the top of the last secular gold bull. Yet over centuries, new mining has only added 1% to 2% to the aboveground gold supply annually. At 1.5% gold growth through mining each year, today’s gold supply is only 1.5x as big as 3 decades ago compared to 6.6x for money. Divide this out and there are 4.4x as many fiat-currency units (dollars, euros, everything) potentially chasing each ounce of gold today than at the end of the last gold bull!

If you multiply the famous $850 nominal high of January 1980 by this 4.4x outpacing of gold growth by monetary inflation, it yields a conservative end-of-bull target approaching $4000 per ounce. If you adjust by the lowballed Consumer Price Index instead, the real gold high in January 1980 in today’s dollars ran up around $2400. Either way, today’s gold bull has a long way to run before it reflects today’s inflation, let alone future inflation. Central banks’ only real ability is to inflate, inflate, inflate into infinity.

So monetary inflation is not going away. If anything it will only accelerate. In a fragile debt-based highly-leveraged global financial system, inflate or die is a literal truth. If central banks don’t keep inflating at ever-expanding rates, the whole worldwide system will implode. This perpetual accelerating fiat-paper inflation is unbelievably bullish for gold. As investors worldwide become more aware of the incredible monetary inflation around them, their appetite for gold investment will only grow.

Demand - Negative Real Interest Rates. When central banks are running their printing presses overtime and inflating like mad, nominal interest rates (yields on bonds) can slide below the rate of inflation. When this happens real inflation-adjusted interest rates go negative. In other words, merely by owning the best elite bonds like US Treasuries bond investors actually lose real purchasing power year after year! Naturally bond investors aren’t in the game to lose money, so negative real rates infuriate them.

Unfortunately just like the old Soviet Politburo, today’s central banks actively manipulate short-term interest rates. As we’ve seen in recent months, central banks can drive nominal interest rates down to zero if they desire. This abominable power is unbelievably destructive to free markets. It destroys the necessary natural balance between savers (investors) and debtors. And when capital transactions are no longer mutually beneficial to both parties, investors gradually start to walk away.

Thus negative real rates slowly strangle the life out of the bond markets. Bond investors, tired of being punished by the central banks for their act of saving and forced to subsidize debtors, gradually withdraw their capital. It is foolish to invest in a realm where you are guaranteed to lose real purchasing power for investing your scarce capital. Some fraction of this bond flight capital seeks refuge in gold. While gold doesn’t pay a yield, over millennia it has never failed to at very least keep pace with monetary inflation and preserve purchasing power.

And in today’s crazy environment of near-zero nominal yields on even US Treasury debt, mainstream bond investors’ traditional argument against gold is rendered moot. In normal times of positive real rates, the way the markets would always work without central-bank interference, bond investors object to gold because it pays no yield. Well, today bonds pay virtually no nominal yields either! And after inflation their real yields are terribly negative. This makes gold very attractive to mainstream debt investors.

Thus negative real rates, inflation exceeding nominal bond yields, is the most bullish possible monetary environment for gold. A couple weeks ago I wrote an essay on real rates and gold that includes long-term charts if you want to dig deeper into this crucial truth. Until the goofy Fed raises interest rates radically, say to 6%+, real rates will remain too low or negative and very bullish for gold. And as you know, there isn’t a snowball’s chance in hell that the cowardly Fed will push rates to 6%+ for many years to come, if ever.

Demand - Secular Dollar Bear. The central banks’ artificially-low interest-rate policies to subsidize debtors and punish savers wreak terrible collateral damage on currencies. The global currency markets are often driven by yield. If one first-world country’s bonds are yielding 2% while another’s are yielding 4%, currency investors and speculators will naturally gravitate to the higher yields. So today’s ludicrously-low US interest rates are ravaging the already-weak US dollar.

Once the world’s reserve currency, the mighty US dollar has been in a secular bear since mid-2001. As measured by the flagship US Dollar Index (a basket of major currencies), the dollar carved a series of new all-time lows in spring 2008. The long-term dollar charts show just how weak this currency has been, down 41.0% at worst in its secular bear to date. And this was all well before Ben Bernanke panicked and forced US interest rates to all-time lows near zero!

Today’s deeply negative real-rate environment will only strengthen and prolong the secular dollar bear. As the long-term USDX charts clearly reveal, the US dollar is always weak in a secular sense when real rates are too low or negative. A weaker dollar drives all kinds of investment interest in gold, from two major constituencies. Since gold is ultimately another currency, the only hard one on the planet, futures traders buy gold aggressively when the dollar sells off. A continuing dollar bear will drive major futures buying in gold.

Even more importantly, large foreign investors including central banks have far-too-much dollar exposure relative to their overall portfolios. This great overallocation was fine when the US dollar was in a secular bull in the 1990s. But these investors have already lost a fortune in the 2000s dollar bear and they will lose a lot more if this bear continues and they don’t diversify out of their overweight dollar holdings. While they will buy a lot of euros with their dollar sales, some major fraction will flow into gold.

The biggest buyers of gold to protect themselves from the ongoing dollar bear will be the Asian central banks. As mentioned above, they now have trivial fractions of their total forex reserves deployed in gold. Yet they have trillions of dollars worth of exposure in US dollars and US Treasuries, from 50% to 80% of their total reserves in falling US dollars! Asian CB diversification out of dollars into gold is mind-blowingly bullish for this metal.

At $800 per ounce, the 2500t of new gold mined each year is only worth $64b. If Asian central banks gradually move $1t (not even half of their US dollar reserves today) into gold in the coming decade, it would represent buying equivalent to almost 16 years of total world gold production! So the secular dollar bear, exacerbated by the Fed’s asinine 1970s-style negative-real-rate policy, is highly likely to spawn big CB gold buying out of Asia for diversification reasons. The ongoing dollar bear is very bullish for gold investment demand growth.

Demand - Secular Stock Bear. Bond investors, futures traders, and Asian central banks are not the only giant pools of capital that have huge incentives to invest heavily in gold today. So do stock investors. As I started warning about back in 2001, after the giant secular bull that peaked in early 2000 the US stock markets were due for a 17-year secular bear. This means 17 years of grinding sideways on balance, never heading too far above the 2000 highs over this entire multi-decade span.

These secular bears that occur after secular bulls are part of a great valuation-driven cycle in the stock markets that I call the Long Valuation Waves. The LVWs are the single most important force for long-term stock investors to understand, so please read my essay on them if you are not familiar. Since 2001 this analysis has proved dead right, even though most investors and analysts scoffed at it. I even used LVWs to warn about the S&P 500 getting cut in half back in January 2008 well before the recent stock panic.

Because we are indisputably in the secular-bear stage of our current LVW, the stock markets are likely to grind sideways for another 8 years or so. The last time a 17-year secular-bear hit the US stock markets, between 1966 and 1982, stock investors were flat on paper but they absorbed tremendous real losses after inflation. Realize that big 100% cyclical stock bulls are still possible and probable within these secular bears, but when all is said and done stocks will have merely ground sideways for nearly two decades.

As stock investors come to grips with this ugly reality, they will get more and more discouraged about general stocks. Kind of like negative real rates’ impact on bond-investor psychology, stock investors are going to increasingly realize how silly it is to stay heavily deployed in flat-trending stocks and suffer heavy real losses. Some fraction of these beleaguered stock investors will turn to gold for deliverance.

Between March 2000 and November 2008, the flagship S&P 500 US stock index lost a sickening 50.7%. Yet over this same span to the very day, gold soared 161.0% higher! Wouldn’t you have much rather been in gold since then, like we contrarians have? And if you instead optimize this span for the secular gold bull rather than the secular stock bear, it looks even better. From April 2001 to March 2008, gold soared 291.7% higher. Over this identical 7-year span the SPX was merely up 11.4%.

As mainstream stock investors start to better understand gold’s fundamentals, more and more of their massive pool of capital is going to flood into gold. Indeed this is already happening through the new gold ETFs. These exchange-traded funds act as a conduit between stock-market capital and the physical gold market. In fact, the GLD gold ETF in the US (the world’s largest by far) has grown its holdings from nothing to 775t held in trust on behalf of US stock investors in just 4 years! This single ETF now holds more gold than all but 6 of the world’s biggest central banks!

Demand - Secular Commodities Bull. During the secular stock bull from 1982 to 2000, capital was increasingly seduced into the stock markets to chase the phenomenal returns. This led other sectors to be starved for investment, particularly commodities. Thus global commodities-producing infrastructure was largely left rusting for the better part of two decades even while worldwide economic activity ramped up dramatically. This chronic underinvestment in supply and delivery infrastructure led to this decade’s great commodities bull.

Despite the brutally fast and large correction in commodities since July that was greatly exacerbated by the stock panic, these secular commodities bulls aren’t over. They tend to run 17 years on balance in history, with inverse phases to the stock LVWs. When stock markets are in secular bulls, commodities are in secular bears. And when stocks are in secular bears like today, commodities are in secular bulls.

Secular bull markets can’t end until global supply growth exceeds global demand growth. This has yet to happen in nearly all major commodities. No matter how high prices go, as gold mined production illustrates, commodities producers just can’t adjust fast enough to meet demand trends. It takes years to over a decade to find new supplies of raw materials and bring them to market. This inherent inelasticity of commodities supplies is what makes commodities bull markets so exciting and exceedingly profitable.

On top of today’s demand, half the world (primarily Asia and Africa) is now industrializing. Billions of people are working incredibly hard to increase the standards of living for their families. And as standards of living rise, absolute commodities consumption will skyrocket. Sure, the average Chinese or Indian is never likely to consume as much per-capita as we Americans are blessed to do today. But since they are starting from such low levels, and since there are billions of Asians, even if they ultimately get to 1/5th the per-capita levels of US consumption of major commodities then aggregate global demand will explode.

As this commodities bull powers higher worldwide, gold will get increasing attention from investors. While gold is not the king of commodities like oil, gold is the easiest and most logical way to invest in commodities. It is easily bought and sold, extremely valuable for its volume and weight, completely portable, and very easy to store. So as the global commodities bull reemerges from this severe correction and powers higher, untold hundreds of millions of investors worldwide will start adding gold to their portfolios.

Demand - Rise of the Asian Consumer. We’ve already discussed Asian central banks needing to diversify their dollar-dominated forex reserves into gold. But another huge source of future investment demand is going to be from average Asian consumers. Unlike Americans and increasingly Europeans, Asians have a deep cultural affinity for gold. They have always respected it and want to own it even when it is not performing well. They understand from painful historical experience how physical gold protects them from corrupt governments, paper currencies, and unforeseen financial disruptions.

As the industrialization of Asia (and Africa) makes consumers more affluent, they will demand much more gold investment. Asians tend to be big savers (investors) even in lean times, and as their incomes grow they will have larger surpluses available to invest after living expenses. There is no doubt a big fraction of these surpluses will buy gold. While each Asian won’t be able to afford much by Western investors’ standards, with billions of them the aggregate increase in gold demand will still be stunning.

And Asian stock markets weren’t immune to the recent stock panic. In fact, they fell more violently than the US markets in many cases. Gold denominated in other currencies did far better in the global stock panic than it did denominated in US dollars, approaching all-time highs in some cases. So the new Asian investing class, terribly shaken by the stock-market carnage, is now more likely than ever to diversify some of its capital into gold.

Over the coming decade, the rise of the Asian consumer/investor could be more bullish for gold investment demand than all the other demand factors combined. Asian investment demand barely existed during the 1970s gold bull, yet that bull was still huge. Imagine how big today’s will ultimately prove with Asia finally on board.

Suppy and Demand - Technical Proof. There are many other secondary factors likely to increase global gold investment demand. The Information Age is an example. During the 1970s gold bull, Wall Street hated gold just like it does today. So back then many investors couldn’t learn about gold because the mainstream media monopolized information flow. Lack of widely-available good analysis on gold retarded that famous gold bull, which was still very large (+2,332%!).

But thanks to the Internet, the mainstream media’s stranglehold on information has been shattered. Today anyone anywhere can easily learn about gold fundamentals. This is very bullish for gold. Thanks to the Internet, today any investor can order physical gold coins in a matter of minutes that will be delivered to his doorstep a few days later. Thanks to computers, today stock investors who wouldn’t bother with gold coins in a million years can buy a gold ETF in seconds to add gold exposure to their portfolios. We live in a wondrous era!

Ultimately though, the proof of this gold bull is in its secular chart. The path gold has carved here is the aggregate result of every ounce of gold bought or sold on this planet since 2001. Every central bank sale is reflected here. Every gold investment made by individuals and institutions is reflected here. Every sale of gold, whether to fund a kid’s college education, buy a house, or whatever, is reflected here. This chart is the distillation of all global supply and demand for gold. And its message is crystal clear.

Since early 2001, gold has nearly quadrupled at best. It has relentlessly carved higher highs and higher lows on a secular basis. Its dollar price has increased every single year (the green numbers on the bottom show the amounts). The only way such results are possible is if global demand growth has indeed exceeded supply growth since 2001. I challenge you to find another investment that can even approach such performance in the incredibly chaotic markets we’ve witnessed over the last 7 years. Gold is already in an elite class of its own.

At Zeal we’ve been long physical gold since it traded in the $260s in May 2001. Our subscribers have already made fortunes in the 7 years since heeding our analysis and recommendations. So we are certainly not new to this gold party, we were buying gold and gold stocks back in the early 2000s when it was considered lunacy to do so. We are true contrarians who have been battle-tested, and prevailed, in this challenging financial decade.

We are going to work hard to continue excelling in the next decade, capitalizing on the ongoing gold and general-commodities secular bulls. We publish acclaimed weekly and monthly newsletters that detail our market analysis on an ongoing basis and the real-world trades we are making based on it.

We also just finished a deep new 36-page fundamental report on our 12 favorite gold stocks, the result of hundreds of hours of research looking at all the world’s publicly-traded primary gold producers. As gold powers higher, gold stocks should continue to leverage its gains.

The bottom line is gold’s fundamentals are more bullish today than ever. Despite relatively high prices, mined supply is shrinking. Central banks’ relative power in this market is waning dramatically. And thanks to both natural market forces and artificial manipulation contrivances, global investment demand for gold is likely to grow tremendously from today’s levels. This secular gold bull is far from over friends!

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Investors boost gold exports

2008-12-27T08:13:00.000-08:00

TOKYO: Japan's gold exports have doubled this year, largely due to individual investors seeking to lock in profits after gold prices soared earlier in the year.

In the 11 months to this month, Japan's exports of unwrought solid gold, gold bars and sheet totalled 393.9 tonnes, Ministry of Finance data showed yesterday.

Spot gold prices hit a record high of $1,030.80 an ounce in March, prompting investors to sell.

Japan exported 174.9 tonnes last year, which were up eight per cent from a year earlier.

Imports totalled 28 tonnes last year, compared with 32.6 tonnes in 2006.

The data also showed Japan exported 47 tonnes of gold last month, rising more than five-fold from October, while imports more than halved to 4.1 tonnes from the previous month.

In October, Japan turned a net importer of gold for the first time this year. A Tokyo-based trader said the rise in exports last month may have been related to spot gold prices rebounding above $800 an ounce after falling to near $680 in late October.

"There were still many people who hadn't sold," the trader said, adding that such selling pressure may offset emerging retail investor appetite for gold for the time being.

Demand for gold by Japanese individual investors has risen markedly in the past few months, with a wider array of people attracted to the metal, seeking safer investments amid global financial market turmoil, industry sources said.

Tanaka Kikinzoku Kogyo, Japan's biggest bullion retailer, said a record number of new customers signed up for its online gold savings plan last month, which allows customers to purchase a minimum of 1,000 yen worth of gold each month.

Tanaka does not report actual volumes or value, but it said its sales of gold exceeded its purchases for the fourth month in a row last month.

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To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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Bernanke's Great Lie: The Gold Standard and the Great Depression

2008-12-26T08:11:00.000-08:00

(See Part I, The 'Great Slump' of 2008.)

The purpose of the following is to argue that the "gold standard," as understood by most of the public, did not cause or worsen the Great Depression as current Fed Chairman Ben Bernanke has based many of his papers, speeches, and, to a large extent, his entire career on. In our contemporary times, I do believe this blame must be firmly rejected and monetary policy should, at the very least, be debated in a national forum. Indeed many other economists, such as the Friedman family, Anna Schwartz, Alan Greenspan, and Jeffrey "Shock Doctor" Sachs, have all propagated this lie.

My premise is simple. I charge that these renowned Keynesian and Friedmanite-Monetarist-Chicago-Shock-School economists have consistently used the term "gold standard" to mislead their audiences and readers. For the sake of brevity, I will focus on Mr. Bernanke as he is the current standard-bearer of the Fed's fiat monetary system. Frequently, these economists do concede there are differences, but instead of clarifying they muddy the waters. For instance, in his 1990 NBER paper Bernanke frequently refers to an "interwar gold standard" and in his 2002 salute to Milton Friedman he acknowledged that "the gold standard was not adhered to uniformly as the Depression proceeded."

While there may be a paper from the Austrian School of economics that firmly rebukes the claim in my direct fashion, based on the mislabeling of the term, I have not come across it (yet). However, both Murray Rothbard and Walter Block have understood this truth as well, and dropped the clues.

Furthermore, there should be very little surprise that the statist forces have used this trick. Yesterday's communist "nationalization" is today's "conservatorship." "Hoarders" are really savers. "Insurgents" are really guerrilla fighters; only a minority are "terrorists" as our political leaders consistently tell us. An unbiased observer would call a "war" whether on terror, poverty, drugs, WWII, etc. - as state-sanctioned murder, destruction, and theft of property. Even the political terms "liberal" and "conservative" are terms meant to confuse and divide, as I discovered in one of my first articles "An Hypocrisy of Terms: Liberal and Conservative".

Without more ado, let's dive into "gold standard" terminology, although if you do not understand the differences between commodity, receipt, fractional, and fiat money to please read this first "The Money Matrix - What is Honest Money? (PART 4/15)".

The pure 100% reserve gold and silver standard is commodity money issued in the form of hard gold and silver coins, or receipt (whether paper or electronic) money issued in lieu of metal held in a money warehouse. The amount of coinage in circulation plus the receipt money always equals the total mass of metal in the monetary system. Rothbard refers to this as a "parallel standard," but be careful to not confuse this with bimetallism1. I have found that this is what people commonly mistake as the "gold standard." I will refer to the above as the Austrian standard for simplicity.2

The "international" or "classical" gold standard is actually a form of fractional money. In simple terms, one can redeem paper or electronic currency for a fixed amount of gold coinage; America was officially under this standard from the Gold Standard Act of 19003 until FDR outlawed and confiscated the gold of the people in 1933. The critical concept to understand here is that the monetary supply can be inflated or pyramided upon the total base amount of metal, which of course is conveniently possessed by the government. So, under the "classical" gold standard, if everyone decided to exchange their paper receipts at the same time, the country would be bankrupted; not enough gold would exist for everyone to redeem their receipts. When the United States executed the Gold Standard Act of 1900, the first step was for the government to procure a massive reserve amount of gold, so that everyone can be fooled or lulled into thinking that their gold can always be redeemed in full.4

The "gold bullion" standard is one of the systems Bernanke lumps together as the "interwar gold standard." Under this monetary system, gold coins are never minted. Redemption in gold is only permitted in the case of large international transactions; the country's populace is prohibited from ever possessing the actual money [Rothbard, America's Great Depression, p(190-1/409)]. The country can proceed to inflate for as long as it can fool the populace that the disparity between gold and its banknotes is acceptable. In many ways, America existed under this unstable yoke from the FDR Gold Theft of 1933 until the Nixon closure of the international gold window in 1971.5 The American citizenry was not permitted to own gold coins and bars until 1975.

Under a "gold exchange" standard a country keeps no physical gold that can be redeemed. For reserves, only other "hard" receipt money from another nation that could ultimately be redeemed in gold is kept. The prime example of this is many European countries adopting the US dollar immediately following WWI. Again, the country can proceed to inflate for as long as it can fool the populace that the disparity between the pegged "hard" currency and its banknotes is acceptable.

A fiat monetary system consists of money that is declared "legal tender" by a government with no commodity backing. Fiat is Latin for "so be it" meaning money ordered into existence by a sovereign power. As Rothbard notes, if one examines both the "gold exchange" standard and the "gold bullion" standard closely, both are de facto fiat currencies as the people are in effect banned from possessing the backing commodity, gold.

Now what really happened in the early twentieth century? This must be understood before we examine Bernanke's interpretation. Up until 1914, America and most European nations were on the "classical" gold standard. China operated on a "classical" silver standard. Then America brought the central bank known as the Fed into existence in 1914 via the Federal Reserve Act of 1913. Next, to finance WWI, France, Holland, Germany, Britain, Belgium, and Italy broke off of the "classical" gold standard and issued paper money to finance their military spending deficits. Indeed, the four year long war would have only lasted months if the countries had remained on the gold standard, or had their paper debt been refused by countries like America [Lips, 2001]!

Amidst the ruined fields and cities, the inequities of Versailles led to Germany's infamous Weimar hyperinflation of 1923, which was only one of many national currencies ravaged by hyperinflation. Germany, Russia, Poland, Austria, and other countries suffered greatly due to the lack of sound money; Weimar was ended by the introduction of the Rentenmark, which was tied to gold [Evans, 2003]. However, on the side of the WWI victors (Britain, France, and Italy) was America with its gigantic horde of gold. American Fed chairman Benjamin Strong massively inflated the dollar to prop up the Bank of England's "gold bullion" standard, with no benefit to the American people whatsoever.

This Great Inflation took place between 1921-1929 and the American monetary supply was inflated by 62%, or 7.7% annualized, as can be seen in the below table. As the table shows, this gushing spigot of credit was abruptly slammed shut by the Fed at the end of 1928, and directly preceded the stock market's infamous crash of 1929, as well as collapses in farm prices and commerce. In 1930, massive job losses gave way to many economists' soothsayer prophesies of the future, including Lord Keynes' "The Great Slump of 1930." [Note that several intervals in the table are just 6 months. Rothbard, America's Great Depression, p128-209/409.]

In 1931 all hell finally broke loose. A cast starring JP Morgan, the Rothschilds, the Bank of England, the BIS, and the Federal Reserve Bank of New York attempted to avert the collapse of Kredit-Anstalt, Austria's mega-bank. The attempt failed when France called in its loans issued to Germany and Austria, which had formed a customs and trade union on March 21. The effects of the trade collapse in Europe quickly crossed the Atlantic, and the Fed and many American banks had bought up German debt, which had plummeted in value. Germany and Austria fought like wolves to cling to their "gold exchange" standard.

The final descent came on September 21 when the Bank of England abruptly left its "gold bullion" standard and depreciated madly, causing massive losses to French banks. Markets hemorrhaged and froze up, and bank runs and panics took place everywhere. [Rothbard, Depression, p295-322/409.]

To make a long story fairly brief, President Hoover began the ill-fated government-assisted economy called the 'New Deal,' which FDR fanatically continued. FDR ended the "classical" gold standard with his theft by force of America's remaining coin bullion. On March 5, 1933, he cajoled the American public to return its gold coinage to the banks. On April 5, 1933, he made the private ownership of gold illegal and demanded that all remaining gold be surrendered to the government.

The next step was obvious, as Milton Friedman and Anna Schwartz wrote in A Monetary History of the United States, 1867-1960, FDR devalued the dollar from $20.67 to $35.00 per troy ounce of gold to PARTIALLY account for all of the inflation that had occurred since 1914. Those who were forced into giving their gold to the banks in March and April now realized a whopping 70% loss of their purchasing power, which had been stolen by the Fed. Those who retained their gold were now conveniently branded outlaws, and unable to legally use their gold as currency. [Note: After the FDR confiscation order was passed, only ~20% of the outstanding gold coinage was returned, the rest disappeared.] The statists' rule by decree, or fiat rule, began to fully consolidate its grip upon the world.

America's poor and middle class would languish in the throes of this 'New Stupidity' until WWII. A few Misesian boom-bust cycles later bring us to the present-day, as President Obama readies his 'New Stupidity Again' stimulus plan. As the Great Depression was to a large extent exemplified by high involuntary unemployment, one has only to look at the below chart to realize that FDR and Hoover were economic failures. Only until the war boom of 1942 would unemployment drop to pre-Depression levels. [Of course, this "boom" assisted America, but destroyed much more of the industrialized world. I've found that Henry Hazlitt explains the fallacies of the New Deal best in his Economics in One Lesson, chapters 4 and 8.]

Now at long last we can refocus on Bernanke's lies. In fact, he is fully cognizant of the Fed's role in causing the Great Depression. On November 8, 2002, he stated:

Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.

However, in the same speech, a cascade of lies flows:

The next episode studied by Friedman and Schwartz, another tightening, occurred in September 1931, following the sterling crisis. In that month, a wave of speculative attacks on the pound forced Great Britain to leave the gold standard.

As previously claimed, Great Britain had never returned to the "classical" gold standard, and instead had been propped up by the FED! The "speculative attacks" were not speculative at all; they were committed by those who recognized that this Madoff-Ponzi scheme had failed!

[In the 1920's] countries that adhered to the international gold standard were essentially required to maintain a fixed exchange rate with other gold-standard countries. Moreover, because the United States was the dominant economy on the gold standard during this period (with some competition from France), countries adhering to the gold standard were forced to match the contractionary monetary policies and price deflation being experienced in the United States.

Again, a blatant misuse of "gold standard"! The countries Bernanke is referring to were on the "gold bullion" or "gold exchange" standards, which are de facto FIAT!

Friedman and Schwartz's insight was that, if monetary contraction was in fact the source of economic depression, then countries tightly constrained by the gold standard to follow the United States into deflation should have suffered relatively more severe economic downturns. Although not conducting a formal statistical analysis, Friedman and Schwartz gave a number of salient examples to show that the more tightly constrained a country was by the gold standard (and, by default, the more closely bound to follow U.S. monetary policies), the more severe were both its monetary contraction and its declines in prices and output.

Friedman and Schwartz had no "insight" here! In fact they were blinded! Countries on the "gold exchange" standard were constantly devaluing their currencies by repegging to the dollar or the British pound, although they were correct in that Fed dollar inflation secretly contributed to further debasement.

Bernanke in his 2004 speech "Money, Gold, and the Great Depression":

After 1918, when the war ended, nations around the world made extensive efforts to reconstitute the gold standard, believing that it would be a key element in the return to normal functioning of the international economic system. Great Britain was among the first of the major countries to return to the gold standard, in 1925, and by 1929 the great majority of the world's nations had done so. Unlike the gold standard before World War I, however, the gold standard as reconstituted in the 1920s proved to be both unstable and destabilizing.

He's lying through his teeth! Great Britain never returned to the "classical" gold standard after 1914! In 1929, NONE of the countries that had left the "classical" gold standard returned to it! NONE ever would! Sure, he admits that the post-WWI "gold standard" did not work well, but he does not state the true reason why! The British pound, the German mark, the Italian lira, et cetera were all just fiat in disguise!

Here's classic Bernanke:

The existence of the gold standard helps to explain why the world economic decline was both deep and broadly international.

Hogwash! First, WWI would have been greatly shortened and the economic decline would never have occurred if the world had not left the "classical" gold standard. Second, we have already seen how the FED, Hoover, FDR, and especially the British lack of fiscal discipline widened the depth and breadth of the Depression, not the "gold standard"!

If declines in the money supply induced by adherence to the gold standard were a principal reason for economic depression, then countries leaving gold earlier should have been able to avoid the worst of the Depression and begin an earlier process of recovery. The evidence strongly supports this implication. For example, Great Britain and Scandinavia, which left the gold standard in 1931, recovered much earlier than France and Belgium, which stubbornly remained on gold. As Friedman and Schwartz noted in their book, countries such as China - which used a silver standard rather than a gold standard - avoided the Depression almost entirely. The finding that the time at which a country left the gold standard is the key determinant of the severity of its depression and the timing of its recovery has been shown to hold for literally dozens of countries, including developing countries. This intriguing result not only provides additional evidence for the importance of monetary factors in the Depression, it also explains why the timing of recovery from the Depression differed across countries.

Sorry for sounding like a broken record, but let's continue. First, all the countries Bernanke mentions were not on the "classical" gold standard, just a weak fiat facade. For one of his key supporting pieces of evidence, Bernanke fails to complete a thorough eco-political study of China, including the theft of the populace's silver by their government, and the MINOR detail that China was under massive upheaval and wracked by civil war in the mid-1920s, so they just MIGHT have been fudging some of their economic numbers. Comparing the Chinese economy with the likes of Britain and France in 1925 is as silly as comparing the Somalian economy with Japan's in 2008.

In his 1990 NBER paper "The Gold Standard, Deflation, and Financial Crisis in the Great Depression," Bernanke does reveal he is aware of the Genoa Conference of 1922 that promoted the "gold exchange standard." It is also interesting that in 1990 Bernanke fairly consistently uses the term "interwar gold standard," while in his recent speeches and writings he just uses "gold standard." At no point does he clearly define the "interwar gold standard." In fact, he even lists the League of Nations claim that by 1925, 28 of 48 major currencies were once again "pegged to gold."

Maybe when this depression finally ends in the hyperinflationary death of a bunch more fiat currencies, I will write a paper to correct all the Keynesian and Friedmanite gaffes Bernanke and others continue to make. Hopefully, I can call it "How the Austrian Standard Cured Inflation and Stopped the Financial Crisis of the Greater Depression." I will be sure to correctly define the Austrian Standard first.

1 Bimetallism refers to a policy when countries fix a ratio of silver to gold, say equating 16 grams of silver to the same purchasing power as 1 gram of gold. America used this type of monetary system during much of its early history. The key problem with bimetallism is that differing international fixed ratios or even large supply-side changes will result in large outflows of metal, or attempted arbitrage, to make profits based on the ratio difference. Roughly speaking, a kind of modern fiat equivalent would be the yen carry trade, which is based on foreign exchange rates and interest rate differences.

2 The Austrian School of economics follow the Misesian regression theorem, which succinctly states that for anything to become money, it must first have intrinsic value of its own and have been chosen by the free market to serve as money. When this occurs, the gold or silver typically gains a monetary premium over other commodities [Block, 1999]. From a sound money purist's point of view, the most obvious example of this is the monetary premium that the petrodollar receives as the world's reserve currency. Gold and silver have unparalleled records as successful money across most of continents, culture, and time. One has only to research the Alexander's Greeks, the Mayans, medieval Europe, imperial China, the Egyptians, British Empire, the Romans, and ancient Mesopotamia.

3 The Gold Standard Act of 1900 equated $1 USD ≈ 0.048 troy ounce gold. At today's price of ~$850 per ounce, the dollar in December 2008 is worth a scant 2.4% of its' 1900 value.

4 The pro-FED forces were actually anxious to pass this law; it was a key step towards the Federal Reserve Act of 1913. By making gold the sole metal backing the currency, the pesky, harder-to-control threat of silver was formally vanquished [Rothbard, The Case Against the Fed].

5 Federal outlays to pay for President Lyndon B. Johnson's "Great Society" and the Vietnam War caused a massive debasement (or inflation) of the dollar, which resulted in other nations, most famously France, to redeem their dollar reserves for gold.

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Silver and Gold: More Than Just A Christmas Carol

2008-12-25T08:09:00.000-08:00

Silver and gold, silver and gold
Ev’ryone wishes for silver and gold
How do you measure its worth?

Just by the pleasure it gives here on earth

... or so goes the well-known Christmas carol you've probably heard several times already during this holiday season. But aside from the decorations in your home and office, how much gold do you actually own right now in your portfolio?

After all, gold is considerably more valuable than merely "the pleasure it gives here on earth", as you can see from the following 5 x 3 point and figure chart which shows the price since its 1982 low:

(click to enlarge)

This chart (courtesy of http://www.the-privateer.com) will remain the same until the spot future gold price closes between $US 864.90 and $US 835.10. That's because a point and figure (P&F) chart represents filtered price movements over time. P&F charts tend to eliminate insignificant price movements that often clutter bar or candlestick charts, highlight key support/resistance levels and focus upon major trend lines.

(If you're not familiar with P&F charts, they're composed of alternating rising columns of X's and falling columns of O's, with each X or O "box" representing a fixed price range ($5 in this case). A new column is begun each time the price moves a set amount in the opposite direction (3 x $5 in this case).)

From this chart we can see that there is good support at the $700 level and that a close over $980 would indicate that the next leg of the bull market is truly underway. For now, the gold price is butting heads with the downward trend line highlighted in red.

A Closer Look At The Gold Price Action

By way of comparison, here’s how the action looks with a more conventional candlestick chart:

Here we can see that the resistance at the 50 week moving average is proving to be quite difficult resistance indeed. Gold has failed to penetrate it on five separate occasions dating back to September.

But does this mean that gold’s luster has faded?

Not if you ask Peter Schiff and other astute observers who don't take a conventional, mainstream view of the economy and financial policy (and who have been proven to be right far, far more often than the idiots you'll see assuring you that "everything will be OK any day now" on the television programs).

According to Mr. Schiff:

Gold has actually held up very well compared to other asset classes. If you look at the price of gold relative to its peak, it's only off about 25%, whereas if you look at stock markets around the world, most are off 50% or more, certainly if you price them in US dollars.

What's more, he added:

If you look at gold in terms of other currencies, recently you've seen all-time record highs in the price of gold in South African rand, in Australian dollars, in Canadian dollars. So gold has actually had a very strong, stealth move when viewed from the prism of something other than the US dollar.

That's primarily because the US dollar has been exceptionally strong lately even though US economy has been the epicenter of this year's economic shockwave. “Strong” is relative though, as the dollar has dipped rather noticeably in recent weeks and is unlikely to show any significant gains in the near future:

After all, consumer spending -- a mainstay of the U.S. economy which accounts for more than two-thirds of the nation's gross domestic product -- isn't exactly skyrocketing at the moment.

Dark Days Are Ahead When Even Christmas Shopping Is Unfashionable

Consumers are not opening up their wallets, according to new government reports indicating that consumer spending and orders for durable goods fell even further in November. Individual spending fell an additional 0.6% last month after falling 1% in October. This marks the fifth consecutive monthly decrease.

And even though consumer prices themselves are falling (particularly in the energy sector due to falling oil prices), people are still reluctant to charge once more unto the shopping breach. Who can blame them, really.

After all, everyone's cutting back. Orders for durable manufactured goods declined a seasonally adjusted 1% to $1.9 billion in November too. Meanwhile inventories of manufactured durable goods increased $1.6 billion or 0.5% which marks the sixteenth increase in the last 17 months and now features the highest level since the Commerce Department began tracking that measure in 1992.

There's some good news, though. A 1% rise in real income helped generate a 2.8% savings rate compared with 2.4% in October.

Loosely translated: no one's buying and goods are slowly piling up on the shelves as consumers hoard their cash in the face of economic uncertainty.

Could the fact that initial filings for state jobless benefits rose to 586,000 for the week ended December 20 have anything to do with this? That's a 26-year high and up from a recent high of 575,000 claims reported earlier this month.

Also, the median U.S. home price plunged 13% in November from a year earlier. This is the largest drop on record and almost certainly the biggest decline since the 1930s according to the National Association of Realtors. What’s more, foreclosure-related sales accounted for 45 % of the month’s transactions.

Russian Down A Steep Slope: The Slavic Bear Hibernates

But take heart, things could be worse. If you were Russian, you'd be "enjoying" the benefits of your central bank officially devaluing your ruble currency for the third time in a week. The ruble is down 18% and now sits near an all-time low as the central bank spent spending 27% of reserves (more than $162 billion) "defending" the currency since August.

That's primarily because the Russian government based a significant part of its revenue on oil prices and the current price per barrel of $37.43 is a tad lower than the $70 needed to balance the 2009 budget. Whoops!

And as if that's not enough, BNP Paribas SA estimates investors withdrew $211 billion from Russia since August due to confidence concerns. A budget deficit for the first time in a decade is in the offing and the government will be forced to use its reserve fund to cover the financing gap. At least they have one, which is more than you can say for the U.S. government.

And while you might feel like cheering over the woes of America's former Cold War enemy, we could be looking at a future snapshot of the U.S. economy playing out today.

After all, no one is being spared the bite of the recession bear, not even the mighty Russian bear itself.

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Enlightening the Gold Bugs

2008-12-24T08:07:00.000-08:00

Every once in while, I try to enlighten the gold bugs. It's a process I relish with as much joy as trying to explain to my daughter there is no Santa Claus, after she learns from her classmates she has been duped. The markets by there nature are full of people with less than perfect or imperfect information. And the beauty of this conundrum, we all assume that it's the other party being duped.

This by no means is scientific or deeply analytical, but the most prevalent opinion about the direction of a market is often wrong. But momentum riding is a very profitable trade, as long as you find a greater fool. It has become the single most popular belief that the dollar will decline in value significantly in 2009. It's absolutely main stream like peak oil, the new technology paradigm, the great BRIC society, and a host of other super trends. The problem with dollar argument is the dollar is rising despite the assumed quantitative easing of the federal reserve. The dollar is gaining strength day by day, and gold bugs continue to trumpet the collapse of the fiat.

The gold bugs continue to forecast runaway inflation, but refuse to notice that EVERYTHING we purchase is falling in dollar terms. Where's the $4 a gallon gas? Where's $4 a pound copper? Or what about $2000+ an ounce platinum? What's the price of your home? Do you think the gold bugs can clean there rose colored glasses long enough to see the FACTS? Gold bugs are the clandestine clan of legend, betting the end of the world's financial systems, while ignoring the falling prices of other hard assets. Relative to other hard assets, gold is 30-50% overvalued.

Gold bugs always say look at history, so let's take a look. From 1833-1931 gold sold for 20 bucks an ounce. In 1932 gold fell to $17 an ounce, this was the middle of the Great Depression. Finally, FDR devalued the currency by fixing gold at $35 an ounce. If FDR had not FIXED the price of gold, who knows if the downtrend started in 1932 would have finished. For thirty plus years gold was fixed at roughly $35 an ounce until Bretton Woods. Since then, gold has exploded, at the pace of 30X your money. So price stability in gold has been the norm until the last 35 years. The gold market is indeed manipulate, but contrary to what the bugs assume the manipulation is causing a bubble in the price of gold. (See the Hunt Brothers.)

The dollar is beginning a multi-decade run in my opinion, and I promise I'm the only one that will say that publicly. But the truth is the price of the dollar and most commodities (ex gold) is telling the smart money has exited the building. Deflation is on a tear, and I mean an absolute tear. And gold bugs have so much faith in the Fed to create inflation, the same Fed that many believe are incapable of finding the opening of a paper bag. Bernanke (aka Helicopter Ben) has stated he is surprised by the fact deflation exists in a fiat system. Did he say surprised? Yes, and I think a lot of people are going to be surprised.

I'll ask a question, what was the inflation rate during the implementation of the New Deal? What was the inflation rate during WW II? Many pundits believe that the Obama administration will be unleashing hyperinflation, but at least wait until prices increase before you trumpet your hyperinflation paranoia. Cash is king...there's a reason why that phrase exists. Deflation is more the norm than inflation, it's just we ALL are experts on inflation, so we talk our book.

I'll ask a simple question, is it widely believed we have exited the bubble generation? Is it possible that gold is the last bubble to pop? You can believe central bankers won't allow deflation, but do so at your own peril. Or what if deflation is inevitable despite the actions of the Fed? Treasuries are screaming cash is king, and gold is screaming inflation, one of these two markets is wrong. If you look at commodities, gold is the outlier. Anyone want to buy UUP?

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GoldTraderAsia.com - Where to Buy and Sell Gold Bullion Bars, Gold Ingots, Gold Coins Collection and Gold Jewellery in Singapore.

To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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