Gold in Motion: What Does it Mean?

It's been some time since Venezuela shipped its gold home.  Much more recently (and surprisingly) Germany set in motion plans to do the same--and was told it would take seven years!  More incredibly, the state of Texas wants their gold on Texas soil.

Now it appears that countries and states are perhaps not the only ones who want their gold "closer to home"  Check out this from Bull Market Thinking.

"A stunning piece of information was brought to my attention yesterday. Amid all the mainstream talk of the end of the gold bull market (and the end of the gold mining industry), something has been discretely happening behind the scenes.

Over the last 90 days without any announcement, stocks of gold held at Comex warehouses plunged by the largest figure ever on record during a single quarter since eligible record keeping began in 2001 (roughly the beginning of the bull market). See chart below."

"Bottom line: While mainstream voices question whether or not gold is still in a bull market, smart money appears to be questioning something else. They appear to be asking themselves, “Do we want to continue storing our physical metal within the Comex system? How can we best whisk it away from fraud, theft, or bankruptcy (including our own)?”

I can't tell you what this means, but it does raise a question.  Is that gold you own, and store elsewhere, or that gold or silver ETF, ETN etc., really as safe as you want it to be?

To paraphrase the Dos Equis man, "Stay careful my friends."

Cyprus Bank Heist for Dummies

Easy enough at first glance to consider this gent a bit off.  On closer reflection, perhaps he's the only one I've seen exhibit a rational (and aware) response.

Just two thoughts on Cyprus.  First, a "one time" event is only one time until the next time.  Second thought is really a question.  While it's Cyprus now, can any of us really believe that Spain, Ireland, France, (insert more countries here) and the USA will not face the same fate, a little sooner or a little later?

It all goes back to rule #1.  Protect the banks, the bankers, and the elites at all costs.  And that leads to rule #2.  If you don't hold it, you don't own it.

Cyprus Confiscates Gold!

Mark Grant, writing for ZeroHedge, reports on a move that precious metals holders everywhere have long feared.

"Please note that until yesterday all depositors in Cypriot banks were insured up to the value of €100,000 with any one bank. Today that solemn governmental promise has been shown for what it is; a lie. Worse and actually far worse and quite scary in fact is that the European Union and the European Central Bank and the IMF has not just allowed violation of the deposit insurance but demanded it. One thing is certain here; if they can void deposit insurance in Cyprus then they can void it in any country in Europe. Further; if they can void deposit insurance then they can void bond covenants with the scratch of a pen on paper. Nothing now; Nothing is safe!"

What's that   You missed the part about gold confiscation?  So did I, and that's the point.  Cash in a bank is a remarkably easy target for politicians and bureaucrats eager for a fix.  To be clear, so are ETFs purporting to hold gold, and even mining shares.

When things get bad, really bad, the safest counter-party is no counter-party at all.  Parents, it's 10:00.  Do you know where your gold is?

True and False on Gold ETFs

Sometimes the thing we see written in the press are so stunning that they almost defy comprehension.  In this snippet, The Globe and Mail manages to score a perfect 10 in terms of truth, and second perfect 10 in terms of anti-truth in just two sentences.

"Exchange traded funds have transformed the gold market. Since the first fund was launched nearly a decade ago, the products have become so successful in offering a simple way for investors to buy physical gold that they have acquired the nickname “the people’s central bank.”"

First, the truth.  Gold ETFs have changed the gold market.  There is no denying that at a time when billions are invested in what is considered gold by way of these vehicles.  (I wonder, in fact, if ETFs are responsible for the sometimes lackluster performance of gold stocks.)

I'll admit it.  I own a bit of Sprott's PHYS and PSLV--nervously.

But the anti-truth that follows is astonishing in its audacity.  ". . . the products have become so successful in offering a simple way for investors to buy physical gold."  Really?  Physical gold?  Let me assure you, that while I hold some PHYS, Sprott claims it is 100% backed by gold, that ownership is utterly different than a Maple Leaf, Kruggerand, or Gold Eagle in my control.

Never forget that in the worst case situation, gold is favored because there is no counter-party risk.  Gold ETFs may perform in a similar fashion to gold for a day, a month, or a thousand years.  Still, the counter-party risk will remain.

Revisiting a Hard Lesson on Counter-party Risk

For those precious metals investors who learned nothing from MF Global, check out this post from Zerohedge.com:

"On Monday, the company, Amber Gold, Sp. z o.o., which sold a gold-indexed investment of its own design and offered higher interest rates than banks, said it was halting operations. It pledged eventually to repay about $24 million it said it owed to roughly 50,000 clients in Poland.
Amber Gold's 28-year-old founder, Marcin Plichta, who has publicly acknowledged past convictions for misappropriating funds, couldn't be reached to comment."

Sure, this was Poland, and the guy had a questionable past.  If we get right down to it, how different is that from the U.S. and Jon Corzine?

Bottom line?  One of the greatest strengths of gold is that there is zero counter-party risk--IF YOU HOLD IT YOURSELF!  Sure, "paper gold" is convenient, but is it worth it?

Reducing Counter-Party Risk in Your IRA

Terry Coxon recently did a great article on owning gold in your IRA for Casey Research.  I highly recommend that you read the article in its entirety.  He covers a variety of issues related to having gold in your IRA extremely well.

The one that I found most interesting, though, is a technique for eliminating counter-party risk while holding gold in your IRA.  Now it's not particularly difficult to hold gold in your IRA.  And for those who only require "gold like" performance, there are, of course, the gold ETF's.

Here's the thing.  Many of us hold gold as a form of crisis insurance.  I can't speak for you, but in a crisis, I don't want to count on anyone to hold my most precious assets.  And Terry Coxon just may have the answer.

"There is a third alternative, which I've dubbed the Open Opportunity IRA, that starts with a simple idea but opens many doors for you. It's an IRA that directly holds just one thing – a limited liability company that you manage. The IRA custodian is the legal owner of the LLC, but you deal with the custodian only during the setup process. During that process, assets are rolled over from your old IRA to the new custodian and then into the LLC. After that, you as Manager of the LLC have your hands on the steering wheel and can invest and reinvest in just about anything with any broker, dealer or other party, and you can do so without waiting for the custodian to approve anything and without paying the custodian for storage or for handling transactions."

I have to say that after the last few years I am more than intrigued at the thought of securing my retirement assets far from Wall Street.  It seems very clear to me that while Wall Street manages to treat Wall Street.  Well, it treats the rest of us poorly on a fairly regular basis.  Wouldn't it be nice to put at least a portion of your retirement savings out of reach of Wall Street?

"In the case of gold and silver, since the metal will be owned by the LLC and not by the IRA custodian, you will be limited to American Eagles and Buffaloes. But you are free to buy them from any source that is not related to you, and you can store them in whatever way you think is best – in a safe deposit box, under the floorboards at home, or in the back of your refrigerator. And they don't need to stay or even be purchased in the US."

I have to say this seems almost too good to be true.  So as always, please be sure to investigate this idea to your own satisfaction.